FORM OF
OPTION AGREEMENT
UNDER THE
KII HOLDING CORP. 1998 STOCK OPTION PLAN
THIS AGREEMENT is dated as of December 31, 1998 (the "Grant Date"), and is
among KII Holding Corp., a Delaware corporation (the "Corporation"), Stellex
Industries, Inc., a Delaware corporation ("Stellex Industries"), and
________________ ("Optionee"), in accordance with the terms of the KII Holding
Corp. 1998 Stock Option Plan (the "Plan"). Capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Plan.
1. Grant of Option. Subject to the terms of this Agreement and the Plan,
the Corporation hereby grants to Optionee a nonstatutory stock option (the
"Option") to purchase _____ shares of the Corporation's Class A Common Stock, no
par value ("Option Stock"), at a price per share (the "Exercise Price") and in
the manner and subject to the conditions hereinafter provided. In conjunction
with an IPO by Stellex Industries, the Plan Administrator may, at its option,
convert the Option into an option to purchase Common Stock pursuant to the
conversion procedures set forth in Section 3 of the Plan.
2. Exercise Price. The Exercise Price shall be $______ per share. In the
event the Plan Administrator applies the conversion feature set forth in Section
3 of the Plan, the Exercise Price shall continue to apply as if the Option
remained exercisable for Option Stock.
3. Term of Option. The Option shall not be exercisable after July 1, 2007
(the "Expiration Date").
4. Vesting of Options. Optionee will become vested in the Option in
installments as follows:
(i) seventeen and one-half percent (17.5%) of the Option granted shall
vest on the date of this Agreement;
(ii) twenty and five-eighths percent (20.625%) of the Option granted
shall vest on December 31, 1999;
(iii) twenty and five-eighths percent (20.625%) of the Option granted
shall vest on December 31, 2000;
(iv) twenty and five-eighths percent (20.625%) of the Option granted
shall vest on December 31, 2001; and
(v) twenty and five-eighths percent (20.625%) of the Option granted
shall vest on December 31, 2002.
Notwithstanding the foregoing: (i) the Option (to the extent it has not
otherwise been terminated) will become fully vested upon the death or Disability
of the Optionee; and (ii) during any period of
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time when the Optionee is not actively at work due to a physical or mental
condition that may result in Disability, the passage of time toward the dates
specified in this Section 4 will be tolled under this Agreement and the Option
vesting schedule described above will be postponed by that period of time.
5. Time of Exercise of Option. The Optionee may exercise the portion of the
Option that has become Vested Options from time to time during the term of the
Option, but only after the earliest to occur of:
(a) an IPO by the Corporation,
(b) an IPO by Stellex Industries,
(c) after a Corporate Transaction, subject to Section 6 of the Plan, or
(d) the date that is 60 days prior to the Expiration Date.
Shares of Option Stock owned by Optionee as a result of his exercise of the
Option shall be referred to herein as "Purchased Shares."
6. Provisions Regarding the Vesting and Forfeiture of Options. Except as
provided below, the Option, except Vested Options, shall terminate upon
Optionee's employment termination for any reason (including, without limitation,
Optionee's resignation or retirement, or at the Corporation's election).
Notwithstanding the foregoing and any provisions of Section 4 to the contrary,
Optionee shall forfeit the Option, including Vested Options, if Optionee commits
Misconduct, effective on the date Optionee commits such Misconduct.
7. Cessation of Service. The option term specified in Section 3 shall
terminate (and the Option shall cease to be outstanding) prior to the Expiration
Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other
than death, Disability or Misconduct) while the Option is outstanding, then
Optionee shall have a period of three months (commencing with the later of
the date of such cessation of Service or the date on which such Option
becomes exercisable) during which to exercise the Vested Options, but in no
event shall the Option be exercisable at any time after the Expiration
Date.
(b) Should Optionee die while the Option is outstanding, then the
personal representative of Optionee's estate or the person or persons to
whom the Option is transferred pursuant to Optionee's will or in accordance
with the laws of descent and distribution shall have the right to exercise
the Option. Such right shall lapse and the Option shall cease to be
outstanding upon the one year anniversary of the later of the date of
Optionee's death or the date on which such Option becomes exercisable, but
in no event shall the Option be exercisable at any time after the
Expiration Date.
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(c) Should Optionee cease Service by reason of Disability while the
Option is outstanding, then Optionee shall have a period of twelve months
(commencing with the later of the date of such cessation of Service or the
date on which such Option becomes exercisable) during which to exercise the
Option. In no event shall the Option be exercisable at any time after the
Expiration Date.
