EXHIBIT 10.4
CAMELOT MUSIC HOLDINGS, INC.
1998 STOCK OPTION PLAN
1. Purposes. The purposes of the Camelot Music Holdings, Inc. 1998 Stock
Option Plan are:
(a) To further the growth, development and success of the Company and the
Subsidiaries by enabling the executive and other key salaried employees and
directors of Camelot and the Subsidiaries to acquire a continuing equity
interest in the Company, thereby increasing their personal interests in such
growth, development and success and motivating such employees and directors to
exert their best efforts on behalf of the Company and the Subsidiaries; and
(b) To maintain the ability of the Company and the Subsidiaries to attract
and retain employees and directors of outstanding ability by offering them an
opportunity to acquire a continuing equity interest in the Company and the
Subsidiaries which will reflect the growth, development and success of the
Company and the Subsidiaries.
Toward these objectives, the Committee may grant Options to such employees and
directors, all pursuant to the terms and conditions of the Plan.
2. Definitions. As used in the Plan, the following capitalized terms shall
have the meanings set forth below:
(a) "AFFILIATE" - with respect to any Person, any other Person controlling,
controlled by or under common control with such Person. A Person shall be deemed
to control another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
other Person, whether through ownership of voting securities, by contract or
otherwise.
(b) "AGREEMENT" - an option agreement evidencing an Option.
(c) "ALLOWED" - the meaning given such term in the Reorganization Plan.
(d) "BOARD" - the Board of Directors of the Company.
(e) "CAMELOT" - Camelot Music, Inc., a Pennsylvania corporation, or any
successor entity.
(f) "CHANGE IN CONTROL" - the occurrence of any of the following:
(i) (A) any Person who is not a shareholder of the Company on the
Effective Date, together with any Affiliate of such Person, in
the aggregate become beneficial owners, directly or indirectly,
of 35% or more of the Stock then outstanding or (B) any Person
who is a shareholder of the Company on the Effective Date,
together with any Affiliate of such Person, in the aggregate
become beneficial owners, directly or indirectly, of 50% or more
of the Stock then outstanding; or
(ii) individuals who on the Effective Date constituted the board of
directors of the Company (together with any new directors whose
election by the board of directors of the Company, or whose
nomination for election by the shareholders of the Company, was
approved by a vote of a majority of the directors of the Company
then still in office who were either directors on the Effective
Date or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the
Board of the Company then in office; or
(iii)the shareholders of the Company approve any transaction or
series of transactions under which the Company or any Subsidiary
is merged or consolidated with any other company, other than (A)
a merger or consolidation which would result in the voting
securities of the Company or any Subsidiary party to such merger
or consolidation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more
than 50% of the combined voting power of the voting securities of
the merged entity immediately after such merger or consolidation
or (B) any transaction or series of transactions implemented
pursuant to the Reorganization Plan; or
(iv) the shareholders of the Company approve a plan of liquidation of
the Company or any Subsidiary, or an agreement for the sale or
disposition of all or substantially all of the assets of the
Company or any Subsidiary, other than a sale or disposition of
all or substantially all of the assets of the Company or any
Subsidiary to an Affiliate of such respective Person or Persons.
(g) "CLAIMS" - the meaning given such term in the Reorganization Plan.
(h) "CODE" - the Internal Revenue Code of 1986, as it may be amended from
time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
(i) "COMMITTEE" - the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan, in
accordance with Section 3.
(j) "COMPANY" - Camelot Music Holdings, Inc., a Delaware corporation, or
any successor entity.
(k) "EFFECTIVE DATE" - the meaning given such term in the Reorganization
Plan.
(l) "EXCHANGE ACT" - the Securities Exchange Act of 1934, as it may be
amended from time to time, including regulations and rules thereunder and
successor provisions and regulations and rules thereto.
(m) "FAIR MARKET VALUE" of a share of Stock as of a given date shall be (i)
the average of the closing representative bid and asked prices for the Stock on
such date (or, if no such prices are reported for such date, the most recent day
for which such prices are available shall be used) as reported by NASDAQ or any
stock exchange on which the Stock is then listed, or, if not then reported by
NASDAQ or any such stock exchange, by any other nationally recognized stock
quotation system, or (ii) if the Stock is not then publicly traded, the fair
market value determined by such other reasonable valuation method as the
Committee shall, in its discretion, select and apply in good faith as of the
given date; provided, however, that for purposes of paragraphs (a) and (g) of
Section 6, such fair market value shall be determined subject to Section
422(c)(7) of the Code.
(n) "ISO" or "INCENTIVE STOCK OPTION" - an option to purchase Stock granted
to a Participant under the Plan in accordance with the terms and conditions set
forth in Section 6 and which conforms to the applicable provisions of Section
422 of the Code.
(o) "NASDAQ" - the National Association of Securities Dealers Automated
Quotation System (or its successor quotation system).
(p) "NOTICE" - written notice actually received by Camelot at its offices
on the day of such receipt, if received on or before 1:30 p.m., on a day when
Camelot's offices are open for business, or, if received after such time, such
notice shall be deemed received on the next such day, which notice may be
delivered in person to Camelot's Chief Financial Officer or sent by facsimile to
Camelot, or sent by certified or registered mail or overnight courier, prepaid,
addressed to Camelot at 8000 Freedom Avenue N.W., North Canton, Ohio 44720,
Attention: Chief Financial Officer.
(q) "OPTION" - an option to purchase Stock granted to a Participant under
the Plan in accordance with the terms and conditions set forth in Section 6.
Options may be either ISOs or stock options other than ISOs.
(r) "OPTIONEE" - a Participant who has been granted an Option under the
Plan in accordance with the terms and conditions set forth in Section 6.
(s) "PARTICIPANT" - an individual eligible, pursuant to Section 5, to
participate in the Plan who is selected to participate in the Plan pursuant to
Section 3.
(t) "PERSON" - any individual, partnership, joint venture, company,
corporation, trust, unincorporated organization or other enterprise, or any
governmental or political subdivision or any agency, department or
instrumentality thereof.
