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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): November 30, 1998
MOSSIMO, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 33-0684524
(State or other 1-14208 (I.R.S. Employer
jurisdiction of (Commission File Number) Identification Number)
incorporation)
2450 WHITE ROAD, 2ND FLOOR, IRVINE, CALIFORNIA 92614
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 797-0200
9 PASTEUR, IRVINE, CALIFORNIA 92618
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On November 30, 1998, the Board of Directors of Mossimo, Inc., a
Delaware corporation (the "Issuer"), approved the appointment of Edwin H.
Lewis as Chief Executive Officer ("CEO"), President and Director of the
Issuer, effective on December 1, 1998. In connection with this appointment,
John Brincko, who was serving as CEO and President, has resigned from his
positions, but will remain as a consultant for the Issuer until his contract
expires on December 31, 1998.
On November 30, 1998, Mr. Lewis accepted his appointment as CEO,
President and Director of the Issuer, effective on December 1, 1998. In
consideration of the foregoing, the Issuer and Mr. Lewis entered into (i) a
Nonqualified Stock Option Agreement dated as of November 30, 1998, pursuant
to which the Issuer granted Mr. Lewis an immediately exercisable option to
purchase up to 5,152,778 shares of the Issuer's Common Stock, par value $.001
per share (the "Common Stock"), at a purchase price of $3.00 per share (i.e.,
the fair market value of the Common Stock on the date of grant); (ii) an
Incentive Stock Option Agreement dated as of November 30, 1998, pursuant to
which the Issuer granted Mr. Lewis an immediately exercisable option to
purchase up to 33,333 shares of Common Stock at a purchase price of $3.00 per
share; (iii) a Nonqualified Performance Stock Option Agreement dated as of
November 30, 1998, pursuant to which the Issuer granted Mr. Lewis an option
to purchase up to 966,667 shares of Common Stock at a purchase price of $3.00
per share, with such options vesting on November 30, 2005, subject to
accelerated vesting upon the happening of certain events relating in part to
the Common Stock price; and (iv) a Performance Incentive Stock Option
Agreement dated as of November 30, 1998, pursuant to which the Issuer granted
Mr. Lewis an option to purchase 33,333 shares of Common Stock at a purchase
price of $3.00 per share, with such options vesting on November 30, 2005,
subject to accelerated vesting upon the happening of certain events relating
in part to the Common Stock price (together, the "Stock Option Agreements").
As a result of the option grants under the Stock Option Agreements, Mr. Lewis
is deemed to be the beneficial owner (as defined in Rule 13d-3(d)(1) of the
Exchange Act of 1934, as amended) of 5,186,111 shares of Common Stock,
representing 34.5% of the outstanding shares of the Common Stock.
In connection with the execution of the Stock Option Agreements,
the Issuer and Mossimo Giannulli entered into (i) a Contribution Agreement
dated as of November 30, 1998, pursuant to which Mr. Giannulli has agreed to
contribute to the Issuer a number of shares of Common Stock equal to the
aggregate number of shares of Common Stock to be issued by the Issuer upon
Mr. Lewis' exercise of the options contemplated by the Stock Option
Agreements and (ii) an Escrow Agreement dated as of November 30, 1998,
pursuant to which Mr. Giannulli agreed to place 6,186,111 shares of Common
Stock in an escrow account pending Mr. Lewis' exercise of the options
contemplated by the Stock Option Agreements (together, the "Funding
Agreements"). Mr. Giannulli entered into the Funding Agreements for no
consideration payable by the Issuer.
The options contemplated by the Nonqualified Stock Option Agreement
and the Nonqualified Performance Stock Option Agreement will expire upon the
earlier of (i) November
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30, 2018 and (ii) one year from the date of the death of Mr. Lewis. The
options contemplated by the Incentive Stock Option Agreement and the
Performance Incentive Stock Option Agreement will expire upon the earlier of
(i) November 30, 2008 and (ii) one year from the date of the death of Mr.
Lewis. Pursuant to the terms of the Escrow Agreement, if any options
contemplated by the Stock Option Agreements expire, shares of Common Stock
underlying the options will revert back to Mr. Giannulli. The Escrow
Agreement provides that (i) dividends (other than stock dividends) made in
respect of the Lewis Escrowed Shares (defined as the number of shares of
Common Stock equal to (A) the number of escrowed shares of Common Stock
underlying the Nonqualified Stock Option Agreement and the Incentive Stock
Option Agreement, less (B) the number of shares of Common Stock issued to Mr.
Lewis upon exercise of the options governed by the Nonqualified Performance
Stock Option Agreement and the Performance Incentive Stock Option Agreement,
and subsequently transferred to a third party ("Disqualified Shares")) shall be
released to Mr. Lewis and (ii) dividends (other than stock dividends) made in
respect of the Giannulli Escrowed Shares (defined as the number of shares of
Common Stock equal to total number of escrowed shares, less the Lewis
Escrowed Shares) shall be released to Mr. Giannulli.
On November 30, 1998, Mr. Lewis and Mr. Giannulli entered into a
Stockholders Agreement which provides for certain rights and restrictions
with respect to Mr. Lewis' and Mr. Giannulli's ownership interests in the
Issuer and certain covenants relating to the corporate governance of the
Issuer. The key provisions of the Stockholders Agreement are as follows:
BOARD PARTICIPATION. The Board of Directors of the Company, which
currently consists of four Directors (Mr. Giannulli, Mr. Lewis, John Stafford
and Robert Martini), will be re-structured to consist of five Directors. The
fifth Director will be designated by the Nominating Committee of the Board,
which is comprised of Mr. Giannulli and Mr. Lewis. Each of Mr. Giannulli and
Mr. Lewis will be entitled unilaterally to nominate for election one member
of the Board until his death or such time as he does not own at least 10% of
the outstanding Common Stock (a "Termination Event"). Accordingly, at each
election of Directors in which the term of a Director nominated by Mr. Lewis
or Mr. Giannulli expires, Mr. Lewis or Mr. Giannulli, as applicable, will be
entitled to nominate one Director. Until a Termination Event, Mr. Giannulli
and Mr. Lewis will continue to be the sole members of the Nominating
Committee of the Board and, in such capacity, they will jointly nominate the
other members of the Board. In the event Mr. Giannulli and Mr. Lewis cannot
agree on joint nominees, such joint nominations will be made by the entire
Board.
VOTING RIGHTS. Each of Mr. Giannulli and Mr. Lewis will vote his
shares of Common Stock in his sole and absolute discretion, except that,
subject to certain termination events (i) Mr. Lewis will vote a number of
shares of Common Stock equal to the number of Lewis Escrowed Shares, (ii) Mr.
Giannulli will vote a number of shares of Common Stock equal to the number of
Giannulli Escrowed Shares, (iii) Mr. Lewis will vote the number of shares of
Common Stock issued upon exercise of the Nonqualified Performance Stock
Option Agreement and the Performance Incentive Stock Option Agreement less
the number of Disqualified Shares in accordance with Mr. Giannulli's
instructions; and (iv) each of Mr. Giannulli and Mr. Lewis will vote one-half
of the shares of Common Stock he acquires after November 30, 1998 in
accordance with the other's instructions. The intent of these provisions is
to equalize the voting power of Mr. Giannulli and Mr. Lewis except to the
extent that either one of them transfers his shares to a third party.
Therefore, after giving effect to these provisions, subject to certain
termination events, until Mr. Giannulli or Mr. Lewis transfers his shares to
a third party, each of Mr. Giannulli and Mr. Lewis will have the right to
vote 5,186,111 shares, or 34.5% of the outstanding shares of Common Stock.
In the event of the death or mental disability of either Mr. Giannulli or Mr.
Lewis, each Successor (defined as an heir of the deceased party or a
transferee of an heir receiving greater than 5% of the outstanding voting
securities of the Issuer) shall vote the deceased party's voting securities
in accordance with the directions of whichever of Mr. Giannulli or Mr. Lewis
is the survivor, and, in the absence of such instructions, shall not vote
such securities. Mr. Giannulli and Mr. Lewis have also agreed to vote in
favor of each other's Board nominees, and to vote in favor of the Mossimo,
Inc. Stock Option Plan for Mr. Lewis at the next annual meeting of
stockholders.
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STANDSTILL PROVISIONS. Until such time as either Mr. Giannulli or
Mr. Lewis dies or does not beneficially own at least 10% of the outstanding
shares of Common Stock, or until certain other termination events occur (a
"Standstill Termination Event"), neither Mr. Giannulli nor Mr. Lewis will be
permitted, without the consent of the other, to seek representation on the
Board, other than as described in the Stockholders Agreement, or to form a
group with other stockholders of the Issuer for the purpose of acquiring,
holding, voting or disposing of voting securities of the Issuer.
RESTRICTIONS ON TRANSFER TO COMPETITORS. Until the earlier of a
Standstill Termination Event or November 30, 2000, neither Mr. Giannulli nor
Mr. Lewis will be permitted to transfer his shares to a third party, subject
to certain exceptions, including sales pursuant to Rule 144 under the
Securities Act of 1933, as amended. Thereafter, neither party may transfer
more than 5% of the outstanding shares of Common Stock to a competitor of the
Issuer without the consent of 60% of the Board of Directors of the Issuer.
RIGHT OF FIRST REFUSAL. Each of Mr. Giannulli and Mr. Lewis will
have a right of first refusal to purchase the other's shares in the event of
a proposed sale of such shares to a third party, subject to certain
exceptions. To exercise this right, Mr. Giannulli or Mr. Lewis must purchase
the shares on the same terms offered by the third party.
RIGHT OF INCLUSION. If either Mr. Giannulli or Mr. Lewis (the
"Selling Party") proposes to sell shares representing more than 5% of the
outstanding Common Stock to a third party, the Selling Party must allow the
other party the opportunity to sell one-half of the shares in the
transaction. For example, if a third party offers to purchase two million
shares of Common Stock from Mr. Giannulli, Mr. Giannulli must cause the third
party to offer to purchase one million shares of Common Stock from each of
Mr. Giannulli and Mr. Lewis.
REGISTRATION RIGHTS. The Company has agreed to enter into
registration rights agreements with Mr. Lewis and Mr. Giannulli with respect
to the shares of Common Stock owned by Mr. Giannulli and the shares of Common
Stock underlying the Stock Option Agreements.
The foregoing summary of the transactions and agreements described
above does not purport to be complete and is qualified in its entirety by
reference to the exhibits filed herewith which are incorporated by reference
herein.
ITEM 7. EXHIBITS
4.1 Stockholders Agreement dated as of November 30, 1998, between
Mossimo Giannulli, Edwin H. Lewis and Mossimo, Inc.
10.1 The Mossimo, Inc. Stock Option Plan for Edwin Lewis.
10.2 Nonqualified Stock Option Agreement dated as of November 30,
1998, between Mossimo, Inc. and Edwin H. Lewis.
10.3 Incentive Stock Option Agreement dated as of November 30, 1998,
between Mossimo, Inc. and Edwin H. Lewis.
10.4 Nonqualified Performance Stock Option Agreement dated as of
November 30, 1998, between Mossimo, Inc. and Edwin H. Lewis.
10.5 Performance Incentive Stock Option Agreement dated as of November
30, 1998, between Mossimo, Inc. and Edwin H. Lewis.
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10.6 Contribution Agreement dated as of November 30, 1998, between
Mossimo, Inc. and Mossimo Giannulli.
10.7 Form of Escrow Agreement dated as of November 30, 1998, between
Mossimo, Inc., Mossimo Giannulli, and the custodian thereunder.
99.1 Press Release, dated November 30, 1998 relating to the
appointment of Edwin H. Lewis as Chief Executive Officer and
President of Mossimo, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Issuer has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
December 7, 1998
MOSSIMO, INC.
By: /s/ EDWIN H. LEWIS
-------------------------------------
Edwin H. Lewis
Chief Executive Officer and President
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STOCKHOLDERS AGREEMENT
by and among
MOSSIMO GIANNULLI,
Edwin H. Lewis,
and
MOSSIMO, INC.
dated as of
November 30, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I. Definitions.......................................................1
Section 1.1. "Affiliate"..........................................1
Section 1.2. "Agreement"..........................................1
Section 1.3. "Base Options".......................................1
Section 1.4. "Beneficially Own"...................................1
Section 1.5. "Board"..............................................2
Section 1.6. "Buyer Notice".......................................2
Section 1.7. "cause"..............................................2
Section 1.8. "Company"............................................2
Section 1.9. "Common Stock".......................................2
Section 1.10. "Contribution Agreement"............................2
Section 1.11. "Control"...........................................2
Section 1.12. "Covered Transaction"...............................2
Section 1.13. "Deceased Party Voting Securities"..................2
Section 1.14. "Director"..........................................2
Section 1.15. "Disqualified Shares"...............................2
Section 1.16. "Election"..........................................2
Section 1.17. "Eligible Escrowed Shares"..........................2
Section 1.18. "Escrow Account"....................................2
Section 1.19. "Escrow Agreement"..................................3
Section 1.20. "Escrowed Shares"...................................3
Section 1.21. "Giannulli Escrowed Shares".........................3
Section 1.22. "Giannulli Nominee".................................3
Section 1.23. "Giannulli Termination Event".......................3
Section 1.24. "Group".............................................3
Section 1.25. "Heir"..............................................3
Section 1.26. "Inclusion Notice"..................................3
Section 1.27. "Lewis Escrowed Shares".............................3
Section 1.28. "Lewis Nominee".....................................3
Section 1.29. "Lewis Options".....................................3
Section 1.30. "Lewis Termination Event"...........................3
Section 1.31. "Mental Disability".................................3
Section 1.32. "1933 Act"..........................................3
Section 1.33. "1934 Act"..........................................3
Section 1.34. "Nominating Committee"..............................4
Section 1.35. "Notice of Intention"...............................4
Section 1.36. "Offered Stock".....................................4
Section 1.37. "Offeree"...........................................4
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Section 1.38. "Offer Price".......................................4
Section 1.39. "Other Stockholder".................................4
Section 1.40. "Performance Options"...............................4
Section 1.41. "Performance Option Shares".........................4
Section 1.42. "Permitted Transfer"................................4
Section 1.43. "person"............................................4
Section 1.44. "Proposed Quantity".................................4
Section 1.45. "Purchaser".........................................4
Section 1.46. "Registration Rights Agreement".....................4
Section 1.47. "Section 4.5 Offer".................................5
Section 1.48. "Selling Stockholder"...............................5
Section 1.49. "Shortfall".........................................5
Section 1.50. "Standstill Period".................................5
Section 1.51. "Subsequently Acquired Share".......................5
Section 1.52. "Successor".........................................5
Section 1.53. "Termination Event".................................5
Section 1.54. "Third Party".......................................5
Section 1.55. "13D Group".........................................5
Section 1.56. "Transfer"..........................................5
Section 1.57. "Transferor"........................................5
Section 1.58. "Voting Securities".................................5
ARTICLE II. Board of Directors................................................5
Section 2.1. Members of the Board.................................5
Section 2.2. Nominating Committee.................................6
Section 2.3. Vacancies............................................6
ARTICLE III. Voting Rights.....................................................7
Section 3.1. General..............................................7
Section 3.2. Voting of Escrowed Shares............................7
Section 3.3. Voting of Performance Option Shares..................7
Section 3.4. Voting of Subsequently Acquired Shares...............8
Section 3.5. Voting on Certain Matters............................8
Section 3.6. Voting Rights Upon Death.............................8
Section 3.7. Acknowledgment.......................................8
ARTICLE IV. Standstill Provisions.............................................8
Section 4.1. Standstill Period....................................8
Section 4.2. Restrictions During Standstill Period................9
Section 4.3. Restrictions on Transfer.............................9
Section 4.4. Right of First Refusal..............................10
Section 4.5. Right of Inclusion..................................11
Section 4.6. Termination Without Cause...........................12
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ARTICLE V. Covenants of the Company.........................................12
Section 5.1. Stockholder's Meeting...............................12
Section 5.2. Registration Rights.................................12
Section 5.3. Listing of Shares...................................13
Section 5.4. Restrictions Prior to Issuance of Shares............13
ARTICLE VI. Miscellaneous....................................................13
Section 6.1. Legends.............................................13
Section 6.2. Counterparts........................................13
Section 6.3. Governing Law.......................................13
Section 6.4. Entire Agreement....................................13
Section 6.5. Successors and Assigns..............................13
Section 6.6. Headings............................................13
Section 6.7. Amendments and Waivers..............................14
Section 6.8. Interpretation; Absence of Presumption..............14
Section 6.9. Severability........................................14
Section 6.10. Further Assurances.................................14
Section 6.11. Specific Performance...............................14
</TABLE>
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THIS STOCKHOLDERS AGREEMENT (the "Agreement"), dated as of November
30, 1998, is made by and among Mossimo Giannulli ("Giannulli"), Edwin H.
