<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1996
REGISTRATION NO. 33-______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GARDEN BOTANIKA, INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1464962
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8624 154TH AVENUE N.E., REDMOND, WASHINGTON 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE: (206) 881-9603
GARDEN BOTANIKA, INC. 1992 COMBINED INCENTIVE AND NONQUALIFIED STOCK
OPTION PLAN; OPTION AND SEVERANCE AGREEMENT BY AND BETWEEN
GARDEN BOTANIKA AND JOHN GARRUTO DATED OCTOBER 30, 1995; AND
GARDEN BOTANIKA, INC. 1996 DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
(FULL TITLE OF THE PLAN)
MYRON E. KIRKPATRICK
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
8624 154TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(NAME AND ADDRESS OF AGENT FOR SERVICE)
(206) 881-9603
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================
PROPOSED MAXIMUM PROPOSED
TITLE OF OFFERING PRICE MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO BE PER AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED SHARE (1) OFFERING PRICE (1) FEE (1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK 487,202
$.01 PAR VALUE SHARES $16.50 $6,442,094 $2,221.43
======================================================================================
</TABLE>
(1) THE PROPOSED MAXIMUM OFFERING PRICE PER SHARE, PROPOSED MAXIMUM AGGREGATE
OFFERING PRICE AND THE REGISTRATION FEE WERE CALCULATED IN ACCORDANCE WITH RULE
457(H) UNDER THE SECURITIES ACT OF 1933 BASED UPON (I) OUTSTANDING OPTIONS TO
PURCHASE UP TO 285,955 SHARES EXERCISABLE AT AN AVERAGE PRICE OF $10.92 PER
SHARE, AND (II) 201,247 SHARES REPRESENTED BY OPTIONS NOT CURRENTLY OUTSTANDING
HAVING A DEEMED EXERCISE PRICE OF $16.50 PER SHARE, REPRESENTING THE AVERAGE OF
THE HIGH AND LOW PRICES FOR GARDEN BOTANIKA, INC. COMMON STOCK ON JULY 19, 1996,
AS QUOTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION
NATIONAL MARKET SYSTEM.
PAGE 1 OF 18 PAGES
EXHIBIT INDEX IS LOCATED ON PAGE II-5.
<PAGE> 2
Garden Botanika, Inc.
Cross Reference Sheet
Showing Location in Prospectus of Information
Required by Items in Part I of Form S-3
<TABLE>
<S> <C>
1. Forepart of Registration Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover Page; Outside Back
Cover Page; Additional Information
3. Summary Information Risk Factors and Ration of Outside Front Cover Page; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution; Price Range of Shares
and Distribution History
6. Dilution Not Applicable
7. Selling Security-Holders Selling Shareholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Not Applicable
10. Interests of Named Experts and Counsel Legal Matters; Experts
11. Material Changes Not Applicable
12. Incorporation of Certain Information by Reference Documents Incorporated by Reference
13. Disclosure of Commission Position on Indemnification Liability and Indemnification of Officers
For Securities Act Liabilities and Directors of the Company
</TABLE>
ii
<PAGE> 3
[GARDEN BOTANIKA LOGO]
7,043 Shares
Garden Botanika
Common Stock
------------
Garden Botanika, Inc. ("Garden Botanika" or the "Company") is a rapidly
growing retailer of high-quality, reasonably priced personal care products. The
Company's proprietary products encompass such categories as skin care, color
cosmetics, fragrances, bath and body care and related accessories and gifts.
Garden Botanika develops its branded products and distributes them for sale
through its 182 Company-owned and -operated specialty retail stores in 34 states
nationwide and the Company's catalog. The Company's principal executive offices
are located at 8624 154th Avenue N.E., Redmond, Washington 98052, and its
telephone number at that location is (206) 881-9603.
All of the shares of the Company's Common Stock offered hereby (the
"Shares") are being sold by various shareholders of the Company (the "Selling
Shareholders"). For information regarding the Selling Shareholders and the plan
of distribution of the Shares, see "Selling Shareholders" and "Plan of
Distribution."
The Company's Common Stock is listed on the Nasdaq National Market
("Nasdaq") under the symbol "GBOT." On July 19, 1996, the last reported sale
price of the shares on Nasdaq was $16.125. See "Price Range of Shares and
Distribution History."
Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or after the dates as
of which information is set forth herein. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the securities to which
this Prospectus relates in any jurisdiction to any person to whom it is unlawful
to make such or solicitation in such jurisdiction.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 22, 1996.
<PAGE> 4
AVAILABLE INFORMATION
Garden Botanika is subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at 500 West Madison Street, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048,
and copies of such material can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement on
Form S-8 under the Securities Act of 1933, as amended, with respect to the
Shares being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Shares offered hereby, reference is hereby made to such Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in the Prospectus regarding the contents of any contract or other
document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document previously
filed with the Commission, each such statement being qualified in all respects
by such reference. The Registration Statement, including the exhibits and
schedules thereof may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained form such office upon the payment of prescribed
fees.
2
<PAGE> 5
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the Shares offered hereby.
HISTORICAL NET LOSSES
During the last three fiscal years, the Company incurred net losses of
$2.4 million, $1.4 million and $1.7 million. As of the end of fiscal 1995, the
Company had an accumulated deficit of $9.1 million. The Company may report a net
loss in fiscal 1996, and there can be no assurance that the Company will
generate profits in future periods. The Company's future operating results will
depend upon a number of factors, particularly the performance of its existing
and new stores as each class matures; the ability of the Company to manage its
planned rapid store expansion and to successfully identify and respond to
emerging trends in the personal care products industry; the level of
competition; and general economic conditions.
AGGRESSIVE GROWTH STRATEGY
The Company opened its first store in August 1990 and currently
operates 182 stores. The Company intends to continue to pursue an aggressive
growth strategy for the foreseeable future, and its future operating results
will depend, in large part, on its ability to open new stores on a timely basis
and enter markets and distribution channels in which it has no previous
experience. The Company, which has never opened more than 66 stores in any one
fiscal year, currently plans to open approximately 100 additional stores in
fiscal 1996 and approximately 120 stores in fiscal 1997, resulting in a
significant increase in the number of stores operated. The company's net
investment to open a new store averaged approximately $267,000 for the 66 stores
opened in fiscal 1995. The Company expects that the average cost to open a new
store during fiscal 1996 will decline materially due to cost reductions
associated with bringing certain lease acquisition and store design functions
in-house and to an expected general increase in the level of lessor construction
allowances. There can be no assurance, however, that such cost reductions will
occur. Because the Company will be expanding into geographic markets in which it
has no previous operating experience, it may face competitive challenges that
are different from those encountered to date. The Company's expansion plans
include, in addition to mall locations in which it has substantial historical
experience, the possibility of larger mall-based stores with different product
assortments and street-front shops in residential neighborhoods as well as other
less-traditional retail locations, that will involve different risks than the
Company's current mall-based activities. There can be no assurance that the
Company will successfully be able to open the planned number of new stores,
enter new geographic markets or open in non-mall locations.
The Company's future operating results will also depend on its ability
to operate its new and existing stores in a profitable manner. The profitability
of the Company's stores is dependent on a number of factors, including the
Company's ability to (i) secure suitable store sites on a timely basis and on
satisfactory terms; (ii) integrate its new stores into its existing operations;
(iii) manage operating expenses; (iv) manage its growth effectively; and (v)
secure adequate capital resources on acceptable terms. The Company's future
operating results will also depend on many other factors that are beyond the
Company's control, including the level of mall traffic and general economic
conditions affecting consumer confidence and spending. The Company expects to
open new stores in certain markets in which it is already operating, which could
adversely affect sales at existing stores. There can be no assurance that the
Company's stores will achieve targeted sales and profitability levels in the
future.
Of the Company's 182 stores, 80 stores, or 44 %, have been open less
than one year and 143 stores, or 79%, have been open less than two years.
Consequently, the results achieved by these stores to date may not be indicative
of future results for these stores or for other new stores. Although the sales
and profitability of each existing class of the Company's stores have improved
as the class has matured, there can be no assurance that future store classes
will experience similar results.
3
<PAGE> 6
In fiscal 1996, the Company plans to introduce a greater number of new
products on a more frequent basis than it has in the past. The costs associated
with new product introductions, including costs associated with advertising and
marketing expenses, are expected to increase significantly. For example, the
Company's advertising and marketing expenses for product launch signage and
direct-mail new product announcements are expected to be approximately $700,000
in fiscal 1996, compared to similar expenses of approximately $30,000 incurred
in fiscal 1995. There can be no assurance that the sales of new products will
justify the costs associated with their development and marketing.
ABILITY TO MANAGE GROWTH
In order for the Company to expand successfully, management will be
required to anticipate the changing demands of the Company's growing operations
and to adapt systems and procedures accordingly. There can be no assurance that
the Company will anticipate all of the changing demands that its expanding
operations will impose on such systems. The Company has recently hired several
key officers and employees to supplement its management team. To support the
rapid growth in the number of its stores, the company will be required to hire
and train a greater number of store managers and sales associates than it has in
the past, and there can be no assurance that the training and supervision of a
large number of new employees will not adversely affect the performance of the
company's stores or the high standards that the Company seeks to maintain in
such stores. To enhance its new product development efforts, the Company
acquired its first direct manufacturing capability n October 1995. The Company's
future success will depend, in part, on its ability to integrate new individuals
and capabilities, as well as others, into its operations as it expands in the
future, and there can be no assurance that the company will be able to achieve
such integration. The Company recently completed relocating its distribution and
fabrication facilities into a single larger facility. Following the expiration
of the lease term for this facility in the summer of 1997, the Company intends
to establish a build-to-suit distribution facility which could be expanded in
the future to meet the Company's needs as they grow. The relocation and
expansion of its distribution facilities in 1997 could cause delays or
interruptions in the normal supply of inventory. The Company will also need to
continually evaluate the adequacy of its management information systems,
including its inventory control and distribution systems. Failure to upgrade its
information systems or unexpected difficulties encountered with these systems
during expansion could adversely affect the Company's business, financial
condition and operating results. See "Risk Factors -- Reliance on Single
Management Information Systems Vendor."
The Company's growth also places significant pressures on its inventory
controls. In fiscal 1995, the Company experienced inventory shrinkage higher
than its historical rate. Through use of an independent inventory service, the
Company expects to conduct partial physical inventories on a quarterly basis in
fiscal 1996 and to upgrade its inventory control systems. In addition, subject
to adjustment for results of future physical inventories, the Company will
reserve for inventory shrinkage in fiscal 1996 at the actual rate experienced in
fiscal 1995. There can be no assurance, however, that the Company's inventory
shrinkage rate will not increase as the Company continues to grow and introduce
new products.
The Company believes that cash generated from its recent initial public
offering, from anticipated bank borrowings under its working capital credit
facility and from operations will be sufficient to satisfy its currently
anticipated working capital and capital expenditure requirements through fiscal
1997. However, in connection with its aggressive growth strategy, the Company
will incur significant inventory and capital expenditure and preopening costs.
