LEGAL RESEARCH CENTER, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 24, 1997
Notice is hereby given that the Annual Meeting of Shareholders of Legal
Research Center, Inc. will be held at the Hyatt Regency, 1300 Nicollet Mall,
Minneapolis, Minnesota 55403 on Tuesday June 24, 1997 at 2:00 p.m., for the
following purposes:
1. To elect a Board of four directors, each to serve until the next
Annual Meeting of Shareholders or until their successors are elected
and qualified;
2. To consider and act upon a proposal to adopt the Legal Research
Center, Inc. 1997 Stock Option Plan;
3. To consider and act upon a proposal to ratify the selection of
McGladrey & Pullen, LLP as independent auditors of the Company for the
fiscal year ending December 31, 1997; and
4. To transact other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on May 8, 1997 as
the record date for the determination of shareholders entitled to vote at the
meeting and any adjournment thereof.
To assure your representation at the meeting, please sign, date and return
your proxy in the enclosed envelope whether or not you expect to attend in
person. Your cooperation in promptly signing and returning your proxy will help
avoid further solicitation expense. Shareholders who attend the meeting may
revoke their proxies and vote in person if they so desire.
BY ORDER OF THE BOARD OF DIRECTORS
Arun K. Dube, Chairman
Minneapolis, Minnesota
April 28, 1997
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PROXY STATEMENT
OF
LEGAL RESEARCH CENTER, INC.
700 Midland Square Building
331 Second Avenue South
Minneapolis, MN 55401
GENERAL MATTERS
Solicitation of Proxies
This Proxy Statement, mailed on or about May 13, 1997, is furnished to the
shareholders of Legal Research Center, Inc. (the "Company") in connection with
the solicitation of proxies by the Board of Directors of the Company to be voted
at the Annual Meeting of the Shareholders to be held on June 24, 1997, or any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders. The cost of this
solicitation, which is being made on behalf of the Company and the Board of
Directors, will be borne by the Company. In addition to solicitation by mail,
officers, directors and employees of the Company may solicit proxies by
telephone, special communications or in person. The Company may also request
banks and brokers to solicit their customers who have a beneficial interest in
the Company's Common Stock registered in the names of nominees and will
reimburse such banks and brokers for their reasonable out-of-pocket expenses.
Voting, Execution and Revocation of Proxies
Only stockholders of record at the close of business on May 8, 1997 will be
entitled to vote. As of that date, the Company had 3,297,633 shares of Common
Stock outstanding and entitled to vote. Each share is entitled to one vote.
If a proxy is properly executed and returned on time in the form enclosed,
it will be voted at the meeting as specified. Where specification has not been
made, it will be voted FOR the election of the nominees for director, FOR the
ratification of the Legal Research Center, Inc. 1997 Stock Option Plan, FOR the
ratification of the appointment by the Board of Directors of McGladrey & Pullen,
LLP as the Company's independent auditors for the fiscal year ending December
31, 1997, and will be deemed to grant discretionary authority to vote upon any
other matters properly coming before the meeting. The presence in person or by
proxy of the holders of a majority of the shares of stock entitled to vote at
the Annual Meeting of the Shareholders, or 1,648,817 shares, constitutes a
quorum for the transaction of business.
A list of those shareholders entitled to vote at the Annual Meeting will be
available for a period of ten (10) days prior to the Annual Meeting for
examination by any shareholder at the Company's principal executive offices, 700
Midland Square Building, 331 Second Ave. So., Minneapolis, Minnesota, and at the
Annual Meeting itself.
Any proxy may be revoked at any time before it is voted by written notice
to the Secretary, by receipt of a proxy properly signed and dated subsequent to
an earlier proxy, or by revocation of a written proxy by request at the Annual
Meeting. If not so revoked, the shares represented by such proxy will be voted.
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PRINCIPAL SHAREHOLDERS
The following table sets forth as of April 15, 1997 the number of shares of
Common Stock beneficially owned by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of the Company's
capital stock, by each director and certain executive officers and by all
directors and executive officers as a group. Shares not outstanding but deemed
beneficially owned by virtue of the right of an individual to acquire them
within 60 days are treated as outstanding only when determining the amount and
percentage owned by such individual. Except as otherwise indicated, the persons
listed possess all of the voting and investment power with respect to the shares
listed for them.
Directors, Executive Officers, Number of Percent of
and 5% Shareholders Shares Class
- - ------------------------------ ------ -----
Christopher R. Ljungkull (1)(2) 929,922 27.2%
James R. Seidl (1)(3) 782,585 22.9%
Perkins Capital Management, Inc.(4) 203,500 6.1%
Arun K. Dube (1)(5) 100,000 3.0%
James J. Seifert (1)(6) 70,000 2.1%
All executive officers and directors
as a group (5 persons, 2-3,5-7) 1,893,107 51.7%
(1) The address of such person is in care of the Company, 700 Midland Square
Building, 331 Second Avenue South, Minneapolis, Minnesota 55401.
