Exhibit 10.5

 

Award Number: [·]

 

NUMBER HOLDINGS, INC.

 

NON-QUALIFIED STOCK OPTION AGREEMENT
PURSUANT TO THE
NUMBER HOLDINGS, INC.
2012 STOCK INCENTIVE PLAN

 

AGREEMENT (“Agreement”), dated as of the Grant Date, between Number
Holdings, Inc., a Delaware corporation (the “Company”), and [·] (the
“Participant”).

 

Preliminary Statement

 

The Committee hereby grants this non-qualified stock option (the “Option”) as of
[·] (the “Grant Date”), pursuant to the Number Holdings, Inc. 2012 Stock
Incentive Plan, as it may be amended from time to time (the “Plan”), to purchase
the number of shares of Class A Common Stock, $0.001 par value per share of the
Company (the “Class A Common Stock”), and Class B Common Stock, par value $0.001
per share, of the Company (the “Class B Common Stock,” and, together with the
Class A Common Stock, the “Common Stock”), set forth below to the Participant,
as an Eligible Employee of the Company or one of its Affiliates (collectively,
the Company and all of its Affiliates shall be referred to as the “Employer”). 
Except as otherwise indicated, any capitalized term used but not defined herein
shall have the meaning ascribed to such term in the Plan.  A copy of the Plan
has been delivered to the Participant.  By signing and returning this Agreement,
the Participant acknowledges having received and read a copy of the Plan and
agrees to comply with it, this Agreement and all applicable laws and
regulations.

 

Accordingly, the parties hereto agree as follows:

 

1.             Tax Matters.  No part of the Option is intended to qualify as an
“incentive stock option” under Section 422 of the Internal Revenue Code of 1986,
as amended.

 

2.             Common Stock Subject to Option; Exercise Price.  Subject in all
respects to the Plan and the terms and conditions set forth herein and therein,
the Option entitles the Participant to purchase from the Company, upon exercise,
[·] shares of Class A Common Stock and [·] shares of Class B Common Stock,
provided that the Participant must exercise the Option with respect to an equal
number of shares of Class A Common Stock and Class B Common Stock concurrently. 
The exercise price under the Option for each unit consisting of one share of
Class A Common Stock and one share of Class B Common Stock is $[·] (the “Unit
Exercise Price”).

 

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3.             Vesting; Exercise.

 

(a)           [Time-Based Vesting.  A portion of the Option equal to [·] shares
of each class of Common Stock (the “Time-Vested Option”) shall vest and become
exercisable on the dates and in the cumulative percentages provided in the table
below (which percentages shall apply equally with respect to the Class A Common
Stock and the Class B Common Stock subject to the Time-Vested Option), provided,
with respect to each vesting date, that the Participant has not experienced a
Termination prior to such date.  There shall be no proportionate or partial
vesting in the periods prior to each vesting date.

 

Time-Vested Option Vesting Date

 

Cumulative Percent
Vested

 

[·]

 

20

%

[·]

 

40

%

[·]

 

60

%

[·]

 

80

%

[·]

 

100

%(1)

 

(b)           Performance-Based Vesting.  A portion of the Option equal to [·]
shares of each class of Common Stock (the “Performance-Vested Option”) shall
vest and become exercisable as provided below; provided, that the Participant
has not experienced a Termination prior to such date.

 

(i)            If, on any date from and after the Grant Date, the Company’s LTM
EBITDA equals or exceeds $99,000,000 on the last day of each of the 12
consecutive calendar months ending prior to such date, 50% of the
Performance-Vested Options shall vest; and

 

(ii)           If, on any date from and after the Grant Date, the Company’s LTM
EBITDA equals or exceeds $150,000,000 on the last day of each of the 12
consecutive calendar months ending prior to such date, 100% of the
Performance-Vested Options shall vest.

 

(iii)          Definitions:

 

“Adjusted EBITDA” means audited consolidated net income, determined in
accordance with generally accepted accounting principles, plus (without
duplication) to the extent deducted in calculating such consolidated net income,
the sum of (a) the provision for taxes based on income or profits; plus
(b) consolidated net interest expense; plus (c) consolidated depreciation and
amortization expense; plus (d) the expense or income effect of certain items,
including stock-based compensation, non-cash lease expense, discontinued
operations and closed store costs (including termination expenses), severance,
termination and other one-

 

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(1)  If applicable.  Certain of the awards will be performance-based only.

 

Stock Option Agreement Award #[·]

 

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time personnel-related expenses, and non-capitalized consulting expenses; plus
(e) certain other adjustments as determined to be appropriate by the Committee,
in each case as determined by the Committee, as such sum may be adjusted by the
Committee.

