On behalf of the
Board of Directors of Shutterfly, Inc. (the “Company”),
I am pleased to offer you employment with the Company on the terms
set forth in this letter agreement (the
“Agreement”).
1.
Position. Commencing on January 17, 2005 (the
“Commencement Date”), you will be employed by the
Company full time as its President and Chief Executive Officer
(“CEO”). You will be the highest ranking executive
officer of the Company and will report only to the board of
directors of the Company (the “Board”). In this role,
you will have overall operating responsibility for the day-today
management of the Company, including the authority to hire and/or
fire any officer (after consultation with the Board) or any
employee of the Company. You will also be appointed to the Board
during the term of your employment as CEO. Beginning on the
Commencement Date, you will be expected to devote your full working
time and attention to the business of the Company, and you will not
render services to any other business without the prior approval of
the Board or, directly or indirectly, engage or participate in any
business that is competitive in any manner with the business of the
Company; provided, however that you may serve in any capacity with
a civic, educational or charitable organization, or as a member of
the board of directors or committees thereof of InQ Incorporated or
any other company’s board or committee thereof that does not
interfere with your duties to the Company. You will also be
expected to comply with and be bound by the Company’s
operating policies, procedures and practices that are from time to
time in effect during the term of your employment.
2.
Compensation Benefits .
(a) Salary. Your starting base annual salary will be
Two-Hundred Seventy-Five Thousand Dollars ($275,000), payable in
accordance with the Company’s normal payroll practices, with
such payroll deductions and withholdings as are required by law.
Your base salary will be reviewed annually by the Compensation
Committee of the Board (the “Committee”).
(b) Bonus. You will be eligible to receive an annual
target bonus equal to up to fifty percent (50%) of your then annual
base salary (the “Target Bonus”), as approved by the
Committee, based upon your achievement of performance milestones
and conditions established for you by the Committee after
consultation with you. You will first be eligible to be paid such a
bonus at the end of calendar 2005 for the full year.
(c) Benefits. You will be eligible for normal
vacation, health insurance, 401(k) and other benefits offered to
Company executives.
3.
Stock Option. Upon the commencement of your employment, the
Company will grant you an option under the Company’s 1999
Stock Plan to purchase One Million, Thirty-Eight Thousand, One
Hundred and Forty-Six (1,038,146) shares of the Company’s
Common Stock (the “Option”), which represents five and
one half percent (5.5%) (your “Pro-Rata Percentage”) of
the Fully Diluted Capitalization of the Company (as defined below),
at an exercise price equal
1
to the fair
market value of the Company’s Common Stock on the date of the
grant, as determined in good faith by the Board. The “Fully
Diluted Capitalization of the Company” shall mean all
outstanding securities of the Company (on an as converted or
exercised basis) as of the Commencement Date, including all
outstanding options and warrants and the unallocated reserved pool
under the Company’s equity plans (including any increases
thereto related to the Option) and including the Option. The Option
will vest over four (4) years as follows: 25% of the total
number of shares subject to the Option will vest on the twelve
(12) month anniversary of the Commencement Date and thereafter
2.0833% of the total number of shares subject to the Option will
vest at the end of each full month of continuous employment.
Vesting will depend on your continued employment with the Company
and will be subject to the terms of Section 6 of this
Agreement and the terms and conditions of the 1999 Stock Plan and
related Stock Option Agreement.
The Option shall
be granted as an incentive stock option to the maximum extent
permitted under Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”) and, thereafter, shall be
granted as a non-qualified stock option, and such options shall be
issued under separate option notices and agreements designated as
an incentive stock option or non-qualified stock option, as
appropriate.
In the event you
terminate employment with the Company as a result of Involuntary
Termination, Termination without Cause or Termination for
Disability, each as defined below, you may exercise the vested
portions of the Option during the twelve (12) month period
commencing on the date of your termination of employment, provided,
however, that in no event may the Option be exercised after its
expiration date. In the event you terminate employment with the
Company as the result of your death, the vested portions of the
Option may be exercised during the twelve (12) month period
commencing on the date of your death, provided, however, that in no
event may the Option be exercised after its expiration date. In the
event you terminate employment with the Company as a result of
Voluntary Termination or Termination for Cause, you may exercise
the vested portions of the Option during the period allowed under
the 1999 Stock Plan.
4.
