STOCK OPTION AGREEMENT dated as of August 1, 1997 between DICTAPHONE
CORPORATION, a Delaware corporation (the "COMPANY"), and XXXXX X.
XXXX (the "PARTICIPANT").
WHEREAS, the Participant is currently a non-employee director of the
Company or one of its Subsidiaries and, pursuant to the Company's Management
Stock Option Plan, as may be amended consistent therewith, (the "PLAN") and upon
the terms and subject to the conditions hereinafter set forth, the Company
desires to provide the Participant with an incentive to remain as a Director of
the Company or one of its Subsidiaries and to increase his interest in the
success of the Company by granting to the Participant nonqualified stock options
(the "OPTIONS") to purchase shares of Common Stock, par value $0.01, of the
Company (the "COMMON STOCK");
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINITIONS; INCORPORATION OF PLAN TERMS. Capitalized terms used
herein without definition shall have the meanings assigned to them in the Plan,
a copy of which is attached hereto. This Agreement, the Options and the shares
of Common Stock issued pursuant to the exercise of Options (the "OPTION SHARES")
shall be subject to the Plan, the terms of which are hereby incorporated herein
by reference, and in the event of any conflict or inconsistency between the Plan
and this Agreement, the Plan shall govern. The Date of Grant with respect to the
Options shall be the date specified at the foot of the signature page hereof.
2. STOCKHOLDERS AGREEMENT; CERTAIN RESTRICTIONS. In accordance with
Section 6(f) of the Plan, the Participant and the Company hereby confirm that,
effective as of the date hereof, the Participant shall, for purposes of the
Stockholders Agreement, be deemed to be a "Stockholder" with respect to the
Options and the Option Shares and the Participant agrees to be bound by all the
terms of the Stockholders Agreement applicable to such a Stockholder. None of
the Option Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of to any third party other than the Company except as
provided in the Stockholders Agreement or the Plan. None of the Options may be
sold, transferred, assigned, pledged, or otherwise encumbered or disposed of,
except by will or the laws of descent and distribution. During the Participant's
lifetime, an Option shall be exercisable only by the Participant. Each Permitted
Transferee (other than the Company) of any Option or Option Share shall, as a
condition to the transfer thereof, execute an agreement pursuant to which it
shall become a party to the Stockholders Agreement and this Agreement.
3. GRANT OF OPTIONS. Subject to the terms and conditions contained
herein and in the Plan, the Company hereby grants to the Participant, effective
as of the Date of Grant, 10,000 Service Options. Each such Option shall entitle
the Participant to purchase, upon payment of the Option Price specified at the
foot of the signature page hereof, one share of Common Stock. The Options shall
be exercisable as hereinafter provided.
4. TERMS AND CONDITIONS OF OPTIONS. The Options evidenced
hereby are subject to the following terms and conditions:
(a) DURATION OF OPTIONS. The period for which these Options are
effective shall commence upon the Date of Grant and shall continue until
these Options are terminated as hereinafter provided (the "OPTION
PERIOD"). Except as otherwise expressly provided in Section 4(a) hereof,
the Options (whether or not exercisable) shall terminate immediately upon
an Employee's ceasing to be an employee or, in the case of a Director, a
Director's ceasing to be a member of the Board of Directors of the Company
or any of its subsidiaries. The Option Period of these Options shall
terminate upon the earliest to occur of (1) the tenth anniversary of the
date hereof; (2) the close of business on the date on which the Company
acquires any shares of any class of Common Stock owned by the Participant
or his Permitted Transferees (as defined in the Stockholders Agreement
dated August 11, 1995, by and among the Company, the Management Investors
(as defined in the Stockholders Agreement), the Stonington Investor (as
defined in the Stockholders Agreement) and the Institutional Investors (as
defined in the Stockholders Agreement)(as in effect from time to time, the
"STOCKHOLDERS AGREEMENT")) or any Option held by him or his estate, in
each case in connection with a Put Event (as defined in the Stockholders
Agreement); (3) the close of business on the date on which the Company
acquires all shares of Common Stock owned by the Participant or his
Permitted Transferee and Options held by him or his estate, in each case
in connection with a Call Event (as defined in the Stockholders
Agreement); and (4) the following dates:
(i) the six-month anniversary of the date upon which
the Participant holding such Option ceases to be an employee or
director of the Company or its subsidiaries by reason of death;
(ii) unless otherwise specifically provided in any agreement
between the Participant and the Company or one of its subsidiaries,
the thirty-day anniversary of the date of the Retirement or
Disability (as such terms are defined in the Stockholders Agreement)
of the Participant if the Participant retires or is disabled while
an employee or director of the Company or any of its subsidiaries,
or the thirty-day anniversary of the date of Involuntary Termination
(as defined in the Stockholders Agreement) of the Participant; or
(iii) immediately upon a Participant's Voluntary Resignation
(as defined in the Stockholders Agreement) or termination of
employment or directorship with the Company or any of its
subsidiaries for Cause (as defined in the Stockholders Agreement);
