<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- --------------------
33-88007
(Commission File Number)
LLS Corp.
(Exact name of Registrant as specified in its charter)
Illinois
(State or other jurisdiction of incorporation or organization)
36-2741439
(I.R.S. Employer Identification No.)
101 South Hanley Road
St. Louis, MO 63105
(314) 727-1701
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
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 months (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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class January 31, 2000
- ---------------------------- -----------------
Common Stock 55,333,333
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LLS CORP.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
LLS Corp.
Condensed Consolidated Balance Sheets as of December 31, 1999 and
September 30, 1999 ......................................................................... 1
Condensed Consolidated Statements of Operations for the three month
periods ended December 31, 1999 and 1998.................................................... 2
Condensed Consolidated Statement of Cash Flows for the three month
periods ended December 31, 1999 and 1998.................................................... 3
Notes to Condensed Consolidated Financial Statements............................................. 4
Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 5
Quantitative and Qualitative Disclosure About Market Risk ....................................... 7
PART II - OTHER INFORMATION........................................................................... 8
SIGNATURES............................................................................................ 9
</TABLE>
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LLS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash ................................................ $ 2,957 $ 4,140
Accounts receivable, less allowance of $494 ......... 14,206 20,424
Inventories ......................................... 27,254 28,705
Other current assets ................................ 882 768
------------ ------------
Total current assets .............................. 45,299 54,037
Property, plant and equipment, net .................... 88,760 86,072
Intangibles and other assets .......................... 27,168 29,091
------------ ------------
Total assets ...................................... $ 161,227 $ 169,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................... $ 12,509 $ 19,712
Accrued and other liabilities ....................... 14,751 15,873
Accrued interest .................................... 6,894 4,120
------------ ------------
Total current liabilities ......................... 34,154 39,705
Long-term obligations ................................. 245,000 245,000
Other long-term liabilities ........................... 7,968 8,166
------------ ------------
Total liabilities ................................. 287,122 292,871
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par
value, 100,000,000 shares authorized,
78,000,000 shares issued and outstanding .......... 780 780
Common stock, $.01 par value, 500,000,000
shares authorized, 55,333,333 shares issued
and outstanding ................................... 553 553
Warrants for common stock ........................... 900 900
Additional paid-in capital .......................... 75,167 75,167
Accumulated deficit ................................. (203,295) (201,071)
------------ ------------
Total stockholders' equity (deficit) .............. (125,895) (123,671)
------------ ------------
Total liabilities and stockholders'
equity (deficit) .................................. $ 161,227 $ 169,200
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
1
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LLS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales ............................................. $ 35,953 $ 36,858
Operating expenses:
Cost of sales ....................................... 25,118 25,953
Selling, general and administrative ................. 4,059 3,755
Depreciation and amortization ....................... 3,398 2,955
------------ ------------
Operating income ...................................... 3,378 4,195
Other expense:
Interest expense .................................... 6,150 532
Amortization of deferred financing costs ............ 693 --
Other, net .......................................... 8 --
------------ ------------
Income (loss) before income tax provision (benefit) ... (3,473) 3,663
Income tax provision (benefit) ........................ (1,250) 90
------------ ------------
Net income (loss) before minority interest ............ (2,223) 3,573
Minority interest ..................................... -- 171
------------ ------------
Net income (loss) ..................................... $ (2,223) $ 3,402
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
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LLS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ (2,223) $ 3,402
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization ..................... 3,398 2,955
Amortization of deferred financing costs .......... 693 --
Minority interest ................................. -- 171
Change in assets and liabilities:
Accounts receivable ............................. 6,217 5,973
Inventories ..................................... 1,450 (174)
Other assets .................................... 1,033 (323)
Accounts payable ................................ (7,203) (3,159)
Accrued and other liabilities ................... (1,320) (946)
Accrued interest ................................ 2,774 633
------------ ------------
Net cash from operating activities .................... 4,819 8,532
------------ ------------
Cash flows from investing activities:
Capital expenditures ................................ (6,002) (4,427)
------------ ------------
Net cash from investing activities .................... (6,002) (4,427)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable ........................ -- 6,000
Principal payments of notes payable and capital
lease obligations ............................... -- (2,757)
Distributions to stockholders ...................... -- (8,000)
------------ ------------
Net cash from financing activities .................... -- (4,757)
------------ ------------
Net change in cash .................................... (1,183) (652)
Cash, beginning of period ............................. 4,140 1,177
------------ ------------
Cash, end of period ................................... $ 2,957 $ 525
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE> 6
LLS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. The Company
LLS Corp., an Illinois corporation ("LLS" or the "Company"), is engaged
in the design, manufacture and distribution of various types of
injection molded plastic parts and custom molds used in plastic
injection molding. The Company operates in one industry segment,
serving customers located primarily in the United States.
On July 30, 1999, the Company completed a recapitalization (the
"Recapitalization") through the following simultaneous transactions:
(i) LLS received $78,133 in exchange for the issuance of 78,000,000
shares of its Series A convertible preferred stock at $1.00 per share
and 13,333,333 shares of Class A common stock at $0.01 per share, (ii)
LLS raised $150,300 from a senior credit facility (the "Senior Credit
Facility") and $100,000 from the issuance of senior subordinated notes
payable (the "Notes") and (iii) the proceeds from the issuance of
equity, the issuance of the Notes and borrowings under the Senior
Credit Facility were used to repay existing indebtedness and accrued
interest for approximately $45,496, redeem approximately 67.0% of the
outstanding capital stock at $1.00 per share for approximately $265,504
and pay fees and expenses of approximately $17,300.
2. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements
reflect all adjustments consisting only of normal recurring adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the
Company. The results for the three months ended December 31, 1999 are
not necessarily indicative of the results that may be expected for a
full fiscal year. These financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Form S-4 previously filed with
the Securities and Exchange Commission.
Statement of Cash Flows
Interest paid for the three months ended December 31, 1999 and 1998,
was approximately $3,375 and $0, respectively. Total income taxes paid
for the three months ended December 31, 1999 and 1998 was approximately
$1,016 and $32, respectively.
3. Inventories
The composition of inventories at December 31, 1999 is as follows:
<TABLE>
<S> <C>
Raw materials . . . . . . . . . . . . . . . . $ 8,341
Work-in-process . . . . . . . . . . . . . . . 8,391
Finished goods . . . . . . . . . . . . . . . 10,522
----------
Total . . . . . . . . . . . . . . . . . . $ 27,254
==========
</TABLE>
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis includes the results of operations for the
three months ended December 31, 1999 and 1998 for LLS Corp.
