<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
CALLOWAY'S NURSERY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
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(4) Date Filed:
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<PAGE> 2
CALLOWAY'S NURSERY, INC.
4200 Airport Freeway
Fort Worth, Texas 76117
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1999
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 17, 1999, at 10:00 a.m. (C.S.T.) for the following purposes:
1. To elect directors.
2. To consider approval of the Company's 1998 Stock Option Plan.
3. To consider ratification of the appointment of KPMG Peat
Marwick LLP as independent auditors of the Company for its
fiscal year ending September 30, 1999.
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 28,
1998, 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, 1998 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 12, 1999
<PAGE> 3
CALLOWAY'S NURSERY, INC.
4200 Airport Freeway
Fort Worth, Texas 76117
PROXY STATEMENT
For the
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1999
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 17, 1999, 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
12, 1999.
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 28, 1998, will be
entitled to vote on matters presented at the Meeting. On December 28, 1998,
there were outstanding 5,533,938 shares of Common Stock which constituted all of
the outstanding voting securities of the Company. Each share of Common Stock
1
<PAGE> 4
will be entitled to one vote on all matters presented at the Meeting. 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 1998 Stock Option Plan and ratification of the appointment of KPMG
Peat Marwick LLP 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
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned as of December 31,
1998, 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, other than Messrs.
Reynolds and Weger, are current directors.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
Number of Shares
----------------
Percent of
Name of Beneficial Owner Number Outstanding
------------------------ ------ -----------
<S> <C> <C>
Dr. Stanley Block 21,579(1) *
John T. Cosby 399,042(2) 7.1%
James C. Estill 950,957(3) 16.4%
Robert E. Glaze 122,445(4) 2.2%
John S. Peters 143,348(5) 2.6%
Daniel G. Reynolds . . . . . . . . . . . . . . . . . . . 78,341(6) 1.4%
David S. Weger 134,926(7) 2.4%
All Directors and Executive Officers
as a group (7 persons) . . . . . . . . . . . . . . . 1,850,638 30.2%
</TABLE>
- ----------
*Less than 1%
(1) Includes 3,500 shares that could be acquired through options granted
under the 1991 Stock Option Plan which are currently exercisable at
$6.125 per share, 4,000 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, 12,000 shares that
could be acquired through options granted on an individual grant basis
in 1997 which are currently
2
<PAGE> 5
exercisable at $1.125 per share and 1,298 shares that were acquired and
are beneficially owned through the Stock Purchase Plan.
(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 16,061 shares that were acquired and are
beneficially owned through the Stock Purchase Plan.
(3) 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 63,056 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
$6.125 per share, 4,000 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, 12,000 shares that
could be acquired through options granted on an individual grant basis
in 1997 which are currently exercisable at $1.125 per share and 54,105
shares that were acquired and are beneficially owned through the Stock
Purchase Plan.
(5) 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, 25,000 shares that could be acquired through options
granted under the 1996 Stock Option Plan which are currently
exercisable at $1.125 per share and 27,647 shares that were acquired
and are beneficially owned through the Stock Purchase Plan.
(6) Includes 24,000 and 10,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are current
exercisable at $1.00 per share and $0.937 per share, respectively;
16,000 shares that could be acquired through options granted under the
1996 Stock Option Plan, which are currently exercisable at $1.125 per
share; and 8,188 shares that were acquired and are beneficially owned
through the Stock Purchase Plan.
(7) Includes 25,000 shares and 10,000 shares that could be acquired through
options granted under the 1991 Stock Option Plan which are currently
exercisable at $1.00 per share and $.9375 per share, respectively,
15,000 shares that could be acquired through options granted under the
1996 Stock Option Plan which are currently exercisable at $1.125 per
share and 17,326 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. No
other person is known by the Company to own beneficially, as of December 31,
1998, more than 5% of the Common Stock of the Company.
