<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CALLOWAY'S NURSERY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
CALLOWAY'S NURSERY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
CALLOWAY'S NURSERY, INC.
4200 Airport Freeway
Fort Worth, Texas 76117
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 12, 1997
TO THE SHAREHOLDERS:
The Annual Meeting of the Shareholders of CALLOWAY'S NURSERY, INC. will be
held at the Fort Worth Botanic Garden, 3220 Botanic Garden Blvd., Fort Worth,
Texas, on February 12, 1997, at 10:00 a.m. (C.S.T.) for the following purposes:
1. To elect directors.
2. To consider approval of the Company's 1996 Stock Option Plan.
3. To consider ratification of the appointment of Coopers & Lybrand L.L.P.
as independent auditors of the Company for its fiscal year ending
September 30, 1997.
4. To transact such other business as may properly come before the
Meeting or any adjournment(s) thereof.
Only Shareholders of record as of the close of business on December 20,
1996, will be entitled to notice of or to vote at this Meeting or any
adjournment or adjournments thereof. A copy of the Annual Report to
Shareholders for the Fiscal Year Ended September 30, 1996 is enclosed with this
Notice and Proxy Statement.
WE HOPE YOU WILL BE ABLE TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
James C. Estill
Chairman of the Board
Fort Worth, Texas
Dated: January 10, 1997
<PAGE>
CALLOWAY'S NURSERY, INC.
4200 Airport Freeway
Fort Worth, Texas 76117
PROXY STATEMENT
For the
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 12, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CALLOWAY'S NURSERY, INC. (the "Company")
for use at the Annual Meeting of the Shareholders of the Company to be held at
the Fort Worth Botanic Garden, 3220 Botanic Garden Blvd., Fort Worth, Texas, on
February 12, 1997, at 10:00 a.m. (C.S.T.) or at any adjournment thereof. This
Proxy Statement and Proxy are being mailed to Shareholders on or about January
10, 1997.
The cost of soliciting proxies is being paid by CALLOWAY'S NURSERY,
INC. In addition to the mails, the Company's officers, directors and other
regular employees, without additional compensation, may solicit Proxies
personally or by other appropriate means.
If the enclosed Proxy is properly executed and returned, the shares
represented thereby will be voted in the manner specified. If no specification
is made by the Proxy, then the shares shall be voted in favor of the
recommendations of the Board of Directors. A Proxy may be revoked by a
Shareholder at any time prior to the actual exercise thereof by written notice
to the Secretary of the Company, by submission of another proxy bearing a later
date or by attending the Meeting and voting in person.
Discretionary authority is provided in the Proxy as to any matters not
specifically referred to therein. The management is not aware of any other
matters which are likely to be brought before the Meeting, however, if any such
matters properly come before the Meeting, it is understood that the Proxy holder
or holders are fully authorized to vote thereon in accordance with the Proxy
holder's or holders' judgment and discretion.
RECORD DATE AND VOTING SECURITIES
Only holders of the Company's $.01 par value common stock ("Common
Stock") of record as of the close of business on December 20, 1996, will be
entitled to vote on matters presented at the Meeting. On December 20, 1996,
there were outstanding 5,198,520 shares of Common Stock which constituted all of
the outstanding voting securities of the Company. Each share of Common Stock
will be entitled to one vote on all matters presented at the Meeting.
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There will be no cumulative voting for members of the Board of Directors.
Directors are elected by plurality vote.
All shares represented at the Meeting in person or by proxy shall be
counted in determining the presence of a quorum. Abstentions and broker non-
votes will not be considered part of the voting power present with respect to
any matter on which such shares abstain or do not vote, which will have the
effect of reducing the number of shares voting affirmatively that will be
required to approve a matter requiring a majority vote. Approval of the
Company's Stock Option Plan and notification of the appointment of Coopers and
Lybrand L.L.P. each will be approved if an affirmative vote is cast for them by
a majority of the shares of the Company present and voting in person or voting
by proxy at the Meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Under regulations of the Securities and Exchange Commission, persons
who own or have the power to vote or dispose of shares, either alone or jointly
with others, are deemed to be beneficial owners of such shares. Such persons
are also deemed to be the beneficial owners of shares owned by certain close
family members. The following table sets forth certain information as to the
number of shares of Common Stock of the Company beneficially owned as of
December 1, 1996, by (i) each director, (ii) each Named Executive (as defined
under EXECUTIVE COMPENSATION), and (iii) all of the executive officers and
directors of the Company as a group.
Except as otherwise indicated, each of the persons named below has
sole voting and investment power with respect to the shares of Common Stock
beneficially owned by that person. All persons listed are current directors.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
Number of Shares
----------------
Percent of
Name of Beneficial Owner Number Outstanding
------------------------ ------ -----------
<S> <C> <C>
James C. Estill.......................... 886,158(1) 16.3%
John T. Cosby............................ 388,332(2) 7.3%
John S. Peters........................... 95,066(3) 1.8%
Robert E. Glaze.......................... 69,721(4) 1.3%
Dr. Stanley Block........................ 8,385(5) *
All Directors and Executive Officers
as a group (7 persons)................. 1,588,525 28.0%
- ---------------------------
</TABLE>
*Less than 1%
(1) Includes 260,000 shares that could be acquired through options granted
under the 1991 Stock Option Plan which are currently exercisable at $1.00
per share and 39,257 shares that were acquired and are beneficially owned
through the Stock Purchase Plan.
2
<PAGE>
(2) Includes 120,000 shares that could be acquired through options granted
under the 1991 Stock Option Plan which are currently exercisable at $1.00
per share and 12,451 shares that were acquired and are beneficially owned
through the Stock Purchase Plan.
(3) Includes 45,000 shares that could be acquired through options granted under
the 1991 Stock Option Plan which are currently exercisable at $1.00 per
share and 22,365 shares that were acquired and are beneficially owned
through the Stock Purchase Plan.
(4) Includes 3,500 shares that could be acquired through options granted under
the 1991 Stock Option Plan which are currently exercisable at $6.25 per
share, 3,000 shares that could be acquired through options granted under
the 1995 Stock Option Plan for Independent Directors which are currently
exercisable at $1.00 per share and 57,221 shares that were acquired and are
beneficially owned through the Stock Purchase Plan.
(5) Includes 3,500 shares that could be acquired through options granted under
the 1991 Stock Option Plan which are currently exercisable at $6.25 per
share, 3,000 shares that could be acquired through options granted under
the 1995 Stock Option Plan for Independent Directors which are currently
exercisable at $1.00 per share and 1,104 shares that were acquired and are
beneficially owned through the Stock Purchase Plan.