(u) "PLAN" - this Camelot Music Holdings, Inc. 1998 Stock Option Plan.
(v) "REORGANIZATION PLAN" - that certain Second Amended Joint Chapter 11
Plan of Reorganization of the Company, Camelot, and various affiliated entities,
dated November 7, 1997, as amended.
(w) "SECURITIES ACT" - the Securities Act of 1933, as it may be amended
from time to time, including regulations and rules thereunder and successor
provisions and regulations and rules thereto.
(x) "STOCK" - the $0.01 par value common stock of the Company, without
preemptive rights or cumulative voting rights.
(y) "SUBSIDIARY" shall mean (i) any present or future corporation which is
or would be a "subsidiary corporation" of the Company as the term is defined in
Section 424(f) of the Code and (ii) for purposes of Options which are not ISOs,
any unincorporated entity in which the Company and/or one or more of its
"subsidiary corporations" (as defined in Section 424(f) of the Code) presently
or in the future own an aggregate profits interest of fifty percent (50%) or
more, which the Committee in its discretion determines will be a "Subsidiary"
for purposes of the Plan.
3. Administration of the Plan. (a) The Committee shall have exclusive
authority to operate, manage and administer the Plan in accordance with its
terms and conditions. Notwithstanding the foregoing, in its absolute discretion,
the Board may at any time and from time to time exercise any and all rights,
duties and responsibilities of the Committee under the Plan, including, but not
limited to, establishing procedures to be followed by the Committee.
(b) The Committee shall be appointed from time to time by the Board.
(c) The Committee shall have all authority that may be necessary or helpful
to enable it to discharge its responsibilities with respect to the Plan. Without
limiting the generality of the foregoing sentence or paragraph (a) of this
Section 3, the Committee shall have the exclusive right and discretionary
authority, in accordance with the other terms and conditions of the Plan, to:
(i) interpret the Plan and the Agreements; (ii) construe any ambiguous provision
of the Plan and/or the Agreements; (iii) subject to Section 5(b), determine
eligibility for participation in the Plan, decide all questions concerning
eligibility for and the amount of Options granted under the Plan, and select,
from time to time, from among those eligible, the employees and directors to
whom Options shall be granted under the Plan, which selection may be based upon
information furnished to the Committee by the Company's management; (iv) subject
to Section 5(b), determine whether an Option shall take the form of an ISO or
Option other than an ISO; (v) subject to Section 5(b), determine the number of
shares of Stock to be included in any Option or to which any Option shall
otherwise relate and the periods for which Options will be outstanding; (vi)
establish, amend, waive and/or rescind rules and regulations and administrative
guidelines for carrying out the Plan; (vii) to the extent permitted under the
Plan and the applicable Agreement, grant waivers of Plan terms, conditions,
restrictions and limitations; (viii) to the extent permitted under the Plan and
the applicable Agreement, permit the transfer of an Option or the exercise of an
Option by one other than the Participant who received the grant of such Option;
(ix) correct any errors, supply any omissions or reconcile any inconsistencies
in the Plan and/or any Agreement or any other instrument relating to any Option;
(x) to the extent permitted by the Plan, amend or adjust the terms and
conditions of any outstanding Option and/or adjust the number and/or class of
shares of Stock subject to any outstanding Option; (xi) in accordance with the
Plan, establish and administer any performance goals in connection with any
Options; (xii) at any time and from time to time after the granting of an
Option, specify such additional terms, conditions and restrictions with respect
to any such Option as may be deemed necessary or appropriate to ensure
compliance with any and all applicable laws, including, but not limited to, (A)
terms, restrictions and conditions for compliance with federal and state
securities laws, (B) methods of withholding or providing for the payment of
required taxes and (C) restrictions regarding a Participant's ability to
exercise Options under a "cashless exercise" program established by the
Committee; and (xiii) take any and all such other action it deems necessary or
advisable for the proper operation and/or administration of the Plan. The
Committee shall have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority under the
Plan. Options need not be uniform as to all grants and recipients thereof.
(d) Each Option shall be evidenced by an Agreement, which shall be executed
by the Company and the Participant to whom such Option has been granted, unless
the Agreement provides otherwise; however, two or more Options to a single
Participant may be combined in a single Agreement. An Agreement shall not be a
precondition to the granting of an Option; however, no person shall have any
rights under any Option unless and until the Participant to whom the Option
shall have been granted (i) shall have executed and delivered to the Company an
Agreement or other instrument evidencing the Option, unless such Agreement
provides otherwise, and (ii) has otherwise complied with the applicable terms
and conditions of the Option. Except as provided in Section 5(b), the Committee
shall prescribe the form of all Agreements, and, subject to the terms and
conditions of the Plan, shall determine the content of all Agreements. Any
Agreement may be supplemented or amended in writing from time to time as
approved by the Committee; provided that the terms and conditions of any such
Agreement as supplemented or amended are not inconsistent with the provisions of
the Plan.
(e) The Committee may consult with counsel who may be counsel to the
Company. The Committee may, with the approval of the Board, employ such other
attorneys or consultants, accountants, appraisers, brokers or other persons as
it deems necessary or appropriate. In accordance with Section 12, the Committee
shall not incur any liability for any action taken in good faith in reliance
upon the advice of such counsel or such other persons.
(f) The Committee may, in its discretion, delegate to appropriate officers
of Camelot the "administration" of the Plan under this Section 3; provided,
however, that no such delegation by the Committee shall be made (i) if such
delegation would not be permitted under applicable law or (ii) with respect to
the administration of the Plan as it affects executive officers and directors of
Camelot, and, provided further, however, the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. All
authority delegated by the Committee under this paragraph (h) of Section 3 shall
be exercised in accordance with the terms and conditions of the Plan and any
rules, regulations or administrative guidelines that may from time to time be
established by the Committee.