PROVIDED, HOWEVER, that notwithstanding anything to the contrary
contained in clauses (i), (ii) or (iii) of this Section 4(a), in the
event that prior to the time that any Option would otherwise cease
to be exercisable pursuant to such clauses (i), (ii), or (iii), the
Participant (A) exercises a "Put Right" with respect to such "Put
Options" (as such terms are described in Section 3.1 of the
Stockholders Agreement) and (B) withdraws all of his Put Options as
provided in the last sentence of Section 3.1(b) of the Stockholders
Agreement because a Restriction (as defined in the Stockholders
Agreement) prevents payment by the Company in cash in respect of
such Put Options, then such Options shall not expire, and shall
continue to be exercisable until the earlier of
-2-
(x) the acquisition by the Company for cash of such Put Options
pursuant to Section 3.1(e) or 3.2(d) (or by the Company's designee
pursuant to Section 3.1(f) or 3.2(c)) of the Stockholders Agreement;
(y) the later of (1) the thirtieth day after the expiration of any
applicable "holdback" or similar arrangement that the Participant
has entered into with one or more underwriters in connection with an
IPO (as defined in the Stockholders Agreement), (2) if no such
agreement is entered into, the thirtieth day after an IPO or (3) the
thirtieth day following the effectiveness of a registration
statement on Form S-8 with respect to the Option Shares; and (z) the
tenth anniversary of the date hereof. In addition, in the event that
the Participant has delivered to the Company a Put Notice (as
defined in the Stockholders Agreement) with respect to Put Options,
and has not withdrawn such Put Notice pursuant to Section 3.1(b) of
the Stockholders Agreement, the related Option shall not expire
until it has been acquired by the Company (or a designee of the
Company) pursuant to Section 3.1 or 3.2 of the Stockholders
Agreement.
(b) EXERCISABILITY AND VESTING OF OPTIONS. Options granted hereunder
shall become exercisable pursuant to the following terms and (except as
otherwise expressly provided for hereunder or in any agreement between the
Company and the Participant) only if the Employee is employed by the
Company or any of its subsidiaries (as determined pursuant to Section 10
of the Plan) or, in the case of a Director, only if the Director is a
member of the Board of Directors of the Company or any of its subsidiaries
on the date on which such Option becomes exercisable. An Option (or
portion thereof) which becomes exercisable pursuant to the terms of this
Section 4(b) is referred to as a "VESTED OPTION." The Options granted
hereunder shall vest and become exercisable as of the effective date
hereof upon the execution and delivery of this Agreement by Participant
and the Company.
(c) PROCEDURE FOR EXERCISE AND PAYMENT FOR SHARES. Exercise of these
Options shall be made by the Participant's giving written notice to the
Company. Such written notice shall be deemed sufficient for this purpose
only if it (i) is delivered to the Company at its principal offices, (ii)
states the number of Option Shares with respect to which the Option is
being exercised, and (iii) states the date, no earlier than the fifth
business day after, and no later than the tenth business day after, the
date of such notice, upon which the Option Shares shall be purchased and
payment therefor shall be made. The payments for Option Shares purchased
pursuant to exercise of these Options shall be made at the principal
offices of the Company. Upon (x) the exercise of any Option, in compliance
with the provisions of this Section 4(c), (y) receipt by the Company of
the payment for the Option Shares so purchased together with cash in the
amount of (or the making of arrangements referred to in Section 13 of the
Plan with respect to) any taxes required to be collected or withheld as a
result of the exercise of this Option, and (z) receipt by the Company of
an executed copy of the Stockholders Agreement (unless such Participant is
already a party thereto or the Company receives such other evidence as the
Company may reasonably require to ensure that the Option Shares issuable
upon exercise of the Option will be subject to the Stockholders
Agreement), the Company shall deliver
-3-
or cause to be delivered to the Participant so exercising an Option a
certificate or certificates for the number of Option Shares with respect
to which these Options are exercised and payment is made. The Option
Shares shall be registered in the name of the exercising Participant;
PROVIDED that in no event shall any Option Shares be issued pursuant to
exercise of an Option until full payment therefor shall have been made in
one of the manners set forth below; and PROVIDED, FURTHER, that until such
payment has been made, the exercising Participant shall have no rights of
a shareholder. For purposes of this paragraph, the date of issuance shall
be the date upon which payment in full has been received by the Company as
provided herein. Notwithstanding the foregoing, if a Put Right has been
exercised by the Participant or a Call Right has been exercised by the
Company pursuant to the Stockholders Agreement, with respect to the
Option, such Option shall be cancelled, effective upon receipt by the
Participant of the consideration provided for in the Stockholders
Agreement. The exercise price shall be payable at the election of the
Participant, in whole or in part, in any one or a combination of cash or
Mature Common Stock valued at the Fair Value Price (as defined below) as
of the date the notice of exercise is given. Mature Common Stock is
defined as shares of Common Stock held by such Participant for more than
six months.
