PROXY STATEMENT
Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
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 ss. 240.14a-11(c) or ss.
240.14a-12
INDUSTRIAL HOLDINGS, INC.
(Name of Registrant as specified in its Charter)
INDUSTRIAL HOLDINGS, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] $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:
(3) Filing Party:
(4) Date Filed:
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 10, 1998
------------------------
The annual meeting of the shareholders of Industrial Holdings, Inc. (the
"Company") will be held at the Company's offices at 7135 Ardmore, Houston, Texas
77054, at 10:00 a.m., Houston time, on Wednesday, June 10, 1998, for the
following purposes:
1. To elect two Class I directors;
2. To consider and act upon a proposal to approve the Company's 1998
Incentive Plan (the "1998 Incentive Plan") which reserves the greater of
1,500,000 shares or 15% of the total number of shares of Common Stock issued and
outstanding for issuance to employees, consultants and non-employee directors;
and
3. To consider and act upon such other business as may properly come
before the meeting.
A record of shareholders has been taken as of the close of business on
April 15, 1998 and only those shareholders of record on that date will be
entitled to notice of and to vote at the meeting. A shareholders' list will be
available commencing April 24, 1998, and may be inspected during normal business
hours for at least 10 days prior to the annual meeting at the offices of the
Company, 7135 Ardmore, Houston, Texas 77054.
Your participation in the Company's affairs is important. To ensure your
representation if you do not expect to be present at the meeting, please sign
and date the enclosed proxy and return it promptly in the enclosed stamped
envelope. The prompt return of proxies will ensure a quorum and save the Company
the expense of further solicitation.
By Order of the Board of Directors
ROBERT E. CONE
Chairman of the Board,
President and Chief Executive Officer
May 1, 1998
<PAGE>
INDUSTRIAL HOLDINGS, INC.
7135 ARDMORE
HOUSTON, TEXAS 77054
PROXY STATEMENT
This proxy statement is being mailed to shareholders on or about May 1,
1998, in connection with the solicitation of proxies by the Board of Directors
of Industrial Holdings, Inc. (the "Company") for use at the annual meeting of
Shareholders of the Company to be held at the Company's principal offices at
7135 Ardmore, Houston, Texas 77054, at 10:00 a.m., Houston time, on Wednesday,
June 10, 1998, and at any adjournments thereof (the "Annual Meeting"), for the
purpose of considering and voting on the matters set forth in the accompanying
Notice of Annual Meeting of Shareholders. All shares represented by properly
executed proxies, unless such proxies previously have been revoked, will be
voted at the Annual Meeting in accordance with the directions on such proxies.
If no direction is indicated, the shares will be voted for the election of each
of the nominees named herein to the board of directors, for the approval of the
1998 Incentive Plan and for the other proposals set forth in the Notice. A
shareholder may revoke a proxy by (a) delivering to the Company written notice
of revocation, (b) delivering to the Company a signed proxy bearing a later date
or (c) voting in person at the Annual Meeting.
At the close of business on April 15, 1998, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting (the "record date"), there were issued, outstanding and entitled to vote
10,764,258 shares of the Company's common stock, par value $.01 per share
("Common Stock"). The presence, in person or by proxy, of a majority of the
shares of Common Stock outstanding on the record date is necessary to constitute
a quorum at the Annual Meeting. Assuming such a quorum is present, the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock that are entitled to vote, and that voted or abstained at the
Annual Meeting is required to approve the 1998 Incentive Plan. The two nominees
for election as directors who receive a plurality of the votes cast by the
holders of Common Stock entitled to vote at the Annual Meeting will be duly
elected Class I Directors. Each share of Common Stock is entitled to one vote on
all questions requiring a shareholder vote at the Annual Meeting. Abstentions
and broker non-votes will be treated as present for purposes of determining a
quorum. Broker non-votes will be treated as not present and not voting on any
matter on which the broker has indicated that he does not have authority to
vote.
ELECTION OF DIRECTORS
At the Annual Meeting, two Class I Directors are to be elected, each to
hold office until the third Annual Meeting of Shareholders following his
election.
The persons named in the accompanying proxy have been designated by the
Board of Directors and unless authority is withheld, they intend to vote for the
election of the nominees named below to the Board of Directors as Class I
Directors. All of the nominees for Class I Directors previously have been
elected by the shareholders to serve as members of the Company's Board of
Directors. Although the Board of Directors of the Company does not contemplate
that any of the nominees will become unavailable for election, if such a
situation arises prior to the Annual Meeting, the persons named in the enclosed
proxy will vote for the election of such other person(s) as may be nominated by
the Board of Directors or the Board may be reduced accordingly.
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COMMON STOCK
BENEFICIALLY OWNED
APRIL 15, 1998
------------------
PRINCIPAL POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE SHARES PERCENT
---- ---------------- --- ----- ------ -------
CLASS I DIRECTORS WHOSE TERM (IF RE-ELECTED) WILL EXPIRE IN 2001
Charles J. Anderson Director 74 1991 72,000 1.2%
James W. Kenney Director 55 1992 10,000 *
CLASS II DIRECTORS WHOSE TERM WILL EXPIRE IN 1999
John P. Madden Director 55 1992 149,373 2.5%
John L. Thompson Director 37 1997 5,000** *
CLASS III DIRECTORS WHOSE TERM WILL EXPIRE IN 2000
Robert E. Cone Chairman of the Board; 45 1989 266,285 6.2%
President and Chief Executive
Officer; Director
James H. Brock, Jr. Executive Vice President,59 1991 115,000 1.9%
Director
Barbara S. Shuler Secretary; Director 51 1991 66,795 1.4%
- ---------------
* Less than 1%.
** Includes 5,000 shares that may be acquired upon the exercise of currently
exercisable stock options. Excludes 1,015,550 shares and 107,994 warrants
owned by St. James Capital Partners, L.P., of which Mr. Thompson is a
director and president of the General Partner and may be deemed to share
voting and investment power with respect to such shares.
For further information concerning beneficial ownership see "Security
Ownership of Certain Beneficial Owners and Management."
Set forth below is certain information with respect to each of the
nominees for the office of director, each director whose term of office will
continue after the 1998 Annual Meeting of Shareholders, and each other executive
officer.
DIRECTORS AND EXECUTIVE OFFICERS
NOMINEES FOR DIRECTORS
CHARLES J. ANDERSON has served as a Director of the Company since
September 1991. Since 1985, Mr. Anderson has been engaged in private business
investments. Prior to 1985, Mr. Anderson served as Senior Sales Vice President
and Director of Sales and was a partner of the Delaware Management Company, the
manager of the Delaware Group of Mutual Funds and certain other private pension
funds.
JAMES W. KENNEY has served as a Director of the Company since October
1992. Since October 1993, Mr. Kenney has served as Executive Vice President of
San Jacinto Securities, Inc. From February 1992 to September 1993, he served as
the Vice President of Renaissance Capital Group, Inc. Prior to that time, Mr.
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Kenney served as Senior Vice President for Capital Institutional Services, Inc.
and in various executive positions with major southwest regional brokerage
firms, including Rauscher Pierce Refsnes Inc. and Weber, Hall, Sale and
Associates, Inc. Mr. Kenney is a director of Consolidated Health Care
Associates, Inc., a company that operates physical rehabilitation centers;
Scientific Measurement Systems, Inc., a developer of industrial digital
radiography and computerized tomography; and Tricom Corporation, a company that
develops products and services for the telecommunication industry.
OTHER DIRECTORS
ROBERT E. CONE founded the Company in 1989 and has served as President,
Chief Executive Officer and Director of the Company since then.
BARBARA S. SHULER has served as Secretary of the Company since February
1992 and as a Director of the Company since September 1991. Since 1974, Ms.
Shuler has been self-employed in auction management, marketing, advertising and
promotional aspects of the equine industry, serving as President of Shuler, Inc.
JAMES H. BROCK, JR. has served as President of the REX Group since 1993
and as a Director of the Company since 1991. He has served as Executive Vice
President from 1991 to 1997, as President of the Energy Products and Services
Division, as Chief Operating Officer and Chief Financial Officer. Mr. Brock
is a certified public accountant.
JOHN P. MADDEN has served as a Director of the Company since October 1992.
From January 1992 to April 1993, Mr. Madden served as Chairman of the Board of
The Rex Group, Inc. ("REX") which was purchased by the Company in 1992.
JOHN L. THOMPSON has served as a Director of the Company since 1997. Mr.
Thompson is a director and President of St. James Capital Corp., a Houston-based
merchant banking firm. St. James Capital Corp. also serves as the General
Partner of St. James Capital Partners L.P., an investment limited partnership
specializing in merchant banking related investments. Prior to co-founding St.
James, Mr. Thompson served as a Managing Director of Corporate Finance at Harris
Webb & Garrison, a regional investment banking firm with a focus on mergers and
acquisitions, financial restructuring and private placements of debt and equity
issues.
OTHER EXECUTIVE OFFICERS
THOMAS C. LANDRETH has served as Executive Vice President since September
1996. Mr. Landreth has served as President of Landreth Engineering Company
("LEC") since 1977 and as President of the Fastener Manufacturing and Sales
Division since 1996. Mr. Landreth has worked in all technical areas of LEC since
1967 and is responsible for numerous cold heading machine designs and
improvements as well as numerous innovative tool and die designs.
CHRISTINE A. SMITH has served as Vice President and Chief Financial
Officer of the Company since January 1995. From April 1989 through December
1994, Ms. Smith was a Principal at The Spinnaker Group, an investment banking
firm providing services primarily to manufacturing and distribution companies.
Prior to joining The Spinnaker Group, Ms. Smith, a certified public accountant,
was a Senior Manager with Ernst & Young.
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<PAGE>
BOARD AND COMMITTEE ACTIVITY: STRUCTURE AND COMPENSATION
The Company's operations are managed under the broad supervision of the
Board of Directors, which has ultimate responsibility for the establishment and
implementation of the Company's general operating philosophy, objectives, goals
and policies. During 1997, the Board of Directors convened on five occasions.
Each director attended all of the meetings held by the Board or meetings of
Board committees of which he was a member during his tenure in 1997, except for
Charles J. Anderson who attended two Board of Directors meetings and John
Thompson who attended four Board meetings and all Committee meetings of which he
was a member. During 1997, outside directors received $500 for attendance at
Board meetings, as well as reimbursement for reasonable travel expenses incurred
in attending such meetings. In 1997, each non-employee director (Messrs.
Anderson, Kenney, Madden and Thompson and Ms. Shuler) was awarded under the
Company's 1995 Non-Employee Director Stock Option Plan (the "Director Plan")
options to purchase 5,000 shares of the Company's Common Stock at $11.38 to
$12.50 per share. Employee directors are eligible to participate in the
Company's 1994 Amended and Restated Incentive Stock Plan (the "Employee Plan").
Non-employee directors are entitled to participate in the Director Plan.
Pursuant to delegated authority, various Board functions are discharged by
the standing committees of the Board. The Audit Committee of the Board of
Directors, composed of Messrs. Brock and Kenney and Ms. Shuler, makes
recommendations to the Board of Directors concerning the selection and
engagement of the Company's independent public accountants and reviews the scope
of the annual audit, audit fees and results of the audit. The Audit Committee
also reviews and discusses with management and the Board of Directors such
matters as accounting policies, internal accounting controls and procedures for
preparation of financial statements. The Audit Committee convened on two
occasions in 1997. The Compensation Committee sets the compensation for
executive, managerial and technical personnel of the Company and administers the
Company's stock option and other compensation plans. The Compensation Committee
was composed of Messrs. Madden, Thompson and Kenney and met on two occasions in
1997.
APPROVAL
The two nominees for election as directors at the Annual Meeting who
receive a plurality of the votes cast for election by the holders of Common
Stock entitled to vote at the Annual Meeting, shall be the duly elected Class I
Directors, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE.
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PROPOSAL TO ADOPT THE 1998 INCENTIVE PLAN
On March 17, 1998, the Board of Directors adopted the 1998 Incentive Plan
which reserves the greater of 1,500,000 shares or 15% of the total number of
shares of Common Stock issued and outstanding for issuance pursuant to the 1998
Incentive Plan. During 1997 and through April 1998, the Company acquired 8 new
businesses. During that same period, total employees increased from 387 to 1005.
Additionally, it is the Company's corporate strategy to continue to grow through
acquisition. In order to provide incentives to key employees in the newly
acquired companies, as well as to continue awards to long-time key for issuance
employees, the Board believed it desirable to adopt the Plan. Currently, there
are no shares available under the Company's 1994 Amended and Restated Incentive
Stock Plan. The Board of Directors is submitting the 1998 Incentive Plan for
approval of the Company's shareholders at the Annual Meeting.
GENERAL
The description set forth below summarizes the principal terms and
conditions of the 1998 Incentive Plan. The summary does not purport to be a
complete and is qualified in its entirety by reference to the 1998 Incentive
Plan, a copy of which is attached to the Proxy Statement as Exhibit A.
The 1998 Incentive Plan is intended to foster and promote the financial
success of the Company and its subsidiaries and to increase stockholder value by
(i) encouraging commitment and motivating superior performance of key employees,
consultants and outside directors by means of equity-based performance awards
and (ii) attracting and retaining key employees, consultants and outside
directors by providing competitive incentive compensation opportunities.
Under the 1998 Incentive Plan, the Company may grant the following awards
to key employees, Directors who are not employees ("Outside Directors") and
consultants of the Company, its controlled subsidiaries, and its parent
corporation, if any: (i) incentive stock options ("ISOs") as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (ii)
"nonstatutory" stock options ("NSOs"), (iii) stock appreciation rights ("SARs"),
(iv) shares of restricted stock, (v) performance shares and performance units,
(vi) other stock-based awards and (vii) supplemental tax bonuses (collectively,
"Incentive Awards"). ISOs and NSOs are sometimes referred to collectively herein
as "Options". The Company may grant Incentive Awards covering an aggregate of
the greater of (a) 1,500,000 shares of the Company's Common Stock, or (b) 15% of
the number of shares of Common Stock issued and outstanding on the last day of
each calendar quarter. No more than 1,500,000 shares of Common Stock shall be
available for Incentive Stock Options and no more than 500,000 shares of Common
Stock shall be available for Incentive Awards to Outside Directors.
Any shares of Common Stock that are issued and are forfeited or are
subject to Incentive Awards under the 1998 Incentive Plan that expire or
terminate for any reason will remain available for issuance with respect to the
granting of Incentive Awards during the term of the 1998 Incentive Plan, except
as may otherwise be provided by applicable law. Shares of Common Stock issued
under the 1998 Incentive Plan may be either newly issued or treasury shares,
including shares of Common Stock that the Company receives in connection with
the exercise of an Incentive Award. The number and kind of securities that may
be issued under the 1998 Incentive Plan and pursuant to then outstanding
Incentive Awards are subject to adjustments to prevent enlargement or dilution
of rights resulting from stock dividends, stock splits, recapitalizations,
reorganizations or similar transactions.
