EXHIBIT 10 (l)
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of August 1, 2002, and
effective as of July 1, 2002, is made by and between Ethan Allen Interiors Inc.,
a Delaware corporation (the "Corporation") and its subsidiary, Ethan Allen Inc.,
a Delaware corporation and a wholly owned subsidiary of the Corporation (the
"Subsidiary") and M. Farooq Kathwari (the "Executive").
RECITALS
1. The Executive is Chairman of the Board of Directors of the
Corporation and of the Subsidiary, and is currently employed as the Chief
Executive Officer and the President of the Corporation and the Subsidiary.
2. The employment of the Executive by the Corporation was previously
subject to an employment agreement dated July 27, 1994 (the "1994 Agreement"),
and is currently subject to an employment agreement dated October 28, 1997 (the
"1997 Employment Agreement").
3. The Corporation desires to continue the services of the Executive as
Chairman of the Board of Directors of the Corporation and the Subsidiary and the
employment of the Executive with the Corporation and the Subsidiary and to enter
into a new agreement embodying the terms of those continued relationships.
4. The Executive is willing to continue to serve as Chairman of the
Board of Directors of the Corporation and the Subsidiary and is willing to
accept continued employment by each of the Corporation and the Subsidiary on the
terms set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Corporation and
the Executive hereby agree as follows.
1. DEFINITIONS.
1.1. "Affiliate" means any person or entity controlling, controlled by
or under common control with the Corporation.
1.2. "Board" means the Board of Directors of the Corporation.
1.3. "Cause" means (a) the Executive is convicted of a felony
involving actual dishonesty as against the Corporation or the Subsidiary, or (b)
the Executive, in carrying out his duties and responsibilities under this
Agreement, is guilty of gross neglect or gross misconduct resulting, in either
case, in material economic harm to the Corporation and/or the Subsidiary, and
such conduct is not cured within thirty (30) days of the Corporation providing
written notice to Executive, unless such act, or failure to act, was believed by
the Executive in good faith to be in the best interests of the Corporation
and/or the Subsidiary.
1.4. "Commencement Date" has the meaning assigned to it in Section 3.
1.5. "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later, the date specified therein, as the case may
be, and (b) in all other cases, the actual date on which the Executive's
employment terminates during the Term of Employment.
1.6. "Disability" means the Executive's inability to render, for a
period of six consecutive months, services hereunder by reason of permanent
disability, as determined by the written medical opinion of an independent
medical physician mutually acceptable to the Executive and the Corporation. If
the Executive and the Corporation cannot agree as to such an independent medical
physician each shall appoint one medical physician and those two physicians
shall appoint a third physician who shall make such determination.
1.7. "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Section 4 of this Agreement; (b) the
Executive suffers a reduction in the duties, responsibilities or effective
authority associated with his titles and positions as set forth and described in
Section 4 of this Agreement; (c) the Executive is not appointed to, or is
removed from, the offices or positions provided for in Section 4.1 of this
Agreement; (d) the Corporation fails to substantially perform any material term
or provision of this Agreement; (e) the Executive's compensation provided for
hereunder is decreased; (f) the Executive's office location is changed to a
location more than 50 miles from its location on the date hereof in Danbury,
Connecticut; (g) the Corporation fails to obtain the full assumption of this
Agreement by a successor entity in accordance with Section 11.2 of this
Agreement; (h) the Corporation continually fails to reimburse the Executive for
business expenses in accordance with Section 5.3 of this Agreement; (i) the
Corporation purports to terminate the Executive's employment for Cause and such
purported termination of employment is not effected in accordance with the
requirements of this Agreement; (j) the Executive shall cease to serve as a
director and Chairman of the Board of Directors of any of the Corporation and
the Subsidiary; (k) the Board or the shareholders of the Corporation or the
Subsidiary, either or both, as may be required to authorize the same, shall
approve (i) any liquidation of the Corporation or the Subsidiary, or the sale of
substantially all of the assets of the Corporation and the Subsidiary taken as a
whole, or (ii) any merger, consolidation and/or other business combination
involving the Corporation or the Subsidiary or any combination of any such
transactions (a "Transaction"), other than a Transaction (A) involving only the
Corporation and the Subsidiary, or (B) immediately after which the shareholders
of the Corporation who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially similar
proportions to those in effect immediately prior to such transaction more than
50% of the then outstanding voting securities of the Corporation or the
survivor, as applicable; (l) any Person (as defined below) or group (as such
term is defined in Rule 13d-5 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of related Persons which is not an Affiliate of the
Corporation or the Subsidiary as of the Commencement Date shall beneficially
own, directly or indirectly, more than 50% of the then outstanding voting stock
of the Corporation or the Subsidiary (for purposes of this Agreement,
"Person(s)" means any individual, entity, or other person, as defined in Section
3(a)(9) of the Exchange Act, and as
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used in Sections 13(d) and 14(d) thereof); or (m) the Board or the Corporation
shall authorize, approve or engage in any Business Combination with an
Interested Person, each as defined in Article Fifth of the Corporation's
Restated Certificate of Incorporation; provided that, notwithstanding the
foregoing, Good Reason shall not include or be deemed to exist, with regard to
the circumstances described in clause (k), (l) or (m), if, with the express
prior written consent of Executive, Executive immediately after the occurrence
of the circumstances or transactions described in clause (k), (l) or (m) becomes
Chairman, Chief Executive Officer and President of the parent corporation or
person that owns or controls the Corporation or its successor immediately after
such circumstances or transaction. If, at the annual meeting in calendar year
2002 (including any adjournment thereof), the shareholders of the Corporation
fail to approve the provisions of this Agreement which are contingent on
shareholder approval pursuant to Section 5.2(a)(vii), and the Corporation fails
to offer to the Executive, within 45 days following such annual meeting, an
amendment of this Agreement which is acceptable to the Executive, then the
Executive may resign at any time during the period between the 61st day
following such annual meeting and the 150th day following such annual meeting,
and such resignation shall be treated as having been for "Good Reason".
1.8. "Retirement" means the termination of the Executive's employment
with the Corporation for any reason at any time after (a) the Executive attains
age 65 or (b) the Executive meets the requirements for early or regular
retirement under the Corporation's retirement policy, assuming for this purpose
that he was a participant in such plan.
1.9. "Term of Employment" has the meaning assigned to it in Section 3.
2. EMPLOYMENT. Subject to the terms and provisions set forth in this
Agreement, the Corporation hereby employs the Executive during the Term of
Employment as the Chief Executive Officer and President of the Corporation,
agrees to use its best efforts to cause Executive to be elected by the
Corporation's shareholders as a director and Chairman of the Board of the
Corporation, and to cause the Executive to be a director and Chairman of the
Board of Directors of the Subsidiary during the Term of Employment and agrees to
cause the Subsidiary at all times during the Term of Employment to employ the
Executive as Chief Executive Officer and President of the Subsidiary, and the
Executive hereby accepts such employment. However, nothing in this Agreement
shall be construed to require that the Executive be elected as a director of the
Corporation's Board of Directors on any date if he is not employed by the
Corporation on the election date.
3. COMMENCEMENT DATE AND TERM OF EMPLOYMENT.
(a) The term of employment under this Agreement shall commence
retroactively as of July 1, 2002 (the "Commencement Date"), and shall,
unless extended as hereinafter provided, terminate on the fifth (5th)
anniversary of such date (the "Term of Employment").
(b) On the fifth (5th) anniversary of the Commencement Date and on the
sixth (6th) anniversary of the Commencement Date, the Term of
Employment shall automatically be extended for an additional one year
period unless, not later than twelve months prior to any such
anniversary, either party to this Agreement shall have given written
notice to the other that the Term of Employment shall not be extended
or further extended beyond its then already automatically extended
term, if any.
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4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1. POSITIONS. During the Term of Employment, the Executive shall be
employed as, and the Corporation shall at all times cause the Executive to be,
the Chief Executive Officer and President of the Corporation and the Subsidiary.
In addition to such positions, the Corporation shall use its best efforts to
ensure that the Executive is elected by the shareholders of the Corporation to
serve as a director of the Corporation during the Term of Employment for a
minimum of two successive, staggered three-year terms, as provided in the
Corporation's Certificate of Incorporation, and shall use its best efforts to
ensure that Executive is the Chairman of the Board of Directors. In such
positions, the Executive shall have the duties, responsibilities and authority
normally associated with the office and position of chairman, director, chief
executive officer and president of a substantial, publicly traded corporation,
but in no event shall the Executive's duties, responsibilities and/or effective
authority with respect to the Corporation and/or the Subsidiary be less than the
duties, responsibilities and effective authority the Executive possessed
immediately prior to the date of this Agreement. No other employee of the
Corporation or the Subsidiary shall have authority and responsibilities that are
equal to or greater than those of the Executive. The Executive shall report
solely and directly to the Board and all other officers and other employees of
the Subsidiary shall report directly to the Executive or the Executive's
designees. No provision of this Section 4.1, however, shall preclude the Board
from soliciting information from any officer or employee of the Corporation.
4.2. DUTIES. During the Term of Employment, the Executive shall devote
such time as is reasonably necessary to perform the duties associated with his
offices and positions as set forth in Section 4.1 and shall use his best efforts
to perform faithfully and efficiently the duties and responsibilities
contemplated by this Agreement; PROVIDED, HOWEVER, that the Executive shall not
be required to perform any duties and responsibilities which would be likely to
result in a non-compliance with or violation or breach of any applicable law or
regulation. Notwithstanding the foregoing provisions of this Section 4.2, during
the Term of Employment, the Executive may devote reasonable time to activities
other than those required under this Agreement, including the supervision of his
personal investments, and activities involving professional, charitable,
educational, religious and similar types of organizations, speaking engagements,
membership on the boards of directors of other organizations, and similar type
activities, to the extent that such other activities do not inhibit or prohibit
the performance of the Executive's duties under this Agreement, or conflict in
any material way with the business of the Corporation or the Subsidiary;
provided, however, that the Executive shall not serve on the board of any
business, or hold any other position with any business without the consent of
the Board.
4.3. NON-DISPARAGEMENT. The Executive agrees that, while he is employed
by the Corporation, and after his Date of Termination, he shall not make any
false, defamatory or disparaging statements about the Corporation, the
Subsidiary, any Affiliate, or the officers or directors of the Corporation, the
Subsidiary or any Affiliate that are reasonably likely to cause material damage
to the Corporation, the Subsidiary, any Affiliate, or the officers or directors
of the Corporation, the Subsidiary, or the Affiliates. While the Executive is
employed by the Corporation, and after his Date of Termination, the Corporation
agrees, on behalf of itself,
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the Subsidiary and the Affiliates, that neither the Corporation, the Subsidiary,
the Affiliates, nor the officers or directors of the Corporation, the
Subsidiary, or any of the Affiliates shall make any false, defamatory or
disparaging statements about the Executive that are reasonably likely to cause
material damage to the Executive.
5. COMPENSATION AND OTHER BENEFITS.
5.1. BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary ("Base Salary"), payable in equal bi-weekly installments,
of, prior to first anniversary of the Commencement Date, $850,000 per annum. On
each anniversary of the Commencement Date, such Base Salary shall be reviewed
for increase (but not decrease) in the sole discretion of the Compensation
Committee of the Board; PROVIDED, HOWEVER, that such Base Salary shall in any
event be increased as of each anniversary of this Agreement, at a rate equal to
the percentage increase in the consumer price index for the New York-Northern
New Jersey-Long Island, NY-NJ-CT metropolitan local area as reported by the
United States Department of Labor (the "CPI") of the year then ended as compared
to the consumer price index for the immediately preceding year. Such increased
Base Salary shall then constitute the "Base Salary" for purposes of this
Agreement.
