<PAGE>
As filed with the Securities and Exchange Commission on March 19, 1998
Registration No. ______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HEADLANDS MORTGAGE COMPANY
(Exact Name of registrant as specified in its charter)
California 94-2851992
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1100 Larkspur Landing Circle, Suite 101, Larkspur, California 94939
(Address of principal executive offices) (Zip code)
HEADLANDS MORTGAGE COMPANY
1997 EXECUTIVE AND NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(Full title of the plan)
-----------
Peter T. Paul
President
Headlands Mortgage Company
1100 Larkspur Landing Circle, Suite 101
Larkspur, California 94939
(415) 461-6790
(Name, address and telephone number, including area code, of agent for service)
-----------
PLEASE SEND COPIES OF COMMUNICATIONS TO:
Phillip R. Pollock, Esq.
Tobin & Tobin
500 Sansome Street, Eighth Floor
San Francisco, California 94111
-----------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
<S> <C> <C> <C> <C>
Proposed maximum Proposed maximum
Title of securities to Amount to be offering price per aggregate offering Amount of
be registered registered share price registration fee
- -------------------------------------------------------------------------------------------------------------
Common Stock,
no par value 1,970,000(1) $16.19(2) $31,894,300(2) $9,409(2)
==============================================================================================================
</TABLE>
(1) This Registration Statement also covers such additional number of shares of
Common Stock as may be issuable by reason of the operation of the anti-
dilution of the Plan.
(2) Calculated in accordance with Rule 457(c) and (h) based on the average of
the high and low prices, reported for the Common Stock on the Nasdaq
National Market on March 16, 1998 of $16.19 per share.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
The documents containing the information required by Part I (plan
information and registrant information) will be sent or given to employees as
specified by Rule 428(b)(1). Such documents need not be filed with the
Securities and Exchange Commission ("Commission") either as part of this
Registration Statement or as prospectuses or prospectus supplements pursuant to
Rule 424. These documents and the documents incorporated by reference in the
registration statement pursuant to Item 3 of Part II of this form, taken
together, constitute a prospectus that meets the requirements of Section 10(a)
of the Securities Act of 1933, as amended (the "Securities Act").
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Headlands Mortgage Company (the
"Company") with the Commission are incorporated in and made a part of this
Registration Statement by reference:
(a) The Company's Prospectus, dated February 4, 1998, and filed
pursuant to Rule 424(b) under the Securities Act on February 5, 1998.
(b) The Company's Form 8-K dated February 4, 1998 and filed on
February 5, 1998.
(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, filed December 29, 1997 and
amended on January 30, 1998 and February 3, 1998.
All documents filed by the Registrant with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") prior to the filing of a post-effective amendment to this
Registration Statement which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold shall be deemed
to be incorporated by reference in this Registration Statement and made a part
hereof from their respective dates of filing (such documents, and the documents
enumerated above, being hereinafter referred to as "Incorporated Documents");
provided, however, the documents enumerated above or subsequently filed by the
Registrant under such Sections of the Exchange Act in each year during which the
offering made by the Registration Statement is in effect prior to the filing
with the Commission of the Registrant's Annual Report on Form 10-K covering such
year shall not be Incorporated Documents to be incorporated by reference in this
Registration Statement or be a part hereof from and after the filing of such
Annual Report on Form 10-K.
Any statement contained in an Incorporated Document shall be deemed to
be modified or superseded for purposes of this Registration Statement to the
extent that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
None.
2
<PAGE>
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 204(a)(10)(A) of the General Corporation Law of the State of
California ("GCL") allows a corporation to eliminate the personal liability of a
director for monetary damages in an action brought by or in the right of the
corporation for breach of a director's duties to the corporation and its
stockholders, except that such provision may not eliminate or limit the
liability of directors for (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its stockholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the corporation or its stockholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the corporation
or its stockholders, (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation or its stockholders, (vi) certain liabilities arising from contracts
with the corporation in which the director has material a financial interest,
(vii) the making of any distributions to stockholders contrary to the law,
(viii) the distribution of assets to shareholders after dissolution proceedings
without paying or adequately providing for all known liabilities of the
corporation within certain time limits, and (ix) the making of any loan or
guaranty contrary to law. The Registrant's Articles of Incorporation contain a
provision which eliminates directors' personal liability as set forth above,
except, as required by Section 204(a)(10)(B) and (C) of the GCL, any liability
of a director for any act or omission occurring prior to the date of the
provision's effectiveness, or any liability for an officer's acts or omissions,
notwithstanding that the officer is also a director or that the officer's
actions, if negligent or improper, have been ratified by the directors.
Section 317 of the GCL ("Section 317") empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) by reason of the fact that the or she is or was
a director, officer, employee or agent of the corporation, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with the proceeding if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of the person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent does not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful. Section 317
empowers the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation, against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of the action if the person
acted in good faith, in a manner the person believed to be in the best interests
of the corporation and its stockholders, provided that (i) the person is
successful on the merits or (ii) such amounts are paid with court approval.
Section 317 also provides that, unless a person is successful on the merits in
defense of any proceeding referred to above, indemnification may be made unless
a person is successful on the merits in defense of any proceeding referred to
above, indemnification may be made only if authorized in the specific case, upon
a determination that indemnification is proper in the circumstances because the
indemnified person met the applicable standard of conduct described above by one
of the following: (1) a majority vote of a quorum consisting of directors who
are not parties to such proceedings; (2) if such quorum is not obtainable, by
independent legal counsel in a written opinion; (3) by approval of stockholders
with such indemnified person's shares not being entitled to vote thereon; or (4)
by the court in which the proceeding is or was pending upon application by or on
behalf of the person. Such indemnification may be advanced to the indemnified
person upon the receipt of the corporation of an undertaking by or on behalf of
the indemnified person to repay such amount in the event it shall be ultimately
determined that such indemnified person is not entitled to indemnification.