The Company may be required to seek additional sources of funds for such
expansion, and there can be no assurance that such funds will be available on
satisfactory terms. Failure to obtain such financing could delay or prevent the
Company's planned expansion, which could adversely affect the Company's
business, financial condition and operating results.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has experienced, and expects to continue to experience,
substantial seasonal fluctuations in its sales and operating results, which is
typical of many mall-based specialty retailers. Historically, a disproportionate
amount of the Company's retail sales, ranging from approximately 45% to 50% of
annual net sales, and all of its profits have been realized during its fourth
fiscal quarter. The Company expects this pattern to
4
<PAGE> 7
continue during the current fiscal year and anticipates that in subsequent years
the fourth quarter will continue to contribute disproportionately to its
operating results, particularly during November and December. In anticipation of
increased sales activity during the fourth quarter, the Company incurs
significant additional expenses, including the hiring of a substantial number of
temporary employees to supplement its permanent store staff. If, for any reason,
the Company's sales were to fall below its expectations during November and
December, the Company's business, financial condition and annual operating
results would be adversely affected. The Company's quarterly results of
operations may also fluctuate significantly as a result of a variety of other
factors, including, among other things, the timing of new store openings, net
sales contributed by new stores, increases or decreases in comparable store
sales, adverse weather conditions, shifts in the timing of holidays and changes
in the Company's product mix. Primarily as a result of the increasing number of
recently opened stores and new product initiatives, the Company experienced a
larger net loss in its first quarter of fiscal 1996 as compared to the prior
fiscal year and anticipates a larger comparable net loss in each of its second
and third quarters of fiscal 1996.
FLUCTUATIONS IN COMPARABLE STORE SALES RESULTS
A variety of factors affect the Company's comparable store sales
results, including, among others, general economic conditions, the retail sales
environment, timing of promotional events, including the mailing of the
Company's catalogs, new product introductions and the Company's ability to
execute its business strategy efficiently. The Company's comparable store sales
increases were 20%, 33% and 17% for fiscal 1993, 1994 and 1995, respectively.
The Company expects comparable store sales to increase at a significantly lower
rate than in the past. The Company's comparable store sales results have also
fluctuated significantly in the past and are expected to continue to fluctuate
in the future. For example, the comparable store sales increase in February,
March, April, May and June of 1996 were 2%, 13%, 13%, 3% and 2%, respectively,
compared to 7%, 13% and 9% in the third and fourth quarters of fiscal 1995 and
the first quarter of fiscal 1996, respectively. There can be no assurance that
comparable store sales for any particular period will not decrease in the
future. Following this offering, the Company's comparable store sales results
could cause the price of the Common Stock to fluctuate substantially.
GENERAL ECONOMIC CONDITIONS
The success of the Company's operations depends to a significant extent
upon a number of factors relating to discretionary consumer spending. These
factors include economic conditions such as employment, business conditions,
interest rates and taxation, as well as the ability of mall anchors and other
tenants to generate customer traffic in the vicinity of the Company's stores.
The Company's business is also sensitive to consumer spending patterns and
customer preferences. There can be no assurance that consumer spending and
customer traffic will not be adversely affected by general social trends and
economic conditions, thereby impacting the Company's growth, net sales and
profitability. For example, the Company's sales, and sales in the retail
industry generally, were lower than expected ruing the 1995 holiday season. If
the demand for personal care products and related merchandise were to decline,
the Company's business, financial condition and operating results could also be
adversely affected.
COMPETITION
The personal care, makeup and fragrance businesses are highly
competitive. The Company's products compete directly against personal care,
makeup, fragrance and other functionally similar products sold through a variety
of retail channels, including department stores, mass merchants, drugstores,
supermarkets, telemarketing programs, television "infomercials" and catalogs.
The Company competes against a number of companies that have substantially
greater resources than the Company, including better name recognition, and that
sell their products through broader distribution channels than the Company. Some
department stores which have historically offered personal care products at
higher price points than the Company, have recently introduced less expensive
product lines that may compete more directly with the Company's products. The
Company also competes directly against mall-based specialty retailers of
personal care products, including national and international chains. In general,
there are no provisions in the Company's leases that limit or restrict competing
businesses from operating in the malls in which the Company's stores are
located. The number of local and regional specialty retail outlets
5
<PAGE> 8
selling personal care products has increased significantly in recent years, and
the lack of significant barriers to entry may result in new competition,
including possible imitators of the Garden Botanika concept. Such competition
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, should any of the Company's
competitors reduce prices, the Company may be required to implement price
reductions in order to remain competitive, which could have an adverse impact on
its business, financial condition and operating results. The Company believes
that success in the personal care industry depends, in part, on the regular
introduction of new and attractive products. There can be no assurance, however,
that the Company will continue to be able to develop such products or that if
and when introduced, such products will be accepted by its customers. The
Company also competes generally for store sites, and there can be no assurance
that it will be able to continue to secure suitable sites on satisfactory terms.
CATALOG EXPENSES
In the third quarter of fiscal 1994, the Company introduced its mail
order catalog for Garden Botanika products. One purpose of this catalog is to
increase sales at the Company's stores by advertising its products and
introducing new customers to those products in geographic areas that are not yet
served by the Company's stores. Initiation of the catalog resulted in additional
costs to the Company and, to date, those additional costs have exceeded the
additional sales directly attributable to the catalog. In fiscal 1995, the
direct operating expenses of the catalog were $3.7 million. There can be no
assurance that mail order sales directly attributable to the catalog will exceed
its direct operating expenses. The Company seeks to expand the size of its
catalog mailing list and is in the process of acquiring new names from a variety
of sources. There can be no assurance, however, that the Company will be able to
obtain new names in sufficient quantity or that the use of such names will
successfully produce mail order sales. Postal rates, delivery charges and paper
and printing costs directly affect the cost of the Company's catalog, and a
significant increase in any of these expenses could adversely affect the
Company's overall business, financial condition and operating results.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the efforts of its key offices and
employees, including Michael W. Luce, President, Chief Executive Officer and a
director; Arlee J. Jensen, Senior Vice President -- Merchandising and Marketing;
C. Michael Fisher, Senior Vice President -- Operations; and John A. Garruto,
Vice President -- Research and Product Development. Although the Company has
employment agreements with certain key officers, the loss of any of these
individuals could adversely affect the Company's business, financial condition
and operating results. The Company has obtained insurance on the lives of Mr.
Luce and Ms. Jensen in the amounts of $1.5 million and $1.0 million,
respectively. There can be no assurance that the Company's existing management
team will be able to manage the Company's growth or that the Company will be
able to motivate, attract and retain key employees and qualified personnel in
the future.
RELIANCE ON SINGLE MANAGEMENT INFORMATION SYSTEMS VENDOR
The Company currently relies on a single outside vendor for the
software and day-to-day support that form the basis of the Company's management
information, distribution and financial systems. The Company believes that this
outside vendor has sufficient experience and commitment to its product lines to
be relied upon for continued support in developing, testing and implementing
systems and controls that are adequate to support the Company's store expansion
plans and its distribution and financial systems. The Company and its
information systems vendor are contemplating upgrades of Garden Botanika's
systems in areas relating to manufacturing, inventory control and distribution
in the current fiscal year. The introduction of new capabilities can be expected
to require additional management time and/or result in delays or complications
before the upgrades are completed. In addition, the Company may have little
control, apart from changing vendors, over the level of systems maintenance and
support it receives. In the event it were to change information systems vendors,
the Company could experience unforeseen delays or interruptions in its access to
information. Such problems, were they to occur, could adversely affect the
Company's business, financial condition and operating results.
6
<PAGE> 9
CONCENTRATION OF SUPPLIERS AND FOREIGN SOURCING
In fiscal 1995, approximately 55% of the Company's purchases of raw
materials, finished product, packaging and other supplies were obtained from the
Company's nine largest suppliers, with the Company's largest supplier accounting
for approximately 12% of such purchases. With the exception of certain packaging
orders, the Company has no long-term purchase contracts or other contractual
assurance of continued supply, pricing or access to new products. The inability
or failure of one or more key vendors to supply merchandise, the loss of one or
more principal vendors or a material change in the Company's purchase terms
could have a material adverse effect on the Company's business, financial
condition and operating results. There can be no assurance that the Company will
be able to acquire desired materials in sufficient quantities on acceptable
terms in the future.
In fiscal 1995, a significant portion of the Company's merchandise
purchases originated from independent foreign manufacturers, located primarily
in the far East and Canada, and some of its domestic vendors imported a
substantial portion of their merchandise from abroad. The Company's operations
may be adversely affected by political instability resulting in disruption of
trade from the foreign countries in which the Company's contractors and
suppliers are located; existing or potential duties, tariffs or quotas that may
limit the quantity of certain types of goods that may be imported into the
United States; and any significant fluctuation in the value of the dollar
against foreign currencies.
REGULATION AND POTENTIAL CLAIMS
The Company's advertising and product labeling practices are subject to
regulation by the Federal Trade Commission, and its cosmetic manufacturing
practices are subject to regulation by the Food and Drug Administration (the
"FDA"), as well as various other federal, state and local regulatory
authorities. Compliance with federal, state and local laws and regulations,
including laws and regulations pertaining to the protection of the environment,
has not had, and is not anticipated to have, a material adverse effect on the
competitive position of the Company. Nonetheless, federal, state and local
regulations in the United States that are designed to protect consumers or the
environment have had, and can be expected to have, an increasing influence on
product claims, manufacturing, contents and packaging. In addition, if the
Company were to expand its manufacturing capabilities to include
over-the-counter drug ingredients, it would become subject to FDA registration
and a higher degree of inspection and greater burden of regulatory compliance
than at present. The nature and use of personal care products could give rise to
product liability claims if one or more of Garden Botanika's customers were to
suffer adverse reactions following use of its products. Such reactions could be
caused by various factors, many of which are beyond the Company's control,
including hypoallergenic sensitivity and the possibility of malicious tampering
with the Company's products. In the event of such an occurrence, the Company
could incur substantial litigation expense, receive adverse publicity and suffer
a loss of sales.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, executive officers and their affiliates own,
in the aggregate, approximately 18% of the Company's outstanding shares of
Common Stock. As a result, these shareholders, acting together, would be able to
significantly influence many matters requiring approval by the shareholders of
the Company, including the election of directors.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock in the
public market could adversely affect the market price of the Common Stock.
Approximately 21,700 shares are currently eligible for sale in the public market
in accordance with Rule 144(k), and approximately 18,100 shares are eligible for
sale in accordance with Rules 144 and 701. In addition, approximately 92,900 and
2,953,100 shares will be eligible for sale beginning September 19, 1996 and
November 18, 1996, respectively, upon the expiration of lock-up agreements and
subject to the provisions of Rule 144 of the Securities Act of 1933, as amended
(the "Securities Act"). As of July 22, 1996, options to purchase approximately
18,228 shares of Common Stock not subject to lock-up agreements were vested and
eligible for sale pursuant to an effective registration statement filed by the
Company on Form S-8 in
7
<PAGE> 10
connection with this offering. In addition, certain existing shareholders
possess registration rights with respect to shares of Common Stock.
LACK OF PRIOR PUBLIC MARKET AND VOLATILITY OF STOCK PRICE
Prior to May of 1996, there had been no public market for the Common
Stock, and there can be no assurance that an active trading market will be
sustained. The market price of the Common Stock has been, and may continue to
be, subject to significant fluctuations in response to the Company's operating
results and other factors. In addition, the stock market in recent years
experienced extreme price and volume fluctuations that often have been unrelated
to or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. See "Price Range of Shares and
Distribution History."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without shareholder
approval, to issue up to 10,000,000 shares of Preferred Stock and the fix the
rights and preferences thereof. This authority, together with certain provisions
in the Company's Articles of Incorporation, may have the effect of making it
more difficult for a third party to acquire, or discouraging a third part from
attempting to acquire, control of the Company even if shareholders purchasing
shares in this offering may consider such a change in control to be in their
best interests. In addition, Washington law contains certain provisions that may
have the effect of delaying, deterring, or preventing a hostile takeover of the
Company.
SELLING SHAREHOLDERS
The table below sets forth certain information concerning the Selling
Shareholders. From time to time since July of 1994, the Company has issued
shares of Common Stock to employees or former employees upon their exercise of
vested options under the terms of the Company's 1992 Combined Incentive and
Nonqualified Stock Option Plan (the "Plan"). All of the Selling Shareholders
received their shares as a result of exercising options they received while they
were employed by the Company. Some of the Selling Shareholders held material
positions while employed by the Company or currently hold such positions.
Specifically, Mr. Schlesinger served as the Company's Director of Stores from
June 1991 to August 1994; Ms. Emkes served as the Company's Controller and
Director of Accounting from December 1990 to December 1994, which position was
filled by Ms. Hoffman from December 1994 to January 1996. Aileen Protzmann was
employed as the Company's Western Regional Manager from January 1995 to March
1995, and Susanne Schoeller was the Company's Director of Marketing from March
1993 to April 1994. Ms. Johnson is currently the Company's Western Leasing
Manager. The other Selling Shareholders served as District Managers, where they
were each responsible for supervising a number of retail stores.
<TABLE>
<CAPTION>
Number of Shares Number of Shares to Number of Shares to
Owned Prior to be Sold under this be Owned after this
Name Offering Prospectus Offering
---- -------- ---------- --------
<S> <C> <C> <C>
Kelly J. Brewer 7 7 0
Jane Emkes 2,033 2,033 0
Krista Fox 25 25 0
Lindsey Hoffman 1,332 1,332 0
Kimberly Hutchinson 63 63 0
Nancy Johnson 317 317 0
Aileen Protzmann 216 216 0
Paul Schlesinger 1,144 1,144 0
Susanne Schoeller 1,906 1,906 0
</TABLE>
8
<PAGE> 11
USE OF PROCEEDS
All of the Shares offered hereby are being sold by the Selling
Shareholders; the Company will receive none of the proceeds from the sale of the
Shares offered by this Prospectus. However, pursuant to the terms of the Plan,
the Company previously issued a total of 7,043 shares to the Selling
Shareholders for an aggregate consideration of $68,275. The proceeds from the
prior sale of these Shares was used for general corporate purposes prior to the
Company's initial public offering. The Shares are being registered at this time
as an accommodation to the Company's prior employees to provide liquidity for
their investment.
PLAN OF DISTRIBUTION
The Company has advised the Selling Shareholders that they may sell the
Shares described in this Prospectus from time to time in transactions effected
by or through registered broker-dealers, in independent negotiated transactions,
or otherwise. All Shares covered by this Prospectus may be sold at market prices
prevailing at the time of sale or at negotiated prices. The Selling Shareholders
will pay any and all fees, commissions and expenses associated with the sale of
their Shares.
PRICE RANGE OF SHARES AND DISTRIBUTION HISTORY
The Company's Common Stock has been listed on The Nasdaq Stock Market
since May 22, 1996 under the symbol GBOT. On July 19, 1996, the last reported
sale price of the Common Stock on Nasdaq was $16.125. The following table sets
forth the high and low closing price for the fiscal period indicated as reported
by Nasdaq. The Company has not paid any dividends since inception.
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
May 22 through July 19 $35.00 $11.50
</TABLE>
RECENT DEVELOPEMENTS
No material changes in the Company's affairs have occurred since the
end of the fiscal year to which the 1994 Form 10-K relates that have not been
described in a report on Form 10-Q or Form 8-K filed under the Exchange Act.
LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY
As permitted by Section 23B.08.320 of the Washington Business
Corporation Act, Article 13 of the Company's Articles of Incorporation
eliminates in certain circumstances the personal liability of the Company's
directors to the Company or its shareholders for monetary damages resulting from
their conduct as an officer or director. This provision does not eliminate the
liability of directors for (i) acts or omissions that involve intentional
misconduct or a knowing violation of law, (ii) improper declarations of
dividends, or (iii) transactions from which a director received an improper
personal benefit.
The Company's Bylaws require the Company to indemnify its directors and
officers to the fullest extent permitted by Washington law, including under
circumstances in which indemnification is otherwise discretionary. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has
9
<PAGE> 12
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. The Company has obtained officers' and directors'
liability insurance for members of its Board of Directors and key employees.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Heller, Ehrman, White & McAuliffe, Seattle, Washington.
EXPERTS
The consolidated financial statements included in the Company's
Registration Statement on Form S-1, amended, and the Company's final prospectus
dated May 22, 1996 and filed under Rule 424 in relation thereto, which have been
incorporated by reference herein, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included in reliance upon the authority of such firm as experts
in accounting and auditing in giving said report.
DOCUMENTS INCORPORATED BY REFERENCE
The documents listed in (a) through (c) below are incorporated by
reference in this Prospectus.
(a) The Company's Registration Statement on Form S-1, amended; the
Company's final prospectus dated May 22, 1996 and filed under
Rule 424 in relation thereto; and the Company's Quarterly
Report on Form 10-Q for the quarter ended May 4, 1996, filed
pursuant to Section 13(a) of the Exchange Act.
(b) All other reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since the filing of the Form 10-K referred to
in (a) above.
(c) The description or the Company's securities contained in a
registration statement on Form 8-A filed pursuant to Section
12 of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the common stock pursuant to the Plans described
herein shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such documents. See "Available Information."
Any statement contained herein or in a document incorporated by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in any subsequently filed document
incorporated herein by reference modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except a so modified or
superseded, to constitute a part of this Prospectus.
In addition, copies of the following documents are available from the
Company, without charge, upon written or oral request:
(a) All documents containing the Plan information that constitutes part
of the Prospectus.
(b) One of the following documents: (i) the Company's annual report to
shareholders for its latest fiscal year, (ii) the Company's annual report on
Form 10-K, or (iii) the latest prospectus filed by the Company with the
Commission pursuant to Rule 424(b) promulgated under the Securities Act of 1933.
10
<PAGE> 13
(c) Any report, proxy statement or other communication distributed to
the Company's security holders generally. The Company will provide without
charge to each person to whom a copy of this Prospectus is delivered, upon
written or oral request, a copy of any and all of the information that has been
or may be incorporated by reference in this Prospectus, other than exhibits to
such documents. Requests for such copies should be directed to Garden Botanika,
Inc., 8624 154th Avenue N.E., Redmond, Washington 98052, Attention: General
Counsel. The Company's telephone number at that location is (206) 881-9603. .
11
<PAGE> 14
================================================================================
No dealer, salesperson or other individual has been authorized to give
any information make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the Shares in any jurisdiction where, or to any
person to whom, it is unlawful to make such offer or solicitations. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the facts
set forth in this Prospectus or in the affairs of the Company since the date
hereof.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information ................................................. 2
Risk Factors ............................................................ 3
Selling Shareholders .................................................... 8
Use of Proceeds ......................................................... 9
Plan of Distribution .................................................... 9
Price Range of Shares and Distribution
History ................................................ 9
Liability and Indemnification of Officers
and Directors of the Company ........................... 9
Legal Matters ........................................................... 10
Experts ................................................................. 10
Documents Incorporated by Reference ..................................... 10
</TABLE>
================================================================================
7,043 SHARES
[GARDEN BOTANIKA LOGO]
GARDEN BOTANIKA, INC.
COMMON STOCK
------------------
PROSPECTUS
------------------
July 22, 1996
================================================================================
12
<PAGE> 15
PART II
INFORMATION REQUIRED IN THE REGISTRATION
STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents filed or to be filed with the Commission by the
Registrant are incorporated by reference in this registration statement.
(a) The Registrant's Registration Statement on Form S-1, as
amended; the Registrant's final prospectus dated May 22, 1996
and filed under Rule 424 in relation thereto; and the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 4, 1996, filed with the Commission pursuant to
Section 13(a) of the Exchange Act of 1934, as amended (the
"Exchange Act").
(b) All other reports filed by the Registrant pursuant to Section
13(a) or 15(d) of the Exchange Act since the filing of the
Form 10-Q referred to in (a) above.
(c) The description of the Registrant's Common Stock contained in
a registration statement on Form 8-A filed pursuant to Section
12 of the Exchange Act.
All documents filed by the Registrant pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering of the common stock pursuant to the Plans described herein shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES.
Not Applicable
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
None
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Washington Business Corporation Act (Sections 23B.08.500 through 23B.08.600
of the Revised Code of Washington) authorizes a court to award, or a
corporation's Board of Directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities arising under the Securities Act of 1933, as
amended. Article IX of the Registrant's Bylaws provides for such indemnification
of its directors, officers, employees and other agents.
The Washington Business Corporation Act includes a provision (Section 23B.08.320
of the Revised Code of Washington) that permits a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for his acts or omissions as a director, except for those acts or omissions
involving intentional misconduct or a knowing violation of law, certain unlawful
distributions or a transaction whereby the director received a personal benefit
to which he was not legally entitled. Article 13 of the Registrant's Restated
Articles of Incorporation contains provisions implementing, to the full extent,
the allowed limitations on a director's liabilities to the Registrant or its
shareholders.
II-1
<PAGE> 16
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not Applicable
ITEM 8. EXHIBITS.
Exhibit Number Exhibit
- -------------- -------
5.1 Opinion of Heller, Ehrman, White & McAuliffe
10.1 Garden Botanika, Inc. 1992 Combined Incentive and
Nonqualified Stock Option Plan, Amended and Restated as of
May 21, 1996
10.2 Option and Severance Agreement by and between Garden
Botanika, Inc. and John Garruto dated October 30, 1995
10.3 Garden Botanika, Inc. 1996 Directors' Nonqualified Stock
Option Plan, Restated as of May 21, 1996
23.1 Consent of Heller, Ehrman, White & McAuliffe (See Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP, Independent Auditors
24 Power of Attorney (See page II-4 of this Registration
Statement)
ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
II-2
<PAGE> 17
(2) That for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redmond, State of Washington, on July 22, 1996.
GARDEN BOTANIKA, INC.
By: /s/ Michael W. Luce
------------------------------------
Michael W. Luce, President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Michael W. Luce and Myron E. Kirkpatrick, or either of them, his true and lawful
attorney-in-fact and agent, with the power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to sign any or
all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact and his agent or his substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Michael W. Luce President and Chief Executive Officer July 22, 1996
- -------------------------------- (Principal Executive Officer)
Michael W. Luce
/s/Myron E. Kirkpatrick Vice President-Finance and Treasurer July 22, 1996
- ------------------------------- (Principal Financial Officer and Principal
Myron E. Kirkpatrick Accounting Officer)
/s/Damon H. Ball Director July 22, 1996
- -------------------------------
Damon H. Ball
/s/Jeffrey H. Brotman Director July 22, 1996
- -------------------------------
Jeffrey H. Brotman
/s/David A. Ederer Director July 22, 1996
- -------------------------------
David A. Ederer
/s/Gerald R. Gallagher Director July 22, 1996
- -------------------------------
/s/William B. Randall Director July 22, 1996
- -------------------------------
William B. Randall
/s/Dale J. Vogel Director July 22, 1996
- -------------------------------
Dale J. Vogel
</TABLE>
II-4
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential Page
Exhibit Number Exhibit No.
- -------------- ------- ---------------
<S> <C> <C>
5.1 Opinion of Heller, Ehrman, White & McAuliffe
10.1 Garden Botanika, Inc. 1992 Combined Incentive and Nonqualified
Stock Option Plan, Amended and Restated as of May 21, 1996
10.2 Option and Severance Agreement by and between Garden Botanika,
Inc. and John Garruto dated October 30, 1995
10.3 Garden Botanika, Inc. 1996 Directors' Nonqualified Stock
Option Plan, Restated as of May 21, 1996
23.2 Consent of Arthur Andersen LLP, Independent Auditors
24 Power of Attorney (See page II-4 of this Registration
Statement)
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
[HELLER EHRMAN WHITE & MCAULIFFE LETTERHEAD]
July 23, 1996
Garden Botanika, Inc.
8624 - 154th Avenue N.E.
