Exhibit 10.1
FINANCIAL PACIFIC COMPANY
1998 STOCK OPTION PLAN
Effective as of March 20, 1998, the Board of Directors of Financial
Pacific Company (the "Company") adopted the following 1998 Stock Option Plan
(the "Plan"). Capitalized terms are defined in Section 20 of the Plan.
1. PURPOSE. The purpose of the Plan is to provide selected
employees and directors with a proprietary interest in the Company through the
granting of Nonqualified Stock Options that will:
(a) increase the interest of the selected employees and
directors in the Company's welfare;
(b) furnish an incentive to the selected employees and
directors to continue their services for the Company;
and
(c) provide a means through which the Company may attract
able persons to either enter its employ or serve as
directors.
2. ADMINISTRATION. The Plan will be administered by the Board.
3. PARTICIPANTS. The Board shall, from time to time, select the
particular employees or directors of the Company and its Subsidiaries to whom
options are to be granted, and who will, upon such grant, become participants in
the Plan.
4. WITHHOLDING OF TAXES. Notwithstanding anything to the contrary
contained herein, if a participant is entitled to receive shares of Common Stock
upon exercise of an option, the Company shall have the right to require such
participant, prior to the delivery of such shares and as a condition to such
exercise, to pay to the Company the amount of any federal, state or local income
taxes and other amounts which the Company is required by law to withhold. In its
discretion (and to the extent not prohibited by any agreements to which the
Company is a party), the Board may permit participants to satisfy withholding
obligations by delivering previously owned shares.
5. SHARES SUBJECT TO PLAN. The Board may grant options under the
Plan for the purchase in the aggregate of up to 68,644.21622 shares of Common
Stock, consisting of:
(a) 35,008.55027 shares of Common Stock, which may be
granted to the employees of the Company and its Subsidiaries and shall be
subject to the vesting requirements set forth in Section 10(a) of this Plan (the
"Management Options");
(b) 11,669.51676 shares of Common Stock, which may be
granted to employees of the Company and shall be subject to the vesting
requirements set forth in Section 10(b) of this Plan (the "Management 35%
Performance Options");
(c) 11,669.51676 shares of Common Stock, which may be
granted to employees of the Company and shall be subject to the vesting
requirements set forth in Section 10(c) of this Plan (the "Management 45%
Performance Options");
(d) 6,177.97946 shares of Common Stock, which may be
granted to directors of the Company and shall be subject to the vesting
requirements set forth in Section 10(a) of this Plan (the "Director Options");
(e) 2,059.32649 shares of Common Stock, which may be
granted to directors of the Company and shall be subject to the vesting
requirements set forth in Section 10(b) of this Plan (the "Director 35%
Performance Options", and, together with the Management 35% Performance Options,
the "35% Performance Options");
(f) 2,059.32649 shares of Common Stock, which may be
granted to directors of the Company and shall be subject to the vesting
requirements set forth in Section 10(c) of this Plan (the "Director 45%
Performance Options" and, together with the Management 45% Performance Options,
the "45% Performance Options");
provided that the preceding share amounts may be adjusted to reflect, if deemed
appropriate by the Board, any stock dividend, stock split, share combination,
recapitalization or the like, of or by the Company; provided further that,
except as otherwise specifically provided in any applicable stock option
agreement, the number of shares subject to any option shall always be rounded
down to the nearest whole number. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or Common Stock held
by the Company in its treasury. Shares that by reason of the expiration of an
option or otherwise are no longer subject to purchase pursuant to an option
granted under the Plan may be re-offered under the Plan. The Board may, in its
sole discretion, allocate any unallocated Director Options, Director 35%
Performance Options or Director 45% Options to employees of the Company and its
subsidiaries.
6. ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Common Stock to be offered from time to time by grant of options to
employees and directors of the Company and its Subsidiaries. The grant of an
option
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to an employee or director shall be deemed neither to entitle the employee or
director to, nor to disqualify the employee or director from, participation in
any other grant of options under the Plan. All options under the Plan which are
not granted effective as of August 31, 1998, are referred to herein as
"Unallocated Options".