(d) Should Optionee's Service be terminated for Misconduct, then the
Option shall terminate immediately and cease to remain outstanding.
(e) During the post-Service exercise period, the Option may not be
exercised in the aggregate for more than the number of shares of Option
Stock in which Optionee is, at the time of Optionee's cessation of Service,
vested in accordance with the Vesting Schedule. Upon the expiration of such
exercise period or (if earlier) upon the Expiration Date, the Option shall
terminate and cease to be outstanding for any Vested Options for which the
Option has not been exercised. To the extent Optionee is not vested in any
shares of Option Stock at the time of Optionee's cessation of Service, the
Option shall immediately terminate and cease to be outstanding with respect
to those shares.
(f) In the event of a Corporate Transaction, the provisions of Section
6 of the Plan shall govern the period for which the Option is to remain
exercisable following Optionee's cessation of Service and shall supersede
any provisions to the contrary in this paragraph.
8. The Plan. The terms of this Agreement shall be subject to the terms of
the Plan and the terms of any stockholder or voting agreement to which Optionee
is a party from time to time (the "Stockholders' Agreement"). In the case of any
conflict between the terms of this Agreement and the terms of the Plan or a
Stockholders' Agreement, the terms of the Plan or a Stockholders' Agreement
shall control. Capitalized terms will have the meanings assigned to such terms
in the Plan.
9. Conditions. Optionee shall not have any of the rights of a stockholder
with respect to shares until such shares shall be issued or transferred to
Optionee after the exercise of the Option. The following shall be conditions to
the Corporation's obligation to issue or transfer shares to Optionee after the
exercise of the Option: (a) Optionee has paid in full for the shares with
respect to which the Option was exercised; (b) Optionee shall execute an
agreement agreeing to be bound by all of the provisions of the Stockholders'
Agreement; and (c) Optionee shall agree that he is acquiring such shares for
investment with no intention at the time of reselling or otherwise disposing of
all or any part of the same unless the shares are registered under Section 12(b)
or 12(g) of the 1934 Act and are listed on a national securities exchange or
traded in a national automated quotation system.
10. Corporation's Repurchase of Purchased Shares.
(a) Upon (i) the termination of Optionee's employment for any reason, (ii)
the transfer or purported transfer of any Options or Purchased Shares to any
Person who is not at the time of transfer an employee of the Corporation or
(iii) the sale by the Corporation to a third party of the stock or all or
substantially all of the assets of the direct or indirect subsidiary of the
Corporation
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by which the Optionee is employed, the Corporation shall have the option (the
"Corporation Option"), exercisable at any time after such termination of
employment, transfer or sale, to purchase any or all Purchased Shares and to
terminate all Vested Options not terminated pursuant to Sections 6 and 7. Each
time that the Corporation exercises the Corporation Option, the Redemption Value
of the Optionee's Purchased Shares and Vested Options (less all applicable
Federal, state, local and foreign income and other withholding taxes) with
respect to which the Corporation Option is exercised shall be converted to a
Distribution Account on or before the Settlement Date, and distributed according
to the provisions of this Section. The provisions of this Section 10(a) shall
not apply if the Purchased Shares or the Common Stock or Option Stock, as the
case may be, into which the Vested Options are exercisable or convertible are
registered under Section 12(b) or 12(g) of the 1934 Act and such securities are
listed on a national securities exchange or traded in a national automated
quotation system.
(b) On the Settlement Date, Optionee shall deliver to the Corporation any
Purchased Shares being purchased by the Corporation pursuant to such exercise
free of any liens or encumbrances, and duly endorsed or with duly executed stock
powers.
(c) The Corporation will distribute the amount in a Optionee's Distribution
Account to the Optionee in cash, (i) (A) in thirty-six equal monthly installment
payments (or over such shorter period as may be approved by the Plan
Administrator in its sole discretion), if the amount in the Distribution Account
equals or exceeds $100,000; and (B) in one lump sum, if the amount in the
Distribution Account is less than $100,000; or (ii) over such longer period as
may be required under the terms of the agreements and instruments governing the
indebtedness of Stellex Industries and its Subsidiaries then in effect. Amounts
in the Distribution Account will bear interest from the applicable Settlement
Date until the date of distribution at a rate equal to the rate as of the
Settlement Date on U.S. treasury securities of a similar tenor and maturity, as
determined by the Plan Administrator from publicly available sources.