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------
<S> <C> <C>
1999 1998
---------- ----------
(In thousands)
Net sales ................................... $ 35,953 $ 36,858
Cost of sales ............................... 25,118 25,953
Selling, general and administrative ......... 4,059 3,755
Depreciation and amortization ............... 3,398 2,955
---------- ----------
Operating income ............................ $ 3,378 $ 4,195
========== ==========
</TABLE>
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Net sales for the three months ended December 31, 1999 were $36.0 million,
representing a $0.9 million or 2.5% decrease compared to the same period in the
prior year. This net decrease was primarily due to delays in a major project and
weakened demand from international customers offset by increased business from
existing customers.
Cost of sales decreased $0.8 million or 3.2%, to $25.1 million during the three
months ended December 31, 1999 compared to the same period in the prior year.
Cost of sales expressed as a percentage of net sales decreased to 69.9% for the
three months ended December 31, 1999 from 70.4% for the comparable period in the
prior year. The decrease in cost of sales as a percentage of net sales during
the first quarter of fiscal 2000, was due to improved manufacturing
efficiencies, offset by higher labor costs and higher average resin prices
compared to the same period in fiscal 1999. Because we pass substantially all
resin price fluctuations onto our customers, a higher average resin price leads
to a lower gross margin percentage but generally has no impact on gross margin
dollars.
Selling, general and administrative expenses increased $0.3 million or 8.1% to
$4.1 million for the three months ended December 31, 1999 compared to the same
period in the prior year. Selling, general and administrative expenses expressed
as a percentage of sales increased to 11.3% for the three months ended December
31, 1999 from 10.2% for the comparable period in the prior year. Contributing to
these increases were higher fixed general and administrative costs resulting
from annual wage increases, the addition of management personnel and incremental
costs associated with the addition of two new manufacturing facilities during
the first quarter of fiscal 1999. These incremental facility costs primarily
represent increased wage and benefit amounts reflecting a higher number of
employees during the three months ended December 31, 1999 compared to the same
period in the prior year.
5
<PAGE> 8
Depreciation and amortization increased $0.4 million to $3.4 million for the
three months ended December 31, 1999 compared to the same period in the prior
year. This increase primarily reflects net increases in depreciable assets from
new equipment purchases and mold construction costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities was $4.8 million for the three months ended
December 31, 1999, compared to $8.5 million for the three months ended December
31, 1998. The fluctuation was primarily due to an increase in interest costs
related to the Senior Credit Facility and the Notes.
Net cash from investing activities, representing capital expenditures, was $6.0
million for the three month period ended December 31, 1999, compared to $4.4
million during the comparable period for the prior year.
Net cash flows from financing activities were $0 for the three months ended
December 31, 1999, compared to $4.8 million used in financing activities for the
same period in the prior year. Cash from financing activities during the three
months ended December 31, 1998 represented net proceeds of $3.2 million from
notes payable offset by distributions to stockholders of $8.0 million.
6
<PAGE> 9
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes. The Company does, however, recognize market risk from interest
rates and raw material price exposure.
INTEREST RATE RISK
At December 31, 1999, approximately $145.0 million of the Company's long-term
debt, specifically, borrowings outstanding under the Senior Credit Facility bore
interest at variable rates. Accordingly, the Company's net income and after tax
cash flow are affected by changes in interest rates. Assuming the current level
of borrowings at variable rates and assuming a two percentage point change in
the average interest rate under these borrowings, it is estimated that the
Company's interest expense for the three months ended December 31, 1999 would
have increased by approximately $0.7 million, resulting in a decrease to the
Company's net income and after tax cash flow of approximately $0.4 million. In
the event of an adverse change in interest rates, management would likely take
actions that would mitigate the Company's exposure; however, due to the
uncertainty of the actions that would be taken and their possible effects, this
analysis assumes no such actions. Further, this analysis does not consider the
effects of the change in the level of overall economic activity that could exist
in such an environment. Additionally, there can be no assurances that increases
in interest rates will not exceed the interest rates projected above.
RAW MATERIAL PRICE RISK
The principal raw material used by the Company is plastic resin, particularly
polyethylene and polypropylene. The cost of plastic resin fluctuates, based upon
supply and demand. These fluctuations can be and have been significant in the
past. We cannot guarantee that plastic resin prices will not rise significantly
in the future or that the supply will remain stable. In the event of an adverse
change in the plastic resin market, we also cannot guarantee that we will be
able to pass on increased costs of resin to all of our customers or that we will
be able to obtain sufficient quantities of plastic resin for production.
7
<PAGE> 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On October 29, 1999, the stockholders of LLS approved by unanimous
written consent the 1999 Stock Option Plan for certain key employees
and other persons performing services for LLS or any of its
subsidiaries.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.1 - 1999 Stock Option Plan
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
December 31, 1999.
8
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LLS CORP.
Dated: February 14, 2000 By: /s/ JAMES N. MILLS
-----------------------------
Name: James N. Mills
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ DAVID M. SINDELAR
--------------------------------
Name: David M. Sindelar
Title: Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
9
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 1999 Stock Option Plan
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
COURTESY GROUP
1999 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PURPOSE........................................................................................1
2. ADMINISTRATION.................................................................................1
3. SHARES AVAILABLE; MAXIMUM INDIVIDUAL GRANTS....................................................2
4. ELIGIBILITY AND BASES OF PARTICIPATION.........................................................2
5. AUTHORITY OF THE COMMITTEE.....................................................................3
6. STOCK OPTION GRANTS TO KEY EMPLOYEES...........................................................5
7. STOCK OPTION GRANTS TO ELIGIBLE NON-EMPLOYEES..................................................7
8. CHANGE OF CONTROL..............................................................................9
9. PURCHASE OPTION...............................................................................10
10. ADJUSTMENT OF SHARES..........................................................................11
11. ASSIGNMENT OR TRANSFER........................................................................12
12. COMPLIANCE WITH SECURITIES LAWS...............................................................12
13. WITHHOLDING TAXES.............................................................................13
14. COSTS AND EXPENSES............................................................................13
15. FUNDING OF PLAN...............................................................................13
16. OTHER INCENTIVE PLANS.........................................................................13
17. EFFECT ON EMPLOYMENT..........................................................................13
18. DEFINITIONS...................................................................................14
19. AMENDMENT AND TERMINATION.....................................................................16
20. EFFECTIVE DATE................................................................................16
</TABLE>
i
<PAGE> 3
COURTESY GROUP
1999 STOCK OPTION PLAN
1. PURPOSE
This 1999 Stock Option Plan (the "PLAN") is being adopted by the
direct parent corporation (an Illinois corporation formerly known as Courtesy
Corporation and hereinafter referred to as "PARENT") holding all of the
outstanding capital stock of Courtesy Corporation, an Illinois corporation,
Creative Packaging Corp., an Illinois corporation, and Courtesy Sales Corp., an
Illinois corporation (collectively, the "OPERATING COMPANIES"), and is intended
to provide certain key employees and other persons performing services for the
Parent, the Operating Companies and any subsidiary corporation thereof now
existing or hereafter formed or acquired (collectively, the "COURTESY GROUP")
with an opportunity to acquire a proprietary interest in the Parent, and thus to
create in such persons an increased interest in and a greater concern for the
success of the Courtesy Group.
