STOCK OPTION AGREEMENT
Exhibit 10.6
THIS STOCK OPTION AGREEMENT (“Agreement”) is entered into effective as of February 1, 2007 by
and between K12 INC., a Delaware corporation (the “Company”), and Xxxxx X. Xxxxx (the “Optionee”).
RECITALS
WHEREAS, the Company and the Optionee mutually desire that the Company grant Optionee stock
options to purchase shares of Common Stock of the Company to provide an incentive for the
Optionee’s continuous employment with the Company and to motivate the Optionee to increase value
for the Company’s stockholders.
NOW THEREFORE, the parties agree as follows:
1. Grant of Stock Options. Subject to the terms and conditions hereinafter set forth, the
Company hereby grants to the Optionee an option to purchase up to Five Hundred Thousand (500,000)
shares of Common Stock of the Company (the “Stock”) at an option exercise price of One Dollar and
Eighty Cents ($1.80) per share (the “Options”). The shares of Stock purchasable upon exercise of
the Options are hereinafter sometimes collectively referred to as the “Option Shares.” The Options
are not intended to be, and shall not be treated as, incentive stock options (as such term is
defined under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”)). Optionee
understands and acknowledges that the Company is granting the Options hereunder outside of, and not
as a part of, the K12 Inc. Amended and Restated Stock Option Plan. The Company shall reserve
sufficient shares of Stock from its authorized but unissued and not outstanding shares of Stock as
set forth in its Certificate of Incorporation, for purposes of issuing Option Shares to the
Optionee upon the exercise of the Options in accordance with the terms set forth herein.
2. Vesting Schedule. Subject to the provisions of Section 3 below, the Options shall vest and
become exercisable in four (4) annual installments. The Optionee shall have the right hereunder to
purchase from the Company the following number of Option Shares upon exercise of the Options, on
and after the following dates, in cumulative fashion:
(a) One-Fourth (1/4th) of Option Shares on January 8, 2008, the “First Vesting
Date” (which is the first anniversary of the start date of Optionee’s employment with the Company);
and
(b) An additional One-Sixteenth (1/16th) of the Option Shares every three (3)
months following the First Vesting Date for the remainder of the Vesting Schedule. (For example, if
the first vesting date is January 15 then 1/16th will vest on April 15, July 15, Oct 15,
etc. If the first vesting date is the last day of a month, then 1/16th will vest the last day of
each three month period. For example, if the first vesting date is November 30, then 1/16th will
vest on February 28, May 31, August 31, etc).
Notwithstanding the foregoing, if a Vesting Acceleration Event occurs prior to the date that
all Options have vested pursuant to the above vesting schedule, fifty percent (50%) of the Options
that have not yet vested as of the date of the Vesting Acceleration Event shall automatically
accelerate and become immediately vested and exercisable as of the date of the Vesting Acceleration
Event.
As used herein, a “Vesting Acceleration Event” means the occurrence of any of the following
events while Optionee is employed with the Company: (i) a sale of all or substantially all of the
assets of the Company, or (ii) a merger or consolidation of the Company into or with another entity
that results in the Company’s stockholders immediately prior to such transaction owning less than
fifty percent (50%) of the voting power of the surviving entity (or its parent) immediately after
such transaction, or (iii) a sale of outstanding securities of the Company by stockholders of the
Company (excluding any sale in connection with any public offering) that results in the Company’s
stockholders immediately prior to such transaction owning less than fifty percent (50%) of the
Company’s voting power immediately after such transaction.
3. Termination of Options.
(a) Subject to earlier termination as provided in the other provisions of this Agreement, the
Options and all rights hereunder with respect thereto, to the extent such rights shall not have
been exercised, shall terminate and become null and void on December 31, 2014 (the “Option Term”).
(b) Upon termination of Optionee’s employment or engagement with the Company by reason of
Optionee’s death, the Options held by Optionee to the extent not exercisable on the date of
Optionee’s death shall terminate on the date of Optionee’s death. The Options, to the extent
exercisable on the date of Optionee’s death, may be exercised by Optionee’s estate or
beneficiaries, personal representative or heirs, provided that such exercise occurs prior to the
earlier of: (i) one hundred eighty (180) days after the date of Optionee’s death, or (ii) the
expiration of the Option Term. The Options held by Optionee to the extent exercisable on the date
of Optionee’s death shall terminate at the end of the earliest of the periods specified in clauses
(i) and (ii) of the immediately preceding sentence.
