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EXHIBIT 10.5
EYE CARE CENTERS OF AMERICA, INC.
STOCK OPTION AGREEMENT
UNDER 1998 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION
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AGREEMENT entered into this 24th day of April, 1998 by and between EYE CARE
CENTERS OF AMERICA, INC., a Texas corporation (the "Company"), and the
undersigned employee of the Company (the "Employee"). Capitalized terms used
herein as defined terms which are not otherwise defined herein shall have the
meanings given to them in the Employment Agreement dated as of April 24, 1998
between the Company and the Employee (the "Employment Agreement").
WHEREAS, the Company desires to grant the Employee a non-qualified stock
option under the Company's 1998 Stock Option Plan (the "Plan") to acquire shares
of the Company's common stock, par value $.01 per share ("Common Stock").
WHEREAS, Section 6 of the Plan provides that each option is to be evidenced
by an option agreement, setting forth the terms and conditions of the option.
NOW, THEREFORE, the Company and the Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants under the Plan
and subject to the terms and conditions of the Plan to the Employee a
non-qualified stock option (the "Option") to purchase up to 30,948 shares (the
"Shares") of Common Stock on the terms and conditions hereinafter set forth.
This option shall not be treated as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. VESTING: PURCHASE PRICE.
(a) GENERAL. One-half of the Shares subject to the Option shall vest
based solely upon the passage of time, as set forth below (the "Time Based
Option"). One-half of the Shares subject to the Option shall vest on the tenth
anniversary of the date of grant, subject to acceleration of vesting upon
achievement of certain performance criteria, as set forth below (the
"Performance Option").
(b) PURCHASE PRICE. The purchase price payable upon exercise of the
Option shall be $124.91 per Share.
(c) VESTING OF TIME BASED OPTION. The Time Based Option shall vest in
six equal installments of 2,579 Shares. The first installment shall vest on
October 24, 1998, and each subsequent installment shall vest on the same day of
each sixth month following such initial vesting date until the entire Time Based
Option shall have vested or been terminated pursuant to the provisions hereof.
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(d) VESTING OF PERFORMANCE OPTION.
(1) Employee shall not be vested with the right to exercise the
Performance Option until ten (10) years after the grant date, at which time
Employee shall acquire the vested right to exercise the Performance Option.
(2) Notwithstanding the foregoing, on and after the publication
of each written determination by the Board of Directors of the Company (the
"Board"), or a committee thereof which is authorized to do so, that the Company
has met at least ninety percent (90%) of its objective for EBITDA (as defined in
the Employment Agreement) (100% of the Company's objective referred to herein as
the "Performance Goals") for the prior fiscal year, commencing for the fiscal
year ending January 2, 1999 and continuing for each of the two fiscal years
thereafter, then subject to the other restrictions in the Plan and this
Agreement, Employee shall acquire the vested right to exercise this Option to
purchase sixteen and two-thirds percent (16 2/3%) of the Shares subject to the
Performance Option, and for each additional one percent (1%) achievement over
ninety percent (90%) of the Performance Goals for any such fiscal year, as so
determined, Employee shall acquire the vested right to exercise this Option to
purchase an additional one and two-thirds percent (1 2/3%) of the Shares subject
to the Performance Option but no more than thirty-three and one-third percent
(33 1/3%) of the Shares subject to the Performance Option in respect of each
full fiscal year.
(3) Additionally, on and after publication of a written
determination by the Board or a committee thereof which is authorized to do so
that the Company has met at least eighty seven and one half percent (871/2%) of
its Performance Goals for the fiscal year ending December 31, 2000 and at least
ninety percent (90%) of its cumulative Performance Goals for the three fiscal
years ending December 31, 2000 ("Three Year Performance Goals"), then subject to
the other restrictions in the Plan and this Agreement, (i) Employee shall
acquire the vested right to exercise the Performance Option to purchase fifty
percent (50%) of the Shares subject to the Performance Option as to which
Employee had not otherwise acquired the vested right to exercise, and (ii) for
each additional one percent (1%) achievement over ninety percent (90%) of the
Three Year Performance Goals, as so determined, Employee shall acquire the
vested right to exercise the Performance Option to purchase an additional five
percent (5%) of the Shares subject to the Performance Option as to which
Employee has not otherwise acquired the vested right to exercise (such
additional exercise rights pursuant to clauses (i) and (ii) above are referred
to herein as the "Additional Exercise Rights").
