Confidential
treatment has been requested for portions of this document. This
copy of the document filed as an exhibit omits the confidential
information subject to the confidential treatment request.
Omissions are designated by three asterisks (***). A complete
version of this document is being filed separately with the
Securities and Exchange Commission.
PORTRAIT CORPORATION OF
AMERICA, INC.
815 Matthews-Mint Hill Road
Matthews, NC 28105
Mr. R.
David Alexander
1700 White Pond Lane
Waxhaw, NC 28173
On behalf of
the Board of Directors of Portrait Corporation of America, Inc.
(“PCA” or the “Company”), we are pleased to
extend you an offer for the position of President, Chief Executive
Officer and Chairman of the Board of Directors of PCA under the
terms described below.
Base
Compensation. An
annual salary of $500,000 payable according to the Company’s
normal payment schedule for Executive Officers. Your salary will be
reviewed annually by the Board of Directors and increased as it
deems appropriate. Your first-year Base Compensation will be a
pro rata portion of the annual salary, based on the
Commencement Date.
Bonus. A bonus of 60% of Base Compensation received in
any year, subject to achievement of 100% of the Performance Goals
as defined below; plus, to the extent EBITDA (as defined below)
exceeds the EBITDA for which 100% of the portion of the bonus
relating to budget (as defined below) is payable, 5% of Base
Compensation for every $1.0 million of such excess. The bonus
shall be subject to a minimum payment, based on achievement of
minimum Performance Goals as described below. Failure to achieve
the minimum Performance Goals may result in no Bonus for the
applicable year. Any bonus earned will be paid on or before
April 30 of the calendar year following the period for which
such bonus was earned. You must be employed on January 31 to
be eligible for the bonus for that fiscal year.
First-Year Bonus. Since you were not involved in the development
of this year’s budget and will serve as CEO for only a
portion of the fiscal year, your first-year bonus will be a pro
rata portion of an amount equivalent to $10,000 per month,
based on the Commencement Date. The first-year bonus will be paid
on or before April 30, 2006 and is subject to the employment
requirement described above.
Performance Goals. The performance goals will be set in advance for
each year in agreement with the Board of Directors and will be
based on the achievement of the budget and other financial
benchmarks, as well as significant strategic objectives and
important milestones. We anticipate that at least 75% of the bonus
will be payable based on achievement of budget. For the fiscal year
ending January 31, 2007, with respect to that portion of the
bonus relating to achievement of budget: none will be payable
unless the Company achieves at least $ *** million of earnings
before interest, taxes, depreciation and amortization (EBITDA); the
full amount will be payable if the Company achieves $ *** million
of EBITDA; and the amount will be prorated for achievement of
budget between $ *** and $ *** million of EBITDA. The EBITDA levels
in the prior sentence are determined after payment of all Company
bonuses.
Stock
Option Grant. Options
on 188,000 shares of common stock of PCA, or approximately 4.50% of
the Company’s primary outstanding shares. The option grants
will be at the following
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Mr. R. David
Alexander
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Page 2
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November 2, 2005
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exercise
prices: (i) 125,000 options at $8.00 per share; and
(ii) 63,000 options at $26.50 per share. The options, which
are governed by the PCA Stock Option Plan (Attachment 1), except as
described in this letter, shall be granted on the Commencement Date
and will vest in four equal annual installments beginning on the
first anniversary of the Commencement Date.
Acceleration of Vesting on Change in
Control. On a change
in control, all options under the Stock Option Grant will vest and
must be exercised prior to or simultaneous with the
change-in-control transaction. The initial public offering of PCA
stock does not constitute a change of control.
Option
Termination. The
options under the Stock Option Grant will expire eight years after
the Commencement Date. If there has not been a liquidity event
within eight years of the Commencement Date, the options will be
extended to 60 days following the initial liquidity event. If
you are restricted (by shareholder agreements or securities laws)
in your ability to exercise all of your options in the initial
liquidity event, then the remaining options will be
extended
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