Employment and Termination. Your employment with the Company
will be at-will and may be terminated by you or by the Company at
any time for any reason as follows:
(a) You may terminate your employment upon written notice to
the Board for “Good Reason,” as defined below (an
“Involuntary Termination”);
(b) You may terminate your employment upon written notice to
the Board at any time without Good Reason (“Voluntary
Termination”);
(c) The Company may terminate your employment upon written
notice to you at any time following a determination that there is
“Cause,” as defined below, for such termination
(“Termination for Cause”);
(d) The Company may terminate your employment upon written
notice to you at any time without “Cause,” as defined
below, for such termination (“Termination without
Cause”);
2
(e) Your employment will automatically terminate upon your
death or upon your disability as determined by the Board
(“Termination for Death or Disability”); provided that
“disability” shall mean your complete inability to
perform your job responsibilities for a period of one hundred
eighty (180) consecutive days or one hundred eighty
(180) days in the aggregate in any twelve (12) month
period.
5.
Definitions. As used in this Agreement, the following terms
have the following meanings:
(a) “Good Reason” means your resignation within
three (3) months following (i) a change in your title of
President and CEO or in your reporting to the Board, or a material
reduction in your duties or responsibilities that is inconsistent
with your position, provided, further, that Good Reason shall also
include the circumstance where following a Change of Control, as
defined below, you are not the President and CEO of a successor
entity to the Company following a Change in Control (or otherwise
your duties and responsibilities for such successor entity to the
Company are materially reduced from those described in
Section 1 herein as would be applied to the successor entity
following a Change of Control); (ii) a requirement by the
Company that you relocate your principal office to a facility more
than 60 (sixty) miles from the Company’s current Redwood
City, California headquarters; or (iii) a material reduction
in your annual base salary (other than in connection with a general
decrease in the salary of all executives of the Company), in any
case, without your written consent.
(b) “Cause” means your (i) gross negligence
or willful misconduct in the performance of your duties after a
notice is delivered to you which specifically identifies the manner
in which the Company believes you have engaged in gross negligence
or willful misconduct and you have been provided with a reasonable
opportunity to cure any alleged gross negligence or willful
misconduct in the performance of your duties; (ii) commission
of any act of fraud or material dishonesty with respect to the
Company; (iii) conviction of, or plea of guilty or “no
contest” to, a felony or a crime of moral turpitude or
dishonesty which demonstrably materially damages the Company; (iv)
material breach of any proprietary information and inventions
agreement with the Company, including the Invention Assignment and
Confidentiality Agreement referred to in Section 7 below, or
any other unauthorized use or disclosure of the Company’s
confidential information or trade secrets; or (v) repeated failure
to follow the lawful written or oral directions of the Board after
receiving written notification of such failure from the Board and a
reasonable opportunity to cure such failure which shall not be less
than 40 days following such notice. No act or
. failure to act by you shall be considered
“willful” if done or omitted by you in good faith with
reasonable belief that your action or omission was in the best
interests of the Company.
(c) “Change in Control” means (i) any
person or entity becoming the beneficial owner, directly or
indirectly, of securities of the Company representing fifty (50%)
percent of the total voting power of all its then outstanding
voting securities; (ii) a merger or consolidation of the
Company in which its voting securities immediately prior to the
merger or consolidation do not represent, or are not converted into
securities that represent, a majority of the voting power of all
voting securities of the surviving entity immediately after the
merger or consolidation; (iii) a sale of substantially all of
the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
3
6.
Separation Benefits. Upon termination of your employment
with the Company for any reason, you will receive payment for all
unpaid salary and vacation accrued as of the date of your
termination of employment, and your benefits will be continued
under the Company’s then existing benefit plans and policies
for so long as provided under the terms of such plans and policies
and as required by applicable law. Under certain circumstances, and
in all events conditioned upon your execution of a release and
waiver of claims against the Company, its officers and directors
and stockholders in a form acceptable to the Company, the form of
which is attached hereto as Exhibit A , you will be
entitled to receive severance benefits as set forth below in
addition to those described above, but you will not be entitled to
any other compensation, award or damages with respect to your
employment or termination.
(a) In the event of your Voluntary Termination, Termination
for Cause or Termination for Death or Disability, you will not be
entitled to any cash severance benefits or additional vesting of
any Company equity-based awards, including Company stock
options.
(b) In the event of your Termination without Cause or your
Involuntary Termination, you will be entitled to (i) a lump
sum payment equivalent to your then-current base salary for a
period of twelve (12) months and the maximum Target Bonus for
the year in which the termination occurred; and
(ii) accelerated vesting of that portion of the Option that
would have vested over the next twelve (12) months immediately
following such Involuntary Termination or Termination without
Cause.