2. ADMINISTRATION.
a. Establishment of the Committee. The Plan shall be administered
by the Compensation Committee of the Board of Directors of the Parent or by any
other committee appointed by the Board of Directors of the Parent (in either
case, the "COMMITTEE"); provided, the entire Board of Directors of the Parent
(the "BOARD OF DIRECTORS") may act as the Committee if it chooses to do so.
b. Members of the Committee. (i) The number and selection of
members of the Committee shall be determined from time to time by a majority of
all the members of the Board of Directors of the Parent. The Chairman of the
Board of Directors of the Parent shall be a member of the Committee at all
times. The members of the Committee shall serve at the pleasure of the Board of
Directors of the Parent, which shall have the power to remove members (with or
without cause) from or fill vacancies (however caused) on the Committee. Any
member of the Committee may resign by written notice to the Board of Directors
of the Parent.
(ii) Whenever the Parent shall have any class of equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), the Committee shall be composed solely of
two or more members who are (A) "Non-Employee Directors" or shall meet such
other conditions as required by Rule 16b-3, as amended ("RULE 16b-3"), or other
applicable rules under Section 16(b) of the Exchange Act and (B) "outside
directors" within the meaning of Treasury Regulation Section 1.162-27(e)(3)
under Section 162(m) of the Code (as defined in Section 18). The Board of
Directors of the Parent shall promptly fill any vacancies on the Committee and
the Committee shall administer the Plan so as to comply at all times with the
Exchange Act or any successor or analogous rules.
c. Acts of the Committee. A majority of the Committee shall
constitute a quorum (or, if the Committee consists of less than three members,
all such members shall
<PAGE> 4
constitute a quorum). Subject to Section 5, the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by all the members of the Committee, shall be the acts of the Committee.
3. SHARES AVAILABLE; MAXIMUM INDIVIDUAL GRANTS.
a. Shares Available. Subject to the adjustments provided in
Section 10, the maximum aggregate number of shares of common stock, par value
$.01 per share, of the Parent ("COMMON STOCK") in respect of which stock options
may be granted in accordance with Sections 6 and 7 under the Plan (the
"OPTIONS") shall be 7,017,543 shares. Except as provided in Section 3(b), if,
for any reason, any shares of Common Stock as to which Options have been granted
cease to be subject to purchase thereunder (including the expiration of such
Option, the termination of such Option prior to exercise, or the forfeiture of
such Option), such shares shall thereafter be available for grants under the
Plan. Options granted under the Plan may be fulfilled with (i) authorized and
unissued shares of Common Stock, (ii) issued shares of Common Stock held in the
Parent's treasury, or (iii) issued shares of Common Stock reacquired by the
Parent, in each situation as the Board of Directors of the Parent or the
Committee in its discretion may determine from time to time.
b. Maximum Individual Grants. Subject to the adjustments provided
in Section 10, the maximum aggregate number of shares of Common Stock underlying
all Options that may be granted to any single Key Employee (as defined),
including any Options that may have been granted to such Key Employee as an
Eligible Non-Employee (as defined), during the term of the Plan shall be
1,000,000 shares. For purposes of the preceding sentence, such Options that are
cancelled or repriced shall continue to be counted in determining such maximum
aggregate number of shares of Common Stock underlying all Options that may be
granted to any single Key Employee, including any Options that may have been
granted to such Key Employee as an Eligible Non-Employee, during the term of the
Plan.
4. ELIGIBILITY AND BASES OF PARTICIPATION.
a. Key Employees. Subject to and in accordance with Section 6,
grants of Incentive Options (as defined in Section 18) and Non-Qualified Options
(as defined in Section 18) may be made under the Plan to any Key Employee. For
the purposes of this Plan, "KEY EMPLOYEE" shall mean any employee of the Parent
or any other member of the Courtesy Group, including officers and directors who
are also employees of any member of the Courtesy Group, who are regularly
employed on a salaried basis and who are so employed on the date of such grant,
whom the Committee identifies as having a direct and significant effect on the
performance of the Courtesy Group.
b. Eligible Non-Employees. Subject to and in accordance with
Section 7, grants of Non-Qualified Options may be made under the Plan to any
Eligible Non-Employee. For the purposes of this Plan, "ELIGIBLE NON-EMPLOYEE"
shall mean any person or entity of any nature whatsoever, including an
individual, a firm, a company, a corporation, a partnership, a trust, or other
entity (collectively, a "PERSON"), that the
2
<PAGE> 5
Committee designates as eligible for a grant of Non-Qualified Options pursuant
to the Plan because such Person performs bona fide consulting, advisory, or
other services for any member of the Courtesy Group (other than services in
connection with the offer or sale of securities in a capital-raising
transaction) and the Board of Directors of the Parent or the Committee
determines that the Person has a direct and significant effect on the financial
development of any member of the Courtesy Group.
c. No Right to Option Grants. The adoption of the Plan shall not
be deemed to give any Person a right to be granted any Options.