3
<PAGE> 6
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
<TABLE>
<CAPTION>
Name Age Position with Company
- ---- --- ---------------------
<S> <C> <C>
James C. Estill 51 Chairman of the Board, President, Chief Executive Officer,
and Director
John T. Cosby 55 Vice President--Corporate Development, Secretary and
Director
John S. Peters 47 Vice President--Operations and Director
Robert E. Glaze(1) 78 Director
Dr. Stanley Block(1) 58 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 September 30, 1998, there were four meetings of the
Board of Directors. Additionally, the Board of Directors took action by
unanimous written consent on two occasions.
The Company has an Audit Committee and a Compensation Committee. Mr.
Glaze and Dr. 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, 1998,
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, 1998, there
were four meetings of the Compensation Committee.
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. Stock options which
have been granted to each independent director as compensation for his service
as a director are described in the footnotes to the BENEFICIAL OWNERSHIP table
on page two.
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,
1998, the aggregate amounts contributed by the Company under the Stock Purchase
Plan to Messrs. Glaze and Block were: Robert E. Glaze--$10,200; and Dr. Stanley
Block--$40. The aggregate number of shares of Common Stock acquired by Messrs.
Glaze and Block through the Stock Purchase Plan are included in the footnotes to
the AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP table on page two. Messrs. Estill,
Cosby and Peters have also elected to
4
<PAGE> 7
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 Trammell 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.
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, 1998, 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
5
<PAGE> 8
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 four other
executive officers. Information is provided for the fiscal years ending on
September 30, for the three years shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------
Other (1)
Annual All Other
Name and Principal Salary Bonus Compensation Compensation
Position Year $ $ ($) (0-$)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James C. Estill 1998 175,000 -- -- 20,924
Chairman, President 1997 175,000 26,247 -- 23,404
and Chief Executive 1996 221,664 6,348 -- 25,567
Officer
John T. Cosby 1998 130,000 -- -- 9,360
Vice President- 1997 130,000 19,498 -- 8,760
Corporate 1996 165,000 4,716 -- 8,660
Development
and Secretary
John S. Peters 1998 130,000 -- -- 10,036
Vice President- 1997 130,000 19,498 -- 5,535
Operations 1996 165,000 4,716 -- 5,035
Daniel G. Reynolds 1998 100,100 -- -- 1,217
Vice President, -- -- -- -- --
Chief Financial Officer -- -- -- -- --
and Assistant Secretary
David S. Weger 1998 100,000 -- -- 10,370
Vice President- 1997 95,030 14,253 -- 11,240
Merchandising -- -- -- -- --
</TABLE>
- ----------
(1) Amounts included under All Other Compensation represent amounts
contributed to or accrued for 1998, 1997 and 1996 for the Named
Executives under the Company's Stock Purchase Plan and amounts paid for
life insurance on the lives of the Named Executives.
6
<PAGE> 9
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table summarizes for each of the Named Executives the
number of stock options, if any, exercised during the fiscal year ended
September 30, 1998, the aggregate dollar value, if any, realized upon exercise,
the total number of unexercised stock options held at September 30, 1998, and
the aggregate dollar value of the unexercised options held at September 30,
1998. Value realized upon exercise is the difference between the fair market
value of the underlying stock on the exercise date and the exercise price of the
option. Value of unexercised options at fiscal year-end is the difference
between the exercise price of the stock options and the fair market value of the
underlying stock at September 30, 1998, which was $1.1875 per share. These
values, unlike the amounts set forth in the column headed "Value Realized," have
not been, and may never be, realized because the options have not been, and may
not be, exercised. Actual gains, if any, on exercise will depend on the value of
the Company's stock on the date of exercise.
There can be no assurance that the values shown will be realized.
AGGREGATED OPTION EXERCISES IN THE LAST
FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
NAME (#) ($) OPTIONS AT FY-END OPTIONS AT FY-END ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James C. Estill -- -- 260,000 -0- $ 48,750 -0-
Chairman,
President and
Chief Executive
Officer
- ---------------------------------------------------------------------------------------------------------------------------------
John T. Cosby -- -- 120,000 -0- $ 22,500 -0-
Vice President -
Corporate
Development
- ---------------------------------------------------------------------------------------------------------------------------------
John S. Peters -- -- 70,000 -0- $ 10,000 -0-
Vice President -
Operations
- ---------------------------------------------------------------------------------------------------------------------------------
Daniel G -- -- 50,000 -0- $ 8,000 -0-
Reynolds
Vice President
and Chief
Executive Officer
=================================================================================================================================
David S. Weger -- -- 50,000 -0- $ 8,125 -0-
Vice President -
Merchandising
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL AGREEMENTS. The Company's
employment agreements with Messrs. Estill, Cosby and Peters extend through July
2, 2001. Mr. Estill's agreement provides (i) 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 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 (the
"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.
