EXHIBIT 10.5
UNIT OPTION AGREEMENT
This UNIT OPTION AGREEMENT (this "Option Agreement"), dated as of
the [__]th day of June, 1999 (the "Date of Grant"), by and between Cherokee
International, LLC, a California limited liability company (the "Company"), and
[______] (the "Optionee").
Pursuant to the Company's 1999 Unit Option Plan (the "Plan"), the
Management Committee of the Company (the "Board"), as the Administrator of the
Plan, has determined that the Optionee is to be granted an option (the "Option")
to purchase non-voting Class B Units of the Company, on the terms and conditions
set forth herein, and hereby grants such Option.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. NUMBER OF UNITS. The Option entitles the Optionee to purchase
[____] non-voting Class B Units of the Company (the "Membership Units") at a
price of $4.00 per unit (the "Option Exercise Price").
2. OPTION TERM. The term of the Option and of this Option
Agreement (the "Option Term") shall commence on the Date of Grant and, unless
the Option is previously terminated pursuant to this Option Agreement, shall
terminate upon the expiration of ten (10) years from the Date of Grant. Upon
expiration of the Option Term, all rights of the Optionee hereunder shall
terminate.
3. CONDITIONS OF EXERCISE. (a) Subject to subsection (b) of this
Section 3 and Section 7, the Option shall vest and become exercisable in four
equal, annual installments on each of the first, second, third and fourth
anniversaries of May 1, 1999.
(b) As a condition to exercising this Option, (i) Optionee
agrees to abide by and be bound by the terms and conditions of the Operating
Agreement and must deliver to the Company, a writing, substantially in the form
of Exhibit A (the "Agreement to be Bound"), so agreeing and (ii) Optionee's
spouse, if any, agrees to abide by and be bound by the terms and conditions of
the Spousal Consent (attached hereto as Exhibit B) and must deliver to the
Company an executed copy of such Spousal Consent so agreeing.
(c) Except as otherwise provided herein, the right of the
Optionee to purchase Membership Units with respect to which this Option has
become exercisable may be exercised in whole or in part at any time or from time
to time prior to expiration of the Option Term; PROVIDED, HOWEVER, that the
Option may not be exercised for a fraction of a unit; PROVIDED, FURTHER, that
Optionee shall be permitted to exercise the Option in whole or in part only once
per calendar year, unless such exercise occurs (i) following termination of
Optionee's employment or service with the Company or any Parent or Subsidiary
or (ii) in connection with a transaction referenced in Section 6 of the Plan.
4. ADJUSTMENTS. Prior to the consummation of a Conversion
Transaction, the Board shall, in its sole discretion, take such action as it
shall determine to be appropriate with respect to the Plan and the Option to
enable the Optionee to retain the benefits of his or her Option following the
Conversion Transaction. Such actions may, but need not, include adopting a new
plan and converting the Option into a comparable award under that plan.
In connection with a Sale of the Company, the Board shall, in its
sole discretion, determine the appropriate treatment, if any, of the Option and
may make such amendments to the Plan as are necessary to reflect such
determination.
Except as otherwise provided in this Section 4, in the event of
any merger, reorganization, consolidation or other change in corporate structure
affecting Membership Units, an equitable substitution or proportionate
adjustment, if any, as determined by the Board or the Administrator, in either
case in its sole discretion, may be made in the kind, number and exercise price
of Membership Units subject to outstanding Options.
Except as otherwise provided in this Section 4, in the event of
any unit split, reverse unit split, distribution of units, recapitalization,
combination or reclassification of units, an equitable substitution or
proportionate adjustment, as determined by the Board or the Administrator, shall
be made in the kind, number and exercise price of Membership Units subject to
this Option.
In connection with any event described in this section, the Board
or Administrator may provide, in either case in its sole discretion, for the
cancellation of all or any portion of the Option that is vested but unexercised.
In connection with any such cancellation, the Company shall make a payment to
Optionee in cash or other property equal to the difference between the aggregate
Fair Market Value
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of the Membership Units subject to the cancelled Options, and the aggregate
Option Exercise Price of the cancelled Options, or portion thereof.