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The maximum number of shares of Common Stock subject to Incentive Awards
that may be granted or that may vest, as applicable, to any one Covered Employee
during any calendar year shall be 1,000,000 shares, subject to adjustment under
the provisions of the 1998 Incentive Plan. The maximum aggregate cash payout
subject to Incentive Awards (including SARs, performance units and performance
shares payable in cash, or other stock-based awards payable in cash) that may be
granted to any one Covered Employee during any calendar year shall be
$5,000,000. For purposes of the 1998 Incentive Plan, "Covered Employee" means a
named executive officer who is one of the group of covered employees as defined
in Section 162(m) of the Code and the regulations promulgated thereunder (I.E.,
generally the chief executive officer and the other four most highly compensated
executives for a given year).
No participants shall have any rights as a Stockholder with respect to
shares relating to an Incentive Award until the date of issuance of a stock
certificate or certificates representing such shares. Nothing contained in the
1998 Incentive Plan or an Incentive Award shall confer any right with respect to
continuation of employment or adjustment of compensation to a participant.
Furthermore, no person shall have a right to claim an Incentive Award under the
1998 Incentive Plan.
ADMINISTRATION
The 1998 Incentive Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Committee consists entirely of
directors each of whom is (i) an "outside director" under Section 162(m) of the
Code and (ii) a "non-employee director" under Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"). Subject to the express provisions of
the 1998 Incentive Plan, the Committee is authorized to, among other things,
determine those eligible individuals to whom Incentive Awards may be granted,
grant Incentive Awards to individuals eligible to participate in the 1998
Incentive Plan and determine the terms and conditions (which need not be
identical) of each Incentive Award. The 1998 Incentive Plan does not prescribe
any factors to be considered by the Committee in determining the individual
participants and types of Incentive Awards granted.
The Committee also interprets, construes and administers the 1998
Incentive Plan and any related incentive agreements, and makes all of the
determinations necessary or advisable with respect to the 1998 Incentive Plan or
any Incentive Award granted thereunder. All decisions and determinations of the
Committee are final and binding on all parties. The Company will indemnify
members of the Committee against any cost, expenses or liabilities arising out
of any action, omission or determination relating to the 1998 Incentive Plan,
unless such action, omission or determination was taken or made with gross
negligence or willful misconduct.
Subject to certain amendments that require Stockholder approval, the
Committee may, in its absolute discretion (i) extend the exercisability of an
Incentive Award, (ii) accelerate the vesting or exercisability of an Incentive
Award, (iii) eliminate or reduce the restrictions contained in an Incentive
Award, (iv) waive any restriction or other provisions of an Incentive Award or
(v) otherwise amend or modify an Incentive Award in any manner that is either
not adverse to the grantee of such Incentive Award or is consented to by such
grantee.
In addition, the Board of Directors may grant Incentive Awards under the
1998 Incentive Plan including the grant of Incentive Awards to Outside Directors
who also are members of the Committee. In such cases, the Board has all the
powers and responsibilities of the Committee as to the Incentive Awards so
granted. However, the Board may not act in the Committee's capacity to the
extent that doing so would
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disqualify an employee from an exemption under Section 16(b) of the Exchange
Act, violate applicable stock exchange rules, or result in the non-deductibility
of compensation under Section 162(m) of the Code.
GENERAL TERMS AND TAX INFORMATION RELATING TO INCENTIVE AWARDS
The material terms of each Incentive Award are reflected in an agreement
(the "Incentive Agreement") between the participant and the Company. A summary
of the most significant features of the Incentive Awards and their tax
consequences to participants who are United States persons and the Company is
set forth below.
INCENTIVE AND NONSTATUTORY STOCK OPTIONS. Except in limited cases
involving certain 10% stockholders or where the terms of the grant specify
otherwise, ISOs and NSOs must be exercised within ten years of the grant date.
ISOs may only be granted to employees and the exercise price of each ISO granted
may not be less than 100% (110% in the case of certain 10% stockholders) of the
fair market value of a share of Common Stock on the date of grant. The Committee
will have the discretion to determine the exercise price of each NSO granted
under the 1998 Incentive Plan; HOWEVER, an NSO that is intended to qualify as
performance based compensation to a Covered Employee subject to Section 162(m)
of the Code must be granted with an exercise price equal to 100% of the fair
market value of a share of Common Stock on the grant date. To the extent that
the aggregate fair market value of shares of Common Stock with respect to which
ISOs are exercisable for the first time by any employee during calendar year
exceeds $100,000, such options must be treated as NSOs to the extent of such
excess.
The exercise price of each Option is payable in cash upon the exercise of
the Option or, in the discretion of the Committee and upon such terms and
conditions as it may deem appropriate, through the delivery of shares of Common
Stock owned by the Option holder and valued at their fair market value, by
withholding shares that would otherwise be acquired on the exercise of the
Option and having an aggregate fair market value equal to the total exercise
price or in a combination of the foregoing.
If a participant's employment or other service with the Company is
terminated other than for Cause (as defined in the 1998 Incentive Plan), or by
reason of Disability (as defined in the 1998 Incentive Plan) or death, his
vested Options, whether ISOs or NSOs, shall remain exercisable for 90 days after
such termination. If a participant's employment or other service with the
Company is terminated by reason of Disability or death, his vested Options,
whether ISOs or NSOs, shall remain exercisable for one year following such
termination. If an employee's employment with the Company is terminated due to
his retirement at or after attaining age 65, his vested NSOs shall remain
exercisable for one year, and his vested ISOs shall remain exercisable for three
months, following such termination. No Option shall be exercisable after the
expiration of its term. If a participant's employment or other service with the
Company is terminated for Cause, all outstanding Options, whether vested or
otherwise, shall expire at the commencement of business on the date of such
termination. The Committee, in its discretion, may prescribe time periods
different than those set out in the foregoing provisions of this paragraph for
the exercise of Options following a participant's termination of employment or
other service. Such rights shall be reflected in the Incentive Agreement
evidencing the participant's Incentive Award.
Upon a Change in Control (as defined in the 1998 Incentive Plan), all
outstanding Options become immediately exercisable. A Change in Control
generally means (i) a change in control as contemplated in the federal
securities laws, (ii) the acquisition by any person of 20% or more of the shares
of voting securities of the Company, (iii) certain changes in the composition of
the Board (existing as of the effective date of the
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1998 Incentive Plan) as a result of a contested election for positions on the
Board, or (iv) any other event that the Board determines to constitute a change
in the control of the Company. The Board may determine in its discretion, if it
deems to be in the best interest of the Company, that an event otherwise
constituting a Change in Control shall not be considered a Change in Control.
An employee who is a participant in the 1998 Incentive Plan will not
recognize any income at the time an ISO is granted, nor on the qualified
exercise of an ISO. If a participant does not dispose of the shares acquired by
exercise of an ISO within two years after the grant date of the ISO and one year
after the exercise of the ISO, the exercise is qualified and the gain or loss
(if any) on a subsequent sale will be a long-term capital gain or loss. Such
gain or loss equals the difference between the sum of the sales proceeds and the
exercise price of the Common Stock sold. The Company is not entitled to a tax
deduction as a result of the grant or qualified exercise of an ISO. However, if
the shares acquired upon the exercise of an ISO are disposed of at a gain before
the one-year and two-year holding periods and the fair market value of the
shares at the time of exercise exceeds the exercise price, the exercise is not
qualified and special rules apply that require the participant to recognize
ordinary income (at least in part) at the time of such disposition. The Company
generally is entitled to a tax deduction at the same time and in the same amount
as the ordinary income recognized by the participant from such disposition.
Although the qualified exercise of an ISO will not produce ordinary
taxable income to the participant, it will produce an increase in the
participant's alternative taxable income and may result in an alternative
minimum tax liability.
An optionee will not recognize any income for federal income tax purposes
at the time an NSO is granted, nor will the Company be entitled to a deduction
at that time. However, when any part of an NSO is exercised, the optionee will
recognized ordinary income in an amount equal to the difference between the fair
market value of the shares received and the exercise price of the NSO, and the
Company generally will recognize a corresponding tax deduction in the same
amount at the same time.
STOCK APPRECIATION RIGHTS (SARS). Upon exercise of an SAR, the holder
thereof will receive a number of shares of Common Stock or cash, or a
combination thereof, as the Committee determines in the Incentive Agreement, the
aggregate value of which equals the amount by which the fair market value per
share of the Common Stock on the date of exercise exceeds the exercise price of
the SAR, multiplied by the number of shares underlying the exercised portion of
the SAR. An SAR may be granted in tandem with an Option or granted independently
of an Option. The grant price per share of any SAR will be established by the
Committee but must equal at least 100% of the fair market value of a share of
Common Stock on the date the SAR is granted. The term of each SAR will be fixed
by the Committee, but not extending beyond ten years from the date of grant.
SARs will be subject to such terms and conditions and will be exercisable at
such times as determined by the Committee. The value of an SAR may be paid in
cash, in shares of Common Stock, or in some combination, as determined by the
Committee. The Committee, in its discretion, will establish a participant's
right to exercise an SAR if the participant's employment is terminated, such
rights to be reflected in the participant's Incentive Agreement. Upon a Change
in Control, all outstanding SARs that have not vested will fully vest
automatically.
The exercise of an SAR will result in the recognition of ordinary income
by the participant on the date of exercise in the amount of cash, and/or the
fair market value on such date of the shares of Common Stock, acquired pursuant
to the exercise. The Company generally will be entitled to a tax deduction at
the same time and in the same amount as the ordinary income recognized by the
participant upon exercise of the
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SAR. The tax treatment of an SAR is the same whether the SAR is exercised in
conjunction with an ISO or an NSO.
RESTRICTED STOCK. A restricted stock award consists of a grant of Common
Stock to a participant, that is subject to substantial risk of forfeiture and
the transfer of which is subject to restrictions that lapse upon the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee. This period of restriction is established
by the Committee at the time of grant. Unless otherwise designated by the
Committee, during the period of restriction a holder of restricted shares will
have all other rights of a Stockholder, including the right to vote the shares
and receive the dividends paid thereon. The Committee, in its discretion, will
establish a participant's rights to receive restricted stock if the
participant's employment is terminated before vesting, such rights to be
reflected in the participant's Incentive Agreement. If vesting does not occur,
shares of restricted stock are forfeited. Upon a Change in Control, all shares
of restricted stock that have not vested or been forfeited will vest
automatically.
A participant will not recognize any income for federal tax purposes at
the time shares of restricted stock are granted or issued, nor will the Company
be entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. A participant may
file with the Internal Revenue Service an appropriate election under Section
83(b) of the Code within 30 days of the issue date of the restricted stock (the
"Election"), which results in the participant's receipt of deemed ordinary
income in an amount equal to the fair market value of the shares of restricted
stock on the date on which they are issued. However, if a participant files the
Election and the restricted stock subsequently is forfeited, such participant is
not allowed a tax deduction for the amount previously reported as ordinary
income due to the Election. Gain or loss (if any) from a disposition of
restricted stock after the participant recognizes any ordinary income (whether
by vesting or an Election) generally will constitute short- or long-term capital
gain or loss. The Company generally will be entitled to a corresponding tax
deduction at the time the participant recognizes ordinary income on the
restricted stock, whether by vesting or an Election, in the same amount as the
ordinary income recognized by the participant.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares may be granted to eligible individuals at any time as
determined by the Committee. The Committee will have discretion to establish the
initial number and value of such units and shares, the performance period, and
the other material terms of the units or shares as reflected in the
participant's Incentive Agreement. The Committee will establish performance
goals in its discretion which, depending on the level of performance achieved,
will determine the number and/or value of performance units/shares earned. Where
an award to a Covered Employee is intended to meet the requirements for the
performance-based exception to the deductibility limit imposed by Section 162(m)
of the Code, the performance goals will be based on the performance measures
prescribed in regulations issued under Section 162(m). The value of a
performance share or unit (whether or not vested) is paid immediately on the
occurrence of a Change in Control.
There are no tax consequences to the Company or the participant upon the
grant of performance shares or units. Upon payout of the shares of units, the
participant will recognize taxable ordinary income in the amount of the payout
and the Company will receive a corresponding tax deduction in the same amount
and at the same time.
OTHER STOCK-BASED AWARDS. To enable the Company and the Committee to
respond quickly to significant developments in applicable tax and other
legislation and regulations and to trends in executive
9
<PAGE>
compensation practices, the 1998 Incentive Plan also authorizes the Committee to
grant other stock-based awards to individuals eligible to participate in the
1998 Incentive Plan. Other stock-based awards will consist of awards that are
valued in whole or in part by reference to, or otherwise based on, the Company's
Common Stock. Subject to the terms of the 1998 Incentive Plan, the Committee may
determine any terms and conditions of other stock-based awards. Payment or
settlement of other stock-based awards will be in cash or in shares of the
Company's Common Stock or in any combination thereof as the Committee determines
in its discretion.
Generally, a participant will not realize any income upon the grant of
other stock-based awards. Upon the payment of other stock-based awards, a
participant will realize compensation taxable as ordinary income, and the
Company will be entitled to a corresponding tax deduction in the same amount and
at the same time. However, if any such shares are subject to substantial
restrictions, such as a requirement of continued employment or the attainment of
certain performance objectives, the participant will not recognize income and
the Company will not be entitled to a deduction until the restrictions lapse,
unless the participant elects otherwise by filing an Election (as described
under "Restricted Stock" above). The amount of the participant's ordinary
taxable income and the Company's deduction will generally be the fair market
value of the shares at the time the restrictions lapse.
SUPPLEMENTAL TAX BONUSES. The Committee may grant, in connection with a
grant of an Incentive Award, a supplemental tax bonus, payable when the
participant is required to recognize ordinary income for federal income tax
purposes with respect to such Incentive Award. Receipt of any such bonus will
result in ordinary income to the participant and generally a corresponding tax
deduction to the Company at the same time and for the same amount.
OTHER TAX CONSIDERATIONS. Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon Restricted Stock or other Incentive
Awards in connection with a Change in Control, certain amounts associated with
such Incentive Awards could, depending upon the individual circumstances of the
participant, constitute "excess parachute payments" under the golden parachute
provisions of Section 280G of the Code. Pursuant to these provisions, a
participant will be subject to a 20% excise tax on any "excess parachute
payment" (as defined in Section 280G of the Code) and the Company will be denied
any deduction with respect to such excess parachute payment. The limit on the
deductibility of compensation under Section 162(m) of the Code also is reduced
by the amount of any excess parachute payments. Whether amounts constitute
excess parachute payments depends upon, among other things, the value of the
Incentive Awards accelerated and the past compensation of the participant.
