STOCK OPTION AGREEMENT
Exhibit 10.7
THIS STOCK OPTION AGREEMENT (“Agreement”) is entered into effective as of June 16, 2005 by and
between K12 INC., a Delaware corporation (the “Company”), and XXXX XXXXX (the “Optionee”).
RECITALS
WHEREAS, the Company and the Optionee mutually desire that the Company grant to the 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, with the approval and at the direction of the Company’s Compensation Committee, hereby
grants to the Optionee an option to purchase up to Eight Hundred Thousand (800,000) shares of
Common Stock of the Company (the “Stock”) at an option exercise price of One Dollar and Thirty Four
Cents ($1.34) 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) | on and after March 1, 2006, Two Hundred Thousand (200,000) Option Shares; | ||
| (b) | on and after March 1, 2007, Two Hundred Thousand (200,000) Option Shares; | ||
| (c) | on and after March 1, 2008, Two Hundred Thousand (200,000) Option Shares; and |
| (d) | on and after March 1, 2009, Two Hundred Thousand (200,000) Option Shares. |
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 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
corporation 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 corporation (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, 2012 (the “Option Term”).
(b) Upon the death of Optionee, the Options may be exercised, but only to the extent that the
Options were outstanding and exercisable on the date of death, by Optionee’s estate, provided that
such exercise occurs within both the remaining Option Term and six months after Optionee’s death.
The Options held by Optionee to the extent exercisable on the date of Optionee’s death shall
terminate at the end of the Option Term or six months after Optionee’s death, whichever is earlier.
The Options held by Optionee to the extent not exercisable on the date of Optionee’s death shall
terminate upon Optionee’s death.
(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 may be exercised by Optionee, but only to the
extent that the Options were outstanding and exercisable on the date of Optionee’s termination,
provided that such exercise occurs within both the remaining Option Term and within six months from
the date of Optionee’s termination. The Options held by Optionee to the extent exercisable on the
date of Optionee’s termination shall terminate at the end of the Option Term or six months after
Optionee’s termination, whichever is earlier. 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.
2
(d) Upon Optionee’s termination of employment or engagement with the Company by resignation
(other than for “good reason” as such term is defined in Optionee’s employment agreement with the
Company) 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 Options granted to Optionee shall terminate on the date of termination
of employment or engagement.
(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 within both the
remaining Option Term and within three months from the date of Optionee’s termination. The Options
held by Optionee to the extent exercisable on the date of Optionee’s termination shall terminate at
the end of the Option Term or three months after Optionee’s termination, whichever is earlier.
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 by giving the Chief Financial Officer of the Company
written notice of exercise. The 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) 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 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
3
(i) the transaction is in compliance with all applicable state and Federal securities laws, (ii)
the transaction is either registered or 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 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 regulations issued thereunder, or any federal or state securities law
or other law or regulation, which change occurs
4
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. The Company shall give Optionee reasonable
prior written notice of any termination of Options pursuant to this Section 10.
11. Restrictions on Transfer of Option Shares and Related Provisions.
(a) Except as otherwise expressly set forth in Section 11(b) below, 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 tranferee(s) shall hold the Option Shares subject to the terms and
conditions of this Agreement and the tranferee(s) 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
5
Option Shares being purchased (determined as provided below) within thirty (30) days after the
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. 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 without attribution of a minority or illiquidity
discount to the value of the Option Shares 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 JUNE 16, 2005, 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
6
results in such shares being listed for trading on a national securities exchange or being
authorized for trading on the NASDAQ National Market System.
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 or as such
shorter period as the lead underwriter may agree (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;
7
(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
(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:
With a copy to:
Maron & Sandler
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
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.
8
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 unless the Company has made it a regular practice or intends to allow other senior
executives to surrender option shares to satisfy withholding tax requirements) 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/ Xxxxxxx Xxxxxx | |||||
| Xxxxxxx Xxxxxx, | ||||||
| President and Chief Operating Officer | ||||||
| “Optionee” | ||||||
| /s/ Xxxx Xxxxx | ||||||
| XXXX XXXXX | ||||||
9
