<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
-------------
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 0-19335
BUILDING MATERIALS HOLDING CORPORATION
Delaware 91-1834269
(State of other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
Building Materials Holding Corporation
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (415)227-1650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 month (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<TABLE>
<CAPTION>
Shares Outstanding as
Class of July 31, 1998:
----- --------------------
<S> <C>
Common stock $.001 par value 12,641,439
</TABLE>
1
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income for the three and
six months ended June 30, 1998 and 1997 4
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 5
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
EXHIBITS 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by Building Materials Holding Corporation ("BMHC" or the "Company")on a
consolidated basis, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. BMHC was formed on September 23, 1997 in a
holding company reorganization in which BMC West Corporation, the former
registrant, became a wholly owned subsidiary of BMHC. This new structure was
adopted to centralize certain administrative functions as the Company expands
its participation in the consolidation of the contractor focused building
materials distribution industry. All references to the "Company" will mean BMHC
on a consolidated basis if referring to periods after September 23, 1997, or BMC
West Corporation for all preceding periods.
In the opinion of management, all adjustments necessary to present fairly the
financial results for the periods presented have been included in management's
discussion and analysis. The adjustments made were of a normal, recurring
nature. Certain information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is recommended that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's 1997 Annual
Report.
The condensed consolidated results of operations for the periods presented are
not necessarily indicative of the results that might be expected for the fiscal
year.
3
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $226,017 $190,616 $409,648 $337,385
Cost of sales 171,413 147,129 311,079 259,608
-------- -------- -------- --------
Gross profit 54,604 43,487 98,569 77,777
Selling, general
and administrative
expense 44,523 35,832 84,959 67,745
Other income 451 427 824 891
-------- -------- -------- --------
Income from
operations 10,532 8,082 14,434 10,923
Interest expense 2,674 2,362 5,171 4,450
-------- -------- -------- --------
Income before income
taxes 7,858 5,720 9,263 6,473
Income taxes 3,104 2,260 3,659 2,557
-------- -------- -------- --------
Net income $4,754 $3,460 $ 5,604 $ 3,916
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common
share:
Basic $0.38 $0.29 $0.45 $0.33
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $0.38 $0.29 $0.45 $0.33
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 8,234 $ 8,177
Receivables, net 100,627 84,872
Inventories 83,089 78,162
Deferred income tax benefit 2,131 2,131
Prepaid expenses 1,366 3,481
-------- --------
Total current assets 195,447 176,823
Property, plant and equipment, net 131,543 118,240
Deferred loan costs 1,051 1,324
Goodwill, net 38,339 38,193
Other 5,618 5,793
-------- --------
Total assets $371,998 $340,373
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ -- $ 1,150
Accounts payable 47,350 43,204
Accrued compensation 8,065 6,469
Sales tax payable 4,017 3,398
Other accrued expenses 7,758 3,990
-------- --------
Total current liabilities 67,190 58,211
Long-term debt, net of current portion 126,630 113,410
Deferred income taxes 4,722 4,722
Other long-term liabilities 2,851 3,079
Shareholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized, 12,641,439 and
12,331,088 shares outstanding at June 30,
1998 and December 31, 1997, respectively 13 12
Additional paid-in capital 108,154 104,107
Retained earnings 62,438 56,832
-------- --------
Total shareholders' equity 170,605 160,951
-------- --------
Total liabilities and shareholders' equity $371,998 $340,373
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,604 $ 3,916
Adjustments to reconcile net income to cash
provided (used)in operating activities:
Depreciation and amortization 6,576 5,457
Gain on sales of assets (60) (423)
Stock option compensation 16 --
Changes in working capital items, net of
effects of acquisitions and divestitures (2,569) (4,190)
Other (282) (684)
--------- ---------
Net cash provided by operating activities 9,285 4,076
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (10,327) (6,153)
Payments for acquisitions (11,536) (5,738)
Proceeds from sales of property and equipment 534 1,232
--------- ---------
Net cash used in investing activities (21,329) (10,659)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreement 13,220 9,930
Principal payments on debt (1,124) --
Redemption of preferred stock -- (1,000)
Financing costs -- (201)
Other 5 (68)
--------- ---------
Net cash provided by financing activities 12,101 8,661
--------- ---------
Net increase in cash 57 2,078
Cash, beginning of period 8,177 7,066
--------- ---------
Cash, end of period $ 8,234 $ 9,144
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ 4,901 $ 4,378
Income taxes $ 1,114 $ 487
</TABLE>
The accompanying notes are in integral part of these condensed financial
statements.
6
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. WORKING CAPITAL CHANGES
Changes in working capital items, net of acquisitions, for the six months ended
June 30, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(Increase)in accounts receivable $(11,983) $(13,021)
(Increase)in inventories (2,144) (1,994)
Decrease in prepaid expenses 2,123 687
Increase in accounts payable and accrued
expenses 9,431 10,066
Increase in interest payable 4 72
---------- ----------
$ (2,569) $ (4,190)
---------- ----------
---------- ----------
</TABLE>
2. LONG-TERM DEBT
Long-term debt consisted of the following(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
Revolving credit agreement borrowings $ 47,930 $ 34,710
9.18% unsecured senior notes 50,000 50,000
8.10% unsecured senior notes 25,000 25,000
Other 3,700 4,850
---------- -----------
126,630 114,560
Less current portion -- 1,150
---------- -----------
$126,630 $113,410
---------- -----------
---------- -----------
</TABLE>
The Company is in compliance with all covenants and conditions related to the
above borrowings.
7
<PAGE>
3. EARNINGS PER SHARE
Earnings per share was determined as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
June 30, June 30, June 30, June 30
1998 1997 1998 1997
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC
EARNINGS PER SHARE:
Net income $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,916,000
Class B preferred stock
accretion -- -- -- (6,500)
----------- ----------- ----------- -----------
Net income available to
common shareholders $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,909,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding 12,408,238 11,830,141 12,372,560 11,828,690
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE $0.38 $0.29 $0.45 $0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
COMPUTATION OF DILUTED
EARNINGS PER SHARE:
Net income available to
common shareholders $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,909,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding 12,408,238 11,830,141 12,372,560 11,828,690
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price 163,636 215,953 147,775 217,172
----------- ----------- ----------- -----------
Weighted average diluted
shares outstanding 12,571,874 12,046,094 12,520,335 12,045,862
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED EARNINGS PER
SHARE $0.38 $0.29 $0.45 $0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
8
<PAGE>
4. ACCQISITIONS
In the second quarter of 1998, the Company completed five acquisitions
consisting of eight locations, six of which have value-added facilities
located in Montana, Oregon, Texas and Washington. The total consideration
given was $15.6 million consisting of $11.5 million in cash, 299,343 shares
of common stock valued at $4.0 million and other assumed operating
liabilities of $81,000. For purposes of the Statements of Cash Flows,
those portions of the acquisitions completed by payment of the Company's
common stock or through the assumption of operating liabilities have been
treated as non-cash transactions.