5.2. INCENTIVE PAYMENTS. During the Term of Employment, the Executive
will be entitled to be paid an incentive bonus (the "Incentive Bonus") and other
benefits as described in this Section 5.2.
(a) The Executive shall be entitled to Incentive Bonus payments in
accordance with the following:
(i) For the fiscal year ending June 30, 2002, the Executive shall be
entitled to an Incentive Bonus determined in accordance with the
provisions of Section 5.2 of the 1997 Agreement.
(ii) For the fiscal year ending June 30, 2003, and for each subsequent
fiscal year, the Corporation shall pay the Executive an Incentive Bonus
equal to two percent (2%) of the amount by which the Corporation's
operating income for the year exceeds the Threshold Amount (as defined
below).
(iii) For the fiscal year ending June 30, 2003, the "Threshold Amount"
shall be $80,000,000 (eighty million dollars). For fiscal years ending
after June 30, 2003, the Threshold Amount shall be 110% of the
Threshold Amount for the preceding fiscal year.
(iv) For fiscal years ending after June 30, 2002, the Corporation's
operating income for the fiscal year shall be as set forth in the
Corporation's financial statements, adjusted by adding thereto the
charges, expenses or accruals, if any, charged against such operating
income for (1) non-recurring or extraordinary items, (2) Incentive
Bonuses under this Agreement, (3) the issuance to the Corporation's
executives, managers, employees, dealers and other business associates
of capital stock of the Corporation, or the issuance or exercise to or
by such persons of options, warrants or other rights to acquire capital
stock of the Corporation, or stock appreciation rights of the
Corporation or similar equity equivalents, including in respect of the
Restricted Stock Agreement and the Option
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Agreements contemplated by this Agreement, and (4) any increased
depreciation, amortization or other changes resulting from purchase
accounting adjustments (provided, however, that no such adjustments
shall be made under this clause (4) with respect to acquisitions
occurring prior to the Commencement Date). The calculation of operating
income will be confirmed by the Corporation's independent public
accountants or any other independent, recognized financial or
accounting expert retained by the Compensation Committee.
(v) Notwithstanding the foregoing provisions of this Section 5.2, if
the Corporation effects a major acquisition during any fiscal year, the
Executive and the Corporation shall negotiate in good faith an
appropriate revision to the Threshold Amount set forth in this Section
5.2 to implement the purpose of the Incentive Bonus.
(vi) The Incentive Bonus in respect of any particular fiscal year will
be paid upon the earlier to occur of the fifth business day following
public filing or disclosure of the Corporation's financial statements
for such fiscal year or the 120th day following the end of such fiscal
year.
(vii) Notwithstanding the foregoing provisions of this Section 5.2, the
Executive's right to any Incentive Bonus amounts under this Agreement
for fiscal years beginning on or after the Commencement Date shall be
contingent on the Incentive Bonus payments being approved by the
shareholders of the Corporation at the Corporation's annual shareholder
meeting in calendar year 2002 (including any adjournment thereof);
provided, however, that if such Incentive Bonus arrangement is not so
approved, the Corporation will offer other additional compensation to
the Executive that provides an earnings opportunity that is comparable
to that offered by the Incentive Bonus, and the Corporation and the
Executive shall negotiate in good faith regarding the structure of such
additional compensation and the revisions to this Agreement reflecting
such compensation. The failure of the Corporation to offer such
replacement compensation within 45 days following the shareholder's
vote of non-approval of the Incentive Bonus shall be treated as a
decrease in the Executive's compensation under Section 1.7(e).
(b) Effective as of July 1, 2002, 2003, 2004, 2005 and 2006, the
Corporation and Executive shall enter into, execute and deliver the
Restricted Stock Agreement, in substantially the form of Exhibit A
hereto (as amended from time to time in accordance with its terms, the
"Restricted Stock Agreement") pursuant to which the Corporation shall
grant to the Executive, effective as of each of July 1, 2002, 2003,
2004, 2005 and 2006, 10,500 shares of the Corporation's common stock,
par value $.01 per share ("Common Stock"), for a total of 52,500
shares, under the Corporation's 1992 Stock Option Plan (as amended from
time to time in accordance with its terms, the "Plan"), in accordance
with the Restricted Stock Agreement in substantially the form set forth
in Exhibit A, which shares of Common Stock will be "restricted stock"
subject to the Restricted Stock Agreement. Shares of Common Stock under
the Restricted Stock Agreement are referred to as the "Restricted
Stock" for purposes of this Agreement. For this purpose, Exhibit A-1
hereto is the form of Restricted Stock Agreement for 2002, and Exhibit
A-2 hereto is the form of Restricted Stock Agreement for years
thereafter.
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(c) The Executive shall be entitled to stock option rights in accordance
with the following:
(i) Concurrently with the execution and delivery of this Agreement, the
Corporation and Executive shall enter into, execute and deliver the
stock option agreements between the Corporation and the Executive, and
substantially in the form of Exhibits B, C, and D hereto (the
agreements set forth in Exhibits B, C, and D are referred to as the
"Option Agreements") pursuant to which the Corporation shall issue to
Executive stock options pursuant to this Section 5.2(c) to purchase a
total of 1,200,000 shares of Common Stock under the Plan, with the
exercise price of a share of stock for the options described in this
sentence to be determined in accordance with the applicable Option
Agreement. The options issued under this Section 5.2(c)(i) are referred
to as the "Options."
(ii) Options to purchase Common Stock to be granted to the Executive by
the Corporation under this Agreement will permit the deferred delivery
of shares of stock following exercise, as elected by the Executive,
pursuant to a deferral arrangement established by the Corporation.
(d) The number of shares subject to any stock awards under this Agreement
are specified as of August 1, 2002, and such numbers are to be adjusted
for stock splits, stock dividends, reclassifications, recapitalizations
and similar events in respect of the Common Stock occurring after that
date.
5.3. EXPENSE REIMBURSEMENT. During the Term of Employment, the
Executive shall be entitled to receive prompt reimbursement for all usual,
customary, and reasonable business-related expenses incurred by the Executive in
performing his duties and responsibilities hereunder in accordance with the
practices and procedures of the Corporation as in effect and applied immediately
prior to the Commencement Date, including without limitation an automobile and
driver allowance and/or reimbursement in accordance with past practices, or, if
more favorable to the Executive, as in effect at any time thereafter with
respect to the Executive or other executives of the Corporation or the
Subsidiary.
5.4. VACATION AND FRINGE BENEFITS.
(a) During the Term of Employment, the Corporation shall maintain a $7
million key man life and disability insurance in respect of the
Executive for the benefit of Executive and/or his estate, and shall
maintain such insurance so long as the Executive remains a senior
executive officer of the Corporation, PROVIDED that the aggregate
amount of such insurance coverage shall be reduced if and to the extent
necessary to reduce the aggregate annual premium payable by the
Corporation to $35,000. The Executive agrees to cooperate with the
Corporation in obtaining such policies and in maintaining the same in
full force and effect throughout the Term of Employment.
(b) During the Term of Employment, the Executive shall also be entitled to
such paid vacation, fringe benefits and perquisites as provided to the
Executive by the Corporation and/or the Subsidiary immediately prior to
the Commencement Date or, if more favorable to the Executive, as
provided by the Corporation or the Subsidiary at any time thereafter.
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(c) To the extent that the Executive's rights to compensation or benefits
under the applicable plan, agreement or other governing document are to
be determined based on the Term of Employment under the Prior
Employment Agreement, the Term of Employment under this Agreement shall
be deemed to be substituted for the Term of Employment under the Prior
Employment Agreement.
5.5. OFFICE AND SUPPORT STAFF. Unless the Executive otherwise agrees
in writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and extent,
and to an office or offices (with furnishings and other appointments) of a type
and size, at least equal to that provided to the Executive immediately prior to
the date of this Agreement.
6. TERMINATION.
6.1. TERMINATION DUE TO DEATH OR DISABILITY. The Corporation may
terminate the Executive's employment hereunder due to Disability. In the event
of the Executive's death or a Termination of the Executive's employment by the
Corporation due to Disability, the Executive, his estate or his legal
representative, as the case may be, shall be entitled to receive:
(a) Base Salary continuation at the rate in effect (as provided for by
Section 5.1 of this Agreement) on the Date of Termination through the
end of the full fiscal year in which the Date of Termination occurs;
(b) an Incentive Bonus in respect of the full fiscal year in which the Date
of Termination occurs;
(c) any deferred compensation not yet paid to the Executive (including,
without limitation, interest or other credits on such deferred
amounts), any accrued vacation pay and insurance proceeds;
(d) reimbursement for expenses incurred but not yet paid prior to such
death or Disability;
(e) insurance policy payments or proceeds in respect of the life and
Disability insurance referred to in Section 5.4(a); and
(f) any other compensation or benefits which may be owed or provided to the
Executive in accordance with the terms and provisions of any applicable
agreements, plans and programs of or made by the Corporation and/or the
Subsidiary.
Anything in this Agreement to the contrary notwithstanding, (x) in the
event of the termination of the Executive's employment pursuant to this Section
6.1, the Corporation will not, from and after the Date of Termination, be
obligated to issue any Restricted Stock or Options, but any vesting or service
requirements under any outstanding Options or Restricted Stock granted to the
Executive prior to his termination of employment that are associated with the
Executive's employment by the Corporation (and any Prior Options, Prior
Restricted Stock, and Prior Stock Units, as those terms are defined in Section
12.8) will be deemed to be fully satisfied upon such termination, and (y) the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation to surviving families of
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employees of the Corporation under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Corporation in effect on the date
of the Executive's death with respect to other key employees of the Corporation
and their families. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled after the Date of Termination due to Disability
to receive disability and other benefits at least equal to the most favorable of
those provided by the Corporation to disabled employees and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, in effect at any time during the 90-day period immediately
preceding the Date of Termination due to Disability with respect to other key
employees of the Corporation and their families.
6.2. TERMINATION BY THE CORPORATION FOR CAUSE. The Corporation may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2. If the Corporation terminates the Executive's employment hereunder
for Cause, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section 5.1 of
this Agreement) at the time of such termination through the Date of
Termination;
(b) a prorated Incentive Bonus in respect of the fiscal year in which the
Date of Termination occurs, equal to such Incentive Bonus multiplied by
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365;
(c) any deferred compensation (including, without limitation, interest or
other credits on such deferred amounts) and any accrued vacation pay;
(d) reimbursement for expenses incurred, but not yet paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided to the
Executive in accordance with the terms and provisions of any applicable
agreements, plans and programs of or made by the Corporation and/or the
Subsidiary.
In any case described in this Section 6.2, the Executive shall be given
written notice authorized by a vote of at least a majority of the members of the
Board that the Corporation intends to terminate the Executive's employment for
Cause. Such written notice, given in accordance with Section 6.7 of this
Agreement, shall specify the particular act or acts, or failure to act, which is
or are the basis for the decision to so terminate the Executive's employment for
Cause. The Executive shall be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and, if such act or failure to act is correctable, the Executive
shall be given 30 business days after such meeting to correct such act or
failure to act. If such act or failure to act is not correctable or upon failure
of the Executive, within such latter 30 day period, to correct such act or
failure to act, the Executive's employment by the Corporation shall
automatically be terminated under this Section 6.2 for Cause as of the date
determined in Section 1.5 of this Agreement. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the
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Corporation for Cause based upon the conviction of the Executive for a felony
involving actual dishonesty as against the Corporation or the Subsidiary, such
conviction is overturned on appeal, the Executive shall be entitled to the
payments and benefits that the Executive would have received as a result of a
termination of the Executive's employment by the Corporation without Cause.