5. AUTHORITY OF THE COMMITTEE.
The Committee shall have plenary authority in its sole
discretion, but subject to the provisions of the Plan and, if applicable, Rule
16b-3, to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be granted, the
number of Options, the exercise price of each Option, the period(s) during which
such Options shall be exercisable (whether in whole or in part, including
whether such Options shall become immediately exercisable upon the consummation
of a Change of Control (as defined in Section 18)), the terms of vesting of
Options, the restrictions to be applicable to Options, and all other terms and
provisions thereof (which need not be identical from Option to Option);
b. require, as a condition to the grant of any Option, that the
optionee receiving such Option agree not to sell or otherwise dispose of such
Option, any Common Stock acquired pursuant to such Option, or any other
"derivative security" (as defined by Rule 16a-1(c) under the Exchange Act) for a
period of six months (or such other period as the Committee may determine)
following the later of (i) the date of the grant of such Option, or (ii) the
date when the exercise price of such Option is fixed if such exercise price is
not fixed at the date of grant of such Option;
c. provide arrangements through registered broker-dealers whereby
temporary financing may be made available to an optionee by the broker-dealer,
under the rules and regulations of the Board of Governors of the Federal
Reserve, for the purpose of assisting the optionee in the exercise of an Option,
such authority to include the payment by the Parent of the commissions of the
broker-dealer; provided, however, that the Committee shall not be obligated to
provide any such arrangements;
d. establish procedures for an optionee (i) to have withheld from
the total number of shares of Common Stock to be acquired upon the exercise of
an Option (other than an Incentive Option) that number of shares (A) having a
Fair Market Value (as defined in Section 18) which, together with such cash as
shall be paid in respect of fractional shares, shall equal the aggregate
exercise price under such Option for the number of shares then being acquired
(including the shares to be so withheld), or (B) meeting the obligation of
withholding for income, social security and other taxes incurred by an optionee
upon such exercise or required to be withheld by the Parent or any other
3
<PAGE> 6
member of the Courtesy Group in connection with such exercise, and (ii) to
exercise a portion of an Option by delivering that number of shares of Common
Stock already owned by such optionee having an aggregate Fair Market Value which
shall equal the partial Option exercise price and to deliver the shares thus
acquired by such optionee in payment of shares to be received pursuant to the
exercise of additional portions of such Option, the effect of which shall be
that such optionee can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such cash as shall be
paid in respect of fractional shares; provided, however, that in the case of an
Incentive Option, no shares shall be used to pay the exercise price unless (i)
such shares were not acquired through the exercise of an Incentive Option, or
(ii) if so acquired, (A) such shares have been held for more than two years
since the grant of such Incentive Option and for more than one year since the
exercise of such Incentive Option (the "HOLDING PERIOD"), or (B) if such shares
do not meet the Holding Period, the optionee elects in writing to use such
shares to pay the exercise price under this paragraph; and provided, further,
that no such procedures shall be available if, in the Committee's discretion,
such procedures are not permitted by applicable law or could reasonably be
expected to result in a charge to earnings for financial reporting purposes with
respect to the Parent or any other member of the Courtesy Group that otherwise
would not have occurred; and provided, further, that the Committee shall not be
obligated to establish any such procedures;
e. make a determination on any dispute arising under the Plan or
any Option, and any such determination shall be binding on all parties; and
f. make all other determinations, perform all acts, exercise all
powers and establish any rules or procedures which the Committee determines to
be necessary, appropriate or advisable in administering the Plan or for the
conduct of the Committee's business, including to interpret any provision in the
Plan or Option in the Committee's sole discretion.
The Committee may delegate to one or more of its members, or to
one or more agents, such administrative duties as it may deem advisable, and the
Committee or any such delegate may employ one or more Persons to render advice
with respect to any responsibility the Committee or such delegate may have under
the Plan; provided, however, that whenever the Parent shall have any class of
equity securities registered under Section 12 of the Exchange Act, the Committee
may not delegate any duties to a member of the Board of Directors of the Parent
who, if elected to serve on the Committee, would not qualify as (i) a
"Non-Employee Director" to administer the Plan as contemplated by Rule 16b-3 or
other applicable rules under the Exchange Act and (ii) an "outside" director
within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section
162(m) of the Code. The Committee may employ attorneys, consultants,
accountants, or other Persons and the Committee, the Parent, and its officers
and directors shall be entitled to rely upon the advice, opinions or valuations
of any such Persons. Expenses incurred by the Committee in the engagement of
such counsel, consultant or agent shall be paid by the Parent or any other
member of the Courtesy Group whose employees have benefited from the Plan, as
determined by the Committee. No member or agent of the Committee shall be
personally liable for any action, determination or
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interpretation made in good faith with respect to the Plan and all members and
agents of the Committee shall be fully protected by the Parent in respect of any
such action, determination or interpretation.
6. STOCK OPTION GRANTS TO KEY EMPLOYEES.
Subject to the provisions of the Plan, the Committee shall have
the authority to grant Incentive Options, to grant Non-Qualified Options, and to
grant both types of Options to Key Employees, and any Option granted under the
Plan shall be evidenced by and shall not be effective without a Stock Option
Agreement signed by the Committee and the Key Employee. No Incentive Option may
be granted to a Key Employee in tandem with a Non-Qualified Option. No Incentive
Option shall be granted pursuant to the Plan after the earlier of ten years from
the date of adoption of the Plan or ten years from the date of approval of the
Plan by the shareholders of the Parent. Incentive Options may be granted only to
Key Employees. The terms and conditions of the Options granted under this
Section 6 shall be determined from time to time by the Committee; provided,
however, that the Options granted under this Section 6 shall be subject to all
provisions of the Plan (other than Section 7), including the following:
a. Exercise Price. The Committee shall establish the Option
purchase price per share of Common Stock upon exercise of such Option (i.e., the
exercise price) at the time any Option is granted to a Key Employee at such
amount as the Committee shall determine; provided, however, that, in the case of
an Incentive Option, such price shall not be less than the Fair Market Value per
share of Common Stock on the date the Option is granted; and provided, further,
that in the case of an Incentive Option granted to a Key Employee who, at the
time such Incentive Option is granted, owns stock of the Parent or any other
member of the Courtesy Group possessing more than 10% of the total combined
voting power of all classes of stock of the Parent or any other member of the
Courtesy Group, taking into account the attribution rules contained in Section
424(d) of the Code, the Option exercise price shall not be less than 110% of the
Fair Market Value per share of Common Stock on the date the Option is granted.
