EXHIBIT 10.5
[AS MODIFIED]
[Date]
PERSONAL AND CONFIDENTIAL
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RE: SHARE APPRECIATION RIGHTS AGREEMENT
Dear ___________:
Asset Acceptance Holdings LLC (the "Company") has chosen you to receive
an Award of Share Appreciation Rights pursuant to the Asset Acceptance Holdings
LLC Year 2002 Share Appreciation Rights Plan dated as of September 30, 2002 (the
"Plan"). The Award is subject to the terms of this letter agreement and the
Plan. A copy of the Plan is attached hereto as Exhibit A and incorporated herein
by reference. Capitalized terms used and not otherwise defined herein are
defined in Exhibit B attached hereto or in the Plan. This Award is effective as
of the date set forth above (the "Award Date").
A. AWARD. Subject to the terms contained in the Plan and herein,
the Company hereby awards you __ share appreciation rights ("your Share
Appreciation Rights"). The purpose of this Award is to provide you, as a
valuable Employee, with a substantial incentive in the form of an indirect
equity participation in the Company. When vested, your Share Appreciation
Rights will entitle you to receive from the Company an amount equal to the
appreciation in the value of __Class B Shares in the Company realized as of the
date of payment of your Share Appreciation Rights. For purposes of calculating
such Share Appreciation Rights, the value of each Class B Share on the Award
Date is One Dollar ($1.00). Your Share Appreciation Rights will vest and
qualify for payment on the terms set forth in Section B.
B. TERMS OF AWARD.
(1) GENERAL. Your Share Appreciation Rights will vest when the
provisions described in paragraph (2) are met; provided, that except as provided
in subparagraph (2)(f) below, you must continue to be an Employee at all times
through the appropriate vesting date in order for the Share Appreciation Rights
to become vested; and provided further, you must continue to be an Employee at
all times through the date of payment for you to receive payment thereon.
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(2) VESTING. Your Share Appreciation Rights will become
vested, without duplication, as to the number of Share Appreciation Rights
indicated below if and when the following conditions are satisfied:
(a) Liquidity Event -- Control Transfer; Initial Public
Offering. In the event that on or before September 30, 2012, as a
result of (i) a sale of membership interests in the Company and/or
shares of capital stock in the shareholders (including AAC Investors,
Inc. ("Investors")) of the Company, or a sale of substantially all of
the assets of the Company, in a transaction constituting a Control
Transfer (valuing all of the shares of capital stock in Investors or
the Class A-1 Shares and Class A Shares held by Investors immediately
before the Control Transfer at the value established for each such
class of securities that are transferred in the Control Transfer or at
the value otherwise established as a result of the consummation of the
Control Transfer) or (ii) an Initial Public Offering (valuing the
shares of common stock into which the Class A-1 Shares and Class A
Shares are converted that are held by Investors immediately before the
Initial Public Offering at the per share price to public in the
Initial Public Offering) (each of clause (i) and (ii) shall also be
referred to as a "Liquidity Event"), the pretax internal rate of
return ("IRR") realized by Investors over the term of its investment
in the Company through the date of closing of the Liquidity Event, and
after giving effect to the liabilities that would be caused by the
payment of all Share Appreciation Rights vested under the Plan, is:
(i) at least 30%, but less than 40%, then _________ Share
Appreciation Rights plus such number of Share Appreciation
Rights determined by multiplying ___________ by a
fraction, the numerator of which is the amount by which
the IRR exceeds 30% and the denominator of which is 10%
shall vest;
(ii) at least 40%, but less than 50%, then _________ Share
Appreciation Rights plus such number of Share Appreciation
Rights determined by multiplying ___________ by a
fraction, the numerator of which is the amount by which
the IRR exceeds 40% and the denominator of which is 10%
shall vest;
(iii) 50% or more, then _________ Share Appreciation Rights
shall vest.