Five Percent Shareholders. Messrs. James C. Estill and John T. Cosby,
both of 4200 Airport Freeway, Fort Worth, Texas, are beneficial owners of over
5% of the Company's outstanding shares of Common Stock. The information with
regard to their beneficial ownership is provided in the preceding table. The
Company is not aware of any other shareholder who is the beneficial owner of 5%
or more of the Company's outstanding Common Stock.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
James C. Estill 49 Chairman of the Board, President, Chief
Executive Officer, and Director
John T. Cosby 53 Vice President--Corporate Development,
Secretary and Director
John S. Peters 45 Vice President--Operations and Director
Robert E. Glaze(1) 76 Director
Dr. Stanley Block(1) 56 Director
- --------------------
</TABLE>
(1) Member of the Audit Committee and of the Compensation Committee.
Directors are elected annually by the Shareholders of the Company for one
year and hold office until their successors are elected and have qualified.
During the Fiscal Year ended
3
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September 30, 1996, there were four meetings of the Board of Directors.
Additionally, the Board of Directors took action by unanimous written consent on
one occasion.
The Company has an Audit Committee and a Compensation Committee. Messrs.
Glaze and Block are the members of these committees. The Audit Committee
monitors the activities of the Company's auditors and reports on such activities
to the full Board of Directors. During the Fiscal Year ended September 30, 1996,
there were four meetings of the Audit Committee. The Compensation Committee
approves the compensation of officers of the Company, administers the benefit
plans of the Company and has overall responsibility for the compensation
policies of the Company. During the Fiscal Year ended September 30, 1996, there
were four meetings of the Compensation Committee. Additionally, the Compensation
Committee took action by unanimous consent on two occasions.
Each director of the Company who is not an employee of the Company receives
fees of $7200 per year and $250.00 for each Board of Directors or committee
meeting attended. Directors who are also employees of the Company are not
separately compensated for their services as directors.
In addition, each director of the Company may participate in the Company's
Stock Purchase Plan. Messrs. Glaze and Block have elected to participate in the
Stock Purchase Plan. For the Fiscal Year ended September 30, 1996, the aggregate
amounts contributed by the Company under the Stock Purchase Plan to Messrs.
Glaze and Block were: Robert E. Glaze--$10,950; and Dr. Stanley Block--$70. The
aggregate number of shares of Common Stock acquired by Messrs. Glaze and Block
through the Stock Purchase Plan are included in the BENEFICIAL OWNERSHIP table
on page two. Messrs. Estill, Cosby and Peters have also elected to participate
in the Stock Purchase Plan, with such participation being described in the
EXECUTIVE COMPENSATION section of this Proxy.
The principal occupations of the directors of the Company, and time served
as such, are described below:
Mr. Estill has been President and a director of the Company since its
inception in March 1986.
Mr. Cosby has been Vice President--Corporate Development of the Company
since its inception in March 1986 and previously served as a director of the
Company from March 1986 to August 1988. He resumed service as a director of the
Company upon completion of its initial public offering in June of 1991.
Mr. Peters has been Vice President--Operations of the Company since April
1986 and previously served as a director of the Company from April 1986 to
August 1988. He resumed service as a director of the Company upon completion of
its initial public offering in June of 1991.
Mr. Glaze has principally been involved in managing his personal
investments since 1976. Prior to 1976, Mr. Glaze was the Chief Financial Officer
of Trammel Crow Company, a real estate company headquartered in Dallas, Texas.
Mr. Glaze currently serves as a member of the Board of Directors of Justin
Industries, Inc. He has served as a member of the Board of Directors of the
Company since completion of its initial public offering in June of 1991.
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Dr. Block, a chartered financial analyst, has been a Professor of Finance
at Texas Christian University in Fort Worth, Texas since 1967. Dr. Block is also
an author, consultant and lecturer in the area of finance. He has served as a
member of the Board of Directors of the Company since completion of its initial
public offering in June of 1991.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of the Common Stock of the Company. Officers, directors and greater
than ten-percent Shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company with respect to the Fiscal Year ended September 30, 1996, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were filed on a timely basis.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Board of Directors presently consists of five (5) members. Management
has nominated the persons now serving on the Board of Directors for election to
serve as directors until the next Annual Meeting of the Shareholders and until
their successors are elected and qualified. All of the nominees have expressed
their willingness to serve, but if because of circumstances not contemplated,
one or more of the nominees is not available for election, the Proxy holders
named in the enclosed Proxy form intend to vote for such other person or persons
as management may nominate. No family relationship exists among the directors,
executive officers or nominees of the Company. Information with respect to each
nominee is set forth in the section entitled "BOARD OF DIRECTORS AND COMMITTEES
OF THE BOARD."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION AS DIRECTORS OF THE FIVE PERSONS NOMINATED BY MANAGEMENT.
EXECUTIVE COMPENSATION
Summary Compensation Table. The individuals named below (the "Named
Executives") include the Company's chief executive officer and two other
executive officers. Information is provided for the fiscal years ending on
September 30, for the three years shown.
5
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------
(4)
Other
Name and Annual All Other
Principal Salary Bonus Compensa- Compen-
Position Year $ $ tion ($) sation (0-$)
-------- ---- ---- --- -------- ------------
<S> <C> <C> <C> <C> <C>
James C. Estill 1996 221,664(1) 6,348 - 25,567
Chairman, President 1995 135,000 7,125 - 17,256
and Chief Executive 1994 168,318 -0- - 25,899
Officer
John T. Cosby 1996 165,000(2) 4,716 - 8,660
Vice President- 1995 100,000 5,278 - 6,546
Corporate 1994 124,988 -0- - 21,630
Development
and Secretary
John S. Peters 1996 165,000(3) 4,716 - 5,035
Vice President- 1995 100,000 5,278 - 1,907
Operations 1994 124,988 -0- - 15,313
- -----------------
</TABLE>
(1) $46,664 of this amount offset voluntary salary reductions during fiscal
1995.
(2) $35,000 of this amount offset voluntary salary reductions during fiscal
1995.
(3) $35,000 of this amount offset voluntary salary reductions during fiscal
1995.
(4) Amounts included under All Other Compensation represent amounts contributed
to or accrued for 1996, 1995 and 1994 for the Named Executives under the
Company's Stock Purchase Plan and amounts paid for life insurance on the
lives of the Named Executives.
In August 1994, the Named Executives voluntarily took substantial reductions in
their salary, reducing them below the levels called for by employment contracts
that each of them had with the Company. In October 1995, the Compensation
Committee reinstated the contractual salaries of the Named Executives and
authorized repayment of amounts equivalent to the salary reductions.
Stock Options. While the Named Executives hold options to acquire shares of
the Company's Common Stock as shown in the footnotes to the AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP table, none of those options are at prices below the
current market value of the Common Stock.