(4) Such determinations shall be made by the Board or such
committee within ten (10) days after receipt of audited financial statements for
each fiscal year. The Board's or committee's determination as to whether the
Company has met such objectives shall be final and not subject to dispute. In
addition, the Board or a committee thereof shall have complete discretion to
modify such objectives from time to time for any year or years to reflect
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business combinations or dispositions, fiscal year changes, purchases or sales
of assets or any other circumstances the Board or committee thereof deems
relevant.
(e) ACCELERATION.
(1) SALE.
(A) Notwithstanding any provision to the contrary in this
Section 2, but subject to the other restrictions in the Plan and this Agreement,
in the event of a Sale (as defined below), (i) all unvested Shares subject to
the Time Based Option shall become vested and immediately exercisable in full,
and (ii) a portion of the unvested Shares subject to the Performance Option
shall become vested and immediately exercisable in the event the ▇▇▇ IRR (as
defined below) is greater than or equal to twenty percent (20%). The portion
thereof which shall become vested and immediately exercisable shall range from
zero percent (0%) to one hundred percent (100%) in proportion to the amount by
which the IRR exceeds twenty (20%) (up to thirty-five percent (35%)) compared to
the difference between twenty percent (20%) and thirty-five percent (35%). The
term "▇▇▇ IRR" shall mean the internal rate of return achieved by the ▇▇▇
Holders on their aggregate investment in the Company, determined as of
consummation of the Sale; provided that ▇▇▇ IRR shall not include any
management, transaction or structuring fees (or the like) paid to the ▇▇▇
Holders or any affiliate of the ▇▇▇ Holders.
(B) For purposes hereof, the term "Sale" shall mean:
(i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of voting securities of (a) the Company or
(b) the surviving entity in any reorganization, merger or consolidation
involving the Company (any such entity referred to herein as the "Corporation")
where such acquisition causes such Person to own more than fifty percent (50%)
of the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors, other than
acquisitions by the ▇▇▇▇▇▇ ▇. ▇▇▇ Company or its Affiliates (as defined in the
Stockholders Agreement);
(ii) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company; or
(iii) the acquisition by a third party not affiliated
with the Company of all or substantially all of the Company's assets (without
regard to cash or accounts receivable).
(C) The accelerated vesting provided in this Section
2(e)(1) shall take effect immediately prior to but contingent upon the Sale
giving rise to such accelerated vesting. The phrase "immediately prior to the
Sale" shall be understood to mean sufficiently in
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advance of a Sale to permit the Employee to take all steps reasonably necessary
to permit the Employee to become a shareholder of the Company as of the
consummation of such Sale with respect to the Shares subject to the accelerated
vesting provided in this Section 2(e)(1). The Board or committee thereof may in
good faith shorten the Interim Period or make approximations of EBITDA during
the Interim Period in order to comply with the preceding sentence.
(2) INITIAL PUBLIC OFFERING. Notwithstanding any provision to
the contrary in this Section 2, but subject to the other restrictions in the
Plan and this Agreement, in event of the completion of the Company's initial
Public Offering (as defined below) a fraction of the total Shares subject to the
Option shall become vested and immediately exercisable, such fraction to have a
numerator equal to the aggregate number of shares of Common Stock sold by the
▇▇▇ Holders (as such term is defined in the Stockholders' Agreement referred to
in Section 11) pursuant to such Public Offering, and a denominator equal to the
aggregate number of shares of Common Stock owned by the ▇▇▇ Holders immediately
following consummation of the Recapitalization (as adjusted for stock splits,
stock dividends, reclassifications and the like); PROVIDED, HOWEVER, that to the
extent any of the Shares subject to the Option shall have become exercisable
prior to the Company's initial Public Offering (the "Previously Vested Option
Shares"), then the number of Shares which become vested and exercisable pursuant
to this Section 2(e)(2) shall be reduced by the number of Previously Vested
Option Shares (but not below zero). The term "Public Offering" shall mean the
completion of a sale of Common Stock pursuant to a registration statement which
has become effective under the 1933 Act, excluding registration statements on
Form ▇-▇, ▇-▇ or similar limited purpose forms.
(3) TERMINATION OF EMPLOYMENT WITHOUT CAUSE OR FOR GOOD REASON.