5. START-UP COSTS
On April 3, 1998, the AICPA issued Statement of Position (SOP)98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES. This SOP provides guidance
on the financial reporting of start-up and organization costs. The SOP
requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP is effective for financial statements with fiscal
years beginning after December 15, 1998 and earlier application is
encouraged. The Company adopted this SOP during the second quarter of
1998. The resulting impact on the Company's consolidated results of
operations and financial condition was immaterial.
6. NEW ACCOUNTING PRONOUNCEMENT
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Statement establishes accounting
and reporting standards requiring derivative instruments (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
This Statement is effective for fiscal quarters of fiscal years beginning
after June 15, 1999. The Company plans to adopt this Statement in the
first quarter of 2000. The Company is still in process of reviewing this
Statement, however, given that the Company does not utilize derivative
instruments, adoption of this Statement is not expected to have an impact
on the Company's consolidated results of operations or financial condition.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain costs, expenses and income items. The
table and subsequent discussion should be read in conjunction with the
consolidated financial statements and the notes thereto appearing elsewhere
herein and in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 24.2 22.8 24.1 23.1
Selling, general and
administrative expense 19.7 18.8 20.7 20.1
Other income .2 .2 .2 .3
Income from operations 4.7 4.2 3.5 3.2
Interest expense 1.2 1.2 1.3 1.3
Income taxes 1.4 1.2 .9 .8
Net income 2.1 1.8 1.4 1.2
</TABLE>
SECOND QUARTER OF 1998 COMPARED TO THE SECOND QUARTER OF 1997
Net sales for the three months ended June 30, 1998 were $226.0 million up 18.6%
from the second quarter of 1997 when sales were $190.6 million. The largest
portion of this increase was due to acquisitions contributing $26.6 million.
The increase in net sales also resulted from a 5.7% increase over the second
quarter of 1997 in sales at facilities that operated for at least two months in
both the second quarter of 1997 and the second quarter of 1998 ("same-store
sales"). Sales increased despite overall price deflation of 3.2%, primarily
attributable to commodity wood product prices. Adjusting for the price
deflation, real same-store sales were approximately 8.9% over the year-ago
quarter.
Gross profit as a percentage of sales increased to 24.2% in the second quarter
of 1998 from 22.8% in the second quarter of 1997, primarily as a result of on-
going efforts by the Company to improve margins through its increased focus on
10
<PAGE>
value-added products, such as roof trusses, pre-hung doors, millwork, and
pre-assembled windows.
Selling, general and administrative (SG&A) expense, was $44.5 million in the
second quarter of 1998 as compared to $35.8 million in 1997, and increased as a
percentage of net sales from 18.8% in 1997 to 19.7% in 1998. The Company
attributes this partially to increases in value-added sales that carry higher
SG&A expenses and integrating new operating locations that were not included in
the comparable period.
Interest expense of $2.7 million in the second quarter of 1998 increased from
$2.4 million in the same period of 1997, primarily due to increased borrowings
under the Company's revolving line of credit to support higher working capital
as a result of increased sales and acquisitions made during the previous 12
months.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the periods ended June 30, 1998 and June 30, 1997.
As a result of the foregoing factors, net income increased by $1.3 million, or
37.4% to $4.8 million, or 2.1% of net sales in the second quarter of 1998, as
compared to $3.5 million, or 1.8% of net sales, in the second quarter of 1997.
FIRST SIX MONTHS OF 1998 COMPARED WITH THE FIRST SIX MONTHS OF 1997
Net sales for the six months ended June 30, 1998 were $409.6 million up 21.4%
from the first half of 1997 when sales were $337.4 million. The largest portion
of this increase was due to acquisitions contributing $47.5 million. The
increase in net sales also resulted from an increase of 8.7% in same-store
sales, over the first six months of 1997. Sales in the 1998 period were
negatively affected by lower commodity wood product prices. The price decrease
contributed to an overall price deflator of 3.4%, the effect of which decreased
sales by approximately $11.4 million. Excluding price deflation, same-store
sales increased 12.1%.
11
<PAGE>
Gross profit as a percentage of sales improved to 24.1% in the first half of
1998 from 23.1% in the first six months of 1997, primarily as a result of on
going efforts by the Company to improve margins through its increased focus on
value-added products, such as roof trusses, pre-hung doors, millwork and
pre-assembled windows.
Selling, general and administrative (SG&A) expense, was $85.0 million in the
first six months of 1998 as compared to $67.7 million in 1997, and increased as
a percentage of net sales to 20.7% in 1998 from 20.1% in 1997. The Company
attributes this partially to increases in value-added sales that carry higher
SG&A expenses and integrating new operating locations that were not included in
the comparable period.
Interest expense increased to $5.2 million in the first six months of 1998 from
$4.5 million in the same period of 1997, primarily due to increased borrowings
under the Company's revolving line of credit to support higher working capital
as a result of increased sales and acquisitions made during the previous 12
months.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the six month periods ended June 30, 1998 and June 30, 1997.
As a result of the foregoing factors, net income increased by $1.7 million, or
43.1% to $5.6 million, or 1.4% of net sales in the first half of 1998, as
compared to $3.9 million, or 1.2% of net sales, in the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had $126.6 million of long-term debt outstanding,
consisting of $78.7 million of term borrowings under fixed rate notes, and $47.9
million of variable rate debt under the revolving credit agreement.
In the first half of 1998, the Company generated $9.3 million of cash from
operating activities. Working capital increased from $118.6 million at
December 31, 1997 to $128.3 million at June 30, 1998, due primarily to
12
<PAGE>
increased sales and acquisitions made during the previous 12 months and due to
the seasonality in the Company's accounts receivable and inventories.
Based on its ability to generate cash from operations and the available
borrowing capacity at June 30, 1998 of $22.1 million under the revolving credit
agreement (availability of which is subject to the satisfaction of certain
customary borrowing conditions), the Company believes it will have sufficient
funds to meet its currently anticipated requirements.