5. NONTRANSFERABILITY OF OPTION AND MEMBERSHIP UNITS.
(a) OPTION. Except by will or under the laws of
descent and distribution, the Option and this Option Agreement shall not be
transferable and, during the lifetime of Optionee, the Option may be exercised
only by Optionee. Without limiting the generality of the foregoing, except as
otherwise provided herein, the Option may not be assigned, transferred,
exchanged, mortgaged, pledged, hypothecated, gifted or otherwise disposed of or
encumbered (including, without limitation, by operation of law) and the Optionee
may not agree to do any of the foregoing. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
(b) MEMBERSHIP UNITS. Holders of Membership Units
acquired upon exercise of the Option may not sell, assign, transfer, exchange,
mortgage, pledge, grant a security interest, gift or otherwise dispose of or
encumber (including, without limitation, by operation of law), or agree to do
any of the foregoing (each, a "Disposition") with respect to such units without
the prior written consent of the Company; provided, however, that prior written
consent of the Company shall not be required for a Disposition of Membership
Units (i) to the Company or (ii) pursuant to a holder's exercise of rights
pursuant to Section 6.4 of the Operating Agreement.
6. METHOD OF EXERCISE OF OPTION. The Option may be exercised by
means of written notice of exercise to the Company specifying the number of
Membership Units to be purchased, accompanied by an executed Agreement to be
Bound and by payment in full of the aggregate Option Exercise Price and any
applicable withholding taxes in cash or by check. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) by means of a cashless exercise procedure either through a broker or
through withholding of Membership Units otherwise issuable upon exercise of the
Option in an amount sufficient to pay the aggregate Option Exercise Price and
any applicable withholding taxes, (ii) in the form of unrestricted Membership
Units already owned by the Optionee which, (x) in the case of unrestricted
Membership Units acquired upon exercise of an option, have been owned by the
Optionee for more than six months on the date of surrender, and (y) have an
aggregate Fair Market Value on the date of surrender equal to the aggregate
Option Exercise Price of the
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Membership Units as to which such Option shall be exercised, or (iii) by any
other means of exercise authorized from time to time in the Plan and/or by the
Board.
7. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) UNVESTED OPTIONS TERMINATE; COMPANY PURCHASE RIGHT.
Upon termination of Optionee's employment or service with the Company or any
Parent or Subsidiary for any reason, the Option shall immediately terminate as
to any portion that has not previously vested as of the date of such termination
(the "Termination Date"). Within sixty days following the expiration of the
applicable exercise period as set forth in subsections (c) and (d) below, unless
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated pursuant to subsection (b) below, the Company shall pay to Optionee
or Optionee's estate, successor or beneficiary, as applicable, a cash amount
equal to the difference between (i) the aggregate Fair Market Value of the
portion of the Option that has vested as of the Termination Date but has not
been exercised (the "Vested Units") and (ii) the aggregate Option Exercise Price
of the Vested Units.
(b) TERMINATION FOR CAUSE. In the event Optionee's
employment or service with the Company or any Parent or Subsidiary is terminated
for Cause (as defined below), the Option shall also immediately terminate
(whether vested or not) to any portion of the Option that has vested as of the
Termination Date. For purposes of this Option Agreement, "Cause" shall mean :
(i) Optionee's acts of personal dishonesty, theft, fraud or embezzlement in
connection with his or her duties as an employee, officer, or Board member of
the Company; (ii) Optionee's use of alcohol or drugs that, in the Board's
determination, interferes with Optionee's performance of his or her essential
job functions with the Company or any Parent or Subsidiary; (iii) Optionee's
excessive absenteeism that, in the Board's determination, interferes with the
Optionee's ability to perform his or her essential job functions for the Company
or any Parent or Subsidiary; (iv) any conflict of interest between Optionee and
the Company or any Parent or Subsidiary that, in the Board's determination,
inappropriately affects Optionee's ability to carry on Optionee's normal duties
as an employee of the Company or any Parent or Subsidiary; (v) Optionee's act of
gross insubordination in connection with his or her duties as an employee,
officer, or Board member of the Company; (vi) Optionee's conviction of or guilty
plea to a felony; (vii) Optionee's material breach of the Company's Code of
Conduct; or (viii) any material breach by Optionee of any employment or other
agreement between the Optionee and the Company or any Parent or Subsidiary.
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(c) TERMINATION AS A RESULT OF DEATH OR DISABILITY. In
the event Optionee's employment or service with the Company or any Parent or
Subsidiary is terminated as a result of Optionee's death or Disability, any
portion of the Option that has vested as of the Termination Date shall be
exercisable in whole or in part according to the terms of the Option Agreement
for a period of six (6) months following the Termination Date. Upon expiration
of such six-month period, any unexercised portion of the Option shall terminate
in full.
