Exhibit 1
Sections 4(c) and (d) of the Employment Agreement between Xxxxx Xxxxxxx and the
North Face, Inc., dated May 13, 1998.
(c) Stock Purchase.
(i) Purchase. On the signing date of this Agreement, the
Company agrees to issue and sell to Executive, and Executive agrees to purchase
from the Company, that number of shares of the Company's Common Stock having a
fair market value (based on the closing market price on the signing date of this
Agreement), when combined with the forty-five thousand (45,000) shares of
Company Common Stock currently owned by Executive, of fifteen million dollars
($15,000,000) (the new shares being purchased referred to herein as the
"Shares") for a price equal to 100% of the fair market value of such Shares on
such date. At least $7,500,000 of such purchase price shall be paid to the
Company by wire transfer or by cashiers' check from Executive. At Executive's
option, the balance of the purchase price may be paid to the Company by
Executive in the form of a thirty-day full recourse promissory note, bearing
interest at a 5.43% annual rate and secured by the Shares purchased with such
note. The parties agree and acknowledge that the sale and issuance of such
Shares is an inducement essential to Executive's entering into this Agreement
with the Company.
(ii) Risk. Executive is aware that an investment in the
Company is highly speculative, that there can be no assurance as to what, if
any, return there may be on Executive's investment in the Shares, and that there
can be no assurance that Executive will not incur a loss of some or all of the
amount invested. Executive is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
be able to evaluate the risks and merits of the proposed investment and to reach
an informed and knowledgeable decision to acquire the Shares.
(iii) Experience. Executive has substantial experience in
evaluating and investing in private placement transactions of securities.
Executive is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect his or her own interests.
(iv) Investment. Executive is acquiring the Shares for
investment for his own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. Executive
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to the Shares.
(v) Registration Exemption. Executive understands and
acknowledges that the offering of the Shares will not be registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the sale is exempt pursuant to Section 4(2) of the
1
Securities Act, and that the Company's reliance on such exemption is predicated
on Executive's representations set forth herein.
(vi) Rule 144. Executive acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Executive is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" and the number of shares being sold during any three-month period
not exceeding specified limitations.
(vii) Access to Data. Executive has had an opportunity to
discuss the Company's business, management and financial affairs with its
management and the opportunity to review the Company's facilities and financial
data. Executive has also had an opportunity to ask questions of officers of the
Company, which questions were answered to his satisfaction. Executive
understands that such discussions, as well as any written information issued by
the Company were intended to describe certain aspects of the Company's business
and prospects but were not a thorough or exhaustive description.
(viii) Registration Rights.
(A) Restrictions on Transferability. The Shares shall
not be transferable except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. Executive will cause any proposed transferee of the Shares held
by the Executive to agree to take and hold such Shares subject to the provisions
and upon the conditions specified in this Agreement.
(B) Restrictive Legend. Each certificate representing
the Shares and any shares issued upon conversion of the Shares pursuant to any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section
4(c)(viii)(C) below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF
THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS
2
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
(C) Notice of Proposed Transfers. Executive agrees to
comply in all respects with the provisions of this Section 4(c)(viii)(C). Prior
to any proposed transfer of any of the Shares, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer
or such transfer is made in compliance with Rule 144, Executive shall give
written notice to the Company of his intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall, if the Company so requests, be accompanied
(except in transactions made in compliance with Rule 144) by either (i) an
unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Shares may be effected without registration under
the Securities Act, or (ii) a "No Action" letter from the Securities & Exchange
Commission (the "Commission") to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon Executive shall
be entitled to transfer the Shares in accordance with the terms of the notice
delivered by Executive to the Company; provided, however, that no opinion or No
Action letter need be obtained with respect to a transfer to (1) Executive's
estate, (2) the spouse, children, grandchildren or spouse of such children or
grandchildren of the Executive (the "Family Members") or (3) to any trust for
the benefit of the Executive or any Family Members, in each case if the
transferee agrees to be subject to the terms hereof. Each certificate evidencing
the Shares transferred as above provided shall bear the appropriate restrictive
legend set forth in Section 4(c)(viii)(B) above, except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for the
Company such legend is not required in order to establish compliance with any
provision of the Securities Act.