8
<PAGE> 11
Compensation of Executive Officers for Fiscal 1998. The salaries of
each of the Named Executives other than Messrs. Daniel G. Reynolds and David S.
Weger were established under five year employment agreements which expire on
July 2, 2001. The salaries called for by those agreements as well as the
salaries of Messrs. Reynolds and Weger were determined through an evaluation of
the responsibilities of the position held, the experience of the particular
executive, the performance of that individual and by reference to surveys
reflecting the compensation of persons holding similar offices with comparable
companies.
In accordance with the Committee's policy of providing a form of
short-term incentive compensation tied to current year performance, the
Committee approved a Management Profit Sharing Plan for the fiscal year ending
September 30, 1998. The plan provided cash incentives for the Company's
executive officers tied to net profits, net profits as a percent of sales and
increases in net profit over the prior year.
The executive officers of the Company are provided incentives to
maximize growth and increase productivity over the long-term through their
substantial share ownership and stock options. The Committee reviews its stock
option policy and the status of the Company's stock option program annually;
however, no stock options were granted to any of the Company's executive
officers during the 1998 fiscal year.
The Committee is of the opinion that the compensation packages being
provided to its chief executive officer and the four other Named Executives (who
collectively comprise all executive officers of the Company) reflect its goal 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 will parallel management's
ability to increase shareholder value. Compensation 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
9
<PAGE> 12
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 the Russell 2000 Index. 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 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG CALLOWAY'S NURSERY, INC., THE S&P 500 INDEX
AND THE RUSSELL 2000 INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C> <C>
Calloways Nursery Inc 100 48 37 30 41 38
S & P 500 100 103.69 134.53 161.89 227.37 247.93
Russell 2000 100 102.56 126.66 143.20 190.84 157.54
</TABLE>
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.
10
<PAGE> 13
PROPOSAL FOR APPROVAL OF THE CALLOWAY'S NURSERY, INC.
1998 STOCK OPTION PLAN
(Proposal No. 2)
On November 25, 1998, the Board of Directors unanimously adopted the
Calloway's Nursery, Inc. 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan
is subject to approval by the shareholders and will be voted on at the Meeting.
The purpose of the 1998 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 1998
Plan. The following summary of the 1998 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 1998 PLAN
The 1997 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 for
option grants under the 1998 Plan.
The Company will reserve 276,000 shares of Common Stock for issuance
under the 1998 Plan. Shares issuable upon the exercise of options granted under
the 1998 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 1998 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 1998 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 employed by the
11
<PAGE> 14
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.
Incentive stock options may not be transferred by the Optionee in any
manner otherwise than at death or pursuant to a qualified domestic relations
order. Nonstatutory stock options are similarly restricted but, the Compensation
Committee, in its discretion, may allow for transferability by the Optionee to
immediate family members.
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 1998 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 1998
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 income 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 over 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
periods, 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 1998 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.
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<PAGE> 15
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 such Common Stock will constitute
short-term or long-term capital gain to the Optionee, depending on the
Optionee's holding period. In addition, the Taxpayer Relief Act of 1997 (the
"1997 Act") made significant changes to the taxation of long-term capital gains.
In general, the 1997 Act reduces the maximum rate of tax on an individual's net
capital gain (i.e., the excess of the net long-term capital gain for the taxable
year over the net short-term capital loss for the year) from 28% to 20%. The
rate is reduced to 10% for net capital gains that would otherwise be taxed at a
15% rate. These rates apply for both the regular tax and the alternative minimum
tax.