YEAR 2000 SYSTEM ISSUE
The Company continues to review its financial and operating systems with respect
to the Year 2000 issue. The Company is in the process of making normal upgrades
and modifications to its significant financial and operating systems, including
both hardware and software components. The upgrades are designed, among other
things, to address the Year 2000 issue, and are not presently expected to result
in a material incremental expense to the Company. Based on the Company's
progress to date in addressing its significant operating and financial
applications, the Company does not currently anticipate any material disruption
in its operations as a result of the Year 2000 issue.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and administrative
proceedings primarily arising in the normal course of its
business. In the opinion of management, the Company's recovery,
if any, or the Company's liability, if any, under any pending
litigation or administrative proceedings would not materially
affect its financial condition or operations.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholder meeting on May 7, 1998. A
total of 12,333,762 shares of common stock were outstanding at the
date of record and entitled to vote at the meeting. Of the total
outstanding, 10,436,735 shares were represented at the meeting and
1,897,027 shares were not voted.
Shareholders cast votes for the election of the following
directors, whose terms expire in 1999:
<TABLE>
<CAPTION>
For Against
---------- -------
<S> <C> <C>
George E. McCown 10,360,389 76,346
Robert E. Mellor 10,359,466 77,269
Donald S. Hendrickson 10,360,525 76,210
Alec F. Beck 10,358,071 78,664
H. James Brown 10,360,378 76,357
Wilbur J. Fix 10,360,378 76,357
Robert V. Hansberger 10,360,064 76,671
Guy O. Mabry 10,360,064 76,671
Peter S. O'Neill 10,360,438 76,297
</TABLE>
The shareholders ratified the appointment of Arthur Andersen LLP
as the Company's independent auditors for the year 1998 with votes
cast 10,402,699 for, 21,410 against, 12,566 abstained.
The shareholders ratified the Amended and Restated Non-Employee
Director Stock Option Plan with votes cast 10,079,767 for, 265,417
against, 40,702 abstained.
The shareholders ratified the First Amendment to the Amended and
Restated 1993 Employee Stock Option Plan with votes cast
10,024,144 for, 321,603 against, 40,139 abstained.
14
<PAGE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUILDING MATERIALS HOLDING CORPORATION
Date: August 3, 1998 /s/ Robert E. Mellor
-------------------------------------------
Robert E. Mellor
President, Chief Executive Officer
and Director (Principal Executive Officer)
Date: August 3, 1998 /s/ Ellis C. Goebel
-------------------------------------------
Ellis C. Goebel
Senior Vice President-Finance and Treasurer
(Principal Financial Officer)
16
<PAGE>
INDEX TO EXHIBITS
BUILDING MATERIALS HOLDING CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1998
<TABLE>
<CAPTION>
Page
Exhibit Description Number
- -------- ------------ ------
<S> <C> <C>
27 Financial Data Schedule 18
10.1 Amended and Restated Non-Employee Director
Stock Option Plan 20
10.2 First Amendment to the Amended and Restated 1993
Employee Stock Option Plan 28
</TABLE>
17
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of the Amended and Restated Non-Employee Director Stock Option
Plan (the "Amended Director Plan") of Building Materials Holding Corporation
(the "Company") is to promote the interests of the Company by attracting and
retaining highly qualified independent directors by providing such individuals
with an investment interest in the Company's future success.
2. DEFINITIONS.
The following definitions shall apply to this Amended Director Plan:
(a) "ANNUAL GRANT DATE" shall mean, for each fiscal year, the date
on which the stockholders of the Company have their regular annual meeting.
(b) "BOARD" or "BOARD OF DIRECTORS" shall mean the Board of
Directors of the Company.
(c) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday
or Federal or California state holiday.
(d) "CHANGE OF CONTROL." A "Change in Control" of the Company shall
be deemed to have occurred if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (ii) the stockholders of
the Company approve a plan or proposal for the liquidation or dissolution of
the Company, or (iii) any "person" (as defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of fifty (50%) percent or more of the Company's
outstanding Common Stock, or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors of the Company shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new
<PAGE>
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of their period.
(e) "ELIGIBLE DIRECTOR" shall mean any person who is a member of the
Board and who is not a full or part-time employee of the Company or of any
parent or subsidiary corporation (as defined in Section 424 of the Internal
Revenue Code of 1986, as amended) of the Company, and who has not been an
employee of the Company or of any parent or subsidiary of the Company within
one (1) year prior to participation in the Amended Director Plan.
(f) "FAIR MARKET VALUE" when used in reference to the purchase of
Shares pursuant to the exercise of an option shall mean (i) if the Common Stock
is listed on the New York Stock Exchange or any other established stock
exchange or on the NASDAQ National Market, the closing sales price of the
Common Stock on the relevant date as reported in the WALL STREET JOURNAL,
(ii) if the Common Stock is not then listed on an exchange or traded on the
NASDAQ National Market, the average of the closing bid and asked prices per
share for the Common Stock in the over-the-counter market as quoted on NASDAQ
on such date, or (iii) if the Common Stock is not then listed on an exchange or
quoted on NASDAQ, an amount determined in good faith by the Board of Directors
of the Company.
(g) "GRANT DATE" shall mean the Initial Grant Date or the Annual
Grant Date, as appropriate.
(h) "INITIAL GRANT DATE" shall mean the later of (i) the date on
which an Eligible Director is first elected as a member of the Board by action
of the stockholders of the Company, or (ii) in the case of a director who has
been an employee of the Company or a parent or subsidiary of the Company, the
date on which such director becomes an Eligible Director.
(i) "OPTION" shall mean an option to purchase Shares granted under
this Amended Director Plan.
(j) "OPTION AGREEMENT" shall mean the written agreement described in
Section 7.
(k) "SHARES" shall mean shares of the Common Stock of the Company.
3. ADMINISTRATION.
(a) GENERAL. This Amended Director Plan shall be administered by
the Board in accordance with the express provisions of this Amended Director
Plan.
(b) POWERS OF BOARD. The Board shall have full and complete
authority to adopt such rules and regulations and to make all such other
determinations not inconsistent with the Amended Director Plan as may be
necessary for the
2
<PAGE>
administration of the Amended Director Plan. Notwithstanding the foregoing,
the Company shall have no authority or discretion as to the persons eligible
to receive Options under the Amended Director Plan, or the number of Shares
covered by Options under the Amended Director Plan, which matters are
specifically governed by the provisions of this Amended Director Plan.