(D) Expenses of Registration. All Registration
Expenses (as defined below) incurred in connection with any registration
pursuant to Section 4(c)(viii)(E) shall be borne by the Company; provided,
however, that the Company shall not be required to bear the cost of fees and
disbursement of counsel to Executive. All Selling Expenses (as defined below)
relating to securities registered by Executive shall be borne by Executive on
the basis of the number of shares so registered.
(E) Registration on Form S-3. As soon as practicable
after the Employment Commencement Date but, in any event, no later than ninety
(90) days following the Employment Commencement Date, the Company will file a
registration statement on Form S-3 with the Commission covering the Shares and
any shares acquired by Executive upon exercise of stock options granted to
Executive pursuant to Section 4(d) hereof (the "Option Shares") (and any shares
issued upon conversion of the Shares or the Option Shares pursuant to any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event), and will use its commercially reasonable best efforts to cause such
registration statement to be declared effective as soon as is practicable
thereafter.
3
(F) Registration Procedures. The Company will keep
Executive advised in writing as to the filing of the registration statement and
as to the status thereof. At its expense the Company will:
(I) Keep such registration statement
effective until Executive has completed the distribution of all of the
securities covered by such registration statement; and
(II) Furnish such number of prospectuses and
other documents incident thereto as Executive from time to time may reasonably
request.
(III) prepare and file with the Commission
any necessary amendments and supplements to the registration statement. and the
prospectus used in connection therewith, as may be necessary to keep such
registration statement effective and to comply with the Securities Act and the
rules and regulations thereunder and the instructions to Form S-3 with respect
to the disposition of all securities covered by the registration statement;
(IV) use its best efforts to register or
qualify all securities covered by the registration statement under the
securities or blue sky laws of such jurisdictions where an exemption is not
available;
(V) notify the Executive upon discovery
that, or upon the occurrence of an event as a result of which, the registration
statement or prospectus as then in effect includes an untrue statement of
material fact or omits to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(VI) use its best efforts to obtain and
maintain the quotation of the Shares and Option Shares on the Nasdaq National
Market;
(VII) promptly notify the Executive of any
stop order issued or threatened by the Commission and take all reasonable steps
to prevent the entry of such order or use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible time; and
(VIII) otherwise use its best efforts to
comply with all applicable rules and regulations of the Commission and make
available to securityholders as soon as reasonably practicable an earnings
statement covering a period of 12 months beginning three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(G) Suspension of Registration. Executive agrees
that, for such period of time as is reasonably requested by the Company, he will
not make any sale of Shares or Option Shares registered pursuant to this Section
4(c)(viii) if he receives a certificate signed in good faith by an executive
officer of the Company indicating that (I) the sale of Shares or Option Shares
4
would require disclosure of a proposed transaction involving the Company, which
disclosure would have a material adverse effect on the negotiation of such
transaction or (II) the prospectus included in the registration statement
contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading. In the case of an event described in
clause (I) of this Section 4(c)(viii)(G), the period of time Executive shall be
required not to make any sale of Shares or Option Shares registered in this
Section 4(c)(viii) shall not exceed sixty (60) days. In the case of the event
described in clause (II) of this Section 4(c)(viii)(G), the Company will use its
best efforts to amend or otherwise correct such prospectus as soon as
practicable, but in no event more than thirty (30) days after the date upon
which the Company notifies Executive of such event.
(H) Termination of Registration Rights. The Company's
obligation to register the Shares and Option Shares pursuant to Section
4(c)(viii)(E) shall terminate as to Shares or Option Shares, as the case may be,
at such time as Executive is eligible to sell such Shares or Option Shares, as
the case may be, pursuant to Rule 144(k) promulgated under the Securities Act
and the Company will cause new certificates representing such Shares or Option
Shares, as the case may be (without any restrictive legends) to be issued to the
Executive (or other holder of such Shares or Option Shares) at such time.
(I) Information by Executive. Executive shall furnish
to the Company such information regarding Executive and the distribution
proposed by Executive as the Company may request in writing and as shall be
required in connection with any registration referred to in this Agreement.
(J) Indemnification. In the event that any Shares or
Options Shares are included in a registration statement under this Section
4(c)(viii):
(I) To the extent permitted by law, the
Company will indemnify and hold harmless Executive, any underwriter (as defined
in the Securities Act) for Executive and each person, if any, who controls such
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act") against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will pay, as incurred,
to Executive, each such underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action, as such expenses
are incurred; provided, however, that
5
the indemnity agreement contained in this Section 4(c)(viii)(J)(I) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with information furnished expressly for use in
connection with such registration by Executive or any underwriter or controlling
person.
(II) To the extent permitted by law,
Executive will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Securities Act or the
1934 Act, any underwriter and any controlling person of any such underwriter,
severally but not jointly, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by Executive expressly for use in
connection with such registration; and Executive will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this Section 4(c)(viii)(J)(II), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
4(c)(viii)(J)(II) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of Executive, which consent shall not be unreasonably withheld;
provided, further, that in no event shall Executive's cumulative, aggregate
liability under this Section 4(c)(viii)(J)(II) exceed the gross proceeds from
the sale or offering of Shares or Option Shares by Executive.
(III) Promptly after receipt by an
indemnified party under this Section 4(c)(viii)(J) of notice of the commencement
of any action (including any governmental action), such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party under
this Section 4(c)(viii)(J), deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with one counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the indemnified party under this Section 4(c)(viii)(J) unless the failure to
deliver notice is materially prejudicial to its ability to defend such
6
action. Any omission to so deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4(c)(viii)(J).
(IV) If the indemnification provided for in
this Section 4(c)(viii)(J) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability, claim,
damage, or expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, however, that in no event shall Executive's
cumulative, aggregate liability under this Section 4(c)(viii)(J)(IV), or under
Section 4(c)(viii)(J)(IV) exceed the gross proceeds from the sale or offering of
Shares or Option Shares by Executive. Notwithstanding anything to the contrary
herein, no party shall be liable for contribution under this Section
4(c)(viii)(J)(IV), except to the extent and under the circumstances as such
party would have been liable to indemnity under Section 4(c)(viii)(J)(I) or
Section 4(c)(viii)(J)(II), as the case may be, if such indemnification were
enforceable under applicable law. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(K) Definitions. For purposes of this Section 4(c),
the following definitions shall apply:
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declara tion or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 4(c)(viii)(E) hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
and fees and disbursements of counsel for the Company.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by Executive.
(d) Stock Option. Upon the Employment Commencement Date, Executive
shall be granted a nonstatutory stock option covering nine hundred thousand
(900,000) shares of Company Common Stock with a per share exercise price equal
to 100% of the per share fair market value on the date of grant (the "Option").
The parties agree and acknowledge that the grant of the Option is an inducement
essential to Executive's entering into this Agreement with
7
the Company. The Option shall be for a term of ten years, or shorter upon
termination of Executive's employment with the Company for "Cause" (as defined
herein). Except as otherwise specified in this Agreement, the Option is in all
respects subject to the terms, definitions and provisions of the Company's 1998
Non-Statutory Stock Option Plan (the "Stock Option Plan") and the standard form
of option agreement thereunder (the "Option Agreement") attached hereto as
Exhibit B. Any shares issuable pursuant to the Option shall be registered by the
Company on Form S-8 prior to any vesting of the Option. The Company represents
that it has or will obtain any necessary authority form any regulatory body to
effect the lawful grant of the Option and the issuance and sale of the Shares
subject to the Option.
(i) 300,000 Share Employment-Based Vesting Component. Three
hundred thousand (300,000) shares subject to the Option shall vest as to twenty
percent (20%) (i.e., 60,000 shares) on each anniversary of the Employment
Commencement Date, so as to be one hundred percent (100%) vested on the fifth
anniversary of the Employment Commencement Date, subject to Executive remaining
employed by the Company on such vesting dates.
(ii) Performance/Employment-Based "Hybrid" Vesting Component.
