TIME-VESTING NONQUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT is made as of December 19, 2011 (the “Grant Date”) between Charter Communications, Inc., a Delaware corporation (the “Company”), and Thomas Rutledge (the “Optionee”).

 

Unless otherwise defined herein, terms defined in the Charter Communications, Inc. 2009 Stock Incentive Plan (the “Plan”) shall have the same defined meanings in this Nonqualified Stock Option Agreement (the “Agreement”).

 

The undersigned Optionee has been granted an Option to purchase Shares of Class A common stock of the Company (“Shares”), subject to the terms and conditions of the Plan and this Agreement, as follows:

 

 

I, the undersigned, agree to this grant of an Option to purchase Shares of the Company, acknowledge that this grant is subject to the terms and conditions of the Plan and this Agreement, and have read and understand the terms and conditions set forth in Sections 1 through 21 of this Agreement.

 

 

 

 

1.	Grant of Option.

 

1.1 The Company hereby grants to the Optionee the right and option (the “Option”) to purchase all or any part of the Total Number of Shares under Option set forth above, subject to, and in accordance with, the terms and conditions set forth in this Agreement.

 

1.2 The Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

 

1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.

 

2.	Purchase Price.

 

The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be the Exercise Price per Share set forth above.

 

3.	Duration of Option.

 

The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the “Exercise Term”) and shall expire as of the tenth (10th) anniversary of the Grant Date (“Exercise Expiration Date”); provided, however, that the Option may be earlier terminated as provided under the terms of the Plan and this Agreement.

 

4.	Vesting of Option.

 

(a) Normal Vesting.  Unless otherwise provided in this Agreement or the Plan, the Option granted hereunder shall, subject to the Optionee’s continued employment with the Company or its Subsidiaries on each such vesting date (except as provided otherwise in Sections 4(b) and 4(c)), vest and become exercisable as to one-fourth of the Total Number of Shares (i.e., 50,000 Shares, and each such group of Shares, a “Tranche”) on each of the first four (4) anniversaries of the “CEO Effective Date” (as defined in the employment agreement by and between the Optionee and the Company, dated and effective as of December 19, 2011 (the “Employment Agreement”) (each such anniversary, an “Annual Vesting Date”).  Each right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided, during the remaining period of the Exercise Term.  Notwithstanding any fractional number of Shares resulting from the application of the foregoing percentages or vesting provisions below, the Option shall only be exercisable with respect to a whole number of Shares.

 

(b) Certain Terminations.  Subject to Section 4(c) but otherwise notwithstanding anything to the contrary set forth in the Employment Agreement, the Plan or this Agreement, upon the termination of employment of the Optionee:

 

(i) following the CEO Effective Date by the Company for Cause (as defined in the Employment Agreement), by the Optionee without Good Reason (as defined in the

 

 

 

(ii) following the CEO Effective Date by the Company without Cause or by the Optionee for Good Reason, subject to Section 4(c):

 

(A) the unvested Tranche, if any, held by Optionee that would, absent Optionee’s termination of employment, vest on the Annual Vesting Date immediately following the Date of Termination (as defined in the Employment Agreement) shall vest and become exercisable upon the Date of Termination as to a number of Shares equal to 50,000 multiplied by a fraction, the numerator of which is the number of calendar days following the Annual Vesting Date immediately preceding the Date of Termination (or, in the case of the Tranche that would vest on the first Annual Vesting Date, the Grant Date) through the Date of Termination, and the denominator of which is 365; provided that if Optionee’s employment is terminated by the Company without Cause or by Optionee for Good Reason in either case (x) upon or within thirty (30) calendar days before or twelve (12) months after a Change in Control, or (y) prior to a Change in Control at the request of a prospective purchaser whose proposed purchase would constitute a Change in Control upon its completion, the entire unvested portion of the Option shall vest and become exercisable in full upon the Date of Termination; and

 

(B) any portion of the Option that remains unvested after the application of clause (A) shall be canceled and forfeited as of the Date of Termination; or

 

(iii) prior to the CEO Effective Date for any reason, the entire Option shall be canceled and forfeited as of the Date of Termination.

 

 For purposes of this Agreement, “Change in Control” shall mean (a) “Change of Control” as defined under the Employment Agreement.