Lewis ("Lewis") and, for the purposes of Articles II and V hereof only,
Mossimo, Inc., a Delaware corporation (the "Company").
RECITALS:
WHEREAS, the parties believe it to be in their best interests that
they enter into this Agreement to provide for certain rights and restrictions
with respect to Giannulli's and Lewis' ownership interests in the Company and
the corporate governance of the Company; and
WHEREAS, the Company, Giannulli and Lewis believe that Lewis'
leadership, expertise and experience in the apparel industry will
significantly enhance the Company's ability to pursue its growth and
operating strategies.
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
Section 1.1. "AFFILIATE" shall have the meaning ascribed thereto in
Rule 12b-2 promulgated under the 1934 Act, and as in effect on the date
hereof.
Section 1.2. "AGREEMENT" shall have the meaning set forth in the
first paragraph hereof.
Section 1.3. "BASE OPTIONS" shall mean the stock options granted to
Lewis pursuant to (i) the Incentive Stock Option Agreement dated as of even
date herewith between the Company and Lewis and (ii) the Nonqualified Stock
Option Agreement dated as of even date herewith between the Company and Lewis.
Section 1.4. "BENEFICIALLY OWN" shall mean, with respect to any
security, having direct or indirect "beneficial ownership" of such security,
as determined pursuant to Rule 13d-3 under the 1934 Act, including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
PROVIDED, HOWEVER, that all of the shares of Common Stock that Lewis then has
the right to acquire upon exercise of a Lewis Option shall be deemed to be
Beneficially Owned by Lewis; PROVIDED FURTHER that the Giannulli Escrowed
Shares shall be deemed to be Beneficially Owned by Giannulli.
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Section 1.5. "BOARD" shall mean the board of directors of the
Company.
Section 1.6. "BUYER NOTICE" shall have the meaning set forth in
Section 4.4(b).
Section 1.7. "CAUSE" shall have the meaning set forth in Section 4.6.
Section 1.8. "COMPANY" shall have the meaning set forth in the first
paragraph hereof.
Section 1.9. "COMMON STOCK" shall mean the common stock, par value
$.001 per share, of the Company.
Section 1.10. "CONTRIBUTION AGREEMENT" shall mean that certain
Contribution Agreement dated as of even date herewith between the Company and
Giannulli.
Section 1.11. "CONTROL" shall mean with respect to any person, the
power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise. "Controlled" shall have a correlative meaning.
Section 1.12. "COVERED TRANSACTION" shall have the meaning set forth
in Section 4.1.
Section 1.13. "DECEASED PARTY VOTING SECURITIES" shall mean the
Voting Securities over which Giannulli or Lewis, as applicable, has voting
rights at the time of his death.
Section 1.14. "DIRECTOR" shall mean a member of the Board.
Section 1.15. "DISQUALIFIED SHARES" shall mean a Performance Option
Share that has been (or the voting rights of which have been) transferred by
Lewis to a third party; PROVIDED that at such time as either Giannulli or
Lewis does not Beneficially Own at least ten percent (10%) of the outstanding
Common Stock, no shares shall be Disqualified Shares.
Section 1.16. "ELECTION" shall have the meaning set forth in Section
2.1(a).
Section 1.17. "ELIGIBLE ESCROWED SHARES" shall mean (i) the Escrowed
Shares in the Escrow Account which are to be released to the Company upon
exercise of the Base Options and (ii) at and after such time as either
Giannulli or Lewis does not Beneficially Own at least ten percent (10%) of
the outstanding Common Stock, the Escrowed Shares in the Escrow Account which
are vested under the Performance Options. For purposes of clarity, Eligible
Escrowed Shares will not include the Escrowed Shares referred to in clause
(ii) unless and until Giannulli or Lewis does not Beneficially Own ten
percent (10%) of the outstanding Common Stock.
Section 1.18. "ESCROW ACCOUNT" shall mean the escrow account
established pursuant to the Escrow Agreement.
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Section 1.19. "ESCROW AGREEMENT" shall mean that certain Escrow
Agreement dated as of even date herewith between the Company and Giannulli.
Section 1.20. "ESCROWED SHARES" shall have the meaning assigned to
such term in the Escrow Agreement.
Section 1.21. "GIANNULLI ESCROWED SHARES" shall have the meaning set
forth in Section 3.2.
Section 1.22. "GIANNULLI NOMINEE" shall have the meaning set forth
in Section 2.1(a).
Section 1.23. "GIANNULLI TERMINATION EVENT" shall mean the earlier
to occur of (i) the date on which Giannulli no longer Beneficially Owns a
number of shares of Common Stock equal to at least ten percent (10%) of the
outstanding Common Stock and (ii) Giannulli's death.
Section 1.24. "GROUP" shall mean a "group" as such term is used in
Section 13(d)(3) of the 1934 Act.
Section 1.25. "HEIR" shall have the meaning set forth in Section 3.6.
Section 1.26. "INCLUSION NOTICE" shall have the meaning set forth in
Section 4.5(a).
Section 1.27. "LEWIS ESCROWED SHARES" shall have the meaning set
forth in Section 3.2.
Section 1.28. "LEWIS NOMINEE" shall have the meaning set forth in
Section 2.1(a).
Section 1.29. "LEWIS OPTIONS" shall mean (i) the Base Options and
(ii) the Performance Options.
Section 1.30. "LEWIS TERMINATION EVENT" shall mean the earlier to
occur of (i) the date on which Lewis no longer Beneficially Owns a number of
shares of Common Stock equal to at least ten percent (10%) of the outstanding
Common Stock and (ii) Lewis' death.
Section 1.31. "MENTAL DISABILITY" shall mean, with respect to
Giannulli or Lewis, a mental condition which is determined by a court of
competent jurisdiction to constitute mental incapacity.
Section 1.32. "1933 ACT" shall mean the Securities Act of 1933, as
amended.
Section 1.33. "1934 ACT" shall mean the Securities Exchange Act of
1934, as amended.
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Section 1.34. "NOMINATING COMMITTEE" shall mean a committee of the
Board composed solely of Giannulli and Lewis.
Section 1.35. "NOTICE OF INTENTION" shall have the meaning set forth
in Section 4.4(a).
Section 1.36. "OFFERED STOCK" shall have the meaning set forth in
Section 4.4(a).
Section 1.37. "OFFEREE" shall have the meaning set forth in Section
4.5(a).
Section 1.38. "OFFER PRICE" shall have the meaning set forth in
Section 4.4(a).
Section 1.39. "OTHER STOCKHOLDER" shall have the meaning set forth
in Section 4.4(a).
Section 1.40. "PERFORMANCE OPTIONS" shall mean the stock options
granted to Lewis pursuant to (i) the Performance Incentive Stock Option
Agreement dated as of even date herewith between the Company and Lewis and
(ii) the Nonqualified Performance Stock Option Agreement dated as of even
date herewith between the Company and Lewis.
Section 1.41. "PERFORMANCE OPTION SHARES" shall mean the shares of
Common Stock issued by the Company to Lewis upon exercise of the Performance
Options (including any share(s) of capital stock of the Company that result
from any share dividend, reclassification, stock split, subdivision or
combination of shares, reclassification or merger or other events made with
respect to such shares), whether held by Lewis or subsequently transferred to
another party.
Section 1.42. "PERMITTED TRANSFER" shall mean any of (i) a Transfer
from Giannulli to the Company pursuant to the Contribution Agreement, (ii)
Transfers made in compliance with the requirements of Rule 144 of the 1933
Act, (iii) Transfers to a bona fide financial institution for the purpose of
securing bona fide indebtedness of Giannulli or Lewis, as applicable, and
(iv) bona fide gifts or Transfers for tax or estate-planning purposes,
PROVIDED in the case of this clause (iv) that the transferee agrees in
writing to be bound by the provisions of this Agreement.
Section 1.43. "PERSON" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
organization or other form of business or legal entity.
Section 1.44. "PROPOSED QUANTITY" shall have the meaning set forth
in Section 4.5(a).
Section 1.45. "PURCHASER" shall have the meaning set forth in
Section 4.5(a).
Section 1.46. "REGISTRATION RIGHTS AGREEMENT" shall have the meaning
set forth in Section 5.2.
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Section 1.47. "SECTION 4.5 OFFER" shall have the meaning set forth
in Section 4.5(a).
Section 1.48. "SELLING STOCKHOLDER" shall have the meaning set forth
in Section 4.4(a).
Section 1.49. "SHORTFALL" shall have the meaning set forth in
Section 3.2.
Section 1.50. "STANDSTILL PERIOD" shall have the meaning set forth
in Section 4.1.
Section 1.51. "SUBSEQUENTLY ACQUIRED SHARE" shall mean any share of
any Voting Security acquired by Lewis or Giannulli after the date of this
Agreement; PROVIDED, HOWEVER, that the shares of Common Stock issued to Lewis
by the Company upon exercise of a Lewis Option shall not be considered
Subsequently Acquired Shares.
Section 1.52. "SUCCESSOR" shall have the meaning set forth in
Section 3.6.
Section 1.53. "TERMINATION EVENT" shall have the meaning set forth
in Section 2.1(d).
Section 1.54. "THIRD PARTY" shall have the meaning set forth in
Section 4.4(a).
Section 1.55. "13D GROUP" shall mean any group of persons acquiring,
holding, voting or disposing of Voting Securities which would be required
under Section 13(d) of the 1934 Act and the rules and regulations thereunder
(as in effect, and based on legal interpretations thereof existing, on the
date hereof) to file a statement on Schedule 13D with the Securities and
Exchange Commission as a "person" within the meaning of Section 13(d)(3) of
the 1934 Act if such group beneficially owned Voting Securities representing
more than five percent (5%) of any class of Voting Securities then
outstanding.
Section 1.56. "TRANSFER" shall have the meaning set forth in Section
4.3.
Section 1.57. "TRANSFEROR" shall have the meaning set forth in
Section 4.5(a).
Section 1.58. "VOTING SECURITIES" shall mean at any time shares of
any class of capital stock of the Company which are then entitled to vote
generally in the election of Directors.
ARTICLE II.
BOARD OF DIRECTORS
Section 2.1. MEMBERS OF THE BOARD.
(a) The Company, Giannulli and Lewis will take all actions
necessary to cause the Board to be structured to consist of five members, of
which one member will be designated by Giannulli (a "Giannulli Nominee"), one
member will be designated by Lewis (a
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"Lewis Nominee"), and three members will be designated in accordance with
Section 2.2. The Company, Giannulli and Lewis will take all actions necessary
to cause the foregoing nominees to become members of the Board as soon as
practicable after the date hereof. At each annual or special meeting of
stockholders of the Company at which, or the taking of action by written
consent of stockholders of the Company by which, any class of Directors is to
be elected (an "Election"), each of Giannulli and Lewis shall have the right
(but not obligation) pursuant to this Agreement to designate one nominee to
the Board; PROVIDED, HOWEVER, that (i) if a Giannulli Nominee is, at the time
of the Election, in a class of Directors which does not stand for reelection
until a date following the Election, Giannulli shall not be entitled to
nominate a Director in the Election, (ii) if a Lewis Nominee is, at the time
of the Election, in a class of Directors which does not stand for reelection
until a date following the Election, Lewis shall not be entitled to nominate
a Director in the Election, (iii) after the occurrence of a Giannulli
Termination Event, if any, Giannulli's right to nominate Directors under this
Section 2.1 shall terminate and (iv) after the occurrence of a Lewis
Termination Event, if any, Lewis' right to nominate Directors under this
Section 2.1 shall terminate.
(b) Neither Giannulli nor Lewis will designate or nominate any person
as a Director if (i) such person is not reasonably experienced in business
and financial matters, (ii) such person has been convicted of, or has pled
nolo contendere to a felony, (iii) the election of such person would violate
any law, or (iv) any event required to be disclosed pursuant to Item 401(f)
of Regulation S-K of the 1934 Act has occurred with respect to such person.
Each of Giannulli and Lewis shall use his reasonable efforts to afford the
independent directors of the Company a reasonable opportunity to meet any
individual that he is considering designating or nominating as a director.
(c) The Company will support the nomination of and the election of
each Giannulli Nominee and Lewis Nominee, and the Company will exercise all
authority under applicable law to cause each Giannulli Nominee and Lewis
Nominee to be elected to the Board.
(d) Until the earlier to occur of (i) a Giannulli Termination Event
and (ii) a Lewis Termination Event (such occurrence shall be referred to
herein as a "Termination Event"), the number of Directors on the Board shall
not exceed five at any time.
Section 2.2. NOMINATING COMMITTEE. Upon execution of this Agreement, the
Board will create the Nominating Committee. Until such time as a Termination
Event occurs, each nominee to the Board of Directors (other than Giannulli
Nominees and Lewis Nominees) will require the unanimous approval of the
Nominating Committee. If the Nominating Committee cannot, after a reasonable
period of good faith discussions (not to exceed thirty (30) days),
unanimously agree on a nominee, the nomination will be referred to the entire
Board of Directors, which shall decide the matter based on a simple majority
vote. Upon a Termination Event, the powers of the Nominating Committee shall
revert back to the entire Board of Directors.
Section 2.3. VACANCIES. In the event that (i) any Giannulli Nominee
shall cease to serve as a Director for any reason other than the fact that
Giannulli no longer has a right to nominate a Director, as provided in
Section 2.1, or (ii) any Lewis Nominee shall cease to serve as
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a Director for any reason other than the fact that Lewis no longer has a
right to nominate a Director, as provided in Section 2.1, the vacancy
resulting thereby shall be filled by a Giannulli Nominee or a Lewis Nominee,
as applicable; PROVIDED, HOWEVER, that any Giannulli Nominee or Lewis Nominee
so designated shall satisfy the qualification requirements set forth in
Section 2.1(b).
ARTICLE III.
VOTING RIGHTS
Section 3.1. GENERAL. Except as otherwise provided in this Article III,
each of Giannulli and Lewis may vote the Voting Securities he owns in his
sole and absolute discretion.
Section 3.2. VOTING OF ESCROWED SHARES. The parties hereto acknowledge
and agree that (i) Lewis shall have the right to direct the vote of a number
of Escrowed Shares equal to the number of Eligible Escrowed Shares, LESS the
number of Disqualified Shares (the "Lewis Escrowed Shares"), and shall have
the sole and exclusive right to provide written instructions to the custodian
under the Escrow Agreement with respect to such votes and (ii) Giannulli
shall have the right to direct the vote of the number of Escrowed Shares
equal to the total number of Escrowed Shares, LESS the Lewis Escrowed Shares
(the "Giannulli Escrowed Shares"). In the event that Giannulli may be deemed
to have the right to vote the Lewis Escrowed Shares, Giannulli shall vote a
number of shares of Common Stock equal to the number of Lewis Escrowed Shares
as directed in writing by Lewis and, in the absence of such directions, shall
not vote such number of shares of Common Stock. In the event that Lewis may
be deemed to have the right to vote the Giannulli Escrowed Shares, Lewis
shall vote a number of shares of Common Stock equal to the number of
Giannulli Escrowed Shares as directed in writing by Giannulli and, in the
absence of such instructions, shall not vote such number of shares of Common
Stock. Lewis acknowledges and agrees that if (i) the Company issues shares of
Common Stock to Lewis upon exercise of the Lewis Options and (ii) the Company
is unable to timely obtain a sufficient number of shares of Common Stock from
the Escrow Account to fully cover such issuance (the difference between the
number of shares of Common Stock issued by the Company to Lewis and the
number of shares of Common Stock obtained by the Company from the Escrow
Account shall be referred to as the "Shortfall"), Lewis shall instruct the
custodian under the Escrow Agreement not to vote the number of Lewis Escrowed
Shares equal to the Shortfall.