4. Shares of Stock Subject to the Plan. (a) The shares of stock subject to
Options granted under the Plan shall be shares of Stock. Such shares of Stock
subject to the Plan may be either authorized and unissued shares or previously
issued shares acquired by the Company or any Subsidiary. The total number of
shares of Stock that may be delivered pursuant to Options granted under the Plan
is seven and one-half percent (7.5%) of the total number of shares of Stock
authorized in connection with the Reorganization Plan as of the Effective Date.
(b) Notwithstanding any of the foregoing limitations set forth in this
Section 4, the numbers of shares of Stock specified in this Section 4 shall be
adjusted as provided in Section 10.
(c) Any shares of Stock subject to an Option which for any reason expires
or is terminated without having been fully exercised may again be granted
pursuant to an Option under the Plan, subject to the limitations of this Section
4.
5. Eligibility. (a) Executive and other key salaried employees, including
officers of Camelot and the Subsidiaries and directors (whether or not also
employees) of the Company and its Subsidiaries shall be eligible to become
Participants and receive Options in accordance with the terms and conditions of
the Plan.
(b) As of the Effective Date, ISOs, evidenced by Agreements in the form of
Appendix A hereto, shall be granted to the Category 1 employees of Camelot, as
listed on Schedule I hereto, to purchase shares of Stock equal to the percentage
of the total shares of Stock subject to the Plan that are allocated on Schedule
I to the Category 1 employees, at the option exercise price of $20.75 per share
of Stock, subject to proportionate adjustment (i) to the extent that the per
share Fair Market Value of the Stock has changed since the Effective Date due to
the issuance of additional shares of Stock in respect of Claims that first
become Allowed Claims after the Effective Date, and (ii) as otherwise provided
in Section 10 and the other terms and conditions of the Plan and such
Agreements. Furthermore, Options shall be granted to the Category 2 and Category
3 prospective employees of Camelot, as listed on Schedule I hereto, to purchase
shares of Stock equal to the percentage of the total shares of Stock subject to
the Plan that are allocated on Schedule I to the Category 2 and Category 3
prospective employees, respectively, upon the satisfaction of the conditions to
the granting of such Options as set forth on Schedule I hereto. Such Options
shall be granted at the option exercise price of $20.75 per share of Stock,
subject to proportionate adjustment in the same manner as the Options granted to
the Category 1 employees as of the Effective Date.
6. Terms and Conditions of Stock Options. All Options to purchase Stock
granted under the Plan shall be either ISOs or Options other than ISOs. Each
Option shall be subject to all the applicable provisions of the Plan, including
the following terms and conditions, and to such other terms and conditions not
inconsistent therewith as the Committee shall determine and which are set forth
in the applicable Agreement.
(a) Except as provided in Section 5(b), the option exercise price per
share of shares of Stock subject to each Option shall be determined by the
Committee and stated in the Agreement; provided, however, that, with
respect to ISOs, subject to paragraph (g)(C) of this Section 6, such price
shall not be less than 100% of the Fair Market Value of a share of Stock at
the time that the Option is granted. Notwithstanding any intent to grant
ISOs, the Options granted pursuant to Section 5(b) shall not be considered
ISOs to the extent that the exercise price is deemed to be less than 100%
of the Fair Market Value of a share of Stock on the Effective Date.
(b) Each Option shall be exercisable in whole or in such installments,
at such times and under such conditions as may be determined by the
Committee in its discretion and stated in the Agreement, and, in any event,
over a period of time ending not later than ten (10) years from the date
such Option was granted, subject to paragraph (g)(C) of this Section 6.
(c) An Option shall not be exercisable with respect to a fractional
share of Stock or the lesser of fifty (50) shares or the full number of
shares of Stock then subject to the Option. No fractional shares of Stock
shall be issued upon the exercise of an Option.
(d) Each Option may be exercised by giving Notice to the Company
specifying the number of shares of Stock to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any, in
accordance with Section 9. Payment shall be in any manner permitted by
applicable law and prescribed by the Committee, in its discretion, and set
forth in the Agreement, including, in the Committee's discretion, payment
by delivery of a notice that the Optionee has placed a sell order with a
broker with respect to shares of Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion
of the net proceeds of the sale of Stock to the Company in satisfaction of
the Option exercise price.
(e) No Optionee or other person shall become the beneficial owner of
any shares of Stock subject to an Option, nor have any rights to dividends
or other rights of a shareholder with respect to any such shares, until he
or she has exercised his or her Option in accordance with the provisions of
the Plan and the applicable Agreement.
(f) An Option may be exercised only if at all times during the period
beginning on the date of the granting of the Option and ending on the date
of such exercise, the Optionee was an employee or director of either the
Company or of a Subsidiary or of another corporation referred to in Section
422(a)(2) of the Code. Notwithstanding the preceding sentence, the
Committee may determine in its discretion that an Option may be exercised
following termination of such continuous employment or directorship,
whether or not exercisable at such time, to the extent provided in the
applicable Agreement.
(g)(A) Each Agreement relating to an Option shall state whether such
Option will or will not be treated as an ISO. No ISO shall be granted
unless such Option, when granted, qualifies as an "incentive stock option"
under Section 422 of the Code. No ISO shall be granted to any Participant
who is not an employee of the Company or any of its Subsidiaries on the
date of granting of such Option. Any ISO granted under the Plan shall
contain such terms and conditions, consistent with the Plan, as the
Committee may determine to be necessary to qualify such Option as an
"incentive stock option" under Section 422 of the Code; provided, however,
that the Committee may not modify the terms and conditions of Options
granted on the Effective Date pursuant to Section 5(b), or the Agreements
in the form of Appendix A hereto, absent the express written consent of the
affected Optionee.
(B) Notwithstanding any intent to grant ISOs, an Option granted under
the Plan will not be considered an ISO to the extent that it, together with
any other "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to subsection (d) of such Section) under the
Plan or any other "incentive stock option" plans of the Company and any
Subsidiary, are exercisable for the first time by any Optionee during any
calendar year with respect to Stock having an aggregate Fair Market Value
in excess of $100,000 (or such other limit as may be required by the Code)
as of the time the Option with respect to such Stock is granted. The rule
set forth in the preceding sentence shall be applied by taking Options into
account in the order in which they were granted.
(C) No ISO shall be granted to a Participant who owns (within the
meaning of Section 424(d) of the Code), at the time the Option is granted,
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or a Subsidiary. This restriction does not
apply if at the time such ISO is granted the Option exercise price per
share of Stock subject to the Option is at least 110% of the Fair Market
Value of a share of Stock on the date such ISO is granted, and the ISO by
its terms is not exercisable after the expiration of five (5) years from
such date of grant.
(h) An Option and any shares of Stock received upon the exercise of an
Option shall be subject to such transfer and/or ownership restrictions
and/or legending requirements as the Committee may determine are necessary
to comply with any applicable law, regulation or rule, and may be referred
to on the certificates evidencing such shares of Stock.
(i) Notwithstanding any other provision contained in the Plan to the
contrary, the maximum number of shares of Stock which may be subject to
Options granted to any single Participant in any twelve (12)-month period
shall not exceed 250,000 shares of Stock (as adjusted in accordance with
Section 10(a)).
7. Transfer, Leave of Absence. For purposes of the Plan, a transfer of an
employee from the Company to a Subsidiary or an Affiliate of the Company,
whether or not incorporated, or vice versa, or from one Subsidiary or Affiliate
of the Company to another, and a leave of absence, duly authorized in writing by
the Company or a Subsidiary or Affiliate of the Company, shall not be deemed a
termination of employment of the employee.
8. Rights of Employees and Other Persons. (a) No person shall have any
rights or claims under the Plan except in accordance with the provisions of the
Plan, the applicable Agreement and the Reorganization Plan.
(b) Nothing contained in the Plan or in any Agreement shall be deemed to
give any employee or director the right to be retained in the service of the
Company or its Subsidiaries nor, subject to the terms and conditions of any
applicable employment or other agreement, restrict the right of the Company or
any Subsidiary to terminate any employee's employment or any director's
directorship at any time with or without cause.
(c) Except as provided in Section 5(b), the adoption of the Plan shall not
be deemed to give any employee of the Company or any Subsidiary or any other
person any right to be selected as a Participant or to be granted an Option.
9. Tax Withholding Obligations. (a) The Company and/or any Subsidiary are
authorized to take whatever actions are necessary and proper to satisfy all
obligations of Participants for the payment of all federal, state, local and
foreign taxes in connection with any Options (including, but not limited to,
actions pursuant to the following paragraph (b) of this Section 9).
(b) Each Participant shall (and in no event shall Stock be delivered to
such Participant with respect to an Option until), no later than the date as of
which the value of the Option first becomes includible in the gross income of
the Participant for income tax purposes, pay to the Company in cash, or make
arrangements satisfactory to the Company, as determined in the Committee's
discretion, regarding payment to the Company of, any taxes of any kind required
by law to be withheld with respect to the Stock subject to such Option, and the
Company and any Subsidiary shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to such
Participant. Notwithstanding the above, the Committee may, in its discretion and
pursuant to procedures approved by the Committee, permit the Participant to (i)
elect withholding by the Company of Stock otherwise deliverable to such
Participant pursuant to such Option (provided, however, that the amount of any
Stock so withheld shall not exceed the minimum required withholding obligation
taking into account the Participant's effective tax rate and all applicable
federal, state, local and foreign taxes) and/or (ii) tender to the Company Stock
owned by such Participant (or by such Participant and his or her spouse jointly)
and acquired more than six (6) months prior to such tender, in full or partial
satisfaction of such tax obligations.
10. Changes in Capital. (a) Upon changes in the outstanding Stock by reason
of a stock dividend, stock split, reverse split, issuance of additional shares
in respect of Allowed Claims, issuance of warrants or other rights to purchase
Stock or other securities of the Company (other than under the Plan),
recapitalization, merger, consolidation (whether or not the Company is a
surviving corporation), combination or exchange of shares of Stock, separation,
or reorganization, or in the event of an extraordinary dividend, "spin-off,"
liquidation or other substantial distribution of assets of the Company, or other
similar corporate transaction or event, the aggregate number and kind of shares
of stock available under the Plan as to which Options may be granted and the
number, kind of shares of stock and the option price per share under each
outstanding Option shall, in each case, be appropriately adjusted by the
Committee to preserve the benefits or potential benefits intended to be made
available under the Plan or with respect to any Options, and, without limiting
the generality of the foregoing, after the Effective Date, as further shares of
Stock are issued in respect of Allowed Claims, (1) the aggregate number of
shares of Stock that may be delivered pursuant to Options granted under the Plan
shall be adjusted so that at all times such number of shares shall equal seven
and one-half percent (7.5%) of the sum of (A) the total number of shares of
Stock issued under the Reorganization Plan and (B) the total number of shares of
Stock that may be delivered pursuant to Options granted under the Plan, and (2)
each outstanding Option shall be appropriately adjusted by the Committee such
that the potential proportionate interest in the total issued shares of capital
stock of the Company attributable to the shares of Stock receivable by the
Optionee upon an exercise of his or her Option in full at any time would not be
diminished from his or her potential proportionate interest in the total issued
shares of capital stock of the Company attributable to the shares of Stock
receivable by the Optionee upon an exercise of his or her Option in full on the
Effective Date.
(b) Upon the occurrence of a Change in Control:
(1) Each outstanding Option shall automatically become fully vested
and exercisable as to all shares of Stock covered thereby for which the
Option was not previously exercised, notwithstanding anything to the
contrary in the Plan or the Agreement.
(2) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
applicable Agreement or by a resolution adopted prior to the occurrence of
such event, that any outstanding Option shall be adjusted by substituting
for Stock subject to such Option stock or other securities of any successor
corporation to the Company, or a parent or subsidiary thereof, or that may
be issuable by another corporation that is a party to the transaction
whether or not such stock or other securities are publicly traded, in which
event the aggregate exercise price (as applicable) shall remain the same
and the amount of shares or other securities subject to option or other
rights under an Option shall be the amount of shares or other securities
which could have been purchased on the closing date or expiration date of
such transaction with the proceeds which would have been received by the
Participant if the Option had been exercised in full prior to such
transaction or expiration date and the Participant exchanged all of such
shares in the transaction.
(3) In its discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide, either by the terms of the
applicable Agreement or by a resolution adopted prior to the occurrence of
such event, that any outstanding Option shall be converted into a right to
receive in cash and/or such other consideration received by shareholders of
the Company generally in connection with such transaction, as soon as
practicable following the closing date or expiration date of the
transaction, an amount equal to the value of the consideration (or the
actual consideration) to be received in connection with such transaction
for one share of Stock, less the per share exercise price of such Option,
multiplied by the number of shares of Stock subject to such Option.
No Participant shall have any right to prevent the consummation of any of the
foregoing acts affecting the number of shares of Stock available to such
Participant. Any actions or determinations of the Committee under this
Subsection 10(b) need not be uniform as to all outstanding Options, nor treat
all Participants identically. Notwithstanding the foregoing adjustments, in no
event may any Option be exercised after ten (10) years from the date it was
originally granted, and any changes to ISOs pursuant to this Section 10 shall,
unless the Committee determines otherwise, only be effective to the extent such
adjustments or changes do not cause a "modification" (within the meaning of
Section 424(h)(3) of the Code) of such ISOs or adversely affect the tax status
of such ISOs.
11. Miscellaneous Provisions. (a) The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of assets to assure the issuance of shares of Stock upon
exercise or payment of any Option. Proceeds from the sale of shares of Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company. The expenses of the Plan shall be borne by the Company.
(b) Except as otherwise provided in this paragraph (b) of Section 11, an
Option by its terms shall be personal and may not be sold, transferred, pledged,
assigned, encumbered or otherwise alienated or hypothecated otherwise than by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of a Participant only by him or her. At the Committee's discretion,
an Agreement may permit the receipt or exercise of a Participant's Option (or
any portion thereof) after his or her death by the beneficiary most recently
named by such Participant in a written designation thereof filed with the
Company, or, in lieu of any such surviving beneficiary, by the legatee of the
Participant under the Participant's last will or by the legal representative of
such Participant's estate. The Committee may, in its discretion, authorize any
Option which is not an ISO granted to a Participant to be on terms which permit
transfer of all or a portion of such Option to members of such Participant's
immediate family or a trust or partnership, or similar vehicle, established
solely for the benefit of, or the partners or members of which are solely, any
such immediate family member or members, provided that the Option expressly
permits such transferability and any transfer of such Option shall be in
accordance with any other terms, conditions, rules and limitations prescribed by
the Committee and/or set forth in the applicable Agreement. Following the valid
transfer of any such Option, the transferred Option shall continue to be subject
to the same terms and conditions as were applicable to such Option immediately
prior to such transfer, provided that the transferee of such Option shall be
treated under the Plan and the applicable Agreement as the Participant who
transferred the Option, except that the terms of Section 6(f) (and any similar
provisions of the applicable Agreement, dealing with exercisability of an Option
and termination of a Participant's relationship with the Company or a
Subsidiary, or his or her death), shall continue to be applied with respect to
the original Participant, so that following a Participant's termination of
employment or relationship as a director, with the Company or a Subsidiary or
the death of a Participant, any transferee of such original Participant's Option
may only exercise such Option to the extent provided, and for the period
specified, in such Section 6(f) (and any similar provisions of the applicable
Agreement). In the event any Option is exercised by the transferee of an Option,
or the executors, administrators, heirs or distributees of the estate of a
deceased Participant, or such Participant's beneficiary, in any such case
pursuant to the terms and conditions of the Plan and the applicable Agreement,
the Company shall be under no obligation to issue Stock thereunder unless and
until the Committee is satisfied that the person or persons exercising such
Option is the valid transferee of the Option, the duly appointed legal
representative of the deceased Participant's estate or the proper legatees or
distributees thereof or the named beneficiary of such Participant.
(c) If at any time the Committee shall determine, in its discretion, that
the listing, registration and/or qualification of shares of Stock upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the sale or purchase of shares of Stock
hereunder, no Option may be exercised in whole or in part unless and until such
listing, registration, qualification, consent and/or approval shall have been
effected or obtained, or otherwise provided for, free of any conditions not
acceptable to the Committee.
(d) The Committee may require each person receiving Stock in connection
with any Option under the Plan to represent and agree with the Company in
writing that such person is acquiring the shares of Stock for investment without
a view to the distribution thereof. The Committee, in its absolute discretion,
may impose such restrictions on the ownership and transferability of the shares
of Stock purchasable or otherwise receivable by any person under any Option as
it deems appropriate. Any such restrictions shall be set forth in the applicable
Agreement, and the certificates evidencing such shares may include any legend
that the Committee deems appropriate to reflect any such restrictions.
(e) The Committee may, in its discretion, extend one or more loans to
Participants who are key employees of the Company or a Subsidiary in connection
with the exercise or receipt of an Option granted to any such employees. The
terms and conditions of any such loan shall be set by the Committee.
(f) By accepting any benefit under the Plan, each Participant and each
person claiming under or through such Participant shall be conclusively deemed
to have indicated their acceptance and ratification of, and consent to, all of
the terms and conditions of the Plan and any action taken under the Plan by the
Committee, the Company or the Board.
(g) Neither the adoption of the Plan nor anything contained herein shall
affect any other compensation or incentive plans or arrangements of the Company
or any Subsidiary, or prevent or limit the right of the Company or any
Subsidiary to establish any additional forms of incentives or compensation for
their employees or directors, or grant or assume options or other rights
otherwise than under the Plan.
(h) The Plan shall be governed by and construed in accordance with the laws
of the State of Delaware, except as superseded by applicable federal law.
(i) The word "Section" used herein shall refer to provisions of the Plan,
unless stated otherwise.
12. Limits of Liability. (a) Any liability of the Company or a Subsidiary
to any Participant with respect to any Option shall be based solely upon
contractual obligations created by the Plan and the Agreement.
(b) Neither the Company nor a Subsidiary nor any member of the Committee or
the Board, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or application
of the Plan, shall have any liability, in the absence of bad faith, to any party
for any action taken or not taken in connection with the Plan, except as may
expressly be provided by statute.
13. Amendments and Termination. The Committee may, at any time and with or
without prior notice, amend, alter, suspend, or terminate the Plan; provided,
however, no amendment, alteration, suspension, or termination shall be made
which would impair the previously accrued rights of any holder of an Option
theretofore granted without his or her written consent or which, without first
obtaining approval of the stockholders of the Company (where such approval is
necessary to satisfy (i) any requirements under the Code relating to ISOs or
(ii) applicable state law), would:
(a) except as is provided in Section 10, increase the maximum number
of shares of Stock which may be sold or awarded under the Plan;
(b) except as is provided in Sections 5(b) and 10, decrease the
minimum option exercise price requirements of Section 6(a) (provided,
however, that except for decreases provided in Sections 5(b) and 10, no
such decrease may be made by the Board without first obtaining approval of
the stockholders of the Company other than in the event of a sustained
decrease in the value of the Stock);
(c) change the class of persons eligible to receive Options under the
Plan; or
(d) extend the duration of the Plan or the period during which Options
may be exercised under Section 6(b).
The Committee may amend the terms of any Option theretofore granted,
including any Agreement, retroactively or prospectively, but no such amendment
shall impair the previously accrued rights of any Participant without his or her
written consent.
Notwithstanding any other provision of the Plan to the contrary, (x) no
amendment, alteration, suspension or termination of the Plan or any Option,
including any Agreement, shall be made which would be inconsistent with the
terms and conditions of the Reorganization Plan, without the written consent of
each affected Participant, and (y) the Board may amend the Plan and the
Committee may amend any Option granted under the Plan, including any Agreement,
either retroactively or prospectively, and without the consent of the applicable
Participant, so as to preserve or come within any exemptions from liability
under Section 16(b) of the Exchange Act, pursuant to the rules and releases
promulgated by the Securities and Exchange Commission (including Rule 16b-3
under the Exchange Act).
14. Effective Date. The Plan shall become effective as of the Effective
Date (in the event that the Reorganization Plan, which shall include the
adoption of the Plan, is approved by a majority of the amount of Allowed Claims
of the Persons entitled to vote thereon) or, in the event that the
Reorganization Plan is not approved by a majority of the amount of Allowed
Claims of the Persons entitled to vote thereon, the date on which the Plan is
approved by the shareholders of the Company. The Plan shall be of unlimited
duration; provided, however, that, to the extent required by the Code, no ISOs
may be granted under the Plan on a date that is more than ten (10) years from
the earlier of the dates referred to in the first sentence of this Section 14
above. No termination of the Plan shall affect the previously accrued rights of
any Participant hereunder and all Options previously granted hereunder shall
continue in force and in operation after the termination of the Plan, except as
they may be otherwise terminated in accordance with the terms of the applicable
Agreement.
Schedule I
Employees Designated to Receive Initial Option Grants Under the
Camelot Music Holdings, Inc. 1998 Stock Option Plan
SHARES COVERED BY
EMPLOYEE'S OPTION AS
A PERCENTAGE OF TOTAL
Employee(1) SHARES SUBJECT TO PLAN
Category 1 Employees
62 current Camelot employees 75.6033%
Category 2 Employees
15 prospective employees to be 4.8100%
hired upon consummation of
The Wall transaction
Category 3 Employees
4 prospective employees to be 3.7000%
hired regardless of consummation
of The Wall transaction
Shares not subject to Options granted
pursuant to Section 5(b)
("Unallocated Options") 15.8867%
100.0000%
(1) The aggregate number of shares allocated for Options to be granted on the
Effective Date to the Category 1 Employees may not be reduced under any
circumstances at any time.
Each grant of Options to Category 2 Employees is contingent upon
consummation of the Company's acquisition of the assets of The Wall Music, Inc.
and commencement of the applicable Category 2 Employee's employment with
Camelot. In the event that either such condition (or both such conditions) shall
fail to occur, such Options shall be reallocated (i) among any other Category 2
Employees or any Category 1 Employees or Category 3 Employees, or (ii) to the
pool of Unallocated Options.
Each grant of Options to Category 3 Employees is contingent upon
commencement of the applicable Category 3 Employee's employment with Camelot. In
the event that such condition shall fail to occur, such Options shall be
reallocated (i) among any other Category 3 Employees or any Category 1 Employees
or Category 2 Employees, or (ii) to the pool of Unallocated Options.
Notwithstanding the satisfaction of the conditions to the granting of
Options to any Category 2 Employee or Category 3 Employee, such Options may be
reallocated prior to the effective date of grant of such Options, among the
Category 1 Employees, Category 2 Employees and/or Category 3 Employees. However,
to the extent that the conditions to the granting of Options to any Category 2
Employee or Category 3 Employee are satisfied, the shares allocated for such
Options may not be reallocated to the pool of unallocated Options.
Appendix A
[Form of Incentive Stock Option Award Agreement]
CAMELOT MUSIC HOLDINGS, INC.
INCENTIVE STOCK OPTION AWARD AGREEMENT
This Agreement (this "Agreement"), dated January, 27 1998, is made
between Camelot Music Holdings, Inc. (the "Company") and _______________ (the
"Optionee"). All capitalized terms that are not defined herein shall have the
meaning as defined in the Camelot Music Holdings, Inc. 1998 Stock Option Plan
(the "Plan"). References to "he," "him," and "his" shall mean the feminine form
of such terms, when applicable.
W I T N E S E T H :
1. Grant of Option. The Company hereby grants to the Optionee, subject
to the terms and conditions of the Plan and the terms and conditions herein set
forth, the right and option to purchase from the Company all or any part of an
aggregate of ____________ shares of the $0.01 par value common stock of the
Company (the "Stock") at a per share purchase price equal to $20.75, subject to
proportionate adjustment as provided in Section 5(b) of the Plan (the "Option"),
such Option to be exercisable as hereinafter provided. The Option shall be
treated as an "incentive stock option" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Terms and Conditions. It is understood and agreed that the Option
evidenced hereby is subject to the following terms and conditions:
(a) Expiration Date. The Option shall expire ten (10) years after the
date indicated above.
(b) Exercise of Option.
(i) Subject to the other terms of this Agreement and the Plan, the
Option may be exercised at any time on or after the date which is four (4) years
from the date hereof as to the total number of shares of Stock subject to the
Option, or any portion thereof, for which the Option was not previously
exercised; provided, however, the Option shall become exercisable prior to such
date as to that portion of the total number of shares of Stock covered by the
Option set forth on Schedule II attached hereto, subject to satisfaction of the
Fair Market Value of Stock targets set forth on such Schedule II; provided
further, however, that, irrespective of satisfaction of such targets, upon the
occurrence of a Change in Control, the Option shall automatically become fully
vested and exercisable for all of the shares of Stock subject to the Option with
respect to which the Option was not previously exercised.
(ii) Any exercise of all or any part of the Option shall be
accompanied by a written notice to the Company specifying the number of shares
of Stock as to which the Option is being exercised. Upon the valid exercise of
all or any part of the Option, a certificate (or certificates) for the number of
shares of Stock with respect to which the Option is exercised shall be issued in
the name of the Optionee, subject to the other terms and conditions of this
Agreement and the Plan. Notation of any partial exercise shall be made by the
Company on Schedule I attached hereto.
(iii) At the time of any exercise of the Option, the purchase price of
the shares of Stock as to which the Option shall be exercised shall be paid to
the Company (A) in United States dollars by personal check, bank draft or money
order; (B) with the consent of the Committee, through delivery of a full
recourse promissory note upon such payment and other terms and conditions,
including interest (at no less than such rate as shall then preclude the
imputation of interest under the Code), as may be prescribed by the Committee;
or (C) by delivery of a notice that the Optionee has placed a sell order with a
broker with respect to shares of Stock then issuable upon exercise of the
Option, and that the broker has been directed to pay a sufficient portion of the
net proceeds of the sale of Stock to the Company in satisfaction of the Option
exercise price.
(iv) The Option shall terminate upon the termination, for any reason,
of the Optionee's employment with the Company or a Subsidiary, and no shares of
Stock may thereafter be purchased under the Option, except as follows:
(A) In the event of the death of the Optionee while an employee of the
Company or a Subsidiary, the Option, to the extent exercisable in
accordance with Section 2(b)(i) hereof as of the date of his death, may be
exercised after the Optionee's death by his heir, the legal representative
of the Optionee's estate or by the legatee of the Optionee under his last
will for a period of two (2) years from the date of his death or until the
expiration of the stated period of the Option, whichever period is the
shorter.
(B) If the Optionee's employment with the Company or a Subsidiary
shall terminate by reason of "Permanent Disability" (as defined in the last
sentence of this Section 2(b)(iv)(B)), the Option, to the extent
exercisable in accordance with Section 2(b)(i) hereof as of the date of
such termination of employment, may be exercised after such termination by
the Optionee or his legal representative, but may not be exercised after
the expiration of the period of one (1) year from the date of such
termination or of the stated period of the Option, whichever period is the
shorter. For purposes of this Agreement, "Permanent Disability" shall mean
"permanent and total disability," as defined in Section 22(e)(3) of the
Code, and a condition which would constitute a "permanent disability" under
the Camelot Music Group Long-Term Disability Insurance Plan.
(C) If the Optionee's employment with the Company or a Subsidiary is
terminated due to voluntary resignation of the Optionee prior to attaining
four (4) years of service as an employee of the Company and/or any of its
Subsidiaries (including, without limitation, any such service rendered as
an employee of the Company and/or any of its Subsidiaries prior or
subsequent to the Chapter 11 bankruptcy filings of the Company and its then
Subsidiaries), the Option shall terminate on the date of such termination
of employment and shall cease to thereafter be exercisable with respect to
any shares of Stock.
(D) Upon termination of the Optionee's employment with the Company or
a Subsidiary under any circumstances other than any of those described in
paragraph (A), (B) or (C) above of this Section 2(b)(iv), the Option, to
the extent the Option is exercisable in accordance with Section 2(b)(i)
hereof as of the date of such termination or thereafter becomes exercisable
by reason of a Change in Control in accordance with Section 2(b)(i) hereof,
may thereafter be exercised, but may not be exercised after the expiration
of the period of three (3) months from the date of such termination, or of
the stated period of the Option, whichever period is the shorter.
(E) If the Optionee dies after termination of his employment with the
Company and/or a Subsidiary under paragraphs (B) or (D) of this Section
2(b)(iv) above during the one-year or three-month period specified,
respectively, in such paragraphs, any unexercised Option, to the extent the
Option would have been exercisable in accordance with such applicable
paragraph (B) or (D) hereof, may be exercised after the Optionee's death by
the Optionee's heir, the legal representative of his estate or by the
legatee of the Optionee under his last will until the expiration of the
period of two (2) years from the date of his death or the stated period of
the Option, whichever period is the shorter.
(c) Transfer. The Option shall not be transferable otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by him; provided, however, that the Option (or
any portion thereof) may be exercised after the Optionee's death by the
beneficiary most recently named by the Optionee in a written designation thereof
filed with the Company, or, in lieu of any such surviving beneficiary, by the
Optionee's heir, the legatee of the Optionee under the Optionee's last will or
the legal representative of the Optionee's estate.
(d) Withholding Taxes. At the time of receipt of Stock upon the
exercise of all or any part of the Option, the Optionee shall be required to pay
to the Company in cash any taxes of any kind required by law to be withheld with
respect to such Stock. In no event shall Stock be delivered to any person
exercising the Option until such person has paid to the Company in cash, or made
arrangements satisfactory to the Company regarding the payment of, the amount of
any taxes of any kind required by law to be withheld with respect to the Stock
subject to the Option, and the Company shall have the right to deduct any such
taxes from any payment of any kind otherwise due to the Optionee.
(e) No Rights as Stockholder. Neither the Optionee nor any other
person shall become the beneficial owner of the shares of Stock subject to the
Option, nor have any rights to dividends or other rights of a shareholder with
respect to any such shares, until the Optionee or his legal representative or
legatee has exercised the Option in accordance with the provisions hereof and of
the Plan.
(f) No Right to Continued Employment. The Option shall not confer upon
the Optionee any right to be retained in the service of the Company or a
Subsidiary, nor, subject to the terms and conditions of any applicable
employment or other agreement, restrict the right of the Company or any
Subsidiary to terminate his employment at any time with or without cause.
(g) Inconsistency with Plan. Notwithstanding any provision herein to
the contrary, the Option provides the Optionee with no greater rights or claims
than are specifically provided for under, or contemplated by, the Plan. If and
to the extent that any provision contained herein is inconsistent with the Plan,
the Plan shall govern.
(h) Compliance with Laws, Regulations, Etc. The Option and the
obligation of the Company to sell and deliver shares of Stock hereunder shall be
subject in all respects to (i) all applicable federal and state laws, rules and
regulations and (ii) any registration, qualification, approvals or other
requirements imposed by any government or regulatory agency or body which the
Committee shall, in its sole discretion, determine to be necessary or
applicable. Moreover, the Option may not be exercised if its exercise, or the
receipt of shares of Stock pursuant thereto, would be contrary to applicable
law.
3. Investment Representation. If at the time of exercise of all or
part of the Option the Stock is not registered under the Securities Act, and/or
there is no current prospectus in effect under the Securities Act with respect
to the Stock, the Optionee shall execute, prior to the issuance of any shares of
Stock to the Optionee by the Company, an agreement (in such form as the
Committee may specify) in which the Optionee represents and warrants that the
Optionee is purchasing or acquiring the shares acquired under this Agreement for
the Optionee's own account, for investment only and not with a view to the
resale or distribution thereof, and represents and agrees that any subsequent
offer for sale or distribution of any of such shares shall be made only pursuant
to either (i)a registration statement on an appropriate form under the
Securities Act, which registration statement has become effective and is current
with regard to the shares being offered or sold, or (ii)a specific exemption
from the registration requirements of the Securities Act, but in claiming such
exemption the Optionee shall, prior to any offer for sale or sale of such
shares, obtain a prior favorable written opinion, in form and substance
satisfactory to the Committee, from counsel for or approved by the Committee, as
to the applicability of such exemption thereto.
4. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all of the terms and provisions
thereof, including the terms and provisions adopted after the granting of the
Option but prior to the complete exercise hereof, subject to the last paragraph
of Section 13 of the Plan as in effect on the date hereof.
5. Notices. Any notice hereunder to the Company shall be addressed to
it, c/o Camelot Music, Inc., at 8000 Freedom Avenue N.W., North Canton, Ohio
44720, Attention: Chief Financial Officer, and any notice hereunder to the
Optionee shall be addressed to him at _______________________________________
subject to the right of either party to designate at any time hereafter in
writing some other address.
6. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware applicable to contracts executed and to be performed entirely within
said state.
7. Severability. If any of the provisions of this Agreement should be
deemed unenforceable, the remaining provisions shall remain in full force and
effect.
8. Modification. This Agreement may not be modified or amended, nor
may any provision hereof be waived, in any way except in writing signed by the
parties hereto.
9. Counterparts. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Camelot Music Holdings, Inc., has caused this
Agreement to be executed by an appropriate officer and the Optionee has executed
this Agreement, both on the day and year first above written.
CAMELOT MUSIC HOLDINGS, INC.
By:__________________________
Title:_______________________
OPTIONEE
________________________(L.S.)
SCHEDULE I
NOTATIONS AS TO PARTIAL EXERCISE
==============================================================================
Number of Balance of
Date of Shares of Stock Shares of Stock Authorized Notation
Exercise Purchased on Option Signature Date
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
==============================================================================
SCHEDULE II
Exercisability of Option
Subject to paragraph (b) of Section 2 of this Agreement, prior to the fourth
anniversary of the Effective Date, the Option shall be exercisable for the
fraction set forth below of the total number of shares of Stock stated in
Section 1 of this Agreement on the date or dates on which the corresponding Fair
Market Value of Stock objectives are first achieved:
First date on which the average of the
Fair Market Value of the Stock for a period
of ten (10) consecutive business days has
exceeded the price stated in Section 1 of
this Agreement (using such price stated in Fraction of Total
Section 1 as the base) by: Shares Subject to Option
- ------------------------------------------- ------------------------
15% one-third
30% two-thirds
45% all shares
The foregoing to the contrary notwithstanding, but subject to paragraph (b) of
Section 2 of this Agreement, prior to the second anniversary of the Effective
Date the Option shall not be exercisable for more than one-half of the total
number of shares of Stock subject to the Option; from and after the second
anniversary of the Effective Date, the Option may become exercisable, in
accordance with the foregoing schedule, for the total number of shares subject
to the Option.
As an example, if on a date which is 11 months after the Effective Date, the
average of the Fair Market Value of the Stock for a period of ten (10)
consecutive business days exceeds the price stated in Section 1 of this
Agreement by 15%, the Option shall become exercisable (in accordance with
Section 2(b)) for one-third of the shares of Stock stated in Section 1 of this
Agreement at the time such average price is first attained. As an alternative
example, if on a date 11 months after the Effective Date, the average of the
Fair Market Value of the Stock for a period of ten (10) consecutive business
days exceeds the price stated in Section 1 of this Agreement by 45%, the Option
shall become exercisable (in accordance with Section 2(b)) for 50% of the shares
of Stock stated in Section 1 of this Agreement at the time such average price is
first attained and shall become exercisable (subject to Section 2(b)) for the
remaining 50% of such total number of shares on the second anniversary of the
Effective Date.