Section 317 also allows the corporation, by express provision in its articles,
to authorize additional rights for indemnification pursuant to Section
204(a)(11).
The Bylaws of the Registrant provide that the Registrant shall
indemnify its directors and officers against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of such person being or having been a
director or officer of the corporation and shall advance to such director or
officer expenses incurred in defending any such proceeding to the fullest extent
permissible
3
<PAGE>
under California law. The Bylaws also provide that the Registrant may indemnify
its employees and agents for such expenses by resolution of the Board of
Directors.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable
ITEM 8. EXHIBITS
Exhibit # Description
- --------- -----------
4.1* Specimen Common Stock Certificate
5 Opinion of Tobin & Tobin
10 1997 Executive And Non-Employee Director Stock Option Plan
23.1 Consent of Tobin & Tobin (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included with signature page)
____________________________
* Previously filed and incorporated by reference to the correspondingly
numbered exhibit to the Registration Statement on Form S-1 (333-38267)
filed by the Registrant with the Securities and Exchange Commission.
ITEM 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (1)(a)(i) and (1)(a)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by, or furnished to the Commission by, the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement;
4
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification of liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Larkspur, State of California, on March 18, 1998.
HEADLANDS MORTGAGE COMPANY
By /s/ Peter T. Paul
-----------------
Peter T. Paul
(President )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Peter T. Paul, Becky S. Poisson, Gilbert J. MacQuarrie,
Steven M. Abreu and Paul Casellini, and each of them, his or true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities including his or her capacity as a director and/or officer of
Headlands Mortgage Company, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <C> <C>
/s/ Peter T. Paul
- --------------------------------------- President, Chief Executive Officer and Director March 18, 1998
Peter T. Paul (Principal Executive Officer)
/s/ Becky S. Poisson
- --------------------------------------- Executive Vice President Operations and Director March 18, 1998
Becky S. Poisson
/s/ Gilbert J. MacQuarrie
- --------------------------------------- Executive Vice President, Chief Financial Officer, March 18, 1998
Gilbert J. MacQuarrie Secretary and Director
(Principal Financial Officer)
Steven M. Abreu
- --------------------------------------- Executive Vice President, Production and Secondary March 18, 1998
Steven M. Abreu Marketing
- ---------------------------------------
Mark L. Korell Director March ___, 1998
- ---------------------------------------
Leonard Auerbach Director March ___, 1998
- ---------------------------------------
Mark E. Lachtman Director March ___, 1998
/s/ Kristen Decker Senior Vice President and Controller March 18, 1998
- --------------------------------------- (Principal Accounting Officer)
Kristen Decker
</TABLE>
6
<PAGE>
ITEM 10. EXHIBITS
Exhibit # Description
- --------- -----------
4.1* Specimen Common Stock Certificate
5 Opinion of Tobin & Tobin
10 1997 Executive And Non-Employee Director Stock Option Plan
23.1 Consent of Tobin & Tobin (included in Exhibit 5)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included with signature page)
____________________________
* Previously filed and incorporated by reference to the correspondingly
numbered exhibit to the Registration Statement on Form S-1 (333-38267)
filed by the Registrant with the Securities and Exchange Commission.
7
<PAGE>
[LETTERHEAD OF TOBIN & TOBIN]
EXHIBIT 5
March 17, 1998
The Board of Directors
Headlands Mortgage Company
1100 Larkspur Landing Circle, Suite 101
Larkspur, CA 94939
Re: Registration Statement on Form S-8 relative to the 1997
Executive and Non-Employee Director Stock Option Plan
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as your counsel in connection with the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of an
aggregate of up to 1,970,000 shares (the "Shares") of common stock (the "Common
Stock") of Headlands Mortgage Company, a California corporation (the "Company"),
issuable pursuant to the Company's 1997 Executive and Non-Employee Director
Stock Option Plan (the "Plan").
This opinion is delivered in accordance with the requirements of Items
601(b)(5) and (23) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Registration Statement on Form S-8, relating to the Shares, filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act (together with all exhibits thereto, the "Registration
Statement"), (ii) the Prospectus of the Plan to be given to participants
pursuant to the requirements of Part I of the Registration Statement, (iii) the
Articles of Incorporation of the Company, as amended and presently in effect,
(iv) the Bylaws of the Company in effect as of the date hereof, (v) resolutions
of the Board of Directors of the Company relating to the issuance of the Shares
and the filing and effectiveness of the Registration Statement, and (vi) a
specimen of the certificates representing the Shares. We have also examined
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinion set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies, and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
oral or written statements and representations of officers and other
representatives of the Company and others.
Members of our firm are admitted to the practice of law in the State
of California and we do not express any opinion as to the laws of any other
jurisdiction.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that
the Shares to be issued by the Company pursuant to the Plan, as described in the
Registration Statement, have been duly and validly authorized for issuance, and,
upon issuance and delivery of the Shares in accordance with the terms of the
Plan, the Shares will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to Form S-8 and its incorporation by reference as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or under the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/ Tobin & Tobin
<PAGE>
EXHIBIT 10
HEADLANDS MORTGAGE COMPANY
AMENDED AND RESTATED
1997 EXECUTIVE AND NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
(Adopted Effective July 22, 1997)
As Amended January 8, 1998
1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Headlands Mortgage Company 1997 Executive and
Non-Employee Director Stock Option Plan (the "Plan"). The Plan was adopted by
the Board effective as of July 22, 1997, subject to the approval of the Company
stockholders. The stockholders approved the Plan on September 15, 1997. The
Plan has been amended and restated from time to time by the Board of Directors
of the Company. The purpose of the Plan is to enable the Company and its
Subsidiaries to obtain and retain competent personnel who will contribute to the
Company's success by their ability, ingenuity and industry, to give the
Company's non-employee directors a proprietary interest in the Company and to
provide incentives to the participating directors, officers and other key
employees, and agents and consultants that are linked directly to increases in
stockholder value and will therefore inure to the benefit of all stockholders of
the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(1) "Accrued DERs" means dividend equivalent rights with the accrual rights
------------
described in Section 5(11).