Employment Contracts and Change-in-Control Agreements. The Company's
employment agreements with Messrs. Estill, Cosby and Peters were renewed without
significant modification for the five year period through July 2, 2001. Mr.
Estill's agreement provides (i)
6
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for a minimum annual base salary of $175,000, (ii) that the Company will
continue to maintain life insurance for Mr. Estill in the amount of $1,500,000,
the beneficiary of which may be designated by Mr. Estill, (iii) that the Company
will purchase disability insurance for Mr. Estill sufficient to provide three
years' compensation should he become disabled and (iv) that, if Mr. Estill's
employment is terminated for any reason other than just cause or is
constructively terminated, Mr. Estill (a) will be entitled to receive, within 15
days after such termination, a cash payment in an amount equal to three times
the sum of (X) Mr. Estill's then current annual base salary and (Y) the amount
of the bonus, if any, earned by Mr. Estill in respect of the previous Fiscal
Year (the "Severance Payment") and (b) will be entitled to participate in all
benefit programs of the Company for a period of one year following such
termination. The Company will be deemed to have terminated the agreement
without "just cause" unless such termination resulted from (i) Mr. Estill's
willful and intentional failure to substantially perform his duties, (ii) the
commission by Mr. Estill of an illegal act in connection with his employment or
(iii) the death or disability of Mr. Estill. Mr. Estill's employment will be
deemed to have been "constructively terminated" (i) if his responsibilities or
authority have been significantly reduced, (ii) if Mr. Estill is required to
relocate outside of the Dallas-Fort Worth area or his salary is reduced in
violation of his employment agreement or (iii) if a change in control of the
Company occurs, as defined in the employment agreement.
Mr. Cosby's employment agreement is identical to Mr. Estill's except that
Mr. Cosby is Vice President--Corporate Development and his minimum annual base
salary is $130,000.
Mr. Peters' employment agreement is also identical to Mr. Estill's except
that Mr. Peters is Vice President--Operations, his minimum annual base salary is
$130,000 and his life insurance is the in amount of $500,000.
Report of Compensation Committee. The Compensation Committee is made up of
Mr. Robert E. Glaze and Dr. Stanley Block, the two Company Directors who are
independent of management.
Scope of Authority. The Committee is responsible for determining and
------------------
administering the compensation to be paid to the "executive officers" of the
Company, as that term is defined in the rules and regulations under the
Securities Exchange Act of 1934. The Committee has been directed to establish
annually an incentive plan as part of the compensation of the executive
officers. Additionally, the Committee is charged with responsibility for the
formation and administration of any plan involving the capital stock of the
Company regardless of the level of employees for whose benefit the plan is or
was created.
Objectives. All policies, plans and actions of the Committee are
----------
formulated or taken with the goal of maximizing shareholder value by aligning
the financial interests of the executive officers with those of the Company's
shareholders. This is done through a combination of salary, short-term
incentive compensation and long-term incentive compensation such as the granting
of options to acquire additional equity in the Company.
Compensation of Executive Officers for Fiscal 1996. The salaries of
--------------------------------------------------
the Company's three Named Executives through July 2, 1996, were established by
five year employment agreements made in 1991. In August of 1994, these Named
Executives initiated and the Compensation Committee approved substantial
reductions in their annual salaries. Based upon the significant
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<PAGE>
improvement by the Company in operating results for its 1995 fiscal year, the
Compensation Committee reinstated, effective October 1, 1995, the salary levels
established by the 1991 employment contracts and also authorized payments to the
Named Executives of amounts equivalent to the salary reductions of August 1994.
The term of the employment contracts under which the three Named Executives
have been employed for the last five years expired on July 2, 1996. Upon
termination of the employment contracts, the Compensation Committee determined
that, in view of the performance of the Named Executives over term of those
contracts and particularly the formulation and implementation of inventory and
merchandising policies that have permitted the Company to overcome losses which
resulted in recent years from intense competition, it would be appropriate to
extend those contracts without significant change for an additional term of five
years.
As had been the practice in prior years, the Compensation Committee
authorized a Management Profit Sharing Bonus Plan for the fiscal year ending
September 30, 1996, for the purpose of creating cash incentives to the Named
Officers and other executive officers to maximize current sales and earnings.
That plan is in the same form as the one used in prior years.
Incentive to maximize growth and increase profitability over the long-
term is afforded to the Named Executives and other executive officers through
their substantial share ownership and stock options. Consideration is given
annually to the granting of stock options. No new options were granted to the
Named Executives or other executive officers during fiscal 1996 nor were any
outstanding options repriced.
The Committee is of the opinion that the compensation package being
provided to its chief executive officer, the two other Named Executives and all
other executive officers reflects its goals of offering compensation that is
fair to these officers and the Company's shareholders alike by providing
adequate base salaries together with substantial opportunity for personal
financial growth which parallels management's ability to increase shareholder
value. Bonus plans are established to provide additional compensation for
superior performance in terms of net profits earned for the benefit of all
shareholders. It is intended that the total economic advantages and
opportunities provided to the executive officers will be at least equivalent to
that provided by comparable corporations.
Compensation Committee: Robert E. Glaze and Dr. Stanley Block
8
<PAGE>
Performance Graph. The following graph compares the yearly change during
the Company's last five fiscal years in total shareholders' return on the
Company's Common Stock, with the cumulative total return on the S&P 500 Index
and an index of peer companies (weighted by market capitalization) selected by
the Company. Companies in the peer group are Sunbelt Nursery Group, Inc.
("Sunbelt") and General Host Corporation ("General Host"). The comparison
assumes $100.00 was invested at the beginning of the period in the Company's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG CALLOWAY'S NURSERY, INC., THE S & P 500 INDEX
AND A PEER GROUP
[GRAPH APPEARS HERE]
Calloway's Nursery Peer Group S & P 500
Year Dollars Dollars Dollars
9/91 100 100 100
9/92 91 87 111
9/93 47 79 125
9/94 23 45 130
9/95 17 62 169
9/96 14 30 203
* $100 INVESTED ON 9/30/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
The above performance graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
9
<PAGE>
PROPOSAL FOR APPROVAL OF THE CALLOWAY'S NURSERY, INC.
1996 STOCK OPTION PLAN
(Proposal No. 2)
On August 14, 1996, the Board of Directors unanimously adopted the
Calloway's Nursery, Inc. 1996 Stock Option Plan (the "1996 Stock Option Plan").
The 1996 Stock Option Plan is subject to approval by the shareholders and will
be voted on at the Meeting. The purpose of the Stock Option Plan is to promote
the growth and general prosperity of the Company by facilitating its ability to
attract and retain superior personnel for positions of substantial
responsibility and providing full-time employees with an additional incentive to
contribute to the success of the Company. As of the date of this Proxy
Statement, no options have been granted under the 1996 Stock Option Plan. The
following summary of the 1996 Stock Option Plan is qualified in its entirety by
reference to the full text of that Plan which is attached as Exhibit A.