(d) CASH-OUT OF CERTAIN OPTIONS.
(i) Without limiting any rights of the Company under the
Stockholders Agreement, the Committee or the Board of Directors may
in its sole discretion cancel the vested portion of any Option or
Options held by a person who is at such time no longer an employee
or director of the Company or its subsidiaries in exchange for a
cash payment equal to the excess of (x) the Fair Value Price (as
defined in the Plan) of the Option Shares subject to such Vested
Option, over (y) the Option Price for such Option Shares, multiplied
by the number of Option Shares subject to such cancelled Options;
PROVIDED, HOWEVER, that the exercise of the right of the Committee
or Board of Directors hereunder shall not be made in contemplation
of a Sale or an IPO.
(ii) Without limiting any rights of the Company under the
Stockholders Agreement, the Committee or the Board of Directors may
cancel any outstanding Options in exchange for a cash payment, or in
the discretion of the Committee or the Board of Directors payment of
other property, to the Participant equal to the excess of (x) the
fair market value (as determined in good faith by the Board of
Directors of the Company) of the consideration received per
Stonington Share by the Stonington Investor in any sale (by merger,
stock purchase or otherwise) to a Person which is not an Affiliate
of the Company or any Stonington Investor of all the then issued and
outstanding Stonington Shares (as defined in the Stockholders
Agreement) (a "TRANSFER EVENT"), over (y) the Option Price for such
Option Shares, multiplied by the number of Option Shares subject to
such cancelled Options, in each case effective upon the consummation
of the Transfer Event.
-4-
(e) STOCKHOLDER RIGHTS. The Participant shall have no rights as a
stockholder with respect to any Option Shares until such Participant shall
have exercised the related Options and until a certificate or certificates
evidencing such shares shall have been issued to the Participant, and no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date upon
which the Participant shall become the holder of record thereof.
(f) DIVIDENDS AND DISTRIBUTIONS. Any shares of Common Stock or other
securities of the Company received by the Participant as a result of a
stock distribution to holders of Option Shares, as a stock dividend on
Option Shares or pursuant to a similar transaction shall be subject to the
same restrictions as such Option Shares, and all references to Option
Shares hereunder shall be deemed to include such shares of Common Stock or
other securities.
5. REQUIREMENTS OF LAW AND OF CERTAIN AGREEMENTS. If any law or any
regulation of any commission or agency of competent jurisdiction shall require
the Company or the exercising Participant to take any action with respect to any
Option Shares, then the date upon which the Company shall issue or cause to be
issued the certificate or certificates for such Option Shares shall be postponed
until full compliance has been made with all such requirements of law or
regulation; PROVIDED that the Company shall use reasonable efforts to take all
necessary action to comply with such requirements of law or regulation. Further,
if requested by the Company, at or before the time of the issuance of such
Option Shares, the Participant shall deliver to the Company his or her written
statements satisfactory in form and content to the Company, that he or she
intends to hold the Option Shares so acquired by him or her for investment and
not with a view to resale or other distribution thereof to the public in
violation of the Securities Act or any applicable state securities or "blue sky"
law. Moreover, in the event that the Company shall determine in its sole
discretion that, in compliance with the Securities Act or any applicable state
securities or "blue sky" law, it is necessary to register any of the Option
Shares, or to qualify any such Option Shares for exemption from any of the
requirements of the Securities Act or any other applicable statute or
regulation, no Options may be exercised until the required action has been
completed; PROVIDED that the Company shall use reasonable efforts to take all
necessary action to comply with such requirements of law or regulation. All
Option Shares shall bear the legends provided for in the Stockholders Agreement.