Taxable compensation earned by Covered Employees subject to Section 162(m)
of the Code in respect of Options, Restricted Stock, performance shares or
units, or other applicable Incentive Awards is intended to constitute qualified
"performance-based compensation". The Company should, therefore, be entitled to
a tax deduction for compensation paid in the same amount as the ordinary income
recognized by the Covered Employees without any reduction under the limitations
of Section 162(m) on deductible compensation paid to such employees. However,
the Committee may determine, within its sole discretion, to grant Incentive
Awards to such Covered Employees that does not qualify as performance based
compensation. Under Section 162(m), the Company is denied a deduction for annual
compensation paid to such employees in excess of $1.0 million.
10
<PAGE>
The foregoing federal income tax information is a summary only and does
not purport to be a complete statement of the relevant provisions of the Code.
The effect of any foreign, state, local or estate taxes is not addressed.
TRANSFER AND RESALE RESTRICTIONS
No Incentive Award may be assigned, transferred, pledged, or otherwise
encumbered by a participant, other than by will or by the laws of descent and
distribution. An Incentive Award may be exercised during the Participant's
lifetime only by the participant or the participant's legal representative.
The Company will file a Registration Statement on Form S-8 to register the
Common Stock issuable upon the exercise of Options under the 1998 Incentive Plan
as soon as possible after the approval of the 1998 Incentive Plan by the
shareholders. Upon registration of such securities, the securities would not be
restricted securities, except for those securities held by affiliates, and
therefore, would be eligible for immediate resale.
PLAN AMENDMENT AND TERMINATION
The Board may amend or terminate the 1998 Incentive Plan at any time,
except that the 1998 Incentive Plan may not be modified or amended, without
stockholder approval, if such amendment would (i) increase the number of shares
of Common Stock that may be issued thereunder, except in connection with a
recapitalization or reclassification of the Common Stock, (ii) amend the
eligibility requirements for individuals to participate in the 1998 Incentive
Plan, (iii) increase the maximum limits on Incentive Awards that may be issued
to Covered Employees pursuant to Section 162(m) of the Code, (iv) extend the
term of the 1998 Incentive Plan or (v) decrease the authority granted to the
Committee under the 1998 Incentive Plan in contravention of Rule 16b-3 under the
Exchange Act. No termination or amendment of the Plan shall adversely affect in
any material way any outstanding Incentive Award previously granted to a
participant without his consent. No Incentive Award may be granted under the
1998 Incentive Plan after March 16, 2008.
ERISA AND TAX QUALIFICATION
The Company is not aware of any material provision of the Employee
Retirement Income Security Act of 1974 to which the 1998 Incentive Plan is
subject. The 1998 Incentive Plan is not qualified as a pension or profit-sharing
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended.
Therefore, 1998 Incentive Plan participants who acquire shares of Common Stock
pursuant to the 1998 Incentive Plan are not entitled to tax treatment available
to participants in plans qualified under that section of the Code.
REQUIRED VOTE
The affirmative vote of a majority of the shares that are entitled to vote
and that voted or abstained at the Annual Meeting is required for approval of
the 1998 Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL
OF THE 1998 INCENTIVE PLAN.
11
<PAGE>
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of Common Stock at April 15, 1998 by (i) each person known to the
Company to beneficially own more than 5% of its Common Stock, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers as a group.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
---------------- --------------------- -----
St. James Capital Partners, L.P.
1980 Post Oak Blvd., Suite 2030
Houston, Texas 77056 .................. 1,123,544(2) 10.3%
Alan P. Bernard ........................ 732,387 6.8%
Donald P. Carlin ....................... 732,387 6.8%
Directors and Executive Officers:
Robert E. Cone ......................... 266,285(3) 2.5%
Thomas C. Landreth ..................... 92,945(4) *
Christine A. Smith ..................... 101,916(5) *
Charles J. Anderson .................... 72,000(6) *
James H. Brock, Jr ..................... 115,000 1.1%
James W. Kenney ........................ 10,000(7) *
John P. Madden ......................... 149,373(8) 1.4%
Barbara S. Shuler ...................... 66,795(7) *
John L. Thompson ....................... 5,000(9) *
All officers and directors
as a group (9 persons) (3) - (9) ..... 879,314 8.0%
- --------------
*Less than one percent.
(1) Subject to community property laws where applicable, each person has sole
voting and investment power with respect to the shares listed, except as
otherwise specified. Each person is a United States citizen. This table is
based upon information supplied by officers, directors and principal
shareholders and Schedules 13D and 13G, if any, filed with the Securities
and Exchange Commission.
(2) Includes 107,994 shares that may be acquired upon the exercise of
currently exercisable warrants.
(3) Includes 100,000 shares that may be acquired upon the exercise of
currently exercisable stock options.
(4) Includes 14,250 shares that may be acquired upon the exercise of currently
exercisable warrants and stock options.
(5) Includes 6,250 shares that may be acquired upon the exercise of currently
exercisable stock options.
(6) Includes 15,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(7) Includes 10,000 shares that may be acquired upon the exercise of currently
exercisable stock options.
(8) Includes 20,000 shares that may be acquired upon the exercise of currently
exercisable stock options. Excludes 59,355 shares owned by persons related
to Mr. Madden, but as to which Mr. Madden disclaims beneficial ownership.
(9) Includes 5,000 shares that may be acquired upon the exercise of currently
exercisable stock options. Excludes 1,015,550 shares and 107,994 warrants
owned by St. James Capital Partners, L.P., of which Mr. Thompson is a
director and president of the General Partner and may be deemed to share
voting and investment power with respect to such shares.
12
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides certain summary
information covering compensation paid or accrued during the fiscal years ended
December 31, 1997, 1996 and 1995 to the Company's Chief Executive Officer and
the other executive officers, whose annual compensation, determined as of the
end of the last fiscal year, exceeds $100,000.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------
OPTION EXERCISE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARDS PRICE
- --------------------------- ------ -------- -------- --------- ---------- ---------
<S> <C> <C> <C>
Robert E. Cone ...................1997 $185,000 -- $ 4,000(1) -- --
President and ..................1996 $160,000 $ 10,000 -- 150,000 $4.06-5.50
Chief Executive Officer ........1995 $160,000 -- -- -- --
James H. Brock, Jr ...............1997 $168,333 -- -- -- --
President - The Rex Group .....1996 $150,000 $ 10,000 -- -- --
1995 $150,000 -- -- -- --
Thomas C. Landreth ...............1997 $132,455 $ 7,070 $ 12,000(1) 25,000 $ 10.00
Executive Vice President ......1996 $120,000 $ 24,518 $ 4,745(2 30,000 $ 4.06
and President -
Fastener Manufacturing ........1995 $120,000 $ 54,430 $103,932(2) -- --
and Sales Division
Christine A. Smith ...............1997 $111,833 -- $ 6,000(1) 25,000 $ 10.00
Vice President and ............1996 $ 95,000 $ 30,000 -- 30,000 $ 4.06
Chief Financial Officer .......1995 $ 85,000 -- -- 25,000 $ 3.31
</TABLE>
(1) Fringe benefits.
(2) Additional payments under the terms of the Landreth Engineering Company
purchase agreement.
STOCK COMPENSATION TABLE. The following table provides certain information
with respect to options granted to the executive officers during the fiscal year
ended December 31, 1997 under the Company's stock option plans:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE
SHARES OF VALUE AT ASSUMED
COMMON PERCENT OF ANNUAL RATES OF STOCK
STOCK TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS(3)
OPTIONS EMPLOYEES INEXERCISE EXPIRATION -----------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ------- ----------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Landreth ..................... 25,000(1) 11% $10.00 06/18/07 $157,224 $398,436
Executive Vice President
and President - Fastener
Manufacturing and Sales
Division
Christine A. Smith ..................... 25,000(1) 11% $10.00 6/18/07 $157,224 $398,436
Vice President and
Chief Financial Officer
- ----------------
</TABLE>
13
<PAGE>
(1) 6,250 of these options were fully vested at December 31, 1997.
(2) These calculations are based on the market value of the Common Stock on
the date of grant. The market value is calculated by averaging the closing
bid and ask price for the stock as quoted by NMS on the date of grant. The
exercise price is determined by the same method which is equal to the
market value on the date of grant.
OPTION EXERCISES AND YEAR END VALUES
The following table sets forth information with respect to the unexercised
options to purchase shares of Common Stock which were granted to the executive
officers in 1997 or prior years under the Company's stock option plans. During
the fiscal year ended December 31, 1997, Robert Cone exercised options for
50,000 shares at $2.375 per share and options for 32,000 shares at $3.125 per
share, James Brock exercised options for 32,000 shares at $3.125 per share and
Thomas C. Landreth exercised options for 10,000 shares at $4.06 per share under
the Company's stock option plans.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
HELD AT FISCAL YEAR END YEAR END(1)
-------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ -------------
Robert E. Cone ....... 133,000 50,000 $1,080,053 $343,750
James H. Brock, Jr ... 33,000 -- $ 305,250 --
Thomas C. Landreth ... 6,250 28,750 $ 14,844 $127,651
Christine A. Smith ... 51,250 28,750 $ 407,709 $127,651
(1) Represents the difference between the average of the closing bid and ask
price for the Common Stock as quoted by NMS on December 31, 1997 and any
lesser exercise price.
14
<PAGE>
PLAN BENEFITS
The following table provides information concerning options granted under
the Company's Employee Plan and Director Plan during 1997:
NAME AND POSITION OPTIONS GRANTED EXERCISE PRICE
----------------- --------------- --------------
EMPLOYEE PLAN:
Thomas C. Landreth, Executive Vice President ..... 25,000 $10.00
Christine A. Smith, Vice President and Chief
Financial Officer ........................... 25,000 $10.00
Executive Officers as a group (4 persons) ........ 50,000 $10.00
All employees who are not officers as a group .... 178,750 $ 9.50-10.00
DIRECTOR PLAN:
John Thompson .................................... 5,000 $12.50
James W. Kenney, Director ........................ 5,000 $11.38
John P. Madden, Director ......................... 5,000 $11.38
Barbara S. Shuler, Secretary and Director ........ 5,000 $11.38
Charles J. Anderson, Director .................... 5,000 $11.38
All non-employee directors as a group ............ 25,000 $11.38-12.50
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
For the fiscal year ended December 31, 1997, Messrs. Madden, Thompson and
Kenny served on the Compensation Committee of the Board of Directors. No member
of the Compensation Committee has served as an officer of the Company.
EMPLOYMENT AGREEMENTS
Effective July 1, 1991, the Company entered into employment agreements
with Messrs. Cone and Brock, which agreements were subsequently amended and
extended. Mr. Cone's amended employment agreement provides for a 1997 base
salary of $185,000 and a base salary of $200,000 for 1998 through 2000. Mr.
Brock's amended employment agreement provides for a 1997 base salary of
$170,000, a 1998 base salary of $180,000 and a base salary of $150,000 for 1999
and 2000.
15
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the National Association of Securities Dealers Automated
Quotation System Composite Index and to the Index of Non-Financial Companies.
The graph covers the period from January 16, 1992 (the date on which the
Company's Common Stock was registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended) to December 31, 1997.
NASDAQ NASDAQ
STOCK MKT. NON-FINANCIAL IHII
---------- ------------- ----
Jan. 16, 1992 100.000 100.000 100.000
Jan. 31, 1992 99.602 99.483 89.189
Dec. 31, 1992 110.567 103.898 86.486
Dec. 31, 1993 126.925 119.966 89.189
Dec. 31, 1994 124.070 114.970 77.038
Dec. 31, 1995 175.321 158.082 89.189
Dec. 31, 1996 215.803 195.424 240.541
Dec. 31, 1997 264.933 229.521 267.568
16
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation for 1997:
Under the supervision of the Committee, the Company has developed and
implemented compensation policies, plans and programs designed to enhance the
profitability of the Company, and therefore shareholder value, by aligning
closely the financial interests of the Company's senior executives with those of
its shareholders. The Committee has adopted the following objectives as
guidelines for making its compensation decisions:
- Provide a competitive total compensation package that enables the
Company to attract and retain key executives.
- Integrate all compensation programs with the Company's annual and
long-term business objectives and strategy and focus executive
behavior on the fulfillment of those objectives.
- Provide variable compensation opportunities that are directly linked
to the performance of the Company and that align executive
remuneration with the interests of shareholders.
Executive base compensation for senior executives is intended to be
competitive with that paid in comparably situated industries and to provide a
reasonable degree of financial security and flexibility to those individuals who
the Board of Directors regards as adequately performing the duties associated
with the various senior executive positions. In furtherance of this objective,
the Committee periodically, though not necessarily annually, reviews the salary
levels of a sampling of companies that are regarded by the Committee as having
sufficiently similar financial and operational characteristics to provide a
reasonable basis for comparison. Although the Committee does not attempt to
specifically tie executive base pay to that offered by any particular sampling
of companies, the review provides a useful gauge in administering the Company's
base compensation policy. In general, however, the Committee considers the
credentials, length of service, experience, and consistent performance of each
individual senior executive when setting compensation levels.
To ensure retention of qualified management, the Company has entered into
employment agreements with its key management personnel. The employment
agreements establish annual base salary amounts that the Committee may increase
based on the foregoing criteria. Pursuant to his employment agreement the annual
base salary of the Chief Executive Officer was increased from $175,000 in 1996
to $185,000 in 1997. See " -- Employment Agreements."
The Plan is intended to provide key employees, including the Chief
Executive Officer and other executive officers of the Company and its
subsidiaries, with a continuing proprietary interest in the Company, with a view
to increasing the interest in the Company's welfare of those personnel who share
the primary responsibility for the management and growth of the Company.
Moreover, the Plan provides a significant non-cash form of compensation that is
intended to benefit the Company by enabling it to continue to attract and to
retain qualified personnel.
The Compensation Committee is authorized to make incentive equity awards
("Incentive Awards") under the Plan to key employees, including officers
(whether or not they are also directors), of the Company
17
<PAGE>
and its subsidiaries. Although the Incentive Awards are not based on any one
criterion, the Committee will direct particular attention to management's
ability to implement the Company's strategy of geographic expansion through
acquisition followed by successful integration and assimilation of the acquired
companies. In making Incentive Awards, the Committee will also consider margin
improvements achieved through management's realization of operational
efficiencies, as well as revenue and earnings growth. During 1997 no stock
options were awarded to Mr. Cone.
1997 COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
John P. Madden, Chair
James Kenny
John Thompson
CERTAIN TRANSACTIONS
The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested directors and only
on terms the Company believes to be comparable to or better than those that
would be available from unaffiliated parties. In the Company's view, all of the
transactions described below meet that standard.
In connection with the purchase of Landreth Engineering Co. ("Landreth")
in 1992, the Company entered into a lease agreement with Scranton Acres, a
general partnership of which Mr. Tom Landreth is a partner, for the Landreth
facility. The lease expire in 2002. Rental payments are $106,800 annually.
In 1997, the Company paid St. James Capital Corp. ("St. James Capital"),
$200,000 in investment advisory fees in connection with the acquisition of
LSS-Lone Star-Houston, Inc. Mr. John Thompson, a director of the Company since
February 1997, is also a director and President of St. James Capital. St. James
Capital serves as General Partner of St. James Capital Partners, L.P. ("St.