(b) Partial Sale. In the event that on or before September 30,
2012, as a result of a Partial Sale, the IRR realized by Investors
over the term of the investment through the closing date of the
Partial Sale (valuing all of the shares of capital stock in Investors
or the Class A-1 Shares and Class A Shares held by Investors
immediately before the Partial Sale at the value established for each
such class of securities that are transferred in the Partial Sale or
at the value otherwise established as a result of the consummation of
the Partial Sale) is at least 30%, then the Share Appreciation Rights,
to the extent not theretofore vested or expired, shall as of the
closing date of such Partial Sale, vest as to
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the number of Share Appreciation Rights calculated as set forth in
paragraph (a) of this Section B(2) multiplied by the percentage of the
shares of capital stock in Investors or of the Class A-1 Shares and
Class A Shares held by Investors transferred in such Partial Sale.
(c) Control Transfer after Partial Sale. In the event of a
vesting of less than all of the Share Appreciation Rights pursuant to
paragraph (b) of this Section B(2) followed by a subsequent Control
Transfer or IPO before September 30, 2012, the IRR realized by
Investors over the term of its investment in the Company through the
date of closing of such Control Transfer taking into account, for
purposes of this paragraph (c) only the cash, if any, received by
Investors in the Partial Sale and valuing all of the shares of capital
stock in Investors or the Class A-1 Shares and Class A Shares held by
Investors immediately before the Control Transfer at the value
established for each such class of securities that are transferred in
the Control Transfer or at the value otherwise established as a result
of the consummation of the Control Transfer would have resulted in a
greater number of Share Appreciation Rights vesting under clauses (i)
through (iii) of paragraph (a) of this Section B(2) than vested
pursuant to paragraph (b) of this Section B(2), then additional Share
Appreciation Rights shall vest in an amount equal to the difference
between (1) the number of Share Appreciation Rights that would have
vested as a result of the IRR realized by the combination of the
Partial Sale and the Control Transfer and (2) the number of Share
Appreciation Rights theretofore vested pursuant to paragraph (b) of
this Section B(2).
(d) Timing of Rights. In the event of a transaction or series of
transactions resulting in the sale, directly or indirectly, of all of
the equity interests in or assets of the Company that does not result
in the vesting of all of the Share Appreciation Rights covered hereby
pursuant to paragraph (a), (b) or (c) of this Section B(2), the
unvested portion of the Share Appreciation Rights, and the right to
receive payment thereon, shall expire as of the date of closing of
such sale.
(e) Interpretation. The Board shall have complete discretion to
determine in good faith whether the provisions of paragraph (a), (b)
or (c) of this Section B(2) have been satisfied.
(f) Termination of Employment
(i) Except as described below in paragraph (ii) of this
Section B(2)(f), if your employment is terminated with the
Company for any reason, your Share Appreciation Rights and
rights to any future payments shall terminate upon the effective
date of the termination of employment.
(ii) If your employment with the Company and its
Subsidiaries is terminated by reason of your death or Disability
or by the Company other than for
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Cause, on or prior to September 30, 2012, you will retain
the following percentage of your Share Appreciation Rights
(i.e., "conditionally vested"):
Date Percent
of Conditionally
Termination Vested
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Prior to October 1, 2004 0%
On or after October 1, 2004 and before October 1, 2005 25%
On or after October 1, 2005 and before October 1, 2006 50%
On or after October 1, 2006 and before October 1, 2007 75%
On or after October 1, 2007 and before October 1, 2012 100%
[TO COME - MODIFICATION OF DATES IF SAR GRANTED AFTER 9.30.02]
Final vesting of your "conditionally vested" Share Appreciation Rights
will be dependent upon satisfaction of the applicable provisions of
paragraphs (a), (b) and/or (c) of this Section B(2), so that your
"conditionally vested" Share Appreciation Rights will not be entitled
to payment unless the provisions of paragraph (a), (b) and/or (c) of
this Section B(2) are satisfied, and if such conditions are not
satisfied your "conditionally vested" Share Appreciation Rights, and
the right to receive payment thereon, will expire on September 30,
2012.
(g) Initial Public Offering of Parent or Company.