For taxable years beginning after December 31, 2000, the maximum
capital gains rates for assets which are held more than five years are 8% and
18% (rather than 10% and 20%). The 18% rate only applies to assets with holding
periods that begin after December 31, 2000. Finally, the 1997 Act provided that
the lower capital gains rates do not apply to the sale or exchange of assets
held for 18 months or less, effective for amounts properly taken into account
after July 28, 1997. However, the Internal Revenue Service Restructuring and
Reform Act of 1998 (the "1998 Act") reduced the required holding period by
providing that capital gain from the sale of property held for more than one
year (rather than for more than 18 months as provided by the 1997 Act) will be
eligible for the reduced capital gain rates provided by the 1997 Act. The 1998
Act provision applies to capital gains from the sale of property which are taken
into account on or after January 1, 1998.
The Federal income tax consequences described in this section are based
on laws and regulations in effect on December 31, 1998, 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 January 6, 1999 was $1.1875 per share.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR"
THE PROPOSAL TO APPROVE THE CALLOWAY'S NURSERY, INC. 1998 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 KPMG Peat Marwick LLP as independent auditors of the Company for
its fiscal year ending September 30, 1999, and recommends that the shareholders
ratify this selection. The Board of Directors has been advised that KPMG Peat
Marwick LLP has no relationship with the Company other than that arising from
the firm's employment as auditors. A representative of KPMG Peat
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<PAGE> 16
Marwick LLP 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 1998 Stock Option Plan, and "FOR" ratification
of the appointment of KPMG Peat Marwick LLP 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.
DATE OF RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals for inclusion in the Proxy Statement for the 2000
Annual Meeting of Shareholders must be received at the principal executive
offices of the Company on or before September 20, 1999.
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, 1998, 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 22, 1998. Requests for copies of such report should be
directed to Investor Relations, 4200 Airport Freeway, Fort Worth, Texas 76117,
(817) 222-1122.
1998 ANNUAL REPORT TO SHAREHOLDERS. The Annual Report to Shareholders
of the Company for the Fiscal Year ended September 30, 1998, 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.
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<PAGE> 17
EXHIBIT A
CALLOWAY'S NURSERY, INC.
1998 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
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..................................4
1.16 Option Upon Termination of Employment...................4
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................................5
1.21 Information to Optionees................................5
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..................................................................6
INCENTIVE STOCK OPTIONS.................................................6
3.1 Option Terms and Conditions.............................6
3.2 Duration of Options.....................................7
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
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IV...................................................................7
NONQUALIFIED STOCK OPTIONS..............................................7
4.1 Option Terms and Conditions.............................7
4.2 Duration of Options.....................................7
4.3 Purchase Price..........................................7
4.4 Individual Option Agreements............................7
ARTICLE V....................................................................8
TERMINATION, AMENDMENT AND ADJUSTMENT...................................8
5.1 Termination and Amendment...............................8
5.2 Adjustments.............................................8
ARTICLE VI...................................................................8
MISCELLANEOUS...........................................................8
6.1 Other Option Plans......................................8
6.2 Plan Binding on Successors..............................8
6.3 Number and Gender.......................................9
6.4 Headings................................................9
6.5 Conditions..............................................9
ARTICLE VII..................................................................9
DEFINITIONS.............................................................9
</TABLE>
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CALLOWAY'S NURSERY, INC.
1998 STOCK OPTION PLAN
ARTICLE I
THE PLAN
1.1 Name. This Plan shall be known as the "Calloway's Nursery, Inc.
1998 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 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 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 276,000 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 conditions:
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(a) The admission of the Plan Shares to listing on all stock
exchanges or qualification 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 or 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 required to be withheld.
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<PAGE> 21
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:
(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
3
<PAGE> 22
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, which approval shall
not be unreasonably withheld. 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 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.
4
<PAGE> 23
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 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 granted under Article III 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. Options granted under Article IV 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; provided,
however, that the Committee, in its discretion, may allow for transferability of
such Options by the Optionee to "Immediate Family Members."
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
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<PAGE> 24
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
shall not be employees) and each such member shall be a Non-Employee Director.
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 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.
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<PAGE> 25
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.