4. RESTRICTIONS.
All Options granted under the Amended Director Plan shall be subject to
the requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the Shares
subject to Options granted under the Amended Director Plan upon any securities
exchange or under any state or federal law, or the consent or approval of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the issuance, if any, or
purchase of Shares in connection therewith, such Option may not be exercised in
whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
5. SHARES SUBJECT TO AMENDED DIRECTOR PLAN.
(a) AGGREGATE NUMBER. Subject to adjustment in accordance with
Section 7(g), a total of 187,500 Shares are reserved for issuance under this
Amended Director Plan. Shares sold under this Amended Director Plan may be
unissued Shares or reacquired Shares. If any Options shall for any reason be
canceled, terminate or expire without having been exercised in full, Shares not
purchased thereunder shall be available again for grant under this Amended
Director Plan.
(b) RIGHTS AS STOCKHOLDER. No Eligible Director and no beneficiary
or other person claiming under or through such Eligible Director shall have any
rights as a stockholder with respect to Shares acquired by exercise of an
Option until the issuance (as evidenced by the appropriate entry on the books
of the Company or a duly authorized transfer agent) of a stock certificate
evidencing the Shares. Subject to Section 7(g), no adjustment shall be made
for dividends or other events for which the record date is prior to the date
the certificate is issued.
(c) RIGHTS WITH RESPECT TO SHARES. No Eligible Director and no
beneficiary or other person claiming under or through such Eligible Director
shall have any right, title or interest in or to any Shares subject to any
Option unless and until such Option is duly exercised pursuant to the terms of
this Amended Director Plan.
6. NONDISCRETIONARY GRANTS
Stock options for 2,250 shares each will continue to be automatically
granted to the Non-employee Directors, from the Amended Director Plan, at each
annual meeting after stockholder approval.
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(a) INITIAL GRANT. On the Initial Grant Date, each Eligible
Director shall automatically receive the grant of an Option to purchase 2,250
Shares.
(b) REGULAR ANNUAL GRANTS. On each Annual Grant Date, immediately
after the annual election of directors, each Eligible Director then in office
shall automatically receive the grant of an Option to purchase 2,250 Shares.
(c) ADJUSTMENT. The number of Shares for which Options are granted
in accordance with this Section 6 and the number of Shares subject to any
Option shall be subject to adjustment in accordance with Section 7(g).
7. TERMS OF OPTION AGREEMENTS.
Upon the grant of each Option, the Company and the Eligible Director shall
enter into an Option Agreement which shall specify the Grant Date, the number
of Shares to which the option pertains, the exercise price per share, and shall
include or incorporate by reference the substance of all of the following
provisions and such other provisions consistent with this Amended Director Plan
as the Board may determine:
(a) OPTION TERM. Unless terminated earlier pursuant to the
provisions of Sections 7(f) or 7(h), each Option shall expire and no longer be
exercisable on a date which is ten (10) years after the Grant Date of such
Option.
(b) EXERCISE SCHEDULE. The Option shall be exercisable on the
earlier of the first anniversary of the Grant Date or the day immediately prior
to the date on which the stockholders have their annual meeting following the
Grant Date of the Option, providing that the Eligible Director is still serving
as a director of the Company at such time. Notwithstanding the foregoing, an
Option held by an Eligible Director shall become immediately exercisable in
full upon the death or disability of such Eligible Director, upon retirement
after age sixty-five (65) of such Eligible Director from the Board, upon an
unsuccessful attempt by such Eligible Director to win reelection to the Board,
or upon a Change of Control of the Company.
(c) PURCHASE PRICE. The purchase price of the Shares subject to
each Option shall be the Fair Market Value of Shares on the Grant Date of such
Option, or on the last preceding Business Day if such Grant Date is not a
Business Day.
(d) PAYMENT OF PURCHASE PRICE. The purchase price of Shares
acquired pursuant to an Option shall be paid in full at the time the Option is
exercised: (1) in cash or cash equivalents; (2) by delivery of shares of
Common Stock of the Company, valued at the Fair Market Value on the date of
exercise; provided, however, that Options may not be exercised by the delivery
of Common Stock more frequently than at six-month intervals or (3) by delivery
of a properly executed exercise notice together with such other documentation
as the Board and the broker, if applicable, shall require to effect an
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exercise of the option and delivery to the Company of the sale proceeds
required to pay the exercise price.
(e) TRANSFERABILITY. Options are subject to limited transferability
by the original option holder and subject to approval of the Compensation
Committee of the Board of Directors. The transfer by an Eligible Director to a
trust created by the Eligible Director for the benefit of the Eligible Director
or the Eligible Director's family which is revocable at any and all times
during the Eligible Director's lifetime by the Eligible Director and as to
which the Eligible Director is the sole trustee during his or her lifetime,
will not be deemed to be a transfer for purposes of the Amended Director Plan.
Under such rules and regulations as the Board may establish pursuant to the
terms of the Amended Director Plan, a beneficiary may be designated with
respect to an Option grant in the event of the death of an Eligible Director.
If the estate of the Eligible Director is the beneficiary with respect to the
grant, any rights with respect to such grant may be transferred to the person
or entity (including a trust) entitled thereto under the will of such Eligible
Director or pursuant to the laws of descent and distribution.
(f) TERMINATION OF MEMBERSHIP ON THE BOARD. If an Eligible
Director's membership on the Board terminates for any reason, an Option held at
the date of termination may be exercised in whole or in part at any time within
the remaining term of the Option but only to the extent exercisable in
accordance with Section 7(b).
(g) CAPITALIZATION CHANGES. If any change is made in the Shares
subject to the Amended Director Plan or subject to any Option granted under the
Amended Director Plan, through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure, or any other capital reorganization, the Board shall
make appropriate adjustments as to the maximum number of Shares subject to the
Amended Director Plan, the number of Shares for which Options may be granted to
any Eligible Director, and the number of Shares and price per Share covered by
outstanding Options.
(h) CHANGE OF OWNERSHIP. In the event of (i) a dissolution or
liquidation of the Company or (ii) a merger or consolidation in which the
Company is not the surviving corporation, the Company shall give to the
Eligible Director, at the time of adoption of the plan for liquidation,
dissolution, merger or consolidation, either: a reasonable time thereafter
within which to exercise the Option, prior to the effectiveness of such
liquidation, dissolution, merger or consolidation, at the end of which time the
Option shall terminate; or the right to exercise the Option as to an equivalent
number of shares of stock of the corporation succeeding the Company or
acquiring its business by reason of such liquidation, dissolution, merger or
consolidation.
(i) WITHHOLDING TAXES. Whenever Shares are to be issued under the
Amended Director Plan, the Company shall have the right to require payment to
the Company by the person to receive such Shares of an amount sufficient to
satisfy federal,
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state and local withholding tax requirements prior to delivery of any
certificate or certificates representing such Shares. Payment of withholding
taxes may be made by delivery of Company stock or options to the Company.