(c) Upon termination of Optionee’s employment or engagement with the Company by reason of
“permanent disability” (as determined by the Company’s Compensation Committee, or if Optionee has
an employment or engagement agreement with the Company, then as determined pursuant to the
applicable provisions of said agreement, if any), the Options held by Optionee to the extent not
exercisable on the date of Optionee’s termination shall terminate on the date of Optionee’s
termination. The Options, to the extent exercisable on the date of Optionee’s termination, may be
exercised by Optionee or personal representatives, provided that such exercise occurs prior to the
earlier of: (i) one hundred eighty (180) days after the date of Optionee’s termination, or (ii) the
expiration of the Option Term. The Options held by Optionee to the extent exercisable on the date
of Optionee’s termination shall terminate at the end of the earliest of the periods specified in
clauses (i) and (ii) of the immediately preceding sentence.
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(d) Upon Optionee’s termination of employment or engagement with the Company either by
resignation or upon termination of Optionee’s employment or engagement with the Company for “cause”
(as determined by the Company’s Compensation Committee, or if Optionee has an employment or
engagement agreement with the Company, then as determined pursuant to the applicable provisions of
said agreement, if any), all the Options held by Optionee to the extent not exercisable on the date
of Optionee’s termination shall terminate on such date, and all Options held by Optionee to the
extent exercisable on such date shall terminate on the date of Optionee’s termination.
(e) If Optionee’s employment or engagement with the Company terminates for any reason other
than as described in paragraphs (b), (c) or (d) of this Section 3, then the Options held by
Optionee to the extent not exercisable on the date of Optionee’s termination shall terminate on the
date of Optionee’s termination. The Options, to the extent exercisable on the date of Optionee’s
termination, may be exercised by Optionee, provided that such exercise occurs prior to the earlier
of: (i) ninety (90) days after the date of Optionee’s termination, or (ii) the expiration of the
Option Term. The Options held by Optionee to the extent exercisable on the date of Optionee’s
termination shall terminate at the end of the earliest of the periods specified in clauses (i) and
(ii) of the immediately preceding sentence.
4. Exercise of Options.
(a) The Optionee may exercise the Options with respect to all or any part of the number of
Option Shares then exercisable hereunder from time to time by giving the Chief Financial Officer of
the Company written notice of exercise. Each such notice of exercise shall specify the number of
Option Shares as to which the Options are to be exercised and the date of exercise thereof, which
date shall be at least five days (but not more than fifteen days) after the giving of such notice
unless an earlier time shall have been mutually agreed upon by Optionee and the Company.
(b) Full payment of the option price for the Option Shares being purchased by the Optionee
shall be made by the Optionee in cash (in U.S. dollars) on or prior to the date of exercise
specified in the notice of exercise.
(c) The Company shall cause to be delivered to the Optionee a certificate or certificates for
the Option Shares then being purchased (out of theretofore unissued Stock or reacquired Stock, as
the Company may elect) as soon as is reasonably practicable after the full payment for such Option
Shares and satisfaction of all other conditions to exercise set forth in this Agreement.
(d) If the Optionee fails to pay for any of the Option Shares specified in a notice of
exercise or fails to accept delivery thereof, the Optionee’s right to purchase such Option Shares
shall terminate.
(e) Notwithstanding any other provision of this Agreement, the Optionee’s right to exercise
Options and be issued Option Shares is subject to the conditions set forth in this
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Section 4(e) in addition to any other conditions set forth elsewhere in this Agreement. The
Optionee may not exercise any Options in whole or in part or be issued any Option Shares unless (i)
the transaction is in compliance with all applicable state and Federal securities laws, (ii) the
transaction is exempt from the qualification and registration requirements of applicable state and
Federal securities laws, and (iii) the Company and the Optionee comply with any requirements
applicable to the transaction, if any, that are contained in any credit or loan agreement to which
the Company is a party. In addition, the obligation of the Company to deliver Stock shall be
subject to the condition that if at any time the Company shall determine that the listing,
registration, or qualification of the Options or the Option Shares upon any securities exchange or
under any state or Federal law, or the consent or approval of any governmental regulatory body, is
necessary as a condition of, or in connection with, the Options or the issuance or purchase of
Stock thereunder, the Options may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors of the Company.
