STOCK OPTION EXERCISE AGREEMENT
THIS STOCK OPTION EXERCISE AGREEMENT (this "Agreement") is
made as of _____ __, 2001, by and between Specialty Catalog Corp., a Delaware
corporation (the "Company"), and the Person named on the signature page hereto
(the "Optionee").
WHEREAS, the Optionee is a holder of options (the "Options")
granted pursuant to the Company's 2000 Stock Incentive Plan (the "Plan") and
evidenced by the Stock Option Agreement (the "Option Agreement") dated ____,
2000, between the Company and Optionee, to purchase the number of shares of
common stock ("Common Stock") par value $.01 per share of the Company set forth
opposite Optionee's name on, and on terms indicated in, Schedule I attached
hereto;
WHEREAS, the Company has entered into an Agreement and Plan of
Recapitalization and Merger with Specialty Acquisition Corp. ("Acquisition
Corp."), dated as of May 4, 2001, as amended from time to time in accordance
with its terms (the "Merger Agreement"), pursuant to which Acquisition Corp.
shall be merged with and into the Company (the "Acquisition"), in accordance
with the terms and conditions of the Merger Agreement and the relevant
provisions of the DGCL (as defined in the Merger Agreement), and the surviving
corporation shall be the Company;
WHEREAS, the Committee (as defined in the Plan) has determined
to accelerate the vesting schedule of the options immediately prior to the
consummation of the Acquisition such that all of the options will be currently
exercisable at such time;
WHEREAS, in connection with the consummation of the
transactions contemplated by the Merger Agreement, the Optionee desires to
exercise such number of Options to purchase the number of shares of Common Stock
set forth opposite its name on Schedule II attached hereto, upon the terms and
subject to the conditions hereof; and
WHEREAS, the shares of Common Stock issued to Optionee upon
exercise of the Exercised Options shall be subject to the vesting provisions
hereof.
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Definitions.
1.1 Acquisition. The term "Acquisition" shall have the meaning
set forth in the preface.
1.2 Acquisition Corp. The term "Acquisition Corp." shall have
the meaning set forth in the preface.
1.3 Aggregate Exercise Price. The term "Aggregate Exercise
Price" shall have the meaning set forth in Section 2.2.
1.4 Agreement. The term "Agreement" shall have the meaning set
forth in the preface.
1.5 Closing. The term "Closing" for the exercise of the
Exercised Options and issuance of the Shares shall occur immediately after and
in connection with the consummation of the Acquisition.
1.6 Common Stock. The term "Common Stock" shall have the
meaning set forth in the preface.
1.7 Company. The term "Company" shall have the meaning set
forth in the preface.
1.8 Exercised Options. The term "Exercised Options" shall have
the meaning set forth in Section 2.1.
1.9 Merger Agreement. The term "Merger Agreement" shall have
the meaning set forth in the preface.
1.10 Option Agreement. The term "Option Agreement" shall have
the name set forth in the preface.
1.11 Optionee. The term "Optionee" shall have the meaning set
forth in the preface.
1.12 Options. The term "Options" shall have the meaning set
forth the preface.
1.13 Person. The term "Person" shall mean any individual,
corporation, partnership, limited liability company, trust, joint stock company,
business trust, unincorporated association, joint venture, governmental
authority or other entity of any nature whatsoever.
1.14 Plan. The term "Plan" shall have the meaning set forth in
the preface.
1.15 Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended, and all rules and regulations promulgated
thereunder, as the same may be amended from time to time.
1.16 Shares. The term "Shares" shall have the meaning set
forth in Section 2.1.
1.17 Stockholders Agreement. The term "Stockholders Agreement"
shall mean the Stockholders Agreement dated as of May 4, 2001 among Acquisition
Corp. and its stockholders, as it may be amended or supplemented thereafter from
time to time, which agreement shall, after the Acquisition, become the
Stockholders Agreement of the Company.
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1.18 Surrendered Shares. The term "Surrendered Shares" shall
have the meaning set forth in Section 2.2.
2. Exercise of Options.
2.1 Exercise of Options. Upon the terms and subject to the
conditions set forth in this Agreement, the Optionee hereby elects to purchase
the number of shares of Common Stock of Specialty Catalog Corp. as set forth on
Schedule II attached hereto (the "Exercised Options"), and the Company hereby
agrees to deliver the number of acquired shares set forth on Schedule II
attached hereto (the "Shares"). The parties hereto understand and agree that the
Company's delivery of the Shares and the effectiveness of the entire Agreement
is conditioned upon the occurrence of the Closing.