8. USE OF PROCEEDS.
Proceeds from the sale of Shares pursuant to this Amended Director Plan
shall be used by the Company for general corporate purposes.
9. LEGAL REQUIREMENTS.
Shares shall not be offered or issued under this Amended Director Plan
unless the offer, issuance and delivery of such Shares shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, and the requirements of any
stock exchange upon which the Shares may then be listed. As a condition
precedent to the issuance of Shares pursuant to a grant under this Amended
Director Plan, the Company may require an Eligible Director to take any
reasonable action to comply with such requirements. Any certificates
representing Shares purchased upon exercise of an Option shall bear appropriate
legends.
10. AMENDMENT AND INTERPRETATION OF AMENDED DIRECTOR PLAN.
(a) STOCKHOLDER APPROVAL REQUIRED. The Board may amend the Amended
Director Plan at any time. No amendment adopted without stockholder approval
may (i) increase the number of shares as to which Options may be granted,
(ii) reduce the exercise price below the price provided in the Amended Director
Plan, (iii) modify the requirements as to eligibility for participation, or
(iv) materially increase the benefits accruing under the Amended Director Plan.
(b) PROHIBITED AMENDMENTS. No amendment shall (i) change the
nondiscretionary manner in which grants are made under Section 6, or
(ii) affect the rights of the holder of any Option, except with that holder's
consent.
(c) INTERPRETATION. Questions of interpretation of any of the
provisions of the Amended Director Plan shall be resolved by legal counsel for
the Company selected by the Chief Executive Officer of the Company.
11. TERMINATION OR SUSPENSION OF AMENDED DIRECTOR PLAN.
The Board at any time may suspend or terminate this Amended Director Plan.
This Amended Director Plan, unless sooner terminated, shall terminate on
February 19, 2008. No Option may be granted under this Amended Director Plan
while this Amended Director Plan is suspended or after it is terminated.
Suspension or
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termination of this Amended Director Plan shall not affect the rights of the
holder of any Option, except with that holder's consent.
12. EFFECTIVE DATE; STOCKHOLDER APPROVAL.
This Amended Director Plan has been approved by the Board and shall become
effective on May 7, 1998, subject to its approval by the stockholders of the
Company. The remaining shares in the Director Plan shall be granted, prior to
Options being issued from the Amended Director Plan. If the stockholders fail
to approve this Amended Director Plan, within the required twelve (12) month
time period, any Options granted under this Amended Director Plan shall be
void, and no additional Options shall be granted.
13. DIRECTOR STATUS.
Nothing in this Amended Director Plan or in any instrument executed
pursuant hereto shall confer upon any Eligible Director any right to continue
as a member of the Board of the Company or any parent or subsidiary thereof.
14. OTHER PLANS.
Nothing in this Amended Director Plan is intended to be a substitute for,
or shall preclude or limit the establishment or continuation of, any other
plan, practice or arrangement for the payment of compensation or benefits to
directors generally, which the Company now has or may hereafter lawfully put
into effect, including, without limitation, any retirement, pension, insurance,
stock purchase, incentive compensation or bonus plan.
15. APPLICABLE LAW.
This Amended Director Plan shall be governed by, interpreted under, and
construed and enforced in accordance with the laws of the State of Delaware,
excluding choice of law provisions thereof.
16. SUCCESSORS AND ASSIGNS.
This Amended Director Plan and any agreement with respect to an Option
shall be binding upon the successors and assigns of the Company and upon each
Eligible Director and such Eligible Director's heirs, executors,
administrators, personal representatives, permitted assignees and successors in
interest.
Approval of the Board, on May 7, 1998.
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BUILDING MATERIALS HOLDING CORPORATION
FIRST AMENDMENT TO THE
AMENDED AND RESTATED
1993 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Amended and Restated 1993 Employee Stock
Option Plan (the "Plan") of Building Materials Holding Corporation (the
"Company") is to provide incentive to, and to encourage stock ownership by,
selected employees, officers and consultants of the Company, or increase their
proprietary interest in, the Company.
2. ADMINISTRATION.
The following provisions shall govern the administration of this
Plan:
(a) THE COMMITTEE. This Plan shall be administered by the
Board of Directors of the Company (the "Board") or a committee (the
"Committee") consisting of two or more directors, each of whom is a "non-
employee director" (as such term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" under Section 162(m) of the Internal Revenue Code and the
regulations adopted thereunder. Once appointed, the Committee will continue to
serve until otherwise directed by the Board. The Board may from time to time
remove members from or add members to the Committee, provided that, the number
of members on the Committee shall not be less than two. Vacancies on the
Committee, howsoever caused, shall be filled by the Board. The Board may
designate a Chairman and Vice-Chairman of the Committee from among any of the
Committee members. Acts of the Committee (i) at a meeting, held at a time and
place and in accordance with rule adopted by the Committee, at which a quorum
of the Committee is present and acting, or (ii) reduced to and approved of in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee.
(b) OPTION AGREEMENTS. The Company shall effect the grant of
options under this Plan (the "Options") by execution of instruments in writing
in a form approved by the Committee or the Board (the "Option Agreements").
Each Option Agreement shall be in such form and shall contain such provisions
which are not inconsistent with this Plan as the Committee or the Board shall,
from time to time, approve. The provisions of the various Options and Option
Agreements entered into under this Plan need not be identical.
(c) POWERS OF COMMITTEE AND THE BOARD. Subject to the express
terms and conditions of this Plan and the terms of any Option outstanding under
this Plan, the Committee or the Board shall be authorized and shall have full
power to do all things necessary
<PAGE>
or desirable in connection with the administration of this Plan, including,
without limitation, the following:
(i) construe this Plan and the terms of any Option
granted under this Plan (subject to the provisions of Section 9(c) herein);
(ii) prescribe, amend and rescind rules and regulations
relating to this Plan or the Options;
(iii) determine which persons meet the requirements of
Section 3 hereof for selection as participants in this Plan;
(iv) determine to whom of the eligible persons, if any,
Options shall be granted under this Plan;
(v) establish the terms and conditions required or
permitted to be included in each Option Agreement or any amendments thereto,
including whether Options to be granted thereunder shall be "incentive stock
options", as defined in Section 422A of the Internal Revenue Code, as amended
(the "Code"), or "non-statutory stock options";
(vi) specify the number of shares to be covered by each
Option;
(vii) determine and incorporate such terms and
provisions, as well as amendments thereto, as shall be required in the judgment
of the Committee or the Board, so as to provide for or conform such Option to
any change in any law, regulation, ruling or interpretation applicable thereto;
and
(viii) to make all other determinations deemed necessary
or advisable for administering this Plan.