Notwithstanding anything to the contrary contained in Section B(2)(a),
in the event that on or before September 30, 2012 (i) an entity that
holds, directly or indirectly through one or more subsidiaries, 90% or
more of the membership interests of the Company having the right to
vote for members of the Board (the "Parent"), shall consummate a sale
of shares of common stock of the Parent pursuant to an underwritten
initial public offering registered under the Securities Act of 1933,
as amended (a "Parent IPO"), or (ii) there shall be an Initial Public
Offering by the Company or its successor after a Corporate
Reorganization, then, in the case of (i) or (ii) above, at any time on
or after the closing of the Parent IPO or the Initial Public Offering
of the Company, the Company shall have the right, but not the
obligation, to vest 100% of the Share Appreciation Rights subject to
the Award and held by you pursuant to written notice given to you
stating the effective date of such vesting.
(3) PURCHASE BY THE COMPANY UPON TERMINATION OF EMPLOYMENT. If
your employment with the Company or a Subsidiary is terminated for any reason
whatsoever, including by the Company or a Subsidiary without Cause, the Company
shall have the right, exercisable in its sole election, to purchase, and you
shall have the obligation, upon such exercise by the Company, to sell to the
Company all or any portion of your vested Share Appreciation Rights for an
amount equal to their SAR Value as of the date of the termination of your
employment. If the Company elects to exercise its right, the Company will notify
you in writing
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not later than ninety (90) days after the termination of your
employment of the number of your vested Share Appreciation Rights that
it has elected to purchase and the purchase price to be paid in
exchange for such Share Appreciation Rights. The Company shall make
payment to you by Company check for the Share Appreciation Rights that
it has elected to purchase not later than 120 days after the effective
date of the termination of your employment. Effective with such
payment, you shall irrevocably assign such rights to the Company free
of all liens and encumbrances of any kind and shall execute such
documents and take such other action as the Company reasonably requests
to evidence such transfer.
(4) PAYMENT AFTER VESTING.
(a) General. On the later of (i) contemporaneously with the
consummation of a Liquidity Event or (ii) at the earlier of (A) the
date after the Liquidity Event as you shall determine or (B) the date
after the Liquidity Event as the Company shall determine, the Company
shall pay you an amount equal to the SAR Value of your vested Share
Appreciation Rights as of such date of payment, calculated in
accordance with Section 6 of the Plan. NOTWITHSTANDING ANYTHING IN THIS
LETTER AGREEMENT TO THE CONTRARY, EXCEPT AS EXPRESSLY PROVIDED IN
SECTION B(4)(b) BELOW, YOU SHALL NOT BE ENTITLED TO RECEIVE PAYMENT ON
ANY VESTED SHARE APPRECIATION RIGHTS EXCEPT ON THE SAME RELATIVE BASIS
UPON WHICH THE INVESTORS RECEIVE LIQUIDITY (I.E., CASH) IN THE
TRANSACTION OR TRANSACTIONS CONSTITUTING THE LIQUIDITY EVENT UNLESS
INVESTORS, IN ITS SOLE DISCRETION AGREES THAT A GREATER PAYMENT MAY BE
MADE.
(b) Election by Company - Initial Public Offering of Parent
or Company. In the event the Company elects to vest your Share
Appreciation Rights pursuant to Section B(2)(g) above, then the Company
shall pay you an amount equal to the SAR Value of your vested Share
Appreciation Rights as of the effective date of such vesting,
calculated in accordance with Section 6 of the Plan, with such payment
to be as follows:
(i) The Company shall withhold an amount equal to your
Applicable Withholding Taxes and make payment thereof on your behalf
directly to the applicable federal, state and local tax authorities in
accordance with applicable tax laws; and
(ii) The Company shall deliver to you unregistered
shares of the common stock of the Parent or the Company, as the case
may be (the "Section B(2)(g) Shares"), valued at the Section B(2)(g)
Share Fair Market Value (as defined below) as of the effective date of
such vesting, in an amount equal to the SAR Value of your vested Share
Appreciation Rights minus the cash payment made pursuant to
subparagraph (i) above, provided that such delivery of the Section
B(2)(g) Shares shall not be made until after you have made your Section
83(b) Election Filing (as defined below).