 

(c) Forfeiture Resignation.  If, following the CEO Effective Date, Optionee Voluntarily (as defined in the Employment Agreement) resigns without Good Reason and assumes the role of chairman, chief executive officer, president or other substantially similar role at Comcast, Time Warner Cable, Cablevision, or Cox or any of their respective affiliates (or a company that is, at such time, a top-four (4) multi-system operator peer of the Company, and any affiliate of any such company) (each such company, a “Restricted Company”) at any time before the 18-month anniversary of the CEO Effective Date (such resignation, a “Forfeiture Resignation”, and such 18-month anniversary, the “Release Date”), Optionee shall forfeit any and all rights to the Option, and the Option shall immediately be canceled (the “Forfeiture Provision”).  In order to implement the foregoing, notwithstanding anything to the contrary set forth in this Agreement, the Employment Agreement or the Plan, any Options which otherwise

 

 

 

(d) Examples.  By way of example, the Optionee is granted the Option on December [19], 2011, and assume that the CEO Effective Date is February 13, 2012.

 

(i) Termination Example.  If Optionee is terminated by the Company without Cause or resigns for Good Reason on August 13, 2013 (the Release Date), Optionee will vest and become exercisable on the Date of Termination (i.e., August 13, 2013) in (A) the first Tranche (i.e., as to 50,000 Shares subject to the Option) which would have vested on February 13, 2013 but for Section 4(c), and (B) as to 50% of the 50,000 Shares subject to the second Tranche that was scheduled to vest on February 13, 2014 (i.e., as to 25,000 Shares) because Optionee was employed for 50% of the vesting year February 14, 2013 – February 13, 2014.  The remaining unvested portion of the Option, consisting of 50% of the second Tranche and the entire third and fourth Tranches, shall be forfeited and cancelled.

 

(ii) Change in Control Example.  A Change in Control occurs on June 30, 2012.  If Optionee is terminated by the Company without Cause or resigns for Good Reason on September 1, 2012, the entire remaining unvested portion of the Option shall vest and become exercisable on the Date of Termination.

 

(iii) Forfeiture Resignation Example.  Optionee Voluntarily resigns on February 14, 2013.  The first Tranche (i.e., as to 50,000 Shares) would have vested on February 13, 2013 but for Section 4(c), but did not vest because February 13, 2013 is prior to the Release Date (i.e., August 13, 2013).  On May 25, 2013, Optionee is hired as the chief executive officer of a Restricted Company and all of the Options are immediately cancelled due to the Forfeiture Provision.  (If, however, a Change in Control occurred on May 24, 2013, the Forfeiture Provision would have expired and the first Tranche would have become fully exercisable on May 24, 2013.)

 

4.2 Committee Discretion to Accelerate Vesting.  Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of all or any portion the Option at any time and for any reason.

 

5.	Manner of Exercise and Payment.

 

5.1 Subject to the terms and conditions of this Agreement and the Plan, the vested portion of the Option may be exercised by delivery of written notice in person, electronically or by mail to the Plan Administrator (or his or her designee).  Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising

 

 

 

5.2 The notice of exercise described in Section 5.1 hereof shall be accompanied by (a) the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, by transferring Shares to the Company having a Fair Market Value on the date of exercise equal to the cash amount for which such Shares are substituted, or in such other manner as may be permitted by the Committee in its discretion, and (b) payment of the Withholding Taxes as provided by Section 11 of this Agreement, and in the manner as may be permitted by the Committee its discretion pursuant to Section 11 of this Agreement.

 

5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to the terms of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective.

 

5.4 Except as otherwise provided in Section 9, the Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee’s name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares.

 

6.	Exercisability upon Termination of Employment.

 

If, following the CEO Effective Date, the employment of the Optionee is terminated for any reason other than for Cause (including, without limitation, the Optionee’s ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division or a termination of employment by the Optionee with or without Good Reason), the vested portion of the Option shall (subject to Section 4(c)) continue to be exercisable in whole or in part at any time, but in no event after the Exercise Expiration Date, for six (6) months after the Date of Termination.  If the employment of the Optionee is terminated for Cause, the entire Option (whether or not vested) shall terminate effective immediately prior to the Optionee’s termination of employment.

 

7.	Nontransferability.

 

The Option shall not be transferable other than by will or by the laws of descent and distribution.  During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee.

 

 

 

8.	No Right to Continued Employment.

 

Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company, or any Subsidiary or Affiliate of the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Optionee’s employment or service at any time.

 

9.	Adjustments.

 

9.1 Change in Capitalization.  In the event of a Change in Capitalization, the Committee shall make appropriate adjustments to (i) the number and class of Shares or other stock or securities subject to the Option, or (ii) the purchase price for such Shares or other stock or securities.  The Committee’s adjustment shall be made in accordance with the provisions of the Plan and shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement.