The remaining six hundred thousand (600,000) shares subject to the Option (the
"Hybrid Vesting Component") shall vest one hundred percent (100%) on the fifth
anniversary of the Employment Commencement Date, subject to Executive remaining
employed by the Company on such vesting date; subject to accelerated vesting as
follows:
(A) 15% Performance Tranche. One hundred and fifty
thousand (150,000) shares of the Hybrid Vesting Component (the "15% Performance
Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 15% Performance Tranche (the "First-Year 15% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
1998, but only if such financial statements reflect at least a fifteen percent
(15%) increase in Company net income after tax, determined in accordance with
generally accepted U.S. accounting principles, but excluding for purposes of
such computation any Company expenses related to the relocation of the Company's
corporate headquarters ("Net Income"), when measured against the Company's 1997
Net Income, (ii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 1999, but only if such financial statements
reflect at least a thirty-two percent (32%) increase in Company Net Income when
measured against the Company's 1997 Net Income, (iii) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2000, but
only if such financial statements reflect at least a fifty-two percent (52%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, (iv) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a seventy-five percent (75%) increase in Company Net Income when
measured against the Company's 1997 Net Income, or (v) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2002, but
only if such financial
8
statements reflect at least a one hundred and one percent (101%) increase in
Company Net Income when measured against the Company's 1997 Net Income, with any
such vesting of the First-Year 15% Sub-Tranche conditioned upon Executive's
remaining an employee of the Company as of the vesting date.
(II) With respect to a separate thirty
thousand (30,000) shares of the 15% Performance Tranche (the "Second-Year 15%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 1999, but only if such financial statements reflect
at least a thirty-two percent (32%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2000, but only if
such financial statements reflect at least a fifty-two percent (52%) increase in
Company Net Income when measured against the Company's 1997 Net Income, (iii)
the date of the issuance of the Company's audited annual financial statements
for fiscal year 2001, but only if such financial statements reflect at least a
seventy-five percent (75%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (iv) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a one hundred and one percent (101%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Second-Year 15% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(III) With respect to a separate thirty
thousand (30,000) shares of the 15% Performance Tranche (the "Third-Year 15%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements reflect
at least a fifty-two percent (52%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2001, but only if
such financial statements reflect at least a seventy-five percent (75%) increase
in Company Net Income when measured against the Company's 1997 Net Income, or
(iii) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2002, but only if such financial statements reflect
at least a one hundred and one percent (101%) increase in Company Net Income
when measured against the Company's 1997 Net Income, with any such vesting of
the Third-Year 15% Sub-Tranche conditioned upon Executive's remaining an
employee of the Company as of the vesting date.
(IV) With respect to a separate thirty
thousand (30,000) shares of the 15% Performance Tranche (the "Fourth-Year 15%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a seventy-five percent (75%) increase in Company Net Income when
measured against the Company's 1997 Net Income, or (ii) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2002, but
only if such financial statements reflect at least a one hundred and one percent
(101%) increase in Company Net Income when
9
measured against the Company's 1997 Net Income, with any such vesting of the
Fourth-Year 15% Sub-Tranche conditioned upon Executive's remaining an employee
of the Company as of the vesting date.
(V) With respect to a separate thirty
thousand (30,000) shares of the 15% Performance Tranche (the "Fifth-Year 15%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only if
such financial statements reflect at least a one hundred and one percent (101%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Fifth-Year 15% Sub-Tranche conditioned upon
Executive's remaining an employee of the Company as of the vesting date.