Section 3.3. VOTING OF PERFORMANCE OPTION SHARES. With respect to any
matter upon which Lewis has the right to vote shares of Common Stock, Lewis
shall vote a number of shares of Common Stock equal to the number of
Performance Option Shares that have been issued by the Company (less any such
shares that are Disqualified Shares for purposes of Section 3.2) as directed
in writing by Giannulli and, in the absence of such instructions, shall not
vote such number of shares of Common Stock; PROVIDED, HOWEVER, that Lewis'
obligations under this Section 3.3 shall terminate at such time as either
Lewis or Giannulli does not Beneficially Own at least ten percent (10%) of
the outstanding Common Stock.
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Section 3.4. VOTING OF SUBSEQUENTLY ACQUIRED SHARES. Until such time as
either Lewis or Giannulli does not own at least ten percent (10%) of the
outstanding shares of Common Stock, (i) Giannulli shall vote one-half of any
Subsequently Acquired Shares over which he has voting control as directed in
writing by Lewis and, in the absence of such instructions, shall not vote
such shares, and (ii) Lewis shall vote one-half of any Subsequently Acquired
Shares over which he has voting control as directed in writing by Giannulli
and, in the absence of such instructions, shall not vote such shares.
Section 3.5. VOTING ON CERTAIN MATTERS. Until the occurrence of a
Termination Event, (i) Giannulli shall vote all the Voting Securities over
which he has voting control in favor of any Lewis Nominees and (ii) Lewis
shall vote all the Voting Securities over which he has voting control in
favor of any Giannulli Nominees. Giannulli shall vote all the Voting
Securities over which he has voting control in favor of the approval of the
Lewis Options and the plan pursuant to which such options were granted.
Section 3.6. VOTING RIGHTS UPON DEATH. In the event of the death or
Mental Disability of either Lewis or Giannulli, each Successor shall vote the
Deceased Party Voting Securities in accordance with the directions of
whichever of Lewis or Giannulli is the survivor and, in the absence of such
instructions, shall not vote such securities. It shall be a condition to the
transfer of Voting Securities to each Successor that such Successor agree to
be bound by the terms of this Section 3.6. As used herein, "Successor" shall
mean any of (i) any Person to whom the right to vote Deceased Party Voting
Securities is Transferred by will or the applicable laws of descent and
distribution (an "Heir") and (ii) any Person to whom Deceased Party Voting
Securities representing more than five percent (5%) of the outstanding Voting
Securities are Transferred by an Heir in one transaction or a series of
transactions. The provisions of this Section 3.6 shall terminate upon the
earlier of (i) such time as either Giannulli or Lewis does not Beneficially
Own at least ten percent (10%) of the outstanding Common Stock and (ii) the
death or Mental Disability of both Giannulli and Lewis.
Section 3.7. ACKNOWLEDGMENT. The parties acknowledge and agree that the
intent of the voting rights in this Article III is to provide that, until the
occurrence of certain termination events and except as provided in Section
3.6, Giannulli and Lewis have the right to vote an equal number of shares,
excluding any Transfers by either Giannulli or Lewis, and including any
Subsequently Acquired Shares.
ARTICLE IV.
STANDSTILL PROVISIONS
Section 4.1. STANDSTILL PERIOD. The "Standstill Period" shall be the
period commencing on the date of this Agreement and ending on the earlier of
(i) the ninetieth (90th) day after a Termination Event or (ii) the earlier of
(A) the authorization by the Company or the Board or any committee thereof of
the solicitation of offers or proposals or indications of interest with
respect to any merger, consolidation, other business combination,
liquidation, sale of the Company or all or substantially all of the assets of
the Company or any other change of control
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of the Company or similar extraordinary transaction, but excluding any
merger, consolidation or other business combination in which the Company is
the surviving and acquiring corporation and in which the business or assets
so acquired do not, or would not reasonably be expected to, have a value
greater than fifty percent (50%) of the assets of the Company prior to such
merger, consolidation or other business combination (any of the foregoing, a
"Covered Transaction"); and (B) the written submission by any person or Group
other than Lewis, Giannulli or any Affiliate of them of a proposal to the
Company (including to the Board of any agent, representative or Affiliate of
the Company) with respect to, or otherwise expressing an interest in
pursuing, a Covered Transaction; PROVIDED, HOWEVER, that the Standstill
Period shall not terminate pursuant to this Section 4.1(a)(ii)(B) if, as soon
as practicable after receipt of any such proposal, the Board determines that
such proposal is not in the best interest of the Company and its stockholders
and for so long as the Board continues to reject such proposal as a result of
such determination.
Section 4.2. RESTRICTIONS DURING STANDSTILL PERIOD.
(a) During the Standstill Period, neither Giannulli nor Lewis will, or
will cause any of their Controlled Affiliates to, directly or indirectly:
(i) act in concert with any other person or Group by becoming a
member of a 13D Group; or
(ii) seek representation on the Board or a change in the
composition or size of the Board other than as permitted by Article 2;
PROVIDED, HOWEVER, that each of Giannulli and Lewis may do any of the
foregoing upon obtaining the prior written consent of the other.
Section 4.3. RESTRICTIONS ON TRANSFER. Until the earlier of (i) a
Termination Event and (ii) two years after the date hereof, neither Giannulli
nor Lewis will or will cause any of their Controlled Affiliates to, directly
or indirectly, sell, transfer, encumber or otherwise dispose of
(collectively, "Transfer") any shares of Common Stock unless such Transfer is
a Permitted Transfer. Thereafter, and during the remaining term, if any, of
the Standstill Period and subject to Section 3.6, none of Giannulli nor Lewis
nor their Heirs will or will cause any of their Controlled Affiliates to,
directly or indirectly, Transfer any shares of Common Stock except for (i)
Permitted Transfers, (ii) Transfers in a registered public offering and (iii)
Transfers pursuant to negotiated transactions with third parties provided
that if any such Transfer (whether in one transaction or a series of
transactions) is (A) for an amount of Common Stock representing greater than
five percent (5%) of the outstanding Common Stock and (B) is made to any
public or private company the principal business of which is, or that derives
more than $15 million of annual revenue from (in either case as of the date
of such Transfer), the manufacturing, distribution, licensing or sale of
clothing, THEN such Transfer shall require the consent of at least sixty
percent (60%) of the Directors. Notwithstanding anything to the contrary
herein, Giannulli shall not Transfer the Escrowed Shares except to the
Company in accordance with the Contribution Agreement.
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Section 4.4. RIGHT OF FIRST REFUSAL.
(a) Except for Permitted Transfers and except for Transfers in
accordance with Section 4.5, if pursuant to a bona fide offer from a third
party either of Giannulli or Lewis desires to Transfer any of his shares of
Common Stock (such transferring person, a "Selling Stockholder" and such
shares proposed to be so Transferred, the "Offered Stock"), prior to any
Transfer he shall give written notice of the proposed Transfer (the "Notice
of Intention") to the other (the "Other Stockholder"), specifying the third
party making the offer (the "Third Party"), the number of shares of Offered
Stock which the Selling Stockholder wishes to Transfer, the proposed purchase
price (the "Offer Price") therefor and all other material terms and
conditions of the proposed Transfer.
(b) For a period of sixty (60) days following its receipt of the
Notice of Intention, the Other Stockholder shall have the right to purchase
all or any portion of the Offered Stock at the Offer Price and on the other
terms specified in the Notice of Intention, exercisable by delivery of an
irrevocable notice (the "Buyer Notice") to the Selling Stockholder specifying
the number of shares of Offered Stock with respect to which the Other
Stockholder is exercising its right.
(c) If the Notice of Intention has been duly delivered to the Other
Stockholder by the Selling Stockholder and the Other Stockholder fails to
deliver a Buyer Notice or determines not to exercise its right to purchase
the Offered Stock at the Offer Price and on the other terms specified in the
Notice of Intention or determines to exercise his option to purchase less
than all of the Offered Stock, then the Selling Stockholder shall have the
right, for a period of ninety (90) days from the earlier of (i) sixty (60)
days following delivery of the Notice of Intention and (ii) the date on which
he receives notice from the Other Stockholder that the Other Stockholder will
not exercise in whole or in part his rights granted pursuant to this Section
4.4, to sell to a Third Party the Offered Stock remaining unsold under this
Section 4.4 at a price not less than the Offer Price and on other terms which
shall not be materially more favorable to the Third Party in the aggregate
than those terms set forth in the Notice of Intention.
(d) The closing of any purchase and sale pursuant to this Section 4.4
shall take place on such date, not later than fifteen (15) business days
after the delivery to the Selling Stockholder of the Buyer Notice, as the
parties to such purchase and sale shall elect. At the closing of such
purchase and sale, the Selling Stockholder shall deliver any certificates
evidencing the Offered Stock being sold accompanied by written instruments of
Transfer in form satisfactory to the purchasers thereof, duly executed by the
Selling Stockholder, free and clear of any Liens, against delivery of the
Offer Price therefor.
(e) The provisions of this Section 4.4 shall terminate at such time as
either Lewis or Giannulli does not Beneficially Own at least ten percent
(10%) of the outstanding Common Stock.
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Section 4.5. RIGHT OF INCLUSION.
(a) Except for any Permitted Transfer and any sale pursuant to the
Registration Rights Agreement, if either Giannulli or Lewis ("Transferor")
proposes to Transfer, in one transaction or a series of related transactions,
shares of Common Stock representing more than five percent (5%) of the
outstanding Common Stock (the "Proposed Quantity") to any person (the
"Purchaser"), then, as a condition to such Transfer, the Transferor shall
cause the Purchaser to offer (the "Section 4.5 Offer") to whichever of
Giannulli or Lewis is not the Transferor (the "Offeree"), to sell to the
Purchaser, at the option of the Offeree, fifty percent (50%) of the Proposed
Quantity of Common Stock on the same terms and conditions as offered to the
Transferor. The Transferor shall provide a written notice (the "Inclusion
Notice") of the Section 4.5 Offer to the Offeree, who may accept the Section
4.5 Offer by providing a written notice of acceptance of the Section 4.5
Offer to the Transferor within twenty (20) business days of the delivery of
the Inclusion Notice.
(b) If the Offeree accepts the Section 4.5 Offer, he shall, within a
reasonable period prior to the closing of the purchase and sale of the Common
Stock covered by the Section 4.5 Offer, deliver to the Transferor a
certificate or certificates representing the Common Stock to be Transferred
pursuant to the Section 4.5 Offer by such Offeree, free and clear of all
Liens, together with proper instruments of transfer in form and substance
reasonably satisfactory to the Transferor and a limited power-of-attorney
authorizing the Transferor to sell or otherwise dispose of such Common Stock
pursuant to the terms of the Section 4.5 Offer; PROVIDED, that in the event
that the purchase and sale of Common Stock contemplated by this Section 4.5
Offer is not completed, such certificates shall be returned to the Offeree in
accordance with Section 4.5(d).
(c) The Transferor shall have thirty (30) days, commencing on the
expiration of the twenty (20) business day period referred to in Section
4.5(a), in which to Transfer to the Purchaser, on behalf of itself and the
Offeree, up to the Proposed Quantity of Common Stock. If all such shares of
Common Stock are not sold to Purchaser, the Transferor, at its option, may
elect to sell on behalf of itself and the Offeree such number of shares of
Common Stock as the Purchaser will purchase; PROVIDED that if the Offeree
accepts the Section 4.5 Offer, the shares of Common Stock Transferred to
Purchaser shall be allocated equally among the Transferor and the Offeree.
The material terms of any Transfer referred to in the two immediately
preceding sentences, including price and form of consideration, shall be as
set forth in the Inclusion Notice. If at the end of such thirty (30) day
period the Transferor has not completed the Transfer of all the shares of
Common Stock proposed to be sold, the Transferor shall return to the Offeree
his respective certificates, if any, representing the Common Stock which the
Offeree delivered for Transfer pursuant to this Section 4.5 and which were
not sold pursuant to the Section 4.5 Offer, and the provisions of this
Section 4.5 shall continue to be in effect.
(d) Concurrently with the Transfer of Common Stock of the Transferor
and, if applicable, the other Offeree to the Purchaser pursuant to this
Section 4.5, the Transferor shall notify the Offeree thereof, and the
Purchaser shall pay to the Transferor and, if applicable, the Offeree their
respective portions of the sales price of the Common Stock so Transferred and
shall
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furnish such other evidence of the completion of such Transfer and the terms
thereof as may be reasonably requested by any Offeree.
(e) Notwithstanding anything to the contrary contained in this Section
4.5, (i) except for the Transferor's obligation to return to the Offeree any
certificates representing the Offeree's Common Stock, there shall be no
liability on the part of the Transferor to the Offeree in the event that any
proposed Transfer pursuant to this Section 4.5 is not consummated for any
reason, and (ii) whether or not any sale of Common Stock is effected pursuant
to this Section 4.5 shall be in the sole and absolute discretion of the
Transferor.
(f) The provisions of this Section 4.5 shall terminate at such time as
either Lewis or Giannulli does not Beneficially Own at least ten percent
(10%) of the outstanding Common Stock.
Section 4.6. TERMINATION WITHOUT CAUSE. At such time as either Giannulli
or Lewis is individually terminated as an employee of the Company without
"cause," the provisions of this Article IV shall terminate. For purposes
hereof, "cause" shall mean with respect to Giannulli or Lewis, (i) a
conviction for commission of a felony or crime including moral turpitude or
(ii) a willful commission of any act of theft, embezzlement, or
misappropriation against the Company which, in any case, is materially and
demonstrably injurious to the Company.
ARTICLE V.
COVENANTS OF THE COMPANY
Section 5.1. STOCKHOLDER'S MEETING. The Company agrees to duly call,
give notice of, convene and hold a meeting of its stockholders at which the
Company will seek approval for the granting of the Lewis Options and for the
plan under which the Lewis Options are granted no later than the earliest of
(i) seven (7) months from the date of this Agreement, (ii) immediately prior
to the consummation of any Covered Transaction and (iii) within thirty (30)
days of a request by Lewis PROVIDED that Lewis shall not be entitled to
request a meeting of stockholders under this clause (iii) unless he has a
reasonable belief that a stockholder meeting must be held in such thirty (30)
day period to prevent a material adverse affect on his rights under the Lewis
Options.
Section 5.2. REGISTRATION RIGHTS. The Company agrees to take all
reasonable actions necessary to enter into registration rights agreements
(the "Registration Rights Agreements") with each of Lewis and Giannulli
pursuant to which Lewis and Giannulli will each have certain rights to
register all of his shares of Common Stock, other than Subsequently Acquired
Shares. The Registration Rights Agreements will provide, at a minimum, for
one demand registration right and two piggyback registration rights for each
of Lewis and Giannulli. The Registration Rights Agreements will also provide
that each of Lewis and Giannulli shall bear his pro rata share of any
registration expenses.
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Section 5.3. LISTING OF SHARES. The Company agrees to take all
reasonable actions necessary to list the shares of Common Stock issued by the
Company to Lewis upon exercise of the Lewis Options on all stock exchanges on
which the Common Stock is then listed.
Section 5.4. RESTRICTIONS PRIOR TO ISSUANCE OF SHARES. During any period
between a valid exercise by Lewis of a Lewis Option and the issuance by the
Company of the full amount of shares of Common Stock in respect of such
exercise, the Company shall not consummate (i) any Covered Transaction or
(ii) any other transaction which would have a material adverse affect on the
rights of Lewis under the Lewis Options.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. LEGENDS. Until such time as either Giannulli or Lewis does
not Beneficially Own at least ten percent (10%) of the outstanding Common
Stock, each of Giannulli and Lewis agree to affix a legend to each Voting
Security he holds or which is held in the Escrow Account indicating that such
Voting Security is subject to this Agreement and, if appropriate, the Escrow
Agreement.
Section 6.2. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts for
purposes of this Section, provided receipt of copies of such counterparts is
confirmed.
Section 6.3. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to the choice of law principles thereof.
Section 6.4. ENTIRE AGREEMENT. This Agreement (including agreements
referenced herein) contains the entire agreement between the parties with
respect to the subject matter hereof and there are no agreements,
understandings, representations or warranties between the parties other than
those set forth or referred to herein. This Agreement is not intended to
confer upon any person not a party hereto (and their successors and assigns)
any rights or remedies hereunder.
Section 6.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors. No party shall be permitted to assign any of its rights hereunder
to any third party.
Section 6.6. HEADINGS. The Section, Article and other headings contained
in this Agreement are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein means Sections or Articles of this
Agreement unless otherwise stated.