6. MISCELLANEOUS.
(a) NO RIGHTS TO GRANTS OR CONTINUED EMPLOYMENT. The Participant
shall not have any claim or right to receive grants of Options under the
Plan. Neither the Plan nor this Agreement nor any action taken or omitted
to be taken hereunder or thereunder shall be deemed to create or confer on
the Participant any right to be retained in the employ of the Company or
any Subsidiary or other affiliate thereof, or to interfere with or to
limit in any way the right of the Company or any Subsidiary or other
affiliate thereof to terminate the employment of the Participant at any
time.
(b) TAX WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to Option Shares acquired
pursuant to the exercise of any Option hereunder, such Participant shall
pay to the Company, or make arrangements reasonably satisfactory to the
Company regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount; PROVIDED, HOWEVER, that such arrangements need not involve the
advancement by the Company of any funds to, for or on behalf of any
Participant or the incurrence or payment by the Company of any
-5-
costs or expenses. The obligations of the Company hereunder shall be
conditional on such payment or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant.
(c) NO RESTRICTION ON RIGHT OF COMPANY TO EFFECT CORPORATE CHANGES.
Neither the Plan nor this Agreement shall affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
capital structure or business of the Company, or any merger or
consolidation of the Company, or any issue of stock or of options,
warrants or rights to purchase stock or of bonds, debentures, preferred or
prior preference stocks whose rights are superior to or affect the Common
Stock or the rights thereof or which are convertible into or exchangeable
for Common Stock, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of the assets or business of the
Company, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(d) 1934 ACT. Notwithstanding anything contained in the Plan or this
Agreement to the contrary, if the consummation of any transaction under
the Plan or this Agreement would result in the possible imposition of
liability to the Participant pursuant to Section 16(b) of the 1934 Act,
the Board of Directors or the Committee shall have the right, in its sole
discretion, but shall not be obligated, to defer such transaction to the
extent necessary to avoid such liability, but in no event for a period in
excess of 180 days.
7. SURVIVAL; ASSIGNMENT.
(a) All agreements, representations and warranties made herein and
in any certificates delivered pursuant hereto shall survive the issuance
to the Participant of the Options and the Option Shares and,
notwithstanding any investigation heretofore or hereafter made by the
Participant or the Company or on the Participant's or the Company's
behalf, shall continue in full force and effect. Without the prior written
consent of the Company, the Participant may not assign any of his rights
hereunder except by will or the laws of descent and distribution. Whenever
in this Agreement any of the parties hereto is referred to, such reference
shall be deemed to include the heirs and permitted successors and assigns
of such party; and all agreements herein by or on behalf of the Company,
or by or on behalf of the Participant, shall bind and inure to the benefit
of the heirs and permitted successors and assigns of such parties hereto.
(b) The Company shall have the right to assign to any of its
affiliates any of its rights, or to delegate to any of its affiliates any
of its obligations, under this Agreement.
8. CERTAIN REMEDIES. Without intending to limit the remedies
available to the Company, the Participant agrees that damages at law will be an
insufficient remedy in the event the Participant violates the terms of this
Agreement. The Participant agrees that the Company may apply for and have
injunctive or other equitable relief in any court of competent jurisdiction
-6-
to restrain the breach or threatened breach of, or otherwise specifically to
enforce, any of the provisions hereof.
9. NOTICES. All notices and other communications provided for herein
shall be in writing and shall be delivered by hand or sent by certified or
registered mail, return receipt requested, postage prepaid, addressed, if to the
Participant, to his attention at the mailing address set forth at the foot of
this Agreement (or to such other address as the Participant shall have specified
to the Company in writing) and, if to the Company, c/o Stonington Partners,
Inc., 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxx X. Xxxx,
Principal. All such notices shall be conclusively deemed to be received and
shall be effective, if sent by hand delivery, upon receipt, or if sent by
registered or certified mail, on the fifth day after the day on which such
notice is mailed.
10. WAIVER. The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
11. ENTIRE AGREEMENT; GOVERNING LAW. This Agreement and the other
related agreements expressly referred to herein set forth the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
agreement. The headings of sections and subsections herein are included solely
for convenience of reference and shall not affect the meaning of any of the
provisions of this Agreement. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Participant has executed this
Agreement, both as of the day and year first written above.
DICTAPHONE CORPORATION
By: /s/ Xxxxxx X. Xxxx
------------------------------
Name: Xxxxxx X. Xxxx
Title: Vice President, Business
Development and General Counsel
PARTICIPANT
/s/ Xxxxx X. Xxxx
------------------------------------
Name: Xxxxx X. Xxxx
Number of Service Options: 10,000
Option Price: $10.00
Effective Date of Grant: August 1, 1997
-7-