The Option exercise price shall be subject to the adjustments provided in
Section 10.
b. Term of Option. No Option by its terms shall have a term or be
exercisable after the tenth anniversary of the date of grant and all Options
shall terminate at such earlier times and upon such conditions or circumstances
as the Committee shall in its discretion set forth in the Stock Option Agreement
at the date of grant; provided, however, that no Incentive Option granted to a
Key Employee who, at the time such Option is granted, owns stock of the Parent
or any other member of the Courtesy Group possessing more than 10% of the total
combined voting power of all classes of stock of the Parent or any other member
of the Courtesy Group, taking into account the attribution rules contained in
Section 424(d) of the Code, shall have a term or be exercisable after the
expiration of five years from the date of grant of the Incentive Option.
c. Payment. The exercise price upon exercise of any Option by a
Key Employee shall be payable at the time of such exercise by cash or by any
other means acceptable to the Committee. The Committee may in its discretion
establish procedures
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by which shares of Common Stock are delivered to or withheld by the Parent in
payment of the Option exercise price, and the shares subject to such Option
shall be valued at the Fair Market Value of the Common Stock on the day
preceding the date of exercise of the Option.
d. Exercisability of Option. Unless otherwise determined by the
Committee at the time of grant and subject to the other provisions of the Plan
(other than Section 7), one-tenth of the shares of Common Stock underlying the
Option granted to a Key Employee shall vest and become exercisable on each
anniversary of the date of grant and remain exercisable until the Option
expires; provided, that the optionee remains employed by the Parent or any other
member of the Courtesy Group on such anniversary date. Any portion of an Option
that is not vested upon the date of termination of employment shall be forfeited
and cancelled, except as otherwise expressly provided in any Stock Option
Agreement or unless expressly waived in writing by the Committee.
e. Death. If an optionee's employment with the Parent or any
other member of the Courtesy Group terminates due to the death of such optionee
or within three months before the death of such optionee, the estate of such
optionee, or a Person who acquired the right to exercise such Option by bequest
or inheritance or by reason of the death of such optionee, shall have the right
to exercise the vested portion of such Option in accordance with its terms at
any time and from time to time within 180 days after the date of such death
unless a longer or shorter period is expressly provided in the Stock Option
Agreement or established by the Committee pursuant to Section 8 (but in no event
after the expiration date of such Option), and thereafter such Option shall
lapse and no longer be exercisable.
f. Disability. If an optionee's employment with the Parent or any
other member of the Courtesy Group terminates due to the Disability (as defined
in Section 18) of such optionee, the optionee or his or her legal representative
shall have the right to exercise the vested portion of such Option in accordance
with its terms at any time and from time to time within 180 days after the date
of such termination unless a longer or shorter period is expressly provided in
the Stock Option Agreement or established by the Committee pursuant to Section 8
(but in no event after the expiration date of such Option), and thereafter such
Option shall lapse and no longer be exercisable; provided, however, that in the
case of an Incentive Option, an optionee or his or her legal representative
shall be required to exercise the vested portion of such Incentive Option within
one year after the termination of the optionee's employment due to his or her
Disability.
g. Termination for Good Cause; Resignation. Except as otherwise
expressly provided in any Stock Option Agreement or unless expressly waived in
writing by the Committee, an optionee shall immediately forfeit all rights under
his or her Option (whether vested or nonvested), except as to the shares of
Common Stock already purchased thereunder, if (i) the Parent or any other member
of the Courtesy Group terminates the optionee's employment for Good Cause (as
defined in Section 18), or (ii) the optionee resigns employment with the Parent
or any other member of the Courtesy Group without the consent of the Parent or
such member of the Courtesy Group. The
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<PAGE> 9
determination that there exists Good Cause for termination shall be made by the
Committee (unless otherwise agreed to in writing by the Parent or any other
member of the Courtesy Group and the optionee), and any decision in respect
thereof by the Committee shall be binding on all Persons.
h. Other Termination of Employment. If an optionee's employment
with the Parent or any other member of the Courtesy Group terminates for any
reason other than those specified in Sections 6(e), (f) or (g) above, the
optionee shall have the right to exercise his or her Option in accordance with
its terms within thirty days after the date of such termination, unless a longer
or shorter period is expressly provided in the Stock Option Agreement or
established by the Committee pursuant to Section 8 (but in no event after the
expiration date of such Option), and thereafter such Option shall lapse and no
longer be exercisable; provided, however, that no Incentive Option shall be
exercisable more than three months after the date of such termination; and
provided, further, that the Committee may, in its discretion, extend the
exercise date of any Option upon termination of an optionee's employment under
this paragraph for a period not to exceed six months plus one day (but in no
event after the expiration date of such Option) if the Committee determines that
the stated exercise date will have an inequitable result under Section 16(b) of
the Exchange Act.
i. Maximum Exercise. To the extent that the aggregate Fair Market
Value of Common Stock (determined at the time of the grant of the Option) with
respect to which Options are exercisable for the first time by an optionee
during any calendar year under all plans of the Parent or any member of the
Courtesy Group exceeds $100,000, any Incentive Options in respect of such shares
of Common Stock shall be treated as Non-Qualified Options.
j. Continuation of Employment. Each Incentive Option shall
require the optionee to remain in the continuous employ of any member of the
Courtesy Group from the date of grant of the Incentive Option until no more than
three months prior to the date of exercise of the Incentive Option.
k. Recharacterization of Incentive Option. In the event that the
exercise of any Incentive Option, or method of exercise or payment therefor,
would not be in compliance with this Section 6 and would consequently result in
a violation of the requirements of Section 422 of the Code governing the
treatment of Incentive Options, the Committee, in its discretion, may
recharacterize the Option as a Non-Qualified Option.
7. STOCK OPTION GRANTS TO ELIGIBLE NON-EMPLOYEES.
Subject to the provisions of the Plan, the Committee shall have
the authority to grant Non-Qualified Options (and not Incentive Options) to
Eligible Non-Employees, and any Option granted under the Plan shall be evidenced
by and shall not be effective without a Stock Option Agreement signed by the
Committee and the Eligible Non-Employee; provided, however, that whenever the
Parent shall have any class of equity securities registered pursuant to Section
12 of the Exchange Act, no Eligible Non-
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Employee then serving on the Committee (or such other committee then
administering the Plan) shall be granted Options hereunder if the grant of such
Options would cause such Eligible Non-Employee to no longer be a (i)
"Non-Employee Director" or (ii) an "outside director" as set forth in Section 2.