The Committee or Board's determination on the foregoing matters
shall be conclusive.
(d) PROHIBITED OPTIONEES. No member of the Committee shall be
eligible to receive any Options under this Plan.
3. PARTICIPANTS.
(a) GENERAL RULE. Participants in this Plan shall be those
selected full-time employees, officers and consultants of the Company and/or
any of its parents or subsidiaries to whom Options may be granted from time to
time by the Committee or the Board (the "Participants").
(b) LIMITATIONS WITH RESPECT TO INCENTIVE STOCK OPTIONS.
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(i) No incentive stock option shall be granted under this
Plan except to employees of the Company or its parents or subsidiaries, who
shall be the only persons eligible to receive such incentive stock options.
(ii) No incentive stock option shall be granted to any
particular individual if the Fair Market Value (as defined in Section 3(c)
below) of the Shares to be granted (determined on the proposed date of grant)
with respect to which incentive stock options are first exercisable by such
individual during any calendar year under this Plan and all similar plans of
the Company and its parents and subsidiaries exceeds one hundred thousand
dollars ($100,000).
(iii) Each incentive stock option granted under this
Plan to an employee who owns, on the date of grant of such incentive stock
option, more than 10% of the total combined voting power of all classes of
stock of the Company or of its parents or subsidiaries (x) shall not be
exercisable after the expiration of five (5) years from the date such incentive
stock option is granted, and (y) shall have an exercise price that is not less
than one hundred ten percent (110%) of the aggregate Fair Market Value of the
Shares on the date of grant of such incentive stock option.
(c) "FAIR MARKET VALUE" when used in reference to the purchase
of Shares pursuant to the exercise of an Option shall mean (i) if the Common
Stock of the Company (the "Common Stock") is listed on the New York Stock
Exchange or any other established stock exchange or on the NASDAQ National
Market, the closing sales price of the Common Stock on the relevant date as
reported in the WALL STREET JOURNAL, (ii) if the Common Stock is not then
listed on an exchange or traded on the NASDAQ National market, the average of
the closing bid and asked prices per share for the Common Stock in the over-the-
counter market as quoted on NASDAQ on such date, or (iii) if the Common Stock
is not then listed on an exchange or quoted on NASDAQ, an amount determined in
good faith by the Board or the Committee.
4. THE SHARES.
The initial shares of stock subject to Options authorized to be
granted under this Plan consisted of three hundred seventy-five thousand
(375,000) shares of the Common Stock (the "Shares"), or the number and kind of
shares of stock or other securities which shall be substituted for such Shares
or to which such Shares shall be adjusted as provided in Section 5(i) hereof.
The shares under the Plan are hereby increased by 350,000 shares, to an
aggregate of 725,000 shares. The Shares subject to this Plan may be set aside
out of the authorized but unissued shares of Common Stock not reserved for any
other purpose or out of shares of Common Stock subject to an Option which, for
any reason, terminates unexercised as to the Shares.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS.
Options may be granted at any time prior to the termination of
this Plan to selected full-time employees, officers and consultants of the
Company and/or its parents or
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subsidiaries who, in the judgment of the Committee or the Board, contribute
to the successful conduct of the Company's operation (or the operation of any
of its parents or subsidiaries) through their judgment, interest, ability and
special efforts; provided, however, that: (i) except in the case of
termination by death, disability or termination for Cause as set forth in
Section 5(d) below, the granted Option must be exercised by the Participant
no later than one year after any termination of employment or association
with the Company and/or its parents or subsidiaries and such employment or
association must have been continuous since the granting of the Option,
except for Board or Committee approved leaves of absence; (ii) in cases of
termination by retirement, after age fifty-five (55) or older, the granted
Option must be exercised by the Participant no later than three (3) years
after termination of employment; (iii) in cases where employees retire at age
60 or older, with at least 15 years of service with the Company and
predecessor companies, 50% of their unvested options at the date of
retirement automatically vest and, an additional 5% of their unvested options
vest for each year of service beyond 15 years, and all shares held by such
employees retiring at age 60 or older vest in full if the employee has 25 or
more years of service; and (iv) the total number of Shares subject to Options
granted to any one Participant, at any one time, shall not exceed ten percent
(10%) of the then issued and outstanding shares of Common Stock. In
addition, Options granted pursuant to this Plan shall be subject to the
following terms and conditions.
(a) OPTION PRICE. The purchase price under each Option shall
be determined by the Committee or the Board; provided that, the purchase price
shall not be less than one hundred percent (100%) of the Fair Market Value of
the Shares subject thereto on the date the Option is granted. The Fair Market
Value of such Shares shall be determined in accordance with the provisions set
forth in Section 3(c) above. If, however, an employee owns stock of the
Company or of its parents or subsidiaries possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or its parents or subsidiaries, the Option price of any incentive stock option
granted to such employee shall be not less than the amount set forth in
Section 3(b)(iii) above.
(b) DURATION OF OPTIONS. Each Option shall vest in such manner
and at such time up to but not exceeding ten (10) years from the date the
option is granted as the Committee or Board shall determine in its sole
discretion; provided also, however, that the Committee or Board may, in its
sole discretion, accelerate the time of exercise of any Option; provided
further, that each Option shall immediately vest in full upon a Change in
Control (as defined in Section 5(j) herein); and provided further, that if an
incentive stock option is granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, such Option by its terms shall not be exercisable after
the expiration of five (5) years from the date such Option is granted. The
termination of this Plan shall not alter the maximum duration, the vesting
provisions, or any other term or condition of any Option granted prior to the
termination of this Plan.