Summary Description of the 1996 Stock Option Plan
The Company's 1996 Stock Option Plan provides incentive stock options and
nonstatutory stock options exercisable for shares of Common Stock that may be
granted to employees of the Company. Non-employee directors of the Company will
not be eligible to be granted options under the 1996 Stock Option Plan.
The Company will reserve 250,000 shares of Common Stock for issuance under
the 1996 Stock Option Plan. Shares issuable upon the exercise of options granted
under the 1996 Stock Option Plan may be either authorized and unissued shares of
Common Stock, or issued shares of Common Stock reacquired by the Company and
held in treasury. The 1996 Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors.
The term of any incentive or nonstatutory stock option granted under the
Plan may not exceed 10 years. The option exercise price cannot be less than 100%
of the fair market value of the Common Stock on the date of grant. "Fair market
value" is, as of the date of grant, a value determined by the Compensation
Committee on the basis of the last reported sales price for the Common Stock on
the date for which such determination is relevant. The aggregate fair market
value of the Common Stock (determined at the date of grant) with respect to
which incentive stock options granted under the 1996 Stock Option Plan, and all
other plans of the Company, are first exercisable by an Optionee in any one
calendar year may not exceed $100,000. Payment for Common Stock issuable upon
exercise of an option may be made in the form of cash, Common Stock at fair
market value at the date of payment, by note to the extent permissible under the
corporate law of the state of Texas, or any combination thereof.
The option will be exercisable as determined by the Compensation Committee.
If a person to whom options have been granted (an "Optionee") ceases to be
employed by the Company for any reason other than termination for cause,
retirement, death or disability, his option generally may be exercised (to the
extent exercisable on the date of termination of employment) at any time within
three months after the date of termination of employment. If an Optionee's
employment with the Company is terminated for cause, the option automatically
expires. If an Optionee becomes disabled while employed by the Company, any
options held become fully exercisable and expire twelve months after the date of
termination of employment. If an Optionee dies while
10
<PAGE>
employed by the Company or within three months after ceasing to be an employee,
the option expires twelve months after the date of death, unless by its terms it
expires sooner.
In the event of an agreement to dispose of all or substantially all of the
assets of the Company by means of a sale, merger or other reorganization or
liquidation or otherwise in a transaction in which the Company is not the
surviving corporation or in the event of a change or threatened change in
control of the Company, all outstanding options become immediately exercisable.
The Compensation Committee may amend the terms of the plan, provided that
no amendment shall increase the aggregate number of shares subject to the plan,
change the minimum purchase price for shares, increase the maximum permitted
option term or permit the granting of an option to anyone other than an employee
of the Company. No options may be granted under the 1996 Stock Option Plan after
the tenth anniversary of shareholder approval, but options that are outstanding
on such date shall continue to be exercisable under their terms.
Federal Income Tax Consequences to the Company and the Optionees
Incentive Stock Options. Some of the options granted under the 1996 Stock
Option Plan may constitute "Incentive Stock Options" ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Under present Federal tax regulations, there will be no Federal income tax
consequences to either the Company or an optionee upon the grant of an ISO, nor
will an Optionee's exercise of an ISO result in Federal income tax consequences
to the Company. Although an Optionee will not realize ordinary income upon
exercise of an ISO, the excess of the fair market value of the Common Stock
acquired at the time of exercise under the option price may constitute an
adjustment in computing alternative minimum taxable income under Section 56 of
the Code and, thus, may result in the imposition on the Optionee of the
"alternative minimum tax" pursuant to Section 55 of the Code. If an Optionee
does not dispose of Common Stock acquired through an ISO within one year of the
ISO's date of exercise or within two years of the ISO's date of grant, any gain
realized upon a subsequent disposition of Common Stock will constitute long-term
capital gain to the Optionee, and the Company will not be entitled to any
Federal tax deduction. If an Optionee disposes of the Common Stock within such
one-year period, an amount equal to the lesser of (i) the excess of the fair
market value of the Common Stock on the date of exercise over the option price
or (ii) the actual gain realized upon such disposition will constitute ordinary
income to the Optionee in the year of the disposition. Any additional gain upon
such disposition will be taxed as short-term capital gain. The company will
receive a deduction in an amount equal to the amount constituting ordinary
income to an Optionee.
Nonstatutory Stock Options. Stock options granted under the 1996 Stock
Option Plan which do not constitute ISOs will be nonstatutory stock options
("Nonstatutory Stock Options"). Under present Federal income tax regulations,
there will be no Federal income tax consequences to either the Company or the
Optionee upon the grant of a Nonstatutory Stock Option at fair market value.
However, the Optionee will realize ordinary income upon the exercise of a
nonstatutory option in an amount equal to the excess of the fair market value of
the Common Stock acquired upon the exercise of such option over the option
price, and the Company will receive a corresponding deduction. The gain, if any,
realized upon a subsequent disposition of
11
<PAGE>
such Common Stock will constitute short-term or long-term capital gain,
depending on the Optionee's holding period.
The Federal income tax consequences described in this section are based on
laws and regulations in effect on November 30, 1996, and there are no assurances
that the laws and regulations will not change in the future and affect the tax
consequences of the matters discussed in this section.
Market Price of the Company's Common Stock
The closing market price of the Company's Common Stock as reported on the
Nasdaq National Market for December 6, 1996 was $.875 per share.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO APPROVE THE CALLOWAY'S NURSERY, INC. 1996 STOCK OPTION PLAN. PROXIES RECEIVED
BY THE BOARD OF DIRECTORS WILL BE VOTED FOR APPROVAL UNLESS SHAREHOLDERS SPECIFY
OTHERWISE IN THEIR PROXY.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 3)
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed Coopers & Lybrand L.L.P. as independent auditors of the Company for
its fiscal year ending September 30, 1997, and recommends that the shareholders
ratify this selection. The Board of Directors has been advised that Coopers &
Lybrand L.L.P. has no relationship with the Company other than that arising from
the firm's employment as auditors. A representative of Coopers & Lybrand L.L.P.
is expected to be present at the Meeting and will be given an opportunity to
make a statement, if such representative so desires, and to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS.
ACTION TO BE TAKEN UNDER THE PROXY
The accompanying Proxy will be voted "FOR" the election of the five (5)
persons recommended by the Board of Directors and named under "BOARD OF
DIRECTORS AND COMMITTEES OF THE BOARD" as nominees for directors of the Company,
"FOR" approval of the Company's 1996 Stock Option Plan, and "FOR" ratification
of the appointment of Coopers & Lybrand L.L.P. as the Company's independent
auditors, unless the Proxy is marked in such a manner as to withhold authority
to so vote. The accompanying Proxy will also be voted in connection with the
transaction of such other business as may properly come before the Meeting or
any adjournment or adjournments thereof. Management knows of no other matters to
be considered at the Meeting. If, however, any other matters properly come
before the Meeting or any adjournment or adjournments thereof, the persons named
in the accompanying Proxy will vote such Proxy in accordance with their best
judgment on any such matter. The persons named in the accompanying Proxy will
also, if in their judgment it is deemed to be advisable, vote to adjourn the
Meeting from time to time.