James").
COST OF SOLICITATION
The Company will bear the costs of the solicitation of proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
directors, officers and regular employees of the Company in person or by
telephone or other means of communication. The directors, officers and employees
of the Company will not be compensated additionally for such solicitation but
may be reimbursed for out-of-pocket expenses in connection with the
solicitation. The Company is also making arrangements with brokerage houses and
other custodians, nominees and fiduciaries for the delivery of solicitation
material to the beneficial owners of Common Stock and the Company will reimburse
the brokers, custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection with such services.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes of ownership with the Commission. Officers, directors and
greater
18
<PAGE>
than 10% shareholders are required to furnish the Company with copies of all
Section 16(a) reports they file. Based solely on its review of the forms
received by it, the Company believes that during the year ended December 31,
1997 all filing requirements applicable to the Company's officers, directors and
greater than 10% shareholders were met.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company for inclusion in the
Company's proxy statement and form of proxy relating to that meeting not later
than January 20, 1999.
OTHER MATTERS
The annual report to shareholders covering the fiscal year ended December
31, 1997 has been mailed to each shareholder entitled to vote at the Annual
Meeting.
Deloitte & Touche LLP, the Company's independent accountant for the fiscal
year ended December 31, 1997, is not expected to be present at the Annual
Meeting.
Management is not aware of any other matters to be presented for action at
the Annual Meeting. However, if any other matter is properly presented, it is
the intention of the persons named in the enclosed proxy form to vote in
accordance with their best judgment on such other matters.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT E. CONE
Chairman of the Board
May 1, 1998
19
<PAGE>
EXHIBIT A
INDUSTRIAL HOLDINGS, INC.
1998 INCENTIVE PLAN
(AS EFFECTIVE MARCH 17, 1998)
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE,
COVERAGE AND BENEFITS..........................................1
1.1 Purpose........................................................1
1.2 Definitions....................................................2
(a) Appreciation.............................................2
(b) Authorized Officer.......................................2
(c) Board....................................................2
(d) Cause....................................................2
(e) Change in Control........................................2
(f) Code.....................................................2
(g) Committee................................................2
(h) Common Stock.............................................3
(i) Company..................................................3
(j) Consultant...............................................3
(k) Covered Employee.........................................3
(l) Deferred Stock...........................................3
(m) Disability...............................................3
(n) Employee.................................................4
(o) Employment...............................................4
(p) Exchange Act.............................................4
(q) Fair Market Value........................................4
(r) Grantee..................................................5
(s) Incentive Award..........................................5
(t) Incentive Agreement......................................5
(u) Incentive Stock Option...................................5
(v) Independent SAR..........................................5
(w) Insider..................................................5
(x) Nonstatutory Stock Option................................5
(y) Option Price.............................................6
(z) Other Stock-Based Award..................................6
(aa) Outside Director.........................................6
(bb) Parent...................................................6
(cc) Performance-Based Exception..............................6
(dd) Performance Period.......................................6
(ee) Performance Share or Performance Unit....................6
(ff) Plan.....................................................6
(gg) Publicly Held Corporation................................6
(hh) Restricted Stock.........................................6
(ii) Restricted Stock Award...................................6
i
<PAGE>
(jj) Restriction Period.......................................6
(kk) Retirement...............................................7
(ll) Share....................................................7
(mm) Share Pool...............................................7
(nn) Spread...................................................7
(oo) Stock Appreciation Right or SAR..........................7
(pp) Stock Option or Option...................................7
(qq) Subsidiary...............................................7
(rr) Supplemental Payment.....................................7
(ss) Tandem SAR...............................................7
1.3 Plan Administration............................................7
(a) Authority of the Committee...............................7
(b) Meetings.................................................8
(c) Decisions Binding........................................8
(d) Modification of Outstanding Incentive Awards.............8
(e) Delegation of Authority..................................8
(f) Expenses of Committee....................................9
(g) Surrender of Previous Incentive Awards...................9
(h) Indemnification..........................................9
1.4 Shares of Common Stock Available for Incentive Awards..........9
1.5 Share Pool Adjustments for Awards and Payouts.................11
1.6 Common Stock Available. .....................................11
1.7 Participation.................................................11
(a) Eligibility.............................................11
(b) Incentive Stock Option Eligibility......................12
1.8 Types of Incentive Awards.....................................12
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS...................12
2.1 Grant of Stock Options........................................12
2.2 Stock Option Terms............................................13
(a) Written Agreement.......................................13
(b) Number of Shares........................................13
(c) Exercise Price..........................................13
(d) Term....................................................13
(e) Exercise................................................13
(f) $100,000 Annual Limit on Incentive Stock Options........13
2.3 Stock Option Exercises........................................14
(a) Method of Exercise and Payment..........................14
(b) Restrictions on Share Transferability...................15
(c) Notification of Disqualifying Disposition of Shares
from Incentive Stock Options............................15
(d) Proceeds of Option Exercise.............................15
ii
<PAGE>
2.4 Stock Appreciation Rights in Tandem with Nonstatutory
Stock Options.................................................16
(a) Grant...................................................16
(b) General Provisions......................................16
(c) Exercise................................................16
(d) Settlement..............................................16
2.5 Stock Appreciation Rights Independent of Nonstatutory
Stock Options.................................................16
(a) Grant...................................................16
(b) General Provisions......................................16
(c) Exercise................................................17
(d) SETTLEMENT..............................................17
----------
2.6 Reload Options................................................17
2.7 Supplemental Payment on Exercise of Nonstatutory Stock
Options or Stock Appreciation Rights..........................17
SECTION 3. RESTRICTED STOCK..............................................18
3.1 Award of Restricted Stock.....................................18
(a) Grant...................................................18
(b) Immediate Transfer Without Immediate Delivery
of Restricted Stock.....................................18
3.2 Restrictions..................................................19
(a) Forfeiture of Restricted Stock..........................19
(b) Issuance of Certificates................................19
(c) Removal of Restrictions.................................19
3.3 Delivery of Shares of Common Stock............................20
3.4 Supplemental Payment on Vesting of Restricted Stock...........20
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES......................20
4.1 Performance Based Awards......................................20
(a) Grant...................................................20
(b) Performance Criteria....................................20
(c) Modification............................................21
(d) Payment.................................................21
(e) Special Rule for Covered Employees......................21
4.2 Supplemental Payment on Vesting of Performance Units
or Performance Shares.........................................21
SECTION 5. OTHER STOCK-BASED AWARDS......................................22
5.1 Grant of Other Stock-Based Awards.............................22
5.2 Other Stock-Based Award Terms.................................22
(a) Written Agreement.......................................22
(b) Purchase Price..........................................22
(c) Performance Criteria and Other Terms....................22
(d) Payment.................................................23
(e) Dividends...............................................23
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SECTION 6. PROVISIONS RELATING TO PLAN PARTICIPATION.....................23
6.1 Plan Conditions...............................................23
(a) Incentive Agreement.....................................23
(b) No Right to Employment..................................24
(c) Securities Requirements.................................24
6.2 Transferability...............................................24
(a) Non-Transferable Awards and Options.....................24
(b) Ability to Exercise Rights..............................25
6.3 Rights as a Stockholder.......................................25
(a) No Stockholder Rights...................................25
(b) Representation of Ownership.............................25
6.4 Listing and Registration of Shares of Common Stock............25
6.5 Change in Stock and Adjustments...............................26
(a) Changes in Law or Circumstances.........................26
(b) Exercise of Corporate Powers............................26
(c) Recapitalization of the Company.........................26
(d) Reorganization of the Company...........................27
(e) Issue of Common Stock by the Company....................27
(f) Acquisition of the Company..............................27
(g) Assumption of Outstanding Incentive Awards
under the Plan..........................................28
(h) Assumption of Incentive Awards by a Successor...........28
6.6 Termination of Employment, Death, Disability and Retirement...29
(a) Termination of Employment...............................29
(b) Termination of Employment for Cause.....................29
(c) Retirement..............................................29
(d) Disability or Death.....................................29
(e) Continuation of Incentive Award.........................30
6.7 Change in Control.............................................30
6.8 Exchange of Incentive Awards..................................32
6.9 Financing.....................................................32
SECTION 7. GENERAL.......................................................33
7.1 Effective Date and Grant Period...............................33
7.2 Funding and Liability of Company..............................33
7.3 Withholding Taxes.............................................33
(a) Tax Withholding.........................................33
(b) Share Withholding.......................................34
(c) Incentive Stock Options.................................34
(d) Loans...................................................34
7.4 No Guarantee of Tax Consequences..............................34
7.5 Designation of Beneficiary by Participant.....................34
7.6 Deferrals.....................................................35
7.7 Amendment and Termination.....................................35
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7.8 Requirements of Law...........................................36
7.9 Rule 16b-3 Securities Law Compliance..........................36
7.10 Compliance with Code Section 162(m)...........................36
7.11 Successors....................................................36
7.12 Miscellaneous Provisions......................................37
7.13 Severability..................................................37
7.14 Gender, Tense and Headings....................................37
7.15 Governing Law.................................................37
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INDUSTRIAL HOLDINGS, INC.
1998 INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of Industrial Holdings, Inc. (the "Company") and its Subsidiaries and to
increase stockholder value by: (a) encouraging the commitment of selected key
Employees, Consultants and Outside Directors, (b) motivating superior
performance of key Employees, Consultants and Outside Directors by means of
long-term performance related incentives, (c) encouraging and providing key
Employees, Consultants and Outside Directors with a program for obtaining
ownership interests in the Company which link and align their personal interests
to those of the Company's stockholders, (d) attracting and retaining key
Employees, Consultants and Outside Directors by providing competitive incentive
compensation opportunities, and (e) enabling key Employees, Consultants and
Outside Directors to share in the long-term growth and success of the Company.
The Plan provides for payment of various forms of incentive compensation
and it is not intended to be a plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan shall be interpreted,
construed and administered consistent with its status as a plan that is not
subject to ERISA.
Subject to approval by the Company's stockholders pursuant to SECTION 7.1,
the Plan shall become effective as of March 17, 1998 (the "EFFECTIVE DATE"). The
Plan shall commence on the Effective Date, and shall remain in effect, subject
to the right of the Board to amend or terminate the Plan at any time pursuant to
SECTION 7.7, until all Shares subject to the Plan have been purchased or
acquired according to its provisions. However, in no event may an Incentive
Award be granted under the Plan after the expiration of ten (10) years from the
Effective Date. Any Incentive Award granted prior to the Effective Date shall be
subject to the subsequent receipt of stockholder approval of the Plan pursuant
to SECTION 7.1.
1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) APPRECIATION. The difference between the option exercise price
per share of the Nonstatutory Stock Option to which a Tandem SAR relates
and the Fair Market Value of a share of Common Stock on the date of
exercise of the Tandem SAR.
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(b) AUTHORIZED OFFICER. The Chairman of the Board or the Chief
Executive Officer of the Company or any other senior officer of the
Company to whom either of them delegate the authority to execute any
Incentive Agreement for and on behalf of the Company. No officer or
director shall be an Authorized Officer with respect to any Incentive
Agreement for himself.
(c) BOARD. The Board of Directors of the Company.
(d) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment by the Company by reason of (i) the conviction of the Grantee
by a court of competent jurisdiction as to which no further appeal can be
taken of a crime involving moral turpitude or a felony; (ii) the proven
commission by the Grantee of an act of fraud upon the Company; (iii) the
willful and proven misappropriation of any funds or property of the
Company by the Grantee; (iv) the willful, continued and unreasonable
failure by the Grantee to perform the material duties assigned to him; (v)
the knowing engagement by the Grantee in any direct, material conflict of
interest with the Company without compliance with the Company's conflict
of interest policy, if any, then in effect; or (vi) the knowing engagement
by the Grantee, without the written approval of the Board, in any activity
which competes with the business of the Company or which would result in a
material injury to the business, reputation or goodwill of the Company.
(e) CHANGE IN CONTROL. Any of the events described in and subject to
SECTION 6.7.
(f) CODE. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the appropriate
governmental authority. References herein to any provision of the Code
shall refer to any successor provision thereto.
(g) COMMITTEE. A committee appointed by the Board consisting of not
less than two directors as appointed by the Board to administer the Plan.
However, if the Company is a Publicly Held Corporation, the Plan shall be
administered by a committee appointed by the Board consisting of not less
than two directors who fulfill the "non-employee director" requirements of
Rule 16b-3 under the Exchange Act and the "outside director" requirements
of Section 162(m) of the Code. In either case, the Committee may be the
Compensation Committee of the Board, or any subcommittee of the
Compensation Committee, provided that the members of the Committee satisfy
the requirements of the previous provisions of this paragraph. The Board
shall have the power to fill vacancies on the Committee arising by
resignation, death, removal or otherwise. The Board, in its sole
discretion, may bifurcate the powers and duties of the Committee among one
or more separate committees, or retain all powers and duties of the
Committee in a single Committee. The members of the Committee shall serve
at the discretion of the Board.
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Notwithstanding the preceding paragraph, the term "Committee" as
used in the Plan with respect to any Incentive Award for an Outside
Director shall refer to the Board. In the case of an Incentive Award for
an Outside Director, the Board shall have all the powers and
responsibilities of the Committee hereunder as to such Incentive Award,
and any actions as to such Incentive Award may be acted upon only by the
Board (unless it otherwise designates in its discretion). When the Board
exercises its authority to act in the capacity as the Committee hereunder
with respect to an Incentive Award for an Outside Director, it shall so
designate with respect to any action that it undertakes in its capacity as
the Committee.
(h) COMMON STOCK. The common stock of the Company, $.01 par value
per share, and any class of common stock into which such common shares may
hereafter be converted, reclassified or recapitalized.
(i) COMPANY. Industrial Holdings, Inc., a corporation organized
under the laws of the State of Texas, and any successor in interest
thereto.
(j) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other individual
who is not an Outside Director or employee of the Company (or any Parent
or Subsidiary) and who, in the opinion of the Committee, is in a position
to contribute materially to the growth or financial success of the Company
(or any Parent or Subsidiary).
(k) COVERED EMPLOYEE. Only if the Company is a Publicly Held
Corporation, a named executive officer who is one of the group of covered
employees as defined in Section 162(m) of the Code and Treasury Regulation
ss. 1.162-27(c) (or its successor).
(l) DEFERRED STOCK. Shares of Common Stock to be issued or
transferred to a Grantee under an Other Stock-Based Award granted pursuant
to SECTION 5 at the end of a specified deferral period, as set forth in
the Incentive Agreement pertaining thereto.
(m) DISABILITY. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to payment of disability income payments under the
Company's long term disability insurance policy or plan for employees, as
then effective, if any; or in the event that the Grantee is not covered,
for whatever reason, under the Company's long-term disability insurance
policy or plan, "Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code. A determination of Disability may
be made by a physician selected or approved by the Committee and, in this
respect, the Grantee shall submit to an examination by such physician upon
request.