(c) EXERCISE OF OPTIONS AND PAYMENT FOR SHARES. To the extent
the right to purchase Shares has vested under a Participant's Option Agreement,
Options may be exercised from time to time by delivering payment in full at the
Option Price for the number of Shares being purchased: (1) in cash or cash
equivalents; (2) by delivery of shares of Common
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Stock, valued at the Fair Market Value on the date of exercise; provided,
however, that Options may not be exercised by the delivery of Common Stock
more frequently than at six-month intervals; or (3) by delivery of a properly
executed exercise notice together with such other documentation as the
Committee or the Board, and the broker, if applicable, shall require to
effect an exercise of the Option and delivery to the Company of the sale
proceeds required to pay the exercise price; together with written notice to
the Secretary of the Company identifying the Option or part thereof being
exercised and specifying the number of Shares for which payment is being
tendered. The Company shall deliver to the Participant, which delivery shall
be not less than fifteen (15) days and not more than thirty (30) days after
the giving of such notice, without transfer or issue tax to the Participant
(or other person entitled to exercise the Option) at the principal office of
the Company, or such other place as shall be mutually acceptable, a
certificate or certificates for such Shares; provided, however, that the date
of issuance and time of such delivery may be postponed by the Company for
such period as may be required for it with reasonable diligence to comply
with any requirements of law. If an Option covers both incentive and
non-statutory stock options, separate stock certificates will be issued; one
or more for the incentive stock options and one or more the non-statutory
stock options.
(d) TERMINATION OF EMPLOYMENT. Upon the termination of a
Participant's status as an employee (including officers) of the Company and/or
its parents or subsidiaries ("Employment") or as a consultant of the Company
and/or its parents or subsidiaries ("Association"), his or her rights to
exercise an Option then held shall be only as follows:
(i) DEATH OR PERMANENT DISABILITY. If a Participant's
Employment or Association is terminated by reason of death or permanent
disability, such Participant or his or her estate shall have the right for a
period of twelve (12) months following the date of death or permanent
disability to exercise the Option to the extent the Participant was entitled to
exercise such Option on the date of the Participant's death or permanent
disability, provided that the actual date of exercise is in no event after the
expiration of the term of the Option.
As used herein, Participant's "estate" shall mean the
Participant's legal representative or any person who acquires the right to
exercise an Option by reason of the Participant's death.
(ii) RETIREMENT AFTER AGE 55. A Participant shall be
entitled to exercise any of said Participant's non-statutory stock options for
a period of thirty-six (36) months from the date of such Participant's
retirement from Employment after age 55 in accordance with the Company's then-
current retirement policy (or the then-current retirement policy of any parent
or subsidiary, if applicable), to the extent the Participant was entitled to
exercise such non-statutory stock options on the date of the Participant's
retirement, and provided that the actual date of exercise is in no event after
the expiration of the term of the Option. In the event that a Participant
intends to retire from Employment after age 55 and such Participant is the
holder of one or more incentive stock options, then such Participant shall be
entitled, for a period of sixty (60) days ending on the date which is six (6)
months prior to the Participant's date of retirement, to elect to convert one
or more incentive stock options into non-
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statutory stock options by written request received by the Company within
such sixty (60) day period and, thereafter, such newly converted
non-statutory stock options shall be issued by the Company to such
Participant in exchange for such incentive stock options and shall be subject
to the thirty-six (36) month exercise period set forth herein; provided that,
such Participant actually retires on his or her retirement date. In the
event a Participant fails to convert any incentive stock option hereunder,
then such incentive stock options shall be governed by the provisions of
subparagraph (v) below.
(iii) RETIREMENT AT AGE 60 OR OLDER. A Participant
shall be entitled to exercise any of said Participant's non-statutory stock
options according to the same provisions as stated in subsection (ii) above,
except, that the options of a participant who retires at age 60 or older are
also subject to the following accelerated vesting: In cases where an employee
retires at age 60 or older, with at least 15 years of service with the Company
and predecessor companies, 50% of their unvested options at the date of
retirement automatically vest and an additional 5% of their unvested options
vest for each year of service beyond 15 years. In cases of employees retiring
at age 60 or older with 25 or more years of service all unvested options vest.
(iv) TERMINATION FOR CAUSE. If a Participant's Employment
or Association is terminated for Cause (as defined below), then all Options
previously granted to such Participant and remaining unexercised as of such
Participant's termination date shall immediately terminate. Employment or
Association shall be deemed to have been terminated for "Cause" if a
Participant is determined by the Board to have willfully breached his or her
duty in the course of Employment or Association or to have committed an act of
embezzlement, fraud, dishonesty or deliberate disregard of the rules of the
Company or engaged in any conduct which constitutes unfair competition with the
Company (as determined by the Board acting in its sole discretion).
(v) OTHER REASONS. If a Participant's Employment or
Association is terminated for any reason other than those described under
subparagraphs (i), (ii) or (iii) above, the Participant may, within three (3)
months following such termination, exercise the Option to the extent such
Option was exercisable by the Participant on the date of termination of the
Participant's Employment or Association, provided that the actual date of
exercise is in no event after the expiration of the term of the Option.
(e) TRANSFERABILITY OF OPTIONS. Each Option shall be subject
to limited transferability by the original option holder subject to the
approval of the Committee or Board. The transfer by the Participant to a trust
created by the Participant for the benefit of the Participant or the
Participant's family which is revocable at any and all times during the
Participant's lifetime by the Participant and as to which the Participant is
the sole trustee during his or her lifetime, will not be deemed to be a
transfer for purposes of this Plan. Under such rules and regulations as the
Committee or the Board may establish pursuant to the terms of this Plan, a
beneficiary may be designated with respect to an Option grant in the event of
the death of a Participant. If the estate of the Participant is the
beneficiary with respect to the grant, any rights
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<PAGE>
with respect to such grant may be transferred to the person or entity
(including a trust) entitled thereto under the will of such Participant or
pursuant to the laws of descent and distribution.
(f) OTHER TERMS AND CONDITIONS. Options may also contain such
other provisions, which shall not be inconsistent with any of the foregoing
terms, as the Committee or the Board shall deem appropriate. No Option,
however, nor anything contained in this Plan, shall confer upon any Participant
any right to continue in the employ of the Company or its parents or
subsidiaries, nor limit in any way the right of the Company or its parents or
subsidiaries to terminate a Participant's employment at any time.
(g) USE OF PROCEEDS FROM STOCK. Proceeds from the sale of
Shares pursuant to the exercise of Options granted under this Plan shall
constitute general funds of the Company.
(h) RIGHTS AS A STOCKHOLDER. The Participant shall have no
rights as a stockholder with respect to any Shares until such shares are
actually issued and delivered to Participant. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date of
such issuance, except as provided in Section 5(i) hereof.
(i) ADJUSTMENTS. If the outstanding shares of the Common Stock
are increased, decreased or changed into, or exchanged for a different number
or kind of shares or securities of the Company, without receipt of
consideration by the Company, through reorganization, merger, recapitalization,
reclassification, stock split-up, stock dividend, stock consolidation, or
otherwise, an appropriate and proportionate adjustment shall be made in the
number and kind of shares and the exercise price per share allocated to
unexercised Options, or portions thereof, which shall have been granted prior
to any such change. Any such adjustment, however, in an outstanding Option
shall be made without change in the total price applicable to the unexercised
portion of the Option but with a corresponding adjustment in the price for each
share subject to the Option. Adjustments under this Section shall be made by
the Committee or the Board, whose determination as to what adjustments shall be
made and the extent thereof, shall be final and conclusive. No fractional
shares of stock shall be issued under this Plan on account of any such
adjustment.