(c) In the event of your Involuntary Termination or
Termination without Cause within twelve (12) months following
the closing of a Change in Control, in lieu of any payment under
Section 6(b) above, you will be entitled to (i) a lump sum
payment equivalent to your then-current base salary for a period of
fifteen (15) months and the maximum Target Bonus for the year
in which the termination occurred plus an additional one fourth
(1/4) of the maximum Target Bonus for the year in which the
termination occurred; and (ii) accelerated vesting of:
(A) if such Change in Control closes within twelve
(12) months of the Commencement Date, such portion of the
Option so that, when added to your then vested portion of the
Option as of the date of such Involuntary Termination or
Termination without Cause, you will be vested in total in that
number of shares as would have been vested as of the date
twenty-four (24) months following the Commencement Date absent
your termination; or (B) if such Change in Control closes more
than twelve (12) months after the Commencement Date, any
portion of the Option that is not vested immediately prior to such
Involuntary Termination or Termination without Cause,
(d) No payments due you hereunder shall be subject to
mitigation or offset.
(e) In the event of your Termination without Cause or
Involuntary Termination, the Company will pay the premiums for your
COBRA coverage (should you elect to convert your health coverage
under COBRA) until the earlier of the following: (A) the
12-month anniversary of your last day of employment with the
Company or (B) you become covered by another employer’s
health plan.
7.
Confidential Information and Invention Assignment Agreement.
On or prior to the Commencement Date, you will sign the
Company’s standard form of Invention Assignment
4
and
Confidentiality Agreement, a form of which is attached hereto as
Exhibit B . Nothing in this Agreement alters the terms
and conditions of that Invention Assignment and Confidentiality
Agreement.
8.
Arbitration. The parties agree that any dispute regarding
the interpretation or enforcement of this Agreement shall be
decided by confidential, final and binding arbitration conducted in
Santa Clara County by Judicial Arbitration and Mediation Services
(“JAMS”) under the then existing JAMS rules rather than
by litigation in court, trial by jury, administrative proceeding or
in any other forum. The prevailing party shall be entitled to
receive from the other party its reasonable attorney’s fees
and expenses, and all other actual costs and expenses, relating to
such arbitration, and of enforcement of JAMS’
decision.
9.
Parachute Payments. In the event that the severance and
other benefits provided to you pursuant to this Agreement and any
other agreement, benefit, plan, or policy of the Company (i)
constitute “parachute payments” within the meaning of
Section 280G of the Code, and (ii) but for this
Section 9, such severance and benefits would be subject to the
excise tax imposed by Section 4999 of the Code, then your severance
and other benefits under this Agreement and any other agreement,
benefit, plan, or policy of the Company shall be payable either:
(a) in full; or (b) as to such lesser amount which would
result in no portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes (applying the then
highest marginal tax rates) and the excise tax imposed by
Section 4999, results in the receipt by you on an after-tax
basis, of the greatest mount of severance and other benefits under
this Agreement and any other agreement, benefit, plan, or policy of
the Company.
Unless you and the
Company otherwise agree in writing, any determination required
under this Section 9 shall be made in writing by independent
public accountants agreed to by you and the Company (the
“Accountants”), whose determination shall be conclusive
and binding upon you and the Company for all purposes. For purposes
of making the calculations required by this Section 9, the
Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the applications of Sections 280G
and 4999 of the Code. You and the Company shall furnish to the
Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this
Section 9. ‘The Company shall bear all costs the
Accountants may reasonably incur in connection with calculations
contemplated by this Section 9.
Notwithstanding
the foregoing, in the event that the severance and other benefits
provided to you pursuant to this Agreement and any other agreement,
benefit, plan, or policy of the Company constitute “parachute
payments” within the meaning of Section 280G of the
Code, and provided the Company is not then publicly traded ,
you may request that the Company seek to obtain the approval of
such severance and other benefits by more than 75 percent of
the voting power of all outstanding stock of the Company in
accordance with Q&A — 7 of the Treasury Regulations under
Section 280G of the Code. The Company shall bear all costs
incurred in connection with soliciting the requested stockholder
approval. If such stockholder approval is obtained then the
reduction provisions of the first paragraph of this Section 9
shall not apply.
5
10.
Indemnification Agreement. Upon your commencement of
employment with the Company, the Company will enter into a mutually
acceptable standard form of indemnification agreement for officers
and directors, to indemnify you against certain liabilities you may
incur as an officer or director of the Company.
11.
Nonsolicitation. During the term of your employment with the
Company and for one year after the termination of your employment
with the Company, you will not, on behalf of yourself or any third
party, directly or indirectly, solicit or attempt to induce any
employee of the Company to terminate his or her employment with the
Company, except (i) that you may on your behalf (or on behalf
of a third
|