(B) 20% Performance Tranche. A separate one hundred
and fifty thousand (150,000) shares of the Hybrid Vesting Component (the "20%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 20% Performance Tranche (the "First-Year 20% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
1998, but only if such financial statements reflect at least a twenty percent
(20%) increase in Company Net Income when measured against the Company's 1997
Net Income, (ii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 1999, but only if such financial statements
reflect at least a forty-four percent (44%) increase in Company Net Income when
measured against the Company's 1997 Net Income, (iii) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2000, but
only if such financial statements reflect at least a seventy-three percent (73%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, (iv) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and seven percent (107%) increase in Company Net Income
when measured against the Company's 1997 Net Income, or (v) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2002, but only if such financial statements reflect at least a one hundred and
forty-nine percent (149%) increase in Company Net Income when measured against
the Company's 1997 Net Income, with any such vesting of the First-Year 20%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(II) With respect to a separate thirty
thousand (30,000) shares of the 20% Performance Tranche (the "Second-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 1999, but only if such financial statements reflect
at least a forty-four percent (44%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2000, but only if
such financial statements reflect at least a seventy-three percent (73%)
increase in Company Net Income when measured against the
10
Company's 1997 Net Income, (iii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2001, but only if such
financial statements reflect at least a one hundred and seven percent (107%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, or (iv) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2002, but only if such financial statements
reflect at least a one hundred and forty-nine percent (149%) increase in Company
Net Income when measured against the Company's 1997 Net Income, with any such
vesting of the Second-Year 20% Sub-Tranche conditioned upon Executive's
remaining an employee of the Company as of the vesting date.
(III) With respect to a separate thirty
thousand (30,000) shares of the 20% Performance Tranche (the "Third-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements reflect
at least a seventy-three percent (73%) increase in Company Net Income when
measured against the Company's 1997 Net Income, (ii) the date of the issuance of
the Company's audited annual financial statements for fiscal year 2001, but only
if such financial statements reflect at least a one hundred and seven percent
(107%) increase in Company Net Income when measured against the Company's 1997
Net Income, or (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2002, but only if such financial statements
reflect at least a one hundred and forty-nine percent (149%) increase in Company
Net Income when measured against the Company's 1997 Net Income, with any such
vesting of the Third-Year 20% Sub-Tranche conditioned upon Executive's remaining
an employee of the Company as of the vesting date.
(IV) With respect to a separate thirty
thousand (30,000) shares of the 20% Performance Tranche (the "Fourth-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and seven percent (107%) increase in Company Net Income
when measured against the Company's 1997 Net Income, or (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2002, but only if such financial statements reflect at least a one hundred and
forty-nine percent (149%) increase in Company Net Income when measured against
the Company's 1997 Net Income, with any such vesting of the Fourth-Year 20%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(V) With respect to a separate thirty
thousand (30,000) shares of the 20% Performance Tranche (the "Fifth-Year 20%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only if
such financial statements reflect at least a one hundred and forty-nine percent
(149%) increase in Company Net Income when measured against the Company's 1997
Net Income, with any such vesting of the Fifth-Year 20% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
11
(C) 25% Performance Tranche. A separate one hundred
and fifty thousand (150,000) shares of the Hybrid Vesting Component (the "25%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 25% Performance Tranche (the "First-Year 25% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
1998, but only if such financial statements reflect at least a twenty-five
percent (25%) increase in Company Net Income when measured against the Company's
1997 Net Income, (ii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 1999, but only if such financial statements
reflect at least a fifty-six percent (56%) increase in Company Net Income when
measured against the Company's 1997 Net Income, (iii) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2000, but
only if such financial statements reflect at least a ninety-five percent (95%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, (iv) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and forty-four percent (144%) increase in Company Net
Income when measured against the Company's 1997 Net Income, or (v) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 2002, but only if such financial statements reflect at least a two hundred
and five percent (205%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the First-Year 25%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(II) With respect to a separate thirty
thousand (30,000) shares of the 25% Performance Tranche (the "Second-Year 25%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements reflect
at least a fifty-six percent (56%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2000, but only if
such financial statements reflect at least a ninety-five percent (95%) increase
in Company Net Income when measured against the Company's 1997 Net Income, (iii)
the date of the issuance of the Company's audited annual financial statements
for fiscal year 2001, but only if such financial statements reflect at least a
one hundred and forty-four percent (144%) increase in Company Net Income when
measured against the Company's 1997 Net Income, or (iv) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2002, but
only if such financial statements reflect at least a two hundred and five
percent (205%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Second-Year 25%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(III) With respect to a separate thirty
thousand (30,000) shares of the 25% Performance Tranche (the "Third-Year 25%
Sub-Tranche"), such shares shall
12
vest upon the earliest of the following dates (i) the date of the issuance of
the Company's audited annual financial statements for fiscal year 2000, but only
if such financial statements reflect at least a ninety-five percent (95%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, (ii) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and forty-four percent (144%) increase in Company Net
Income when measured against the Company's 1997 Net Income, or (iii) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 2002, but only if such financial statements reflect at least a two hundred
and five percent (205%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Third-Year 25%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(IV) With respect to a separate thirty
thousand (30,000) shares of the 25% Performance Tranche (the "Fourth-Year 25%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and forty-four percent (144%) increase in Company Net
Income when measured against the Company's 1997 Net Income, or (ii) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 2002, but only if such financial statements reflect at least a two hundred
and five percent (205%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Fourth-Year 25%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(V) With respect to a separate thirty
thousand (30,000) shares of the 25% Performance Tranche (the "Fifth-Year 25%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only if
such financial statements reflect at least a two hundred and five percent (205%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Fifth-Year 25% Sub-Tranche conditioned upon
Executive's remaining an employee of the Company as of the vesting date.