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As used herein, "Section B(2)(g) Share Fair Market Value"
means the following as determined by the Board in good faith:
(w) if the effective date of such vesting is as of the
closing of the Parent IPO or the Initial Public Offering of the
Company, the initial per share price to public;
(x) if the Section B(2)(g) Shares are traded on an exchange,
the average of the highest and lowest registered sales prices of such
shares on the primary exchange on which the Section B(2)(g) Shares are
traded for the ten (10) trading day period ending on the trading day of
or closest to the effective date of such vesting;
(y) if the Section B(2)(g) Shares are traded on the
over-the-counter market, the average between the closing high bid and
low asked prices as reported by the Nasdaq Stock Market for the ten
(10) trading day period ending on the trading day of or closest to the
effective date of such vesting; or
(z) if the effective date of such vesting is other than as
of the closing of the Parent IPO or the Initial Public Offering of the
Company and if the Section B(2)(g) Shares are not traded on any
exchange or over-the-counter market, the fair market value shall be
determined by the Board using any reasonable method in good faith.
Upon the effective date of such vesting pursuant to Section
B(2)(g), your rights with respect to your Share Appreciation Rights
will be deemed after such effective date, for all purposes, to evidence
solely your right to receive the payment described in this subsection
(b) and, without limiting the generality of the foregoing, the SAR
Value of your Share Appreciation Rights shall be fixed as of the
effective date of such vesting and shall not change thereafter.
(5) NON-TRANSFERABILITY. This Award is not transferable or
assignable by you. In the event of your death, your devisees, personal
representatives, or trustee or beneficiaries of a revocable trust of which you
are the grantor (collectively, "Successors") will succeed to your Share
Appreciation Rights subject to the terms of the Plan and this letter agreement.
All agreements made by you in this letter agreement shall be binding on your
Successors.
C. OTHER CONDITIONS.
(1) CAPITAL STRUCTURE CHANGES. As provided in the Plan, appropriate
adjustments shall be made in the number and kind of Share Appreciation Rights
should there be a change in the capital structure of the Company, and the Board
may take appropriate actions in good faith with respect to the Award in the
event of a significant corporate transaction.
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(2) WITHHOLDING.
(a) General. By signing this letter agreement, you
agree to make arrangements satisfactory to the Company to comply with
any income and payroll tax withholding requirements that may apply.
(b) Section 83(b) Election - Election by Company -
Initial Public Offering of Parent or Company. In the event the Company
elects to vest your Share Appreciation Rights pursuant to Section
B(2)(g) above, then you agree to timely file, in form and substance
satisfactory to the Company, an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended, relative to the value of and
the transfer restrictions and call rights set forth in the Shareholder
Agreement (as defined below) related to the Section B(2)(g) Shares
delivered to you pursuant to Section B(4)(b)(ii) above (the "Section
83(b) Election Filing"), provided that, if you do not make such Section
83(b) Election Filing within twenty-five (25) days after written notice
given to you by the Company under Section B(2)(g) of such vesting of
your Share Appreciation Rights, then all of your rights under and with
respect to your Share Appreciation Rights shall be terminated and
without further force or effect.
(3) NO RIGHT TO RECEIVE SHARES. Under no circumstances shall you
have the right to receive any Class B Shares as a result of the Award or this
letter agreement, except pursuant to Section B(4)(b)(ii).
(4) SHAREHOLDER AGREEMENT - TRANSFER RESTRICTIONS; CALL RIGHTS;
ETC. As a condition precedent to the receipt of any Section B(2)(g) Shares, you
agree to promptly enter into a shareholder agreement, in substantially the form
of Exhibit C attached hereto, effective as of the date of delivery of the
Section B(2)(g) Shares relative to certain transfer restrictions, call rights
and other provisions relative to the Section B(2)(g) Shares delivered to you
pursuant to Section B(4)(b)(ii) above (the "Shareholder Agreement").