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Section 6.7. AMENDMENTS AND WAIVERS. This Agreement may not be modified
or amended except by an instrument or instruments in writing signed by the
party against whom enforcement of any such modification or amendment is
sought; PROVIDED, HOWEVER, that any provision of this Agreement other than
the provisions of Articles II and V may be amended by an instrument or
instruments in writing signed by both Giannulli and Lewis. Any party hereto
may, only by an instrument in writing, waive compliance by another party
hereto with any term or provision hereof on the part of such other party
hereto to be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
Section 6.8. INTERPRETATION; ABSENCE OF PRESUMPTION. This Agreement
shall be construed without regard to any presumption or rule requiring
construction or interpretation against the party drafting or causing any
instrument to be drafted.
Section 6.9. SEVERABILITY. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
Section 6.10. FURTHER ASSURANCES. The parties agree that, from time to
time, each of them will, and will cause their respective Affiliates to,
execute and deliver such further instruments and take such other action as
may be necessary to carry out the purposes and interests hereof.
Section 6.11. SPECIFIC PERFORMANCE. The parties acknowledge that, in
view of the uniqueness of arrangements contemplated by this Agreement, they
would not have an adequate remedy at law for money damages in the event that
this Agreement were not performed in accordance with its terms, and therefore
agree that each of them shall be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which the parties hereto may
be entitled at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf
of each of the parties hereto as of the day first above written.
/s/ Mossimo Giannulli
----------------------------------
MOSSIMO GIANNULLI
/s/ Edwin H. Lewis
----------------------------------
EDWIN H. LEWIS
MOSSIMO, INC.
By /s/ Mossimo Giannulli
-------------------------------
Name: Mossimo Giannulli
----------------------------
Title: CHAIRMAN
---------------------------
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EXHIBIT 10.1
THE MOSSIMO, INC.
STOCK OPTION PLAN FOR EDWIN LEWIS
Mossimo, Inc., a Delaware corporation, has adopted the Mossimo,
Inc. Stock Option Plan for Edwin Lewis (the "Plan"), effective as of November
30, 1998, for the benefit of Edwin Lewis.
The purposes of this Plan are as follows:
(1) To provide an incentive for Mr. Lewis to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of options with respect to Company stock which
recognize such growth, development and financial success.
(2) To enable the Company to obtain and retain the services of Mr.
Lewis by offering him an opportunity to own options with respect to Company
stock which will reflect the growth, development and financial success of the
Company.
ARTICLE I.
DEFINITIONS
1.1. GENERAL. Wherever the following terms are used in this Plan
they shall have the meanings specified below, unless the context clearly
indicates otherwise.
1.2. AWARD LIMIT. "Award Limit" shall mean 6,186,111 shares of
Common Stock.
1.3. BOARD. "Board" shall mean the Board of Directors of the
Company.
1.4. CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5. COMMITTEE. "Committee" shall mean the Compensation Committee
of the Board, or another committee, or a subcommittee of the Board, appointed
as provided in Section 6.1.
1.6. COMMON STOCK. "Common Stock" shall mean the common stock of
the Company, par value $0.001 per share.
1.7. COMPANY. "Company" shall mean Mossimo, Inc., a Delaware
corporation.
1.8. DIRECTOR. "Director" shall mean a member of the Board.
1.9. EMPLOYEE. "Employee" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company.
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1.10. EXCHANGE ACT. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.11. INCENTIVE STOCK OPTION. "Incentive Stock Option" shall
mean an Option which conforms to the applicable provisions of Section 422 of
the Code and which is designated as an Incentive Stock Option by the
Committee.
1.12. INDEPENDENT DIRECTOR. "Independent Director" shall mean
a member of the Board who is not an Employee of the Company.
1.13. NONQUALIFIED STOCK OPTION. "Nonqualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by
the Committee.
1.14. OPTION. "Option" shall mean a stock option granted under
Article III of this Plan. An Option granted under the Plan shall, as
determined by the Committee, be either a Nonqualified Stock Option or an
Incentive Stock Option.
1.15. OPTION AGREEMENT. "Option Agreement" shall mean an
agreement between the Company and an Optionee that sets forth the terms,
conditions and limitations applicable to an Option.
1.16. OPTIONEE. "Optionee" shall mean Edwin Lewis, an
individual.
1.17. PLAN. "Plan" shall mean The Mossimo, Inc. Stock Option
Plan for Edwin Lewis.
1.18. QDRO. "QDRO" shall mean a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the regulations and rules thereunder.
1.19. RULE 16B-3. "Rule 16b-3" shall mean that certain Rule
16b-3 under the Exchange Act, as such Rule may be amended from time to time.
1.20. SECURITIES ACT. "Securities Act" shall mean the
Securities Act of 1933, as amended.
1.21. SUBSIDIARY. "Subsidiary" shall mean any corporation in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
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ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Options shall be Common Stock.
The aggregate number of shares of Common Stock which may be issued upon exercise
of such Options under the Plan shall not exceed 6,186,111, subject to adjustment
as provided in Section 7.3. The shares of Common Stock issuable upon exercise
of such Options may be either previously authorized but unissued shares or
treasury shares.
(b) The maximum number of shares of Common Stock which may be
subject to Options granted under the Plan to Optionee in any calendar year
shall not exceed the Award Limit. To the extent required by Section 162(m)
of the Code, shares of Common Stock subject to Options which are canceled
continue to be counted against the Award Limit and if, after grant of an
Option, the price of shares subject to such Option is reduced, the
transaction is treated as a cancellation of the Option and a grant of a new
Option and both the Option deemed to be canceled and the Option deemed to be
granted are counted against the Award Limit.
ARTICLE III.
GRANTING OF OPTIONS
3.1. ELIGIBILITY. Optionee shall be eligible to be granted one or
more Options under this Plan if Optionee is then an Employee of the Company.
No other Employee or consultant shall be eligible to be granted an Option
under this Plan.
3.2. DISQUALIFICATION FOR STOCK OWNERSHIP. Optionee may not be
granted an Incentive Stock Option under the Plan if Optionee, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option
conforms to the applicable provisions of Section 422 of the Code.
3.3. GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its sole discretion,
and subject to applicable limitations of this Plan:
(i) Subject to the Award Limit, determine the number of shares
of Common Stock to be subject to such Options granted to Optionee;
(ii) Determine whether such Options are to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code; and
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(iii) Determine the terms and conditions of such Options,
consistent with this Plan; PROVIDED, HOWEVER, that the terms and conditions
of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon determining to grant Optionee an Option under this Plan, the
Committee shall instruct the Secretary of the Company to issue the Option and
may impose such conditions on the grant of the Option as it deems appropriate.
ARTICLE IV.
TERMS OF OPTIONS
4.1. OPTION AGREEMENT. Each Option shall be evidenced by a written
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan. Option Agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code.
4.2. EXERCISE PRICE. The price per share of the shares subject to
each Option shall be set by the Committee and specified in the Option
Agreement; PROVIDED, HOWEVER, that such price shall be no less than 100% of
the fair market value (as determined by the Committee acting in good faith)
of a share of Common Stock on the date that the Option is granted.
4.3. OPTION TERM. The term of an Option shall be twenty (20) years
from the date of grant; PROVIDED, HOWEVER, that the term of any Incentive
Stock Option shall not be more than ten (10) years from the date the Option
is granted.
4.4. OPTION VESTING.
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in
part for a specified period after it is granted.
(c) To the extent that the aggregate fair market value (as
determined by the Committee acting in good faith) of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the
Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any parent or
Subsidiary corporation, within the meaning of Section 422 of the Code) of the
Company, exceeds $100,000, such Options shall be treated as Nonqualified
Stock Options to the extent required by Section 422 of the Code. The rule
set forth in the preceding sentence shall be applied by taking Options into
account in the order in which they were granted. For purposes of this Section
4.4(b), the fair market value of
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stock shall be determined by the Committee acting in good faith as of the
time the Option with respect to such stock is granted.
4.5. CONSIDERATION. In consideration of the granting of an Option,
the Optionee shall agree, in the written Option Agreement, to accept
employment with the Company and accept appointment as Chief Executive Officer
of the Company. Nothing in the Plan or any Option Agreement shall confer
upon any Optionee any right to continue in the employ of, or as a consultant
for, the Company or shall interfere with or restrict in any way the rights of
the Company, which are hereby expressly reserved, to discharge any Optionee
at any time for any reason whatsoever, with or without cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. PARTIAL EXERCISE. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect
to fractional shares and the Committee may require that, by the terms of the
Option Agreement, a partial exercise be with respect to a minimum number of
shares.
5.2. MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company or his or her office:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof,
is exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion will indemnify the Company
against and hold it free and harmless from any loss, damage, expense or
liability resulting to the Company if any sale or distribution of the shares
by such person is contrary to the representation and agreement referred to
above. The Committee may, in its reasonable discretion, take whatever
additional actions it deems appropriate to insure the observance and
performance of such representation and agreement and to effect compliance
with the Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the
Administrator may require an opinion of counsel acceptable to it to the
effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise
of this Option shall bear an appropriate legend referring to the provisions
of this subsection (b) and the agreements herein. The written representation
and agreement referred to in the first sentence of this subsection (b) shall,
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however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(c) In the event that the Option shall be exercised pursuant to
Section 7.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised, (i)
through cash payment; (ii) through the delivery of shares of Common Stock
which have been owned by Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined by the
Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or (iii)
through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of any
applicable withholding tax.
5.3. Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until such
shares have been issued by the Company to Optionee.
ARTICLE VI.
ADMINISTRATION
6.1. COMPENSATION COMMITTEE. The Compensation Committee (or
another committee or a subcommittee of the Board assuming the functions of
the Committee under this Plan) shall consist solely of two or more
Independent Directors appointed by and holding office at the pleasure of the
Board, each of whom is (i) a "non-employee director" (as defined by Rule
16b-3) and (ii) to the extent required by the applicable provisions of Rule
16b-3, a "disinterested person" as defined by Rule 16b-3; provided, that the
Committee with respect to any Options intended to qualify as
performance-based compensation, shall consist solely of two or more "outside
directors" for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment.
Committee members may resign at any time by delivering written notice to the
Board. Vacancies in the Committee may be filled by the Board.
6.2. DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance
with its provisions. The Committee shall have the power to interpret this
Plan and the agreements pursuant to which Options are granted, and to adopt
such rules for the administration, interpretation, and application of this
Plan as are consistent therewith and to interpret, amend or revoke any such
rules. Any such grant under this Plan need not be the same with respect to
each Optionee. In its sole discretion, the Board may at any time and from
time to time exercise any and all rights and duties of the Committee under
this Plan except with respect to matters which under Rule 16b-3 or
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Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
6.3. MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum
is present or by a memorandum or other written instrument signed by all
members of the Committee.
6.4. COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
which members of the Committee incur in connection with the administration of
this Plan shall be borne by the Company. The Committee may, with the
approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon Optionee, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith
with respect to this Plan or the Options and all members of the Committee and
the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1. NOT TRANSFERABLE. Options under this Plan may not be sold,
pledged, assigned, or transferred in any manner other than by will or the
laws of descent and distribution or pursuant to a QDRO, unless and until such
Options have been exercised, or the shares underlying such Options have been
issued. No Option or interest or right therein shall be liable for the
debts, contracts or engagements of the Optionee or his or her successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
During the lifetime of the Optionee only he or she may exercise an
Option (or any portion thereof) granted to him or her under the Plan, unless
it has been disposed of pursuant to a QDRO. After the death of the Optionee,
any exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Option Agreement, be
exercised by his or her personal representative or by any person empowered to
do so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
7.2. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN. Except as
otherwise provided in this Section 7.2, this Plan may be wholly or partially
amended or otherwise
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modified, suspended or terminated at any time or from time to time by the
Board or the Committee. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or modify the
Award Limit, and no action of the Committee or the Board may be taken that
would otherwise require stockholder approval as a matter of applicable law,
regulation or rule. No amendment, suspension or termination of this Plan
shall, without the consent of the holder of Options, alter or impair any
rights or obligations under any Options theretofore granted, unless the
applicable Option Agreement itself otherwise expressly so provides. No
Options may be granted during any period of suspension or after termination
of this Plan.
7.3. CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION
OR LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS.
(a) Subject to Section 7.3(c), if the outstanding shares of Common
Stock are changed into or exchanged for cash or a different number or kind of
shares or securities of the Company or of another issuer, or if additional
shares or new or different securities are distributed with respect to the
outstanding shares of Common Stock, through a reorganization or merger to
which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to any Options. A corresponding adjustment to the vesting price and
share amounts and other applicable provisions as well as to the consideration
payable with respect to Options to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall be made
without change in the total payment, if any, applicable to the portion of
such Options not exercised but with a corresponding adjustment in the price
for each share.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing
sentence, the Committee shall provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of Options or the substitution by such corporation for
such Options of options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices and to the vesting price and share amounts and
other applicable terms and conditions; (ii) for the continuance of this Plan
by such successor corporation in which event the Plan and any Options shall
continue in the manner and under the terms so provided, or (iii) for the
payment in cash in an amount equal to the amount that could have been
obtained upon the exercise of the vested portion of Options in lieu of and in
complete satisfaction of such Options.
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(c) To the extent any Options are intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 7.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause such
Options to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under any Options. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
such Options are not to comply with such exemptive conditions. The number of
shares of Common Stock subject to Options shall always be rounded to the next
whole number.
7.4. APPROVAL OF PLAN BY STOCKHOLDERS. This Plan will be submitted
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of this Plan. Options may be granted
prior to such stockholder approval, provided that such Options shall not be
exercisable prior to the time when this Plan is approved by the stockholders,
and provided further that if such approval has not been obtained at the end
of said twelve-month period, all Options previously granted under this Plan
shall thereupon be canceled and become null and void.
7.5. TAX WITHHOLDING. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee
of any sums required by federal, state or local tax law to be withheld with
respect to the issuance, vesting or exercise of any Option. The Committee
may, in its sole discretion, allow such Optionee to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option (or
allow the return of shares of Common Stock) having a fair market value (as
determined by the Committee acting in good faith) equal to the sums required
to be withheld.
7.6. LIMITATIONS APPLICABLE TO PERFORMANCE-BASED COMPENSATION.
Notwithstanding any other provision of this Plan, any Option intended to
qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described
in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to
the extent necessary to conform to such requirements; PROVIDED, that any such
provisions or limitations shall not materially adversely affect Optionee's
rights under such Option.
7.7. EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The
adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company. Nothing in this Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives
or compensation for Employees, Directors or consultants of the Company or (b)
to grant or assume options or other rights otherwise than under this Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger,
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consolidation or otherwise, of the business, stock or assets of any
corporation, partnership, firm or association.
7.8. TITLES. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of this Plan.
7.9. GOVERNING LAW. This Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the
state of Delaware without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of Mossimo, Inc. on November 30, 1998.
Executed on this 30th day of November, 1998.
/s/ THORA THORODDSEN
-------------------------------
Secretary
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NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of November 30, 1998, is made by
and between Mossimo, Inc., a Delaware corporation, hereinafter referred to as
"Company," and Edwin Lewis, hereinafter referred to as "Optionee":
WHEREAS, the Company has adopted the Mossimo, Inc. Stock
Option Plan for Edwin Lewis (the terms of which are hereby incorporated by
reference and made a part of this Agreement);
WHEREAS, as of the date hereof, Mossimo Giannulli is the
legal and beneficial owner of 10,372,222 shares of the Common Stock, and is
not the beneficial owner of any additional shares of Common Stock;
WHEREAS, the Company wishes to carry out the terms of the
Plan and afford the Optionee the opportunity to purchase 5,152,778 shares of
its $.001 par value Common Stock;
WHEREAS, the Committee has determined that it would be to
the advantage and best interest of the Company and its shareholders to grant
the nonqualified option provided for herein to the Optionee as an inducement
to accept employment with the Company and accept appointment as Chief
Executive Officer and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option; and
WHEREAS, the Committee intends that this Option qualify as
performance based compensation as described in Section 162(m)(4)(C) of the
Code.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meanings specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
1.1. ADMINISTRATOR
"Administrator" shall mean the Committee.
1.2. BOARD
"Board" shall mean the Board of Directors of the Company.
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1.3. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.4. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.5. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.6. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.7. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.8. OFFICER
"Officer" shall mean an officer of the Company, as defined
in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the
future.
1.9. OPTION
"Option" shall mean the nonqualified option to purchase
Common Stock of the Company granted under this Agreement.
1.10. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Edwin Lewis.
1.11. RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
1.12. SECRETARY
"Secretary" shall mean the Secretary of the Company.