7. GRANT OF OPTIONS. All options under the Plan shall be granted
by the Board. The grant of options shall be evidenced by stock option agreements
containing such terms and provisions as are approved by the Board, but which are
not inconsistent with the Plan; provided that the options granted effective
August 31, 1998, shall be evidenced by stock option agreements containing
substantially the same terms and conditions as those set forth on Exhibit A
attached hereto (except as otherwise approved by the Board at the time of such
grants). The Company shall execute stock option agreements upon instructions
from the Board.
8. OPTION PRICE. The exercise price for any option under the Plan
shall be determined by the Board.
9. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Board authorizes the option unless
the Board specifies a later date, and will terminate as provided herein and in
the applicable option agreement. No option may remain outstanding longer than 10
years from the date the option is granted. In addition to the vesting
requirements of Section 10 hereof, the Board may provide in the applicable
option agreement for such other terms, conditions and restrictions with respect
to the exercise of options as it may determine. The Board may provide for
termination of the option in the case of termination of employment, termination
of directorship or any other reason.
10. VESTING OF OPTIONS.
(a) Vesting Requirements for Management Options and
Director Options. Except as otherwise expressly set forth herein, Management
Options and Director Options shall vest over five years subject to the
performance goals set forth below, with 20% of the shares that are subject to
such options vesting for each year in which the Company attains the target level
set forth below relating to such year.
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Management and Director Option Vesting --
Performance Criteria
Performance EBT Minimum
Period Target Level
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1998 fiscal year $ 6,350,000
1999 fiscal year $ 7,900,000
2000 fiscal year $ 9,800,000
2001 fiscal year $ 12,200,000
2002 fiscal year $ 15,200,000
Except as otherwise expressly set forth herein, in the event that the EBT
Minimum Target Level is not reached in any given fiscal year, the Management
Options and Director Options which could have vested in such year under this
Section 10(a) shall not vest (such options shall be referred to as "Nonvested
Options").
In the event of a Change of Control (as defined below) prior to such
fifth anniversary, 100% of all such outstanding options which have not vested
(including both Nonvested Options relating to previous periods and unvested
options relating to future periods) will vest if the Windward Group achieves,
after giving effect to such Change of Control transaction, a 25% compounded,
annual rate of return on its aggregate equity investment in the Company (the
"Windward Return"); provided however, that in the event of a sale of less than
all of the Windward Group's equity investment in the Company which results in
the achievement of the Windward Return regardless of any return which could be
achieved (and assuming for such purposes that the remainder of Windward's equity
investment is sold for zero), then such sale shall be deemed a "Change of
Control" in which the Windward Return has been achieved.
(b) Vesting Requirements for 35% Performance Options.
Except as otherwise expressly set forth herein, all outstanding 35% Performance
Options shall vest in the event of a Change of Control in which the Windward
Group achieves, after giving effect to such Change of Control transaction, a 35%
compounded, annual rate of return on its aggregate equity investment in the
Company (the "35% Windward Return"); provided, however, that in the event of a
sale of less than all of the Windward Group's equity investment in the Company
which results in the achievement of the Windward 35% Return regardless of any
return which could be achieved (and assuming for such purposes that the
remainder of Windward's equity
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investment is sold for zero), then such sale shall be deemed a "Change of
Control" in which the 35% Windward Return has been achieved.
(c) Vesting Requirements for 45% Performance Options.
Except as otherwise expressly set forth herein, all outstanding 45% Performance
Options shall vest in the event of a Change of Control in which the Windward
Group achieves, after giving effect to such Change of Control transaction, a 45%
compounded, annual rate of return on its aggregate equity investment in the
Company (the "45% Windward Return"); provided, however, that in the event of a
sale of less than all of the Windward Group's equity investment in the Company
which results in the achievement of the 45% Windward Return regardless of any
return which could be achieved (and assuming for such purposes that the
remainder of Windward's equity investment is sold for zero), then such sale
shall be deemed a "Change of Control" in which the 45% Windward Return has been
achieved.