(n) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
opinion of the Committee,
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is one of a select group of executive officers, other officers, or other
key personnel of the Company (or any Parent or Subsidiary), who is in a
position to contribute materially to the growth and development and to the
financial success of the Company (or any Parent or Subsidiary), including,
without limitation, officers who are members of the Board.
(o) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive Award
in any transaction described in Section 424(a) of the Code, or by a parent
corporation or a subsidiary corporation of such corporation issuing or
assuming such Incentive Award, as the parent-subsidiary relationship shall
be determined at the time of the corporate action described in Section
424(a) of the Code. In this regard, neither the transfer of a Grantee from
Employment by the Company to Employment by any Parent or Subsidiary, nor
the transfer of a Grantee from Employment by any Parent or Subsidiary to
Employment by the Company, shall be deemed to be a termination of
Employment of the Grantee. Moreover, the Employment of a Grantee shall not
be deemed to have been terminated because of an approved leave of absence
from active Employment on account of temporary illness, authorized
vacation or granted for reasons of professional advancement, education,
health, or government service, or during military leave for any period (if
the Grantee returns to active Employment within 90 days after the
termination of military leave), or during any period required to be
treated as a leave of absence by virtue of any applicable statute, Company
personnel policy or agreement. Whether an authorized leave of absence
shall constitute termination of Employment hereunder shall be determined
by the Committee in its discretion.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan will also include compensatory
services performed by a Consultant for the Company (or any Parent or
Subsidiary) as well as membership on the Board by an Outside Director.
(p) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
(q) FAIR MARKET VALUE. If the Company is a Publicly Held
Corporation, the Fair Market Value of one share of Common Stock on the
date in question is deemed to be (i) the closing sales price on the
immediately preceding business day of a share of Common Stock as reported
on the principal securities exchange on which Shares are then listed or
admitted to trading, or (ii) if not so reported, the average of the
closing bid and asked prices for a Share on the immediately preceding
business day as quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or (iii) if not quoted on NASDAQ,
the average of the closing bid and asked prices for a Share as quoted by
the National Quotation Bureau's "Pink Sheets" or the National Association
of Securities Dealers' OTC Bulletin Board System. If there was no public
trade of Common Stock on the date in question, Fair Market Value shall be
determined by reference to the last preceding date on which such a trade
was so reported.
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If the Company is not a Publicly Held Corporation at the time a
determination of the Fair Market Value of the Common Stock is required to
be made hereunder, the determination of Fair Market Value for purposes of
the Plan shall be made by the Committee in its discretion exercised in
good faith. In this respect, the Committee may rely on such financial
data, valuations or experts as it deems advisable under the circumstances.
(r) GRANTEE. Any Employee, Consultant or Outside Director who is
granted an Incentive Award under the Plan.
(s) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock Option,
Reload Option, Stock Appreciation Right, Restricted Stock Award,
Performance Unit, Performance Share, or Other Stock-Based Award, as well
as any Supplemental Payment.
(t) INCENTIVE AGREEMENT. The written agreement entered into between
the Company and the Grantee setting forth the terms and conditions
pursuant to which an Incentive Award is granted under the Plan, as such
agreement is further defined in SECTION 6.1(A).
(u) INCENTIVE STOCK OPTION. A Stock Option granted by the Committee
to an Employee under SECTION 2 which is designated by the Committee as an
Incentive Stock Option and intended to qualify as an Incentive Stock
Option under Section 422 of the Code.
(v) INDEPENDENT SAR. A Stock Appreciation Right described in SECTION
2.5.
(w) INSIDER. To the extent that the Company is a Publicly Held
Corporation, an individual who is, on the relevant date, an officer,
director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
(x) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under SECTION 2 which is not designated by the
Committee as an Incentive Stock Option.
(y) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(z) OTHER STOCK-BASED AWARD. An award granted by the Committee to a
Grantee under SECTION 5.1 that is valued in whole or in part by reference
to, or is otherwise based upon, Common Stock.
(aa) OUTSIDE DIRECTOR. A member of the Board who is not, at the
time of grant of an Incentive Award, an employee of the Company or any
Parent or Subsidiary.
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(bb) PARENT. Any corporation (whether now or hereafter existing)
which constitutes a "parent" of the Company, as defined in Section 424(e)
of the Code.
(cc) PERFORMANCE-BASED EXCEPTION. To the extent that the Company is
a Publicly Held Corporation, the performance-based exception from the tax
deductibility limitations of Section 162(m) of the Code, as prescribed in
Code ss. 162(m) and Treasury Regulation ss. 1.162-27(e) (or its
successor).
(dd) PERFORMANCE PERIOD. A period of time determined by the
Committee over which performance is measured for the purpose of
determining a Grantee's right to and the payment value of any Performance
Unit, Performance Share or Other Stock-Based Award.
(ee) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
representing a contingent right to receive cash or shares of Common Stock
(which may be Restricted Stock) at the end of a Performance Period and
which, in the case of Performance Shares, is denominated in Common Stock,
and, in the case of Performance Units, is denominated in cash values.
(ff) PLAN. The Industrial Holdings, Inc. 1998 Incentive Plan as set
forth herein and as it may be amended from time to time.
(gg) PUBLICLY HELD CORPORATION. A corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act.
(hh) RESTRICTED STOCK. Shares of Common Stock issued or transferred
to a Grantee pursuant to SECTION 3.
(ii) RESTRICTED STOCK AWARD. An authorization by the Committee to
issue or transfer Restricted Stock to a Grantee.
(jj) RESTRICTION PERIOD. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(kk) RETIREMENT. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on any
date after the Employee attains the normal retirement age of 65 years, or
such other age as may be designated by the Committee in the Employee's
Incentive Agreement..
(ll) SHARE. A share of the Common Stock of the Company.
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(mm) SHARE POOL. The number of shares authorized for issuance under
SECTION 1.4, as adjusted for awards and payouts under SECTION 1.5 and as
adjusted for changes in corporate capitalization under SECTION 6.5.
(nn) SPREAD. The difference between the exercise price per Share
specified in any Independent SAR grant and the Fair Market Value of a
Share on the date of exercise of the Independent SAR.
(oo) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
SECTION 2.4 or an Independent SAR described in SECTION 2.5.
(pp) STOCK OPTION OR OPTION. Pursuant to SECTION 2, (i) an Incentive
Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option
granted to an Employee, Consultant or Outside Director, whereunder such
option the Grantee has the right to purchase Shares of Common Stock. In
accordance with Section 422 of the Code, no Consultant or Outside Director
shall be granted an Incentive Stock Option.
(qq) SUBSIDIARY. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section
424(f) of the Code.
(rr) SUPPLEMENTAL PAYMENT. Any amount, as described in SECTIONS 2.7,
3.4, OR 4.2, dedicated to payment of income taxes that are payable by the
Grantee on an Incentive Award.
(ss) TANDEM SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to SECTION 2.4, the
exercise of which shall require forfeiture of the right to purchase a
Share under the related Stock Option (and when a Share is purchased under
the Stock Option, the Tandem SAR shall similarly be canceled).
1.3 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law and
subject to the provisions herein, the Committee shall have full power to
(i) select Grantees who shall participate in the Plan; (ii) determine the
sizes, duration and types of Incentive Awards; (iii) determine the terms
and conditions of Incentive Awards and Incentive Agreements; (iv)
determine whether any Shares subject to Incentive Awards will be subject
to any restrictions on transfer; (v) construe and interpret the Plan and
any Incentive Agreement or other agreement entered into under the Plan;
and (vi) establish, amend, or waive rules for the Plan's administration.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan.
The Committee may also grant an Incentive Award to an individual who
it expects to become an Employee within the next six months, with such
Incentive Award being
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subject to such individual actually becoming an Employee within such time
period, and subject to such other terms and conditions as may be
established by the Committee in its discretion.
(b) MEETINGS. The Committee shall designate a chairman from among
its members who shall preside at all of its meetings, and shall designate
a secretary, without regard to whether that person is a member of the
Committee, who shall keep the minutes of the proceedings and all records,
documents, and data pertaining to its administration of the Plan. Meetings
shall be held at such times and places as shall be determined by the
Committee and the Committee may hold telephonic meetings. The Committee
may take any action otherwise proper under the Plan by the affirmative
vote, taken with or without a meeting, of a majority of its members. The
Committee may authorize any one or more of their members or any officer of
the Company to execute and deliver documents on behalf of the Committee.
(c) DECISIONS BINDING. All determinations and decisions made by the
Committee shall be made in its discretion pursuant to the provisions of
the Plan, and shall be final, conclusive and binding on all persons
including the Company, its shareholders, Employees, Grantees, and their
estates and beneficiaries. The Committee's decisions and determinations
with respect to any Incentive Award need not be uniform and may be made
selectively among Incentive Awards and Grantees, whether or not such
Incentive Awards are similar or such Grantees are similarly situated.
(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of SECTION 7.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercise period of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less restrictive
any restrictions contained in an Incentive Award, waive any restriction or
other provisions of an Incentive Award, or otherwise amend or modify an
Incentive Award in any manner that is either (i) not adverse to the
Grantee to whom such Incentive Award was granted or (ii) consented to by
such Grantee.
(e) DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties
under this Plan pursuant to such conditions or limitations as the
Committee may establish from time to time, except that, if the Company is
a Publicly Held Corporation, the Committee may not delegate to any person
the authority to (i) grant Incentive Awards, or (ii) take any action which
would contravene the requirements of Rule 16b-3 under the Exchange Act or
the Performance-Based Exception under Section 162(m) of the Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal counsel,
including, without limitation, independent legal counsel and counsel
regularly employed by the Company, and other agents as the Committee may
deem appropriate for the
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administration of the Plan. The Committee may rely upon any opinion or
computation received from any such counsel or agent. All expenses incurred
by the Committee in interpreting and administering the Plan, including,
without limitation, meeting expenses and professional fees, shall be paid
by the Company.
(g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in
its absolute discretion, grant Incentive Awards to Grantees on the
condition that such Grantees surrender to the Committee for cancellation
such other Incentive Awards (including, without limitation, Incentive
Awards with higher exercise prices) as the Committee directs. Incentive
Awards granted on the condition precedent of surrender of outstanding
Incentive Awards shall not count against the limits set forth in SECTION
1.4 until such time as such previous Incentive Awards are surrendered and
cancelled.
(h) INDEMNIFICATION. Each person who is or was a member of the
Committee, or of the Board, shall be indemnified by the Company against
and from any damage, loss, liability, cost and expense that may be imposed
upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act
under the Plan, except for any such act or omission constituting willful
misconduct or gross negligence. Such person shall be indemnified by the
Company for all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any
such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under SECTION 6.5, there shall be available for
Incentive Awards under this Plan granted wholly or partly in Common Stock
(including rights or Options that may be exercised for or settled in Common
Stock) an aggregate of the greater of (a) One Million Five Hundred Thousand
(1,500,000) Shares of Common Stock or (b) fifteen percent (15%) of the number of
Shares issued and outstanding on the last day of each fiscal quarter of the
Company. No more than 500,000 Shares shall be available for Incentive Awards
granted to Outside Directors. No more than 1,500,000 Shares of Common Stock
shall be available for Incentive Awards of Incentive Stock Options.
The number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not
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issued to a Grantee or are exchanged for Incentive Awards that do not involve
Common Stock, shall again immediately become available for Incentive Awards
hereunder. The Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Plan maximum as it may deem
appropriate. The Board and the appropriate officers of the Company shall from
time to time take whatever actions are necessary to file any required documents
with governmental authorities, stock exchanges and transaction reporting systems
to ensure that Shares are available for issuance pursuant to Incentive Awards.
If the Company is a Publicly Held Corporation, then unless and until the
Committee determines that a particular Incentive Award granted to a Covered
Employee is not intended to comply with the Performance-Based Exception, the
following rules shall apply to grants of Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in SECTION 6.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options, SARs,
Restricted Stock, Performance Units and Performance Shares paid out in
Shares, or Other Stock-Based Awards paid out in Shares) that may be
granted or that may vest, as applicable, in any calendar year pursuant to
any Incentive Award held by any individual Covered Employee shall be One
Million (1,000,000) Shares.
(b) The maximum aggregate cash payout (including SARs, Performance
Units and Performance Shares paid out in cash, or Other Stock-Based Awards
paid out in cash) with respect to Incentive Awards granted in any calendar
year which may be made to any Covered Employee shall be Five Million
dollars ($5,000,000).
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled or repriced, the number of
Shares subject to such Stock Option or Stock Appreciation Right shall
continue to count against the maximum number of Shares that may be the
subject of Stock Options or Stock Appreciation Rights granted to such
Covered Employee hereunder and, in this regard, such maximum number shall
be determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall be
construed and administered so as to comply with the Performance-Based
Exception.
1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
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(c) Restricted Stock;
(d) A payout of a Performance Share in Shares;
(e) A payout of a Performance Unit in Shares; and
(f) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A Payout of an SAR, Tandem SAR, Restricted Stock Award, or Other
Stock-Based Award in the form of cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse
for any reason (with the exception of the termination of a Tandem SAR upon
exercise of the related Stock Option, or the termination of a related
Stock Option upon exercise of the corresponding Tandem SAR) of any Shares
subject to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise (i.e.,
the Share Pool shall be increased by the number of Shares turned in or
withheld as payment of the Option Price).
1.6 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan shall
be made available from Shares now or hereafter (a) held in the treasury of the
Company, (b) authorized but unissued shares, or (c) shares to be purchased or
acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.
1.7 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees, Consultants and/or Outside Directors, if any, to be
granted Incentive Awards under the Plan, the type of Incentive Awards
granted, the number of Shares, Stock Options, rights or units, as the case
may be, which shall be granted to each such person, and any other terms or
conditions relating to the Incentive Awards as it may deem appropriate to
the extent consistent with the provisions of the Plan. A Grantee who has
been granted an Incentive Award may, if otherwise eligible, be granted
additional Incentive Awards at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside
Director shall be eligible for the grant of any Incentive Stock Option. In
addition, no Employee shall be eligible for the grant of any Incentive
Stock Option who owns or would own immediately
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before the grant of such Incentive Stock Option, directly or indirectly,
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or any Parent or Subsidiary.
This restriction does not apply if, at the time such Incentive Stock
Option is granted, the Incentive Stock Option exercise price is at least
one hundred and ten percent (110%) of the Fair Market Value on the date of
grant and the Incentive Stock Option by its terms is not exercisable after
the expiration of five (5) years from the date of grant. For the purpose
of the immediately preceding sentence, the attribution rules of Section
424(d) of the Code shall apply for the purpose of determining an
Employee's percentage ownership in the Company or any Parent or
Subsidiary. This paragraph shall be construed consistent with the
requirements of Section 422 of the Code.