(D) 30% Performance Tranche. A separate one hundred
and fifty thousand (150,000) shares of the Hybrid Vesting Component (the "30%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 30% Performance Tranche (the "First-Year 30% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
1998, but only if such financial statements reflect at least a thirty percent
(30%) increase in Company Net Income when measured against the Company's 1997
Net Income, (ii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 1999, but only if such financial statements
reflect at least a sixty-nine
13
percent (69%) increase in Company Net Income when measured against the Company's
1997 Net Income, (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2000, but only if such financial statements
reflect at least a one hundred and twenty percent (120%) increase in Company Net
Income when measured against the Company's 1997 Net Income, (iv) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a one hundred and
eighty-six percent (186%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (v) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a two hundred and seventy-one percent
(271%) increase in Company Net Income when measured against the Company's 1997
Net Income, with any such vesting of the First-Year 30% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(II) With respect to a separate thirty
thousand (30,000) shares of the 30% Performance Tranche (the "Second-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements reflect
at least a sixty-nine percent (69%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2000, but only if
such financial statements reflect at least a one hundred and twenty percent
(120%) increase in Company Net Income when measured against the Company's 1997
Net Income, (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2001, but only if such financial statements
reflect at least a one hundred and eighty-six percent (186%) increase in Company
Net Income when measured against the Company's 1997 Net Income, or (iv) the date
of the issuance of the Company's audited annual financial statements for fiscal
year 2002, but only if such financial statements reflect at least a two hundred
and seventy-one percent (271%) increase in Company Net Income when measured
against the Company's 1997 Net Income, with any such vesting of the Second-Year
30% Sub-Tranche conditioned upon Executive's remaining an employee of the
Company as of the vesting date.
(III) With respect to a separate thirty
thousand (30,000) shares of the 30% Performance Tranche (the "Third-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements reflect
at least a one hundred and twenty percent (120%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a one hundred and
eighty-six percent (186%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (iii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only if
such financial statements reflect at least a two hundred and seventy-one percent
(271%) increase in Company Net Income when measured against the Company's 1997
Net Income, with any such vesting of
14
the Third-Year 30% Sub-Tranche conditioned upon Executive's remaining an
employee of the Company as of the vesting date.
(IV) With respect to a separate thirty
thousand (30,000) shares of the 30% Performance Tranche (the "Fourth-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following dates
(i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and eighty-six percent (186%) increase in Company Net
Income when measured against the Company's 1997 Net Income, or (ii) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 2002, but only if such financial statements reflect at least a two hundred
and seventy-one percent (271%) increase in Company Net Income when measured
against the Company's 1997 Net Income, with any such vesting of the Fourth-Year
30% Sub-Tranche conditioned upon Executive's remaining an employee of the
Company as of the vesting date.
(V) With respect to a separate thirty
thousand (30,000) shares of the 30% Performance Tranche (the "Fifth-Year 30%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only if
such financial statements reflect at least a two hundred and seventy-one percent
(271%) increase in Company Net Income when measured against the Company's 1997
Net Income, with any such vesting of the Fifth-Year 30% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
15