 

9.2 Dividends and Other Distributions.  If the Company (i) makes extraordinary distributions (by dividend or otherwise), (ii) grants rights to purchase securities to existing shareholders as a group, or (iii) issues securities to existing shareholders as a group (other than pursuant to (a) any equity awards granted under the Company’s equity incentive compensation plans or (b) warrants issued with an exercise price equal to the Fair Market Value on the date of grant), in the case of clauses (ii) and (iii) at a price below Fair Market Value (in each case of clauses (i), (ii) and (iii), an “Extraordinary Distribution”), then to reflect such Extraordinary Distribution, this Option shall be adjusted to retain the pre-Extraordinary Distribution aggregate “spread” by decreasing the Exercise Price in a manner which would not result in the imposition of penalty taxes on Optionee under Section 409A of the Code; provided that with respect to any vested portion of this Option, the Committee, in its sole discretion, may provide that, in lieu of such adjustment, the Optionee shall be entitled to receive the amount of, and the benefits and rights associated with, such Extraordinary Distribution in the same form and on the same terms as the Extraordinary Distribution paid or provided to the Company’s shareholders based upon the number of Shares underlying such vested portion of the Option.  Any adjustment described in this Section 9.2 shall be implemented in accordance with, and to the extent permitted by, Treasury Regulation § 1.409A-1(b)(5)(v)(D).  No adjustment to this Option shall be made in connection with any distribution (by dividend or otherwise) other than an Extraordinary Distribution.

 

10.	Effect of a Merger, Consolidation or Liquidation.

 

Subject to the terms of the Plan and this Agreement, in the event of (a)  a liquidation or dissolution of the Company or (b) a merger or consolidation of the Company (a “Transaction”) that does not constitute a Change in Control, the Options shall continue in effect in accordance with their respective terms, except that the Committee may, in its discretion, do one or more of the following: (i) shorten the period during which the Options are exercisable (provided they remain exercisable for at least thirty (30) calendar days after the date on which notice of such shortening is given to the Optionee); (ii) accelerate the vesting schedule with respect to the Options; (iii) arrange to have the surviving or successor entity assume the Options or grant replacement Options with appropriate adjustments in the exercise prices, and

 

 

 

11.	Withholding of Taxes.

 

At such times as the Optionee recognizes taxable income in connection with the receipt of Shares hereunder (a “Taxable Event”), the Optionee shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event (the “Withholding Taxes”) prior to the issuance, or release from escrow, of such Shares.  The Company shall have the right to deduct from any payment to an Optionee an amount equal to the Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes.  In satisfaction of the obligation to pay Withholding Taxes to the Company, the Optionee may make a written election (the “Tax Election”), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes.  Notwithstanding the foregoing, the Committee may, in its discretion, provide that Optionee shall not be entitled to exercise his Options for which cash has not been provided by the Optionee with respect to the applicable Withholding Taxes.

 

12.	Optionee Bound by the Plan.

 

The Optionee hereby acknowledges that the Optionee may receive a copy of the Plan upon request to the Plan Administrator and agrees to be bound by all the terms and provisions of the Plan.

 

13.	Entire Agreement; Modification of Agreement.

 

This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and, except as otherwise specifically provided herein, supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter.  For the avoidance of doubt, the Optionee acknowledges and agrees that, notwithstanding anything to the contrary set forth in any employment agreement between the Optionee and the Company, the vesting of the Option, including, without limitation, upon a termination of the Optionee’s employment and upon a Change in Control, shall be governed by the terms of this Agreement.  This Agreement may be modified, amended, suspended or terminated by the Committee in its discretion at any time, and any terms or conditions may be waived by the Committee in its discretion at any time; provided, however, that all such modifications, amendments, suspensions, terminations or waivers that

 

 

 

14.	Severability.

 

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

 

15.	Governing Law.

 

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.

 

16.	Successors in Interest.

 

This Agreement shall inure to the benefit of and be binding upon any successor to the Company.  This Agreement shall inure to the benefit of the Optionee’s legal representatives.  All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee’s heirs, executors, administrators, successors.

 

17.	Resolution of Disputes.

 

Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee.  Any determination made hereunder shall be final, binding and conclusive on the Optionee and Company for all purposes.

 

18.	Acquired Rights.

 

The Optionee acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the Option made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Option awarded hereunder) give the Optionee any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Optionee’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

 

19.	Counterparts.

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

 

 

 

20.	Compliance with Laws.

 

The issuance of the Option (and the Shares acquired upon exercise of the Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of any Securities Laws and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto.  The Company shall not be obligated to issue the Option or any of the Shares pursuant to this Agreement if any such issuance would violate any such requirements.

 

21.	Company Recoupment.

 

The Optionee’s right to the Option granted hereunder and the Shares acquired upon exercise of the Option shall in all events be subject to any right or obligation that the Company may have regarding the clawback of “incentive-based compensation” under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission.