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Exhibit 10.5
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:
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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.
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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
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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
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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
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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.
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(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.
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(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
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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
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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.
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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.)
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SCHEDULE I
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NOTATIONS AS TO PARTIAL EXERCISE
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Number of Balance of
Date of Shares of Stock Shares of Stock Authorized Notation
Exercise Purchased on Option Signature Date
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SCHEDULE II
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Exercisability of Option
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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 Section Fraction of Total
1 as the base) by: Shares Subject to Option
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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.