 

“LTM EBITDA” means, on any date, the Adjusted EBITDA of the Company, as
determined by the Committee, for the most recent 12 fiscal month period for
which financial statements are available on such date.

 

(c)           To the extent that the Option has become vested and exercisable
with respect to a number of shares of Common Stock, the Option may thereafter be
exercised by the Participant, in whole or in part, at any time or from time to
time prior to the expiration of the Option in accordance with the Plan, provided
that the Participant must exercise the Option with respect to an equal number of
shares of Class A Common Stock and Class B Common Stock concurrently. 
Notwithstanding the foregoing, the Participant may not exercise the Option
unless the offering of shares of Common Stock issuable upon such exercise (i) is
then registered under the Securities Act, or, if such offering is not then so
registered, the Company has determined that such offering is exempt from the
registration requirements of the Securities Act and (ii) complies with all other
applicable laws and regulations governing the Option, and the Participant may
not exercise the Option if the Committee determines that such exercise would not
be so registered or exempt and otherwise in compliance with such laws and
regulations.

 

4.             Option Term.  The term of the Option shall be until the tenth
anniversary of the Grant Date, after which time it shall expire (the “Expiration
Date”).  Upon the Expiration Date, the Option shall be canceled for no
consideration and no longer shall be exercisable.  The Option is subject to
termination prior to the Expiration Date to the extent provided in Sections 5
and 6 below.

 

5.             Detrimental Activity.  The provisions in the Plan regarding
Detrimental Activity shall apply to the Option.

 

6.             Termination and Change in Control.  The provisions in the Plan
regarding Termination and Change in Control shall apply to the Option.

 

7.             Restriction on Transfer of Option.  Unless otherwise determined
by the Committee in accordance with the Plan, (a) no part of the Option shall be
Transferable other than by will or by the laws of descent and distribution and
(b) during the lifetime of the Participant, the Option may be exercised only by
the Participant or the Participant’s guardian or legal representative.  Any
attempt to Transfer the Option other than in accordance with the Plan shall be
void.

 

8.             Company’s Right to Repurchase; Other Restrictions.

 

(a)           Company’s Right to Repurchase.  In the event of the Participant’s
Termination, the Company shall have the right (the “Repurchase Right”), but not
the obligation, to repurchase (or to cause one or more of its designees to
repurchase) from the

 

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Participant (or his or her transferee) (X) any or all of the shares of Common
Stock acquired upon the exercise of the Option and still held at the time of
such repurchase by the Participant (or his or her transferee) or (Y) any vested
but unexercised portion of the Option at the price determined in the manner set
forth below (the “Repurchase Price”), during each period set forth below (each,
a “Repurchase Period”) and to the extent set forth below:

 

(i)            In the event of Termination for Cause, voluntary Termination
without Good Reason, or the discovery that the Participant engaged in
Detrimental Activity, the Company may exercise the Repurchase Right with respect
to all shares previously acquired pursuant to the exercise of the Option.  The
Repurchase Period under this Section 8(a)(i) shall be 180 days from the date of
Termination.  The Repurchase Price under this Section 8(a)(i) shall be (1) with
respect to each share of Class A Common Stock, the lesser of (A) the Unit
Exercise Price or (B) the Fair Market Value of a share of Class A Common Stock
on the date of Termination and (2) with respect to each share of Class B Common
Stock, the par value thereof.

 

(ii)           In the event of Termination for any reason other than
(x) Termination for Cause or (y) voluntary Termination without Good Reason:

 

(A)          The Company may exercise the Repurchase Right with respect to all
shares acquired pursuant to the exercise of the Option on or prior to the date
of Termination.  The Repurchase Period under this Section 8(a)(ii)(A) shall be
180 days from the date of Termination.  The Repurchase Price under this
Section 8(a)(ii)(A) shall be (1) with respect to each share of Class A Common
Stock, the Fair Market Value of a share of Class A Common Stock on the date of
Termination and (2) with respect to each share of Class B Common Stock, the par
value thereof.

 

(B)          The Company may exercise the Repurchase Right with respect to all
shares acquired pursuant to the exercise of the Option after the date of
Termination.  The Repurchase Period under this Section 8(a)(ii)(B) shall be 90
days from the latest date on which the Option is permitted to be exercised under
this Agreement.  The Repurchase Price under this Section 8(a)(ii)(B) shall be
(1) with respect to each share of Class A Common Stock, the Fair Market Value of
a share of Class A Common Stock on the date of repurchase and (2) with respect
to each share of Class B Common Stock, the par value thereof.