5. Adjustment of and Changes in Stock of the Company. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend, recapitalization, merger, consolidation,
split-up, combination, exchange of shares, or the like, the Company’s Compensation Committee shall
appropriately adjust the number and kind of shares subject to the Options and the option price.
6. No Rights of Stockholders. Neither the Optionee nor any personal representative shall be,
or shall have any of the rights and privileges of, a stockholder of the Company with respect to any
shares of Stock purchasable or issuable upon the exercise of the Options, in whole or in part,
prior to the date certificates for shares of Stock are issued to the Optionee.
7. Non-Transferability of Options. During the Optionee’s lifetime, the Options hereunder shall
be exercisable only by the Optionee or any guardian or legal representative of the Optionee, and
the Options shall not be transferable except, in case of the death of the Optionee, by will or the
laws of descent and distribution, nor shall the Options be subject to attachment, execution, or
other similar process. In the event of (a) any attempt by the Optionee to alienate, assign, pledge,
hypothecate, or otherwise dispose of the Options, except as provided for herein, or (b) the levy of
any attachment, execution, or similar process upon the rights or interest hereby conferred, the
Company may terminate the Options by notice to the Optionee and they shall thereupon become null
and void.
8. Employment/Engagement Not Affected. Neither the granting of the Options nor exercise
thereof shall be construed as granting to the Optionee any right with respect to continuance of
employment or engagement with the Company or affect any right which the Company may have to
terminate the employment or engagement of Optionee.
9. Amendment of Options. The Options may be amended by the Company’s Compensation Committee at
any time (i) if the Company’s Compensation Committee determines, in its reasonable discretion, that
amendment is necessary or advisable in the light of any addition to or change in the Internal
Revenue Code of 1986, as amended, or in the
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regulations issued thereunder, or any federal or state securities law or other law or
regulation, which change occurs after the date of grant of an Option and by its terms applies to
the Option; or (ii) other than in the circumstances described in clause (i), with the consent of
the Optionee.
10. Sale, Merger, Consolidation and Liquidation of the Company. In the event of a sale of the
Company (whether by merger, consolidation, sale of assets, sale of stock or otherwise), if the
surviving or acquiring entity or purchaser does not expressly agree to assume the Options issued
hereunder, all Options issued hereunder which are unvested shall terminate and all Options issued
hereunder which are vested (including all Options that become vested as a result of a Vesting
Acceleration Event) but not exercised prior to or as of the closing of such event shall terminate.
In the event of a dissolution or liquidation of the Company, all Options issued hereunder which are
unvested shall terminate and all Options issued hereunder which are vested but not exercised prior
to such dissolution or liquidation shall terminate.
11. Restrictions on Transfer of Option Shares and Related Provisions.
(a) Except as otherwise expressly set forth in this Section 11, Optionee shall not,
voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise, sell,
transfer, assign, hypothecate, pledge or in any way alienate any Option Shares now or hereafter
owned by the Optionee or any right or interest therein (hereinafter, a “Transfer”) without the
prior written consent of the Company’s Compensation Committee, which the Compensation Committee may
withhold in its sole discretion. Any attempt to consummate a Transfer in violation of this
Agreement shall be null and void.
(b) Notwithstanding the restrictions contained in Section 11(a) above, (i) Optionee may
Transfer Optionee’s Option Shares to the Company or a designee of the Company, or (ii) Optionee may
contribute Optionee’s Option Shares to a trust formed solely for the benefit of Optionee and/or
Optionee’s immediate family, or (iii) upon the death of Optionee, Optionee’s Option Shares may be
transferred to Optionee’s estate, personal representative or heirs by will or the laws of descent
and distribution; provided, however, that as a condition to any transfer under
clause (i), (ii) or (iii) above, the transferee shall hold the Option Shares subject to the terms
and conditions of this Agreement and the transferee shall execute and deliver to the Company an
agreement in form and substance satisfactory to the Company agreeing to be bound by the terms and
conditions of this Agreement.