The terms and conditions of the Options granted under this Section 7 shall be
determined from time to time by the Committee; provided, however, that the
Options granted under this Section 7 shall be subject to all provisions of the
Plan (other than Section 6), including the following:
a. Exercise Price. The Committee shall establish the Option
exercise price at the time any Non-Qualified Option is granted to an Eligible
Non-Employee at such amount as the Committee shall determine. The Option
exercise price shall be subject to the adjustments provided in Section 10.
b. Term of Option. No Non-Qualified Option shall have a term or
be exercisable after the tenth anniversary of the date of grant of the Option,
unless otherwise expressly provided in any Stock Option Agreement.
c. Payment. The exercise price upon exercise of any Non-Qualified
Option by an Eligible Non-Employee shall be payable at the time of such exercise
by cash or by any other means acceptable to the Committee. The Committee may in
its discretion establish procedures by which shares of Common Stock are
delivered to or withheld by the Parent in payment of the Option exercise price,
and the shares subject to such Option shall be valued at the Fair Market Value
of the Common Stock on the day preceding the date of exercise of the Option.
d. Exercisability of Option. Unless otherwise determined by the
Committee at the time of grant and subject to the other provisions of the Plan
(other than Section 6), one-tenth of the shares of Common Stock underlying the
Option granted to an Eligible Non-Employee shall vest and become exercisable on
each anniversary of the date of grant and remain exercisable until the Option
expires; provided, that the services of the optionee are retained by the Parent
or any other member of the Courtesy Group on such anniversary date. Any portion
of an Option that is not vested upon the date of termination of retention shall
be forfeited and cancelled, except as otherwise expressly provided in any Stock
Option Agreement or unless expressly waived in writing by the Committee.
e. Death. If the retention by the Parent or any other member of
the Courtesy Group of the services of an optionee that is a natural person
terminates due to the death of such optionee, the estate of such optionee, or a
Person who acquired the right to exercise such Option by bequest or inheritance
or by reason of the death of such optionee, shall have the right to exercise the
vested portion of such Option in accordance with its terms, at any time and from
time to time within 180 days after the date of death unless a longer or shorter
period is expressly provided in the Stock Option Agreement or established by the
Committee pursuant to Section 8 (but in no event after the expiration date of
such Option), and thereafter such Option shall lapse and no longer be
exercisable.
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f. Disability. If the retention by the Parent or any other member
of the Courtesy Group of the services of an optionee that is a natural person
terminates due to the Disability of such optionee, the optionee or his or her
legal representative shall have the right to exercise the vested portion of such
Option in accordance with its terms at any time and from time to time within 180
days after the date of the optionee's termination unless a longer or shorter
period is expressly provided in the Stock Option Agreement or established by the
Committee pursuant to Section 8 (but not after the expiration of the Option),
and thereafter such Option shall lapse and no longer be exercisable.
g. Termination for Good Cause; Resignation. Except as otherwise
expressly provided in any Stock Option Agreement or unless expressly waived in
writing by the Committee, an optionee shall immediately forfeit all rights under
his, her or its Option (whether vested or nonvested), except as to the shares of
Common Stock already purchased thereunder, if the retention by the Parent or any
other member of the Courtesy Group of the services of the optionee is terminated
(i) by the Parent or any other member of the Courtesy Group for Good Cause, (ii)
as a result of removal of the optionee from office as a director of the Parent
or any other member of the Courtesy Group for cause by action of the
shareholders of the Parent or any other member of the Courtesy Group in
accordance with the certificate of incorporation or the by-laws of the Parent or
such member of the Courtesy Group, as applicable, and the corporate law of the
jurisdiction of incorporation of the Parent or such member of the Courtesy
Group, or (iii) as a result of the resignation by the optionee of such
optionee's service with the Parent or any other member of the Courtesy Group
without the consent of the Parent or such member of the Courtesy Group. The
determination that there exists Good Cause for termination shall be made by the
Committee (unless otherwise agreed to in writing by the Parent or any other
member of the Courtesy Group and the optionee), and any decision in respect
thereof by the Committee shall be binding on all Persons.
h. Other Termination of Relationship. If the retention by the
Parent or any other member of the Courtesy Group of the services of an optionee
terminates for any reason other than those specified in Sections 7(e), (f) or
(g) above, the optionee shall have the right to exercise his, her or its Option
in accordance with its terms within thirty days after the date of such
termination, unless a longer or shorter period is expressly provided in the
Stock Option Agreement or established by the Committee pursuant to Section 8
(but in no event after the expiration date of such Option), and thereafter such
Option shall lapse or no longer be exercisable; provided, however, that the
Committee may, in its discretion, extend the exercise date of any Option upon
termination of retention of an optionee's services under this paragraph for a
period not to exceed six months plus one day (but in no event after the
expiration date of such Option) if the Committee determines that the stated
exercise date will have an inequitable result under Section 16(b) of the
Exchange Act.
8. CHANGE OF CONTROL.
If (i) a Change of Control shall occur, or (ii) the Parent shall
enter into an agreement providing for a Change of Control, then the Committee
may declare any or all Options outstanding under the Plan to be exercisable in
full at such time(s) as the
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Committee shall determine, notwithstanding the express provisions of such
Options. Each Option accelerated by the Committee pursuant to the preceding
sentence shall terminate, notwithstanding any express provision thereof or any
other provision of the Plan, on such date (but not later than the stated
exercise date) as the Committee shall determine.
9. PURCHASE OPTION.
a. Purchase Option; Purchasable Shares. Except as otherwise
expressly provided in any Stock Option Agreement, if (i) any optionee's
employment (or, in the case of any Option granted under Section 7, the
optionee's relationship) with the Parent or another member of the Courtesy Group
terminates for any reason at any time or (ii) a Change of Control occurs, the
Parent and/or its designee(s) shall have the option (the "PURCHASE OPTION") to
purchase, and if the Purchase Option is exercised, the optionee (or the
optionee's executor or the administrator of the optionee's estate in the event
of the optionee's death, or the optionee's legal representative in the event of
the optionee's incapacity (hereinafter, collectively with such optionee, the
"GRANTOR")) shall sell to the Parent and/or its assignee(s), all or any portion
(at the option of the Parent or its designee) of the shares of Common Stock
and/or Options held by the Grantor (such shares of Common Stock and Options
collectively being referred to as the "PURCHASABLE SHARES").
b. Notice. The Parent shall give notice in writing to the Grantor
of the exercise of the Purchase Option within one year from the date of (i) the
termination of the optionee's employment or relationship or (ii) the Change of
Control. Such notice shall state the number of Purchasable Shares to be
purchased and the determination of the Board of Directors of the Fair Market
Value per share of such Purchasable Shares. If no notice is given within the
time limit specified above, the Purchase Option shall terminate.
c. Purchase Price; Closing. The purchase price to be paid for the
Purchasable Shares purchased pursuant to the Purchase Option shall be (i) in the
case of any Common Stock, the Fair Market Value per share as of the date of the
notice of exercise of the Purchase Option times the number of shares being
purchased, and (ii) in the case of any Option, the Fair Market Value per share
times the number of vested shares subject to such Option which are being
purchased, less the applicable per share Option exercise price. The purchase
price shall be paid in cash. The closing of such purchase shall take place at
the Parent's principal executive offices within ten days after the purchase
price has been determined. At such closing, the Grantor shall deliver to the
purchaser(s) the certificates or instruments evidencing the Purchasable Shares
being purchased, duly endorsed (or accompanied by duly executed stock powers)
and otherwise in good form for delivery, against payment of the purchase price
by check of the purchaser(s). In the event that, notwithstanding the foregoing,
the Grantor shall have failed to obtain the release of any pledge or other
encumbrance on any Purchasable Shares by the scheduled closing date, at the
option of the purchaser(s) the closing shall nevertheless occur on such
scheduled closing date, with the cash purchase price being reduced to the extent
of all unpaid indebtedness for which such Purchasable Shares are then pledged or
encumbered.