Anything in this Agreement to the contrary notwithstanding, in the event of the
termination of the Executive's employment pursuant to this Section 6.2, the
Corporation will not, from and after the Date of Termination, be obligated to
issue any Restricted Stock or Options, although any outstanding Restricted Stock
or Options will not be affected thereby, except as expressly provided in the
Restricted Stock Agreement and the Option Agreements.
6.3. TERMINATION WITHOUT CAUSE OR TERMINATION FOR GOOD REASON. The
Corporation shall be permitted to terminate the Executive's employment hereunder
without Cause and the Executive shall be permitted to terminate his employment
hereunder for Good Reason. For purposes of this Agreement, such a termination of
employment by the Executive shall constitute a "Termination for Good Reason"
only if effected in accordance with the notice provisions of Section 6.7(b). If
the Corporation terminates the Executive's employment hereunder without Cause,
other than due to death or Disability, or if the Executive effects a Termination
for Good Reason, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section 5.1 of
this Agreement) on the Date of Termination through the end of the Term
of Employment (which Term of Employment shall include extensions
thereof in accordance with Section 3 only to the extent that the
deadline for canceling the extension or extensions occurred prior to
the date on which the applicable written termination notice was
provided, with no cancellation of extension notice filed in accordance
with Section 3(b));
(b) an aggregate amount equal to the two largest Incentive Bonuses or other
annual bonuses previously received by Executive from the Corporation
not to exceed $1 million in the aggregate;
(c) any deferred compensation (including, without limitation, interest or
other credits on the deferred amounts) and any accrued vacation pay;
(d) reimbursement for expenses incurred, but not paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided to the
Executive in accordance with the terms and provisions of any applicable
agreements, plans and programs of or made by the Corporation and/or the
Subsidiary.
Anything in this Agreement to the contrary notwithstanding, in the
event of the termination of Executive's employment pursuant to this Section 6.3,
(x) the Corporation's obligation to issue Restricted Stock under this Agreement
and in accordance with the Restricted Stock Agreement will not be terminated or
otherwise affected, as if the Term of Employment continued without giving effect
to such termination, and any vesting or service requirements under any
outstanding Restricted Stock granted to the Executive prior to, at the time of,
or after his termination of employment that are associated with the Executive's
employment by the
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Corporation (and any Prior Restricted Stock and Prior Stock Units) will be
deemed to be fully satisfied upon such termination or, if later, at the time of
grant, and (y) any vesting or service requirements under any outstanding Options
granted to the Executive prior to his termination of employment or any Options
granted on or after his Date of Termination, that are associated with the
Executive's employment by the Corporation (and any Prior Options) will be deemed
to be fully satisfied upon such termination or if later, at the time such option
is granted, and the options issued to and exercisable by Executive will be
exercisable at any time during the three years following such Date of
Termination or, for Options granted as of a date after the Date of Termination,
three years following the date of grant.
Anything in this Agreement to the contrary notwithstanding, if the
Executive is employed by the Corporation through the end of the Term of
Employment, and his employment terminates by reason of a failure to extend the
Term of Employment (regardless of whether such failure to extend occurs by
reason of a notice from either the Executive or the Corporation that the
Agreement will not be extended in accordance with Section 3(b) or by reason of a
failure of the parties to further extend the Agreement following the end of the
Term of Employment as set forth in Section 3), the Executive shall be treated as
having completed any service required for full vesting under any outstanding
Options, Restricted Stock, Prior Options, Prior Restricted Stock, Prior Stock
Units, as well as any other compensation accrued prior to the termination of
employment if the right to such compensation is contingent on completion of
service for vesting. Nothing in the preceding sentence shall be construed to
require the vesting in compensation for the Executive if the written terms of
the compensation provide for a different vesting schedule and such compensation
is not required to be provided by this Agreement, the 1997 Agreement, or the
1994 Agreement.
6.4. VOLUNTARY TERMINATION. The Executive may effect a Voluntary
Termination of his employment hereunder. A "Voluntary Termination" shall mean a
termination of employment upon prior written notice to the Corporation in
accordance with Section 6.7(c) by the Executive on his own initiative other than
(a) a termination due to Disability, (b) a Termination for Good Reason, or (c) a
termination due to Retirement. A Voluntary Termination shall not be, nor shall
it be deemed to be, a breach of this Agreement and shall entitle the Executive
to all of the rights and benefits to which the Executive would be entitled in
the event of a termination of his employment by the Corporation for Cause.
6.5. TERMINATION DUE TO RETIREMENT. The Executive may terminate his
employment hereunder as a result of Retirement. If the Executive's employment
hereunder is terminated due to Retirement, the Executive shall be entitled to
receive:
(a) Base Salary at the rate in effect (as provided for by Section 5.1 of
this Agreement) at the time of such termination through the date of
Retirement;
(b) a prorated Incentive Bonus in respect of the fiscal year in which the
Date of Termination occurs, equal to such Incentive Bonus multiplied by
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365;
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(c) any deferred compensation not yet paid to the Executive (including,
without limitation, any interest on credits on such deferred amounts)
and any accrued vacation pay;
(d) reimbursement for expenses incurred but not yet paid prior to the date
of Retirement; and
(e) any other compensation or benefits which may be owed or provided to the
Executive in accordance with the terms and provisions of any applicable
agreements, plans and programs of or made by the Corporation and/or the
Subsidiary.
Anything in this Agreement to the contrary notwithstanding, in the event of the
termination of the Executive's employment pursuant to this Section 6.5, the
Corporation will not, from and after the Date of Termination, be obligated to
issue any Restricted Stock or Options, although any outstanding Restricted Stock
or Options will not be affected thereby, except as expressly provided in the
Restricted Stock Agreement and the Option Agreements.
6.6. NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.7. NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Corporation for Cause, any Termination for Good Reason, and
any termination of employment by the Executive in connection with a Voluntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 12.3 of this Agreement (the "Notice of
Termination"). The Notice of Termination shall be given (a) in the case of a
termination for Cause, within 90 business days after a director of the
Corporation (excluding the Executive) has actual knowledge of the events giving
rise to such purported termination, (b) in the case of a Termination for Good
Reason, within 180 days of the Executive's having actual knowledge of the event
or events constituting Good Reason; and (c) in the case of Voluntary
Termination, not later than 150 days prior to the date of termination specified
in such notice. Such notice shall (x) indicate the specific termination
provision in this Agreement relied upon, (y) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, as applicable, and (z)
if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is actually given).
6.8. CERTAIN FURTHER PAYMENTS BY THE CORPORATION.
6.8.1. TAX REIMBURSEMENT PAYMENT. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to the Executive by the Corporation, the Subsidiary or any other
Affiliate, including Base Salary, Incentive Bonuses, Restricted Stock, Options
and any other amounts payable in respect of this Agreement (collectively, the
"Covered Payments"), is or becomes, at any time, as a result of (a) any Internal
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Revenue Service claims or assertions, or (b) Section 6.8.2 below or otherwise,
subject to the excise tax imposed by or under Section 4999 of the Code (or any
similar tax that may hereafter be imposed), and/or any interest or penalties
with respect to such excise tax (such excise tax, together with such interest
and penalties, are hereinafter collectively, referred to as the "Excise Tax"),
the Corporation shall pay to the Executive at the time specified in Section 6.9
below an additional amount (the "Tax Reimbursement Payment") equal to the sum of
(a) the amount of the Excise Tax imposed upon the Covered Payments, and (b) an
amount equal to the product of (i) any deductions disallowed for federal, state
or local income tax purposes because of the inclusion of the Tax Reimbursement
Payment in the Executive's adjusted gross income, and (ii) the highest
applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. However, the Tax Reimbursement Payment will not include
any Excise Tax or other tax imposed on or attributable to the Tax Reimbursement
Payment itself.
6.8.2. DETERMINING EXCISE TAX. Except as otherwise provided in Section
6.8.1(a), for purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments" (within
the meaning of Section 280G(b)(2) of the Code) and such payments in
excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the
"Accountants") or legal counsel reasonably acceptable to the Executive,
deliver timely, upon the Executive's request, a written opinion,
reasonably satisfactory to the Executive's legal counsel, to the
Executive that the Executive has a reasonable basis to claim that the
Covered Payments (in whole or in part) (i) do not constitute "parachute
payments", (ii) represent reasonable compensation for services actually
rendered (within the meaning of Section 280G(b)(4) of the Code) in
excess of the "base amount" allocable to such reasonable compensation,
or (iii) such "parachute payments" are otherwise not subject to such
Excise Tax (with appropriate legal authority, detailed analysis and
explanation provided therein by the Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.8.3. APPLICABLE TAX RATES AND DEDUCTIONS. For purposes of determining
the amount of the Tax Reimbursement Payment, the Executive shall be deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in
which the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and local
income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
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6.8.4. SUBSEQUENT EVENTS. If, pursuant to a written opinion, reasonably
satisfactory to the Executive, of the Accountants (or legal counsel reasonably
acceptable to the Executive) delivered to the Executive, the Excise Tax is
subsequently determined on a reasonable basis and in good faith (other than as a
result of a tax contest) to be less than the amount taken into account hereunder
in calculating any Tax Reimbursement Payment made, the Executive shall repay to
the Corporation the portion of any prior Tax Reimbursement Payment that would
not have been paid if such redetermined Excise Tax had been applied in
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the mid-term discount rate provided in Section 1274(b)(2)(B) of the
Code. Notwithstanding the immediately preceding sentence, if any portion of the
Tax Reimbursement Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not be required
until an actual refund or credit of such portion has been made to or obtained by
the Executive from such tax authority, and any interest payable to the
Corporation shall not exceed the interest received or credited to the Executive
by any such tax authority. The Executive shall be fully indemnified by the
Corporation for any out-of-pocket costs, expenses or fees attributable to the
filing of any refund or other claim. The Executive and the Corporation shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if any good faith claim for refund or credit
from such tax authority made by the Executive is denied.
Notwithstanding the immediately preceding paragraph, if, in the written
opinion of the Executive's tax advisors delivered to the Accountants and the
Corporation, the Excise Tax is later determined to exceed the amount taken into
account by the Accountants or legal counsel, as the case may be, hereunder at
the time any Tax Reimbursement Payment is made by reason of (i) manifest error,
(ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel reasonably satisfactory to the Executive
that it is more likely than not that the Executive would succeed in disputing
such claim, assertion or determination of such tax authority, the Executive
shall, at the sole expense of the Corporation, make a good faith effort to
contest such claim, assertion or determination of such tax authority in all
relevant administrative proceedings with such tax authority and in any related
judicial proceeding (excluding any appeals thereof); PROVIDED, HOWEVER, that if
the Executive determines in good faith that the continued contest of any such
claim, assertion or determination with such tax authority would have an adverse
impact on his overall tax position (which good faith determination shall take
into account the magnitude of the amounts involved), then, upon receipt of
notice by the Corporation from the Executive to that effect, the Executive
shall, without forgoing any right to receive any Tax Reimbursement Payment
described in this Section 6.8, have no further obligation to pursue any such
contest with any such tax authority. The Executive may, as a condition to
pursuing or commencing any contest described in this Section 6.8.4 in any
judicial proceedings (which proceedings shall be in a forum chosen at the sole
discretion of the
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Executive), require the Corporation to advance any amount of tax required to be
paid in order to pursue such contest. In conducting any contest described in
this Section 6.8.4, the Executive shall use his best efforts to keep the
Corporation advised and will permit the Corporation to prepare and suggest
appropriate responses and actions that may be reasonably made or taken by the
Executive. Notwithstanding the above, the decisions as to such response or
actions shall be solely that of the Executive and the Executive shall have the
sole right to control the proceeding. The Corporation shall bear all expenses of
any proceeding relating to any contest described in this Section 6.8.4, whether
incurred by the Corporation or the Executive, including, without limitation, all
fees and disbursements of attorneys, accountants and expert witnesses and any
additional interest or penalties applicable. Nothing contained in this Agreement
shall under any circumstances give the Corporation any right to examine the tax
returns or any other records of the Executive.