Redmond, Washington 98052
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
This opinion is furnished to Garden Botanika, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-8 (the
"Registration Statement") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to the proposed sale by the Company
of up to 487,202 shares of common stock, $.01 par value (the "Shares"), issuable
by the Company upon the exercise of options to purchase shares (the "Options")
granted pursuant to the Company's 1992 Combined Incentive and Nonqualified Stock
Option Plan, Option and Severance Agreement by and between Garden Botanika and
John Garruto dated October 30, 1995 and its 1996 Directors' Nonqualified Stock
Option Plan (collectively, the "Plans").
We have based our opinion upon our review of the following records,
documents, instruments and certificates:
a. the Articles of Incorporation of the Company;
b. the Bylaws of the Company;
c. records certified to us by an officer of the Company as
constituting all records of proceedings and of actions of the
Board of Directors and shareholders relating to the adoption
and amendment of the Plans and reservation of shares for
issuance thereunder;
d. certificate of an officer of the Company regarding the number
of shares outstanding and the number of shares reserved for
issuance upon the exercise of certain warrants granted by the
Company;
<PAGE> 2
Garden Botanika, Inc.
July 23, 1996
Page 2
e. the Plans; and
f. the Company's shareholder records.
In connection with this opinion, we have, with your consent, assumed
the authenticity of all records, documents and instruments submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the authenticity and conformity to the originals of all records,
documents and instruments submitted to us as copies.
This opinion is limited to federal law and the laws of the State of
Washington. We disclaim any opinion as to any statute, rule, regulation,
ordinance, order or other promulgation of any other jurisdiction or any regional
or local governmental body.
Based upon the foregoing and our examination of such questions of law
as we have deemed necessary or appropriate for the purpose of this opinion, and
subject to the assumptions and qualifications expressed herein, it is our
opinion that the reservation for issuance of the Shares upon the exercise of
Options has been duly authorized and upon exercise of the Options, payment of
the purchase price for the Shares and issuance and delivery of the Shares
pursuant to the terms of the Plans, the Shares will be validly issued, fully
paid and non-assessable.
Our opinion is qualified to the extent that in the event of a stock
split, share dividend or other reclassification of the Common Stock effected
subsequent to the date hereof, the number of shares of Common Stock issuable
upon the exercise of Options may be adjusted automatically, as set forth in the
terms of the Plans, such that the number of such shares may exceed the number of
Company's remaining authorized, but unissued shares of Common Stock at the time
the Options are exercised.
We expressly disclaim any obligation to advise you of any developments
in areas covered by this opinion that occur after the date of this opinion.
We hereby authorize and consent to the use of this opinion as Exhibit
5.1 to the Registration Statement.
Very truly yours,
/s/ HELLER EHRMAN WHITE & MCAULIFFE
<PAGE> 1
EXHIBIT 10.1
GARDEN BOTANIKA, INC.
1992 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
(AS AMENDED THROUGH MAY 21, 1996)
1. Purpose. The purpose of the 1992 Combined Incentive and Nonqualified
Stock Option Plan (the "Plan") is to enable Garden Botanika, Inc. (the
"Company") to attract and retain the services of people with training,
experience and ability and to provide additional incentive to such persons by
granting them an opportunity to participate in the ownership of the Company.
2. Stock Subject to Plan. The stock subject to this Plan shall be the
Company's Common Stock, par value $.01 per share (the "Common Stock"), presently
authorized but unissued or now held or subsequently acquired by the Company as
treasury shares. Subject to adjustment as provided in Section 10, the aggregate
amount of Common Stock reserved for issuance or delivery upon exercise of all
options granted under this Plan shall not exceed 398,217 shares of Common Stock,
as constituted on date of adoption of this Plan by the Board of Directors. If
any option granted under this plan shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall thereupon again be available for purposes of this Plan.
3. Administration. The Plan shall be administered by the Board of
Directors of the Company, in accordance with the following terms and conditions:
3.1 General Authority. Subject to the express provisions of the Plan,
the board of Directors shall have the authority, in its discretion, to determine
all matters relating to options to be granted under the Plan, including the
selection of individuals to be granted options, the number of shares to be
subject to each option, the exercise price, the term, whether such options shall
be immediately exercisable or shall become exercisable in increments over time,
and all other terms and conditions thereof. Grants under this Plan to persons
eligible need not be identical in any respect, even when made simultaneously.
The Board of Directors may from time to time adopt rules and regulations
relating to the administration of the Plan. The interpretation and construction
by the Board of Directors of any terms or provisions of this Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties. The Board
of Directors in its sole discretion, may grant incentive stock options
("Incentive Stock Options") as such term is defined in Section 422 of the
Internal Revenue code of 1986, as amended, (the "Code") and/or nonqualified
stock options ("Nonqualified Stock Options"). A Nonqualified Stock Option is a
stock option which is not an Incentive Stock Option. The type of option granted,
whether an Incentive Stock Option or a Nonqualified Stock Option shall be
clearly identified by the Board of Directors when granted. The term option when
used in this Plan refers to Incentive Stock Options and Nonqualified Stock
Options, collectively.
<PAGE> 2
3.2 Directors. A member of the Board of Directors shall be eligible to
participate in or receive or hold options under this Plan; provided, however,
that no member of the Board of Directors shall vote with respect to the granting
of an option hereunder to himself or herself, as the case may be.
3.3 Delegation to a Committee. Notwithstanding the foregoing, the Board
of Directors, if it so determines, may delegate to a committee of the Board of
Directors any or all authority for the administration of the Plan, and
thereafter references to the Board of Directors in this Plan shall be deemed to
be references to the committee to the extent provided in the resolution
establishing the committee.
3.4 Persons Subject to Section 16(b). Notwithstanding anything in the
Plan to the contrary, the Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers or directors subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, (the "1934
Act") without so restricting, limiting or conditioning the Plan with respect to
other participants.
3.5 Replacement of Options. The Board of Directors, in its absolute
discretion, may grant options subject to the condition that options previously
granted at a higher or lower exercise price under the Plan be canceled or
exchanged in connection with such grant. The number of shares covered by the new
options, the exercise price, the term and the other terms and conditions of the
new option, shall be determined in accordance with the Plan and may be different
from the provisions of the canceled or exchanged options. Alternatively, the
Board of Directors may, with the agreement of the Optionee amend previously
granted options to establish the exercise price at the then current fair market
value of the Company's Common Stock, maintaining existing vesting and expiration
dates.
3.6 Loans to Optionees. The Board of Directors, in its absolute
discretion, may provide that the Company loan to Optionees sufficient funds to
exercise any option granted under the Plan and/or to pay withholding tax due
upon exercise of such option. The Board of Directors shall have the authority to
make such determinations at the time of grant or exercise and shall establish
repayment terms thereof, including installments, maturity and interest rate.
4. Eligibility. Options may be granted only to persons who, at the time
the option is granted, are employees or directors of, or consultants or
independent contractors to, the Company or any of its present or future parent
or subsidiary corporations (as those terms are used in Section 422(a) (2) and
(d) (1) and Section 424(e) and (f) of the Code, hereafter a "Parent" or
"Subsidiary"). Any individual to whom an option is granted under this Plan shall
be referred to hereinafter as "Optionee". Any Optionee may receive one or more
grants for options as the Board of Directors as shall from time to time
determine, and such determinations may be different as to different Optionees
and may vary as to different grants. Optionees who are not employees will only
be eligible to receive Nonqualified Stock Options.
5. Terms and Conditions of Options. Options granted under this Plan shall
be evidenced by written agreements which shall contain such terms, conditions,
limitations and restrictions as the Board of Directors shall deem advisable and
which are not inconsistent with this Plan. Each
2
<PAGE> 3
option granted hereunder shall clearly indicate whether it is an Incentive Stock
Option or Nonqualified Stock Option. Notwithstanding the foregoing, all such
options shall include or incorporate by reference the following terms and
conditions:
5.1 Number of Shares; Price. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Board of Directors, provided that the exercise price of Incentive Stock
Options shall not be less than the fair market value per share of the common
Stock at the time the option is granted, as determined in good faith by the
Board of Directors. The exercise price of Nonqualified Stock Options may be
greater or less than the fair market value per share of the Common Stock at the
time the option is granted.
5.2 Duration of Options. Subject to the restrictions contained in
Section 9, the term of each option shall be established by the Board of
Directors and, if not so established, shall be ten years from the date it is
granted, but in no event shall the term of any Incentive Stock Option exceed ten
years.
5.3 Exercisability. Each option shall prescribe the installments, if
any, in which an option granted under the Plan shall become exercisable. The
Board of Directors, in its absolute discretion, may waive or accelerate any
installment requirement contained in outstanding options. In no case may an
option be exercised as to less than 100 shares at any one time (or the remaining
shares covered by the option if less than 100) during the term of the option.
Only whole shares shall be issued pursuant to the exercise of any option.
5.4 Incentive Stock Option. Any option which is issued as an Incentive
Stock Option under this Plan, shall, notwithstanding any other provisions of
this Plan or the option terms to the contrary, contain all of the terms,
conditions, restrictions, rights and limitations required to be an Incentive
Stock Option, and any provision to the contrary shall be disregarded.
6. Nontransferability of Options. Options granted under this Plan and the
rights and privileges conferred hereby may not be transferred, assigned, pledged
or hypothecated in any manner (whether by options of law or otherwise) other
than by will or the applicable laws of descent and distribution, and shall not
be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any option under
this Plan or any right or privilege conferred hereby contrary to the provisions
hereof, or upon the sale or levy or any attachment or similar process, such
option thereupon shall terminate and become null and void. During an Optionee's
lifetime, any options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee.
7. Certain Limitations Regarding Incentive Stock Options. The grant of
Incentive Stock Options shall be subject to the following special limitations:
7.1 Limitation on Amount of Grants. In no event shall any Optionee be
granted Incentive Stock Options that in the aggregate (together with all other
Incentive Stock Options granted by the Company or any Parents or Subsidiaries)
entitle the Optionee to purchase, in any calendar year during which such options
first become exercisable, stock of the Company, any
3
<PAGE> 4
Parent or any Subsidiary having a fair market value (determined as of the time
such options are granted) in excess of $100,000. No limitation shall apply to
Nonqualified Stock Options.
7.2 Grants to 10% Shareholders. Incentive Stock Options may be granted
a person owning more than 10% of the total combined voting power of all classes
of stock of the Company and any Parent or Subsidiary only if (i) the exercise
price is at least 110% of the fair market value of the stock at the time of
grant, and (ii) the option is not exercisable after the expiration of five years
from the date of grant.
8. Exercise of Options. Options shall be exercised in accordance with the
following terms and conditions:
8.1 Procedure. Options shall be exercised by delivery to the Company of
written notice of the number of shares with respect to which the option is
exercised.
8.2 Payment. Payment of the option price shall be made in full within 5
business days of the notice of exercise of the option and shall be in cash or
bank-certified or cashier's checks, or personal check if permitted by the Board
of Directors. To the extent permitted by applicable laws and regulations
(including but not limited to, federal tax and securities laws and regulations),
an option may be exercised by delivery of shares of Common Stock of the company
held by the Optionee having a fair market value equal to the exercise price,
such fair market value to be determined in good faith by the Board of Directors.
Such payment in stock may occur in the context of a single exercise of an option
or successive and simultaneous exercises, sometimes referred to as "pyramiding",
which provides that, rather than physically exchanging certificates for a series
of exercises, bookkeeping entries will be made pursuant to which the Optionee is
permitted to retain his existing stock certificate and a new stock certificate
is issued for the net shares.
8.3 Federal Withholding Tax Requirements. Upon exercise of an option,
the Optionee shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Company amounts necessary to satisfy any applicable federal, state and
local withholding tax requirements or shall otherwise make arrangements
satisfactory to the Company for such requirements. Such arrangements may include
payment of the appropriate withholding tax in shares of stock of the Company
having a fair market value equal to such withholding tax, either through
delivery of shares held by the Optionee or by reduction in the number of shares
to be delivered to the Optionee upon exercise of such option.
9. Termination of Employment, Disability and Death.
9.1 General. If the employment of the Optionee by the Company, a Parent
or a Subsidiary shall terminate by retirement or for any reason other than
death, disability or cause as hereinafter provided, the option may be exercised
by the Optionee at any time prior to the expiration of three months after the
date of such termination of employment (unless by its terms the option sooner
terminates or expires), but only if, and to the extent the Optionee was entitled
to exercise the option at the date of such termination.
4
<PAGE> 5
9.2 Disability. If the employment of the Optionee by the Company, a
Parent or a Subsidiary is terminated because of the Optionee's disability (as
herein defined), the option may be exercised by the Optionee at any time prior
to the expiration of one year after the date of such termination (unless by its
terms the option sooner terminates or expires), but only if, and to the extent
the Optionee was entitled to exercise the Option at the date of such
termination. For purposes of this section, an Optionee will be considered to be
disabled if the Optionee is unable to engage in any substantial gainful activity
by reason of any medically determinable mental or physical impairment which can
be expected to result in death or which has lasted or can be expected to last a
continuous period of not less than 12 months.
9.3 Death. In the event of the death of an Optionee while in the employ
of the Company, a Parent or a Subsidiary, the option shall be exercisable on or
prior to the expiration of one year after the date of such death (unless by its
terms the option sooner terminates and expires), but only if and to the extent
the Optionee was entitled to exercise the option at date of such death and only
by the Optionee's personal representative if then subject to administration as
part of the Optionee's estate, or by the person or persons to whom such
Optionee's rights under the option shall have passed by the Optionee's will or
by the applicable laws of descent and distribution.
9.4 Termination for Cause. If the Optionee's employment with the
company, a Parent or a Subsidiary is terminated for cause, any option granted
hereunder shall automatically terminate as of the first advice or discussion
thereof, and such Optionee shall thereupon have no right to purchase any shares
pursuant to such option. "Termination for Cause" shall mean dismissal for
dishonesty, conviction or confession of a crime punishable by law (except minor
violations) intoxication while at work, fraud, misconduct or disclosure of
confidential information.
9.5 Waiver or Extension of Time Periods. The Board of Directors shall
have the authority, prior to or within the times specified in this Section 9 for
the exercise of any such option, to extend such time period or waive in its
entirety any such time period to the extent that such time period expires prior
to the expiration of the term of such option. In addition, the Board of
Directors may grant, pursuant to a specific resolution adopted at the time of
grant, modify or eliminate the time periods specified in this Section 9.
However, no Incentive Stock Option may be exercised after the expiration of ten
years from the date such option is granted. If an Optionee holding an Incentive
Stock Option exercises such option, by permission, after the expiration of the
time period specified in this Section 9, the option will no longer be treated as
an Incentive Stock Option under the Code and shall automatically be converted
into a Nonqualified Stock Option.
9.6 Termination of Options. To the extent that the option of any
deceased Optionee or of any Optionee whose employment is terminated shall not
have been exercised within the limited periods prescribed in this Section 9, all
further rights to purchase shares pursuant to such option shall cease and
terminate at the expiration of such period. No Incentive Stock Option may be
exercised after the expiration of ten (10) years from the date such option is
granted, notwithstanding any provision to the contrary.
5
<PAGE> 6
9.7 Non-Employee Optionees. Options granted to Optionees who are not
employees of the Company, a Parent or a Subsidiary at the time of grant shall
not be subject to the provisions of this Section 9, except as specifically
provided in the option.
10. Option Adjustments.
10.1 Adjustments Upon Changes in Capitalization. The aggregate number
and class of shares on which options may be granted under this Plan, the number
and class shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and all such options, shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend,
or any other increase or decrease in the number of shares of Common stock of the
Company without the receipt of consideration by the Company.
10.2 Effect of Certain Transactions. Except as provided in subsection
10.3, upon a merger, consolidation, acquisition of property or stock
reorganization or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for their shares of Common Stock, any option granted hereunder shall terminate,
provided that the Optionee shall have the right immediately prior to any such
merger consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise his or her option in whole or in part
whether or not the vesting requirements set forth in the option agreement have
been satisfied.
10.3 Conversion of Options on Stock for Stock Exchange. If the
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation, acquisition of property or stock
or reorganization, all options granted hereunder shall terminate in accordance
with the provision of subsection 10.2 unless the Board of Directors and the
corporation issuing the Exchange Stock, in their sole discretion and subject to
any required action by the share-holders of the company and such corporation,
agree that all such options granted hereunder are converted into options to
purchase shares of Exchange Stock. The amount and price of the such options
granted shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the Common Stock receive in such merger,
consolidation, acquisition of property or stock, separation or reorganization.
The vesting schedule set forth in the option agreement shall continue to apply
to the options granted for the Exchange Stock.
10.4 Fractional Shares. In the event of any adjustment in the number of
shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
10.5 Determination of Board of Directors to be Final. All such
adjustments shall be made by the Board of Directors and its determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive.
6
<PAGE> 7
11. Securities Regulations.
11.1 Compliance. Shares shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law including, without limitation, any applicable state securities
laws, the Securities Act of 1993, as amended, the 1934 Act, the rules and
regulations promulgated thereunder and the requirements of any stock exchange
upon which the shares may then be listed, and shall further be subject to the
approval of counsel of the Company with respect to such compliance. Inability of
the Company to obtain from any regulatory body having jurisdiction, the
authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder, shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
11.2 Representations by Optionee. As a condition to the exercise of an
option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such representation is required
by any relevant provision of the laws referred to in Section 11.1. At the option
of the Company, a stop transfer order against any records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order to
assure exemption from registration. The Board of Directors may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. This provision shall not
obligate the Company to undertake registration of options or stock hereunder.
12. Employment Rights. Nothing in this Plan or any option or right granted
pursuant hereto shall confer upon any Optionee any right to be continued in the
employment of the Company, a Parent or any Subsidiary of the Company or to
remain a director, or to interfere in any way with the right of the Company, a
Parent or any Subsidiary, in its sole discretion, to terminate such Optionee's
employment at any time or to remove the Optionee as a director at any time.
13. Amendment and Termination.
13.1 Action by Shareholders. The Plan may be terminated, modified, or
amended by the shareholders of the Company.
13.2 Action by Board of Directors. The Board of Directors may also
terminate the Plan, or modify or amend the Plan in such respects as it shall
deem advisable in order to conform to any changes in law or regulation
applicable thereto, or in other respects; provided, however, that the Board of
Directors may not, without further approval by the shareholders of the Company:
(i) Change the number of shares in the aggregate which may be sold
pursuant to options granted under the Plan;
7
<PAGE> 8
(ii) Except as provided in Section 9.5, increase the period during
which options may be granted or exercised; or
(iii) Change the terms of the Plan which causes the Plan to lose
its qualification as an incentive stock option plan under Section 422 of the
Code.
No termination, suspension or amendment of the Plan may, without
the consent of each Optionee to whom any option shall theretofore have been
granted, adversely affect the rights of such Optionees under such options.
13.3 Automatic Termination. Unless the Plan shall theretofore have been
terminated as herein provided, this Plan shall terminate ten (10) years from the
earlier of: (i) the date on which the Plan is adopted; or (ii) the date on which
this Plan is approved by the shareholders of the Company. No option may be
granted after such termination, or during any suspension of this Plan. The
amendment or termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any option theretofore
granted under this Plan.
14. Effective Date of the Plan. This Plan shall become effective on the
date of its adoption by the Board of Directors of the Company and options may be
granted immediately thereafter but no option may be exercised under the Plan
unless and until the Plan shall have been approved by the shareholders within 12
months after the date of adoption of the Plan by the Board of Directors. If such
approval is not obtained within such period the Plan and any options granted
thereunder shall be null and void.
Approved by the Board of Directors on July 21, 1992
Approved by Shareholders at Annual Shareholders' Meeting May 3, 1993
Amended by the Board of Directors July 29, 1993
Amendment Approved by Shareholders at Special Shareholders' Meeting
September 14, 1993
Amended by the Board of Directors January 3, 1995
Amendment Approved by Shareholders at Special Shareholders' Meeting
January 19, 1995
Amended by Board of Directors August 31, 1995 and December 8, 1995
Amendment Approved by Shareholders at Annual Shareholders' Meeting
October 30, 1995
Reflects Reverse Stock Split effective May 21, 1996
8
<PAGE> 1
EXHIBIT 10.2
OPTION AND SEVERANCE AGREEMENT
THIS OPTION AND SEVERANCE AGREEMENT ("Agreement") is made this 30 day
of October 1995, by and between Garden Botanika, Inc., a Washington corporation
(the "Company"), and John Garruto ("Executive").
W I T N E S S E T H
WHEREAS, the Board of Directors ("Board") of the Company has determined
that it is in the best interests of the Company to enter into this Agreement
with Executive;
WHEREAS, Executive has agreed to accept employment with the Company to
serve, among other things, as the Vice President of Research and Development,
commencing as of the date hereof ("Commencement Date"); and
WHEREAS, in consideration of the promises and of the mutual covenants
herein contained, it is hereby agreed as follows:
1. Employment.
1.1 In General. The Company agrees to employ Executive and
Executive accepts employment by the Company as the Company's Vice President of
Research and Development. In this capacity, Executive shall have responsibility
for and exercise general supervision and control over the Company's research,
laboratory and manufacturing operations. In that capacity, Executive shall
consult with and report to the Company's chief executive officer and shall carry
out such other duties and responsibilities, consistent with his position as Vice
President of Research and Development, as the chief executive officer directs.
1.2 Salary. Executive shall be paid an annual salary in such
amount as may be determined by the Company's board of directors from time to
time based upon Executive's performance, the Company's performance, comparable
compensation of others similarly situated and other factors. Executive's annual
salary shall initially be $130,000, which shall be payable
1
<PAGE> 2
in approximately equal installments in accordance with the Company's general
salary payment practices.
1.3 Benefits. In addition to the compensation described in
Section 1.2, Executive will be entitled to medical and dental care, disability,
life insurance, sick leave, vacation and other benefits customary and usual for
employees of the Company and consistent with Executive's position.
1.4 Confidentiality Agreement. In connection with, and as a
condition of, the employment of Executive by the Company, Executive agrees to
execute and deliver to the Company the Company's standard form of
Confidentiality Agreement, as it may be amended from time to time, subject to
the provisions of this Agreement. In the event of a conflict between the terms
of such Confidentiality Agreement and this Agreement, the terms of this
Agreement shall govern.
2. Stock Option Award.
2.1 Grant of Option.
Upon execution of this Agreement, the Company shall grant
Executive the right and option (the "Option") to purchase an aggregate of
200,000 shares (the "Shares") of the Company's authorized shares of Common
Stock, par value $.01 per share (the "Common Stock"), at an exercise price of
$0.25 per share. This Option shall be a nonqualified option, exercisable in
whole or in part, and Executive's right to exercise the Option shall vest to the
extent of one-sixtieth (1/60) of the number of option shares as of each monthly
anniversary date of the date of this Agreement for so long as Executive shall be
employed by the Company. Upon termination of employment, Executive shall have no
right to purchase shares underlying unvested options, and unvested options
shall, upon such termination, confer no rights whatsoever.
2.2 Term.
The Option shall terminate ten years and two days from the
Commencement Date.
2
<PAGE> 3
2.3 Adjustments.
In the event that the outstanding shares of Common Stock are
exchanged for or converted into cash, property and/or a different number or kind
of securities by reason of any merger, combination, consolidation, acquisition
or similar event (but not including any public or private offering of securities
in which no single individual or entity acquires over fifty percent (50%) of the
voting control of the Company), proper provision shall be made in the agreement
governing any such transaction for any successor to the Company to provide
Executive immediately following such event (the "Record Date") with analogous
rights to those contained in this Section 2.