(5) NO RIGHTS PRIOR TO ISSUANCE OF SHARES. You shall not have
any rights as a shareholder with respect to the Section B(2)(g) Shares until the
issuance of a stock certificate for such shares. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date the certificate is issued.
(6) COMPLIANCE. Anything to the contrary herein notwithstanding,
the Company's obligation to deliver the Section B(2)(g) Shares pursuant to
Section B(4)(b)(ii) above is subject to such compliance with federal and state
laws, rules and regulations applying to the authorization, issuance or sale of
securities as the Company deems necessary or advisable. The Company shall not be
required to deliver such shares unless and until it receives satisfactory
assurance that the issuance or transfer of such shares will not violate any of
the provisions of the Securities Act of 1933, or the rules and regulations
promulgated thereunder, the provisions of
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any state laws governing the sale of securities, or that there has been
compliance with the provisions of such acts, rules, regulations and laws.
D. NOTICE. Written notice is deemed to have been given to you or
to the Company and the Board if delivered personally or mailed first class,
postage prepaid, to you at your last address as shown in the records of the
Company, or to the Company at the principal business address of the Company,
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: President, with a copy to
Quad-C Management, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, or at such other address or to the attention of
such other person as the recipient shall have specified by prior written notice.
E. AGREEMENT. In consideration of the grant of the Award, you
hereby agree that you will comply with such other conditions as the Board may
impose on the Award and will perform such duties as may be assigned to you from
time to time by the Board or by the Executive Officers of the Company; provided
that the foregoing shall not be inconsistent with the Plan; and provided further
that the provisions of this sentence shall not be interpreted as affecting any
right that the Company or any of its Subsidiaries may have to terminate your
employment, with or without Cause, at any time for any reason whatsoever.
This letter agreement shall be governed by the laws of the State of Michigan.
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If you agree to the foregoing terms and conditions, please sign both
copies of this letter agreement and return one fully executed original to the
Chief Executive Officer of the Company. The remaining original letter is for
your records.
Sincerely,
ASSET ACCEPTANCE HOLDINGS LLC
By:_____________________________________
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇
President
I hereby accept the Award on the terms set forth in this letter
agreement and in the Asset Acceptance Holdings LLC Year 2002 Share Appreciation
Rights Plan, and this letter agreement shall be a binding agreement between the
Company and me.
_____________________________________
[name]
EXHIBIT A
THE PLAN
EXHIBIT B
DEFINITIONS
"CAUSE" means with respect to the termination of an Employee
as an employee of the Company or a Subsidiary of the Company:
(i) continual or deliberate neglect by such Employee in
the performance of his or her material duties;
(ii) failure by such Employee to devote substantially all
of his or her working time to the business of the Company and its
Subsidiaries;
(iii) such Employee's willful failure to follow the
directives of the Board of Directors or the Chief Executive Officer
of the Company in any material respect;
(iv) such Employee's engaging willfully in misconduct in
connection with the performance of any of his or her duties which
is reasonably likely, in the good faith judgment of the Board, to
result in material injury to the reputation of the Company or any
of its Subsidiaries, including, without limitation, the
misappropriation of funds;
(v) such Employee's breach of the provisions of any
noncompetition, noninterference, nondisclosure, confidentiality or
other similar agreement executed by such Employee with the Company
or any of its Subsidiaries; or
(vi) such Employee's engaging in conduct which is
reasonably likely, in the good faith judgment of the Board, to
result in material injury to the reputation of the Company or any
of its Subsidiaries, including, without limitation, commission of a
felony, fraud, embezzlement or other crime involving moral
turpitude;
provided that with respect to the events set forth in clauses (i) through (iii),
the or Employee shall have been given written notice of the act, omission or
event constituting Cause and shall not have cured such act, omission or event
within 30 days after the giving of such notice.
EXHIBIT C
FORM OF SHAREHOLDER AGREEMENT