12
<PAGE>
DATE OF RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the Proxy Statement for the 1998
Annual Meeting of Shareholders must be received at the principal executive
offices of the Company on or before September 11, 1997.
ANNUAL REPORTS
Form 10-K. The Company will furnish upon request to each person whose
Proxy is being solicited, without charge, a copy of the Annual Report of the
Company on Form 10-K for the Fiscal Year ended September 30, 1996, as filed with
the Securities and Exchange Commission, including the financial statements and
schedules thereto. Such report was filed with the Securities and Exchange
Commission on December 20, 1996. Requests for copies of such report should be
directed to Investor Relations, 4200 Airport Freeway, Fort Worth, Texas 76117,
(817) 222-1122.
1996 Annual Report to Shareholders. The Annual Report to Shareholders of
the Company for the Fiscal Year ended September 30, 1996, is enclosed herewith.
The Annual Report, which includes audited financial statements, does not form
any part of the material for the solicitation of Proxies.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES. A PROMPT RETURN OF YOUR PROXY WILL BE APPRECIATED, AS IT WILL
SAVE THE EXPENSE OF FURTHER MAILING.
13
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EXHIBIT A
CALLOWAY'S NURSERY, INC.
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
ARTICLE I.....................................................................1
THE PLAN.................................................................1
1.1 Name............................................................1
1.2 Purpose.........................................................1
1.3 Effective Date..................................................1
1.4 Eligibility to Participate......................................1
1.5 Shares Subject to the Plan......................................1
1.6 Maximum Number of Plan Shares...................................1
1.7 Options and Stock Granted Under Plan............................1
1.8 Conditions Precedent............................................1
1.9 Reservation of Shares of Common Stock...........................2
1.10 Tax Withholding................................................2
1.11 Exercise of Options............................................3
1.12 Acceleration of Right to Exercise Options......................3
1.13 Written Notice Required........................................4
1.14 Compliance with Securities Laws................................4
1.15 Employment of Optionee.........................................5
1.16 Option Upon Termination of Employment..........................5
1.17 Termination of Employment for Cause............................5
1.18 Option Upon Disability of Optionee.............................5
1.19 Option Upon Death of Optionee..................................5
1.20 Options Not Transferable.......................................6
1.21 Information to Optionees.......................................6
ARTICLE II....................................................................6
ADMINISTRATION...........................................................6
2.1 Committee......................................................6
2.2 Appointment of Committee.......................................6
2.3 Majority Rule; Unanimous Written Consent.......................6
2.4 Company Assistance.............................................6
ARTICLE III...................................................................7
INCENTIVE STOCK OPTIONS..................................................7
3.1 Option Terms and Conditions....................................7
3.2 Duration of Options............................................7
i
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3.3 Purchase Price.................................................7
3.4 Maximum Amount of Options First Exercisable in Any Calendar
Year...........................................................7
3.5 Requirements as to Certain Options.............................7
3.6 Individual Option Agreements...................................7
ARTICLE IV....................................................................8
NONQUALIFIED STOCK OPTIONS...............................................8
4.1 Option Terms and Conditions....................................8
4.2 Duration of Options............................................8
4.3 Purchase Price.................................................8
4.4 Individual Option Agreements...................................8
ARTICLE V.....................................................................8
TERMINATION, AMENDMENT AND ADJUSTMENT....................................8
5.1 Termination and Amendment......................................8
5.2 Adjustments....................................................9
ARTICLE VI....................................................................9
MISCELLANEOUS............................................................9
6.1 Other Option Plans.............................................9
6.2 Plan Binding on Successors.....................................9
6.3 Number and Gender..............................................9
6.4 Headings.......................................................9
6.5 Conditions.....................................................9
ARTICLE VII...................................................................9
DEFINITIONS..............................................................9
ii
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CALLOWAY'S NURSERY, INC.
1996 STOCK OPTION PLAN
ARTICLE I
THE PLAN
1.1 Name. This Plan shall be known as the "Calloway's Nursery, Inc.
----
1996 Stock Option Plan."
1.2 Purpose. the purpose of the Plan is to promote the growth and
-------
general prosperity of the Company by permitting the Company to grant to its
full-time employees Options to purchase Common Stock of the Company. This Plan
is designed to help the Company and its subsidiaries and affiliates attract and
retain superior personnel for positions of substantial responsibility and to
provide full-time employees with an additional incentive to contribute to the
success of the Company. The Company intends that Incentive Stock Options
granted pursuant to Article III will qualify as "incentive stock options" within
the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"). Any option granted pursuant to Article IV shall be clearly and
specifically designated as not being an incentive stock option as defined in
Section 422(b) of the Code.
1.3 Effective Date. The Plan shall become effective upon the Effective
--------------
Date.
1.4 Eligibility to Participate. any Employee shall be eligible to
--------------------------
participate in the Plan. The Committee may grant Options to an Employee in
accordance with such determinations as the Committee from time to time in its
sole discretion shall make.
1.5 Shares Subject to the Plan. the Plan Shares subject to the Plan
--------------------------
shall be shares of Common Stock.
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant to
-----------------------------
the provisions of Section 5.2, and subject to any additional restrictions
elsewhere in the Plan, the number of Plan shares that may be issued and sold
hereunder shall not exceed 250,000 shares. Plan Shares may be either authorized
and unissued shares or shares issued and thereafter acquired by the Company.
1.7 Options and Stock Granted Under Plan. Plan Shares with respect to
------------------------------------
which an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to which
such Option termination relates.
1.8 Conditions Precedent. the Company shall not issue or deliver any
--------------------
Option Agreement or any certificate for Plan Shares pursuant to the Plan prior
to fulfillment of all of the following
1
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conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges or qualified with any national quotation system on which the
Common Stock is then listed or qualified for trading, unless the
Committee determines in its sole discretion that such listing or
qualification is necessary nor advisable;
(b) The completion of any registration or other qualification of
the sale of Plan Shares under any federal or state law or under the
rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body that the committee shall in its sole
discretion deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee shall in its sole
discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
-------------------------------------
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company will from time to
time, as is necessary to accomplish the purposes of the Plan, use its best
efforts to obtain from any regulatory agency having jurisdiction any requisite
authority necessary to issue Plan Shares hereunder. The inability of the Company
to obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary for the lawful issuance of any Plan Shares
shall relieve the Company of any liability in respect of the nonissuance of Plan
Shares as to which the requisite authority shall not have been obtained.