2.4 Manner of Exercise.
Executive may exercise this Option, or any portion of this
Option, by giving written notice to the Company at its principal executive
office, to the attention of the President of the Company, accompanied by a copy
of the Stock Purchase Agreement substantially in the form attached to this
Agreement as Exhibit 2.4 executed by Executive (or, at the option of the
Company, such other form of stock purchase agreement as shall then be acceptable
to the Company), payment of the exercise price, payment of any applicable
federal, state, and local withholding or employment taxes, and delivery of such
other documents as the Company may request. The date the Company receives all
required documents from Executive accompanied by payment will be considered as
the date this Option was exercised. After exercise of the Option, the Company
shall, without stock issue or transfer taxes to the Executive or other person
entitled to exercise, deliver to the Executive or other person a certificate or
certificates for the requisite number of Shares ("Exercised Shares"). The
Executive or a transferee of the Executive shall not have any privileges as a
shareholder with respect to any Option Shares covered by the Option until the
date the Executive delivers to the Company his notice of exercise, an executed
Stock Purchase Agreement, full payment of the exercise price and taxes for the
Exercised Shares and such other documents that the Company may request.
3
<PAGE> 4
2.5 Payment.
Except as permitted by the Company when the Option is
exercised, payment in full, in cash, shall be made for all Option Shares
purchased at the time written notice of exercise of the Option is given to the
Company, and proceeds of any payment shall constitute general funds of the
Company.
2.6 Tax Withholding.
At the time of any exercise of the Option (or at any such
later time as such obligation arises or as the amount of such obligation becomes
determinable), Executive shall pay to the Company in cash all applicable
federal, state, and local withholding and employment taxes required to be
withheld resulting from exercise of the Option, from a transfer or other
disposition of the Option Shares, or otherwise related to the Option or the
Option Shares. The Company may withhold from Executive's wages, or require
Executive to pay to the Company, such amount. In addition, if and to the extent
authorized and approved by the Company in its sole discretion, Executive may
make an election, in the form prescribed by the Company, to have shares acquired
upon exercise of the Option withheld by the Company or to tender other shares of
Common Stock or other securities of the Company already owned by Executive to
the Company at the time the amount of such tax obligation is determined to pay
the amount of such obligation.
2.7 Nonassignability of Option.
The Option is not assignable or transferable by Executive
except by will or by the laws of descent and distribution. During the life of
Executive, the Option is exercisable only by the Executive. Any attempt to
assign, pledge, transfer, hypothecate or otherwise dispose of this Option in a
manner not herein permitted, and any levy of execution, attachment or similar
process on this Option, shall be null and void.
4
<PAGE> 5
2.8 Market Standoff.
Executive hereby agrees that if so requested by the Company or
any representative of the underwriters in connection with any registration of
the offering of the securities of the Company under the Securities Act of 1933,
as amended (the "Act"), Executive shall not sell or otherwise transfer the
Exercised Shares for a period of up to 180 days following the effective date of
a Registration Statement filed under the Act. The Company may impose
stop-transfer instructions with respect to the Exercised Shares subject to the
foregoing restrictions until the end of each period.
2.9 Securities Law Issues.
No option shall be granted or exercised nor shall shares
otherwise be issued if, in the opinion of counsel to the Company, such grant,
exercise or issuance would not be in compliance with federal or state securities
laws. The Company shall use its best efforts to comply with all legal
requirements applicable to such grant, exercise or issuance. Subject to any
limitations that may be imposed by law, regulation or contract, the Executive
shall be entitled to the same rights to resell the shares underlying the Option
as employees of the Company may have with respect to shares issued upon the
exercise of options under the terms of the Company's 1993 Stock Option Plan,
including resale rights under Rule 701 of the Securities Act of 1933, to the
extent such rights are legally available and their exercise is acceptable to any
underwriter involved in a proposed offering of the Company's Common Stock.
Unless a registration statement with respect to shares issuable upon exercise of
an option is then effective under the Act, however, Executive shall represent
and agree as a condition precedent to the issuance of shares or the exercise of
any option granted pursuant to this Agreement that the shares are to be acquired
for investment and not with a view to distribution and that he will not make any
transfer of such shares in the absence of an opinion of counsel to the Company
to the effect that such transfer is in compliance with or exempt from the
registration and prospectus requirements of the Act.
5
<PAGE> 6
3. Termination of Employment.
3.1 In General.
For five (5) years following the date of this Agreement,
Executive's employment with the Company may be terminated either with or without
Cause only by a majority vote of the Company's Board of Directors. Nothing in
this Agreement shall interfere with or limit in any way the right of the
Company, acting (if necessary under the terms of this Agreement) through its
Board of Directors, to terminate Executive's employment at any time, nor confer
upon Executive any right to continue in the employ of the Company or any of its
affiliates.
3.2 Severance Payment and Benefits.
For the first year following the date of this Agreement, in
the event of termination without Cause as determined in good faith by the
Company's Board of Directors, Executive shall be entitled to receive a severance
payment equal to nine (9) months of his then current salary and a continuation
in Company health benefits at the Company's expense for nine (9) months
following the effective date of termination. Notwithstanding any other
definition used by the Company, the term "Cause" as used in this Agreement shall
mean (i) any material act of dishonesty in connection with Executive's duties or
breach of trust (solely as defined herein); (ii) any violation of the Company's
then current policy concerning "Conflicts of Interest"; (iii) any intentional
failure or refusal to perform any lawful material duties and responsibilities on
behalf of the Company or gross neglect in not properly performing such duties;
(iv) any continued misuse of alcohol or drugs which interferes with Executive's
material duties; and (v) any conviction of a felony or of any crime involving
moral turpitude, fraud or misrepresentation. The parties agree that, during the
term of Executive's employment with the Company, he shall have a duty to utilize
his abilities in good faith to promote the best interests of the Purchaser and
that a knowing failure to do so would constitute a "breach of trust" as used
herein.
6
<PAGE> 7
3.3 Conflict Situations.
Notwithstanding anything to the contrary in the Company's
policy concerning "Conflicts of Interest," the Company acknowledges that, from
time to time, Executive may provide consulting service to his wife Michelle
Garruto and/or Innovative Biosciences Corporation ("IBC"). The Company agrees
that, so long as Michelle Garruto is the majority owner of IBC, Mr. Garruto may
provide such service and that such service will not constitute a breach of the
Company's policy; provided, however, that: (i) so long as this Agreement is in
effect, Mr. Garruto shall devote his full time best efforts to promoting the
affairs of the Company, and (ii) such consulting shall not involve confidential
or proprietary information, processes or formulas belonging to the Company. In
addition, notwithstanding anything to the contrary in the Company's policy
concerning "Conflicts of Interest," the Company acknowledges and agrees that,
immediately following termination of Executive's employment with the Company for
any reason, Executive may return to providing consulting services to potential
competitors of the Company; provided, however, that Executive shall continue to
be bound by the terms of any applicable Confidentiality Agreement previously
signed by him.
4. Right of First Refusal.
Executive understands and agrees that his acquisition of shares of
Common Stock will be subject to Section 16.7 of the Company's Investors' Rights
Agreement, by which the Company is prohibited from issuing any capital
securities or options or rights to acquire capital securities to any officer or
employee unless the Company has a right of first refusal to purchase the vested
shares from such officer or employee or former officer or employee transferring
in excess of ten thousand (10,000) shares upon transfer by the holder thereof
and, if the Company does not exercise such right of first refusal, certain other
investors shall have a pro rata right of first refusal to make such purchase,
terminating in the event of a public offering of the Company's securities.
7
<PAGE> 8
5. Representations and Warranties.
The Company represents and warrants to Executive as follows:
(a) The Company is duly organized and validly existing and in good
standing under the laws of the State of Washington. The Company has the
corporate power and authority to enter into and deliver, and perform its
obligations under, this Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes the valid, legal and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
customary enforceability exceptions.
(c) Neither the execution and delivery of this Agreement by the
Company, nor the consummation of the transactions contemplated hereby, conflict
with, violate or result in a default under, the Articles of Incorporation or the
Bylaws of the Company, any material agreement, mortgage, indenture or instrument
to which the company is a party or by which any of the Company's properties are
bound, any law, rule or regulation applicable to the Company or any order,
decree or judgment binding on the Company or any of its properties.
6. Non-Assignability.
This Agreement is entered into in consideration of the personal
qualities of Executive and may not be, nor may any right or interest hereunder
be, assigned by him without the prior written consent of the Company.
7. Modifications.
Any modification of this Agreement will be effective only if it is in
writing and signed by both parties.
8. Notices.
Any notice, correspondence, or payment required or permitted to be
given or made hereunder shall be deemed to have been duly
8
<PAGE> 9
given or made when personally delivered to Executive or to Company, or if
mailed, postage prepaid, registered or certified mail or by overnight carrier
(e.g. Federal Express, Airborne), to Executive at ______________________________
________________________________________________________________________________
and to Company to the attention of Michael W. Luce, at 8624 154th Avenue
Northeast, Redmond, Washington 98052 or at such other address as may be
designated in writing by either party to the other, said notice, correspondence
and/or payment, if mailed, being deemed to have been duly given three business
days after the date so mailed.
9. Severability.
Any determination by a court of competent jurisdiction that any
provision herein contained is invalid or unenforceable shall not affect the
validity or the enforceability of any other provision of this Agreement. If any
provisions are determined to be invalid or unenforceable, Executive and the
Company shall use their best efforts to agree upon valid and enforceable
provisions that will be reasonably substituted for the invalid and unenforceable
provisions and shall incorporate such provisions in this Agreement.
10. Governing Law; Venue; Attorneys' Fees.
This Agreement shall be governed by and construed under the laws of the
State of Washington as applied to agreements among Washington residents entered
into and to be performed entirely within the State of Washington. Each party
shall bear his, her or its legal expenses incurred in the preparation,
negotiation and closing of the transactions contemplated by this Agreement. Any
legal action or proceeding with respect to this Agreement may be brought in the
state courts of Washington State in King County, Washington or in the federal
courts for the Western District of Washington. If any party to this Agreement
seeks to enforce its rights under this Agreement, the non-prevailing party shall
pay all costs and expenses incurred by the prevailing party, including
reasonable attorneys' fees.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written:
GARDEN BOTANIKA, INC. EXECUTIVE:
By: /s/Myron E. Kirkpatrick /s/John Garruto
----------------------- ---------------
Its: Vice President/CFO John Garruto
10
<PAGE> 11
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of ______________,
19___, is made between GARDEN BOTANIKA, INC., a Washington corporation (the
"Company"), and John Garruto ("Purchaser").
THE PARTIES AGREE AS FOLLOWS:
1. Purchase of Shares.
Pursuant to a stock option and severance agreement ("Option Agreement")
previously executed by the parties, the Company hereby sells to Purchaser, and
Purchaser hereby buys from the Company, _______ shares (the "Shares") of the
Company's Common Stock ("Common Stock") on the terms and conditions set forth
herein and in the Option Agreement, the terms and conditions of the Option
Agreement being incorporated into this Agreement by reference.
2. Purchase Price.
Purchaser shall purchase the Shares from the Company, and the Company
shall sell the Shares to Purchaser, at a price of $0.25 per share (the "Exercise
Price"), for a total purchase price of $_____ (the "Purchase Price").
3. Manner of Payment.
Purchaser shall pay the Purchase Price of the Shares in cash (or in the
manner set forth in Exhibit 3 to this Agreement, the absence of any Exhibit 3
indicating that no such exhibit was intended).
4. Stock Certificate Restrictive Legends.
Stock certificates evidencing Shares may bear such restrictive legends
as the Company and the Company's counsel deem
11
<PAGE> 12
necessary or advisable under applicable law or pursuant to this Agreement,
including without limitation, the following legend:
"The securities represented hereby are subject to restrictions on
transfer for a period of up to 180 days following the effective date of a
registration statement under the Securities Act of 1933, as amended, for an
offering of the Company's securities as more fully provided in an agreement
relating to the option to purchase such securities."
12
<PAGE> 13
5. Representations, Warranties, Covenants, and Acknowledgments of
Purchaser.
Purchaser hereby represents, warrants, covenants, acknowledges and
agrees that:
5.1 Investment.
Purchaser is acquiring the Shares for Purchaser's own account,
and not for the account of any other person. Purchaser is acquiring the Shares
for investment and not with a view to distribution or resale thereof except in
compliance with applicable laws regulating securities.
5.2 Business Experience.
Purchaser is capable of evaluating the merits and risks of
Purchaser's investment in the Company evidenced by the purchase of the Shares.
5.3 Relation of Company.
Purchaser is presently an officer, director, or employee of,
or advisor or consultant to, the Company and in such capacity has become
personally familiar with the business, affairs, financial condition and results
of operations of the Company.
5.4 Access to Information.
Purchaser has had the opportunity to ask questions of, and to
receive answers from, appropriate executive officers of the Company with respect
to the terms and conditions of the transactions contemplated hereby and with
respect to the business, affairs, financial conditions, and results of
operations of the Company. Purchaser has had access to such financial and other
information as is necessary in order for Purchaser to make a fully-informed
decision as to investment in the Company by way of purchase of the Shares, and
has had the opportunity to obtain any additional information necessary to verify
any of such information to which Purchaser has had access.
13
<PAGE> 14
5.5 Registration.
Purchaser may bear the economic risk of investment for an
indefinite period of time because the sale to Purchaser of the Shares has not
been registered under the Act, and the Shares cannot be transferred by Purchaser
unless such transfer is registered under the Act or an exemption from such
registration is available. The Company has made no agreements, covenants or
undertakings whatsoever to register the transfer of any of the Shares under the
Act. The Company has made no representations, warranties, or covenants
whatsoever as to whether any exemption from the Act, including, without
limitation, any exemption for limited sales in routine brokers' transactions
pursuant to Rule 144, will be available; if the exemption under Rule 144 is
available at all, it will not be available until at least two years after
payment of cash for the Shares and not then unless: (a) a public trading market
then exists in the Company's common stock; (b) adequate information as to the
Company's financial and other affairs and operations is then available to the
public; and (c) all other terms and conditions of Rule 144 have been satisfied.
5.6 Tax Advice.
The Company has made no warranties or representations to
Purchaser with respect to the income tax consequences of the transactions
contemplated by this Agreement and Purchaser is in no manner relying on the
Company or its representatives for an assessment of such tax consequences.
6. Binding Effect.
Subject to the limitations set forth in this Agreement, this Agreement
shall be binding upon, and inure to the benefit of, the executors,
administrators, heirs, legal representatives, successors and assigns of the
parties to this Agreement.
7. Taxes.
Purchaser shall execute and deliver to the Company with this executed
Agreement a copy of the Acknowledgment and Statement of Decision Regarding
Election Pursuant to Section 83(b) of the
14
<PAGE> 15
Internal Revenue Code (the "Acknowledgment") attached to this Agreement as
Exhibit 7A. Purchaser shall execute and submit with the Acknowledgment a copy of
the Election Pursuant to Section 83(b) of the Code, attached to this Agreement
as Exhibit 7B, if Purchaser has indicated in the Acknowledgment his decision to
make such an election. Purchaser should consult his tax advisor to determine if
there is a comparable election to file in the state of his residence and whether
such filing is desirable under the circumstances. The Company may withhold from
Purchaser's wages, or require Purchaser to pay to the Company, any applicable
withholding or employment taxes resulting from the purchase of Shares hereunder
or from the lapse of any restrictions imposed on the Shares.
8. Miscellaneous.
8.1 Assignment; Binding Effect.
Subject to the limitations set forth in this Agreement, this
Agreement shall be binding upon and insure to the benefit of the executors,
administrators, heirs, legal representatives, and successors of the parties
hereto; provided, however, that Purchaser may not assign any of Purchaser's
rights under this Agreement.
8.2 Governing Law; Consent to Jurisdiction.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington. The parties agree that the
exclusive jurisdiction and venue of any action with respect to this Agreement
shall be in the Superior Court of Washington for the County of King or the
United States District Court for the Western District of Washington, in either
case as located in Seattle. Each of the parties hereby submits itself to the
exclusive jurisdiction and venue of such courts for the purpose of such action.
The parties agree that service of process in any such action may be effected in
the manner provided in this Agreement for delivery of notices.
8.3 Notices.
15
<PAGE> 16
All notices and other communications under this Agreement
shall be in writing. Unless and until Purchaser is notified in writing to the
contrary, all notices, communications and documents directed to the Company and
related to the Agreement, if not delivered by hand, shall be mailed, addressed
as follows:
Garden Botanika, Inc.
8624 154th Avenue Northeast
Redmond, Washington 98052
Attention: President
Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for Purchaser and related to this
Agreement, if not delivered by hand, shall be mailed to Purchaser's last known
address as shown on the Company's books. Notices and communications shall be
mailed by U.S. registered mail, return receipt requested, postage prepaid. All
mailings and deliveries related to this Agreement shall be deemed delivered, if
mailed, on the third day after they are deposited in the U.S. mail.
8.4 Exhibits.
The exhibits attached to this Agreement are incorporated
herein and form a part of this Agreement.
8.5 Entire Agreement.
This Agreement, together with the Option Agreement, contains
all of the terms and conditions agreed upon by the parties relating to its
subject matter and supersedes any and all prior and contemporaneous agreements,
negotiations, correspondence, understandings and communications of the parties,
whether oral or written, respecting that subject matter.
8.6 Validity of Provisions; Severability.
If any provision of this Agreement is invalid, illegal or
unenforceable in any jurisdiction, the provision shall be adjusted rather than
voided in order to carry out its intent to
16
<PAGE> 17
the maximum extent possible, and in all events the remainder of the Agreement
will remain in full force and effect.
8.7 Counterparts.
This Agreement may be signed in counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GARDEN BOTANIKA, INC.
By _______________________________
Title ____________________________
Purchaser hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement.
________________________________________
Purchaser
Required Exhibits
Exhibit 7A Acknowledgment Regarding Election
Pursuant to Section 83(b)
Exhibit 7B Section 83(b) Election
Optional Exhibits
Exhibit 3 Payment of Purchase Price
17
<PAGE> 18
SPOUSAL CONSENT
Purchaser's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Shares hereby purchased.
-----------------------------------
Purchaser's Spouse
18
<PAGE> 19
EXHIBIT 7A
ACKNOWLEDGMENT AND STATEMENT
OF DECISION REGARDING ELECTION
PURSUANT TO SECTION 83(b) OF
THE INTERNAL REVENUE CODE
The undersigned (which term includes the undersigned's spouse), a
purchaser of ____ shares of Common Stock, par value $.01 per share, of GARDEN
BOTANIKA, INC., a Washington corporation (the "Company") by exercise of an
option, hereby states as follows:
1. The undersigned has carefully reviewed the option and severance
agreement pursuant to which the Option was granted.
2. The undersigned either [check and complete as applicable]:
___ (a) has consulted, and has been fully advised by, the
undersigned's own tax advisor, ______________________, whose business address is
________________________________, regarding the federal, state and local tax
consequences of purchasing shares, and particularly regarding the advisability
of making elections pursuant to Section 83(b) of the Internal Revenue Code (the
"Code") and pursuant to the corresponding provisions, if any, of applicable
state law; or
___ (b) has knowingly chosen not to consult such a tax
advisor.
3. The undersigned hereby states that the undersigned has decided
[check as applicable]:
___ (a) to make an election pursuant to Section 83(b) of the
Code, and is submitting to the Company, together with the undersigned's executed
Stock Purchase Agreement, an executed form entitled "Election Pursuant to
Section 83(b) of the Internal Revenue Code With Respect to Property Acquired by
Exercise of a Stock Option;" or
1
<PAGE> 20
___ (b) not to make an election pursuant to Section 83(b) of
the Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of shares or of the making
or failure to make an election pursuant to Section 83(b) of the Code or the
corresponding provisions, if any, of applicable state law.
Date: ________________ ____________________________________
Purchaser
Date: ________________ ____________________________________
Purchaser's Spouse
2
<PAGE> 21
EXHIBIT 7B
ELECTION PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE WITH RESPECT TO
PROPERTY ACQUIRED BY EXERCISE OF A STOCK OPTION
The undersigned hereby elects pursuant to Section 83(b) of the Internal
Revenue Code (the "Code"), to include in the undersigned's gross income the
excess (if any) of the fair market value of the property described below over
the sum of the amount the undersigned paid for such property. This election is
made to the same effect, and with the same limitations, with respect to the
analogous provisions of Sections 83(b) of the Code under any applicable state
statute.
Pursuant to Treasury Regulations, the following information is
provided:
1. The undersigned's name, address and Social Security Number are:
Name: ______________________________
Address: ______________________________
______________________________
Social Security #: ______________________________
2. The property with respect to which the election is made consists of
___________ shares of Common Stock, par value $.01 per share, of GARDEN
BOTANIKA, INC., a Washington corporation (the "Company").
3. The date on which the above property was transferred to the
undersigned was _____________, 19__, and the taxable year for which this
election is made is 19__.
4. The above property is subject to the following restrictions checked
below:
1
<PAGE> 22
___ restrictions as may be imposed by Section 16(b) of the
Securities Exchange Act of 1934, as amended, if any.
___ (other) _______________________________________
5. The fair market value of the above property at the time of transfer
(determined without regard to any lapse restrictions as defined in Treasury
Regulations Section 1.83-3(i)) was $________ per share.
6. The amount paid for the above property by the undersigned was $0.25
per share.
7. Copies of this election have been furnished to the Company and to
the Internal Revenue Service Center to which the undersigned submits his or her
federal income tax return, and a copy will be filed with the income tax return
of the undersigned for the year to which this election relates.
Dated: _________________
___________________________________
Purchaser
2
<PAGE> 1
EXHIBIT 10.3
GARDEN BOTANIKA, INC.
1996 DIRECTORS' NONQUALIFIED STOCK OPTION PLAN
(REFLECTS 1-TO-7.87 REVERSE STOCK SPLIT)
This 1996 Directors' Nonqualified Stock Option Plan (the
"Plan") provides for the grant of options to acquire shares of Common Stock,
without par value (the "Common Stock"), of Garden Botanika, Inc., a Washington
corporation (the "Company"). Stock options granted under this Plan (the
"Options" or "Option") are intended to be nonqualified stock options under the
Internal Revenue Code of 1986, as amended (the "Code").
1. PURPOSE.
The purpose of this Plan is to retain the services of
experienced and knowledgeable independent directors of the Company, to encourage
such persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company.
2. ELIGIBILITY.
Persons eligible to receive options under this Plan shall be
all directors of the Company who are not otherwise employed by the Company or
any Related Company, as defined below (the "Directors" or "Director"). Options
may be granted in substitution for outstanding Options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Company or any
subsidiary of the Company. Options also may be granted in exchange for
outstanding Options.