(2) "Administrator" means the Board, or if the Board does not administer
-------------
the Plan, the Committee in accordance with Section 2.
(3) "Board" means the Board of Directors of the Company.
-----
(4) "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, or any successor thereto.
(5) "Committee" means the Compensation Committee of the Board, which shall
---------
be composed entirely of individuals who meet the qualifications to be a "Non-
Employee Director" as defined in Rule 16b-3 ("Rule 16b-3") as promulgated by the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934 (the "Act"), and as such Rule may be amended from time to
time, or any successor definition adopted by the Commission, or any other
Committee the Board may subsequently appoint to administer the Plan. If at any
time the Board shall not administer the Plan, then the functions of the Board
specified in the Plan shall be exercised by the Committee.
(6) "Company" means Headlands Mortgage Company, a corporation organized
-------
under the laws of the State of California (or any successor corporation).
(7) "Current-pay DERs" means dividend equivalent rights with the current-pay
----------------
rights described in Section 5(11).
(8) "DERs" shall mean Accrued DERs and Current-pay DERs.
----
1
<PAGE>
(9) "Deferred Stock" means an award granted pursuant to Section 7 of the
--------------
right to receive Stock at the end of a specified deferral period.
(10) "Disability" means permanent and total disability as determined under
----------
the Company's disability program or policy.
(11) "Effective Date" shall mean the date provided pursuant to Section 12.
--------------
(12) "Eligible Employee" means an employee of the Company or any Subsidiary
-----------------
eligible to participate in the Plan pursuant to Section 4.
(13) "Eligible Non-Employee Director" means a member of the Board or the
------------------------------
board of directors of any Subsidiary who is not a bona fide employee of the
Company or any Subsidiary and who is eligible to participate in the Plan
pursuant to Section 5A.
(14) "Fair Market Value" means, as of any given date, with respect to any
-----------------
awards granted hereunder, at the discretion of the Administrator and subject to
such limitations as the Administrator may impose, (A) the closing sale price of
the Stock on the next preceding business day as reported in the Western Edition
of the Wall Street Journal Composite Tape, or (B) the average of the closing
price of the Stock on each day on which the Stock was traded over a period of up
to twenty trading days immediately prior to such date, or (C) if the Stock is
not publicly traded, the fair market value of the Stock as otherwise determined
by the Administrator in the good faith exercise of its discretion.
(15) "Incentive Stock Option" means any Stock Option intended to be
----------------------
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(16) "Limited Stock Appreciation Right" means a Stock Appreciation Right that
--------------------------------
can be exercised only in the event of a "Change of Control" (as defined in
Section 10 below).
(17) "Non-Employee Director" shall have the meaning set forth in Rule 16b-3.
---------------------
(18) "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive
Stock Option.
(19) "Parent Corporation" means any corporation (other than the Company) in
------------------
an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(20) "Participant" means any Eligible Employee or any consultant or agent of
-----------
the Company or any Subsidiary selected by the Committee, pursuant to the
Administrator's authority in Section 2, to receive grants of Stock Options,
DERs, Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock awards, Deferred Stock awards, Performance Shares or any combination of
the foregoing, or any Eligible Non-Employee Director eligible to receive grants
of Non-Qualified Stock Options and DERs pursuant to Section 5A below.
(21) "Performance Share" means an award of shares of Stock granted pursuant
-----------------
to Section 7 that is subject to restrictions based upon the attainment of
specified performance objectives.
(22) "Restricted Stock" means an award granted pursuant to Section 7 of
----------------
shares of Stock subject to restrictions that will lapse with the passage of
time.
(23) "Stock" means the Common Stock of the Company.
-----
(24) "Stock Appreciation Right" means the right pursuant to an award granted
------------------------
under Section 6 to receive an amount equal to the difference between (A) the
Fair Market Value, as of the date such Stock Appreciation Right or
2
<PAGE>
portion thereof is surrendered, of the shares of Stock covered by such right or
such portion thereof, and (B) the aggregate exercise price of such right or such
portion thereof.
(25) "Stock Option" means an option to purchase shares of Stock granted
------------
pursuant to Section 5 or Section 5A.
(26) "Subsidiary" means any corporation (other than the Company) either
----------
(i) in an unbroken chain of corporations beginning with the Company, if each of
the corporations (other than the last corporation) in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain or (ii) organized to act
as the mortgage loan conduit for the Company.
2. ADMINISTRATION.
The Plan shall be administered by the Board or by the Committee appointed
by the Board, which shall serve at the pleasure of the Board; provided, however,
-------- -------
that at all times following the closing of an initial public offering of the
Stock, the Plan shall be administered by the Committee appointed by the Board.
The Administrator shall have the power and authority to grant to Eligible
Employees and consultants or agents of the Company or any Subsidiary, pursuant
to the terms of the Plan: (a) Stock Options (with or without DERs), (b) Stock
Appreciation Rights or Limited Stock Appreciation Rights, (c) Restricted Stock,
(d) Deferred Stock, (e) Performance Shares or (f) any combination of the
foregoing.
In particular, the Administrator shall have the authority:
(a) to select those employees of the Company or any Subsidiary who shall be
Eligible Employees;
(b) to determine whether and to what extent Stock Options (with or without
DERs), Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted
Stock, Deferred Stock, Performance Shares or a combination of the foregoing, are
to be granted to Eligible Employees or any consultant or agent of the Company or
any Subsidiary hereunder;
(c) to determine the number of shares to be covered by each such award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not limited to, (x)
the restricted period applicable to Restricted or Deferred Stock awards and the
date or dates on which restrictions applicable to such Restricted or Deferred
Stock shall lapse during such period, and (y) the performance goals and periods
applicable to the award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent with the terms
of the Plan, which shall govern all written instruments evidencing the Stock
Options, DERs, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of the
foregoing.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of
the Plan.