6.8.5. ELECTION TO ACCELERATE. For purposes of Code sections 280G and
4999, the Executive, in his sole discretion, may elect to have any amounts
treated as received in the year of a change in ownership or control or, if
later, the first year in which the payment (or payments) are certain to be made
without regard to the year in which the payment (or payments) are includible in
income or otherwise received to the extent provided in Prop. Treas. Reg. section
1.280G-1, Q/A-11(c) (issued February 20, 2002) or any successor provision. If
the Executive makes any such election, the determination of the Executive's
rights to payments under this Section 6.8 and Section 6.9 shall be determined
after taking into account such election.
6.9. PAYMENT. Except as otherwise provided in this Agreement, and
except with respect to continued payment of Base Salary in accordance with any
provisions of this Agreement, any payments to which the Executive shall be
entitled under this Section 6 shall be made as promptly as possible following
(a) the Date of Termination, (b) the payment of any Covered Payments, or (c) the
delivery of the opinion of the Executive's tax advisors, in accordance with
Section 6.8.4. If the amount of any payment due to the Executive cannot be
finally determined within 90 days after the Date of Termination, such amount
shall be estimated on a good faith basis by the Corporation and the estimated
amount shall be paid no later than 90 days after such Date of Termination. As
soon as practicable thereafter, the final determination of the amount due shall
be made and any adjustment requiring a payment to or from the Executive shall be
made as promptly as practicable.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any bonus or
incentive plan or program provided or maintained by the Corporation, the
Subsidiary or any other Affiliate and for which the Executive may qualify or be
selected, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other existing or future agreements with the
Corporation, the Subsidiary or any Affiliate, including, without limitation, any
change of control agreements or any stock option, restricted stock, or stock
unit agreements, including the Restricted Stock Agreement and the Option
Agreements. Except as otherwise expressly provided for in this Agreement,
amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plans or programs of the Corporation, the Subsidiary or any
other Affiliate at or subsequent to the Date of Termination shall be payable in
accordance with such plans or programs.
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8. FULL SETTLEMENT. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others.
9. COSTS OF ENFORCEMENT. The following provisions of this Section 9
shall apply if it becomes necessary or desirable for the Executive to retain
legal counsel or incur other costs and expenses in connection with either
enforcing any and all of his rights under this Agreement or defending against
any allegations by the Corporation of breach of this Agreement by the Executive:
(a) The Executive shall be entitled to recover from the Corporation
reasonable attorneys' fees, costs and expenses incurred by him in
connection with such enforcement or defense.
(b) Payments required under this Section 9 shall be made by the Corporation
to the Executive (or directly to the Executive's attorney) promptly
following submission to the Corporation of appropriate documentation
evidencing the incurrence of such attorneys' fees, costs, and expenses.
(c) The Executive shall be entitled to select his legal counsel; provided,
however, that such right of selection shall not affect the requirement
that any costs and expenses reimbursable under this Section 9 be
reasonable.
(d) The Executive's rights to payments under this Section 9 shall not be
affected by the final outcome of any dispute with the Corporation;
provided, however, that to the extent that the court shall determine
that under the circumstances recovery by the Executive of all or a part
of any such fees and costs and expenses would be unjust or
inappropriate, the Executive shall not be entitled to such recovery;
and to the extent that such amounts have been recovered by the
Executive previously, the Executive shall repay such amounts to the
Corporation.
In addition, the Corporation will reimburse the Executive for the reasonable
attorney fees incurred in connection with the preparation and negotiation of
this Agreement.
10. CONFIDENTIAL INFORMATION AND NONCOMPETITION.
10.1. CONFIDENTIAL INFORMATION. The Executive shall not, during the
Term of Employment and thereafter, without the prior express written consent of
the Corporation or the Subsidiary, disclose any confidential information,
knowledge or data relating to the Corporation, the Subsidiary or any other
Affiliate and their respective businesses, which (a) was obtained by the
Executive in the course of the Executive's employment with the Corporation, and
(b) which is not information, knowledge or data otherwise in the public domain
(other than by reason of a breach of this provision by the Executive), unless
required to do so by a court of law or equity or by any governmental agency or
other authority. In no event shall an asserted violation of this Section 10.1
constitute a basis for delaying or withholding the payment of any amounts
otherwise payable to the Executive under this Agreement.
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10.2. NONCOMPETITION. If the Executive terminates his employment
hereunder pursuant to Section 6.4 of this Agreement, then the Corporation, by
written notice given to the Executive within 30 days after the Executive
delivers a Notice of Termination in connection with a Voluntary Termination, may
require that this Section 10.2 apply. If the Corporation gives notice to the
Executive as provided in the preceding sentence, then the Executive, without the
express written consent of the Corporation, shall not, for the twelve month
period following the Date of Termination, engage in any business, whether as an
employee, consultant, partner, principal, agent, representative or stockholder
(other than as a stockholder of less than a 5% equity interest) or in any other
corporate or representative capacity, if it involves engaging in, or rendering
services or advice pertaining to, any lines of business the Corporation or the
Subsidiary was actively conducting on the Date of Termination. The obligation of
the Executive to abide by the restrictions set forth in the preceding sentence
shall be conditioned upon the Corporation continuing payment of the Executive's
Base Salary for the 12-month period during which such restriction shall be in
effect. Such Base Salary shall be paid at the rate in effect (as provided for in
Section 5.1 of this Agreement) on the Date of Termination. If the Corporation
shall institute any action or proceeding to enforce the provisions of this
Section 10.2, or shall file any claim in any proceeding to enforce such
provisions, the Executive hereby waives the claim or defense that the
Corporation has an adequate remedy at law and waives the requirement that the
Corporation post a bond in securing equitable relief, and the Executive shall
not contend in any such action or proceeding the claim or defense that an
adequate remedy at law exists.
11. SUCCESSORS.
11.1. THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, interstate succession or pursuant to a
domestic relations order of a court of competent jurisdiction. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
beneficiaries and/or legal representatives.
11.2. THE CORPORATION. This Agreement shall inure to the benefit of and
be binding upon the Corporation and its successors and assigns. The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had
taken place.
12. MISCELLANEOUS.
12.1. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, applied without reference
to principles of conflict of laws.
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12.2. AMENDMENTS. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
12.3. NOTICES. All notices and other communications hereunder shall be
in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
c/o Ethan Allen Drive
Danbury, Connecticut 06813
If to the Corporation:
c/o Ethan Allen Drive
Danbury, Connecticut 06813
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4. WITHHOLDING. The Corporation may withhold from any amounts
payable under this Agreement such federal, state or local income taxes as shall
be required to be withheld pursuant to any applicable law or regulation. If, at
any time on or after the Commencement Date, the Executive will recognize taxable
income with respect to the awards from the Corporation of Common Stock
(regardless of when such awards are made), the Executive may elect to have the
Corporation withhold from the shares to be delivered shares sufficient to
satisfy all or a portion of such tax withholding requirements.
12.5. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12.6. CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7. BENEFICIARIES/REFERENCES. The Executive shall be entitled to
select (and change) a beneficiary or beneficiaries to receive any compensation
or benefit payable hereunder following the Executive's death, and may change
such election, in either case by giving the Corporation written notice thereof.
In the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to other beneficiary(ies), estate or his legal
representative(s).
12.8. ENTIRE AGREEMENT.
(a) Upon the commencement of the Term of Employment, this Agreement will
contain the entire agreement between the parties concerning the subject
matter hereof and will supersede all prior agreements (including
without limitation the 1997 Agreement, except
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as otherwise specifically provided in this Agreement), understandings,
discussions, negotiations and undertakings, whether written or oral,
between the parties with respect to the subject matter hereof,
excluding: (i) the Restated Director Indemnification Agreement by and
between the Corporation and the Executive; (ii) the Option Agreements
and the Restricted Stock Agreement; and (iii) the agreements governing
the following awards associated with the Executive's employment by the
Corporation that were granted to the Executive prior to Commencement
Date: stock options (the "Prior Options"), restricted stock (the "Prior
Restricted Stock"), and stock units (the "Prior Stock Units").
(b) This Agreement shall not affect the Executive's rights to benefits
accrued prior to July 1, 2002 and the Executive's rights with respect
to Prior Options, Prior Restricted Stock, and Prior Stock Units shall
be governed by the respective stock option, restricted stock, and stock
unit agreements relating thereto. Notwithstanding the preceding
sentence, (i) the Executive's rights with respect to the Prior Options,
Prior Restricted Stock, and Prior Stock Units following the Executive's
Date of Termination shall be governed by the provisions of Section 6 of
this Agreement to the extent such provisions do not adversely affect
the Executive's rights under those awards, and (ii) the expiration of
the Agreement Term as defined in the 1997 Agreement shall not result in
vesting of any Prior Options, Prior Restricted Stock, or Prior Stock
Units pursuant to the last paragraph of Section 6.3 of the 1997
Agreement.
12.9. REPRESENTATION. The Corporation represents and warrants that it
is fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Corporation and any other person, firm or organization or
any applicable laws or regulations.
12.10. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement or the
Executive's employment hereunder to the extent necessary to the intended
preservation of such rights and obligations.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Corporation has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
EXECUTIVE
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
By: /s/ Edward Meyer
--------------------------------------
Edward Meyer
Its: Chairman, Compensation Committee
Exhibit A-1
- -----------
2002 RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of August 1, 2002 (the "Grant Date"), by and
between Ethan Allen Interiors, Inc. (the "Company") and M. Farooq Kathwari (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Restricted Stock Agreement is being entered into pursuant to Section 5.2(b)
thereof;
NOW THEREFORE, IT IS AGREED between the Company and the Executive as
follows:
1. AWARD. Pursuant to Section 5.2(b) of the Employment Agreement, and
subject to the terms of this Agreement and the Employment Agreement, the
Executive is granted 10,500 shares of common stock, par value $.01 per share
("Common Stock") as of the Grant Date (all such shares, collectively, the
"Restricted Stock"). The award is subject to Section 6 of the Employment
Agreement. Such shares of Restricted Stock may consist, either in whole or in
part, of the Company's authorized and unissued Common Stock or shares of the
Company's authorized and issued Common Stock reacquired by the Company and held
in its Treasury.
2. RESTRICTIONS ON SHARES. During the Restricted Period (as described
in paragraph 4):
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered.
(b) The certificate representing such shares shall be registered in the
name of the Executive shall be deposited with the Company, together
with a stock power (in such form as the Company may determine) and
shall be imprinted with a legend as referred to in paragraph 4.
(c) Subject to paragraph (d) below, the Executive shall be treated as a
stockholder with respect to shares of Restricted Stock, including the
right to vote such shares; provided, however, the Executive shall not
be entitled to vote shares of Restricted Stock with respect to record
dates occurring on or after the date, if any, on which the Executive
has forfeited such shares pursuant to paragraph 4.