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d. Legend. To assure the enforceability of the Parent's rights
under this Section 9, each certificate or instrument representing Common Stock
or an Option held by the Grantor shall bear a conspicuous legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO AN
OPTION TO REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE
COURTESY GROUP 1999 STOCK OPTION PLAN AND A STOCK OPTION
AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION
PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO
THE PARENT AT ITS PRINCIPAL EXECUTIVE OFFICES."
e. Termination of Purchase Option. The Parent's rights under this
Section 9 shall terminate upon the consummation of a Qualifying Public Offering.
For the purposes of this Plan, "QUALIFYING PUBLIC OFFERING" shall mean a firm
commitment underwritten public offering of Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT") where both (i) the proceeds (prior to deducting any
underwriter's discounts and commissions) equal or exceed Fifty Million Dollars
($50,000,000) and (ii) upon consummation of such offering, the Common Stock is
listed on the New York Stock Exchange or authorized to be quoted and/or listed
on the Nasdaq National Market.
10. ADJUSTMENT OF SHARES.
Except as otherwise contemplated in Section 8 and unless
otherwise expressly provided in any Stock Option Agreement, in the event that,
by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Parent (collectively, an "ADJUSTMENT EVENT"),
the Common Stock is substituted, combined, or changed into any cash, property or
other securities, or the shares of Common Stock are changed into a greater or
lesser number of shares of Common Stock, the number and/or kind of shares and/or
interests subject to an Option and the per share price or value thereof shall be
appropriately adjusted by the Committee to give appropriate effect to such
Adjustment Event. Any fractional shares or interests resulting from such
adjustment shall be eliminated. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Option shall comply with the rules of
Section 424(a) of the Code to an Incentive Option, and (ii) in no event shall
any adjustment be made which would cause any Incentive Option granted hereunder
not to qualify as an "incentive stock option" for purposes of Section 422 of the
Code.
In the event the Parent is not the surviving entity of an
Adjustment Event and, following such Adjustment Event, any optionee will hold
Options issued pursuant to the Plan which have not been exercised, cancelled, or
terminated in connection therewith, the Parent shall cause such Options to be
assumed (or cancelled and replacement Options issued) by the surviving entity or
any member of the Courtesy Group.
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In the event of any perceived conflict between the provisions of
Section 8 and this Section 10, the Committee's determinations under Section 8
shall control.
11. ASSIGNMENT OR TRANSFER.
Except as otherwise expressly provided in any Stock Option
Agreement relating to a Non-Qualified Option, no Option granted under the Plan
or any rights or interests therein shall be assignable or transferable by an
optionee except by will or the laws of descent and distribution, and during the
lifetime of an optionee, Options granted to such optionee shall be exercisable
only by the optionee or, in the event that a legal representative has been
appointed in connection with the Disability of an optionee, such legal
representative.
12. COMPLIANCE WITH SECURITIES LAWS.
The Parent shall not in any event be obligated to file any
registration statement under the Securities Act or any applicable state
securities law to permit exercise of any Option or to issue any Common Stock in
violation of the Securities Act or any applicable state securities law. Each
optionee (or, in the event of his or her death or the appointment of a legal
representative in connection with his or her Disability, the Person exercising
the Option) shall, as a condition to his, her or its right to exercise any
Option, deliver to the Parent an agreement or certificate containing such
representations, warranties and covenants as the Parent may deem necessary or
appropriate to ensure that the issuance of shares of Common Stock pursuant to
such exercise is not required to be registered under the Securities Act or any
applicable state securities law.
Certificates for shares of Common Stock, when issued, will have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR
SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL
THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER
(WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER, SALE,
PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE
FEDERAL OR STATE LAWS."
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This legend shall not be required for shares of Common Stock
issued pursuant to an effective registration statement under the Securities Act
and in accordance with applicable state securities laws.
13. WITHHOLDING TAXES.
By acceptance of any Option granted hereunder to any Key
Employee, the optionee will be deemed to (i) agree to reimburse the Parent or
other member of the Courtesy Group by which the optionee is employed for any
federal, state, or local taxes required by any government to be withheld or
otherwise deducted by such corporation in respect of the optionee's exercise of
all or a portion of the Option; (ii) authorize any member of the Courtesy Group
by which the optionee is employed to withhold from any cash compensation paid to
the optionee or on the optionee's behalf, an amount sufficient to discharge any
federal, state, and local taxes imposed on the Parent, or such member of the
Courtesy Group by which the optionee is employed, and which otherwise has not
been reimbursed by the optionee, in respect of the optionee's exercise of all or
a portion of the Option; and (iii) agree that the Parent may, in its discretion,
hold the stock certificate to which the optionee is entitled upon exercise of
the Option as security for the payment of the aforementioned withholding tax
liability, until cash sufficient to pay that liability has been accumulated, and
may, in its discretion, effect such withholding by retaining shares issuable
upon the exercise of the Option having a Fair Market Value on the date of
exercise which is equal to the amount to be withheld.
14. COSTS AND EXPENSES.
The costs and expenses of administering the Plan shall be borne
by the Parent and shall not be charged against any Option or to any Key Employee
receiving an Option.
15. FUNDING OF PLAN.
The Plan shall be unfunded. The Parent shall not be required to
make any segregation of assets to assure the payment of any Option under the
Plan.
16. OTHER INCENTIVE PLANS.
The adoption of the Plan does not preclude the adoption by
appropriate means of any other incentive plan for employees of any member of the
Courtesy Group.
17. EFFECT ON EMPLOYMENT.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided herein
or therein. Nothing contained in the Plan or any agreement related hereto or
referred to herein shall impose, or be construed as imposing, an obligation on
(i) any member of the Courtesy Group to continue the employment of any Key
Employee, and (ii) any Key Employee to remain in the employ of any member of the
Courtesy Group. The Options and the shares of
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Common Stock acquired pursuant to the exercise of such Options are a matter of
separate inducement.