2.2 Delivery of Purchase Price. Optionee hereby delivers to
the Company the Aggregate Exercise Price as set forth on Schedule II attached
hereto (the "Aggregate Exercise Price") in respect of the Exercised Options as
follows: Payment of the Aggregate Exercise Price shall be made in full with
shares of Common Stock, obtained through the exercise of the Exercised Options,
and surrendered in lieu of the payment of cash concurrently with such exercise,
with the shares of Common Stock so surrendered (the "Surrendered Shares") being
valued at the "Value" (as defined below). The Optionee directs the Company to
retain so many shares of Common Stock that would otherwise have been delivered
by the Company to Optionee upon the exercise of the Exercised Options as equals
the number of shares of Common Stock that would have been surrendered to the
Company by the Optionee if the Aggregate Exercise Price had been paid with
previously issued Common Stock. The sum of (a) the number of shares of Common
Stock being purchased upon exercise of the non-surrendered portion of the
Exercised Options pursuant hereto and (b) the number of shares of Common Stock
underlying the portion of the Exercised Options being surrendered, shall not in
any event be greater than the total number of shares of Common Stock purchasable
upon the complete exercise of the Exercised Options if the Aggregate Exercise
Price were paid in cash. The "Value" of the Exercised Options being surrendered
shall equal the remainder derived from subtracting (a) the exercise price of the
Exercised Options multiplied by the number of shares of Common Stock underlying
the portion of the Exercised Options being surrendered from (b) $3.75 multiplied
by the number of shares of Common Stock underlying the portion of the Exercised
Options being surrendered. The Optionee hereby confirms that the aggregate
number of shares of Common Stock as to which the Exercised Options are being
exercised and surrendered, as well as the number of Shares being acquired by
Optionee, are set forth on Schedule II.
3. Vesting Schedule.
3.1 The Shares shall vest and become nonforfeitable in
accordance with the schedule set forth on Schedule III attached hereto.
3.2 Notwithstanding the vesting schedule set forth in Schedule
III hereof, the vesting schedule may be accelerated by the Board of Directors of
the Company in their sole decision.
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3.3 Shares that are vested pursuant to the schedule set forth
in Schedule III hereof are "Vested Shares." Shares that are not vested pursuant
to Schedule III hereof are "Unvested Shares."
4. Termination.
4.1 Termination. If Optionee is Terminated (as defined in the
Plan) for any reason then any Unvested Shares shall revert to the Company and
the Shares shall automatically be deemed forfeited and shall be cancelled on the
books and records of the Company, unless the Board of Directors of the Company
shall determine otherwise and so notifies the Optionee or Optionee's estate in
writing within 15 days of such Termination. The Optionee agrees that Optionee
will promptly return any certificates representing such Unvested Shares, to the
extent issued, to the Company with stock powers endorsed in blank.
4.2 Stock Certificates; Dividends and Stockholder Rights.
(a) Certificates for Shares shall be issued in the Optionee's
name and shall be held by the Company until the Shares shall become vested. The
Company shall serve as attorney-in-fact for the Optionee during the period
during which the Shares are unvested with full power and authority in the
Optionee's name to assign and convey to the Company any Shares held by the
Company for the Optionee if the Optionee forfeits the shares under the terms of
this Agreement. Certificates representing the Shares shall bear the following
legend:
The Shares represented by this Stock Certificate may not be
sold, exchanged, assigned, transferred, pledged, hypothecated
or otherwise encumbered or disposed of unless the restrictions
set forth in the Stock Option Exercise Agreement between the
registered holder of these Shares and Specialty Catalog Corp.
shall have lapsed.
Upon the vesting of the Shares, the Company shall so notify the
Secretary of the Company and the Secretary shall obtain from the Company
certificates representing all such shares that have vested, which certificates
shall not bear any restrictive endorsement making reference to this Agreement,
and shall deliver such certificates to the Optionee.
(b) Upon the issuance of a certificate or certificates
representing the Shares, the Optionee shall thereupon be a Optionee and, subject
to the provisions of Section 3 hereof, have all the rights of a Optionee with
respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares; provided, however,
that such Shares and any new, additional or different securities the Optionee
may become entitled to receive with respect to such Shares by virtue of a stock
split, dividend or other change in the corporate or capital structure of the
Company shall be subject to the vesting and forfeiture provisions, restrictions
on transfer and other restrictions set forth in this Agreement.