1.8 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in SECTION 2,
Restricted Stock and Supplemental Payments as described in SECTION 3,
Performance Units, Performance Shares and Supplemental Payments as described in
SECTION 4, Other Stock-Based Awards and Supplemental Payments as described in
SECTION 5, or any combination of the foregoing.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options
to Employees only, in accordance with the terms and conditions of the Plan, and
with such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such
person remains unexercised.
2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of an Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth the extent to which the Grantee
shall have the right to exercise the Stock Option following termination of
the Grantee's Employment. Such provisions shall be determined in the
discretion of the Committee, shall be included in the Grantee's Incentive
Agreement, need not be uniform among all Stock Options issued pursuant to
the Plan.
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(b) NUMBER OF SHARES. Each Stock Option shall specify the number of
Shares of Common Stock to which it pertains.
(c) EXERCISE PRICE. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such exercise
price shall not be less than 100% of the Fair Market Value per Share on
the date the Incentive Stock Option is granted. To the extent that the
Company is a Publicly Held Corporation and the Stock Option is intended to
qualify for the Performance-Based Exception, the exercise price shall not
be less than 100% of the Fair Market Value per Share on the date the Stock
Option is granted. Each Stock Option shall specify the method of exercise
which shall be consistent with the requirements of SECTION 2.3(A).
(d) TERM. In the Incentive Agreement, the Committee shall fix the
term of each Stock Option which shall be not more than ten (10) years from
the date of grant. In the event no term is fixed, such term shall be ten
(10) years from the date of grant.
(e) EXERCISE. The Committee shall determine the time or times at
which a Stock Option may be exercised in whole or in part. Each Stock
Option may specify the required period of continuous Employment and/or the
performance objectives to be achieved before the Stock Option or portion
thereof will become exercisable. Each Stock Option, the exercise of which,
or the timing of the exercise of which, is dependent, in whole or in part,
on the achievement of designated performance objectives, may specify a
minimum level of achievement in respect of the specified performance
objectives below which no Stock Options will be exercisable and a method
for determining the number of Stock Options that will be exercisable if
performance is at or above such minimum but short of full achievement of
the performance objectives. All such terms and conditions shall be set
forth in the Incentive Agreement.
(f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
Notwithstanding any contrary provision in the Plan, to the extent that the
aggregate Fair Market Value (determined as of the time the Incentive Stock
Option is granted) of the Shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any Grantee
during any single calendar year (under the Plan and any other stock option
plans of the Company and its Subsidiaries or Parent) exceeds the sum of
$100,000, such Incentive Stock Option shall be treated as a Nonstatutory
Stock Option to the extent in excess of the $100,000 limit, and not an
Incentive Stock Option, but all other terms and provisions of such Stock
Option shall remain unchanged. This paragraph shall be applied by taking
Incentive Stock Options into account in the order in which they are
granted and shall be construed in accordance with Section 422(d) of the
Code. In the absence of such regulations or other authority, or if such
regulations or other authority require or permit a designation of the
Options which shall cease to constitute Incentive Stock Options, then
Incentive Stock Options, only to the extent of such excess and in the
order in which they were granted, shall
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automatically be deemed to be Nonstatutory Stock Options but all other
terms and conditions of such Incentive Stock Options, and the
corresponding Incentive Agreement, shall remain unchanged.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised
by the delivery of a signed written notice of exercise to the Company as
of a date set by the Company in advance of the effective date of the
proposed exercise. The notice shall set forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
The Option Price upon exercise of any Stock Option shall be payable
to the Company in full either: (i) in cash or its equivalent, or (ii)
subject to prior approval by the Committee in its discretion, by tendering
previously acquired Shares having an aggregate Fair Market Value at the
time of exercise equal to the total Option Price (provided that the Shares
which are tendered must have been held for at least six (6) months prior
to their tender to satisfy the Option Price), or (iii) subject to prior
approval by the Committee in its discretion, by withholding Shares which
otherwise would be acquired on exercise having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price, or (iv)
subject to prior approval by the Committee in its discretion, by a
combination of (i), (ii), and (iii) above. Any payment in Shares of Common
Stock shall be effected by the delivery of such Shares to the Secretary of
the Company, duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents as the Secretary
shall require from time to time.
The Committee, in its discretion, also may allow (i) "cashless
exercise" as permitted under Federal Reserve Board's Regulation T, 12 CFR
Part 220 (or its successor), and subject to applicable securities law
restrictions and tax withholdings, or (ii) by any other means which the
Committee, in its discretion, determines to be consistent with the Plan's
purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to or on behalf of
the Grantee, in the name of the Grantee or other appropriate recipient,
Share certificates for the number of Shares purchased under the Stock
Option. Such delivery shall be effected for all purposes when a stock
transfer agent of the Company shall have deposited such certificates in
the United States mail, addressed to Grantee or other appropriate
recipient.
During the lifetime of a Grantee, each Option granted to him shall
be exercisable only by the Grantee (or his legal guardian in the event of
his Disability) or by a broker-dealer acting on his behalf pursuant to a
cashless exercise under the foregoing provisions of
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this SECTION 2.3(A). No Option shall be assignable or transferable by
Grantee otherwise than by will or by the laws of descent and distribution.
(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of a
Stock Option as it may deem advisable, including, without limitation,
restrictions under (i) any buy/sell agreement or right of first refusal,
(ii) any applicable federal securities laws, (iii) the requirements of any
stock exchange or market upon which such Shares are then listed and/or
traded, or (iv) any blue sky or state securities law applicable to such
Shares. Any certificate issued to evidence Shares issued upon the exercise
of an Incentive Award may bear such legends and statements as the
Committee shall deem advisable to assure compliance with federal and state
laws and regulations.
Any Grantee or other person exercising an Incentive Award may be
required by the Committee to give a written representation that the
Incentive Award and the Shares subject to the Incentive Award will be
acquired for investment and not with a view to public distribution;
provided, however, that the Committee, in its sole discretion, may release
any person receiving an Incentive Award from any such representations
either prior to or subsequent to the exercise of the Incentive Award.
(c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan,
a Grantee who disposes of Shares of Common Stock acquired upon the
exercise of an Incentive Stock Option by a sale or exchange either (i)
within two (2) years after the date of the grant of the Incentive Stock
Option under which the Shares were acquired or (ii) within one (1) year
after the transfer of such Shares to him pursuant to exercise, shall
promptly notify the Company of such disposition, the amount realized and
his adjusted basis in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised under
the Plan shall be used for general corporate purposes.
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may, at the time of grant of a Nonstatutory
Stock Option, or at any time thereafter during the term of the
Nonstatutory Stock Option, grant Stock Appreciation Rights with respect to
all or any portion of the Shares of Common Stock covered by such
Nonstatutory Stock Option. A Stock Appreciation Right in tandem with a
Nonstatutory Stock Option is referred to herein as a "TANDEM SAR."
(b) GENERAL PROVISIONS. The terms and conditions of each Tandem SAR
shall be evidenced by an Incentive Agreement. The Option Price per Share
of a Tandem SAR shall be fixed in the Incentive Agreement and shall not be
less than one hundred percent
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(100%) of the Fair Market Value of a Share on the grant date of the
Nonstatutory Stock Option to which it relates.
(c) EXERCISE. A Tandem SAR may be exercised at any time the
Nonstatutory Stock Option to which it relates is then exercisable, but
only to the extent such Nonstatutory Stock Option is exercisable, and
shall otherwise be subject to the conditions applicable to such
Nonstatutory Stock Option. When a Tandem SAR is exercised, the
Nonstatutory Stock Option to which it relates shall terminate to the
extent of the number of Shares with respect to which the Tandem SAR is
exercised. Similarly, when a Nonstatutory Stock Option is exercised, the
Tandem SARs relating to the Shares covered by such Nonstatutory Stock
Option exercise shall terminate. Any Tandem SAR which is outstanding on
the last day of the term of the related Nonstatutory Stock Option shall be
automatically exercised on such date for cash, without the need for any
action by the Grantee, to the extent of any Appreciation.
(d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
receive, for each Share with respect to which the Tandem SAR is exercised,
an amount equal to the Appreciation. The Appreciation shall be payable in
cash, Common Stock, or a combination of both, as specified in the
Incentive Agreement (or in the discretion of the Committee if not so
specified). The Appreciation shall be paid within 30 calendar days of the
exercise of the Tandem SAR. The number of Shares of Common Stock which
shall be issuable upon exercise of a Tandem SAR shall be determined by
dividing (1) by (2), where (1) is the number of Shares as to which the
Tandem SAR is exercised multiplied by the Appreciation in such shares and
(2) is the Fair Market Value of a Share on the exercise date.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may grant Stock Appreciation Rights
independent of Nonstatutory Stock Options ("INDEPENDENT SARS").
(b) GENERAL PROVISIONS. The terms and conditions of each Independent
SAR shall be evidenced by an Incentive Agreement. The exercise price per
share of Common Stock shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share of Common Stock on the date of grant of
the Independent SAR. The term of an Independent SAR shall be determined by
the Committee.
(c) EXERCISE. Independent SARs shall be exercisable at such time and
subject to such terms and conditions as the Committee shall specify in the
Incentive Agreement for the Independent SAR grant.
(d) SETTLEMENT. Upon exercise of an Independent SAR, the holder
shall receive, for each Share specified in the Independent SAR grant, an
amount equal to the Spread. The Spread shall be payable in cash, Common
Stock, or a combination of both, in the discretion
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of the Committee or as specified in the Incentive Agreement. The Spread
shall be paid within 30 calendar days of the exercise of the Independent
SAR. The number of Shares of Common Stock which shall be issuable upon
exercise of an Independent SAR shall be determined by dividing (1) by (2),
where (1) is the number of Shares as to which the Independent SAR is
exercised multiplied by the Spread in such Shares and (2) is the Fair
Market Value of a Share on the exercise date.
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay all or a portion of the Option Price
upon exercise of his Stock Options.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of exercise
of any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified by
the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
SECTION 3.
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) GRANT. In consideration of the performance of Employment by any
Grantee who is an Employee, Consultant or Outside Director, Shares of
Restricted Stock may be awarded under the Plan by the Committee with such
restrictions during the Restriction Period as the Committee may designate
in its discretion, any of which restrictions may differ with respect to
each particular Grantee. Restricted Stock shall be awarded for no
additional consideration or such additional consideration as the Committee
may determine, which
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consideration may be less than, equal to or more than the Fair Market
Value of the shares of Restricted Stock on the grant date. The terms and
conditions of each grant of Restricted Stock shall be evidenced by an
Incentive Agreement.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED
STOCK. Unless otherwise specified in the Grantee's Incentive Agreement,
each Restricted Stock Award shall constitute an immediate transfer of the
record and beneficial ownership of the Shares of Restricted Stock to the
Grantee (for purposes of Code Section 83 and other purposes) in
consideration of the performance of services as an Employee, Consultant or
Outside Director, as applicable, entitling such Grantee to all voting and
other ownership rights in such Shares.
As specified in the Incentive Agreement, a Restricted Stock Award
may limit the Grantee's dividend rights during the Restriction Period in
which the shares of Restricted Stock are subject to a "substantial risk of
forfeiture" (within the meaning given to such term under Code Section 83)
and restrictions on transfer. In the Incentive Agreement, the Committee
may apply any restrictions to the dividends that the Committee deems
appropriate. Without limiting the generality of the preceding sentence, if
the grant or vesting of Shares of Restricted Stock granted to a Covered
Employee, if applicable, is designed to comply with the requirements of
the Performance-Based Exception, the Committee may apply any restrictions
it deems appropriate to the payment of dividends declared with respect to
such Shares of Restricted Stock, such that the dividends and/or the Shares
of Restricted Stock maintain eligibility for the Performance-Based
Exception. In the event that any dividend constitutes a derivative
security or an equity security pursuant to the rules under Section 16 of
the Exchange Act, if applicable, such dividend shall be subject to a
vesting period equal to the remaining vesting period of the Shares of
Restricted Stock with respect to which the dividend is paid.
Shares awarded pursuant to a grant of Restricted Stock may be issued
in the name of the Grantee and held, together with a stock power endorsed
in blank, by the Committee or Company (or their delegates) or in trust or
in escrow pursuant to an agreement satisfactory to the Committee, as
determined by the Committee, until such time as the restrictions on
transfer have expired. All such terms and conditions shall be set forth in
the particular Grantee's Incentive Agreement. The Company or Committee (or
their delegates) shall issue to the Grantee a receipt evidencing the
certificates held by it which are registered in the name of the Grantee.
3.2 RESTRICTIONS
(a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded to a
Grantee may be subject to the following restrictions until the expiration
of the Restriction Period: (i) a restriction that constitutes a
"substantial risk of forfeiture" (as defined in Code Section 83), or a
restriction on transferability; (ii) unless otherwise specified by the
Committee in the
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Incentive Agreement, the Restricted Stock that is subject to restrictions
which are not satisfied shall be forfeited and all rights of the Grantee
to such Shares shall terminate; and (iii) any other restrictions that the
Committee determines in advance are appropriate, including, without
limitation, rights of repurchase or first refusal in the Company or
provisions subjecting the Restricted Stock to a continuing substantial
risk of forfeiture in the hands of any transferee. Any such restrictions
shall be set forth in the particular Grantee's Incentive Agreement.
(b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the date of
grant with respect to Shares of Restricted Stock, the Company shall cause
to be issued a stock certificate, registered in the name of the Grantee to
whom such Shares of Restricted Stock were granted, evidencing such Shares;
provided, however, that the Company shall not cause to be issued such a
stock certificate unless it has received a stock power duly endorsed in
blank with respect to such Shares. Each such stock certificate shall bear
the following legend or any other legend approved by the Company:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS,
TERMS AND CONDITIONS (INCLUDING FORFEITURE AND RESTRICTIONS
AGAINST TRANSFER) CONTAINED IN THE INDUSTRIAL HOLDINGS, INC.
1998 INCENTIVE PLAN AND AN INCENTIVE AGREEMENT ENTERED INTO
BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND INDUSTRIAL
HOLDINGS, INC.. A COPY OF THE PLAN AND INCENTIVE AGREEMENT ARE
ON FILE IN THE CORPORATE OFFICES OF INDUSTRIAL HOLDINGS, INC.,
7135 ARDMORE, HOUSTON, TEXAS 77054.
Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock until such Shares vest pursuant to the terms of
the Incentive Agreement.
(c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion, shall
have the authority to remove any or all of the restrictions on the
Restricted Stock if it determines that, by reason of a change in
applicable law or another change in circumstance arising after the grant
date of the Restricted Stock, such action is appropriate.
3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under SECTION 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions. Such delivery shall be effected for all purposes when the
Company shall have deposited such certificate in the United States mail,
addressed to the Grantee or other appropriate recipient.