1.10 Tax Withholding.
---------------
(a) Condition Precedent. The issuance, delivery or exercise of any
-------------------
Options under the Plan is subject to the condition that if at any time the
Committee shall determine, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any state or federal law
is necessary or desirable as a condition of, or in connection with, the
issuance, delivery or exercise of the Options, then the issuance, delivery or
exercise of the Options shall not be effective unless the withholding shall have
been effected or obtained in a manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an Optionee
-------------------------------------------
participating in the Plan is required to pay to the Company an amount required
to be withheld under applicable income tax laws in connection with the exercise
of an Option, the Optionee may satisfy the obligation, in whole or in part, by
electing to (i) have the Company withhold a portion of the Plan Shares acquired
upon the exercise of the Option and having an aggregate Fair Market Value on the
date the amount of tax to be withheld is to be determined (the "Tax Date") equal
to the amount required to be withheld or (ii) deliver to the Company shares of
Common Stock already owned by the Optionee and having an aggregate Fair Market
Value on the Tax Date equal to the amount
2
<PAGE>
required to be withheld.
(c) Special Rules for Use of Stock. An election by an Optionee
------------------------------
subject to Section 16 of the Exchange Act with respect to the Company's equity
securities to have Plan Shares or other shares of Common Stock withheld or
delivered out of already-owned Common Stock for this purpose will be subject to
the following restrictions: the election: (i) will be subject at all times to
the approval of the Committee, (ii) must be made on or prior to the Tax Date and
during the period beginning on the third business day following the date of
release of the financial information specified in paragraph (e)(1)(ii) of Rule
16b-3 promulgated under the Exchange Act and ending on the twelfth day following
such date of release, (iii) will be irrevocable, (iv) may not be made within
six months after the grant of the Option in question and (v) may not be made
unless the Company has been subject to the reporting requirements of Section
13(a) of the Exchange Act for at least one year prior to the election and has
filed all reports and statements required to be filed pursuant to that Section
for that year.
1.11 Exercise of Options.
-------------------
(a) Method of Exercise. Each Option shall be exercisable in
------------------
accordance with the terms of the Option Agreement pursuant to which the Option
was granted. No Option may be exercised for a fraction of a Plan Share.
(b) Payment of Purchase Price. the purchase price of any Plan shares
-------------------------
purchased shall be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) by shares of Common Stock, if
permitted by the Committee, (iv) if then permitted under the laws of the State
of Texas, by cash or certified or cashier's check for the par value of the Plan
Shares plus a promissory note for the balance of the purchase price, which note
shall (A) provide for full personal liability of the maker, (B) bear interest at
the lowest rate then possible without causing the maker thereof to have income
imputed in connection therewith, (C) be due and payable both as to principal and
interest five years from the date such note is made, (D) be secured by the Plan
Shares issued in connection therewith, (E) be payable in advance in whole or in
part (with the Plan Shares pledged in connection therewith released in the same
proportion as such prepayment) and (F) contain such other terms and provisions
as the Committee may determine, including without limitation the right to repay
the note partially or wholly with Common Stock or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the Plan Shares purchased upon
exercise of the Option or to pledge them as collateral for a loan and promptly
deliver to the Company the amount of sale or loan proceeds necessary to pay such
purchase price. If any portion of the purchase price or a note given at the
time of exercise is paid in shares of Common Stock, those shares shall be valued
at the then Fair Market Value.
1.12 Acceleration of Right to Exercise Options. Notwithstanding the
-----------------------------------------
provisions of any Option Agreement regarding the time for exercise of an Option,
the following provisions shall apply:
3
<PAGE>
(a) Mergers and Reorganizations. If the Company or its
---------------------------
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization or liquidation, or otherwise in a transaction in which the
Company is not the surviving corporation, any Option shall become
immediately exercisable with respect to the full number of shares subject
to that Option during the period commencing as of the date of the
agreement to dispose of all or substantially all of the assets of the
Company and ending when the disposition of assets contemplated by that
agreement is consummated or the Option is otherwise terminated in
accordance with its provisions or the provisions of the Article pursuant
to which was granted, whichever occurs first. The Option shall not become
immediately exercisable, however, if the transaction contemplated in the
agreement is a merger or reorganization in which the Company will
survive.
(b) Change in Control. In the event of a change in control or
-----------------
threatened change in control of the Company, all Options granted prior to
the change in control shall become immediately exercisable. The term
"change in control" for purposes of this Section shall refer to the
acquisition of 20 percent or more of the voting securities of the Company
by any person or by persons acting as a group within the meaning of
Section 13(d)(3) of the Exchange Act; provided that no change in control
or threatened change in control shall be deemed to have occurred if prior
to the acquisition of, or offer to acquire, 20 percent or more of the
voting securities of the Company, the full Board shall have adopted by
not less than two-thirds vote a resolution specifically approving such
acquisition or offer. The term "person" for purposes of this Section
refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically
listed herein. Whether a change in control is threatened shall be
determined solely by the Committee.
1.13 Written Notice Required. any Option shall be deemed to be
-----------------------
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with
Section 1.11.
1.14 Compliance with Securities Laws. Plan Shares shall not be issued
-------------------------------
with respect to any Option unless the exercise of the Option and the issuance
and delivery of the Plan Shares shall comply with all relevant provisions of
federal and state law, including without limitation the Securities Act, the
rules and regulations promulgated thereunder and the requirements of any stock
exchange upon which the Plan shares may then be listed or any national quotation
system on which they may be traded, and shall be further subject to the approval
of counsel for the Company with respect to such compliance. The Committee may
also require an Optionee to furnish evidence satisfactory to the Company,
including a written and signed representation letter and consent to be bound by
any transfer restrictions imposed by law, legend, condition or otherwise, that
the Plan Shares are being acquired only for investment and without any present
intention to sell or distribute the shares in violation of any federal or state
law, rule or regulation. Further each Optionee shall consent to the imposition
of a legend on the certificate representing the Plan Shares issued upon the
4
<PAGE>
exercise of the Option restricting their transferability as required by law or
by this Section.
1.15 Employment of Optionee. Nothing in the Plan or in any Option
----------------------
granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of that employment.
1.16 Option Upon Termination of Employment. If an Optionee ceases to
-------------------------------------
be employed by the Company or any of its subsidiaries or affiliates for any
reason other than for cause, retirement, death or disability, his Option may be
exercised (to the extent exercisable on the date of termination of employment)
at any time within three months after the date of termination of employment,
unless either the Option or the Article pursuant to which it was granted
otherwise provides for earlier termination. If an Optionee ceases to be
employed by the Company or any of its subsidiaries or affiliates because the
Optionee has retired under a qualified retirement plan of the Company, as
determined by the Committee, his Option shall be exercisable (to the extent
exercisable on the effective date of such retirement) at any time within 12
months after the effective date of such retirement unless by its terms the
Option expires sooner.