5. Representations and Warranties.
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5.1 Shares Unregistered. The Optionee acknowledges and
represents that the Optionee has been advised by the Company that:
(a) the offer and sale of the Shares has not been
registered under the Securities Act;
(b) the Optionee must continue to bear the economic
risk of the investment in the Shares unless the offer and sale of such
Shares complies with the provisions and restrictions contained in the
Stockholders Agreement and are subsequently registered under the
Securities Act and all applicable state securities laws or an exemption
from such registration is available;
(c) there is no established market for the Shares
and it is not anticipated that there will be any public market for the
Shares in the foreseeable future;
(d) restrictive legends, in the form set forth
below, shall be placed on the certificates representing the Shares:
"The sale, assignment, transfer, pledge, encumbrance, or other
disposition of the shares evidenced by this certificate, or
any interest in such shares, is restricted by the terms of a
Stockholders Agreement dated May 4, 2001, as it may be amended
or modified from time to time, on file at the principal office
of the corporation. No such sale, assignment, transfer,
pledge, encumbrance or other disposition shall be effective
unless and until the terms and conditions of the aforesaid
Stockholders Agreement shall have been complied with in full."
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Act"), or under the
securities laws of any state, and may not be pledged,
hypothecated, sold or transferred unless registered and
qualified under the Act and, if applicable, state securities
laws, or in the opinion of counsel reasonably satisfactory to
the corporation such registration and qualification are not
required."
(e) a notation shall be made in the appropriate
records of the Company indicating that the Shares are subject to
restrictions on transfer and, if the Company should at some time in the
future engage the services of a securities transfer agent, appropriate
stop-transfer instructions will be issued to such transfer agent with
respect to the Shares; and
(f) the transfer of Shares shall be restricted
pursuant to the provisions of the Stockholders Agreement.
5.2 Additional Investment Representations. The Optionee
advises the Company that:
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(a) Optionee's financial situation is such that
Optionee can afford to bear the economic risk of holding the Shares for
an indefinite period of time, and can afford to suffer a complete loss
of Optionee's investment in the Shares;
(b) Optionee's knowledge and experience in financial
and business matters is such that Optionee is capable of evaluating
the merits and risks of the investment in the Shares;
(c) Optionee understands that there are substantial
restrictions on the transferability of the Shares and there will be no
public market for the Shares and, accordingly, it may not be possible
for Optionee to liquidate its investment in case of emergency, if at
all;
(d) Optionee has been given the opportunity to ask
questions of, and to receive answers from, the Company and its
representatives concerning the Company and its subsidiaries, the
Acquisition, the Stockholders Agreement, and to obtain any additional
information which Optionee deems necessary; and
(e) Optionee is either: (i) an "accredited investor",
as such term is defined in Rule 501 of Regulation D as promulgated
under the Securities Act of 1933, as amended (the "Securities Act") or,
(ii) if not an "accredited investor," then the Optionee has such
knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the
Shares, and in the Optionee's judgment, has obtained sufficient
information about the Company or its subsidiaries to evaluate the
merits and risks of an investment in the Shares.
5.3 Representations of the Company. The Company represents to
the Optionee that the statements contained in this Section 5.3 are
correct and complete as of the date of this Agreement:
(a) Organization and Power. The Company is a
corporation validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to enter into this
Agreement and perform its obligations hereunder.
(b) Authorization. The execution, delivery and
performance of this Agreement by the Company and the consummation of
the transactions contemplated hereby by the Company have been duly and
validly authorized by all requisite corporate action on the part of the
Company, and no other proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement.
This Agreement has been duly executed and delivered by the Company, and
this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms and conditions. The
Company need not give any notice to, make any filing with, or obtain
any authorization, consent or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
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6. Additional Covenants.
6.1 Bound by Provisions of the Stockholders Agreement. The
Optionee hereby agrees that Optionee has received and read a copy of the
Stockholders Agreement. The Optionee further agrees that by signing this
Agreement and accepting the Shares, the Optionee, as a holder of the Shares, and
the Optionee's successors and transferees, will become parties to the
Stockholders Agreement and will be bound by the terms and provisions of the
Stockholders Agreement applicable to such Shares, in accordance with Section 2
thereof, including without limitation, provisions applicable to any sale or
other disposition of the Shares. Furthermore, the Optionee agrees that the
Shares are subject to the Stockholders Agreement and that this provision will be
deemed the Transfer Agreement (as defined in the Stockholders Agreement).
