AMENDED AND RESTATED STOCK OPTION AGREEMENT
Exhibit
10.5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS. THE CONFIDENTIAL REDACTED
PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. SUCH REDACTIONS
ARE INDICATED WITH THREE ASTERISKS.
AMENDED AND RESTATED
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT
THIS AMENDED AND RESTATED STOCK OPTION AGREEMENT (“Agreement”) is entered into as of July 12,
2007 by and between K12 INC., a Delaware corporation (the “Company”), and XXXXXX X. XXXXXXX (the
“Optionee”). This Agreement supercedes and replaces in its entirety the Stock Option Agreement
between the Company and the Optionee dated July 27, 2006 (the “Original Option Agreement”), under
which the Optionee was granted certain stock options pursuant to Sections 2.4 and 2.41 of
Optionee’s Employment Agreement with the Company dated January 1, 2006 (the “Employment
Agreement”).
1. Continuation of Stock Options. Subject to the terms and conditions hereinafter set forth,
the following options to purchase shares of common stock of the Company (the “Stock”) previously
granted to the Optionee pursuant to the Original Option Agreement (the “Options”) shall remain in
effect as follows:
| (a) | Options to purchase the number of shares of Stock specified on Exhibit A attached hereto at an option exercise price of One Dollar and Fifty Cents ($1.50) per share (the “First Group of Options”) granted under the Original Option Agreement shall continue in effect, provided, however, that any portion of such First Group of Options that are set forth in the first and third lines of Exhibit A that has not vested as of December 31, 2008 shall be forefeited for no consideration effective as of such date, and any portion of such First Group of Options that are set forth in the second line of Exhibit A that has not vested as of December 31, 2010 shall be forfeited for no consideration effective as of such date. | ||
| (b) | Options to purchase up to One Million Five Hundred Thousand (1,500,000) shares of Stock at an option exercise price of Six Dollars ($6.00) per share (the “Second Group of Options”) granted under the Original Option Agreement shall continue in effect, provided, however, that any portion of such Second Group of Options that has not vested as of January 1, 2011 shall be forefeited for no consideration effective as of such date. |
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 granted
the Options 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 Schedules. Subject to the other terms and conditions of this Agreement including,
without limitation Section 3 below, the Options shall vest and become exercisable as set forth
below:
| (a) | The First Group of Options shall vest and become exercisable upon Optionee’s fulfillment of the vesting conditions set forth on Exhibit A attached hereto as determined in the sole discretion of the Company’s Compensation Committee. | ||
| (b) | The Second Group of Options shall vest and become exercisable thereafter when the “fair market value” of the Company’s Stock is equal to or greater than Six Dollars ($6.00) per share (as adjusted for stock splits, combinations, recapitalizations and similar matters). For purposes hereof, “fair market value” means (i) the average closing price of a share of Stock 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, “fair market value” shall be determined in good faith by the Board of Directors of the Company (the “Board”). |
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 termination of Optionee’s employment or engagement with the Company by reason of
Optionee’s death, then 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, provided that
such exercise occurs prior to the earlier of: (i) ninety (90) days after the expiration of any
“lock-up” period applicable to the Company’s initial underwritten public offering of Stock, 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 Board, 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), 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
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be exercised by Optionee (or his personal representative), provided that such exercise occurs
prior to the earlier of: (i) ninety (90) days after the expiration of any “lock-up” period
applicable to the Company’s initial underwritten public offering of Stock, 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.
(d) Upon termination of Optionee’s employment or engagement with the Company for “cause” (as
determined by the Board, 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 ninety (90) days 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 ninety (90) days 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.
(e) If Optionee’s employment with the Company is terminated by Company for other than death,
“permanent disability” or “cause” (as such terms are used in paragraphs (c) and (d) above) or if
Optionee resigns from employment with the Company, 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 expiration of any “lock-up” period
applicable to the Company’s initial underwritten public offering of Stock, 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. The treatment and consideration of all
unvested Options held by Optionee on the date of Optionee’s termination shall be determined by the
Board in its sole discretion.
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.
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(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 (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.
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
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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 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.
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(c) 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 JULY 27, 2006, 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.
(d) The provisions of Sections 11(a) and 11(b) 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.
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.
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(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
(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.
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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 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 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
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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.
18. Entire Agreement. This Agreement sets forth the entire agreement between the parties
relating to the subject matter hereof and supersedes any other prior understandings or agreements
between the parties relating to such subject matter including, without limitation, the Original
Option Agreement and Sections 2.4 and 2.41 of the Employment Agreement.
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/ Xxxxxx Xxxxx | |||
| Xxxxxx Xxxxx | ||||
| Chair, Compensation Committee | ||||
| “Optionee” |
||||
| /s/ Xxxxxx X. Xxxxxxx | ||||
| Xxxxxx X. Xxxxxxx | ||||
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EXHIBIT A
VESTING CONDITIONS FOR FIRST GROUP OF OPTIONS
| Line | Number of Options | Vesting Conditions | ||||
| 1 | 600,000 | *** Options shall vest for each opening of a new jurisdiction and enrolling 250 full-time students
(up to *** jurisdictions and therefore a maximum of 600,000 Options) |
||||
| 2 | 1,200,000 | Excluding jurisdictions with a VCS opened prior to August 2005, *** Options shall vest when $1M
EBITDA contribution per new jurisdiction is achieved (up to *** jurisdictions and therefore a
maximum of 1,200,000 Options) 1 |
||||
| 3 | 200,000 | Achievement of fiscal year 2008 EBITDA and
Revenue targets to be determined by the Board |
||||
| 1 | Calculation of EBITDA contribution will be derived from gross revenue realized from teacher pass through, materials, local management services and computer and ISP fees, but shall exclude any allocated costs to the VCS from K12 corporate and any K12 markup in selling to the schools. For example, the opening in December, 2008 of a new jurisdiction that takes until December 2010 to achieve $1M EBITDA contribution would entitle Optionee to vesting of *** Options for that new jurisdiction in December, 2010. |
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