(d) TERMINATION OTHER THAN FOR CAUSE, DEATH OR DISABILITY.
In the event Optionee's employment or service with the Company or any Parent or
Subsidiary is terminated other than for Cause or as a result of Optionee's death
or Disability, any portion of the Option that has vested as of the Termination
Date shall be exercisable in whole or in part according to the terms of the
Option Agreement for a period of thirty (30) days following the Termination
Date. Upon expiration of such thirty-day period, any unexercised portion of the
Option shall terminate in full.
8. CALL OPTION. Upon termination of Optionee's employment or
service with the Company for any reason, the Company shall have the right, but
not the obligation, to repurchase all or any portion of the Membership Units
acquired upon exercise of the Option in accordance with the terms and conditions
set forth in this Section 8 (the "Call Option").
(a) RIGHT TO REPURCHASE.
(i) TERMINATION FOR CAUSE. In the event
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated for Cause, the Company shall have the right, but not the obligation,
to repurchase all or any portion of the Membership Units previously acquired by
Optionee through exercise of the Option. The purchase price for each Membership
Unit shall be the lower of (i) the Option Exercise Price and (ii) the Fair
Market Value of a Membership Unit on the date the Company exercises the Call
Option.
(ii) TERMINATION OTHER THAN FOR CAUSE. In the event
Optionee's employment or service with the Company or any Parent or Subsidiary is
terminated for any reason other than for Cause, the Company shall have the
right, but not the obligation, to repurchase all or any portion of the
Membership Units acquired (whether acquired prior to or following the
Termination Date) by Optionee or Optionee's estate, successors or beneficiaries,
as applicable, through exercise of the Option. The purchase price for each
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Membership Unit shall be equal to the Fair Market Value of a Membership Unit
on the date the Company exercises the Call Option.
(b) EXERCISE OF CALL OPTION. The Company
may at any time, and from time to time, by giving written notice (the "Notice")
to the Optionee or any transferee (either, a "Holder"), elect to purchase all of
the Membership Units previously acquired by the Optionee through exercise of the
Option, at the purchase price determined in accordance with subsection (a)
above, as applicable.
(c) PAYMENT. Payment of the applicable purchase price (as
determined in accordance with subsection (a) above) shall be made, at the option
of the Company, in cash, by check, by cancellation of all or a portion of any
outstanding indebtedness of the Holder to the Company, or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(d) TERMINATION OF CALL OPTION. In the event the Company
becomes a Public Company, the Call Option shall immediately terminate as to any
Membership Units acquired upon exercise of the Option.
9. INVESTMENT REPRESENTATION. Optionee hereby represents and
warrants to the Company that the Optionee, by reason of Optionee's preexisting
personal or business relationship with the Company or any of its officers, Board
members or controlling persons, or by reason of the Optionee's business or
financial experience (or the business or financial experience of the Optionee's
professional advisors who are unaffiliated with and who are not compensated by
the Company or any affiliate or selling agent of the Company, directly or
indirectly), has the capacity to protect the Optionee's own interests in
connection with the transactions contemplated under this Option Agreement.
Optionee further represents and warrants to the Company that (a) Optionee is
acquiring and (b) upon exercise of the Option, Optionee will be purchasing
Membership Units, in each case, for Optionee's own account and not with a view
to or for sale in connection with any distribution of the Membership Units.
10. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given three days after mailing or 24 hours after transmission
by facsimile to the respective parties named below:
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If to Company: Cherokee International, LLC
2841 Dow Avenue
Tustin, California 92780
Attn: Rita Patel
Facsimile: (714) 838-4742
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Jeffrey H. Cohen
Facsimile: (213) 687-5600
and
GFI Energy Ventures LLC
11611 San Vicente Blvd., Suite 710
Los Angeles, CA 90049
Facsimile No: (310) 442-0540
Attn: Ian Schapiro
If to the Optionee: [Name of Optionee]
[Address]
Facsimile:
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
11. SECURITIES LAWS REQUIREMENTS. The Option shall not be
exercisable to any extent, and the Company shall not be obligated to transfer
any Membership Units to the Optionee upon exercise of such Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other Federal or state securities laws as may be in
effect at that time). Further, the Company may require as a condition of
transfer of any Membership Units pursuant to any exercise of the Option that the
Optionee furnish a written representation that he or she is purchasing or
acquiring the Membership Units for investment and not with a view to resale or
distribution to the public. The Optionee hereby represents and warrants that he
or she understands that the Membership Units are "restricted securities," as
defined in Rule 144 under the
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Securities Act, and that any resale of the Membership Units must be in
compliance with the registration requirements of the Securities Act, or an
exemption therefrom, and with the requirements of California "Blue Sky" law.