(j) CHANGE IN OWNERSHIP OR CONTROL. In the event of a Change
in Control (as defined below), all Options outstanding hereunder shall become
immediately exercisable in full. A "Change in Control" of the Company shall be
deemed to have occurred if (i) there shall be consummated (x) any consolidation
or merger of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Company's Common Stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of the Company's Common Stock immediately
prior to the merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(ii) the stockholders of the Company approve a plan or proposal for the
liquidation or dissolution of the Company, or (iii) any "person" (as defined in
Sections 13(d) and 14(d) of
7
<PAGE>
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, or fifty (50%) percent or more of the Company's
outstanding Common Stock, or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constitute the entire Board
shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period. Notwithstanding the above, a Change of Control shall not be deemed
to have occurred in connection with a transaction resulting in a merger,
consolidation, sale of assets or sale of securities if such transaction has
been initiated (in contrast to an action in response to or resulting from
receipt of an offer or its equivalent from a third party) at the direction of
the Board acting with the approval of a majority of the independent directors.
In the event of (i) a dissolution of the Company or (ii) a
merger or consolidation in which the Company is not the surviving corporation,
the Company shall give to the Participant, at the time of adoption of the plan
for liquidation, dissolution, merger or consolidation, either: a reasonable
time thereafter within which to exercise the Option, prior to the effectiveness
of such liquidation, dissolution, merger or consolidation, at the end of which
time the Option shall terminate; or the right to exercise the Option as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of such liquidation, dissolution, merger or
consolidation.
(k) WITHHOLDING TAXES. Whenever Shares are to be issued under
this Plan, the Company shall have the right to require payment to the Company
by the person to receive such Shares of an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to delivery of any
certificate or certificates representing such Shares. Payment of withholding
taxes may be made by delivery of Company stock (valued at such stock's Fair
Market Value on the date of delivery) or Options to the Company.
6. LISTING, QUALIFICATION AND COMPLIANCE WITH SECURITIES LAWS.
All Options granted under this Plan are subject to the
requirement that if at any time the Committee or the Board shall determine in
its sole discretion that the listing and/or qualification of the Shares subject
thereto on any securities exchange or under any applicable law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with the issuance of Shares under the Option, the
Option may not be exercised in whole or in part unless such listing,
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Committee or the Board. The Company shall
diligently endeavor to comply with all applicable securities laws before any
Options are granted under this Plan and before any Shares are issued pursuant
to the exercise of such Options.
8
<PAGE>
7. BINDING EFFECT OF CONDITIONS.
The conditions and stipulations contained herein, or in any
Option granted pursuant to this Plan, shall be, and constitute, a covenant
running with all the Shares acquired by the Participant pursuant to this Plan,
directly or indirectly, whether such Shares have been issued or not, and those
Shares owned by the Participant shall not be sold, assigned or transferred by
any person save and except in accordance with the terms and conditions herein
provided, and the Participant shall agree to use the Participant's best efforts
to cause the officers of the Company to refuse to record on the books of the
Company any assignment or transfer made or attempted to be made except as
provided in this Plan and to cause said officers to refuse to cancel old
certificates or to issue or deliver new certificates therefore where the
purchaser or assignee has acquired certificates for the Shares represented
thereby, except strictly in accordance with the provisions of this Plan.
8. ADDITIONAL OPTIONS AND REGRANTS.
The Committee or the Board may grant to a Participant, if the
Participant is otherwise eligible, additional Options or, at its discretion
with the consent of the Participant, amend an Option or grant a new Option in
lieu of an outstanding Option to take into account a decrease in the Fair
Market Value of the Common Stock, or for any other reason the Committee or the
Board shall deem appropriate, subject to the limitations of Section 5 hereof
and provided that, any new or amended Option granted hereunder shall have an
exercise price not less than one hundred percent (100%) of the Fair Market
Value at the date of regrant or amendment.
9. AMENDMENT AND INTERPRETATION OF THIS PLAN.
(a) STOCKHOLDER APPROVAL REQUIRED. The Board or the Committee
may amend this Plan at any time. No amendment adopted without stockholder
approval may (i) increase the number of shares as to which Options may be
granted, (ii) reduce the exercise price below the price provided in this Plan,
(iii) modify the requirements as to eligibility for participation, or
(iv) materially increase the benefits accruing under this Plan.
(b) PROHIBITED AMENDMENTS. No amendment shall affect the
rights of the holder of any Option, except with that holder's consent.
(c) INTERPRETATION. Questions of interpretation of any of the
provisions of this Plan not specifically reserved in this Agreement for
interpretation by the Committee or the Board shall be resolved by legal counsel
for the Company selected by the Chief Executive Officer of the Company.
10. TERMINATION OR SUSPENSION OF THIS PLAN.
The Board at any time may suspend or terminate this Plan. This
Plan, unless sooner terminated, shall terminate on February 19, 2009. or at
such time as there are no longer options remaining in the Plan. No Option may
be granted under this Plan while this Plan
9
<PAGE>
is suspended or after it is terminated. Suspension or termination of this
Plan shall not affect the rights of the holder of any outstanding Option,
except with that holder's consent.
11. APPLICABLE LAW.
This Plan shall be governed by, interpreted under, and construed
and enforced in accordance with the laws of the State of Delaware, excluding
choice of law provisions thereto.
12. OTHER PLANS.
Nothing in this Plan is intended to be a substitute for, or
shall preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to
Participants generally, which the Company or its parents or subsidiaries now
has or may hereafter lawfully put into effect, including, without limitation,
any retirement, pension, insurance, stock purchase, incentive compensation or
bonus plan.
13. SUCCESSORS AND ASSIGNS.
This Plan and any agreement with respect to an Option granted
hereunder shall be binding upon the successors and assigns of the Company and
upon each Participant and such Participant's heirs, executors, administrators,
personal representatives, and permitted successors and assigns.
14. EFFECTIVENESS OF THE PLAN.
This Plan shall become effective upon approval by the
stockholders of the Company on May 7, 1998, and any Options granted pursuant to
this Plan shall be conditioned upon the approval of this Plan.
10
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<PAGE>
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