Notwithstanding the foregoing, the Corporation may, in its sole discretion, at
any time during the installment period, distribute the remaining amount of a
Optionee's Distribution Account in a single lump sum cash payment, plus interest
to the date of payment. The Corporation also may issue a promissory note
evidencing its obligation to pay amounts in the Distribution Account.
(d) Distribution of a Optionee's Distribution Account will commence no
later than 30 days after the Redemption Value has been determined.
(e) If a Optionee dies before complete distribution of his or her
Distribution Account, the remaining value of the Optionee's Distribution Account
will be distributed to the beneficiary designated by the Optionee over the same
period as distributions were being made to the Optionee; except that, the
Corporation may, in its sole discretion, determine to pay the remaining balance
of the deceased Optionee's Distribution Account to the designated beneficiary in
a single lump sum payment at any time. If a Optionee has not designated a
beneficiary under the Plan, or if no designated beneficiary is living on the
date of distribution hereunder, amounts distributable pursuant to this section
will be distributed to the Optionee's estate.
(f) The Corporation shall have the option, exercisable at any time on or
after the six month anniversary of the exercise of any Vested Options, to
purchase any or all Purchased Shares
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received as a result of such exercise at the Fair Market Value thereof. The
manner in which any such purchase shall be effected shall be substantially in
accordance with the procedures set forth in Section 10(b) through Section 10(e),
with such changes as the Plan Administrator shall approve in its sole
discretion.
11. No Guaranty of Employment. Nothing herein confers or shall confer on
Optionee any right to continue in the employment of the Corporation nor shall
interfere with the Corporation's right to terminate the employment of Optionee
at any time.
12. Certain Tax Consequences. Optionee acknowledges that the Option granted
hereby is not an incentive stock option for tax purposes and that both the award
of the Option and the exercise thereof may have various tax consequences under
federal and state law. Optionee has discussed such consequences with his
personal tax advisor. Optionee must report the grant of the Option to the
Internal Revenue Service (Internal Revenue Code Reg. ss. 1.61-15(c)) and he may
be required to report to state tax authorities under applicable state law. The
obligation of the Corporation or Stellex Industries to deliver shares of Common
Stock or Option Stock upon the exercise of any Options issued under the Plan, or
to make any payment to an Optionee upon the exercise of the Corporation's
options under Section 10 or in connection with a Corporate Transaction, shall be
subject to the satisfaction of all applicable Federal, state, local and foreign
income and employment tax withholding requirements.
13. Transferability. The Option may be transferred only to the extent
permitted by Section 12 of the Plan.
14. Successors and Assigns. Except to the extent otherwise provided in
Section 14 and Section 12 of the Plan, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee, Optionee's assigns and the legal representatives,
heirs and legatees of Optionee's estate.
15. Compliance with Laws and Regulations.
(a) The exercise of the Option and the issuance of the Common Stock or
Option Stock upon such exercise shall be subject to compliance by the
Corporation (and Stellex Industries) and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any
stock exchange (or the NASDAQ National Market, if applicable) on which the
Option Stock or the Common Stock may be listed for trading at the time of such
exercise and issuance.
(b) The inability of the Corporation (or Stellex Industries) to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Option Stock or Common Stock
pursuant to the Option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Option Stock or the Common Stock as
to which such approval shall not have been obtained. The Corporation, however,
shall use its best efforts to obtain all such approvals.
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16. Amendment. The Board shall have complete and exclusive power and
authority to amend or modify the Plan or this Agreement in any or all respects;
provided, however, that no such amendment or modification shall adversely
affect, in any material respect, any rights of the Optionee with respect to
Options granted pursuant to this Agreement, unless the Optionee consents to such
amendment or modification. Notwithstanding the foregoing, the Board shall have
the power and authority to amend or modify the Plan or this Agreement in any
manner (including in a manner that adversely affects the rights of the Optionee
with respect to the Option) if such amendment or modification applies equally to
all holders of options granted under the Plan and is approved by holders of
options representing a majority of the shares of Option Stock or Common Stock
issuable pursuant to options granted under the Plan.
17. Governing Law. The Option shall be exercised in accordance with such
administrative regulations as the Board of Directors of Stellex Industries or
any duly authorized committee shall from time to time adopt. The Option and this
Agreement shall be construed, administered and governed in all respects under
and by the laws of the State of Delaware.
18. Counterparts. This Agreement may be executed in any number of
counterparts, which will individually and collectively constitute one agreement.
[Signature Page Follows]
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WITNESS the due execution hereof as of the date first above written.
OPTIONEE KII HOLDING CORP.
By:
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Its: President
STELLEX INDUSTRIES, INC.
By:
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Its: President
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