1.13. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
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ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
Subject to Section 5.5, in consideration of the Optionee's
agreement to accept employment with the Company on the date hereof and to
accept appointment as Chief Executive Officer of the Company on December 1,
1998, on the date hereof the Company irrevocably grants to the Optionee the
option to purchase any part or all of an aggregate of 5,152,778 shares of
Common Stock upon the terms and conditions set forth in this Agreement.
2.2. PURCHASE PRICE
The purchase price of the shares of Common Stock covered by
the Option shall be $3.00 per share without commission or other charge.
2.3. CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to accept employment with the Company on the
date hereof and to accept appointment as Chief Executive Officer of the
Company on December 1, 1998. Nothing in this Agreement or in the Plan shall
confer upon the Optionee any right to continue in a business relationship
with the Company or shall interfere with or restrict in any way the rights of
the Company which are hereby expressly reserved, to terminate such employment
relationship at any time for any reason whatsoever, with or without cause.
2.4. ADJUSTMENTS IN OPTION
(a) Subject to Section 2.4(c), if the outstanding shares of
Common Stock are changed into or exchanged for cash or a different number or
kind of shares or securities of the Company or of another issuer, or if
additional shares or new or different securities are distributed with respect
to the outstanding shares of Common Stock, through a reorganization or merger
to which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to this Option. A corresponding adjustment to the consideration
payable with respect to this Option to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall be made
without change in the total payment, if any, applicable to the portion of the
Option not exercised but with a corresponding adjustment in the price for
each share.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing
sentence, the Committee shall provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives
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(separately or in combinations): (i) for the assumption by the successor
corporation of the Option or the substitution by such corporation for such
Option of options covering the stock of the successor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices; (ii) for the continuance of this Plan by such
successor corporation in which event the Plan and this Option shall continue
in the manner and under the terms so provided, or (iii) for the payment in
cash in an amount equal to the amount that could have been obtained upon the
exercise of the vested portion of this Option in lieu of and in complete
satisfaction of this Option.
(c) To the extent this Option is intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 2.4 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause this
Option to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under this Option. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
the Option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to the Option shall always be rounded to the
next whole number.
ARTICLE III.
PERIOD OF EXERCISABILITY
3.1. COMMENCEMENT OF EXERCISABILITY
Subject to Section 5.5, the Option shall become be
immediately exercisable in full upon the date of grant.
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone
after, and shall expire upon, the earlier of (i) November 30, 2018 or (ii)
the expiration of one (1) year from the date of the Optionee's death.
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise
the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will
or under the then applicable laws of descent and distribution.
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4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.2; provided, however, that each partial exercise shall be for whole
shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.2:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
reasonable discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Administrator may require an opinion of counsel acceptable to it
to the effect that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise of
this Option shall bear an appropriate legend referring to the provisions of this
subsection (b) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (b) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(c) In the event that the Option shall be exercised by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised, (i)
through cash payment; (ii) through the delivery of shares of Common Stock which
have been owned by Optionee for at least six months, duly endorsed for transfer
to the Company with a fair market value (as determined by
5
<PAGE>
the Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or (iii)
through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of any
applicable withholding tax.
4.4. TIMING OF ISSUANCE OF SHARES
Notwithstanding anything in the Plan or this Agreement to the
contrary, the shares of Common Stock issuable upon exercise of the Option shall
be issued no later than the earlier of (i) the date of receipt by the Company
from Mossimo Giannulli of a number of shares of Common Stock equal to the number
of shares of Common Stock for which the Option is being exercised, which shall
be contributed by Mossimo Giannulli to the Company without any consideration
therefor from the Company and (ii) the expiration of 120 days from the date on
which the Optionee has satisfied the conditions under Section 4.3 in all
material respects. The Company shall instruct the Custodian (as such term is
defined in that certain Escrow Agreement dated as of even date herewith between
Mossimo Giannulli, the Company and the Custodian (the "Escrow Agreement")), to
release the appropriate number of shares from the Escrow Account (as defined in
the Escrow Agreement") within two business days of the date on which Optionee
has satisfied the conditions under Section 4.3 in all material respects. Should
the appropriate number of shares from the Escrow Account not be released to the
Company within four business days of the date on which Optionee has satisfied
the conditions under Section 4.3 in all material respects, the Company shall
immediately return to Optionee the payments previously tendered to the Company
by Optionee under Sections 4.3(d) and (e) in connection with such exercise. Upon
the occurrence of either (i) or (ii) above, the Company shall have an
unconditional obligation to issue the requisite shares of Common Stock to
Optionee, subject to Optionee's satisfaction of the conditions under Section
4.3.
4.5. RIGHTS AS STOCKHOLDERS.
Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until such shares have
been issued by the Company to Optionee.
ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Administrator shall have the power to interpret the Plan
and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the
6
<PAGE>
Administrator shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
5.3. NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.3, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.3. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
5.4. TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
5.5. SHAREHOLDER APPROVAL
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by anyone
prior to the time when the Plan is approved by the shareholders, and if such
approval has not been obtained by the end of said twelve-month period, this
Option shall thereupon be canceled and become null and void. The Company shall
take such actions as may be necessary to satisfy the requirements of Rule
16b-3(b).
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and enforced
under the laws of the State of Delaware.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
By: /s/ Mossimo Giannulli
---------------------------------
Chairman
By: /s/ Thora Thoroddsen
---------------------------------
Secretary
/s/ Edwin H. Lewis
- ---------------------------------
Optionee
- ---------------------------------
- ---------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ---------------------------------
8
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of November 30, 1998, is made by
and between Mossimo, Inc., a Delaware corporation, hereinafter referred to as
"Company," and Edwin Lewis, hereinafter referred to as "Optionee":
WHEREAS, the Company has adopted the Mossimo, Inc. Stock
Option Plan for Edwin Lewis (the terms of which are hereby incorporated by
reference and made a part of this Agreement);
WHEREAS, the Company wishes to carry out the terms of the
Plan and afford the Optionee the opportunity to purchase 33,333 shares of its
$.001 par value Common Stock; and
WHEREAS, the Committee has determined that it would be to
the advantage and best interest of the Company and its shareholders to grant
the incentive stock option provided for herein to the Optionee as an
inducement to accept employment with the Company and accept appointment as
Chief Executive Officer and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement,
they shall have the meanings specified below unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
1.1. ADMINISTRATOR
"Administrator" shall mean the Committee.
1.2. BOARD
"Board" shall mean the Board of Directors of the Company.
1.3. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
<PAGE>
1.4. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.5. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.6. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.7. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.8. OFFICER
"Officer" shall mean an officer of the Company, as defined in
Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the future.
1.9. OPTION
"Option" shall mean the incentive stock option to purchase
Common Stock of the Company granted under this Agreement.
1.10. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Edwin Lewis.
1.11. RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
1.12. SECRETARY
"Secretary" shall mean the Secretary of the Company.
1.13. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
2
<PAGE>
ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
Subject to Section 5.5, in consideration of the Optionee's
agreement to accept employment with the Company on the date hereof and to
accept appointment as Chief Executive Officer of the Company on December 1,
1998, on the date hereof the Company irrevocably grants to the Optionee the
option to purchase any part or all of an aggregate of 33,333 shares of Common
Stock upon the terms and conditions set forth in this Agreement.
2.2. PURCHASE PRICE
The purchase price of the shares of Common Stock covered by
the Option shall be $3.00 per share without commission or other charge.
2.3. CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to accept employment with the Company on the
date hereof and to accept appointment as Chief Executive Officer of the
Company on December 1, 1998. Nothing in this Agreement or in the Plan shall
confer upon the Optionee any right to continue in a business relationship
with the Company or shall interfere with or restrict in any way the rights of
the Company which are hereby expressly reserved, to terminate such employment
relationship at any time for any reason whatsoever, with or without cause.
2.4. ADJUSTMENTS IN OPTION
(a) Subject to Section 2.4(c), if the outstanding shares of
Common Stock are changed into or exchanged for cash or a different number or
kind of shares or securities of the Company or of another issuer, or if
additional shares or new or different securities are distributed with respect
to the outstanding shares of Common Stock, through a reorganization or merger
to which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to this Option. A corresponding adjustment to the consideration
payable with respect to this Option to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall be made
without change in the total payment, if any, applicable to the portion of the
Option not exercised but with a corresponding adjustment in the price for
each share.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing, the
Committee shall provide in writing in connection with, or in contemplation
of, any such transaction for any or all of the following alternatives
(separately or
3
<PAGE>
in combinations): (i) for the assumption by the successor corporation of the
Option or the substitution by such corporation for such Option of options
covering the stock of the successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices; (ii) for the continuance of this Plan by such successor corporation
in which event the Plan and this Option shall continue in the manner and
under the terms so provided, or (iii) for the payment in cash in an amount
equal to the amount that could have been obtained upon the exercise of the
vested portion of this Option in lieu of and in complete satisfaction of this
Option.
(c) To the extent this Option is intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 2.4 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause this
Option to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under this Option. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
the Option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to the Option shall always be rounded to the
next whole number.
ARTICLE III.
PERIOD OF EXERCISABILITY
3.1. COMMENCEMENT OF EXERCISABILITY
Subject to Section 5.5, the Option shall become be immediately
exercisable in full upon the date of grant.
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone on
or after, and shall expire upon, the earlier of (i) November 30, 2008 or (ii)
the expiration of one (1) year from the date of the Optionee's death.
3.3. LIMITATION ON EXERCISABILITY
Notwithstanding any other provision of this Agreement, the
aggregate fair market value (determined at the time the Option is granted) of
the shares of the Company's stock with respect to which "incentive stock
options" within the meaning of Section 422 of the Code) are exercisable for
the first time by the Optionee during any calendar year (under the Plan and
all other incentive stock option plans of the Company, any Subsidiary and any
parent corporation thereof (within the meaning of Section 422 of the Code))
shall not exceed $100,000.
4
<PAGE>
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise
the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will
or under the then applicable laws of descent and distribution.
4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option,
if then wholly exercisable, may be exercised in whole or in part at any time
prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.2; provided, however, that each partial exercise shall be for
whole shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.2:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof,
is exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that the shares of
stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion will indemnify the Company
against and hold it free and harmless from any loss, damage, expense or
liability resulting to the Company if any sale or distribution of the shares
by such person is contrary to the representation and agreement referred to
above. The Committee may, in its reasonable discretion, take whatever
additional actions it deems appropriate to insure the observance and
performance of such representation and agreement and to effect compliance
with the Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the
Administrator may require an opinion of counsel acceptable to it to the
effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise
of this Option shall bear an appropriate legend referring to the provisions
of this subsection (b) and the agreements herein. The written representation
and agreement referred to in the first sentence of this subsection (b) shall,
5
<PAGE>
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(c) In the event that the Option shall be exercised by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised,
(i) through cash payment; (ii) through the delivery of shares of Common Stock
which have been owned by Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined by the
Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or (iii)
through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of
any applicable withholding tax.
4.4. TIMING OF ISSUANCE OF SHARES
Notwithstanding anything in the Plan or this Agreement to
the contrary, the shares of Common Stock issuable upon exercise of the Option
shall be issued no later than the earlier of (i) the date of receipt by the
Company from Mossimo Giannulli of a number of shares of Common Stock equal to
the number of shares of Common Stock for which the Option is being exercised,
which shall be contributed by Mossimo Giannulli to the Company without any
consideration therefor from the Company and (ii) the expiration of 120 days
from the date on which the Optionee has satisfied the conditions under
Section 4.3 in all material respects. The Company shall instruct the
Custodian (as such term is defined in that certain Escrow Agreement dated as
of even date herewith between Mossimo Giannulli, the Company and the
Custodian (the "Escrow Agreement")), to release the appropriate number of
shares from the Escrow Account (as defined in the Escrow Agreement") within
two business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects. Should the appropriate number of
shares from the Escrow Account not be released to the Company within four
business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects, the Company shall immediately
return to Optionee the payments previously tendered to the Company by
Optionee under Sections 4.3(d) and (e) in connection with such exercise. Upon
the occurrence of either (i) or (ii) above, the Company shall have an
unconditional obligation to issue the requisite shares of Common Stock to
Optionee, subject to Optionee's satisfaction of the conditions under Section
4.3.
4.5. RIGHTS AS STOCKHOLDERS.
Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until such
shares have been issued by the Company to Optionee.
6
<PAGE>
ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Administrator shall have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
5.3. NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the
address given beneath his signature hereto. By a notice given pursuant to
this Section 5.3, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Optionee shall, if the Optionee is then deceased, be given to the
Optionee's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 5.3. Any notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained
by the United States Postal Service.
5.4. TITLES
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
5.5. SHAREHOLDER APPROVAL
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may
7
<PAGE>
not be exercised to any extent by anyone prior to the time when the Plan is
approved by the shareholders, and if such approval has not been obtained by
the end of said twelve-month period, this Option shall thereupon be canceled
and become null and void. The Company shall take such actions as may be
necessary to satisfy the requirements of Rule 16b-3(b).
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and
enforced under the laws of the State of Delaware.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
By: /s/ Mossimo Giannulli
------------------------------------
Chairman
By: /s/ Thora Thoroddsen
------------------------------------
Secretary
/s/ Edwin H. Lewis
- ----------------------------------
Optionee
- ----------------------------------
- ----------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ----------------------------------
<PAGE>
NONQUALIFIED PERFORMANCE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of November 30, 1998, is made by
and between Mossimo, Inc., a Delaware corporation, hereinafter referred to as
"Company," and Edwin Lewis, hereinafter referred to as "Optionee":
WHEREAS, the Company has adopted the Mossimo, Inc. Stock
Option Plan for Edwin Lewis (the terms of which are hereby incorporated by
reference and made a part of this Agreement);
WHEREAS, pursuant to that certain Nonqualified Stock Option
Agreement, dated as of November 30, 1998 and that certain Incentive Stock
Option Agreement, dated as of November 30, 1998, the Company has granted to
Optionee the options to purchase, in the aggregate, 5,186,111 shares of the
Company's Common Stock;
WHEREAS, the Company desires to grant to Optionee an
additional option to purchase 966,667 shares of the Company's Common Stock
which shall become vested and exercisable upon the satisfaction of the
performance goals described herein;
WHEREAS, the Committee has determined that it would be to
the advantage and best interest of the Company and its shareholders to grant
the nonqualified option provided for herein to the Optionee as an inducement
to accept employment with the Company and accept appointment as Chief
Executive Officer and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option; and
WHEREAS, the Committee intends that this Option qualify as
performance based compensation as described in Section 162(m)(4)(C) of the
Code.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement,
they shall have the meanings specified below unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
1.1. ADMINISTRATOR
"Administrator" shall mean the Committee.
1.2. CLOSING TRADING PRICE
"Closing Trading Price" for any Trading Day shall mean the
closing trading price of a share of Common Stock on the New York Stock
Exchange (composite quotations, rounded
<PAGE>
to the nearest whole cent) (or any other principal exchange or quotation
system through which the Common Stock is traded) for the Trading Day.
1.3. BOARD
"Board" shall mean the Board of Directors of the Company.
1.4. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.6. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.7. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.8. EMPLOYEE
"Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company.
1.9. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.10. OFFICER
"Officer" shall mean an officer of the Company, as defined
in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the
future.
1.11. OPTION
"Option" shall mean the nonqualified option to purchase
Common Stock of the Company granted under this Agreement.
1.12. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Edwin Lewis.
2
<PAGE>
1.13. RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
1.14. SECRETARY
"Secretary" shall mean the Secretary of the Company.
1.15. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
1.16. SHARE PRICE THRESHOLD
"Share Price Threshold" shall mean the Closing Trading
Price thresholds set forth in the schedule at Section 3.1(c) of this
Agreement; provided, however, that in the event that the Closing Trading
Price for any Trading Day equals or exceeds any Share Price Threshold, such
amount shall not be a Share Price Threshold for purposes of any Trading Day
following such Trading Day.
1.17. TRADING DAY
"Trading Day" shall mean any day after November 30, 1998 on
which shares of Common Stock are traded on the New York Stock Exchange (or
any other principal exchange or quotation system through which the Common
Stock is traded).
ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
Subject to Section 5.5, in consideration of the Optionee's
agreement to accept employment with the Company on the date hereof and accept
appointment as Chief Executive Officer of the Company on December 1, 1998, on
the date hereof the Company irrevocably grants to the Optionee the option to
purchase any part or all of an aggregate of 966,667 shares of Common Stock,
upon the terms and conditions set forth in this Agreement.