(d) Change of Control; Windward Rate of Return.
(i) Changes of Control. Subject to the provisos
contained in the last paragraph of Section 10(a) and in Section 10(b) and
Section 10(c) hereof, a "Change of Control" is defined as any transaction or
series of related transactions in which all of the Company is sold to a third
party unaffiliated with the Company, the Windward Group or any of their
Affiliates (whether by merger, consolidation, sale of securities, sale of all or
substantially all of the assets or any similar business combination) or in which
the Windward Group and its Affiliates and their Permitted Transferees (as
defined in the Shareholders Agreement) sell or otherwise dispose of all of the
Common Stock held by such entities and persons (including, without limitation,
pursuant to a public offering). Notwithstanding the foregoing (including the
provisos contained in the last paragraph of Section 10(a) and in Section 10(b)
and Section 10(c) hereof), the term "Change of Control" shall not include any
sale or deemed sale or disposition of the Company to (A) any Affiliate of the
Windward Group, (B) any entity or successor entity in which the Windward Group
holds at least a majority of the total voting power of such entity or successor
entity (or retains the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the members of the Board of
Directors or other governing body of such entity or successor entity), (C) any
entity in which the Company, directly or indirectly, owns a majority of the
equity and voting interest (including a wholly owned subsidiary of the Company),
or (D) any entity formed at the direction of the Company in connection with
obtaining financing for the Company under an arrangement which provides the
Company with an option to reacquire its assets or other properties or other
similar financing arrangement.
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(ii) Calculating Windward Rate of Return. In
calculating the compounded annual rate of return on the Windward Group's
aggregate equity investment in the Company (or any portion thereof) for purposes
of Sections 10(a), 10(b) or 10(c), such amount shall be calculated based on the
gross proceeds received by the Windward Group relating to the relevant
transaction(s) after any payment of, or reasonable provision for, any costs or
liabilities relating to such transaction(s), including, without limitation, (A)
any transaction costs, including without limitation, any legal, investment
banking, brokerage, accounting, consulting and other similar fees and expenses,
reasonably incurred by the Windward Group and its Affiliates in connection with
such transaction(s), (B) any liabilities or other amounts reasonably expected to
arise (as determined prior to any such transaction by the Board in good faith)
pursuant to any purchase price adjustments or indemnification obligations
associated with such transaction(s) or pursuant to any pension or other
post-employment benefit obligations of the Company and its Subsidiaries, any
environmental matters relating to the Company and its Subsidiaries and any other
similar liabilities for which the Windward Group and its Affiliates remain
contingently liable, (C) any indebtedness incurred by the Windward Group in
connection with its acquisition of any part of its equity investment or required
to be paid by the Windward Group by reason of any such sale or disposition, and
(D) the dilutive effect of all options, warrants and similar securities,
including, without limitation, NonVested Options, which vest as a result of the
Change of Control. To the extent the proceeds of any transaction(s) include any
securities or other property other than cash, the Board shall determine in good
faith the fair market value of such securities or property.
(e) Automatic Vesting. Unless otherwise provided in a
stock option agreement and notwithstanding any other provision contained in the
Plan to the contrary (including the failure to attain any applicable performance
goal relating to the vesting of any option granted hereunder), each option
granted hereunder shall automatically vest and become fully exercisable on the
ninth anniversary of the date of grant (or such other time less than nine years
as specified in the applicable stock option agreement), so long as the optionee
remains continually employed by the Company from the date of grant through such
tenth anniversary.