6.2 Tax Matters.
(a) Optionee acknowledges that there may be tax
consequences as a result of the exercise, receipt or disposition of the
Shares, some of which may be altered if the Optionee makes any election
pursuant to Section 83(b) of the Code, and that the Company has advised
Optionee to consult a tax advisor regarding the exercise, receipt and
disposition of the Shares.
(b) The Company shall pay all taxes (other than any
applicable income or similar taxes payable by the Optionee, except as
otherwise provided herein) with respect to the issuance of Shares, as
well as all fees and expenses necessarily incurred by the Company in
connection with such issuance. In addition, in the event that the
Optionee is required to pay any taxes in connection with the exercise
and sale of the Surrendered Shares on the spread between the exercise
price and the fair market value of the Surrendered Shares on the date
of exercise, then the Company hereby agrees to reimburse the Optionee
in respect of those taxes, together with a "gross-up" payment
calculated using the Company's net marginal income tax rate.
6.3 Share Adjustments. In the event of any stock dividend,
stock split, combination or exchange of shares, merger, consolidation, spin-off
or other distribution (other than normal cash dividends) of the Company assets
to stockholders, or any other change affecting shares of the Company's
capitalization, the Committee in its discretion may make such adjustments as it
may deem appropriate to reflect such change or to fairly preserve the intended
benefits of the Plan.
6.4 No Right To Continued Employment. Nothing in this
Agreement shall confer upon the Optionee any right with respect to continuance
of employment by the Corporation or any of its subsidiaries, nor shall it
interfere in any way with the right of the employer to terminate the Optionee's
employment at any time. THIS AGREEMENT DOES NOT CONSTITUTE AN EMPLOYMENT
CONTRACT. THIS AGREEMENT DOES NOT GUARANTEE EMPLOYMENT FOR THE LENGTH OF TIME OF
THE VESTING PERIOD OR FOR ANY PORTION THEREOF.
6.5 Section 83(B) Election. If the Optionee files an election
with the Internal Revenue Service to include the fair market value of any
Optionee Shares in gross income as of
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the Date of Grant, the Optionee agrees to promptly furnish the Company with a
copy of such election, together with the amount of any federal, state, local or
other taxes required to be withheld to enable the Company to claim an income tax
deduction with respect to such election.
7. Miscellaneous.
7.1 Recapitalizations, Exchanges, Etc., Affecting Acquisition
Corp. Shares. The provisions of this Agreement shall apply, to the full extent
set forth herein with respect to the Shares, to any and all securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in exchange for, or in substitution of the shares of common stock of Acquisition
Corp., by reason of any dividend payable in shares of Common Stock, issuance of
shares of Common Stock, combination, recapitalization, reclassification, merger,
consolidation or otherwise.
7.2 Binding Effect. The provisions of this Agreement shall be
binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assign.
7.3 Amendment; Waiver. This Agreement may be amended only by a
written instrument signed by the parties hereto. No waiver by any party hereto
of any of the provisions hereof shall be effective unless set forth in a writing
executed by the party so waiving.
7.4 Entire Agreement. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement and understanding of the parties and
supersede in their entirety all prior understandings and agreements of the
Company and Optionee with respect to the subject matter hereof, and are governed
by Delaware law applicable to contracts executed and to be fully performed
therein.
7.5 Further Assurances. Each party hereto shall cooperate and
shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party in order to carry
out the provisions and purposes of this Agreement.
7.6 Counterparts. This Agreement may be executed in separate
counterparts (including by means of telecopied signature pages), and by
different parties on separate counterparts each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Stock
Option Exercise Agreement as of the date first above written.
SPECIALTY CATALOG CORP.
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By:__________________________________
Name:
Title:
OPTIONEE
---------------------------------------
Name:
Address:
CONSENTED TO BY:
SPECIALTY ACQUISITION CORP.
By:____________________________
Name:
Title:
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SCHEDULE I
OPTIONS HELD
Options to Purchase
Optionee Number of Shares Exercise Price Per Share
-------- ------------------- ------------------------
[ ] $--------
10
SCHEDULE II
Number of Total Aggregate Number of Surrendered Number of
Optionee Options Exercised Exercise Price Shares Acquired Shares
-------- ----------------- -------------- ---------------------- ---------------
[-----------] [---------] [--------] [--------] [--------]
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SCHEDULE III
The Shares shall vest in accordance with the following
schedule:
Number of
Vesting Date Shares Exercisable
------------ ------------------
__________, 200__ ______ Shares
__________, 200__ ______ Shares
__________, 200__ ______ Shares
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