2.2. PURCHASE PRICE
The purchase price of the shares of Common Stock covered by
the Option shall be $3.00 per share without commission or other charge.
2.3. CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to accept employment with the Company on the
date hereof and accept appointment as Chief Executive Officer of the Company
on December 1, 1998. Nothing in this Agreement or in the Plan shall confer
upon the Optionee any right to continue in a business relationship with the
3
<PAGE>
Company or shall interfere with or restrict in any way the rights of the
Company which are hereby expressly reserved, to terminate such employment
relationship at any time for any reason whatsoever, with or without cause.
2.4. ADJUSTMENTS IN OPTION
(a) Subject to Section 2.4(c), if the outstanding shares of
Common Stock are changed into or exchanged for cash or a different number or
kind of shares or securities of the Company or of another issuer, or if
additional shares or new or different securities are distributed with respect
to the outstanding shares of Common Stock, through a reorganization or merger
to which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to this Option. A corresponding adjustment to the vesting price and
share amounts and other applicable provisions as well as to the consideration
payable with respect to this Option to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall be made
without change in the total payment, if any, applicable to the portion of the
Option not exercised but with a corresponding adjustment in the price for
each share.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing
sentence, the Committee shall provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of the Option or the substitution by such corporation
for such Option of options covering the stock of the successor corporation,
or a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices and to the vesting price and share
amounts and other applicable terms and conditions; (ii) for the continuance
of this Plan by such successor corporation in which event the Plan and this
Option shall continue in the manner and under the terms so provided, or
(iii) for the payment in cash in an amount equal to the amount that could
have been obtained upon the exercise of the vested portion of this Option in
lieu of and in complete satisfaction of this Option.
(c) To the extent this Option is intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 2.4 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause this
Option to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under this Option. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
the Option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to the Option shall always be rounded to the
next whole number.
4
<PAGE>
ARTICLE III.
VESTING; PERIOD OF EXERCISABILITY
3.1. VESTING SCHEDULE
(a) Upon the date of grant of the Option, the number of
shares of Common Stock with respect to which the Option shall be vested and
exercisable shall be zero.
(b) The number of shares of Common Stock with respect to
which the Option is vested and exercisable on any date (prior to reduction in
an amount equal to the number of shares of Common Stock for which the Option
has previously been exercised) is referred to herein as "Vested Performance
Shares."
(c) Subject to Sections 3.1(e) and 5.5, and except as otherwise provided
in Section 3.1(d), in the event that the Optionee is an Employee on any
Trading Day for which the Closing Trading Price equals or exceeds any Share
Price Threshold set forth in the following schedule (each a "Vesting Date"),
the Option shall be vested and exercisable with respect to the number of
shares of Common Stock determined in accordance with the following schedule.
<TABLE>
<CAPTION>
------------------- --------------------------
SHARE PRICE VESTED PERFORMANCE
THRESHOLD SHARES
------------------- --------------------------
<S> <C>
$10.00 216,667
------------------- --------------------------
$15.00 466,667
------------------- --------------------------
$20.00 716,667
------------------- --------------------------
$25.00 966,667
------------------- --------------------------
</TABLE>
(d) Upon each Vesting Date, the number of Vested
Performance Shares shall not exceed the number of Vested Performance Shares
determined as of such Vesting Date in accordance with the formulas set forth
on Exhibit "A" hereto; provided, however, that the number of Vested
Performance Shares on such Vesting Date shall not be less than the number of
Vested Performance Shares immediately prior to such Vesting Date.
(e) Subject to Section 5.5, in the event that Optionee is
then an Employee, the Option shall become 100% vested and exercisable on
November 30, 2005.
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone
after, and shall expire upon, the earlier of (i) November 30, 2018 or (ii) the
expiration of one (1) year from the date of the Optionee's death.
5
<PAGE>
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise
the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will
or under the then applicable laws of descent and distribution.
4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option,
if then wholly exercisable, may be exercised in whole or in part at any time
prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.2; provided, however, that each partial exercise shall be for
whole shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.2:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof,
is exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that the shares of
stock are being acquired for his own account, for investment and without any
present intention of distributing or reselling said shares or any of them
except as may be permitted under the Securities Act and then applicable rules
and regulations thereunder, and that the Optionee or other person then
entitled to exercise such Option or portion will indemnify the Company
against and hold it free and harmless from any loss, damage, expense or
liability resulting to the Company if any sale or distribution of the shares
by such person is contrary to the representation and agreement referred to
above. The Committee may, in its reasonable discretion, take whatever
additional actions it deems appropriate to insure the observance and
performance of such representation and agreement and to effect compliance
with the Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the
Administrator may require an opinion of counsel acceptable to it to the
effect that any subsequent transfer of shares acquired on an Option exercise
does not violate the Securities Act, and may issue stop-transfer orders
covering such shares. Share certificates evidencing stock issued on exercise
of this Option shall bear an appropriate legend referring to the provisions
of this subsection (b) and the agreements herein. The written representation
and agreement referred to in the first sentence of this subsection (b) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
6
<PAGE>
(c) In the event that the Option shall be exercised by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised,
(i) through cash payment; (ii) through the delivery of shares of Common Stock
which have been owned by Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined by the
Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or
(iii) through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of
any applicable withholding tax.
4.4. TIMING OF ISSUANCE OF SHARES
Notwithstanding anything in the Plan or this Agreement to
the contrary, the shares of Common Stock issuable upon exercise of the Option
shall be issued no later than the earlier of (i) the date of receipt by the
Company from Mossimo Giannulli of a number of shares of Common Stock equal to
the number of shares of Common Stock for which the Option is being exercised,
which shall be contributed by Mossimo Giannulli to the Company without any
consideration therefor from the Company and (ii) the expiration of 120 days
from the date on which the Optionee has satisfied the conditions under
Section 4.3 in all material respects. The Company shall instruct the
Custodian (as such term is defined in that certain Escrow Agreement dated as
of even date herewith between Mossimo Giannulli, the Company and the
Custodian (the "Escrow Agreement")), to release the appropriate number of
shares from the Escrow Account (as defined in the Escrow Agreement") within
two business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects. Should the appropriate number of
shares from the Escrow Account not be released to the Company within four
business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects, the Company shall immediately
return to Optionee the payments previously tendered to the Company by
Optionee under Sections 4.3(d) and (e) in connection with such exercise. Upon
the occurrence of either (i) or (ii) above, the Company shall have an
unconditional obligation to issue the requisite shares of Common Stock to
Optionee, subject to Optionee's satisfaction of the conditions under
Section 4.3.
4.5. RIGHTS AS STOCKHOLDERS
Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until such
shares have been issued by the Company to Optionee.
7
<PAGE>
ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Administrator shall have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
5.3. NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the
address given beneath his signature hereto. By a notice given pursuant to
this Section 5.3, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Optionee shall, if the Optionee is then deceased, be given to the
Optionee's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 5.3. Any notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained
by the United States Postal Service.
5.4. TITLES
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
5.5. SHAREHOLDER APPROVAL
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by
anyone prior to the time when the Plan is approved by the shareholders, and
if such approval has not been obtained by the end of said twelve-month
period,
8
<PAGE>
this Option shall thereupon be canceled and become null and void. The Company
shall take such actions as may be necessary to satisfy the requirements of
Rule 16b-3(b).
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and
enforced under the laws of the State of Delaware.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
By: /s/ Mossimo Giannulli
-------------------------------
Chairman
By: /s/ Thora Thoroddsen
-------------------------------
Secretary
/s/ Edwin H. Lewis
- -------------------------------
Optionee
- -------------------------------
- -------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- -------------------------------
10
<PAGE>
EXHIBIT A
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Exhibit A or
in Exhibit B, they shall have the meanings specified below unless the context
clearly indicates to the contrary. The masculine pronoun shall include the
feminine and neuter, and the singular the plural, where the context so
indicates. Capitalized terms in this Exhibit A or in Exhibit B which are not
defined herein, shall have the meanings attributable to such terms as defined
in the Agreement or the Plan, as applicable, unless the context clearly
indicates to the contrary.
1.1. BASIC STOCK OPTIONS
"Basic Stock Options" shall mean the option to purchase
shares of Common Stock granted by the Company to Optionee under (i) the
Nonqualified Stock Option Agreement, dated as of November 30, 1998; (ii) the
Incentive Stock Option Agreement, dated as of November 30, 1998; and (iii)
the Performance Incentive Stock Option Agreement, dated as of November 30,
1998 .
1.2. BASIC OPTION SHARES
"Basic Option Shares" shall mean the number of shares of
Common Stock subject to the Basic Stock Options.
1.3. OPTIONEE TAX RATE
"Optionee Tax Rate" on any Trading Day shall mean the
effective Federal income tax rate that would apply to the income that
Optionee would have recognized with respect to the Basic Stock Options and
this Option if Optionee had purchased the Basic Option Shares upon the
exercise of the Basic Stock Options in full, and purchased the Vested
Performance Shares upon the exercise of this Option, on such Trading Day.
1.4. SHAREHOLDER TAX RATE
"Shareholder Tax Rate" on any Trading Day shall mean the
effective Federal income tax rate that would apply to the income that Mossimo
Giannulli would have recognized with respect to the sale of the number of
shares of Common Stock equal to the Residual Shares, reduced by the Vested
Performance Shares, if such shares of Common Stock were sold by Mossimo
Giannulli on such Trading Day.
1.6. RESIDUAL SHARES
"Residual Shares" shall mean 10,372,222 shares of Common Stock, reduced
by the Basic Option Shares.
11
<PAGE>
ARTICLE II.
VESTED PERFORMANCE SHARES
2.1. CALCULATION OF VESTED PERFORMANCE SHARES
Notwithstanding Section 3.1(c) of the Agreement, the Vested
Performance Shares on a Vesting Date shall be the number of shares of Common
Stock that results in the Optionee After Tax Value on such Trading Day
equaling the Shareholder After Tax Value on such Trading Day.
2.2 OPTIONEE AFTER TAX VALUE
The "Optionee After Tax Value" on any Trading Day shall mean:
(a) the factor equal to 1.000, less the "Optionee Tax Rate" on
such Trading Day, multiplied by
(b) the amount equal to the Closing Trading Price for such
Trading Day, less the Exercise Price, multiplied by
(c) the sum of (i) the number of Basic Option Shares, and (ii)
the number of Vested Performance Shares.
2.3. OPTIONEE AFTER TAX VALUE EXAMPLE
The following example demonstrates the calculation of the
Optionee After Tax Value. This example assumes that: (i) the "Closing Trading
Price" for a "Trading Day" equaled the "Share Price Threshold" of $10.00 on
July 1, 1999; (ii) the number of Basic Option Shares is 5,219,444; and (iii)
the Exercise Price is $3.00.
Assuming that the Basic Stock Options are exercised in full
on July 1, 1999, and the Option was exercised with respect to the Vested
Performance Shares on July 1, 1999, the effective Federal income tax rate
that would apply to the income that Optionee would have recognized upon such
purchases would be 39.6%. Accordingly, the "Optionee After Tax Value" would
equal:
(a) 1.000, less .396, multiplied by
(b) $10.00, less $3.00, multiplied by
(c) the sum of 5,219,444 and the Vested Performance Shares.
2.4 SHAREHOLDER AFTER TAX VALUE
The "Shareholder After Tax Value" on any Trading Day shall
mean the sum of:
(a) the factor equal to 1.000, less the "Shareholder Tax Rate"
on such Trading Day, multiplied by
12
<PAGE>
(b) the Closing Trading Price for such Trading Day, multiplied
by
(c) the number of the Residual Shares, less the number of the
Vested Performance Shares.
2.5 SHAREHOLDER AFTER TAX VALUE EXAMPLE
The following example illustrates the calculation of the
"Shareholder After Tax Value." The example assumes that: (i) the "Closing
Trading Price" for a "Trading Day" equaled the "Share Price Threshold" of
$10.00 on July 1, 1999; (ii) the number of Residual Shares is 5,152,778; and
(iii) the Exercise Price is $3.00.
Assuming that the Residual Shares, reduced by the Vested
Performance Shares, are sold on July 1, 1999, the effective Federal income
tax rate that would apply to the income that Mossimo Giannulli would have
recognized upon such sale would be 20.00%. Accordingly, the "Shareholder
After Tax Value" would equal:
(a) 1.000, less .200, multiplied by
(b) $10.00, multiplied by
(c) 5,152,778, less the number of Vested Performance Shares.
13
<PAGE>
EXHIBIT B
ARTICLE I.
VESTED PERFORMANCE SHARE CALCULATION EXAMPLE
Using the examples described in Exhibit "A" and assuming an
Closing Trading Price of $10.00, the Vested Performance Shares would be
calculated as follows:
Optionee After Tax Value = Shareholder After Tax Value
(a) Optionee After Tax Value = (1.000-.396) x ($10.00-$3.00) x (5,219,444 +
Vested Performance Shares)
= (.604) x ($7.00) x (5,219,444 + Vested Performance Shares)
= 22,067,809 + (4.228 x Vested Performance Shares)
(b) Shareholder After Tax Value = (1.000-.200) x ($10.00) x (5,152,778 - Vested
Performance Shares)
= (.800) x ($10.00) x (5,152,778 - Vested Performance Shares)
= 41,222,224 - ($8.00 x Vested Performance Shares)
(c) (22,067,809) + (4.228 x Vested Performance Shares) = (41,222,224) - ($8.00
x Vested Performance Shares)
Vested Performance Shares = 1,566,439 shares of Common Stock.
As this example illustrates, upon a Vesting Date on which
the Share Price Threshold of $10.00 is attained, and assuming an Closing
Trading Price of $10.00, the number of Vested Performance Shares for such
Vesting Date as determined pursuant to the formulas under Exhibit "A" equals
1,566,439. The number of Vested Performance Shares determined pursuant to the
formulas under Exhibit "A" is greater than 216,667 (i.e., the number of
Vested Performance Shares for such Vesting Date determined under the schedule
set forth at Section 3.1(c) of this Agreement). Accordingly, pursuant to
Section 3.1(d) of this Agreement, the number of Vested Performance Shares as
of such Vesting Date will equal 216,667.
14
<PAGE>
PERFORMANCE INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of November 30, 1998, is made by
and between Mossimo, Inc., a Delaware corporation, hereinafter referred to as
"Company," and Edwin Lewis, hereinafter referred to as "Optionee":
WHEREAS, the Company has adopted the Mossimo, Inc. Stock
Option Plan for Edwin Lewis (the terms of which are hereby incorporated by
reference and made a part of this Agreement);
WHEREAS, the Company desires to grant to Optionee an
incentive stock option to purchase 33,333 shares of the Company's Common
Stock which shall become vested and exercisable upon the satisfaction of the
performance goal described herein; and
WHEREAS, the Committee has determined that it would be to
the advantage and best interest of the Company and its shareholders to grant
the incentive stock option provided for herein to the Optionee as an
inducement to accept employment with the Company and accept appointment as
Chief Executive Officer and as an incentive for increased efforts during such
service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement,
they shall have the meanings specified below unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine
and neuter, and the singular the plural, where the context so indicates.
1.1. ADMINISTRATOR
"Administrator" shall mean the Committee.
1.2. CLOSING TRADING PRICE
"Closing Trading Price" for any Trading Day shall mean the
closing trading price of a share of Common Stock on the New York Stock
Exchange (composite quotations, rounded to the nearest whole cent) (or any
other principal exchange or quotation system through which the Common Stock
is traded) for the Trading Day.
1.3. BOARD
"Board" shall mean the Board of Directors of the Company.
<PAGE>
1.4. CODE
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.5. COMMITTEE
"Committee" shall mean the Compensation Committee of the
Board, or such other committee appointed as provided in the Plan.
1.6. COMMON STOCK
"Common Stock" shall mean the Company's Common Stock, par
value $.001 per share.
1.7. COMPANY
"Company" shall mean Mossimo, Inc., a Delaware corporation.
1.8. EMPLOYEE
"Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Company.
1.9. EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.10. OFFICER
"Officer" shall mean an officer of the Company, as defined
in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the
future.
1.11. OPTION
"Option" shall mean the incentive option to purchase Common
Stock of the Company granted under this Agreement.
1.12. PLAN
"Plan" shall mean the Mossimo, Inc. Stock Option Plan for
Edwin Lewis.