All decisions made by the Administrator pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company, any
Subsidiaries and the Participants.
3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be 50; provided, however, that from and after such time as
-------- -------
the Company closes an initial public offering of the Stock, the total number of
shares of Stock reserved and available for issuance (inclusive of shares already
issued) under the Plan shall automatically be
3
<PAGE>
increased so as to equal ten percent (10%) of the number of then outstanding
shares of Stock, and provided further, that no more than 1,000,000 shares of
--------------------
Stock shall be cumulatively available for Incentive Stock Options. At all times,
the number of shares reserved and available for issuance hereunder as so
determined from time to time shall be decreased by virtue of awards granted and
outstanding or exercised hereunder.
To the extent that (i) a Stock Option or DER expires or is otherwise
terminated without being exercised, or (ii) any shares of Stock subject to any
Restricted Stock, Deferred Stock or Performance Share award granted hereunder
are forfeited, such shares shall again be available for issuance in connection
with future awards under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, or other change in corporate structure affecting the Stock, a
substitution or adjustment may be made in (i) the aggregate number of shares
reserved for issuance under the Plan, and (ii) the kind, number and option price
of shares subject to outstanding Stock Options and DERs granted under the Plan
as may be determined by the Administrator, in its sole discretion, provided that
the number of shares subject to any award shall always be a whole number. Such
other substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion; provided, however, that with respect to
-------- -------
Incentive Stock Options, such adjustment shall be made in accordance with
Section 424 of the Code. An adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right or Limited Stock Appreciation Right associated with any Stock
Option.
The aggregate number of shares of Stock for which Stock Options or Stock
Appreciation Rights may be granted to any individual during any calendar year
may not, subject to adjustment as provided in this Section 3, exceed 75% of the
shares of Stock reserved for the purposes of the Plan in accordance with the
provisions of this Section 3.
4. ELIGIBILITY.
Employees of the Company who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company or its
Subsidiaries shall be eligible to be granted Stock Options, DERs, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock awards,
Deferred Stock awards or Performance Shares hereunder. The Participants under
the Plan shall be selected from time to time by the Administrator, in its sole
discretion, from among the Eligible Employees recommended by the senior
management of the Company, and the Administrator shall determine, in its sole
discretion, the number of shares covered by each award; provided, however, that
-------- -------
Eligible Non-Employee Directors shall only be eligible to receive Stock Options
as provided in Section 5A.
5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards granted
under the Plan, including DERs as described in Section 5(11). Any Stock Option
granted under the Plan shall be in such form as the Administrator may from time
to time approve, and the provisions of Stock Option awards need not be the same
with respect to each optionee. Recipients of Stock Options shall enter into a
stock option agreement with the Company, in such form as the Administrator shall
determine, which agreement shall set forth, among other things, the exercise
price of the option, the term of the option and provisions regarding
exercisability of the option granted thereunder.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority under this Section 5 to grant any
optionee (except Eligible Non-Employee Directors) Incentive Stock Options, Non-
Qualified Stock Options, or both types of Stock Options (in each case with or
without DERs, Stock Appreciation Rights or Limited Stock Appreciation Rights),
provided, however, that Incentive Stock Options may not be granted to any
- -------- -------
individual who is not an employee of the Company or its Subsidiaries. To the
extent that any Stock Option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option. More than one option
may be granted to the same optionee and be outstanding concurrently hereunder.
4
<PAGE>
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) Option Price. The option price per share of Stock purchasable under a
------------
Stock Option shall be determined by the Administrator in its sole discretion at
the time of grant but shall not, in the case of Incentive Stock Options, be less
than 100% of the Fair Market Value of the Stock on such date, and shall not, in
any event, be less than the par value of the Stock, if any. The option price per
share of Stock purchasable under a Non-Qualified Stock Option may be less than
100% of such Fair Market Value. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 425(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no less than 110%
of the Fair Market Value of the Stock on the date such Incentive Stock Option is
granted.
(2) Option Term. The term of each Stock Option shall be fixed by the
-----------
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
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employee owns or is deemed to own (by reason of the attribution rules of Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation or Subsidiary and an Incentive
Stock Option is granted to such employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such time or times
--------------
and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that, except as provided
-------- -------
herein or unless otherwise determined by the Administrator at or after grant,
Stock Options shall become exercisable as to 25% of the shares subject to such
Stock Option on the first anniversary of the date of grant of the Stock Option,
and as to an additional 25% on each of the next three anniversaries of the date
of grant. To the extent not exercised, installments shall accumulate and be
exercisable in whole or in part at any time after becoming exercisable but not
later than the date the Stock Option expires. The Administrator may provide, in
its discretion, that any Stock Option shall be exercisable only in installments,
and the Administrator may waive such installment exercise provisions at any time
in whole or in part based on such factors as the Administrator may determine, in
its sole discretion.
(4) Method of Exercise. Subject to Section 5(3), Stock Options may be
------------------
exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made in the form of unrestricted Stock already owned by the optionee, or, in the
case of the exercise of a Non-Qualified Stock Option, Restricted Stock or
Performance Shares subject to an award hereunder (based, in each case, on the
Fair Market Value of the Stock on the date the option is exercised); provided,
--------
however, that in the case of an Incentive Stock Option, the right to make
- -------
payment in the form of already owned shares may be authorized only at the time
of grant. Any payment in the form of stock already owned by the optionee may be
effected by use of an attestation form approved by the Administrator. If payment
of the option exercise price of a Non-Qualified Stock Option is made in whole or
in part in the form of Restricted Stock or Performance Shares, the shares
received upon the exercise of such Stock Option (to the extent of the number of
shares of Restricted Stock or Performance Shares surrendered upon exercise of
such Stock Option) shall be restricted in accordance with the original terms of
the Restricted Stock or Performance Share award in question, except that the
Administrator may direct that such restrictions shall apply only to that number
of shares equal to the number of shares surrendered upon the exercise of such
option. An optionee shall generally have the rights to dividends and other
rights of a stockholder with respect to shares subject to the option only after
the optionee has given written notice of exercise, has paid in full for such
shares, and, if requested, has given the representation described in paragraph
(1) of Section 11.