1.17 Termination of Employment for Cause. If an Optionee ceases to
-----------------------------------
be employed by the Company or any of its subsidiaries or affiliates because the
Optionee is terminated for cause, the Option shall automatically expire. For
purposes of this Section, "cause" shall mean an act or acts involving a felony,
fraud, willful misconduct, the commission of any act that causes or reasonably
may be expected to cause substantial injury to the Company or other good cause.
The term "other good cause" as used in this Section shall include, but shall not
be limited to, habitual impertinence, a pattern of conduct that tends to hold
the Company up to ridicule in the community, conduct disloyal to the Company,
conviction of any crime of moral turpitude and substantial dependence, as judged
by the Committee, on alcohol or any controlled substance. "Controlled
substance" means a drug, immediate precursor, or other substance listed in
Schedules I-V or Penalty Groups 1-4 of the Texas Controlled Substances Act, as
amended, or a drug, immediate precursor, or other substance listed in Schedules
I-V of the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970,
as amended. Notwithstanding the foregoing, if an Optionee is an Employee
employed pursuant to a written employment agreement, Employee shall be deemed to
be terminated for "cause" for purposes of the Plan only if Employee is
considered under the circumstances to have been terminated for cause for
purposes of such employment agreement.
1.18 Option Upon Disability of Optionee. If an Optionee becomes
----------------------------------
disabled within the meaning of Section 22(e)(3) of the Code while employed by
the Company or any of its subsidiaries or affiliates, his Option shall become
fully exercisable and shall expire 12 months after the date of such termination,
unless either the Option or the Article pursuant to which it was issued
otherwise provides for earlier termination.
1.19 Option Upon Death of Optionee. Except as otherwise limited by
-----------------------------
the Committee at the time of the grant of an Option, if an Optionee dies while
employed by the Company or any of
5
<PAGE>
its subsidiaries or affiliates, or within three months after ceasing to be an
Employee for reason other than termination for cause, his Option shall expire 12
months after the date of death, unless by its terms it expires sooner. During
this twelve-month or shorter period, the Option may be fully exercised, to the
extent that it remains unexercised on the date of death, by the Optionee's
personal representative or by the distributees to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and distribution.
1.20 Options Not Transferable. Options may not be sold, pledged,
------------------------
assigned or transferred in any manner otherwise than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code and may be exercised during the lifetime of an Optionee only
by that Optionee or by his legally authorized representative.
1.21 Information to Optionees. The Company shall furnish to each
-------------------------
Optionee a copy of the annual report, proxy statements and all other reports
sent to the Company's shareholders. Upon written request, the Company shall
furnish to each Optionee a copy of its most recent Annual Report on Form 10-K
and each quarterly report to shareholders issued since the end of the Company's
most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 Committee. The Plan shall be administered by a Committee of not
---------
fewer than two members, who shall be nonemployee members of the Board. No
member of the Committee shall be eligible to receive Options under the Plan
(since they are not employees) and each such member shall be a Disinterested
Person. Subject to the express provisions of the Plan, the Committee shall have
the sole discretion and authority to determine the Employees to whom and the
time or times at which Options may be granted and the number of Plan Shares
subject to each Option.
2.2 Appointment of Committee. The Committee shall be appointed by
------------------------
the Board and shall consist solely of nonemployee members of the Board; provided
that the Board may remove any Committee member for cause.
2.3 Majority Rule; Unanimous Written Consent. A majority of the
----------------------------------------
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
2.4 Company Assistance. The Company shall supply full and timely
------------------
information to the Committee on all matters relating to Employees, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Committee may require. The company shall
furnish the Committee with such clerical and other assistance as is necessary to
the
6
<PAGE>
performance of its duties.
ARTICLE III
INCENTIVE STOCK OPTIONS
3.1 Option Terms and Conditions. The terms and conditions of Options
---------------------------
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
3.2 Duration of Options. Each Option granted pursuant to this
-------------------
Article and all rights granted hereunder shall expire on the date determined by
the Committee, but in no event shall any Option granted under this Article
expire earlier than one year or later than ten years after the date on which the
Option is granted. In addition, each Option shall be subject to early
termination as provided elsewhere in the Plan.
3.3 Purchase Price. The purchase price for each of the Plan Shares
--------------
acquired pursuant to the exercise, in whole or in part, of any Option granted
under this Article shall not be less than the Fair Market Value of each of the
Plan Shares at the time the grant of the Option becomes effective.
3.4 Maximum Amount of Options First Exercisable in Any Calendar Year.
----------------------------------------------------------------
The maximum aggregate Fair Market Value of Plan shares (determined at the time
the Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its subsidiaries and
affiliates shall not exceed $100,000. Any Option granted under the Plan and
first exercisable in excess of the foregoing limitation shall be considered
granted pursuant to Article IV and shall be clearly and specifically designated
as not being an incentive stock option.
3.5 Requirements as to Certain Options. In the event of the grant of
----------------------------------
any Option under this Article to an individual who, at the time the Option is
granted, owns shares of stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
subsidiaries or affiliates within the meaning of Section 422(b)(6) of the code,
the purchase price for each of the Plan Shares subject to that Option must be at
least 110% of the Fair Market Value of those Plan Shares at the time the Option
is granted and the Option must not be exercisable after the expiration of five
years from the date of its grant.
3.6 Individual Option Agreements. Each Optionee receiving Options
----------------------------
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan and such other matters as the Committee deems
appropriate.
7
<PAGE>
ARTICLE IV
NONQUALIFIED STOCK OPTIONS
4.1 Option Terms and Conditions. The terms and conditions of Options
---------------------------
granted under this Article may differ from one another as the Committee shall in
its discretion determine, as long as all Options granted under this Article
satisfy the requirements of this Article.
4.2 Duration of Options. Each Option granted pursuant to this
-------------------
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than ten years after the date on which the Option is granted. In addition,
each Option shall be subject to early termination as provided elsewhere in the
Plan.
4.3 Purchase Price. The purchase price for each of the Plan Shares
--------------
acquired pursuant to the exercise, in whole or in part, of any Option granted
under this Article shall not be less than the Fair Market Value of each of the
Plan Shares at the time the grant of the Option becomes effective.
4.4 Individual Option Agreements. Each Optionee receiving Options
----------------------------
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan and such other matters as the Committee deems
appropriate.