(c) The Company shall have the option (the “Repurchase Option”) exercisable at any time after
six (6) months and one (1) day after the date of termination of Optionee’s employment or engagement
with the Company for any reason, including, but not limited to, termination with or without cause,
death, permanent disability or voluntary termination, to repurchase all or any portion of the
Option Shares held by Optionee (or by a permitted transferee or Optionee’s estate or legal
representative, if applicable). If the Company elects to exercise the Repurchase Option in whole or
in part, it shall give written notice of such election (the “Repurchase Notice”) to Optionee (or
permitted transferee or Optionee’s estate or legal representative, if applicable). The Company
shall pay to Optionee (or permitted transferee or Optionee’s estate or legal representative, if
applicable) in cash the “fair market value” of the Option Shares being purchased (determined as
provided below) within thirty (30) days after the
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later of: (i) the date of the Repurchase Notice, or (ii) the final determination of fair
market value. Optionee agrees to execute (and directs Optionee’s permitted transferee or estate or
legal representative to execute, if applicable) such documents and instruments as are reasonably
necessary to effectuate such purchase. The Company may exercise the Repurchase Option as many times
as the Company may decide. For purposes hereof, “fair market value” of the Option Shares shall be
determined as of the last day of the Company’s fiscal quarter ended immediately preceding the date
of the Repurchase Notice and means (i) the average closing price of a share of Common Stock of the
Company on the principal exchange on which such shares are then trading, if any (or as reported on
any composite index which includes such principal exchange), on the ten most recent trading days
immediately prior to such date, or (ii) if such shares are not traded on an exchange but are quoted
on NASDAQ or a successor quotation system, the average mean between the closing representative bid
and asked prices for such shares on the ten most recent trading days immediately prior to such date
as reported by NASDAQ or such successor quotation system; or (iii) in the event that clauses (i)
and (ii) above are inapplicable, the “fair market value” shall be determined in good faith by the
Board of Directors of the Company.
(d) Anything contained in this Agreement to the contrary notwithstanding, the Option Shares
with respect to which the Company’s Repurchase Option has been exercised shall be deemed to have
been repurchased by the Company effective as of the date of exercise of such option and such Option
Shares shall be deemed to be canceled, retired and no longer issued or outstanding effective as of
such date without further act of the parties.
(e) All Option Shares now or hereafter owned by Optionee shall be subject to all of the terms
and conditions of this Agreement. All certificates representing such Option Shares shall contain
legends to the following effect:
ANY SALE, TRANSFER, PLEDGE, ASSIGNMENT OR ENCUMBRANCE OF THIS SECURITY IS SUBJECT TO THE
PROVISIONS OF A STOCK OPTION AGREEMENT BETWEEN THE CORPORATION AND THE STOCKHOLDER, DATED AS
OF FEBRUARY 1, 2007, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE CORPORATION.
THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN QUALIFIED
OR REGISTERED UNDER ANY STATE OR FEDERAL SECURITIES LAWS. SUCH SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF EITHER QUALIFICATION AND REGISTRATION UNDER STATE
AND FEDERAL SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
QUALIFICATION AND REGISTRATION IS NOT REQUIRED.
(f) The provisions of Sections 11(a) through 11(d) shall terminate effective
upon the consummation an underwritten public offering of shares of Stock by the Company that
results in such shares being listed for trading on a national securities exchange or being
authorized for trading on the NASDAQ National Market System.
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12. Representations.
(a) By executing this Stock Option Agreement, Optionee represents and warrants to the Company
that Optionee is acquiring the Options for Optionee’s own account, for investment purposes only and
not with the intent of distributing, transferring or selling all or any part of the Options.
(b) In connection with the exercise of any portion of the Options, Optionee represents and
warrants to the Company as of the date of such exercise as follows:
(i) Optionee is acquiring the Stock for Optionee’s own account, for investment purposes
only and not with the intent of distributing, transferring or selling all or any part thereof in
violation of applicable securities laws.
(ii) Optionee acknowledges that the Stock has not been registered under any Federal or
state securities laws and is being issued pursuant to one or more exemptions from the registration
and qualification requirements of such securities laws.
(iii) Optionee acknowledges that the Company is under no obligation to register or qualify
the Stock and that the Stock may not be sold unless it is so registered and qualified or an
exemption from registration and qualification is available.