The Administrator may require the voluntary surrender of all or a portion of
any Stock Option granted under the Plan as a condition precedent to a grant of a
new Stock Option. Subject to the provisions of the Plan, such new Stock Option
shall be exercisable at the price, during such period and on such other terms
and conditions as are specified by the Administrator at the time the new Stock
Option is granted; provided, however, that should the Administrator so require,
-------- -------
the number of shares subject to such new Stock Option shall not be greater than
the number of shares subject to the
5
<PAGE>
surrendered Stock Option. Upon their surrender, Stock Options shall be canceled
and the shares previously subject to such canceled Stock Options shall again be
available for grants of Stock Options and other awards hereunder.
(5) Loans. The Company may make loans available to Stock Option holders in
-----
connection with the exercise of outstanding options granted under the Plan, as
the Administrator, in its discretion, may determine. Such loans shall (i) be
evidenced by promissory notes entered into by the Stock Option holders in favor
of the Company, (ii) be subject to the terms and conditions set forth in this
Section 5(5) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, and (iii) bear interest, if any, at
such rate as the Administrator shall determine. In no event may the principal
amount of any such loan exceed the sum of (x) the exercise price less the par
value of the shares of Stock covered by the option, or portion thereof,
exercised by the holder, and (y) any federal, state, and local income tax
attributable to such exercise. The initial term of the loan, the schedule of
payments of principal and interest under the loan, the extent to which the loan
is to be with or without recourse against the holder with respect to principal
or interest and the conditions upon which the loan will become payable in the
event of the holder's termination of employment shall be determined by the
Administrator; provided, however, that the term of the loan, including
-------- -------
extensions, shall not exceed seven years. Unless the Administrator determines
otherwise, when a loan is made, shares of Stock having a Fair Market Value at
least equal to the principal amount of the loan shall be pledged by the holder
to the Company as security for payment of the unpaid balance of the loan, and
such pledge shall be evidenced by a pledge agreement, the terms of which shall
be determined by the Administrator, in its discretion; provided, however, that
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each loan shall comply with all applicable laws, regulations and rules
of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(6) Limits on Transferability of Options.
------------------------------------
(a) Subject to Section 5(6)(b), no Stock Option shall be transferable by
the optionee otherwise than by will or by the laws of descent and distribution
or pursuant to a "qualified domestic relations order," as such term is defined
in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and all Stock Options shall be exercisable, during the optionee's lifetime, only
by the optionee or in accordance with the terms of a qualified domestic
relations order.
(b) The Administrator may, in its discretion, authorize all or a portion
of the options to be granted to an optionee to be on terms which permit transfer
by such optionee to (i) the spouse, qualified domestic partner, children or
grandchildren of the optionee and any other persons related to the optionee as
may be approved by the Administrator ("Immediate Family Members"), (ii) a trust
or trusts for the exclusive benefit of such Immediate Family Members, (iii) a
partnership or partnerships in which such Immediate Family Members are the only
partners, or (iv) any other persons or entities as may be approved by the
Administrator, provided that (x) there may be no consideration for any transfer
unless approved by the Administrator, (y) the stock option agreement pursuant to
which such options are granted must be approved by the Administrator, and must
expressly provide for transferability in a manner consistent with this Section
5(6)(b), and (z) subsequent transfers of transferred options shall be prohibited
except those in accordance with Section 5(6)(a) or expressly approved by the
Administrator. Following transfer, any such options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that, except for purposes of Sections 5(7), (8) and (9) and
11(3) hereof, the terms "optionee," Stock Option holder" and "Participant" shall
be deemed to refer to the transferee. The events of termination of employment
under Sections 5(7), (8) and (9) hereof shall continue to be applied with
respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods specified
under such sections unless the option agreement governing such options otherwise
provides. Notwithstanding the transfer, the original optionee will continue to
be subject to the provisions of Section 11(3) regarding payment of taxes,
including the provisions entitling the Company to deduct such taxes from amounts
otherwise due to such optionee. Any transfer of a Stock Option that was
originally granted with DERs related thereto shall automatically include the
transfer of such DERs, any attempt to transfer such Stock Option separately from
such DERs shall be void, and such DERs shall continue in effect according to
their terms. "Qualified domestic partner" for the purpose of this Section
5(6)(b) shall mean a domestic partner living in the same household as the
optionee and registered with, certified by or otherwise acknowledged by the
county or other applicable governmental body as a domestic partner or otherwise
establishing such status in any manner satisfactory to the Administrator.
(7) Termination by Death. If an optionee's employment with the Company or
--------------------
any Subsidiary terminates by reason of death, the Stock Option may thereafter be
immediately exercised, to the extent then exercisable (or on such
6
<PAGE>
accelerated basis as the Administrator shall determine at or after grant), by
the legal representative of the estate or by the legatee of the optionee under
the will of the optionee, for a period of twelve months (or such shorter period
as the Administrator shall specify at grant) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is shorter.
(8) Termination by Reason of Disability. If an optionee's employment with
-----------------------------------
the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such optionee may thereafter be exercised, to the extent it was
exercisable at the time of such termination (or on such accelerated basis as the
Administrator shall determine at the time of grant), for a period of twelve
months (or such shorter period as the Administrator shall specify at grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter; provided, however, that,
if the optionee dies within such twelve month period (or such shorter period as
the Administrator shall specify at grant) and prior to the expiration of the
stated term of such Stock Option, any unexercised Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of termination for a period of twelve months (or such
shorter period as the Administrator shall specify at grant) from the time of
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of a termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the applicable exercise periods under Section 422 of the Code, such Stock Option
shall thereafter be treated as a Non-Qualified Stock Option.