(d) As of each dividend record date for Company Common Stock occurring on
or after the date of grant of shares of Restricted Stock under this
Agreement and prior to the date such shares become vested or are
forfeited (i) no dividends shall be currently payable to the Executive
with respect to such shares; and (ii) an account established by the
Company for the benefit of the Executive shall be credited with the
amount of dividends which would have been paid with respect to such
shares in the absence of clause (i) above). Amounts credited to the
account shall be credited with interest at the rate of 5% per year
until distribution. The Executive shall be fully vested in all amounts
credited to the account balance (regardless of the subsequent vesting
or forfeiture of the shares). The balance credited to the Executive's
account shall be distributed to the Executive in cash as soon as
practicable after the Executive's termination of employment with the
Company and its affiliates for any reason.
3. TRANSFERS AT TERMINATION OF RESTRICTED PERIOD. At the end of the
Restricted Period, the certificate representing such share shall be transferred
to the Executive (or the Executive's legal representative or heir) free of all
legends and restrictions referred to in this Agreement.
4. VESTING AND FORFEITURES. The Restricted Period shall begin on the
Grant Date, and end on the third anniversary thereof (the "Vesting Date"). As of
the Vesting Date, the amount of such Restricted Stock which will vest will be
determined by reference to the Company's TRS Percentile (as defined below) for
the three-year period preceding such Vesting Date in accordance with the
following schedule:
======================================================== ==================
Company's TRS Percentile for Three-Year Period Prior to Shares Vested on
Vesting Date Such Vesting Date
- -------------------------------------------------------- ------------------
70% or Higher 10,500
Above 60% to 70% 8,400
Above 50% to 60% 6,300
Above 40% to 50% 4,200
40% and below 0
======================================================= ==================
For purposes of the foregoing schedule, "TRS Percentile" means, for the period
in question, the total return to the holders of Common Stock of the Company
(including dividends and distributions, and assuming they are reinvested) as
compared to the total return to holders of common stock of the companies
(including dividends and distributions, and assuming they are reinvested) which
comprise the Standard & Poor's 500 during such period, as determined in
accordance with recognized financial practices and pursuant to publicly
available sources. For this purpose, the price of Ethan Allen Common Stock (but
not the price of the stock of other companies which comprise the Standard &
Poor's 500) at the beginning and the end of such period shall be equal to the
average Fair Market Value (as that term is defined in the Plan) of a share of
Common Stock for the days on which the Common Stock is traded on the New York
Stock Exchange during the 60-calendar-day periods ending on the Grant Date and
the third anniversary of the Grant Date, respectively.
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Any shares of Restricted Stock which do not vest on the Vesting Date
shall be immediately forfeited by the Executive, and returned and released to
the Company, and the Executive thereafter shall have no further rights with
respect to such shares.
During the Restricted Period, all certificates evidencing the
Restricted Stock will be imprinted will the following legend: "The securities
evidenced by this certificate are subject to the transfer restrictions,
forfeitures and other provisions of the Restricted Stock Agreement, dated as of
August 1, 2002, between Ethan Allen Interiors, Inc. and M. Farooq Kathwari."
5. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 4, the
Restricted Period for all shares of Restricted Stock will end not later than the
date of a Change in Control, if the Executive is then employed by the Company
and such shares were not previously forfeited in accordance with paragraph 4.
For purposes of this Agreement, a "Change in Control" shall occur upon the
occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
6. ADJUSTMENTS TO NUMBER OF SHARES. Subject to the following provisions
of this paragraph 6 in the event of any change in the outstanding shares of
common stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, the terms and the number of shares of
any outstanding Restricted Stock shall be equitably adjusted by the Company to
the extent that such adjustment is necessary to preserve the benefit of this
Agreement for the Executive and the Company.
-3-
7. AGREEMENT NOT CONTRACT OF EMPLOYMENT. This Agreement does not
constitute a contract of employment, and does not give the Executive the right
to be retained in the employ of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
9. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
10. AMENDMENT. This Agreement may be amended by written agreement of
the Executive and the Company, without the consent of any other person.
11. PLAN AMENDMENT. The Plan is hereby amended to permit the award set
forth in this agreement, and the officers of the Company are authorized to
modify the Plan language to reflect such amendment.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Grant Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit A-2
- -----------
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of July 1, 2003 (the "Agreement Date"), by and
between Ethan Allen Interiors, Inc. (the "Company") and M. Farooq Kathwari (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Restricted Stock Agreement is being entered into pursuant to Section 5.2(b)
thereof;
NOW THEREFORE, IT IS AGREED between the Company and the Executive as
follows:
1. AWARD. Pursuant to Section 5.2(b) of the Employment Agreement, and
subject to the terms of this Agreement and the Employment Agreement, the
Executive is granted as of July 1, 2003 (the "Grant Date"), 10,500 shares of
common stock, par value $.01 per share ("Common Stock") as of the Grant Date
(all such shares, collectively, the "Restricted Stock"). The award is subject to
Section 6 of the Employment Agreement. Such shares of Restricted Stock may
consist, either in whole or in part, of the Company's authorized and unissued
Common Stock or shares of the Company's authorized and issued Common Stock
reacquired by the Company and held in its Treasury.
2. RESTRICTIONS ON SHARES. During the Restricted Period (as described
in paragraph 4):
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered.
(b) The certificate representing such shares shall be registered in the
name of the Executive shall be deposited with the Company, together
with a stock power (in such form as the Company may determine) and
shall be imprinted with a legend as referred to in paragraph 4.
(c) Subject to paragraph (d) below, the Executive shall be treated as a
stockholder with respect to shares of Restricted Stock, including the
right to vote such shares; provided, however, the Executive shall not
be entitled to vote shares of Restricted Stock with respect to record
dates occurring on or after the date, if any, on which the Executive
has forfeited such shares pursuant to paragraph 4.
(d) As of each dividend record date for Company Common Stock occurring on
or after the date of grant of shares of Restricted Stock under this
Agreement and prior to the date such shares become vested or are
forfeited (i) no dividends shall be currently payable to the Executive
with respect to such shares; and (ii) an account established by the
Company for the benefit of the Executive shall be credited with the
amount of dividends which would have been paid with respect to such
shares in the absence of clause (i) above). Amounts credited to the
account shall be credited with interest at the rate of 5% per year
until distribution. The Executive shall be fully vested in all amounts
credited to the account balance (regardless of the subsequent vesting
or forfeiture of the shares). The balance credited to the Executive's
account shall be distributed to the Executive in cash as soon as
practicable after the Executive's termination of employment with the
Company and its affiliates for any reason.
3. TRANSFERS AT TERMINATION OF RESTRICTED PERIOD. At the end of the
Restricted Period, the certificate representing such share shall be transferred
to the Executive (or the Executive's legal representative or heir) free of all
legends and restrictions referred to in this Agreement.
4. VESTING AND FORFEITURES. The Restricted Period shall begin on the
Grant Date, and end on the third anniversary thereof (the "Vesting Date"). As of
the Vesting Date, the amount of such Restricted Stock which will vest will be
determined by reference to the Company's TRS Percentile (as defined below) for
the three-year period preceding such Vesting Date in accordance with the
following schedule:
======================================================== ==================
Company's TRS Percentile for Three-Year Period Prior to Shares Vested on
Vesting Date Such Vesting Date
------------------------------------------------------- ------------------
70% or Higher 10,500
Above 60% to 70% 8,400
Above 50% to 60% 6,300
Above 40% to 50% 4,200
40% and below 0
======================================================= =================
For purposes of the foregoing schedule, "TRS Percentile" means, for the period
in question, the total return to the holders of Common Stock of the Company
(including dividends and distributions, and assuming they are reinvested) as
compared to the total return to holders of common stock of the companies
(including dividends and distributions, and assuming they are reinvested) which
comprise the Standard & Poor's 500 during such period, as determined in
accordance with recognized financial practices and pursuant to publicly
available sources. For this purpose, the price of Ethan Allen Common Stock (but
not the price of the stock of other companies which comprise the Standard &
Poor's 500) at the beginning and the end of such period shall be equal to the
average Fair Market Value (as that term is defined in the Plan) of a share of
Common Stock for the days on which the Common Stock is traded on the New York
Stock Exchange during the 60-calendar-day periods ending on the Grant Date and
the third anniversary of the date of the Grant Date, respectively.
-2-
Any shares of Restricted Stock which do not vest on the Vesting Date
shall be immediately forfeited by the Executive, and returned and released to
the Company, and the Executive thereafter shall have no further rights with
respect to such shares.
During the Restricted Period, all certificates evidencing the
Restricted Stock will be imprinted will the following legend: "The securities
evidenced by this certificate are subject to the transfer restrictions,
forfeitures and other provisions of the Restricted Stock Agreement, dated as of
August 1, 2002, between Ethan Allen Interiors, Inc. and M. Farooq Kathwari."
5. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 4,
the Restricted Period for all shares of Restricted Stock will end not later than
the date of a Change in Control, if the Executive is then employed by the
Company and such shares were not previously forfeited in accordance with
paragraph 4. For purposes of this Agreement, a "Change in Control" shall occur
upon the occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
6. ADJUSTMENTS TO NUMBER OF SHARES. Subject to the following provisions
of this paragraph 6 in the event of any change in the outstanding shares of
common stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, the terms and the number of shares of
any outstanding Restricted Stock shall be equitably adjusted by the Company to
the extent that such adjustment is necessary to preserve the benefit of this
Agreement for the Executive and the Company.
-3-
7. AGREEMENT NOT CONTRACT OF EMPLOYMENT. This Agreement does not
constitute a contract of employment, and does not give the Executive the right
to be retained in the employ of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
9. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
10. AMENDMENT. This Agreement may be amended by written agreement of
the Executive and the Company, without the consent of any other person.
11. PLAN AMENDMENT. The Plan is hereby amended to permit the award set
forth in this agreement, and the officers of the Company are authorized to
modify the Plan language to reflect such amendment.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Grant Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit A-3
- ------------
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of July 1, 2004 (the "Agreement Date"), by and
between Ethan Allen Interiors, Inc. (the "Company") and M. Farooq Kathwari (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992 Stock
Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Restricted Stock Agreement is being entered into pursuant to Section 5.2(b)
thereof;
NOW THEREFORE, IT IS AGREED between the Company and the Executive as
follows:
1. AWARD. Pursuant to Section 5.2(b) of the Employment Agreement, and
subject to the terms of this Agreement and the Employment Agreement, the
Executive is granted as of July 1, 2004 (the "Grant Date"), 10,500 shares of
common stock, par value $.01 per share ("Common Stock") as of the Grant Date
(all such shares, collectively, the "Restricted Stock"). The award is subject to
Section 6 of the Employment Agreement. Such shares of Restricted Stock may
consist, either in whole or in part, of the Company's authorized and unissued
Common Stock or shares of the Company's authorized and issued Common Stock
reacquired by the Company and held in its Treasury.
2. RESTRICTIONS ON SHARES. During the Restricted Period (as described in
paragraph 4):
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered.
(b) The certificate representing such shares shall be registered in the
name of the Executive shall be deposited with the Company, together
with a stock power (in such form as the Company may determine) and
shall be imprinted with a legend as referred to in paragraph 4.
(c) Subject to paragraph (d) below, the Executive shall be treated as a
stockholder with respect to shares of Restricted Stock, including the
right to vote such shares; provided, however, the Executive shall not
be entitled to vote shares of Restricted Stock with respect to record
dates occurring on or after the date, if any, on which the Executive
has forfeited such shares pursuant to paragraph 4.