1.13. RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
1.14. SECRETARY
"Secretary" shall mean the Secretary of the Company.
2
<PAGE>
1.15. SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as
amended.
1.16. TRADING DAY
"Trading Day" shall mean any day after November 30, 1998 on
which shares of Common Stock are traded on the New York Stock Exchange (or
any other principal exchange or quotation system through which the Common
Stock is traded).
ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
Subject to Section 5.5, in consideration of the Optionee's
agreement to accept employment with the Company on the date hereof and to
accept appointment as Chief Executive Officer of the Company on December 1,
1998, on the date hereof the Company irrevocably grants to the Optionee the
option to purchase any part or all of an aggregate of 33,333 shares of Common
Stock upon the terms and conditions set forth in this Agreement.
2.2. PURCHASE PRICE
The purchase price of the shares of Common Stock covered by
the Option shall be $3.00 per share without commission or other charge.
2.3. CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the
Company, the Optionee agrees to accept employment with the Company on the
date hereof and to accept appointment as Chief Executive Officer of the
Company on December 1, 1998. Nothing in this Agreement or in the Plan shall
confer upon the Optionee any right to continue in a business relationship
with the Company or shall interfere with or restrict in any way the rights of
the Company which are hereby expressly reserved, to terminate such employment
relationship at any time for any reason whatsoever, with or without cause.
2.4. ADJUSTMENTS IN OPTION
(a) Subject to Section 2.4(c), if the outstanding shares of
Common Stock are changed into or exchanged for cash or a different number or
kind of shares or securities of the Company or of another issuer, or if
additional shares or new or different securities are distributed with respect
to the outstanding shares of Common Stock, through a reorganization or merger
to which the Company is a party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend, reverse
stock split, stock consolidation or other capital change or adjustment, an
appropriate adjustment shall be made in the number and kind of shares or
other consideration that is subject to or may be delivered under the Plan and
pursuant to this Option. A corresponding adjustment to the vesting price and
share amounts and other applicable provisions as well as to the consideration
payable with respect to this Option to the extent granted prior to any such
change shall also be made. Any such adjustment, however, shall
3
<PAGE>
be made without change in the total payment, if any, applicable to the
portion of the Option not exercised but with a corresponding adjustment in
the price for each share.
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or
more corporations as a result of which the Company is not the surviving
corporation, the Plan shall terminate. Notwithstanding the foregoing
sentence, the Committee shall provide in writing in connection with, or in
contemplation of, any such transaction for any or all of the following
alternatives (separately or in combinations): (i) for the assumption by the
successor corporation of the Option or the substitution by such corporation
for such Option of options covering the stock of the successor corporation,
or a parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices and to the vesting price and share
amounts and other applicable terms and conditions; (ii) for the continuance
of this Plan by such successor corporation in which event the Plan and this
Option shall continue in the manner and under the terms so provided, or (iii)
for the payment in cash in an amount equal to the amount that could have been
obtained upon the exercise of the vested portion of this Option in lieu of
and in complete satisfaction of this Option.
(c) To the extent this Option is intended to qualify as
performance-based compensation under Section 162(m), no adjustment or action
described in this Section 2.4 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause this
Option to fail to so qualify under Section 162(m), or any successor
provisions thereto; PROVIDED, HOWEVER, that the failure to make any such
adjustment or action shall not materially adversely affect Optionee's rights
under this Option. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or violate
the exemptive conditions of Rule 16b-3 unless the Committee determines that
the Option is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to the Option shall always be rounded to the
next whole number.
ARTICLE III.
VESTING; PERIOD OF EXERCISABILITY
3.1. VESTING SCHEDULE
(a) Upon the date of grant of the Option, the number of
shares of Common Stock with respect to which the Option shall be vested and
exercisable shall be zero.
(b) Subject to Section 5.5, in the event that the Optionee
is an Employee on the first Trading Day on which the Closing Trading Price
equals or exceeds ten dollars ($10.00), the Option shall then immediately
become 100% vested and exercisable.
(c) Subject to Section 5.5, in the event that Optionee is
then an Employee, the Option shall become 100% vested and exercisable on
November 30, 2005.
4
<PAGE>
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone on
or after, and shall expire upon, the earliest of (i) November 30, 2008 or
(ii) the expiration of one (1) year from the date of the Optionee's death.
3.3. LIMITATION ON EXERCISABILITY
Notwithstanding any other provision of this Agreement, the
aggregate fair market value (determined at the time the Option is granted) of
the shares of the Company's stock with respect to which "incentive stock
options" within the meaning of Section 422 of the Code) are exercisable for
the first time by the Optionee during any calendar year (under the Plan and
all other incentive stock option plans of the Company, any Subsidiary and any
parent corporation thereof (within the meaning of Section 422 of the Code))
shall not exceed $100,000.
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise
the Option or any portion thereof. After the death of the Optionee, any
exercisable portion of the Option may, prior to the time when the Option
becomes unexercisable under Section 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will
or under the then applicable laws of descent and distribution.
4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option,
if then wholly exercisable, may be exercised in whole or in part at any time
prior to the time when the Option or portion thereof becomes unexercisable
under Section 3.2; provided, however, that each partial exercise shall be for
whole shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.2:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof,
is exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will
5
<PAGE>
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation
and agreement referred to above. The Committee may, in its reasonable
discretion, take whatever additional actions it deems appropriate to insure
the observance and performance of such representation and agreement and to
effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Administrator may require an opinion of counsel acceptable to
it to the effect that any subsequent transfer of shares acquired on an Option
exercise does not violate the Securities Act, and may issue stop-transfer
orders covering such shares. Share certificates evidencing stock issued on
exercise of this Option shall bear an appropriate legend referring to the
provisions of this subsection (b) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (b) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; and
(c) In the event that the Option shall be exercised by any
person or persons other than the Optionee, appropriate proof of the right of
such person or persons to exercise the Option; and
(d) Full payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised,
(i) through cash payment; (ii) through the delivery of shares of Common Stock
which have been owned by Optionee for at least six months, duly endorsed for
transfer to the Company with a fair market value (as determined by the
Committee acting in good faith) on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; or (iii)
through a combination of either of the foregoing; and
(e) Full cash payment to the Secretary of the Company of
any applicable withholding tax.
4.4. TIMING OF ISSUANCE OF SHARES
Notwithstanding anything in the Plan or this Agreement to
the contrary, the shares of Common Stock issuable upon exercise of the Option
shall be issued no later than the earlier of (i) the date of receipt by the
Company from Mossimo Giannulli of a number of shares of Common Stock equal to
the number of shares of Common Stock for which the Option is being exercised,
which shall be contributed by Mossimo Giannulli to the Company without any
consideration therefor from the Company and (ii) the expiration of 120 days
from the date on which the Optionee has satisfied the conditions under
Section 4.3 in all material respects. The Company shall instruct the
Custodian (as such term is defined in that certain Escrow Agreement dated as
of even date herewith between Mossimo Giannulli, the Company and the
Custodian (the "Escrow Agreement")), to release the appropriate number of
shares from the Escrow Account (as defined in the Escrow Agreement") within
two business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects. Should the appropriate number of
shares from the Escrow Account not be released to the Company within four
business days of the date on which Optionee has satisfied the conditions
under Section 4.3 in all material respects, the Company shall immediately
return to Optionee the payments previously tendered to the
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<PAGE>
Company by Optionee under Sections 4.3(d) and (e) in connection with such
exercise. Upon the occurrence of either (i) or (ii) above, the Company shall
have an unconditional obligation to issue the requisite shares of Common
Stock to Optionee, subject to Optionee's satisfaction of the conditions under
Section 4.3.
4.5. RIGHTS AS STOCKHOLDERS
Optionee shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until such
shares have been issued by the Company to Optionee.
ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Administrator shall have the power to interpret the
Plan and this Agreement and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret or revoke any such rules. All actions taken and all interpretations
and determinations made by the Administrator in good faith shall be final and
binding upon the Optionee, the Company and all other interested persons. No
member of the Administrator shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan
or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; provided,
however, that this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
5.3. NOTICES
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and
any notice to be given to the Optionee shall be addressed to him at the
address given beneath his signature hereto. By a notice given pursuant to
this Section 5.3, either party may hereafter designate a different address
for notices to be given to him. Any notice which is required to be given to
the Optionee shall, if the Optionee is then deceased, be given to the
Optionee's personal representative if such representative has previously
informed the Company of his status and address by written notice under this
Section 5.3. Any notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, deposited (with
postage prepaid) in a post office or branch post office regularly maintained
by the United States Postal Service.
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<PAGE>
5.4. TITLES
Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
5.5. SHAREHOLDER APPROVAL
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by
anyone prior to the time when the Plan is approved by the shareholders, and
if such approval has not been obtained by the end of said twelve-month
period, this Option shall thereupon be canceled and become null and void. The
Company shall take such actions as may be necessary to satisfy the
requirements of Rule 16b-3(b).
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and
enforced under the laws of the State of Delaware.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
By: /s/ Mossimo Giannulli
-------------------------
Chairman
By: /s/ Thora Thoroddsen
-------------------------
Secretary
/s/ Edwin H. Lewis
- -----------------------
Optionee
- -----------------------
- -----------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- -----------------------
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<PAGE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement"), dated as of
November 30, 1998, is made by and between Mossimo Giannulli ("Giannulli") and
Mossimo, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company and Edwin H. Lewis ("Lewis") have
entered into the Incentive Stock Option Agreement, the Nonqualified Stock
Option Agreement, the Performance Incentive Stock Option Agreement and the
Nonqualified Performance Stock Option Agreement, each dated as of even date
herewith (the "Option Agreements"), pursuant to which the Company has granted
to Lewis options (the "Options") to purchase up to an aggregate of 6,186,111
shares of Common Stock subject to the terms and conditions set forth in the
Option Agreements;
WHEREAS, Giannulli and the Company desire that Giannulli
contribute to the Company, upon each exercise by Lewis of an Option, a number
of shares of Common Stock equal to the number of shares of Common Stock
issuable upon such exercise;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
and intending to be legally bound hereby, the parties hereto hereby agree as
follows:
1. CONTRIBUTION. Upon each exercise of an Option in
accordance with the terms of the applicable Option Agreement (an "Exercise"),
Giannulli shall contribute to the Company (through a release of shares from
the escrow account established pursuant to Section 2) a number of shares of
Common Stock equal to the number of shares of Common Stock issuable by the
Company to Lewis upon such Exercise.
2. ESCROW. Concurrently with the execution of this
Agreement, Giannulli and the Company shall enter into an escrow agreement in
the form of Exhibit A hereto with ___________________ (the "Custodian") and
Giannulli shall deliver to the Custodian 6,186,111 shares of Common Stock.
3. MISCELLANEOUS.
(a) COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
instrument, and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party. Copies
of executed counterparts transmitted by telecopy, telefax or other electronic
transmission service shall be considered original executed counterparts for
purposes of this Section, provided receipt of copies of such counterparts is
confirmed.
(b) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to the choice of law principles thereof.
<PAGE>
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors. No party shall be permitted to assign any of its
rights hereunder to any third party.
(d) AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing signed
by the party against whom enforcement of any such modification or amendment
is sought. Either party hereto may, only by an instrument in writing, waive
compliance by another party hereto with any term or provision hereof on the
part of such other party hereto to be performed or complied with. The waiver
by either party hereto of a breach of any term or provision hereof shall not
be construed as a waiver of any subsequent breach.
(e) SEVERABILITY. Any provision hereof which is invalid
or unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions
hereof.
(f) FURTHER ASSURANCES. The parties agree that, from
time to time, each of them will execute and deliver such further instruments
and take such other action as may be necessary to carry out the purposes and
interests hereof.
(g) SPECIFIC PERFORMANCE. The parties acknowledge that,
in view of the uniqueness of arrangements contemplated by this Agreement,
they would not have an adequate remedy at law for money damages in the event
that this Agreement were not performed in accordance with its terms, and
therefore agree that each of them shall be entitled to specific enforcement
of the terms hereof in addition to any other remedy to which the parties
hereto may be entitled at law or in equity.
(h) THIRD PARTY BENEFICIARIES. Lewis shall be a third
party beneficiary to this Agreement and shall be entitled to enforce the
terms of this Agreement against the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MOSSIMO, INC., a Delaware corporation
/s/ Mossimo Giannulli
-------------------------------------
By: CHAIRMAN
/s/ Mossimo Giannulli
-------------------------------------
MOSSIMO GIANNULLI
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<PAGE>
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Escrow Agreement") is made and entered
into as of November 30, 1998 (the "Effective Time"), by and among Mossimo
Giannulli, an individual ("Giannulli"); Mossimo, Inc., a Delaware corporation
(the "Company"); and _________________________, as Custodian of the Escrowed
Shares (as defined below) (the "Custodian").
A. The Company and Edwin H. Lewis ("Lewis") have entered into (i)
an Incentive Stock Option Agreement dated as of November 30, 1998 (the
"Incentive Base Option Agreement") pursuant to which Lewis has an option (the
"Incentive Base Option") to purchase up to 33,333 shares of common stock, par
value $.001 per share, of the Company ("Common Stock") on the terms and
subject to the conditions set forth therein, (ii) a Nonqualified Stock Option
Agreement dated as of November 30, 1998 (the "Nonqualified Base Option
Agreement" and, together with the Incentive Base Option Agreement, the "Base
Option Agreements") pursuant to which Lewis has an option (the "Nonqualified
Base Option" and, together with the Incentive Base Option, the "Base
Options") to purchase up to 5,152,778 shares of Common Stock on the terms and
subject to the conditions set forth therein, (iii) a Performance Incentive
Stock Option Agreement dated as of November 30, 1998 (the "Incentive
Performance Option Agreement") pursuant to which Lewis has an option (the
"Incentive Performance Option") to purchase up to 33,333 shares of Common
Stock on the terms and subject to the conditions set forth therein and (iv) a
Nonqualified Performance Stock Option Agreement dated as of November 30, 1998
(the "Nonqualified Performance Option Agreement" and, together with the
Incentive Performance Stock Option Agreement, the "Performance Option
Agreements") pursuant to which Lewis has an option (the "Nonqualified
Performance Stock Option" and, together with the Incentive Stock Option, the
"Performance Options") to purchase up to 966,667 shares of Common Stock on
the terms and subject to the conditions set forth therein.
B. Giannulli and the Company have entered into a Contribution
Agreement dated as of November 30, 1998 (the "Contribution Agreement")
pursuant to which Giannulli has agreed to contribute to the Company a number
of shares of Common Stock equal to the aggregate number of shares of Common
Stock to be issued by the Company upon exercise of the Base Options and the
Performance Options.
C. The Contribution Agreement provides that Giannulli will place
6,186,111 shares of Common Stock (the "Initial Escrowed Shares") in an escrow
account pending the exercise of the Base Options and the Performance Options
on the terms set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants and agreements contained in the Contribution Agreement and
in this Escrow Agreement, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT
1.1. DEPOSIT OF SHARES. Giannulli shall deposit as soon as
practicable in the escrow account (the "Escrow Account") with the Custodian
the Initial Escrowed Shares.
<PAGE>
Giannulli shall take all actions necessary to transfer record ownership of
the Initial Escrowed Shares to the Custodian. Any shares of capital stock of
the Company that result from any share dividend, reclassification, stock
split, subdivision or combination of shares, recapitalization, merger or
other events made with respect to any shares of Common Stock held in escrow
under this Escrow Agreement ("Additional Shares") shall be delivered by the
Company or Giannulli directly to the Custodian and shall be held in the
Escrow Account in accordance with this Escrow Agreement. Unless otherwise
indicated, as used in this Escrow Agreement, the term "Escrowed Shares"
includes the Initial Escrowed Shares and any Additional Shares.
1.2. DIVIDENDS AND VOTING. Any cash dividends, dividends
payable in property or other distributions of any kind (except for Additional
Shares) ("Related Distributions") made in respect of the number of Lewis
Escrowed Shares (as defined in that certain Stockholders Agreement dated as
of November 30, 1998 among the Company, Lewis and Giannulli (the
"Stockholders Agreement")) shall promptly be released by the Custodian to
Lewis. The Related Distributions made in respect of the number of Giannulli
Escrowed Shares (as defined in the Stockholders Agreement) shall promptly be
released by the Custodian to Giannulli. The Custodian shall have the right to
vote the Escrowed Shares held in the Escrow Account on each matter upon which
the holders of Common Stock of the Company are entitled to vote, and it shall
vote such Escrowed Shares as follows: (i) the number of Lewis Escrowed Shares
shall be voted as directed by Lewis and, in the absence of such directions,
shall not be voted, and (ii) the number of Giannulli Escrowed Shares shall be
voted as directed by Giannulli and, in the absence of such directions, shall
not be voted.
