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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.
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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 "Employment Agreement") wherein there are jointly
referred to as "Employer" 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 "Exchange 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 "API" 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. "Bonus Period shall have the same meaning it does in
the Employment Agreement.
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1.1.3 Escrow Agreement. "Escrow 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. "Voluntary 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. "Termination 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 "Time Based Options") shall vest in two equal installments ("Vesting
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 "Performance 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 "Performance Based Options" shall vest and such periods are as
follows:
Period 1 - Commencing January 31, 1999, ending June 30, 1999.
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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 ("First 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 ("Second 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 ("Third 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 ("Fourth 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.
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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 ("ISO") to the maximum amount allowed by the Internal
Revenue Code ("IRC") and a Non-Statutory Stock Option ("NSO'") 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:
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5.1. Information. Employee has received and read all reports filed by the
Corporation with the Securities and Exchange Commission ("SEC 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:
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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
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(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
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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
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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
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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.
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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 included, 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.
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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/ /s/
Xxxxxxx X. Xxxxxx, President Xxxxx X. Xxxxx
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