As used in this Plan, the term "Related Company," when
referring to a subsidiary corporation, shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if,
at the time of the granting of the Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock of one
of the other corporations in such chain. When referring to a parent corporation,
the term "Related Company" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the
1
<PAGE> 2
time of granting of the Option, each of the corporations other than the Company
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
3. AUTOMATIC GRANT OF OPTIONS.
Subject to approval of this Plan by shareholders of the
Company, upon election or appointment to the Board of Directors and thereafter
on the date of each annual meeting of the Board of Directors, each eligible
non-employee Director shall automatically receive an option to purchase 1,271
shares of Common Stock, vesting monthly over a period of one year, as further
described in Section 4(d) below. The grant date of each Option (the "Date of
Grant") shall be either be the date of the Director's election or appointment or
the date of each annual meeting of the Board of Directors, respectively. Options
to purchase a maximum of 63,561 shares of Common Stock in the aggregate may be
issued pursuant to the Plan. The number of options available for a grant
hereunder is subject to adjustment as set forth in Section 4(k) hereof. If any
outstanding Option expires or is terminated for any reason, those shares of
Common Stock allocable to the unexercised portion of such Option may be subject
to one or more other Options issued pursuant to the Plan.
4. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be evidenced by a written agreement (the
"Agreement") in the form approved by the Company. Agreements may contain such
additional provisions, not inconsistent herewith, as the Company in its
discretion may deem advisable. All Options shall also comply with the following
requirements:
(a) Number of Shares.
Each Agreement shall state the number of shares to which it
pertains.
(b) Date of Grant.
Each Option shall state the Date of Grant.
(c) Option Price.
2
<PAGE> 3
The exercise price for the Options granted hereunder shall be
equal to the fair market value on the Date of Grant. Such fair market value
shall be the closing price at which it was traded on a national securities
exchange or the last sale price quoted on the National Association of Securities
Dealers Automated Quotation System or any successor or substantially similar
market thereto on the Date of Grant. If the Common Stock shall be traded on more
than one such market, the exercise price shall be determined on the basis of the
most active market. If no such market exists, the exercise price shall be
established at fair market value based on (i) the anticipated offering price of
the Common Stock in the Company's initial public stock offering; (ii) if no such
offering is anticipated, the most recent arms-length transaction occurring
within twelve (12) months preceding the Date of Grant; or (iii) if neither
clause (i) or (ii) are applicable, by a qualified appraiser selected by the
Company.
(d) Vesting. The Option shall be exercisable only to
the extent it has vested. Assuming continuous service as a director of the
Company, the Option shall vest at a rate of 833 shares as of the end of each
complete calendar month following the Date of Grant, except that the last
installment to vest at the end of the 12th month shall be 837 shares.
(e) Termination of Option. A vested Option shall
terminate, to the extent not previously exercised, upon the occurrence of the
first of the following events:
(i) ten (10) years from the Date of Grant;
(ii) the expiration of ninety (90) days from
the date of Optionee's termination as a Director of
the Company for any reason other than death or
Disability (as defined below); or
(iii) the expiration of one (1) year from the
date of death of Optionee or the cessation of
Optionee's service as a Director by reason of
Disability (as defined below).
If Optionee's service as a Director is terminated by death,
any Option held by Optionee shall be exercisable only by the person or persons
to whom such Optionee's rights under such Option shall pass by Optionee's will
or by the laws of descent
3
<PAGE> 4
and distribution of the state or country of Optionee's domicile at the time of
death.
The unvested portion of the Option shall terminate immediately
upon the Optionee's termination of employment for any reason whatsoever.
For purposes of the Plan, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability to perform her or
his assigned duties for one hundred twenty (120) days or more in any two hundred
forty (240) day period or that can be expected to result in death.
4
<PAGE> 5
(f) Exercise of Options.
Options shall be exercisable, either all or in part, until
termination; provided, however, that after registration of any of the Company's
securities under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and regardless of when the Option is exercised, any
Optionee who is an Insider shall be precluded from selling or transferring any
Common Stock or other security underlying an Option during the six (6) months
immediately following the grant of that Option. If less than all of the shares
included any Option are purchased, the remainder may be purchased at any
subsequent time prior to the expiration of the Option term. No portion of any
Option for less than 50 shares (as adjusted pursuant to Section 4(k) below) may
be exercised; provided, that if any Option is less than 50 shares, it may be
exercised with respect to all shares which it represents. Only whole shares may
be issued pursuant to an Option, and to the extent that an Option covers less
than one (1) share, it is unexercisable. Options or portions thereof may be
exercised by giving written notice to the Company, which notice shall specify
the number of shares to be purchased, and be accompanied by payment in the
amount of the aggregate exercise price for the Common Stock so purchased, which
payment shall be in the form specified in Section 4(g) below. The Company shall
not be obligated to issue, transfer or deliver a certificate of Common Stock to
any Optionee, or to his personal representative, until the aggregate exercise
price has been paid for all shares for which the Option shall have been
exercised and adequate provision has been made by the Optionee for satisfaction
of any tax withholding obligations associated with such exercise. During the
lifetime of an Optionee, Options are exercisable only by the Optionee.
(g) Payment upon Exercise of Option.
Upon exercise of any Option, the aggregate option price shall
be paid to the Company in cash or by certified or cashier's check.
Alternatively, a Director may pay for all or any portion of the aggregate Option
exercise price (i) by delivering to the Company shares of Common Stock
previously held by such Director or (ii) having shares withheld from the amount
of shares of Common Stock to be received by the Director. The shares of Common
Stock received or withheld by the Company as payment for shares of Common Stock
purchased upon the exercise of Options shall have a fair market value at the
date of exercise (as
5
<PAGE> 6
determined in accordance with Section 4(c) hereof) equal to the aggregate option
exercise price (or portion thereof) to be paid by the Director upon exercise.
(h) Rights as a Shareholder.
An Optionee shall have no rights as a shareholder with respect
to any shares covered by the Option until such Optionee becomes a record holder
of such shares, irrespective of whether such Optionee has given notice of
exercise. Subject to the provisions of Section 4(k) below, no rights shall
accrue to an Optionee and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Optionee becomes a record holder
of the shares of Common Stock covered by the Option, irrespective of whether
such Optionee has given notice of exercise.
(i) Transfer of Option.
Unless otherwise specified in the Agreement, Options granted
under this Plan and the rights and privileges conferred by this Plan may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by applicable laws of
descent and distribution, and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option or of any right or privilege conferred by this
Plan contrary to the provisions hereof, or upon the sale, levy or any attachment
or similar process upon the rights and privileges conferred by this Plan, such
Option shall thereupon terminate and become null and void.
(j) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect
to an Option unless the exercise of such Option and the issuance and delivery of
such shares shall comply with all relevant provisions of law, including, without
limitation, any applicable state securities laws, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations thereunder and the
requirements of any stock exchange upon which such shares may then be listed,
and such issuance shall be further subject to the
6
<PAGE> 7
approval of counsel for the Company with respect to such compliance, including
the availability of an exemption from registration for the issuance and sale of
such shares. The inability of the Company to obtain from any regulatory body the
authority deemed by the Company to be necessary for the lawful issuance and sale
of any shares under this Plan, or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan, shall
relieve the Company of any liability with respect to the non-issuance or sale of
such shares.
As a condition to the exercise of an Option, the Company may
require the Optionee to represent and warrant in writing at the time of such
exercise that the shares are being purchased only for investment and without any
then-present intention to sell or distribute such shares. At the option of the
Company, a stop-transfer order against such shares may be placed on the stock
books and records of the Company, and a legend indicating that the stock may not
be pledged, sold or otherwise transferred unless an opinion of counsel is
provided stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the certificates representing such shares in order
to assure an exemption from registration. The Company also may require such
other documentation as may from time to time be necessary to comply with federal
and state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE
REGISTRATION OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF
OPTIONS.
(2) As a condition to the exercise of any
Option granted under this Plan, the Optionee shall make such arrangements as the
Company may require for the satisfaction of any federal, state or local
withholding tax obligations that may arise in connection with such exercise.
(3) The issuance, transfer or delivery of
certificates of Common Stock pursuant to the exercise of Options may be delayed,
at the discretion of the Company, until the Company is satisfied that the
applicable requirements of the federal and state securities laws and the
withholding provisions of the Code have been met.
7
<PAGE> 8
(k) Stock Dividend, Reorganization or Liquidation.
(1) If (i) the Company shall at any time be
involved in a transaction described in Section 424(a) of the Code (or any
successor provision) or any "corporate transaction" described in the regulations
thereunder; (ii) the Company shall declare a dividend payable in, or shall
subdivide or combine, its Common Stock or (iii) any other event with
substantially the same effect shall occur, the number of shares of Common Stock
and/or the exercise price per share of each outstanding Option shall be
proportionately adjusted so as to preserve the rights of the Optionee
substantially proportionate to the rights of the Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock subject to outstanding Options, the number of
shares available under Section 3 of this Plan shall automatically be increased
or decreased, as the case may be, proportionately, without further action on the
part of the Company or the Company's shareholders.
(2) If the Company is liquidated or
dissolved, all Options must be exercised prior to the effective date of such
liquidation or dissolution. If the Option holders do not exercise their Options
prior to such effective date, each outstanding Option shall terminate as of the
effective date of the liquidation or dissolution.
(3) The grant of an Option shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge, consolidate or dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
8
<PAGE> 9
5. EFFECTIVE DATE; TERM.
This Plan shall be effective on the date specified by
the Board. Termination of this Plan shall not terminate any Option granted prior
to such termination. Any Options granted prior to the approval of this Plan by a
majority of the shareholders of the Company shall be granted subject to
ratification of this Plan by the shareholders of the Company within twelve (12)
months after this Plan is adopted by the Board, and if shareholder ratification
is not obtained, each and every Option granted under this Plan contingent on
such approval shall be null and void and shall convey no rights to the holder
thereof.
6. NO OBLIGATIONS TO EXERCISE OPTION.
The granting of an Option shall impose no obligation upon the
Optionee to exercise such Option.
7. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common
Stock pursuant to the exercise of Options granted hereunder will be used for
general corporate purposes.
8. INDEMNIFICATION OF BOARD.
In addition to all other rights or indemnification they may
have as directors of the Company or as members of the Board, members of the
Board shall be indemnified by the Company for all reasonable expenses and
liabilities of any type and nature, including reasonable attorneys' fees,
incurred in connection with any action, suit or proceeding to which they or any
of them are a party by reason of, or in connection with, the Plan or any Option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company), except to the extent that such expenses relate to matters for
which it is adjudged that such Board members are liable for willful misconduct;
provided, that within thirty (30) days after the institution of any such action,
suit or proceeding, member(s) of the Board shall, in writing, notify the Company
of such action, suit or proceeding, so that the Company may have the opportunity
to make appropriate arrangements to prosecute or defend the same.
9
<PAGE> 10
9. AMENDMENT OF PLAN.
The Company may, at any time, modify, amend or
terminate this Plan and Options granted under this Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided, however,
that provisions of the Plan that state the amount and price of securities to be
awarded, specify the timing of awards or set forth a formula that determines the
amount, price and timing using objective criteria shall not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules under
such acts; provided further, that any amendment for which shareholder approval
is required by Securities and Exchange Commission Rule 16b-3, as amended from
time to time, or any successor rule or regulatory requirements (the "Rule") in
order for the Plan to be eligible or continue to qualify for the benefits of the
Rule shall be subject to approval of the requisite percentage of the
shareholders of the Company in accordance with the Rule. Notwithstanding the
foregoing, the Company may modify grants to persons who are eligible to receive
Options under this Plan who are foreign nationals or employed outside the United
States to recognize differences in local law, tax policy or custom.
Approved by the Board of Directors of the Company:
February 22, 1996
Approved by the Shareholders of the Company:
March 29, 1996
/s/Michael W. Luce
--------------------------
Michael W. Luce, President
10
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated March 21, 1996,
included in Garden Botanika, Inc.'s Registration Statement on Form S-1, as
amended, and to all references to our Firm included in this registration
statement.
Seattle, Washington
July 22, 1996