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3.4 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or vesting of Restricted Stock,
may provide for a Supplemental Payment by the Company to the holder in an amount
specified by the Committee, which amount shall not exceed the amount necessary
to pay the federal and state income tax payable with respect to both the vesting
of the Restricted Stock and receipt of the Supplemental Payment, assuming the
Grantee is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as deemed appropriate by the Committee. The
Committee shall have the discretion to grant Supplemental Payments that are
payable solely in cash or Supplemental Payments that are payable in cash, Common
Stock, or a combination of both, as determined by the Committee at the time of
payment.
SECTION 4.
PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS
(a) GRANT. The Committee is authorized to grant Performance Units
and Performance Shares to selected Grantees who are Employees or
Consultants. Each grant of Performance Units and/or Performance Shares
shall be evidenced by an Incentive Agreement in such amounts and upon such
terms as shall be determined by the Committee. The Committee may make
grants of Performance Units or Performance Shares in such a manner that
more than one Performance Period is in progress concurrently. For each
Performance Period, the Committee shall establish the number of
Performance Units or Performance Shares and their contingent values which
may vary depending on the degree to which performance criteria established
by the Committee are met.
(b) PERFORMANCE CRITERIA. At the beginning of each Performance
Period, the Committee shall (i) establish for such Performance Period
specific financial or non-financial performance objectives that the
Committee believes are relevant to the Company's business objectives; (ii)
determine the value of a Performance Unit or the number of Shares under a
Performance Share grant relative to performance objectives; and (iii)
notify each Grantee in writing of the established performance objectives
and, if applicable, the minimum, target, and maximum value of Performance
Units or Performance Shares for such Performance Period.
(c) MODIFICATION. If the Committee determines, in its discretion
exercised in good faith, that the established performance measures or
objectives are no longer suitable to the Company's objectives because of a
change in the Company's business, operations, corporate structure, capital
structure, or other conditions the Committee deems to be appropriate, the
Committee may modify the performance measures and objectives to the
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extent it considers to be necessary. The Committee shall determine whether
any such modification would cause the Performance Unit or Performance
Share to fail to qualify for the Performance-Based Exception, if
applicable.
(d) PAYMENT. The basis for payment of Performance Units or
Performance Shares for a given Performance Period shall be the achievement
of those performance objectives determined by the Committee at the
beginning of the Performance Period as specified in the Grantee's
Incentive Agreement. If minimum performance is not achieved for a
Performance Period, no payment shall be made and all contingent rights
shall cease. If minimum performance is achieved or exceeded, the value of
a Performance Unit or Performance Share may be based on the degree to
which actual performance exceeded the preestablished minimum performance
standards. The amount of payment shall be determined by multiplying the
number of Performance Units or Performance Shares granted at the beginning
of the Performance Period times the final Performance Unit or Performance
Share value. Payments shall be made, in the discretion of the Committee as
specified in the Incentive Agreement, solely in cash or Common Stock, or a
combination of cash and Common Stock, following the close of the
applicable Performance Period.
(e) SPECIAL RULE FOR COVERED EMPLOYEES. The Committee may establish
performance goals applicable to Performance Units or Performance Shares
awarded to Covered Employees in such a manner as shall permit payments
with respect thereto to qualify for the Performance-Based Exception, if
applicable. If a Performance Unit or Performance Share granted to a
Covered Employee is intended to comply with the Performance-Based
Exception, the Committee in establishing performance goals shall be guided
by Treasury Regulation ss. 1.162-27(e)(2) (or its successor).
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of payment.
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SECTION 5.
OTHER STOCK-BASED AWARDS
5.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
5.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant of an
Other Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other Stock-Based
Award is granted in substitution for an outstanding Incentive Award or is
delivered upon exercise of a Stock Option, the amount of consideration
required to be received by the Company shall be either (i) no
consideration other than services actually rendered (in the case of
authorized and unissued shares) or to be rendered, or (ii) in the case of
an Other Stock-Based Award in the nature of a purchase right,
consideration (other than services rendered or to be rendered) at least
equal to 50% of the Fair Market Value of the Shares covered by such grant
on the date of grant.
(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
Committee may specify such criteria, periods or goals for vesting in Other
Stock-Based Awards and payment thereof to the Grantee as it shall
determine; and the extent to which such criteria, periods or goals have
been met shall be determined by the Committee. All terms and conditions of
Other Stock-Based Awards shall be determined by the Committee and set
forth in the Incentive Agreement. The Committee may also provide for a
Supplemental Payment similar to such payment as described in SECTION 4.2.
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(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments on such dates as determined by the Committee,
all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall be
entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by the
Other Stock-Based Award, as determined by the Committee and set forth in
the Incentive Agreement. The Committee may also provide in the Incentive
Agreement that such amounts (if any) shall be deemed to have been
reinvested in additional Common Stock.
SECTION 6.
PROVISIONS RELATING TO PLAN PARTICIPATION
6.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is
granted shall be required to enter into an Incentive Agreement with the
Company, in such a form as is provided by the Committee. The Incentive
Agreement shall contain specific terms as determined by the Committee, in
its discretion, with respect to the Grantee's particular Incentive Award.
Such terms need not be uniform among all Grantees or any
similarly-situated Grantees. The Incentive Agreement may include, without
limitation, vesting, forfeiture and other provisions particular to the
particular Grantee's Incentive Award, as well as, for example, provisions
to the effect that the Grantee (i) shall not disclose any confidential
information acquired during Employment with the Company, (ii) shall abide
by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, (iii) shall not interfere
with the employment or other service of any employee, (iv) shall not
compete with the Company or become involved in a conflict of interest with
the interests of the Company, (v) shall forfeit an Incentive Award if
terminated for Cause, (vi) shall not be permitted to make an election
under Section 83(b) of the Code when applicable, and (vii) shall be
subject to any other agreement between the Grantee and the Company
regarding Shares that may be acquired under an Incentive Award including,
without limitation, an agreement restricting the transferability of Shares
by Grantee. An Incentive Agreement shall include such terms and conditions
as are determined by the Committee, in its discretion, to be appropriate
with respect to any individual Grantee. The Incentive Agreement shall be
signed by the Grantee to whom the Incentive Award is made and by an
Authorized Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
executed pursuant to the Plan shall create any Employment rights
(including without limitation, rights
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to continued Employment) in any Grantee or affect the right of the Company
to terminate the Employment of any Grantee at any time without regard to
the existence of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be issued
or delivered any certificates evidencing Shares pursuant to the Plan
unless and until the Company is advised by its counsel that the issuance
and delivery of such certificates is in compliance with all applicable
laws, regulations of governmental authorities, and the requirements of any
securities exchange on which Shares are traded. The Committee may require,
as a condition of the issuance and delivery of certificates evidencing
Shares of Common Stock pursuant to the terms hereof, that the recipient of
such Shares make such covenants, agreements and representations, and that
such certificates bear such legends, as the Committee, in its discretion,
deems necessary or desirable.
If the Shares issuable on exercise of an Incentive Award are not
registered under the Securities Act of 1933, the Company may imprint on
the certificate for such Shares the following legend or any other legend
which counsel for the Company considers necessary or advisable to comply
with the Securities Act of 1933:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON
SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION
OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED
FOR SUCH SALE OR TRANSFER.
6.2 TRANSFERABILITY
(a) NON-TRANSFERABLE AWARDS AND OPTIONS. No Incentive Award and no
right under the Plan, contingent or otherwise, will be (i) assignable,
saleable, or otherwise transferable by a Grantee except by will or by the
laws of descent and distribution, or (ii) subject to any encumbrance,
pledge, lien, assignment or charge of any nature.
No transfer by will or by the laws of descent and distribution shall
be effective to bind the Company unless the Committee has been furnished
with a copy of the deceased Grantee's enforceable will or such other
evidence as the Committee deems necessary to establish the validity of the
transfer. Any attempted transfer in violation of this SECTION 6.2(A) shall
be void and ineffective.
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(b) ABILITY TO EXERCISE RIGHTS. Subject to a beneficiary designation
pursuant to SECTION 7.5, only the Grantee (or his legal guardian in the
event of Grantee's Disability), or in the event of his death, his estate,
may exercise Stock Options, receive cash payments and deliveries of
Shares, and otherwise assume the rights of the Grantee.
6.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in SECTION
3.1(B) for grants of Restricted Stock, a Grantee of an Incentive Award (or
a permitted transferee of such Grantee) shall have no rights as a
stockholder with respect to any Shares of Common Stock until the issuance
of a stock certificate for such Shares.
(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of an
Incentive Award by a person or estate acquiring the right to exercise such
Incentive Award by reason of the death or Disability of a Grantee, the
Committee may require reasonable evidence as to the ownership of such
Incentive Award or the authority of such person and may require such
consents and releases of taxing authorities as the Committee may deem
advisable.
6.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
6.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to SECTION 6.7 (which
only applies in the event of a Change in Control), in the event of any
change in applicable laws or any change in circumstances which results in
or would result in any dilution of the rights granted under the Plan, or
which otherwise warrants equitable adjustment because it interferes with
the intended operation of the Plan, then, if the Committee should
determine, in its absolute discretion, that such change equitably requires
an adjustment in the number or kind of shares of stock or other securities
or property theretofore subject, or which may become subject, to issuance
or transfer under the Plan or in the terms and conditions of
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outstanding Incentive Awards, such adjustment shall be made in accordance
with such determination. Such adjustments may include changes with respect
to (i) the aggregate number of Shares that may be issued under the Plan,
(ii) the number of Shares subject to Incentive Awards, and (iii) the price
per Share for outstanding Incentive Awards. Any adjustment under this
paragraph of an outstanding Incentive Stock Option shall be made only to
the extent not constituting a "modification" within the meaning of Section
424(h)(3) of the Code unless otherwise agreed to by the Grantee in
writing. The Committee shall give notice to each applicable Grantee of
such adjustment which shall be effective and binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
outstanding Incentive Awards hereunder shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalization, reorganization or other changes in
the Company's capital structure or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stocks ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding whether of a similar character or
otherwise.
(c) RECAPITALIZATION OF THE COMPANY. Subject to SECTION 6.7, if
while there are Incentive Awards outstanding, the Company shall effect any
subdivision or consolidation of Shares of Common Stock or other capital
readjustment, the payment of a stock dividend, stock split, combination of
Shares, recapitalization or other increase or reduction in the number of
Shares outstanding, without receiving compensation therefor in money,
services or property, then the number of Shares available under the Plan
and the number of Incentive Awards which may thereafter be exercised shall
(i) in the event of an increase in the number of Shares outstanding, be
proportionately increased and the Fair Market Value of the Incentive
Awards awarded shall be proportionately reduced; and (ii) in the event of
a reduction in the number of Shares outstanding, be proportionately
reduced, and the Fair Market Value of the Incentive Awards awarded shall
be proportionately increased. The Committee shall take such action and
whatever other action it deems appropriate, in its discretion, so that the
value of each outstanding Incentive Award to the Grantee shall not be
adversely affected by a corporate event described in this subsection (c).
(d) REORGANIZATION OF THE COMPANY. Subject to SECTION 6.7, if the
Company is reorganized, merged or consolidated, or is a party to a plan of
exchange with another corporation, pursuant to which reorganization,
merger, consolidation or exchange, stockholders of the Company receive any
Shares of Common Stock or other securities or property, or if the Company
should distribute securities of another corporation to its stockholders,
each Grantee shall be entitled to receive, in lieu of the number of
unexercised Incentive Awards previously awarded, the number of Stock
Options, Stock Appreciation Rights, Performance Shares or Units,
Restricted Stock shares, or Other Stock-Based Awards, with a corresponding
adjustment to the Fair Market Value of said Incentive Awards, to
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which he would have been entitled if, immediately prior to such corporate
action, such Grantee had been the holder of record of a number of Shares
equal to the number of the outstanding Incentive Awards payable in Shares
that were previously awarded to him. For this purpose, Shares of
Restricted Stock shall be treated the same as unrestricted outstanding
Shares of Common Stock. In this regard, the Committee shall take whatever
other action it deems appropriate to preserve the rights of Grantees
holding outstanding Incentive Awards.
(e) ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove
expressly provided in this SECTION 6.5 and subject to SECTION 6.7, the
issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or
for labor or services, either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon any conversion of shares
or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or Fair Market Value of, any
Incentive Awards then outstanding under previously granted Incentive
Awards; provided, however, in such event, outstanding Shares of Restricted
Stock shall be treated the same as outstanding unrestricted Shares of
Common Stock.
(f) ACQUISITION OF THE COMPANY. Subject to SECTION 6.7, in the case
of any sale of assets, merger, consolidation or combination of the Company
with or into another corporation other than a transaction in which the
Company is the continuing or surviving corporation and which does not
result in the outstanding Shares being converted into or exchanged for
different securities, cash or other property, or any combination thereof
(an "Acquisition"), in the absolute discretion of the Committee, any
Grantee who holds an outstanding Incentive Award shall have the right
(subject to any limitation applicable to the Incentive Award) thereafter
and during the term of the Incentive Award, to receive upon exercise
thereof the Acquisition Consideration (as defined below) receivable upon
the Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Incentive Award immediately prior to the
Acquisition. The term "Acquisition Consideration" shall mean the kind and
amount of shares of the surviving or new corporation, cash, securities,
evidence of indebtedness, other property or any combination thereof
receivable in respect of one Share upon consummation of an Acquisition.
The Committee, in its discretion, shall have the authority to take
whatever action it deems appropriate to effectuate the provisions of this
subsection (f).
(g) ASSUMPTION OF OUTSTANDING INCENTIVE AWARDS UNDER THE PLAN.
Notwithstanding any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under
the Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was
maintained by a corporation or other entity that was merged into,
consolidated with, or whose stock or assets were acquired by, the Company
as the surviving corporation. Any such action shall
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be upon such terms and conditions as the Committee, in its discretion, may
deem appropriate, including provisions to preserve the holder's rights
under the previously granted and unexercised stock option or other
stock-based incentive award, such as, for example, retaining an existing
exercise price under an outstanding stock option. Any such assumption and
continuation of any such previously granted and unexercised incentive
award shall be treated as an outstanding Incentive Award under the Plan
and shall thus count against the number of Shares reserved for issuance
pursuant to SECTION 1.4. With respect to an incentive stock option (as
described in Section 422 of the Code) subject to this subsection (g), no
adjustment to such option shall be made to the extent constituting a
"modification" within the meaning of Section 424(h)(3) of the Code unless
otherwise agreed to by the optionee in writing.