11. RIGHTS IN THE EVENT OF DEATH OR DISABILITY. If a participant
dies or becomes disabled (within the meaning of section 22(e)(3) of the Internal
Revenue Code) while in the employ of the Company or while serving as a director
of the Company but prior to termination of his right to exercise an outstanding
option in accordance with the provisions of his or her stock option agreement
without having totally exercised the option, the option may be exercised, to the
extent of the shares with respect to which the option could have been exercised
by the participant
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on the date of the participant's death or disability, by (i) the participant's
estate or by the person who acquired the right to exercise the option by bequest
or inheritance or by reason of the death of the participant in the event of the
participant's death, or (ii) the participant or his or her personal
representative in the event of the participant's disability, provided the option
is exercised prior to the date of its expiration or not more than 180 days from
the date of the participant's death or disability whichever first occurs. After
the expiration of such 180 day period, each such option shall immediately
terminate without any action on the part of the Company.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering previously owned shares
of Common Stock, provided such shares have been held by the optionee for a
minimum of six months, at the Fair Market Value per share at the time of
exercise, or through such other cashless or other exercise procedure approved by
the Company. No shares may be issued until full payment of the purchase price
therefor has been made, and a participant will have none of the rights of a
stockholder until shares are issued to him or her.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth in
the applicable stock option agreements. In no event may an option be exercised
by, or may shares be issued to, a participant or Qualifying Family Member
pursuant to an option (x) if any necessary listing of the shares on a stock
exchange has not been accomplished or (y) unless and until such participant
enters into an agreement with the Company pursuant to which such participant
agrees, in accordance with the provisions of the Shareholders Agreement, to be
bound by the terms and conditions of the Shareholders Agreement, including any
requirements for shares issued upon exercise of options to carry a restrictive
legend. The Board may offer a participant, upon such conditions and restrictions
set forth on a schedule attached to his or her Option Agreement and in lieu of
receipt from him or her of the exercise price and issuance of certificates for
the shares of stock exercised, the right to elect payment in cash, Common Stock,
or a combination of cash and Common Stock as the Board shall determine in an
amount equal to the excess of the Fair Market Value per share on the date of
exercise or other prescribed date over the per share exercise price under the
option, multiplied by the number of shares covered by the option thereof being
exercised.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares
of Common Stock covered by each outstanding option granted under the Plan and
the option price shall be adjusted to reflect any stock dividend, stock split,
share combination, and, as deemed appropriate by the Board, any exchange of
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shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NONASSIGNABILITY. Options may not be transferred other than to
a Qualifying Family Member or by will or by the laws of descent and
distribution. During a participant's lifetime, options granted to a participant
may be exercised only by the participant or by a Qualifying Family Member.
16. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan. The
Board may rescind and amend its rules and regulations at any time.
17. AMENDMENT OR DISCONTINUANCE. The Board at any time and from
time to time may suspend, terminate, modify or amend the Plan; provided that no
suspension, termination, modification or amendment of the Plan may adversely
affect in any material respect (i) any option previously granted, unless the
written consent of the participant to whom the option has been granted has been
obtained, or (ii) any Unallocated Option, unless the written consent of the
Chief Executive Officer of the Company or the holder of such option has been
obtained.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board shall be deemed to give any director, officer or employee
any right to be granted an option to purchase Common Stock or any other rights
except as may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by the Board and executed on behalf of the Company and
then only to the extent and on the terms and conditions expressly set forth
therein.
19. TERM. Unless sooner terminated by action of the Board, this
Plan shall terminate on March 20, 2008. The Board may not grant options under
the Plan after that date, but options granted before or as of that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Affiliate" shall have the same meaning as set forth
in the Shareholders Agreement.
(b) "Board" means the board of directors of the Company
or a committee appointed by the board of directors to administer the Plan or any
portion of the Plan.
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(c) "Cause" shall (a) with respect to the termination of
employment of any employee of the Company or any of its Subsidiaries, have the
same meaning as set forth in Section 1.1(f) of the Shareholders Agreement, and
(b) with respect to the circumstances surrounding the removal of any director of
the Company, have the same meaning as set forth in Section 2.6 of the
Shareholders Agreement.