(9) Other Termination. Except as otherwise determined by the Administrator,
-----------------
if an optionee's employment with the Company or any Subsidiary terminates for
any reason other than death or Disability, the Stock Option may be exercised for
a period of three months from the date of such termination, or until the
expiration of the stated term of such Stock Option, whichever period is shorter.
(10) Annual Limit on Incentive Stock Options. To the extent that the
---------------------------------------
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to an Optionee under this Plan and all other option plans of the
Company, its Parent Corporation or any Subsidiary become exercisable for the
first time by the Optionee during any calendar year exceeds $100,000, such Stock
Options shall be treated as Non-Qualified Stock Options.
(11) DERs. The Administrator shall have the discretion to grant DERs in
----
conjunction with grants of Stock Options pursuant to this Section 5. DERs may be
granted in either of two forms, "Current-pay DERs" and "Accrued DERs" and the
Administrator may condition the payment or accrual of amounts in respect thereof
subject to satisfaction of such performance objectives as the Administrator may
specify at the time of grant. Assuming satisfaction of any applicable
conditions, Current-pay DERs shall be paid concurrently with any dividends or
distributions paid on the Stock during the time the related Stock Options are
outstanding in an amount equal to the cash dividend (or Stock or other property
hereby distributed) per share being paid on the Stock times the number of shares
subject to the related Stock Options. Current-pay DERs are payable in cash,
Stock or such other property in the same manner as may be distributed to
shareholders. Accrued DERs may be accrued in respect of cash dividends only or
cash dividends and the value of any Stock or other property distributed to
shareholders, as the Administrator shall determine at the time of grant.
Assuming satisfaction of any applicable conditions, Accrued DERs shall be
accrued with respect to the related Stock Options outstanding as of the date
dividends are declared on the Company's Stock in accordance with the following
formula:
(A x B) / C
under which "A" equals the number of shares subject to such Stock Options, "B"
equals the cash dividend per share or the value per share of the Stock or other
property being distributed, as the case may be, and "C" equals the Fair Market
Value per share of Stock on the dividend payment date. The Accrued DERs shall
represent shares of Stock which shall be issuable to the holder of the related
Stock Option proportionately as the holder exercises the Stock Option to which
the Accrued DERs relate, rounded down to the nearest whole number of shares.
DERs shall expire upon the expiration of the Stock Options to which they relate.
The Administrator shall specify at the time of grant whether dividends shall be
payable or credited on Accrued DERs. Notwithstanding anything to the contrary
herein, Accrued DERs granted with respect to Stock Options shall be accrued only
to the extent of the number of shares of stock then reserved and available for
issuance under the Plan in excess of the number of shares subject to issuance
pursuant to outstanding Stock Option,
7
<PAGE>
Accrued DER, Stock Appreciation Right, Limited Stock Appreciation Right,
Deferred Stock or Performance Share awards.
5A. STOCK OPTIONS FOR ELIGIBLE NON-EMPLOYEE DIRECTORS.
This Section 5A shall apply only to automatic grants of Stock Options to
Eligible Non-Employee Directors.
(1) Following the closing of an initial public offering of the Stock, each
Eligible Non-Employee Director serving at the time or thereafter duly elected or
appointed shall automatically be granted a Non-Qualified Stock Option to
purchase 10,000 shares of Stock. The option price per share of Stock purchasable
under such Stock Option shall be 100% of the Fair Market Value on the date of
grant. Such Stock Option shall become exercisable as to 25% of the shares
subject to such Stock Option on the first anniversary of the date of grant of
the Stock Option, and as to an additional 25% of the shares subject to such
Stock Option on each of the next three anniversaries of the date of grant. To
the extent not exercised, installments shall accumulate and be exercisable in
whole or in part at any time after becoming exercisable but not later than the
date the Stock Option expires. Exercise shall be by payment in full of the
purchase price in cash and no stock option shall be exercisable more than ten
years after the date of grant. The aggregate number of shares of Stock that may
be granted to Eligible Non-Employee Directors pursuant to the Plan may not
exceed 150,000 shares.
(2) Eligible Non-Employee Directors who receive grants of Stock Options
shall enter into a stock option agreement with the Company, which agreement
shall set forth, among other things, the exercise price of the option, the term
of the option and provisions regarding exercisability of the option granted
thereunder. The Stock Options granted under this section shall be Non-Qualified
Stock Options.
(3) Non-Qualified Stock Options granted to Eligible Non-Employee Directors
hereunder shall be transferable only to the extent provided in Sections 5(6)(a)
and (b).
(4) No DERs shall be paid with respect to such Non-Qualified Stock Options.
(5) The Board may not amend, alter or discontinue the provisions of this
Section 5A more than once every six months other than to comport with changes in
the Code, ERISA and the rules thereunder or the federal securities laws and the
rules thereunder.
6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(1) Grant and Exercise. Stock Appreciation Rights and Limited Stock
------------------
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option. In
the case of an Incentive Stock Option, Related Rights may be granted only at the
time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction with a
given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(2) of this Section 6. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
8
<PAGE>
(2) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Administrator, including the
following:
(a) Stock Appreciation Rights that are Related Rights ("Related Stock
Appreciation Rights") shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6; provided,
--------
however, that no Related Stock Appreciation Right shall be exercisable during
- -------
the first six months of its term, except that this additional limitation shall
not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.
(b) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or in some combination of cash and
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the option price per share
specified in the related Stock Option multiplied by the number of shares of
Stock in respect of which the Related Stock Appreciation Right is being
exercised, with the Administrator having the right to determine the form of
payment.
(c) Related Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that the underlying Stock Option would
be transferable or exercisable under paragraph (6) of Section 5.