Each certificate representing Membership Units shall bear the legends set forth
below and with any other legends that may be required by the Company or by any
Federal or state securities laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR QUALIFIED UNDER APPLICABLE STATE SECURITIES
LAWS IN RELIANCE ON EXEMPTIONS THEREFROM. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES
ACT AND THE REGULATIONS PROMULGATED PURSUANT THERETO (UNLESS
EXEMPT THEREFROM) AND COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS AND REGULATIONS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FURTHER RESTRICTIONS ON TRANSFER AND OTHERWISE, ALL AS SET FORTH
IN AN OPTION AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL
OPTIONEE OF THESE SECURITIES AND THE SECOND AMENDED AND RESTATED
OPERATING AGREEMENT OF THE COMPANY, AS AMENDED, COPIES OF WHICH
ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
Further, if the Company decides, in its sole discretion, that the listing or
qualification of the Membership Units under any securities or other applicable
law is necessary or desirable, the Option shall not be exercisable, in whole or
in part, unless and until such listing or qualification, or a consent or
approval with respect thereto, shall have been effected or obtained free of any
conditions not acceptable to the Company.
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12. NO OBLIGATION TO REGISTER MEMBERSHIP UNITS. The Company shall
be under no obligation to register the Membership Units pursuant to the
Securities Act or any other Federal or state securities laws.
13. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Membership Units or any interest
therein by any holder thereof in violation of the provisions of this Agreement
or the Operating Agreement, will be valid, and the Company will not transfer any
of said Member ship Units on its books nor will any of said Membership Units be
entitled to vote, nor will any distributions be paid thereon, unless and until
there has been full compliance with said provisions to the satisfaction of the
Company. The foregoing restrictions are in addition to and not in lieu of any
other remedies, legal or equitable, available to enforce said provisions.
14. WITHHOLDING REQUIREMENTS. The Company's obligations under this
Option Agreement shall be subject to all applicable tax and other withholding
requirements, and the Company shall, to the extent permitted by law, have the
right to deduct any withholding amounts from any payment or transfer of any kind
otherwise due to the Optionee.
15. SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Option Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
including the Optionee's estate, successors and beneficiaries; PROVIDED,
HOWEVER, that, except as otherwise set forth herein, this Option Agreement may
not be assigned by the Optionee without the prior written consent of the
Company.
16. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
to enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
17. GOVERNING LAW. This Option Agreement shall be governed by and
construed according to the laws of the State of California without regard to its
principles of conflict of laws.
18. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement shall
be subject to all terms and conditions of the Plan.
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19. AMENDMENTS. This Option Agreement may be amended or modified
at any time only by an instrument in writing signed by each of the parties
hereto.
20. RIGHTS AS A MEMBER OF THE COMPANY. Neither the Optionee nor
any of the Optionee's successors in interest shall have any rights as a member
of the Company with respect to any Membership Units subject to the Option until
the date of issuance of a certificate for such Membership Units.
21. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or under-
standing, express or implied, that the Optionee has a right to continue to
provide services as an officer, Board member, employee, consultant or advisor of
the Company or any Parent, Subsidiary or affiliate of the Company for any period
of time or at any specific rate of compensation.
22. AUTHORITY OF THE BOARD. The Board shall have full authority to
interpret and construe the terms of the Plan and this Option Agreement. The
determination of the Board as to any such matter of interpretation or
construction shall be final, binding and conclusive.