(d) "Common Stock" means the Common Stock, par value
[$.10] per share, of the Company, and any and all shares of capital stock or
other securities of the Company or any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise), which may be
issued in respect of, in exchange for, or in substitution for such shares of
Common Stock.
(e) "Company" means Financial Pacific Company, a
Washington corporation, and the successors and assigns hereof.
(f) "EBT" means the consolidated net income (or loss) of
the Company and its subsidiaries, excluding (to the extent net income is reduced
or increased or net loss is increased or reduced thereby), without duplication,
(a) provisions for taxes based on income, (b) extraordinary gains or losses, (c)
gains or losses on the sale or disposal of assets other than in the ordinary
course, (d) the cumulative effect of any changes in accounting principles, (e)
the granting or modification of options under option (and similar) plans (other
than legal and other costs incurred in connection with the establishment and
administration of such plan), and (f) any Windward related expenses, in each
case as shown on the Company's unaudited (or audited, with respect to any four
fiscal quarters for which audited statements are otherwise available)
consolidated financial statements for the four fiscal quarters of the Company
ending immediately prior to the particular date on which the EBT calculation is
being made, in each case calculated in accordance with GAAP.
(g) "Fair Market Value" shall have the meaning assigned
to it in the Shareholders Agreement.
(h) "Good Reason" shall have the meaning ascribed to it
in the Shareholders Agreement.
(i) "Incentive Stock Option" means an option within the
meaning of section 422 of the Internal Revenue Code.
(j) "Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended.
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(k) "Nonqualified Stock Option" means an option that is
not an Incentive Stock Option.
(l) "Option Period" means the period during which an
option may be exercised pursuant to the terms of this Plan and the applicable
option agreement.
(m) "Plan" means this 1998 Stock Option Plan as amended
from time to time.
(n) "Qualifying Family Member" shall mean (i) the
participant's spouse or children (including adopted children and step children)
or (ii) a trust established for the exclusive benefit of such spouse and/or
children who has been transferred options under the Plan pursuant to Section 15
hereof.
(o) "Recapitalization Agreement" means the
Recapitalization and Plan of Merger Agreement, dated as of December 5, 1997, by
and among the Company, Windward Capital Associates, L.P., a Delaware limited
partnership ("Windward"), Windward/Merban, L.P., a Delaware limited partnership
("Windward/Merban"), Windward/Merchant, L.P., a Delaware limited partnership
("Windward/Merchant"), Windward/Badger FPC, L.L.C., a Delaware limited
partnership ("Windward/Badger FPC"), The Northwestern Mutual Life Insurance
Company and each of the shareholders of the Company set forth on the signature
pages thereto.
(p) "Shareholders Agreement" means the Shareholders
Agreement dated as of January 23, 1998, by and among the Company, the members of
the Windward Group, the Majority Roll-Over Shareholders listed in the schedule
attached thereto and the members of the Company's management listed in the
Schedule of Other Shareholders attached thereto, and such other persons or
entities who or which become parties to the Shareholders Agreement pursuant to
the terms and conditions of the Shareholders Agreement.
(q) "Subsidiary" shall have the same meaning as set forth
in the Recapitalization Agreement.
(r) "Voluntary Termination" shall have the meaning
ascribed to it in the Shareholders Agreement.
(s) "Windward Group" means Windward, Windward/Merban,
Windward/Merchant and Windward/Badger FPC, together with their Permitted
Transferees (as defined in the Shareholders Agreement).
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AMENDMENT
TO
FINANCIAL PACIFIC COMPANY
1998 STOCK OPTION PLAN
Effective April 13, 1999, the Board of Directors of Financial Pacific
Company (the "Company") approved the following amendment to the Company's 1998
Stock Option Plan:
10.(a)(1) Vesting Requirements for Management Options Granted
in 1999. Except as otherwise expressly set forth herein, Management Options
granted in 1999 shall vest over four years subject to the performance goals set
forth in paragraph 10.(a) above, with 25% of the shares that are subject to such
options vesting for each year in which the Company attains the target level set
forth relating to the years 1999 through 2002.