Notwithstanding any provision to the contrary in this Section 2, but subject to
the other restrictions in the Plan and this Agreement, in the event of
termination of the Employee's employment (x) by the Company without Cause, (y)
by the Employee for Good Reason or (z) only at the end of the initial three year
term under the Employment Agreement if the Company delivers a notice of
non-renewal pursuant to Section 1 of the Employment Agreement, then (i) all
unvested Shares subject to the Time Based Option shall become vested and
immediately exercisable in full, and (ii) such number of unvested Shares subject
to the Performance Based Option as would vest in respect of the fiscal year in
which the termination occurs pursuant to Section 2(d)(2) shall become vested and
immediately exercisable. The number of unvested Shares which vest pursuant to
clause (ii) of the immediately preceding sentence shall be calculated using the
Company's annualized EBITDA based on the Company's year-to-date EBITDA generated
during the fiscal year of the Employee's termination of employment; PROVIDED,
HOWEVER, that if within 365 days following the date of such termination of
employment, the Company consummates a Sale or initial Public Offering, then the
number of unvested Shares which become vested and exercisable pursuant to clause
(ii) of the immediately preceding sentence shall be adjusted (upward only) to
such number of Shares (the "Clawback Option Shares") as the Employee would have
been entitled under Section 2(d) if the Employee
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had remained an employee of the Company through consummation of such a Sale or
initial Public Offering.
(4) DEATH. Notwithstanding any provision to the contrary in this
Section 2, but subject to the other restrictions in the Plan and this Agreement,
in the event of termination of Employee's employment as a result of his death,
all Shares subject to the Time Based Option which are scheduled to vest in
accordance with Section 2(c) at the end of the applicable six month period in
which such death occurs shall become vested and immediately exercisable.
3. TERM OF OPTIONS: EXERCISABILITY.
(a) TERM.
(1) Each Option shall expire not more than ten (10) years and
six months from the date of the granting thereof, but shall be subject to
earlier termination as herein provided.
(2) If such termination of employment is by the Company for
Cause, then the Option shall terminate immediately upon termination of
employment.
(3) If such termination of employment is by the Company without
Cause or by the Employee for Good Reason, the Option shall terminate on the 60th
day following the effective day of such termination of employment, or on the
date the Option expires by its terms, whichever first occurs; PROVIDED, HOWEVER,
that the Option shall terminate on the 395th day following the effective date of
such termination of employment with respect to any Clawback Option Shares.
(4) If such termination of employment is because the Employee
has become disabled (as determined in accordance with an employment agreement
between the Employee and the Company (or one of its subsidiaries) or, if there
is no such agreement, as determined in accordance with Section 22(e)(3) of the
Code) the Option shall terminate on the 60th day following the date the Employee
ceases to be an employee, or on the date on which the Option expires by its
terms, whichever first occurs.
(5) In the event of the death of the Employee, the Option
granted to the Employee shall terminate on the 180th day following the date of
death, or on the date on which the Option expires by its terms, whichever first
occurs.
(b) EXERCISABILITY. If the Employee ceases to be an employee of the
Company, the Option granted to the Employee hereunder shall be exercisable only
to the extent that the right to purchase Shares under the Option has accrued and
is in effect on the date such Employee ceases to be an employee of the Company;
PROVIDED, HOWEVER, that with respect to the Clawback
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Option Shares, the Option may be exercised if vested in accordance with the
terms hereof during the periods provided herein.
4. MANNER OF EXERCISE OF OPTION.
(a) To the extent that the right to exercise the Option has accrued
and is in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares to be purchased,
together with payment in full of the purchase price for such Shares. Payment may
be in the form of (i) cash or a check payable to the order of the Company in an
amount equal to the purchase price for the Shares being purchased, (ii) shares
of common stock of the Company owned by the Employee having a fair market value
equal in amount to the purchase price of the Shares being purchased, or (iii)
any combination of (i) and (ii). With the consent of the Committee, payment may
also be made by delivery of a properly executed exercise notice to the Company,
together with a copy of irrevocable instruments to a broker to deliver promptly
to the Company the amount of sale or loan proceeds to pay the exercise price. To
facilitate the foregoing, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made at the principal
office of the Company to the person exercising the Option, not more than thirty
(30) days from the date of receipt of such notice and payment by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of the Option.
5. NON-TRANSFERABILITY. The right of the Employee to exercise the Option
shall not be assignable or transferable by the Employee otherwise than by will
or the laws of descent and distribution, and the Option may be exercised during
the lifetime of the Employee only by him or her. The Option shall be null and
void and without effect upon the bankruptcy of the Employee or upon any
attempted assignment or transfer, except as hereinabove provided, including
without limitation any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar process,
whether legal or equitable, upon the Option.