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
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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) increase the
maximum term established under the Plan for any Option or (iii) permit the
granting of an Option to anyone other than as provided in the Plan. 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.
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.
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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:
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. "Effective Date" shall mean the date of the shareholder approval
required by Section 6.5 of the Plan.
7.7 "Employee(s)" shall mean employee(s) of the Company or of any of
its subsidiaries or affiliates that adopt the Plan and shall not include members
of the Board who are not otherwise employed by the Company.
7.8 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
7.9 "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
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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.
7.10 "Immediate Family Members" means children, grandchildren, spouse,
siblings or parents of the Optionee or bona fide trusts, partnerships or other
entities controlled by, and of which the beneficiaries are, Immediate Family
members of the Optionee. Any option grants that are transferable are further
conditioned on the Optionee and Immediate Family Members agreeing to abide by
the Company's then current stock option transfer guidelines.
7.ll "Incentive Stock Option" shall mean an Option granted pursuant
to Article III.
7.12 "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined
in Rule 16a-1(f)) of the Exchange Act of the issuer
or a parent or subsidiary of the issuer, or otherwise
currently employed by the issuer or a parent or
subsidiary of the issuer;
(ii) Does not receive compensation, either
directly or indirectly, from the issuer or a parent
or subsidiary of the issuer, for services rendered as
a consultant or in any capacity other than as a
director, except for an amount that does not exceed
the dollar amount for which disclosure would be
required pursuant to Item 404(a) of Reg. S-K of the
Exchange Act ("Reg. S-K");
(iii) Does not possess an interest in any
other transaction for which disclosure would be
required pursuant to Item 404(a) of Reg. S-K; and
(iv) Is not engaged in a business
relationship for which disclosure would be required
pursuant to Item 404(b) of Reg. S-K.
7.13 "Nonqualified Stock Option" shall mean an Option granted pursuant
to Article IV.
7.14 "Option" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.
7.15 "Optionee" shall mean an Employee to whom an Option has been
granted hereunder.
7.16 "Option Agreement" shall mean an agreement between the Company
and an Optionee with respect to one or more Options.
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7.17 "Plan" shall mean the Calloway's Nursery, Inc. 1998 Stock Option
Plan, the terms of which are set forth herein.
7.18 "Plan Shares" shall mean shares of Common Stock issuable pursuant
to the Plan.
7.19 "Securities Act" shall mean the Securities Act of 1933, as
amended.
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CALLOWAY'S NURSERY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS --FEBRUARY 17, 1999
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 28, 1998, at the Annual Meeting of Shareholders to be held in Fort
Worth, Texas on February 17, 1999, or any adjournment thereof, and in their
discretion to vote upon such other business as may properly come before the
meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES NAMED AND FOR EACH OF THE OTHER PROPOSALS
SPECIFIED HEREIN.
(change of address)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
(PLEASE VOTE, SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY.)
<PAGE> 31
CALLOWAY'S NURSERY, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
<TABLE>
<S> <C> <C> <C> <C>
For All
1. Election of the following nominees as directors: For Withheld Except
James C. Estill, John T. Cosby, John S. Peters, [ ] [ ] [ ]
Robert E. Glaze and Stanley Block. The
nominees will serve for a term of one year, as -----------------
indicated in the proxy statement. Nominee Exception
2. Approval of the Calloway's Nursery, Inc. 1998 For Against Abstain
Stock Option Plan. [ ] [ ] [ ]
3. Ratification of appointment of KPMG Peat For Against Abstain
Marwick LLP as independent certified public [ ] [ ] [ ]
accountants for the Company.
</TABLE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING AND ANY POSTPONEMENTS OR ADJOURNMENTS
THEREOF FOR A VOTE OF THE COMMON STOCK.
Sign exactly as your name appears on this proxy card. Joint owners should each
sign personally. If acting as attorney, executor, trustee, or in a
representative capacity, sign name and indicate title.
Dated: , 1999
---------------------------
Signature:
--------------------------------
Dated: , 1999
---------------------------
Signature:
--------------------------------
PLEASE VOTE, SIGN AND DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