ARTICLE V
TERMINATION, AMENDMENT AND ADJUSTMENT
5.1 Termination and Amendment. The Plan shall terminate ten years
-------------------------
after the Effective Date. No Options shall be granted under the Plan after that
date of termination. Subject to the limitation contained in this Section, the
Committee may at any time amend or revise the terms of the Plan, including the
form and substance of the Option Agreements to be used in connection herewith;
provided that no amendment or revision shall (i) increase the maximum aggregate
number of Plan Shares, except as permitted under Section 5.2, (ii) change the
minimum purchase price for shares under Article III or IV; (iii) increase the
maximum term established under the Plan for any Option or (iv) permit the
granting of an Option to anyone other than as provided in the Plan. Without
shareholder approval no amendment to the Plan shall be effective that materially
increases the benefits accruing to Employees, materially increases the number of
securities that may be issued under the Plan, or otherwise materially modifies
the requirements as to eligibility for participation in the Plan, all within the
meaning of Rule 16b-3 promulgated under the Exchange Act. No amendment,
suspension or termination of the Plan shall, without the consent of the Employee
who has received an Option hereunder, alter or impair any of that Employee's
rights or obligations under any Option granted under the Plan prior to that
amendment, suspension or termination.
8
<PAGE>
5.2 Adjustments. If the outstanding Common Stock is increased,
-----------
decreased, changed into or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split, an appropriate and proportionate adjustment shall be
made in the maximum number and kind of Plan Shares as to which Options may be
granted under the Plan. A corresponding adjustment changing the number and kind
of shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding Options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each share covered by the Option. The
foregoing adjustments and the manner of application of the foregoing provisions
shall be determined solely by the Committee, and any such adjustment may provide
for the elimination of factional share interests.
ARTICLE VI
MISCELLANEOUS
6.1 Other Option Plans. The adoption of the Plan shall not affect any
------------------
other stock option or incentive or other compensation plan in effect for the
Company or any of its subsidiaries or affiliates, nor shall the Plan preclude
the Company or any of its subsidiaries or affiliates from establishing any other
form of incentive or other compensation for Employees.
6.2 Plan Binding on Successors. The Plan shall be binding upon the
--------------------------
successors and assigns of the Company and any of its subsidiaries or affiliates
that adopt the Plan.
6.3 Number and Gender. Whenever used herein, nouns in the singular
-----------------
shall include the plural where appropriate, and the masculine pronoun shall
include the feminine gender.
6.4 Headings. Headings of articles and sections hereof are inserted
--------
for convenience of reference and constitute no part of the Plan.
6.5 Conditions. No Options granted under the Plan shall become
----------
effective until and unless the Plan has been presented to and approved by the
shareholders of the Company within twelve months before or after the date the
Plan is adopted by the Board.
ARTICLE VII
DEFINITIONS
As used herein with initial capital letters, the following terms have the
meanings hereinafter set forth unless the context clearly indicates to the
contrary:
9
<PAGE>
7.1 "Board" shall mean the Board of Directors of the Company.
7.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
7.3 "Committee" shall mean the Committee appointed in accordance with
Section 2.2.
7.4 "Common Stock" shall mean the Common Stock, par value $0.01 per
share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a different
stock or security of the Company or some other corporation, such other stock or
security.
7.5. "Company" shall mean Calloway's Nursery, Inc. a Texas Corporation.
7.6 "Disinterested Person" shall mean an individual who is a
"disinterested person" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
7.7. "Effective Date" shall mean the date of the shareholder approval
required by Section 6.5 of the Plan.
7.8 "Employee(s)" shall mean employee(s) of the Company or of any of
its subsidiaries or affiliates that adopt the Plan and any other person(s)
performing services for the company or any such subsidiary or affiliate, with or
without compensation, to whom the Company chooses to grant Options in accordance
with the Plan, but shall not include members of the Board who are not otherwise
employed by the Company.
7.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
7.10 "Fair Market Value" shall mean such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided that if
the Common Stock is traded on a national securities exchange or transactions in
the Common stock are quoted on a national quotation system, such value shall be
determined by the Committee on the basis of the last reported sales price for
the Common Stock on the date for which such determination is relevant, as
reported on the national securities exchange or the national quotation system.
If the Common Stock is not listed and traded upon a recognized securities
exchange or on a national quotation systems, the Committee shall make a
determination of Fair Market Value on the basis of the mean between the closing
bid and asked quotations for such stock on the date for which such determination
is relevant (as reported by a recognized stock quotation service) or, in the
event that there shall be no bid or asked quotations on the date for which such
determination is relevant, then on the basis of the mean between the closing bid
and asked quotations on the date nearest preceding the date for which such
determination is relevant for which such bid and asked quotations were
available.
7.11 "Incentive Stock Option" shall mean an Option granted pursuant to
Article III.
10
<PAGE>
7.12 "Nonqualified Stock Option" shall mean an Option granted pursuant to
Article IV.
7.13 "Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
7.14 "Optionee" shall mean an Employee to whom an Option has been granted
hereunder.
7.15 "Option Agreement" shall mean an agreement between the Company and an
Optionee with respect to one or more Options.
7.16 "Plan" shall mean the Calloway's Nursery, Inc. 1996 Stock Option
Plan, the terms of which are set forth herein.
7.17 "Plan Shares" shall mean shares of Common Stock issuable pursuant to
the Plan.
7.18 "Securities Act" shall mean the Securities Act of 1933, as amended.
11
<PAGE>
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P R O X Y
CALLOWAY'S NURSERY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Estill and John T. Cosby, and each of
them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all the shares
of common stock of Calloway's Nursery, Inc. held of record by the undersigned
on December 20, 1996, at the Annual Meeting of Shareholders to be held in Fort
Worth, Texas on February 12, 1997, or any adjournment thereof, and in their
discretion to vote upon such other business as may properly come before the
meeting.
Election of Directors, Nominees:
James C. Estill, John T. Cosby, John S. Peters,
Robert E. Glaze, Dr. Stanley Block
(change of address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[X] PLEASE MARK YOUR SHARES IN YOUR NAME
VOTES AS IN THIS
EXAMPLE.
FOR WITHHELD
1. Election of [_] [_]
Directors
(see reverse).
For, except vote withheld from the following nominee(s):
- -------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the [_] [_] [_]
Calloway's
Nursery Inc. 1996
Stock Option
Plan.
FOR AGAINST ABSTAIN
3. Approval of appointment [_] [_] [_]
of Coopers &
Lybrand L.L.P. as the
Company's inde-
pendent auditors.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN. IN THE
ABSENCE OF INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE(S) ________________________ DATE ____________________________________
SIGNATURE(S) ________________________ DATE ____________________________________
NOTE: RECEIPT OF NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS AND THE
ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. PLEASE SIGN
EXACTLY AS NAME APPEARS ABOVE. WHEN SHARES ARE HELDBY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME.
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