(d) Upon the exercise of a Related Stock Appreciation Right, the Stock
Option or part thereof to which such Related Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation set
forth in Section 3 on the number of shares of Stock to be issued under the Plan.
(e) A Related Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the Fair Market Value
of the Stock subject to the Incentive Stock Option exceeds the exercise price of
such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights ("Free
Standing Stock Appreciation Rights") shall be exercisable at such time or times
and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that no Free Standing Stock
-------- -------
Appreciation Right shall be exercisable during the first six months of its term,
except that this limitation shall not apply in the event of death or Disability
of the recipient of the Free Standing Stock Appreciation Right prior to the
expiration of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right shall be
fixed by the Administrator, but no Free Standing Stock Appreciation Right shall
be exercisable more than ten years after the date such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation Right, a
recipient shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or any combination of cash or shares of
Stock) equal in value to the excess of the Fair Market Value of one share of
Stock as of the date of exercise over the price per share specified in the Free
Standing Stock Appreciation Right (which price shall be no less than 100% of the
Fair Market Value of the Stock on the date of grant) multiplied by the number of
shares of Stock with respect to which the right is being exercised, with the
Administrator having the right to determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be transferable or
exercisable subject to the provisions governing the transferability and
exercisability of Stock Options set forth in paragraphs (3) and (6) of Section
5.
(j) In the event of the termination of an employee who has been granted
one or more Free Standing Stock Appreciation Rights, such rights shall be
exercisable to the same extent that a Stock Option would have been exercisable
in the event of the termination of the optionee.
(k) Limited Stock Appreciation Rights may only be exercised within the
30-day period following a "Change of Control" (as defined in Section 10 below),
and, with respect to Limited Stock Appreciation Rights that are
9
<PAGE>
Related Rights ("Related Limited Stock Appreciation Rights"), only to the extent
that the Stock Options to which they relate shall be exercisable in accordance
with the provisions of Section 5 and this Section 6; provided, however, that no
-------- -------
Related Limited Stock Appreciation Right shall be exercisable during the first
six months of its term, except that this additional limitation shall not apply
in the event of death or Disability of the optionee prior to the expiration of
such six-month period.
(l) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to the
excess of the "Change of Control Price" (as defined in Section 10) of one share
of Stock as of the date of exercise over (A) the option price per share
specified in the related Stock Option, or (B) in the case of a Limited Stock
Appreciation Right which is a Free Standing Stock Appreciation Right, the price
per share specified in the Free Standing Stock Appreciation Right, such excess
to be multiplied by the number of shares in respect of which the Limited Stock
Appreciation Right shall have been exercised.
(m) For the purpose of the limitation set forth in Section 3 on the
number of shares to be issued under the Plan, the grant or exercise of Free
Standing Stock Appreciation Rights shall be deemed to constitute the grant or
exercise, respectively, of Stock Options with respect to the number of shares of
Stock with respect to which such Free Standing Stock Appreciation Rights were so
granted or exercised.
7. Restricted Stock, Deferred Stock and Performance Shares.
(1) General. Restricted Stock, Deferred Stock or Performance Share awards
-------
may be issued either alone or in addition to other awards granted under the
Plan. The Administrator shall determine the Eligible Employees to whom, and the
time or times at which, grants of Restricted Stock, Deferred Stock or
Performance Share awards shall be made; the number of shares to be awarded; the
price, if any, to be paid by the recipient of Restricted Stock, Deferred Stock
or Performance Share awards; the Restricted Period (as defined in Section 7(3))
applicable to Restricted Stock or Deferred Stock awards; the performance
objectives applicable to Performance Share or Deferred Stock awards; the date or
dates on which restrictions applicable to such Restricted Stock or Deferred
Stock awards shall lapse during such Restricted Period; and all other conditions
of the Restricted Stock, Deferred Stock and Performance Share awards. The
Administrator may also condition the grant of Restricted Stock, Deferred Stock
awards or Performance Shares upon the exercise of Stock Options, or upon such
other criteria as the Administrator may determine, in its sole discretion. The
provisions of Restricted Stock, Deferred Stock or Performance Share awards need
not be the same with respect to each recipient.
(2) Awards and Certificates. The prospective recipient of a Restricted
-----------------------
Stock, Deferred Stock or Performance Share award shall not have any rights with
respect to such award, unless and until such recipient has executed an agreement
evidencing the award (a "Restricted Stock Award Agreement," "Deferred Stock
Award Agreement," or "Performance Share Award Agreement," as appropriate) and
delivered a fully executed copy thereof to the Company, within a period of sixty
days (or such other period as the Administrator may specify) after the award
date. Except as otherwise provided below in this Section 7(2), (i) each
Participant who is awarded Restricted Stock or Performance Shares shall be
issued a stock certificate in respect of such shares of Restricted Stock or
Performance Shares; and (ii) such certificate shall be registered in the name of
the Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Headlands Mortgage Company 1997 Executive and Non-
Employee Director Stock Option Plan and a Restricted Stock Award Agreement
or Performance Share Award Agreement entered into between the registered
owner and Headlands Mortgage Company. Copies of such Plan and Agreement
are on file in the offices of Headlands Mortgage Company."
The Company shall require that the stock certificates evidencing such
shares be held in the custody of the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock award or
Performance Share award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
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(3) Restrictions and Conditions. The Restricted Stock, Deferred Stock and
---------------------------
Performance Share awards granted pursuant to this Section 7 shall be
subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted Stock,
Deferred Stock or Performance Share award agreement, during such period as may
be set by the Administrator commencing on the grant date (the "Restricted
Period"), the Participant shall not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock, Performance Shares or Deferred Stock awarded
under the Plan; provided, however, that the Administrator may, in its sole
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discretion, provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part based on such factors
and such circumstances as the Administrator may determine, in its sole
discretion, including, but not limited to, the attainment of certain performance
related goals, the Participant's termination, death or Disability or the
occurrence of a "Change of Control" as defined in Section 10.