18. DEFINITIONS.
In addition to the terms specifically defined elsewhere in the
Plan, the following terms as used in the Plan shall have the respective meanings
indicated:
"CHANGE OF CONTROL" shall mean the first to occur of the
following events with respect to the Parent: (i) any sale, lease,
exchange, or other transfer (in one transaction or series of related
transactions) of all or substantially all of the assets of the Parent
to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act and the regulations and interpretations thereunder
(a "GROUP"); (ii) a majority of the Board of Directors of the Parent
shall consist of Persons who are not Continuing Directors; or (iii) the
acquisition by any Person or Group of the power, directly or
indirectly, to vote or direct the voting of securities having more than
50% of the ordinary voting power for the election of directors of the
Parent.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONTINUING DIRECTOR" shall mean, as of the date of
determination, any Person who (i) was a member of the Board of
Directors of the Parent on the effective date of the Plan, or (ii) was
elected to the Board of Directors of the Parent pursuant to the terms
of that certain Shareholders Agreement dated July 30, 1999, between the
Parent and the other parties thereto, or (iii) elected to the Board of
Directors of the Parent with the affirmative approval of a majority of
the directors who are described in (i) or (ii) hereof and were members
of the Board of Directors of the Parent at the time of such election or
nomination for such election.
"DISABILITY" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of any member of the Courtesy
Group who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the
optionee; provided, however, that in the case of an Incentive Option,
"Disability" shall have the meaning specified in Section 22(e)(3) of
the Code.
"FAIR MARKET VALUE" shall, as it relates to the Common Stock,
mean the average of the high and low prices of such Common Stock as
reported on the principal national securities exchange on which the
shares of Common Stock are then listed on the date specified herein, or
if there were no sales on such date, on the next preceding day on which
there were sales, or if such Common Stock is not listed on a national
securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are not traded in the
over-the-counter market, the per share cash price for which all of the
outstanding Common Stock could be sold
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to a willing purchaser in an arm's-length transaction (without regard
to minority discount, absence of liquidity, or transfer restrictions
imposed by any applicable law or agreement other than a restriction
which, by its terms, will never lapse) at the date of the event giving
rise to a need for a determination. Except as may be otherwise
expressly provided in a particular Option, Fair Market Value shall be
determined in good faith by the Committee.
"GOOD CAUSE," with respect to any Key Employee, shall mean
(unless another definition is agreed to in writing by the Parent or
other member of the Courtesy Group and the optionee) termination of
employment by action of the Board of Directors of the Parent or other
member of the Courtesy Group because of: (i) the optionee's conviction
of, or plea of nolo contendere to, a felony or a crime involving moral
turpitude; (ii) the optionee's personal dishonesty, incompetence,
willful misconduct, willful violation of any law, rule, or regulation
(other than minor traffic violations or similar offenses) or breach of
fiduciary duty which involves personal profit; (iii) the optionee's
willful commission of material mismanagement in the conduct of his or
her duties as assigned to him or her by the Board of Directors of the
Parent or other member of the Courtesy Group or the optionee's
supervising officer or officers of the Parent or other member of the
Courtesy Group; (iv) the optionee's willful failure to execute or
comply with the policies of the Parent or other member of the Courtesy
Group or his or her stated duties as established by the Board of
Directors of the Parent or the Courtesy Group or the optionee's
supervising officer or officers of the Parent or other member of the
Courtesy Group, or the optionee's intentional failure to perform the
optionee's stated duties; or (v) substance abuse or addiction on the
part of the optionee. "GOOD CAUSE," with respect to any Eligible
Non-Employee, shall mean (unless another definition is agreed to in
writing by the Parent or other member of the Courtesy Group and the
optionee) termination of relationship by action of the Board of
Directors of the Parent or other member of the Courtesy Group because
of: (i) the optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (ii) the optionee's
personal dishonesty, incompetence, willful misconduct, willful
violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which
involves personal profit; (iii) the optionee's willful commission of
material mismanagement in providing services to any member of the
Courtesy Group; (iv) the optionee's willful failure to comply with the
policies of the Parent or any other member of the Courtesy Group in
providing services to the Parent or any member of the Courtesy Group,
or the optionee's intentional failure to perform the services for which
the optionee has been engaged; (v) substance abuse or addiction on the
part of the optionee; or (vi) the optionee's willfully making any
material misrepresentation or willfully omitting to disclose any
material fact to the Board of Directors of any member of the Courtesy
Group with respect to the business of any member of the Courtesy Group.
"INCENTIVE OPTIONS" shall mean incentive stock options which
qualify under Section 422 of the Code.
15
<PAGE> 18
The term "INCLUDING" when used herein shall mean "including, but
not limited to."
"NON-QUALIFIED OPTIONS" shall mean stock options which do not
qualify under Section 422 of the Code.
The term "SUBSIDIARY CORPORATION" as used in Section 1 shall have
the meaning contained in 424(f) of the Code.
The term "TREASURY REGULATIONS" shall mean the Treasury
Regulations promulgated in respect of the Code.
19. AMENDMENT AND TERMINATION.
The Board of Directors of the Parent shall have the right to
amend, modify, suspend or terminate the Plan at any time; provided, however,
that no amendment shall be made, unless such amendment is made by or with the
approval of the shareholders of the Parent, which shall (i) disqualify any
Incentive Options granted under the Plan, (ii) increase the total number of
shares of the Common Stock which may be issued and sold pursuant to Options
granted under the Plan, (iii)increase either of the maximum amounts which can be
paid to an individual participant under the Plan as set forth in Section 3
hereof, (iv) decrease the minimum Option exercise price in the case of an
Incentive Option, or (v) modify the provisions of the Plan relating to
eligibility with respect to Incentive Options. The Board of Directors of the
Parent shall be authorized to amend the Plan and the Options granted thereunder
(i) to qualify as "incentive stock options" within the meaning of Section 422 of
the Code or (ii) to comply with Rule 16b-3 (or any successor rule) under the
Exchange Act (or any successor law) and the regulations (including any temporary
regulations) promulgated thereunder. No amendment, modification, suspension or
termination of the Plan shall alter or impair any Options previously granted
under the Plan without the consent of the holder thereof.
20. EFFECTIVE DATE.
The Plan shall be effective as of September 7, 1999 and shall be
void retroactively as to any Incentive Option if not approved by the
shareholders of the Parent within twelve months thereafter. The Plan shall
terminate on the tenth anniversary of the date of adoption of the Plan or the
date of approval of the Plan by the shareholders of the Parent, whichever is
earlier, unless sooner terminated by the Board of Directors of the Parent
pursuant to Section 19.
16
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
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0
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