(h) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. In the event of a
dissolution or liquidation of the Company, a sale of all or substantially
all of the Company's assets, a merger or consolidation involving the
Company in which the Company is not the surviving corporation, or a merger
or consolidation involving the Company in which the Company is the
surviving corporation but the holders of Shares of Common Stock receive
securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the right and power
to:
(i) cancel, effective immediately prior to the occurrence of
such corporate event, each outstanding Incentive Award (whether or
not then exercisable), and, in full consideration of such
cancellation, pay to the Grantee to whom such Incentive Award was
granted an amount in cash equal to the excess of (A) the value, as
determined by the Committee, in its absolute discretion, of the
property (including cash) received by the holder of a Share of
Common Stock as a result of such event over (B) the exercise price
of such Incentive Award, if any; or
(ii) provide for the exchange of each Incentive Award
outstanding immediately prior to such corporate event (whether or
not then exercisable) for an incentive award on some or all of the
property for which such Incentive Award is exchanged and, incident
thereto, make an equitable adjustment as determined by the
Committee, in its absolute discretion, in the exercise price of the
incentive award, if any, or the number of shares or amount of
property (including cash) subject to the incentive award or, if
appropriate, provide for a cash payment to the Grantee to whom such
Incentive Award was granted in consideration for the exchange of the
Incentive Award.
The Committee, in its discretion, shall have the authority to take
whatever action it deems appropriate to effectuate the provisions of this
subsection (h).
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6.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided
in the Grantee's Incentive Agreement, if the Grantee's Employment is
terminated for any reason other than due to his death, Disability,
Retirement or for Cause, any non-vested portion of any Stock Option or
other applicable Incentive Award at the time of such termination shall
automatically expire and terminate and no further vesting shall occur. In
such event, except as otherwise expressly provided in his Incentive
Agreement, the Grantee shall be entitled to exercise his rights only with
respect to the portion of the Incentive Award that was vested as of the
termination date for a period that shall end on the earlier of (i) the
expiration date set forth in the Incentive Agreement with respect to the
vested portion of such Incentive Award or (ii) the date that occurs ninety
(90) calendar days after his termination date.
(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, in the event of the
termination of a Grantee's Employment for Cause, all vested and non-vested
Stock Options and other Incentive Awards granted to such Grantee shall
immediately expire, and shall not be exercisable, as of the commencement
of business on the date of such termination.
(c) RETIREMENT. Unless otherwise expressly provided in the Grantee's
Incentive Agreement, upon the Retirement of any Employee who is a Grantee:
(i) any non-vested portion of any outstanding Option or other
Incentive Award shall immediately terminate and no further vesting
shall occur; and
(ii) any vested Option or other Incentive Award shall expire
on the earlier of (A) the expiration date set forth in the Incentive
Agreement for such Incentive Award; or (B) the expiration of (1) one
year after the date of Retirement in the case of any Incentive Award
other than an Incentive Stock Option, or (2) three months after the
date of Retirement in the case of an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon termination of Employment as a result
of the Grantee's Disability or death:
(i) any nonvested portion of any outstanding Option or other
applicable Incentive Award shall immediately terminate upon
termination of Employment, as applicable, and no further vesting
shall occur; and
(ii) any vested Incentive Award shall expire upon the earlier
of either (A) the expiration date set forth in the Incentive
Agreement or (B) the first anniversary of the Grantee's termination
of Employment, as applicable, as a result of his Disability or
death.
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In the case of any vested Incentive Stock Option held by an Employee
following termination of Employment, notwithstanding the definition of
"Disability" in SECTION 1.2, whether the Employee has incurred a
"Disability" for purposes of determining the length of the Option exercise
period following termination of Employment under this paragraph (d) shall
be determined by reference to Section 22(e)(3) of the Code to the extent
required by Section 422(c)(6) of the Code. The Committee shall determine
whether a Disability for purposes of this subsection (d) has occurred.
(e) CONTINUATION OF INCENTIVE AWARD. Subject to the conditions and
limitations of the Plan and applicable law and regulation in the event
that a Grantee ceases to be an Employee, Outside Director or Consultant,
as applicable, for whatever reason, the Committee and Grantee may mutually
agree with respect to any outstanding Option or other Incentive Award then
held by the Grantee (i) for an acceleration or other adjustment in any
vesting schedule applicable to the Incentive Award, (ii) for a
continuation of the exercise period following termination for a longer
period than is otherwise provided under such Incentive Award, or (iii) to
any other change in the terms and conditions of the Incentive Award. In
the event of any such change to an outstanding Inventive Award, a written
amendment to the Grantee's Incentive Agreement shall be required.
6.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the Grantee's Incentive Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully
exercisable;
(b) all of the restrictions and conditions of any Restricted Stock
and any Other Stock-Based Awards then outstanding shall be deemed
satisfied, and the Restriction Period with respect thereto shall be deemed
to have expired; and
(c) all of the Performance Shares, Performance Units and any Other
Stock-Based Awards shall become fully vested, deemed earned in full, and
promptly paid within thirty (30) days to the affected Grantees without
regard to payment schedules and notwithstanding that the applicable
performance cycle, retention cycle or other restrictions and conditions
have not been completed or satisfied.
Notwithstanding any other provision of this Plan, unless expressly
provided otherwise in the Grantee's Incentive Agreement, the provisions of this
SECTION 6.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the
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prior written consent of the Grantee with respect to his outstanding Incentive
Awards subject, however, to the last paragraph of this SECTION 6.7.
For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company shall
mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the total
voting power of all the Company's then outstanding securities entitled to
vote generally in the election of directors to the Board; provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition
by the Company or its Parent or Subsidiaries, (ii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or its Parent or Subsidiaries, or (iii) any acquisition
consummated with the prior approval of the Board.
(b) During the period of two consecutive calendar years, individuals
who at the beginning of such period constitute the Board, and any new
director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of
the directors then still in office, who either were directors at the
beginning of the two-year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; or
(c) The Company becomes a party to a merger, plan of reorganization,
consolidation or share exchange in which either (i) the Company will not
be the surviving corporation or (ii) the Company will be the surviving
corporation and any outstanding shares of the Company's common stock will
be converted into shares of any other company (other than a
reincorporation or the establishment of a holding company involving no
change of ownership of the Company) or other securities, cash or other
property (excluding payments made solely for fractional shares); or
(d) The shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other
corporation, and immediately following such merger, plan of
reorganization, consolidation or share exchange the holders of the voting
securities of the Company outstanding immediately prior thereto hold
securities representing fifty percent (50%) or less of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger, plan of reorganization,
consolidation or share exchange; PROVIDED, HOWEVER, that notwithstanding
the foregoing, no Change in Control shall be deemed to have occurred if
one-half (1/2) or more of the members of the Board of the Company or such
surviving entity immediately after such merger, plan of reorganization,
consolidation or share exchange is comprised of persons who served as
directors of the Company immediately prior to such merger, plan of
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reorganization, consolidation or share exchange or who are otherwise
designees of the Company; or
(e) Upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company other
than to a Parent or Subsidiary; or
(f) Any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change in Control.
Notwithstanding the occurrence of any of the foregoing events of this
SECTION 6.7 which would otherwise result in a Change in Control, the Board may
determine in its discretion, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change in Control
shall not be considered a Change in Control. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be or probably would lead to a Change in Control; or after
such event if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would be
or probably would lead to a Change in Control.
6.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
6.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
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SECTION 7.
GENERAL
7.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of the Effective Date (as
defined in SECTION 1.1) subject to the approval of the stockholders of the
Company within one year from the Effective Date. Incentive Awards may be granted
under the Plan at any time prior to receipt of such stockholder approval;
provided, however, if the requisite stockholder approval is not obtained then
any Incentive Awards granted hereunder shall automatically become null and void
and of no force or effect. Unless sooner terminated by the Board, no Incentive
Award shall be granted under the Plan after ten (10) years from the Effective
Date.
7.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the Board nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
7.3 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Grantee to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan or an Incentive Award
hereunder.
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(b) SHARE WITHHOLDING. With respect to tax withholding required upon
the exercise of Stock Options or SARs, upon the lapse of restrictions on
Restricted Stock, or upon any other taxable event arising as a result of
any Incentive Awards, Grantees may elect, subject to the approval of the
Committee in its discretion, to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair
Market Value on the date the tax is to be determined equal to the minimum
statutory total tax which could be imposed on the transaction. All such
elections shall be made in writing, signed by the Grantee, and shall be
subject to any restrictions or limitations that the Committee, in its
discretion, deems appropriate.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
Grantee pursuant to the exercise of an Incentive Stock Option, if such
Grantee disposes of any such Shares within (i) two years from the date of
grant of such Option or (ii) one year after the transfer of such shares to
the Grantee, the Company shall have the right to withhold from any salary,
wages or other compensation payable by the Company to the Grantee an
amount sufficient to satisfy federal, state and local tax withholding
requirements attributable to such disqualifying disposition.
(d) LOANS. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Grantee who is an Employee or
Consultant to permit the payment of taxes required by law.
7.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
7.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his death before he receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Grantee, shall be in a form prescribed by the Committee, and will be effective
only when filed by the Grantee in writing with the Committee during the
Grantee's lifetime.
A Grantee may, from time to time, revoke or change his beneficiary
designation by filing a new beneficiary designation form with the Committee (or
its delegate). The last valid designation received shall be controlling;
provided, however, that no beneficiary designation, or change or revocation
thereof, shall be effective unless received prior to the Grantee's death and in
no event shall it be effective as of a date prior to its receipt.
Notwithstanding any contrary provision of this SECTION 7.5, no beneficiary
designation made by a married Grantee, other than one under which the
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surviving lawful spouse of such Grantee is designated as the sole beneficiary,
shall be valid and effective without the written consent of such spouse.
As determined by the Committee, if no valid and effective beneficiary
designation exists at the time of the Grantee's death, no designated beneficiary
survives the Grantee, or if such designation conflicts with applicable law, the
payment of the Grantee's Incentive Award, if earned and payable hereunder, shall
be made to the Grantee's surviving lawful spouse, if any, or if there is no such
surviving spouse, to the executor or administrator of his estate. If the
Committee is in doubt as to the right of any person to receive such amount, the
Committee may direct that the amount be paid into any court of competent
jurisdiction in an interpleader or other action, and such payment, to the extent
thereof, shall be a full and complete discharge of any liability or obligation
therefor under the Plan and the Incentive Agreement.
7.6 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferrals to the extent
consistent with the Code.
7.7 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend
the Plan at any time; provided, however, that the Board shall not, without the
approval of the stockholders of the Company within the time period required by
applicable law, (a) except as provided in SECTION 6.5, increase the maximum
number of Shares which may be issued under the Plan pursuant to SECTION 1.4, (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan, (c) to the extent applicable, increase the maximum limits
on Incentive Awards to Covered Employees as set for compliance with the
Performance-Based Exception, (d) extend the term of the Plan, or (e) to the
extent applicable, decrease the authority granted to the Committee under the
Plan in contravention of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing
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requirements or to maintain any favorable tax advantages or qualifications, then
the Plan shall not be amended in such respect without approval of the Company's
stockholders.
7.8 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required. Certificates evidencing shares of Common Stock delivered under this
Plan (to the extent that such shares are so evidenced) may be subject to such
stop transfer orders and other restrictions as the Committee may deem advisable
under the rules and regulations of the Securities and Exchange Commission, any
securities exchange or transaction reporting system upon which the Common Stock
is then listed or to which it is admitted for quotation, and any applicable
federal or state securities law, if applicable. The Committee may cause a legend
or legends to be placed upon such certificates (if any) to make appropriate
reference to such restrictions.
7.9 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders to the extent applicable, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 under
the Exchange Act. Any ambiguities or inconsistencies in the construction of an
Incentive Award or the Plan shall be interpreted to give effect to such
intention. However, to the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee in its discretion.
7.10 COMPLIANCE WITH CODE SECTION 162(M)
If the Company is a Publicly Held Corporation, then unless otherwise
determined by the Committee with respect to any particular Incentive Award, it
is intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that any applicable types of Incentive Awards that
are granted to Covered Employees shall qualify for the Performance-Based
Exception. If any provision of the Plan or an Incentive Agreement would
disqualify the Plan or would not otherwise permit the Plan or Incentive Award to
comply with the Performance-Based Exception as so intended, such provision shall
be construed or deemed amended to conform to the requirements of the
Performance-Based Exception to the extent permitted by applicable law and deemed
advisable by the Committee; provided that no such construction or amendment
shall have an adverse effect on the prior grant of an Incentive Award or the
economic value to a Grantee of any outstanding Incentive Award.
7.11 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such
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successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise, of all or substantially all of the business and/or assets of the
Company.
7.12 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person shall
have any claim or right to be granted an Incentive Award under the Plan.
Neither the Plan, nor any action taken hereunder, shall be construed as
giving any Employee, Consultant, or Outside Director any right to be
retained in the Employment or other service of the Company or any Parent
or Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless
counsel for the Company is then reasonably satisfied that such issuance
will be in compliance with federal and state securities laws, if
applicable.
(c) The expenses of the Plan shall be borne by the Company.
(d) By accepting any Incentive Award, each Grantee and each person
claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.
7.13 SEVERABILITY
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.
7.14 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the interpretation or
construction of the Plan.
7.15 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Texas without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States.
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IN WITNESS WHEREOF, Industrial Holdings, Inc. has caused this Plan to be
duly executed in its name and on its behalf by its duly authorized officer.
INDUSTRIAL HOLDINGS, INC.
By: ROBERT E. CONE
Name: Robert E. Cone
Title: Chairman of the Board
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INDUSTRIAL HOLDINGS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 10, 1998
The undersigned shareholder of Industrial Holdings, Inc. (the "Company")
hereby appoints Robert E. Cone and Christine A. Smith, or any one or both of
them, attorneys and proxies of the undersigned, each with full power of
substitution, to vote on behalf of the undersigned at the Annual Meeting of
Shareholders of INDUSTRIAL HOLDINGS, INC. to be held at the Company's principal
offices at 7135 Ardmore, Houston, Texas, 77054, on June 10, 1998, at 10:00 a.m.
(Houston time), and at any adjournments of said meeting, all of the shares of
common stock in the name of the undersigned or which the undersigned may be
entitled to vote.
1.__ FOR the election (except as indicated below) as Class I directors of
Charles J. Anderson and James W. Kenney.
Instruction: to withhold authority to vote for any individual nominee,
write that nominee's name on the line provided below.
__________________________________________________________________________
__ WITHHOLD AUTHORITY to vote for all nominees listed above:
2. __For __Against __ Abstain
The proposal to approve the 1998 Incentive Plan which
reserves the greater of 1,500,000 shares or 15% of the
total number of shares of Common Stock issued and
outstanding for issuance under the 1998 Incentive Plan.
3. In their discretion, on such other matters as may
properly come before the meeting; hereby revoking any
proxy or proxies heretofore given by the undersigned.
(PLEASE SIGN ON REVERSE SIDE)
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(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS ABOVE AND IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR SUCH PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and the Proxy Statement furnished herewith.
Dated__________________________________________________________, 1998
Shareholder's Signature_________________________________________________
Shareholder's Signature_________________________________________________
Signature should agree with name printed hereon. If stock is
held in the name of more than one person, EACH joint owner
should sign. Executors, administrators, trustees, guardians,
and attorneys should indicate the capacity in which they sign.
Attorneys should submit powers of attorney.
PLEASE SIGN AND RETURN IN THE ENCLOSED ENVELOPE
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