(d) As of each dividend record date for Company Common Stock occurring on
or after the date of grant of shares of Restricted Stock under this
Agreement and prior to the date such shares become vested or are
forfeited (i) no dividends shall be currently payable to the Executive
with respect to such shares; and (ii) an account established by the
Company for the benefit of the Executive shall be credited with the
amount of dividends which would have been paid with respect to such
shares in the absence of clause (i) above). Amounts credited to the
account shall be credited with interest at the rate of 5% per year
until distribution. The Executive shall be fully vested in all amounts
credited to the account balance (regardless of the subsequent vesting
or forfeiture of the shares). The balance credited to the Executive's
account shall be distributed to the Executive in cash as soon as
practicable after the Executive's termination of employment with the
Company and its affiliates for any reason.
3. TRANSFERS AT TERMINATION OF RESTRICTED PERIOD. At the end of the
Restricted Period, the certificate representing such share shall be transferred
to the Executive (or the Executive's legal representative or heir) free of all
legends and restrictions referred to in this Agreement.
4. VESTING AND FORFEITURES. The Restricted Period shall begin on the
Grant Date, and end on the third anniversary thereof (the "Vesting Date"). As of
the Vesting Date, the amount of such Restricted Stock which will vest will be
determined by reference to the Company's TRS Percentile (as defined below) for
the three-year period preceding such Vesting Date in accordance with the
following schedule:
======================================================== ====================
Company's TRS Percentile for Three-Year Period Prior to Shares Vested on
Vesting Date Such Vesting Date
- -------------------------------------------------------- --------------------
70% or Higher 10,500
Above 60% to 70% 8,400
Above 50% to 60% 6,300
Above 40% to 50% 4,200
40% and below 0
======================================================= ====================
For purposes of the foregoing schedule, "TRS Percentile" means, for the period
in question, the total return to the holders of Common Stock of the Company
(including dividends and distributions, and assuming they are reinvested) as
compared to the total return to holders of common stock of the companies
(including dividends and distributions, and assuming they are reinvested) which
comprise the Standard & Poor's 500 during such period, as determined in
accordance with recognized financial practices and pursuant to publicly
available sources. For this purpose, the price of Ethan Allen Common Stock (but
not the price of the stock of other companies which comprise the Standard &
Poor's 500) at the beginning and the end of such period shall be equal to the
average Fair Market Value (as that term is defined in the Plan) of a share of
Common Stock for the days on which the Common Stock is traded on the New York
Stock Exchange during the 60-calendar-day periods ending on the Grant Date and
the third anniversary of the date of the Grant Date, respectively.
-2-
Any shares of Restricted Stock which do not vest on the Vesting Date
shall be immediately forfeited by the Executive, and returned and released to
the Company, and the Executive thereafter shall have no further rights with
respect to such shares.
During the Restricted Period, all certificates evidencing the
Restricted Stock will be imprinted will the following legend: "The securities
evidenced by this certificate are subject to the transfer restrictions,
forfeitures and other provisions of the Restricted Stock Agreement, dated as of
August 1, 2002, between Ethan Allen Interiors, Inc. and M. Farooq Kathwari."
5. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 4,
the Restricted Period for all shares of Restricted Stock will end not later than
the date of a Change in Control, if the Executive is then employed by the
Company and such shares were not previously forfeited in accordance with
paragraph 4. For purposes of this Agreement, a "Change in Control" shall occur
upon the occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
6. ADJUSTMENTS TO NUMBER OF SHARES. Subject to the following provisions
of this paragraph 6 in the event of any change in the outstanding shares of
common stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, the terms and the number of shares of
any outstanding Restricted Stock shall be equitably adjusted by the Company to
the extent that such adjustment is necessary to preserve the benefit of this
Agreement for the Executive and the Company.
-3-
7. AGREEMENT NOT CONTRACT OF EMPLOYMENT. This Agreement does not
constitute a contract of employment, and does not give the Executive the right
to be retained in the employ of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
9. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
10. AMENDMENT. This Agreement may be amended by written agreement of
the Executive and the Company, without the consent of any other person.
11. PLAN AMENDMENT. The Plan is hereby amended to permit the award set
forth in this agreement, and the officers of the Company are authorized to
modify the Plan language to reflect such amendment.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Grant Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit A-4
- -----------
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of July 1, 2005 (the "Agreement Date"), by and
between Ethan Allen Interiors, Inc. (the "Company") and M. Farooq Kathwari (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Restricted Stock Agreement is being entered into pursuant to Section 5.2(b)
thereof;
NOW THEREFORE, IT IS AGREED between the Company and the Executive as
follows:
1. AWARD. Pursuant to Section 5.2(b) of the Employment Agreement, and
subject to the terms of this Agreement and the Employment Agreement, the
Executive is granted as of July 1, 2005 (the "Grant Date"), 10,500 shares of
common stock, par value $.01 per share ("Common Stock") as of the Grant Date
(all such shares, collectively, the "Restricted Stock"). The award is subject to
Section 6 of the Employment Agreement. Such shares of Restricted Stock may
consist, either in whole or in part, of the Company's authorized and unissued
Common Stock or shares of the Company's authorized and issued Common Stock
reacquired by the Company and held in its Treasury.
2. RESTRICTIONS ON SHARES. During the Restricted Period (as described
in paragraph 4):
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered.
(b) The certificate representing such shares shall be registered in the
name of the Executive shall be deposited with the Company, together
with a stock power (in such form as the Company may determine) and
shall be imprinted with a legend as referred to in paragraph 4.
(c) Subject to paragraph (d) below, the Executive shall be treated as a
stockholder with respect to shares of Restricted Stock, including the
right to vote such shares; provided, however, the Executive shall not
be entitled to vote shares of Restricted Stock with respect to record
dates occurring on or after the date, if any, on which the Executive
has forfeited such shares pursuant to paragraph 4.
(d) As of each dividend record date for Company Common Stock occurring on
or after the date of grant of shares of Restricted Stock under this
Agreement and prior to the date such shares become vested or are
forfeited (i) no dividends shall be currently payable to the Executive
with respect to such shares; and (ii) an account established by the
Company for the benefit of the Executive shall be credited with the
amount of dividends which would have been paid with respect to such
shares in the absence of clause (i) above). Amounts credited to the
account shall be credited with interest at the rate of 5% per year
until distribution. The Executive shall be fully vested in all amounts
credited to the account balance (regardless of the subsequent vesting
or forfeiture of the shares). The balance credited to the Executive's
account shall be distributed to the Executive in cash as soon as
practicable after the Executive's termination of employment with the
Company and its affiliates for any reason.
3. TRANSFERS AT TERMINATION OF RESTRICTED PERIOD. At the end of the
Restricted Period, the certificate representing such share shall be transferred
to the Executive (or the Executive's legal representative or heir) free of all
legends and restrictions referred to in this Agreement.
4. VESTING AND FORFEITURES. The Restricted Period shall begin on the
Grant Date, and end on the third anniversary thereof (the "Vesting Date"). As of
the Vesting Date, the amount of such Restricted Stock which will vest will be
determined by reference to the Company's TRS Percentile (as defined below) for
the three-year period preceding such Vesting Date in accordance with the
following schedule:
======================================================== ==================
Company's TRS Percentile for Three-Year Period Prior to Shares Vested on
Vesting Date Such Vesting Date
- -------------------------------------------------------- ------------------
70% or Higher 10,500
Above 60% to 70% 8,400
Above 50% to 60% 6,300
Above 40% to 50% 4,200
40% and below 0
======================================================= ==================
For purposes of the foregoing schedule, "TRS Percentile" means, for the period
in question, the total return to the holders of Common Stock of the Company
(including dividends and distributions, and assuming they are reinvested) as
compared to the total return to holders of common stock of the companies
(including dividends and distributions, and assuming they are reinvested) which
comprise the Standard & Poor's 500 during such period, as determined in
accordance with recognized financial practices and pursuant to publicly
available sources. For this purpose, the price of Ethan Allen Common Stock (but
not the price of the stock of other companies which comprise the Standard &
Poor's 500) at the beginning and the end of such period shall be equal to the
average Fair Market Value (as that term is defined in the Plan) of a share of
Common Stock for the days on which the Common Stock is traded on the New York
Stock Exchange during the 60-calendar-day periods ending on the Grant Date and
the third anniversary of the date of the Grant Date, respectively.
-2-
Any shares of Restricted Stock which do not vest on the Vesting Date
shall be immediately forfeited by the Executive, and returned and released to
the Company, and the Executive thereafter shall have no further rights with
respect to such shares.
During the Restricted Period, all certificates evidencing the
Restricted Stock will be imprinted will the following legend: "The securities
evidenced by this certificate are subject to the transfer restrictions,
forfeitures and other provisions of the Restricted Stock Agreement, dated as of
August 1, 2002, between Ethan Allen Interiors, Inc. and M. Farooq Kathwari."
5. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 4,
the Restricted Period for all shares of Restricted Stock will end not later than
the date of a Change in Control, if the Executive is then employed by the
Company and such shares were not previously forfeited in accordance with
paragraph 4. For purposes of this Agreement, a "Change in Control" shall occur
upon the occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
6. ADJUSTMENTS TO NUMBER OF SHARES. Subject to the following provisions
of this paragraph 6 in the event of any change in the outstanding shares of
common stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, the terms and the number of shares of
any outstanding Restricted Stock shall be equitably adjusted by the Company to
the extent that such adjustment is necessary to preserve the benefit of this
Agreement for the Executive and the Company.
-3-
7. AGREEMENT NOT CONTRACT OF EMPLOYMENT. This Agreement does not
constitute a contract of employment, and does not give the Executive the right
to be retained in the employ of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
9. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
10. AMENDMENT. This Agreement may be amended by written agreement of
the Executive and the Company, without the consent of any other person.
11. PLAN AMENDMENT. The Plan is hereby amended to permit the award set
forth in this agreement, and the officers of the Company are authorized to
modify the Plan language to reflect such amendment.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Grant Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit A-5
- -----------
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of July 1, 2006 (the "Agreement Date"), by and
between Ethan Allen Interiors, Inc. (the "Company") and M. Farooq Kathwari (the
"Executive").
WITNESSETH THAT:
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Restricted Stock Agreement is being entered into pursuant to Section 5.2(b)
thereof;
NOW THEREFORE, IT IS AGREED between the Company and the Executive as
follows:
1. AWARD. Pursuant to Section 5.2(b) of the Employment Agreement, and
subject to the terms of this Agreement and the Employment Agreement, the
Executive is granted as of July 1, 2006 (the "Grant Date"), 10,500 shares of
common stock, par value $.01 per share ("Common Stock") as of the Grant Date
(all such shares, collectively, the "Restricted Stock"). The award is subject to
Section 6 of the Employment Agreement. Such shares of Restricted Stock may
consist, either in whole or in part, of the Company's authorized and unissued
Common Stock or shares of the Company's authorized and issued Common Stock
reacquired by the Company and held in its Treasury.
2. RESTRICTIONS ON SHARES. During the Restricted Period (as described
in paragraph 4):
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered.
(b) The certificate representing such shares shall be registered in the
name of the Executive shall be deposited with the Company, together
with a stock power (in such form as the Company may determine) and
shall be imprinted with a legend as referred to in paragraph 4.