 

(C)          the Company may exercise the Repurchase Right with respect to the
vested but unexercised portion of the Option.  The Repurchase Period under this
Section 8(a)(ii)(C) shall be the latest date on which the Option is permitted to
be exercised under this Agreement.  The Repurchase Price under this
Section 8(a)(ii)(C) shall be the product of (A) the excess (if any) of the Fair
Market Value of a share of Class A Common Stock on the date of Termination over
the Unit Exercise Price multiplied by (B) the number of shares of Class A Common
Stock covered by the Option being repurchased.  For the avoidance of doubt, upon
such repurchase such Option shall no longer be exercisable for any shares of
Common Stock.

 

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(iii)          To exercise any Repurchase Right, the Company (or one or more of
its designees) shall deliver a written notice to the Participant setting forth
the securities to be repurchased and the applicable Repurchase Price thereof,
and the date on which such repurchase is to be consummated, which date shall be
not less than 15 days or more than 30 days after the date of such notice.  On
the date of consummation of the repurchase, the Company will pay the Participant
the applicable Repurchase Price in cash or, in the Company’s discretion and to
the extent not prohibited by law, by cancellation of indebtedness of the
Participant to the Company.  The Company may exercise its Repurchase Rights upon
one or more occasions at any time during the Repurchase Periods set forth above.

 

(iv)          Notwithstanding the foregoing, the Repurchase Period and the date
on which any repurchase is to be consummated may be extended by the Company at
any time when repurchase by the Company (A) is prohibited pursuant to applicable
law, (B) is prohibited under any debt instrument of the Company or any of its
Affiliates or (C) would result in adverse accounting consequences for the
Company, in each case as determined by the Company.

 

(b)           To ensure that the shares of Common Stock issuable upon exercise
of the Option are not transferred in contravention of the terms of the Plan and
this Agreement, and to ensure compliance with other provisions of the Plan and
this Agreement, the Company may deposit any certificates evidencing such shares
with an escrow agent designated by the Company.

 

(c)           Notwithstanding anything in this Agreement to the contrary, the
Option and any Common Stock purchased pursuant to the exercise thereof shall be
subject to the terms of the Stockholders Agreement in addition to the provisions
of this Section 8.

 

9.             Securities Representations.  Upon the exercise of the Option
prior to registration of the offering of the Common Stock subject to the Option
pursuant to the Securities Act or other applicable securities laws, the
Participant shall be deemed to acknowledge and make the representations and
warranties as described below and as otherwise may be requested by the Company
for compliance with applicable laws, and any issuances of Common Stock by the
Company shall be made in reliance upon the express representations and
warranties of the Participant.

 

(a)           The Participant is acquiring and will hold the shares of Common
Stock for investment for his account only and not with a view to, or for resale
in connection with, any “distribution” thereof within the meaning of the
Securities Act or other applicable securities laws.

 

(b)           The Participant has been advised that offerings of the shares of
Common Stock have not been registered under the Securities Act or other
applicable securities laws, on the ground that no public offering of the shares
of Common Stock is to be effected (it being understood, however, that the shares
of Common Stock are being offered in reliance on the exemption provided under
Rule 701 under the Securities Act), and that the shares of Common Stock must be
held indefinitely, unless they are subsequently registered under the applicable

 

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securities laws or the Participant obtains an opinion of counsel (in the form
and substance satisfactory to the Company and its counsel) that registration is
not required.  In connection with the foregoing, the Company is relying in part
on the Participant’s representations set forth in this Section.  The Participant
further acknowledges and understands that the Company is under no obligation
hereunder to register offerings of the shares of Common Stock.

 

(c)           The Participant is aware of the adoption of Rule 144 by the
Securities and Exchange Commission under the Securities Act, which permits
limited public resales of securities acquired in a non-public offering, subject
to the satisfaction of certain conditions.  The Participant acknowledges that he
is familiar with the conditions for resale set forth in Rule 144, and
acknowledges and understands that the conditions for resale set forth in
Rule 144 have not been satisfied and that the Company has no plans to satisfy
these conditions in the foreseeable future.

 

(d)           The Participant will not sell, transfer or otherwise dispose of
the shares of Common Stock in violation of the Plan, this Agreement, the
Securities Act (or the rules and regulations promulgated thereunder) or under
any other applicable securities laws.  The Participant agrees that he will not
dispose of the Common Stock unless and until he has complied with all
requirements of this Agreement applicable to the disposition of the shares of
Common Stock.

 

(e)           The Participant has been furnished with, and has had access to,
such information as he considers necessary or appropriate for deciding whether
to invest in the shares of Common Stock, and the Participant has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Common Stock.

 

(f)            The Participant is aware that his investment in the Company is a
speculative investment that has limited liquidity and is subject to the risk of
complete loss.  The Participant is able, without impairing his financial
condition, to hold the Common Stock for an indefinite period and to suffer a
complete loss of his investment in the Common Stock.