(b) Except as provided in paragraph (3)(a) of this Section 7, the
Participant shall have, with respect to the shares of Restricted Stock or
Performance Shares, all of the rights of a stockholder of the Company, including
the right to vote the shares, and the right to receive any dividends thereon
during the Restricted Period. With respect to Deferred Stock awards, the
Participant shall generally not have the rights of a shareholder of the Company,
including the right to vote the shares during the Restricted Period; provided,
--------
however, that dividends declared during the Restricted Period with respect to
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the number of shares covered by a Deferred Stock award shall be paid to the
Participant. Certificates for shares of unrestricted Stock shall be delivered to
the Participant promptly after, and only after, the Restricted Period shall
expire without forfeiture in respect of such shares covered by the award of
Restricted Stock, Performance Shares or Deferred Stock, except as the
Administrator, in its sole discretion, shall otherwise determine.
(c) Subject to the provisions of the Restricted Stock, Deferred Stock or
Performance Share award agreement and this Section 7, upon termination of
employment for any reason during the Restricted Period, all shares subject to
any restriction as of the date of such termination shall be forfeited by the
Participant, and the Participant shall only receive the amount, if any, paid by
the Participant for such Restricted Stock or Performance Shares, plus simple
interest on such amount at the rate of 8% per year.
8. AMENDMENT AND TERMINATION.
Subject to the provisions of Section 5A(5), the Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of a Participant under any award theretofore
granted without such Participant's consent, or that without the approval of the
stockholders (as described below) would:
(1) except as provided in Section 3, increase the total number of shares of
Stock reserved for the purpose of the Plan;
(2) change the employees or class of employees eligible to participate in
the Plan; or
(3) extend the maximum option period under paragraph (2) of Section 5 of the
Plan.
Notwithstanding the foregoing, stockholder approval under this Section 8
shall only be required at such time and under such circumstances as stockholder
approval would be required under (a) Rule 16b-3 of the Act with respect to any
material amendment to any employee benefit plan of the Company or (b) Sections
162(m), 280G or 422 of the Code.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3, no such amendment
shall impair the rights of any holder without his or her consent.
9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant or
optionee by the Company, nothing contained herein shall give any such
Participant or optionee any rights that are greater than those of a general
creditor of the Company.
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10. CHANGE OF CONTROL.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control" as defined in paragraph (2) of this Section 10:
(1) In the event of a "Change of Control," unless otherwise determined by
the Administrator or the Board in writing at or after grant (including under any
individual agreement), but prior to the occurrence of such Change of Control:
(a) any Stock Appreciation Rights outstanding for at least six months
and any Stock Options, including Stock Options granted under Section 5A, awarded
under the Plan not previously exercisable and vested shall become fully
exercisable and vested;
(b) the restrictions applicable to any Restricted Stock, Deferred Stock
or Performance Share awards under the Plan shall lapse, and such shares and
awards shall be deemed fully vested; and
(c) the value of all outstanding Stock Options (except Stock Options
granted under Section 5A), DERs, Stock Appreciation Rights, Limited Stock
Appreciation Rights, and Restricted Stock, Deferred Stock and Performance Share
awards shall, to the extent determined by the Administrator at or after grant,
be cashed out by a payment in cash or other property, as the Administrator may
determine, on the basis of the "Change of Control Price" (as defined in
paragraph (3) of this Section 10) as of the date the Change of Control occurs or
such other date as the Administrator may determine prior to the Change of
Control.
(2) For purposes of paragraph (1) of this Section 10, a "Change of Control"
shall be deemed to have occurred if, at any time following an initial public
offering of the Stock by the Company:
(a) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of Stock of the Company) is or becomes after
the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired directly
from the Company or its affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding securities; or
(b) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c) or (d) of this Section 10(2))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
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(3) For purposes of this Section 10, "Change of Control Price" means the
higher of (i) the highest price per share paid or offered in any transaction
related to a Change of Control of the Company or (ii) the highest price per
share paid in any transaction reported on the exchange or national market system
on which the Stock is listed, at any time during the preceding sixty day period
as determined by the Administrator, except that, in the case of Incentive Stock
Options and Stock Appreciation Rights or Limited Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Administrator decides to cash
out such options.
11. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. Neither the adoption of the
Plan nor the grant of Stock Options or other benefits under the Plan to any
employee of the Company or any Subsidiary shall confer upon any employee any
right to continued employment with the Company or a Subsidiary, as the case may
be, or interfere in any way with the right of the Company or a Subsidiary to
terminate the employment of any of its employees at any time.
(3) Each Participant shall, no later than the date as of which the value of
an award first becomes includable in the gross income of the Participant for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any federal, state, or
local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on the
making of such payments or arrangements, and the Company (and, where applicable,
its Subsidiaries) shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(4) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(5) The Administrator may appoint from time to time one or more financial
institutions to act as Plan financial agent to facilitate the exercise by
Participants of Stock Options and other benefits granted or awarded under the
Plan and to assist the Administrator with recordkeeping, accounting and taxation
requirements under the Plan. The Administrator may encourage Participants to
take any actions required to permit the Plan financial agent to perform its
services, including but not limited to opening accounts with the Plan financial
agent.
12. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on September 15, 1997, the
date the Company's stockholders formally approved the Plan.
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13. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Restricted Stock, Deferred Stock or Performance Share award shall be
granted pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Headlands Mortgage Company on Form S-8 of our report dated December 19, 1997
appearing in the Prospectus of Headlands Mortgage Company dated February 4, 1998
and filed pursuant to Rule 424(b) on February 5, 1998. Our report refers to a
change in the Company's method of accounting for originated mortgage servicing
rights in 1995 and its method of accounting for transfers and servicing of
financial assets in 1997.
KPMG Peat Marwick LLP
San Francisco, California
March 18, 1998