23. DISPUTE RESOLUTION. The parties hereto will use their
reasonable best efforts to resolve any dispute hereunder through good faith
negotiations. A party hereto must submit a written notice to any other party to
whom such dispute pertains, and any such dispute that cannot be resolved within
30 calendar days of receipt of such notice (or such other period to which the
parties may agree) will be submitted to an arbitrator selected by mutual
agreement of the parties. In the event that, within 50 days of the written
notice referred to in the preceding sentence, a single arbitrator has not been
selected by mutual agreement of the parties, a panel of arbitrators (with each
party to the dispute being entitled to select one arbitrator and, if necessary
to prevent the possibility of deadlock, one additional arbitrator being selected
by such arbitrators selected by the parties to the dispute) shall be selected by
the parties. Except as otherwise provided herein or as the parties to the
dispute may otherwise agree, such arbitration will be conducted in accordance
with the then existing rules of the American Arbitration Association. The
decision of the arbitrator or arbitrators, or of a majority thereof, as the case
may be, made in writing will be final and binding upon the parties hereto as to
the questions submitted, and the parties will abide by and comply with such
decision; PROVIDED, HOWEVER, the arbitrator or arbitrators, as
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the case may be, shall not be empowered to award punitive damages. Unless the
decision of the arbitrator or arbitrators, as the case may be, provides for a
different allocation of costs and expenses determined by the arbitrator or
arbitrators, as the case may be, to be equitable under the circumstances, the
prevailing party or parties in any arbitration will be entitled to recover all
reasonable fees (including but not limited to attorneys' fees) and expenses
incurred by it or them in connection with such arbitration from the
nonprevailing party or parties.
24. MARKET STAND-OFF. If this Option Agreement is amended or
replaced in connection with the Company preparing for an initial underwritten
public offering of its equity securities, the amended or substitute option
agreement shall provide for the following with respect to the equity securities
issuable upon exercise thereof: In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, for such period as the
Company or its underwriters may request (such period not to exceed 180 days
following the date of the applicable offering), the Optionee shall not, directly
or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer,
grant or sell any option or other contract for the purchase of, purchase any
option or other contract for the sale of, or otherwise dispose of or transfer,
or agree to engage in any of the foregoing transactions with respect to, any
equity securities acquired under this Option Agreement without the prior written
consent of the Company or its underwriters.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Option Agreement on the day and year first above written.
CHEROKEE INTERNATIONAL, LLC
By
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Name
-------------------------------------
Title
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The undersigned has had the opportunity to read the terms and
provisions of the foregoing Option Agreement, the terms and provisions of the
Plan, herein incorporated by reference and the terms and provisions of the
Operating Agreement. The undersigned hereby accepts and agrees to all the terms
and provisions of the foregoing Option Agreement and to all the terms and
provisions of the Plan, herein incorporated by reference.
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The Optionee
Address:
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EXHIBIT A
AGREEMENT TO BE BOUND
Reference is made to the Second Amended and Restated Operating Agreement
of Cherokee International, LLC, dated as of April 30, 1999, as amended to the
date hereof (the "Agreement"). All capitalized terms used but not otherwise
defined herein are used with the meanings ascribed to such terms in the
Agreement.
The undersigned purchased on the date hereof ____________ Class B
Units (the "Securities"). The undersigned hereby joins the Agreement as a
party thereto with respect to the Securities, entitled to the rights and
benefits of, and subject to the obligations of, a Member with respect to the
Securities.
The undersigned's address for notice is:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Dated this day ___ of ___________, 1999.
By:
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EXHIBIT B
SPOUSAL CONSENT
The undersigned represents that the undersigned is the spouse of
--------------------------------
Name of Employee
and that the undersigned is familiar with the terms of the 1999 Unit Option Plan
(the "Plan"), the Option Agreement and of the Operating Agreement (together with
the Option Agreement, the "Agreements"), each of which the undersigned's spouse
is entering into on today's date. The undersigned hereby agrees that the
interest of the undersigned's spouse in all property which is the subject of
such Plan or Agreements shall be irrevocably bound by the terms of such Plan or
Agreements and by any amendment, modification, waiver or termination signed by
the undersigned's spouse. The signed further agrees that the undersigned's
community property interest in all property which is the subject of such Plan or
Agreements shall be irrevocably bound by the terms of such Plan or Agreements,
and that such Plan or Agreements shall be binding on the executors,
administrators, heirs and assigns of the undersigned. The undersigned further
authorizes the undersigned's spouse to amend, modify or terminate such Plan or
Agreements, or waive any rights thereunder, and that each such amendment,
modification, waiver or termination signed by the undersigned's spouse shall be
binding on the community property interest of the undersigned in all property
which is the subject of such Plan or Agreements and on the executors,
administrators, heirs and assigns of the undersigned, each as fully as if the
undersigned had signed such amendment, modification, waiver or termination.
Dated: __________, 1999
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Signature of Spouse:
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