(c) Subject to paragraph (d) below, the Executive shall be treated as a
stockholder with respect to shares of Restricted Stock, including the
right to vote such shares; provided, however, the Executive shall not
be entitled to vote shares of Restricted Stock with respect to record
dates occurring on or after the date, if any, on which the Executive
has forfeited such shares pursuant to paragraph 4.
(d) As of each dividend record date for Company Common Stock occurring on
or after the date of grant of shares of Restricted Stock under this
Agreement and prior to the date such shares become vested or are
forfeited (i) no dividends shall be currently payable to the Executive
with respect to such shares; and (ii) an account established by the
Company for the benefit of the Executive shall be credited with the
amount of dividends which would have been paid with respect to such
shares in the absence of clause (i) above). Amounts credited to the
account shall be credited with interest at the rate of 5% per year
until distribution. The Executive shall be fully vested in all amounts
credited to the account balance (regardless of the subsequent vesting
or forfeiture of the shares). The balance credited to the Executive's
account shall be distributed to the Executive in cash as soon as
practicable after the Executive's termination of employment with the
Company and its affiliates for any reason.
3. TRANSFERS AT TERMINATION OF RESTRICTED PERIOD. At the end of the
Restricted Period, the certificate representing such share shall be transferred
to the Executive (or the Executive's legal representative or heir) free of all
legends and restrictions referred to in this Agreement.
4. VESTING AND FORFEITURES. The Restricted Period shall begin on the
Grant Date, and end on the third anniversary thereof (the "Vesting Date"). As of
the Vesting Date, the amount of such Restricted Stock which will vest will be
determined by reference to the Company's TRS Percentile (as defined below) for
the three-year period preceding such Vesting Date in accordance with the
following schedule:
========================================================= =================
Company's TRS Percentile for Three-Year Period Prior to Shares Vested on
Vesting Date Such Vesting Date
- --------------------------------------------------------- -----------------
70% or Higher 10,500
Above 60% to 70% 8,400
Above 50% to 60% 6,300
Above 40% to 50% 4,200
40% and below 0
========================================================= =================
For purposes of the foregoing schedule, "TRS Percentile" means, for the period
in question, the total return to the holders of Common Stock of the Company
(including dividends and distributions, and assuming they are reinvested) as
compared to the total return to holders of common stock of the companies
(including dividends and distributions, and assuming they are reinvested) which
comprise the Standard & Poor's 500 during such period, as determined in
accordance with recognized financial practices and pursuant to publicly
available sources. For this purpose, the price of Ethan Allen Common Stock (but
not the price of the stock of other companies which comprise the Standard &
Poor's 500) at the beginning and the end of such period shall be equal to the
average Fair Market Value (as that term is defined in the Plan) of a share of
Common Stock for the days on which the Common Stock is traded on the New York
Stock Exchange during the 60-calendar-day periods ending on the Grant Date and
the third anniversary of the date of the Grant Date, respectively.
-2-
Any shares of Restricted Stock which do not vest on the Vesting Date
shall be immediately forfeited by the Executive, and returned and released to
the Company, and the Executive thereafter shall have no further rights with
respect to such shares.
During the Restricted Period, all certificates evidencing the
Restricted Stock will be imprinted will the following legend: "The securities
evidenced by this certificate are subject to the transfer restrictions,
forfeitures and other provisions of the Restricted Stock Agreement, dated as of
August 1, 2002, between Ethan Allen Interiors, Inc. and M. Farooq Kathwari."
5. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 4,
the Restricted Period for all shares of Restricted Stock will end not later than
the date of a Change in Control, if the Executive is then employed by the
Company and such shares were not previously forfeited in accordance with
paragraph 4. For purposes of this Agreement, a "Change in Control" shall occur
upon the occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
6. ADJUSTMENTS TO NUMBER OF SHARES. Subject to the following provisions
of this paragraph 6 in the event of any change in the outstanding shares of
common stock of the Company by reason of any stock dividend, split, spinoff,
recapitalization or other similar change, the terms and the number of shares of
any outstanding Restricted Stock shall be equitably adjusted by the Company to
the extent that such adjustment is necessary to preserve the benefit of this
Agreement for the Executive and the Company.
-3-
7. AGREEMENT NOT CONTRACT OF EMPLOYMENT. This Agreement does not
constitute a contract of employment, and does not give the Executive the right
to be retained in the employ of the Company.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring, whether by merger, consolidation, purchase of assets or
otherwise, all or substantially all of the Company's assets and business.
9. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of New York, without giving effect to
choice of law principles. Notwithstanding any other provision of this Agreement
to the contrary, the Company may subject shares of stock transferred pursuant to
this Agreement to such conditions, limitations or restrictions as the Company
determines to be necessary or desirable to comply with any applicable law or
regulation.
10. AMENDMENT. This Agreement may be amended by written agreement of
the Executive and the Company, without the consent of any other person.
11. PLAN AMENDMENT. The Plan is hereby amended to permit the award set
forth in this agreement, and the officers of the Company are authorized to
modify the Plan language to reflect such amendment.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Grant Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit B - August 1, 2002 Grant Date
- -------------------------------------
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of August 1, 2002 (the "Agreement Date") and
entered into by and between Ethan Allen Interiors Inc. (the "Company") and M.
Farooq Kathwari (the "Participant").
WITNESSETH THAT:
---------------
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Stock Option Agreement is being entered into pursuant to Section 5.2(c)(i)
thereof;
WHEREAS, to the extent not specified in the Plan, the terms of the
award have been determined by the Committee and in accordance with the
Employment Agreement and are set forth in this Agreement;
NOW THEREFORE, IT IS AGREED between the Company and the Participant as
follows:
1. AWARD; OPTION PRICE. Subject to the terms of this Agreement, the
Participant is granted, as of the date of this Agreement (the "Grant Date"), a
"Stock Option" to purchase 600,000 shares of Common Stock, which is the number
of the "Covered Shares," at a per share exercise price equal to the Fair Market
Value (as that term is defined in the Plan) of a share of Common Stock on the
New York Stock Exchange as of the Grant Date.
2. VESTING; FORFEITURES. Subject to the limitations of this Agreement,
each Installment of Covered Shares of the Stock Option shall be exercisable on
and after the Vesting Date for such Installment as described in the following
schedule (but, subject to the terms of the Employment Agreement, only if the
Date of Termination has not occurred before the Vesting Date):
------------------------------- --------------------------------------------
Installment Vesting Date applicable to that Installment
------------------------------- --------------------------------------------
33 1/3% of Covered Shares First Anniversary of Grant Date
33 1/3% of Covered Shares Second Anniversary of Grant Date
33 1/3% of Covered Shares Third Anniversary of Grant Date
------------------------------- --------------------------------------------
Notwithstanding the foregoing provisions of this paragraph 2, the Stock Option
shall become vested and exercisable not later than the time or times provided by
the Employment Agreement. Except as otherwise provided in the Employment
Agreement, the Stock Option may be exercised
on or after the Date of Termination only as to that portion of the Covered
Shares for which it was exercisable immediately prior to the Date of
Termination, or became exercisable upon the Date of Termination.
3. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 2,
the Stock Option will become immediately exercisable upon the occurrence of a
Change in Control, if the Executive is then employed by the Company and such
options have not previously been forfeited in accordance with paragraph 2. For
purposes of this Agreement, a "Change in Control" shall occur upon the
occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
4. EXERCISE. Subject to the terms of this Agreement and the Plan, the
Stock Option may be exercised in accordance with the following:
(a) To the extent that it is exercisable, the Stock Option may be exercised
in whole or in part at any time prior to the Expiration Date (as
defined in paragraph 5); provided however that the Stock Option may
only be exercised with respect to whole shares of Common Stock.
-2-
(b) The Stock Option may be exercised with respect to no less than 100
shares of Common Stock, or if less than 100 shares are then
exercisable, the number of whole shares then exercisable.
(c) Payment of the Option Price shall be by cash or by check payable to the
Company. All or a portion of the Option Price may be paid by the
Participant by delivery of shares of Stock owned by the Participant
having an aggregate Fair Market Value (valued as of the date of
exercise) that is equal to the amount of cash that would otherwise be
required. Except as otherwise provided by the Committee, payments made
with shares of Common Stock in accordance with the preceding sentence
shall be limited to shares held by the Participant for not less than
six months prior to the payment date.
(d) All deliveries and distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the
Participant, and subject to such rules and limitations as may be
established by the Committee from time to time, such withholding
obligations may be satisfied through the surrender of shares of Stock
which the Participant already owns, or to which the Participant is
otherwise entitled under the Plan; provided, however, that such shares
may be used to satisfy not more than the Company's minimum statutory
withholding obligation (based on minimum statutory withholding rates
for Federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income).
(e) Pursuant to rules established by the Committee, the Participant may
elect to pay the Option Price upon the exercise of an Stock Option by
irrevocably authorizing a broker to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Option Price and any tax withholding
resulting from such exercise. The Participant may elect to have the
broker sell additional shares up to the full number of shares subject
to the Stock Option exercise. Following the broker's delivery to the
Company of the proceeds necessary to satisfy the Option Price and the
tax withholding obligation and any additional proceeds, the Company
will deliver to the broker the number of shares previously sold by the
broker at the Participant's direction, and the Company will deliver any
remaining amount to the Participant.
5. EXPIRATION DATE. For purposes of this Agreement, the "Expiration
Date" shall be the close of business on the earlier of the following dates (or
if such date is not a business day, the last business day preceding such date):
(a) the date which is 10 years from Grant Date; or
(b) the date which is 90 days after the Date of Termination, subject to
Section 6 of the Employment Agreement; provided, however, that if the
Participant's employment with the Company terminates by reason of
"Retirement" as defined in Section 1.8 of the Employment Agreement, the
date determined under this paragraph (b) shall be not earlier than the
three-year anniversary of the date of the Executive's Retirement.
-3-
6. DEFINED TERMS; TERMS OF PLAN. Unless the context clearly indicates
otherwise, defined terms as used in this Agreement shall have the same meaning
as ascribed to those terms under the Plan. For purposes of this Agreement, the
term "Date of Termination" shall have the meaning ascribed to it in the
Employment Agreement. Notwithstanding any other provision of this Agreement, the
terms of the Plan shall govern and the Stock Option shall be subject, in all
respects, to the terms and conditions of the Plan.
IN WITNESS WHEREOF, the Participant has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Agreement Date.
/s/ M. Farooq Kathwari
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
/s/ Edward Meyer
-----------------------------------------
By: Edward Meyer
Its: Chairman, Compensation Committee
-4-
Exhibit C - August 1, 2003 Grant Date
- -------------------------------------
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of August 1, 2003 (the "Agreement Date") and
entered into by and between Ethan Allen Interiors Inc. (the "Company") and M.
Farooq Kathwari (the "Participant").
WITNESSETH THAT:
---------------
WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated August 1, 2002 (as amended in accordance with its terms, the
"Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Stock Option Agreement is being entered into pursuant to Section 5.2(c)(i)
thereof;
WHEREAS, to the extent not specified in the Plan, the terms of the
award have been determined by the Committee and in accordance with the
Employment Agreement and are set forth in this Agreement;
NOW THEREFORE, IT IS AGREED between the Company and the Participant as
follows:
1. AWARD; OPTION PRICE. Subject to the terms of this Agreement, the
Participant is granted, as of August 1, 2003 (the "Grant Date"), a "Stock
Option" to purchase 400,000 shares of Common Stock, which is the number of the
"Covered Shares," at a per share exercise price equal to the Fair Market Value
(as that term is defined in the Plan) of a share of Common Stock on the New York
Stock Exchange as of the Grant Date.