6. REPRESENTATION LETTER AND INVESTMENT LEGEND.
(a) In the event that for any reason the Shares to be issued upon
exercise of the Option shall not be effectively registered under the federal
Securities Act of 1933, as amended, when the Option is exercised in whole or in
part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by ▇▇▇▇▇ of such exercise.
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(b) The Company shall be under no obligation to qualify Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of Shares.
7. ADJUSTMENTS ON CHANGES IN RECAPITALIZATION, REORGANIZATION AND THE
LIKE. Adjustments on changes in recapitalization, reorganization and the like
shall be made in accordance with Section 12 of the Plan, as in effect on the
date of this Agreement.
8. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company (or any of its subsidiaries) to continue the employment of the
Employee for the period within which this Option may be exercised. However,
during the period of the Employee's employment, the Employee shall render
diligently and faithfully the services which are assigned to the Employee from
time to time by the Board of Directors or by the executive officers of the
Company and shall at no time take any action which directly or indirectly would
be inconsistent with the best interests of the Company.
9. RIGHTS AS A STOCKHOLDER. The Employee shall not have any rights as a
stockholder of the Company with respect to any Shares which may be purchased by
exercise of this Option unless and until a stock certificate representing such
Shares is executed and delivered to the Employee. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is issued.
10. WITHHOLDING TAXES. Whenever Shares are to be issued upon exercise of
this Option, the Company shall have the right to withhold (or to cause one of
the Company's subsidiaries to withhold) from compensation otherwise payable to
the Employee, or to require the Employee to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
in respect of the Shares being purchased by the Employee prior to the issuance
of such Shares and the delivery of any certificate or certificates for such
Shares, and from time to time thereafter.
11. STOCKHOLDERS' AGREEMENT. As a condition to the grant of the Option,
and to any exercise of the Option, the Employee shall join in a Stockholders'
Agreement dated as of April 24, 1998 (the "Stockholders' Agreement") among the
Company, certain affiliates of ▇▇▇▇▇▇ ▇. ▇▇▇ Company, and certain other
stockholders of the Company. The Option and the Shares issuable upon exercise of
the Option are subject to restrictions on transfer, voting agreements. Co-sale
agreements and other matters more fully described therein.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its corporate seal to be hereto affixed by its officer thereunto duly
authorized, and the Employee has hereunto set his hand and seal, all as of the
day and year first above written.
EYE CARE CENTERS OF AMERICA, INC.
By:
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Name:
Title:
EMPLOYEE:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name
Address:
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Social Security No.:
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EXHIBIT 1
TO STOCK OPTION AGREEMENT
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Eye Care Centers of America, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
I hereby exercise my option to purchase _______ shares of common stock, par
value $.01 per share, of Eye Care Centers of America, Inc., a Texas corporation
(the "Company") under the non-qualified stock option dated _________, granted to
me under the Company's 1998 Stock Option Plan. In connection with such exercise,
I am delivering herewith the full exercise price with respect to the shares
being purchased, and I hereby acknowledge and agree to the following:
1. The shares of common stock of the Company to be issued to me pursuant
to the exercise of said option have not been registered under the Securities Act
of 1933, as amended (the "Act"), and accordingly, must be held indefinitely
unless such shares are subsequently registered under the Act, or an exemption
from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 promulgated
under the Act can be made only after the expiration of the applicable holding
period and only in limited amounts in accordance with the terms and conditions
provided by that Rule. Any sale to which such Rule is not applicable will
require registration or compliance with some other exemption under the Act.
3. The Company is under no obligation to me to register the shares or to
comply with any exemptions from registration under the Act.
4. The availability of Rule 144 is dependent upon the availability of
adequate current public information with respect to the Company. At the time
that I may desire to make a sale pursuant to Rule 144, the Company may not wish
nor be able to comply with such information requirement.
In consideration of the issuance to me of certificates for the shares, I
hereby represent and warrant that I am acquiring such shares for my own account
for investment, and that I will not sell, pledge or transfer such shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Act. In view of this representation and warranty, I agree
that
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there may be affixed to the certificates for the shares to be issued to me, and
to all certificates issued hereafter representing such shares (until in the
opinion of counsel, which opinion must be reasonably satisfactory in form and
substance to counsel for the Company, it is no longer necessary or required) a
legend as follows:
"The securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold, pledged,
or hypothecated in the absence of an effective registration statement under
the said Act or an opinion of counsel satisfactory to the Company and its
counsel that such registration is not required."
I further agree that the Company may place a stop order with its transfer
agent, prohibiting the transfer of such shares, so long as the legend remains on
the certificates representing the shares.
Very truly yours,
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