13. Lock Up In Connection with Public Offering.
(a) In order to induce the underwriters that may participate in a public offering of the
Company’s equity securities to continue their efforts in connection with such a public offering,
the Optionee, during the period commencing 30 days prior to and ending 180 days after the effective
date of any underwritten public offering of the Company’s equity securities (except as part of such
underwritten registration):
(i) agrees not to (x) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of, directly or indirectly, any Stock or any
securities convertible into or exercisable or exchangeable for Stock (including, without
limitation, Stock or securities convertible into or exercisable or exchangeable for Stock which may
be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations
of the Securities and Exchange Commission) or (y) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the ownership of any Stock
(regardless of whether any of the transactions described in clause (x) or (y) is to be settled by
the delivery of Stock, or such other securities, in cash or otherwise), without prior written
consent of the lead managing underwriter of such public offering;
(ii) agrees not to make any demand for, or exercise any right with respect to, the
registration of any Stock or any securities convertible into or exercisable or exchangeable
for Stock, without the prior written consent of the lead underwriter; and
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(iii) authorizes the Company to cause the transfer agent to decline to transfer
and/or to note stop transfer restrictions on the transfer books and records of the Company with
respect to any Stock and any securities convertible into or exercisable or exchangeable for Stock
for which the Optionee is the record holder and, in the case of any such shares or securities for
which the Optionee is the beneficial but not the record holder, agrees to cause the record holder
to cause the transfer agent to decline to transfer and/or to note stop transfer restrictions on
such books and records with respect to such shares or securities.
Upon the Company’s request, the Optionee agrees to execute any additional documents necessary or
desirable to confirm Optionee’s obligations set forth above and/or in connection with the
enforcement of the foregoing provisions. The foregoing provisions shall survive the death or
incapacity of the Option and any obligations of the Optionee set forth above shall be binding upon
the heirs, personal representatives, successors and assigns of the Optionee.
14. Notice. Any notice to the Company provided for in this instrument shall be
addressed as follows:
K12 Inc.
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Compensation Committee
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Compensation Committee
With a copy to:
K12 Inc.
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Office of the General Counsel
0000 Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Office of the General Counsel
And any notice to the Optionee shall be addressed to the Optionee at the current address shown on
the records of the Company.
Any notice shall be deemed to be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.
15. Income Tax Consequences. Optionee acknowledges, represents, and warrants
that the Company has made no representations whatsoever to Optionee concerning the specific
Federal and/or state income tax and alternative minimum tax consequences to Optionee of the
Options granted hereunder or the exercise thereof, and Optionee shall be responsible for
consulting with Optionee’s personal tax advisor regarding such matters. Without limiting the
generality of the foregoing, Optionee acknowledges that pursuant to Code Section 409A, an
option that is granted with a per share exercise price that is determined by the Internal
Revenue Service (the “IRS”) to be less than the fair market value of a share of Stock on the date of
grant (a “discount option”) may be considered “deferred compensation.” An option that is a “discount
option” may result in (i) income recognition by the Optionee prior to the exercise of the
option, (ii) an additional twenty percent (20%) tax payable by Optionee, and (iii) potential penalty
and
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interest charges payable by Optionee. Optionee acknowledges that the Company cannot and has
not guaranteed that in the event of an examination the IRS will agree that the per share exercise
price of the Stock that is subject to this Option equals or exceeds the fair market value of a
share of Stock on the date of grant. Optionee agrees that if the IRS determines that the Option was
granted with a per share exercise price that was less than the fair market value of a share of
Stock on the date of grant, Optionee will be solely responsible for all consequences to Optionee
related to such a determination.
16. Withholding Taxes. Whenever the Company issues or transfers shares of Stock hereunder, the
Company shall have the right to require the Optionee to remit to the Company an amount sufficient
to satisfy any Federal, state, and/or local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. Alternatively, the Company may (but shall not be
obligated to) issue or transfer such shares of Stock net of the number of shares sufficient to
satisfy the withholding tax requirements. For withholding tax purposes, the shares of Stock shall
be valued on the date the withholding obligation is incurred.
17. Governing Law. The validity, construction, interpretation, and effect of this Agreement
shall exclusively be governed by and determined in accordance with the laws of the State of
Delaware (without regard to conflicts of law principles), except to the extent preempted by Federal
law, which shall to such extent govern.
IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement effective as of
the date first set forth above.
| “Company” K12 INC. a Delaware corporation |
||||
| By: | /s/ Xxxx Xxxxx | |||
| Xxxx Xxxxx | ||||
| Executive Vice President and CFO | ||||
| “Optionee” |
||||
| /s/ Xxxxx X. Xxxxx | ||||
| Xxxxx X. Xxxxx | ||||
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