2. VESTING; FORFEITURES. Subject to the limitations of this Agreement,
each Installment of Covered Shares of the Stock Option shall be exercisable on
and after the Vesting Date for such Installment as described in the following
schedule (but, subject to the terms of the Employment Agreement, only if the
Date of Termination has not occurred before the Vesting Date):
---------------------------- ---------------------------------------------
Installment Vesting Date applicable to that Installment
---------------------------- ---------------------------------------------
50% of Covered Shares First Anniversary of Grant Date
50% of Covered Shares Second Anniversary of Grant Date
---------------------------- ---------------------------------------------
Notwithstanding the foregoing provisions of this paragraph 2, the Stock Option
shall become vested and exercisable not later than the time or times provided by
the Employment Agreement. Except as otherwise provided in the Employment
Agreement, the Stock Option may be exercised on or after the Date of Termination
only as to that portion of the Covered Shares for which it was
exercisable immediately prior to the Date of Termination, or became exercisable
upon the Date of Termination.
3. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 2,
the Stock Option will become immediately exercisable upon the occurrence of a
Change in Control, if the Executive is then employed by the Company and such
options have not previously been forfeited in accordance with paragraph 2. For
purposes of this Agreement, a "Change in Control" shall occur upon the
occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
4. EXERCISE. Subject to the terms of this Agreement and the Plan, the
Stock Option may be exercised in accordance with the following:
(a) To the extent that it is exercisable, the Stock Option may be exercised
in whole or in part at any time prior to the Expiration Date (as
defined in paragraph 5); provided however that the Stock Option may
only be exercised with respect to whole shares of Common Stock.
(b) The Stock Option may be exercised with respect to no less than 100
shares of Common Stock, or if less than 100 shares are then
exercisable, the number of whole shares then exercisable.
-2-
(c) Payment of the Option Price shall be by cash or by check payable to the
Company. All or a portion of the Option Price may be paid by the
Participant by delivery of shares of Stock owned by the Participant
having an aggregate Fair Market Value (valued as of the date of
exercise) that is equal to the amount of cash that would otherwise be
required. Except as otherwise provided by the Committee, payments made
with shares of Common Stock in accordance with the preceding sentence
shall be limited to shares held by the Participant for not less than
six months prior to the payment date.
(d) All deliveries and distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the
Participant, and subject to such rules and limitations as may be
established by the Committee from time to time, such withholding
obligations may be satisfied through the surrender of shares of Stock
which the Participant already owns, or to which the Participant is
otherwise entitled under the Plan; provided, however, that such shares
may be used to satisfy not more than the Company's minimum statutory
withholding obligation (based on minimum statutory withholding rates
for Federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income).
(e) Pursuant to rules established by the Committee, the Participant may
elect to pay the Option Price upon the exercise of an Stock Option by
irrevocably authorizing a broker to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Option Price and any tax withholding
resulting from such exercise. The Participant may elect to have the
broker sell additional shares up to the full number of shares subject
to the Stock Option exercise. Following the broker's delivery to the
Company of the proceeds necessary to satisfy the Option Price and the
tax withholding obligation and any additional proceeds, the Company
will deliver to the broker the number of shares previously sold by the
broker at the Participant's direction, and the Company will deliver any
remaining amount to the Participant.
5. EXPIRATION DATE. For purposes of this Agreement, the "Expiration
Date" shall be the close of business on the earlier of the following dates (or
if such date is not a business day, the last business day preceding such date):
(a) the date which is 10 years from Grant Date; or
(b) the date which is 90 days after the Date of Termination, subject to
Section 6 of the Employment Agreement; provided, however, that if the
Participant's employment with the Company terminates by reason of
"Retirement" as defined in Section 1.8 of the Employment Agreement, the
date determined under this paragraph (b) shall be not earlier than the
three-year anniversary of the date of the Executive's Retirement.
6. DEFINED TERMS; TERMS OF PLAN. Unless the context clearly indicates
otherwise, defined terms as used in this Agreement shall have the same meaning
as ascribed to those terms under the Plan. For purposes of this Agreement, the
term "Date of Termination" shall have the meaning ascribed to it in the
Employment Agreement. Notwithstanding any other provision of
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this Agreement, the terms of the Plan shall govern and the Stock Option shall be
subject, in all respects, to the terms and conditions of the Plan.
IN WITNESS WHEREOF, the Participant has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Agreement Date.
-----------------------------------------
M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
By:
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Its: Chairman, Compensation Committee
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Exhibit D - August 1, 2004 Grant Date
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STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of August 1, 2004 (the "Agreement Date") and
entered into by and between Ethan Allen Interiors Inc. (the "Company") and M.
Farooq Kathwari (the "Participant").
WITNESSETH THAT:
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WHEREAS, the Company and Executive have entered into an Employment
Agreement, dated as of August 1, 2002 (as amended in accordance with its terms,
the "Employment Agreement"); and
WHEREAS, the Company maintains the Ethan Allen Interiors Inc. 1992
Stock Option Plan (the "Plan"); and
WHEREAS, the Participant has been selected by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to receive
an award under the Plan in accordance with the Employment Agreement, and this
Stock Option Agreement is being entered into pursuant to Section 5.2(c)(i)
thereof;
WHEREAS, to the extent not specified in the Plan, the terms of the
award have been determined by the Committee and in accordance with the
Employment Agreement and are set forth in this Agreement;
NOW THEREFORE, IT IS AGREED between the Company and the Participant as
follows:
1. AWARD; OPTION PRICE. Subject to the terms of this Agreement, the
Participant is granted, as of August 1, 2004 (the "Grant Date"), a "Stock
Option" to purchase 200,000 shares of Common Stock, which is the number of the
"Covered Shares," at a per share exercise price equal to the Fair Market Value
(as that term is defined in the Plan) of a share of Common Stock on the New York
Stock Exchange as of the Grant Date.
2. VESTING; FORFEITURES. Subject to the limitations of this Agreement,
the Covered Shares of the Stock Option shall be exercisable on and after the
Vesting Date which shall be the one year anniversary of the Grant Date, (but,
subject to the terms of the Employment Agreement, only if the Date of
Termination has not occurred before the Vesting Date). Notwithstanding the
foregoing provisions of this paragraph 2, the Stock Option shall become vested
and exercisable not later than the time or times provided by the Employment
Agreement. Except as otherwise provided in the Employment Agreement, the Stock
Option may be exercised on or after the Date of Termination only as to that
portion of the Covered Shares for which it was exercisable immediately prior to
the Date of Termination, or became exercisable upon the Date of Termination.
3. CHANGE IN CONTROL. Notwithstanding the provisions of paragraph 2,
the Stock Option will become immediately exercisable upon the occurrence of a
Change in Control, if the
Executive is then employed by the Company and such options have not previously
been forfeited in accordance with paragraph 2. For purposes of this Agreement, a
"Change in Control" shall occur upon the occurrence of any of the following:
(a) the Board or the shareholders of the Company or Ethan Allen Inc., a
Delaware corporation and a wholly owned subsidiary of the Company (the
"Subsidiary"), either or both, as may be required to authorize the
same, shall approve (i) any liquidation of the Company or the
Subsidiary, or the sale of substantially all of the assets of the
Company and the Subsidiary taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Company
or the Subsidiary or any combination of any such transactions (a
"Transaction"), other than a Transaction (A) involving only the Company
and the Subsidiary, or (B) immediately after which the shareholders of
the Company who were shareholders immediately prior to the transaction
continue to own beneficially, directly or indirectly, in substantially
similar proportions to those in effect immediately prior to such
transaction more than 50% of the then outstanding voting securities of
the Company or the survivor or any parent thereof, as applicable;
(b) any Person (as defined below) or group (as such term is defined in Rule
13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons (other than the Company, an employee benefit
plan sponsored by the Company or the Subsidiary, or a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of the stock of
the Company) shall beneficially own, directly or indirectly, more than
50% of the then outstanding voting stock of the Company or the
Subsidiary (for purposes of this Agreement, "Person(s)" means any
individual, entity, or other person, as defined in Section 3(a)(9) of
the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(c) the Board or the Company shall authorize, approve or engage in any
Business Combination with an Interested Person, each as defined in
Article Fifth of the Company's Restated Certificate of Incorporation.
4. EXERCISE. Subject to the terms of this Agreement and the Plan, the
Stock Option may be exercised in accordance with the following:
(a) To the extent that it is exercisable, the Stock Option may be exercised
in whole or in part at any time prior to the Expiration Date (as
defined in paragraph 5); provided however that the Stock Option may
only be exercised with respect to whole shares of Common Stock.
(b) The Stock Option may be exercised with respect to no less than 100
shares of Common Stock, or if less than 100 shares are then
exercisable, the number of whole shares then exercisable.
(c) Payment of the Option Price shall be by cash or by check payable to the
Company. All or a portion of the Option Price may be paid by the
Participant by delivery of shares of Stock owned by the Participant
having an aggregate Fair Market Value (valued as of the date of
exercise) that is equal to the amount of cash that would otherwise be
required.
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Except as otherwise provided by the Committee, payments made with
shares of Common Stock in accordance with the preceding sentence shall
be limited to shares held by the Participant for not less than six
months prior to the payment date.
(d) All deliveries and distributions under this Agreement are subject to
withholding of all applicable taxes. At the election of the
Participant, and subject to such rules and limitations as may be
established by the Committee from time to time, such withholding
obligations may be satisfied through the surrender of shares of Stock
which the Participant already owns, or to which the Participant is
otherwise entitled under the Plan; provided, however, that such shares
may be used to satisfy not more than the Company's minimum statutory
withholding obligation (based on minimum statutory withholding rates
for Federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income).
(e) Pursuant to rules established by the Committee, the Participant may
elect to pay the Option Price upon the exercise of an Stock Option by
irrevocably authorizing a broker to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Option Price and any tax withholding
resulting from such exercise. The Participant may elect to have the
broker sell additional shares up to the full number of shares subject
to the Stock Option exercise. Following the broker's delivery to the
Company of the proceeds necessary to satisfy the Option Price and the
tax withholding obligation and any additional proceeds, the Company
will deliver to the broker the number of shares previously sold by the
broker at the Participant's direction, and the Company will deliver any
remaining amount to the Participant.
5. EXPIRATION DATE. For purposes of this Agreement, the "Expiration
Date" shall be the close of business on the earlier of the following dates (or
if such date is not a business day, the last business day preceding such date):
(a) the date which is 10 years from Grant Date; or
(b) the date which is 90 days after the Date of Termination, subject to
Section 6 of the Employment Agreement; provided, however, that if the
Participant's employment with the Company terminates by reason of
"Retirement" as defined in Section 1.8 of the Employment Agreement, the
date determined under this paragraph (b) shall be not earlier than the
three-year anniversary of the date of the Executive's Retirement.
6. DEFINED TERMS; TERMS OF PLAN. Unless the context clearly indicates
otherwise, defined terms as used in this Agreement shall have the same meaning
as ascribed to those terms under the Plan. For purposes of this Agreement, the
term "Date of Termination" shall have the meaning ascribed to it in the
Employment Agreement. Notwithstanding any other provision of this Agreement, the
terms of the Plan shall govern and the Stock Option shall be subject, in all
respects, to the terms and conditions of the Plan.
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IN WITNESS WHEREOF, the Participant has hereunto set his hand and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Agreement Date.
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M. Farooq Kathwari
ETHAN ALLEN INTERIORS INC.
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By: Edward Meyer
Its: Chairman, Compensation Committee
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