1.3. NO ENCUMBRANCE. None of the Escrowed Shares or any
beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by the Company, or by Giannulli, or may be
taken or reached by any legal or equitable process in satisfaction of any
debt or other liability of the Company or Giannulli, prior to the delivery of
the Escrowed Shares by the Custodian to the Company pursuant to this Escrow
Agreement.
1.4. POWER TO TRANSFER ESCROWED SHARES. The Custodian is
hereby granted the power to effect any transfer of the Escrowed Shares
provided for in this Escrow Agreement.
2. RELEASE FROM ESCROW
2.1. RELEASE OF ESCROWED SHARES TO THE COMPANY. At such time
or times as Lewis (a) exercises the Incentive Base Option in accordance with
the terms of the Incentive Base Option Agreement, (b) exercises the
Nonqualified Base Option in accordance with the terms of the Nonqualified
Base Option Agreement, (c) exercises the Incentive Performance Option in
accordance with the terms of the Incentive Performance Option Agreement, or
(d) exercises the Nonqualified Performance Option in accordance with the
terms of the Nonqualified Performance Option Agreement, the Company shall
instruct the Custodian in writing to release to the Company, and, upon
receipt of such written instruction, the Custodian shall release to the
Company within two business days, a number of Escrowed Shares equal to the
number of shares of Common Stock for which the Incentive Base Option,
Nonqualified Base Option, Incentive Performance Option, or Nonqualified
Performance Option, as applicable, has been exercised.
2
<PAGE>
2.2. RELEASE OF ESCROWED SHARES TO GIANNULLI. Upon each of
(a) the expiration of the Incentive Base Option under the terms of the
Incentive Base Option Agreement, (b) the expiration of the Nonqualified Base
Option under the terms of the Nonqualified Base Option Agreement, (c) the
expiration of the Incentive Performance Option under the terms of the
Incentive Performance Option Agreement and (d) the expiration of the
Nonqualified Performance Option under the terms of the Nonqualified
Performance Option Agreement, the Company shall instruct the Custodian in
writing to release to Giannulli, and, upon receipt of such written
instruction, the Custodian shall release to Giannulli within two business
days, a number of Escrowed Shares equal to the number of shares of Common
Stock underlying the applicable option at the time of its expiration. For
purposes of clarity, at such time as all of the Incentive Base Option, the
Nonqualified Base Option, the Incentive Performance Option, and the
Nonqualified Performance Option have expired, all of the Escrowed Shares
remaining in the Escrow Account shall be released to Giannulli.
3. CUSTODIAN
3.1. DUTIES. The duties of the Custodian hereunder shall be
entirely administrative and not discretionary. The Custodian shall be
obligated to act only in accordance with written instructions received by it
as provided in this Escrow Agreement and is authorized hereby to comply with
any orders, judgments, or decrees of any court with or without jurisdiction
and shall not be liable as a result of its compliance with the same.
3.2. LEGAL OPINIONS. As to any legal questions arising in
connection with the administration of this Escrow Agreement, the Custodian
may rely absolutely upon the joint instruction of the Company or the opinions
given to the Custodian by its outside counsel and shall be free of liability
for acting in reliance on such opinions.
3.3. SIGNATURES. The Custodian may rely absolutely upon the
genuineness and authorization of the signature and purported signature of any
party upon any instruction, notice, release, receipt or other document
delivered to it pursuant to this Escrow Agreement.
3.4. RECEIPTS AND RELEASES. The Custodian may, as a condition
to the disbursement of monies or disposition of securities as provided
herein, require from the payee or recipient a receipt therefor and, upon
final payment or disposition, a release of the Custodian from any liability
arising out of its execution or performance of this Escrow Agreement, such
release to be in a form reasonably satisfactory to the Custodian.
3.5. INTERPLEADER. If any controversy arises between the
parties hereto or with any third person, the Custodian shall not be required
to determine the same or to take any action, but the Custodian in its
discretion may institute such interpleader or other proceedings in connection
therewith as the Custodian may deem proper, and in following either course,
the Custodian shall not be liable.
3
<PAGE>
4. INDEMNIFICATION
4.1. WAIVER AND INDEMNIFICATION. The Company and Giannulli
agree to and hereby do waive any suit, claim, demand or cause of action of
any kind which they may have or may assert against the Custodian arising out
of or relating to the execution or performance by the Custodian of this
Escrow Agreement, unless such suit, claim, demand or cause of action is based
upon the willful neglect or gross negligence or bad faith of the Custodian.
The Company further agrees to indemnify the Custodian against and from any
and all claims, demands, costs, liabilities and expenses, including
reasonable attorneys' fees, which may be asserted against it or to which it
may be exposed or which it may incur by reason of its execution or
performance of this Escrow Agreement, except to the extent attributable to
its willful neglect, gross negligence, or bad faith. Such agreement to
indemnify shall survive the termination of this Escrow Agreement until
extinguished by any applicable statute of limitations.
4.2. CONDITIONS TO INDEMNIFICATION. In case any litigation is
brought against the Custodian in respect of which indemnification may be
sought hereunder, the Custodian shall give prompt notice of that litigation
to the parties hereto, and the Company upon receipt of that notice shall have
the obligation and the right to assume the defense of such litigation with
counsel reasonably satisfactory to the Custodian; PROVIDED THAT failure of
the Custodian to give that notice shall not relieve the Company from any of
its obligations under this Section 4 unless that failure prejudices the
defense of such litigation by the Company. At its own expense, the Custodian
may employ separate counsel and participate in the defense. Neither the
Company nor Giannulli shall be liable for any settlement without their
consent.
5. ACKNOWLEDGMENT BY THE CUSTODIAN
By execution and delivery of this Escrow Agreement, the Custodian
acknowledges that the terms and provisions of this Escrow Agreement are
acceptable and it agrees to carry out the provisions of this Escrow Agreement
on its part.
6. RESIGNATION OR REMOVAL OF CUSTODIAN; SUCCESSOR
6.1. RESIGNATION AND REMOVAL.
6.1.1. NOTICE. The Custodian may resign as such
following the giving of thirty (30) days' prior written notice to the other
parties hereto. Similarly, the Custodian may be removed and replaced
following the giving of thirty (30) days' prior written notice to be given to
the Custodian jointly by Giannulli and the Company. In either event, the
duties of the Custodian shall terminate thirty (30) days after the date of
such notice (or as of such earlier date as may be mutually agreeable), and
the Custodian shall then deliver the balance of the Escrowed Shares then in
its possession to a successor Custodian as shall be appointed by the other
parties hereto as evidenced by a written notice filed with the Custodian.
6.1.2. COURT APPOINTMENT. If the parties hereto are
unable to agree upon a successor or shall have failed to appoint a successor
prior to the expiration of thirty (30) days following the date of the notice
of resignation or removal, then the acting Custodian may petition
4
<PAGE>
any court of competent jurisdiction for the appointment of a successor
Custodian or other appropriate relief, and any such resulting appointment
shall be binding upon all of the parties hereto.
6.2. SUCCESSORS. Every successor appointed hereunder shall
execute, acknowledge and deliver to its predecessor, and also to the parties
hereto, an instrument in writing accepting such appointment hereunder, and
thereupon such successor, without any further act, shall become fully vested
with all the duties, responsibilities and obligations of its predecessor; but
such predecessor shall, nevertheless, on the written request of its successor
or any of the parties hereto, execute and deliver an instrument or
instruments transferring to such successor all the rights of such predecessor
hereunder, and shall duly assign, transfer and deliver all property,
securities and monies held by it pursuant to this Escrow Agreement to its
successor. Should any instrument be required by any successor for more fully
vesting in such successor the duties, responsibilities, and obligations
hereby vested or intended to be vested in the predecessor, any and all such
instruments in writing shall, on the request of any of the other parties
hereto, be executed, acknowledged, and delivered by the predecessor.
6.3. NEW CUSTODIAN. In the event of an appointment of a
successor, the predecessor shall cease to be Custodian of any funds,
securities or other assets and records it may hold pursuant to this Escrow
Agreement, and the successor shall become such Custodian.
6.4. RELEASE. Upon acknowledgment by any successor Custodian
of the receipt of the then remaining balance of the Escrowed Shares, the then
acting Custodian shall be fully released and relieved of all duties,
responsibilities and obligations under this Escrow Agreement that may arise
and accrue thereafter.
7. FEE
The Custodian will be paid by the Company as billed for services
hereunder in accordance with the fee schedule attached hereto as Exhibit A.
In the event that the Custodian is made a party to litigation with respect to
the property held hereunder, or brings an action in interpleader, or in the
event that the conditions to this Escrow are not promptly fulfilled, or the
Custodian is required to render any service not provided for in this Escrow
Agreement and fee schedule, or there is any assignment of the interests of
this Escrow or any modification hereof, the Custodian shall be entitled to
reasonable compensation from the Company for such extraordinary services and
reimbursement for all fees, costs, liability, and expenses, including
attorneys fees.
8. TERMINATION; DEFICIENCY CLAIMS.
This Escrow Agreement and the Escrow Account created hereby shall
terminate following Custodian's delivery of all Escrowed Shares to the
Company and/or Giannulli pursuant to Section 2.
5
<PAGE>
9. MISCELLANEOUS PROVISIONS
9.1. PARTIES IN INTEREST. Lewis shall be a third party
beneficiary to this Agreement and shall be entitled to enforce the terms of
this Agreement against the parties hereto. Other than Lewis, this Escrow
Agreement is not intended, nor shall it be construed, to confer any
enforceable rights on any person not a party hereto. All of the terms and
provisions of this Escrow Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto.
9.2. ATTORNEYS' FEES. In the event of any action to enforce
any provision of this Escrow Agreement, or on account of any default under or
breach of this Escrow Agreement, the prevailing party in such action shall be
entitled to recover, in addition to all other relief, from the other party
all attorneys' fees incurred by the prevailing party in connection with such
action (including, but not limited to, any appeal thereof).
9.3. ENTIRE AGREEMENT. This Escrow Agreement and the
Contribution Agreement constitute the final and entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
arrangements or understandings.
9.4. NOTICES. All notices, requests, demands or other
communications which are required or may be given pursuant to the terms of
this Agreement shall be in writing and shall be deemed to have been duly
given: (i) on the date of delivery if personally delivered by hand, (ii) upon
the third day after such notice is deposited in the United States mail, if
mailed by registered or certified mail, postage prepaid, return receipt
requested, (iii) upon the date scheduled for delivery after such notice is
sent by a nationally recognized overnight express courier or (iv) by fax upon
written confirmation (including the automatic confirmation that is received
from the recipient's fax machine) of receipt by the recipient of such notice:
If to the Company: Mossimo, Inc.
2450 White Road, 2nd Floor
Irvine, CA 92614
Attention: Chairman
Telephone No.: (949) 797-0200
Fax No.: (949) 852-1904
If to Giannulli: Mossimo Giannulli
c/o Mossimo, Inc.
2450 White Road, 2nd Floor
Irvine, CA 92614
Telephone No.: (949) 797-0200
Fax No.: (949) 852-1904
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<PAGE>
If to Custodian:
Telephone No.:
Fax No.:
Such addresses may be changed, from time to time, by means of a notice given
in the manner provided in this Section 9.4.
9.5. CHANGES. The terms of this Escrow Agreement may not be
modified or amended, or any provisions hereof waived, temporarily or
permanently, except pursuant to the written agreement of the parties hereto.
9.6. SEVERABILITY. If any term or provision of this Escrow
Agreement or the application thereof as to any person or circumstance shall
to any extent be invalid or unenforceable, the remaining terms and provisions
of this Escrow Agreement or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby and each term and provision of
this Escrow Agreement shall be valid and enforceable to the fullest extent
permitted by law.
9.7. COUNTERPARTS. This Escrow Agreement may be executed in
two or more partially or fully executed counterparts, each of which shall be
deemed an original and shall bind the signatory, but all of which together
shall constitute but one and the same instrument. The execution and delivery
of an Escrow Agreement - Signature Page in the form annexed to this Escrow
Agreement by any party hereto who shall have been furnished the final form of
this Escrow Agreement shall constitute the execution and delivery of this
Escrow Agreement by such party.
9.8. HEADINGS. The headings of the various sections of this
Escrow Agreement have been inserted for convenience of reference only and
shall not be deemed to be a part of this Escrow Agreement.
9.9. GOVERNING LAW. This Escrow Agreement shall be
construed and controlled by the laws of the State of California without
regard to the principles of conflicts of laws.
9.10. BINDING EFFECT. This Escrow Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
affiliates, successors and assigns.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK)
7
<PAGE>
ESCROW AGREEMENT -- SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Escrow
Agreement as of the day and year first above written.
MOSSIMO, INC.
By:
-----------------------------------
Title: Chairman
-------------------------------------
MOSSIMO GIANNULLI
[CUSTODIAN]
By:
---------------------------------
Authorized Signatory
8
<PAGE>
MOSSIMO, INC. APPOINTS EDWIN LEWIS AS PRESIDENT & CHIEF EXECUTIVE OFFICER;
FORMER POLO/RALPH LAUREN EXECUTIVE AND TOMMY HILFIGER CHAIRMAN TO HEAD COMPANY
Tuesday, December 1, 1998 03:28 AM MAIL THIS ARTICLE TO A FRIEND NEW!
IRVINE, Calif.--(BUSINESS WIRE)--Dec. 1, 1998--Mossimo Giannulli, Chairman of
Mossimo, Inc., announced today that the company has named Edwin Lewis
president and chief executive officer of Mossimo, Inc. (NYSE:MGX), effective
December 1, 1998. Mr. Lewis will spearhead the daily operations of Mossimo,
Inc. supporting Mr. Giannulli's role as the creative force behind the design
house.
In connection with Mr. Lewis' appointment, the company has granted Mr. Lewis
stock options to purchase approximately 5.2 million shares of Mossimo common
stock at fair market value. The company has also granted Mr. Lewis options to
purchase an additional one million shares of common stock at fair market
value, which are subject to certain vesting conditions. Mr. Giannulli, who
currently owns approximately 10.4 million shares of Mossimo stock, has agreed
to contribute to the company all of the shares issuable to Mr. Lewis for no
consideration payable by the company. Mr. Giannulli and Mr. Lewis have
entered into a stockholders agreement, which provides that they will
initially have equal voting power and will be subject to various restrictions
on transfer of their shares. In addition, the stockholders agreement provides
that Mr. Giannulli and Mr. Lewis will each be entitled to one board seat on
the company's five-member Board of Directors.
Lewis, 48, served as Executive Vice President of Polo, President of Ralph
Lauren Women's Wear and Chairman and CEO of Tommy Hilfiger, Inc. He was
instrumental in the success of these two multi-billion dollar fashion
powerhouses.
"Edwin brings leadership and organizational expertise, critical in taking our
company to the next level," said Giannulli. "I strongly feel that this new
partnership and shared vision will enable us to become the next great
American brand."
"Mossimo, at age 35, is the next generation's premier designer. He
understands the marketplace and lives the lifestyle of his customers," said
Lewis. "I am very excited to work with Mossimo in this new venture."
John Brincko, the prior president and chief executive officer of the company
who was engaged as a turnaround specialist in January 1998, will remain as a
consultant at Mossimo, Inc. until his contract expires on December 31, 1998.
Founded in 1987, Mossimo, Inc. is a designer and manufacturer of men's and
women's sportswear, with a focus on the contemporary fashion-minded consumer.
Mossimo designs are distributed to department and specialty chain stores
nationwide.
The matters discussed in this news release with respect to future results are
forward looking
<PAGE>
statements that involve risks and uncertainties, including changes in
consumer demands and preferences, competition from other lines and
uncertainties generally associated with new product introductions and apparel
retailing. The historical results achieved are not necessarily indicative of
future prospects of the company. More information on factors which could
affect the company's financial results is included in the company's 1997
annual report and Form 10-Qs, filed with the S.E.C.
CONTACT: Mossimo, Inc.
Dan Klores Associates
Public Relations, 310/271-0600
Bennah Serfaty/Michelle Steinberg/Greg Gibson