 

10.          No Rights as Stockholder.  The Participant shall have no rights as
a stockholder with respect to any shares of Common Stock covered by the Option
unless and until the Participant has become the holder of record of such shares,
and no adjustments shall be made for dividends (whether in cash, in kind or
other property), distributions or other rights in respect of any such shares,
except as otherwise specifically provided for in the Plan.

 

11.          Provisions of Plan Control.  This Agreement is subject to all the
terms, conditions and provisions of the Plan, including the amendment provisions
thereof, and to such rules, regulations and interpretations relating to the Plan
as may be adopted by the Committee and as may be in effect from time to time. 
The Plan is incorporated herein by reference.  If and to the extent that this
Agreement conflicts or is inconsistent with the Plan, the Plan shall control,
and this Agreement shall be deemed to be modified accordingly.

 

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12.          Notices.  All notices, demands or requests made pursuant to, under
or by virtue of this Agreement must be in writing and sent to the party to which
the notice, demand or request is being made:

 

(a)           unless otherwise specified by the Company in a notice delivered by
the Company in accordance with this Section 12, any notice required to be
delivered to the Company shall be properly delivered if delivered to:

 

Number Holdings, Inc.
c/o Ares Management LLC
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Attention:              Adam Stein
Telephone:            (310) 201-4100
Facsimile:              (310) 201-4170

 

with a copy (which shall not constitute notice) to:

 

Proskauer Rose LLP
2049 Century Park East, Suite 3200
Los Angeles, CA 90067
Attention:              Michael A. Woronoff, Esq.
Telephone:            (310) 284-4550
Facsimile:              (310) 557-2193

 

(b)           if to the Participant, to the address on file with the Company.

 

Any notice, demand or request, if made in accordance with this Section 12 shall
be deemed to have been duly given:  (i) when delivered in person; (ii) three
days after being sent by United States mail; or (iii) on the first business day
following the date of deposit if delivered by a nationally recognized overnight
delivery service.

 

13.          No Right to Employment.  This Agreement is not an agreement of
employment.  None of this Agreement, the Plan or the grant of the Option
hereunder shall (a) guarantee that the Employer will employ the Participant for
any specific time period or (b) modify or limit in any respect the Employer’s
right to terminate or modify the Participant’s employment or compensation.

 

14.          Stockholders Agreement.  As a condition to the receipt of shares of
Common Stock when the Option is exercised, the Participant shall execute and
deliver a Joinder Agreement or such other documentation as required by the
Committee which shall set forth certain restrictions on transferability of the
shares of Common Stock acquired upon exercise, a right of first refusal or a
right of first offer of the Company and other Persons with respect to shares,
and such other terms or restrictions as the Board or Committee shall from time
to time establish, including any drag along rights, tag along rights, transfer
restrictions and registration rights.  The Stockholders Agreement or other
documentation shall apply to the

 

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Common Stock acquired when the Option is exercised and covered by the
Stockholders Agreement or other documentation.

 

15.          Dispute Resolution.  All controversies and claims arising out of or
relating to this Agreement, or the breach hereof, shall be settled by the
Employer’s mandatory dispute resolution procedures as may be in effect from time
to time with respect to matters arising out of or relating to Participant’s
employment with the Employer, including the procedures set forth in the
Arbitration Agreement attached hereto as Exhibit A (or any amendment or
replacement of such agreement).

 

16.          Severability of Provisions.  If any provision of this Agreement
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof, and the Agreement shall be
construed and enforced as if such provisions had not been included; provided
that if the Company’s call rights and rights of first refusal or rights of first
offer set forth in the Stockholders Agreement or other agreement shall be held
invalid or unenforceable, the Option shall be cancelled and terminated.

 

17.          Governing Law.  All matters arising out of or relating to this
Agreement and the transactions contemplated hereby, including its validity,
interpretation, construction, performance and enforcement, shall be governed by
and construed in accordance with the internal laws of the State of Delaware,
without giving effect to its principles of conflict of laws.

 

18.          Construction.  Wherever any words are used in this Agreement in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply.  As used herein,
(i) “or” shall mean “and/or” and (ii) “including” or “include” shall mean
“including, without limitation.”

 

19.          Other Shares.  Notwithstanding anything in this Agreement or the
Plan to the contrary, none of the shares of Common Stock owned from time to time
by a Participant that were not acquired in connection with the grant of an Award
to such Participant shall be subject to any of the terms, conditions or
provisions of this Agreement or the Plan.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant
Date.

 

 

 

NUMBER HOLDINGS, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

Employee Name:

 

 

Employee ID Number:

 

 

 

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