(2) Includes 142,337 shares owned by Robin Moles, Mr. Ljungkull's aunt, over
which Mr. Ljungkull exercises voting power, 120,000 shares purchasable upon
exercise of presently exercisable stock options and 7,100 shares
purchasable upon exercise of presently exercisable warrants.
(3) Includes 120,000 shares purchasable upon exercise of presently exercisable
stock options and 7,100 shares purchasable upon exercise of presently
exercisable warrants.
(4) The address of Perkins Capital Management, Inc. is 730 East Lake Street,
Wayzata, Minnesota, 55391. Includes 20,000 shares purchasable upon exercise
of presently exercisable warrants.
(5) Includes 60,000 shares purchasable upon exercise of presently exercisable
stock options and 10,000 shares purchasable upon exercise of presently
exercisable warrants.
(6) Includes 10,000 shares purchasable upon exercise of presently exercisable
stock options and 20,000 shares purchasable upon exercise of presently
exercisable warrants.
(7) Includes 10,600 shares purchasable upon exercise of presently exercisable
stock options.
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ELECTION OF DIRECTORS
(Proposal #1)
Nominees for Election as Directors
The Board of Directors currently consists of four persons. Each director
will be elected to serve until the Annual Meeting of Shareholders to be held in
1998 or until a successor is elected and qualified. Vacancies and newly-created
directorships resulting from an increase of the number of directors may be
filled by a majority of the directors then in office and the directors so chosen
will hold office until the next election.
The Board of Directors has nominated for election the four individuals
named below. Proxies cannot be voted for a greater number of persons than the
number of nominees named below. The Board recommends a vote FOR all such
nominees, and it is intended that, unless contrary written instructions are
provided, proxies accompanying this Proxy Statement will be voted at the 1997
Annual Meeting FOR the election to the Board of all of the nominees named. The
Board of Directors believes that each nominee will be able to serve, but should
any nominee be unable to serve as a director, the persons named in the proxies
have advised that they will vote for the election of such substitute nominee as
the Board of Directors may propose.
The names, ages and respective positions of the nominees, their occupations
and other information is set forth below, based upon information furnished to
the Company by the nominees.
Christopher R. Ljungkull, age 43, has been Chief Executive Officer of the
Company since rejoining it on a full time basis in 1994. From 1987 to 1994, Mr.
Ljungkull served in various capacities with West Publishing Corporation, most
recently as an editor. Mr. Ljungkull is co-founder of the Company and has been a
director of the Company since its inception.
James R. Seidl, age 43, has been the President of the Company since 1988
and served as its Chief Executive Officer prior to Mr. Ljungkull's return in
1994. Mr. Seidl is a co-founder of the Company and has been a director since its
inception.
Arun K. Dube, age 59, has been a director of the Company since May 1995 and
the Chairman of the Board since January 1996. In July 1996, Mr. Dube was hired
as Chief Executive Officer of The CyberLaw Office, Inc. (CLO) an 85% owned
subsidiary of the Company. In August 1996, the Company consolidated management
of all Internet related activities including The Law Office, Inc. a wholly owned
subsidiary of the Company (TLO), under CLO. Mr. Dube is a private investor and
has been the Chief Executive Officer of Strategic Alliance International, Inc.
since 1983. Mr. Dube is also a director of Granton Technology Ltd., a publicly
traded company.
James J. Seifert, age 40, has been a director of the Company since May
1995. Mr. Seifert has served as Assistant General Counsel of The Toro Company
since May 1990, most recently as Associate General Counsel since April 1994.
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Board of Directors and Committees
Meetings. During fiscal 1996, the Board of Directors of the Company held
eight meetings and on two occasions took action by written consent. Each
director was present for each meeting held during fiscal 1996.
Board Committees. The Board of Directors has both an Audit Committee and a
Compensation Committee.
The Audit Committee acts as a liaison between the Company's independent
auditing firm and Company management and, in connection therewith, may (i)
recommend to the Board of Directors an annual selection or retention of the
Company's independent auditing firm, (ii) communicate with the Company's
independent auditing firm concerning matters of accounting and auditing policy
which such firm may desire to discuss with other than Company management, and
(iii) review and recommend to Company management improvements in the Company's
accounting and auditing procedures. The current members of the Audit Committee
consist of Messrs. Dube and Seifert. The Audit Committee held one meeting during
the 1996 fiscal year.
The Compensation Committee makes recommendations to the Board of Directors
respecting the sufficiency and adequacy of the Company's compensation programs
for management and other key employees, including (i) salary and bonus programs,
(ii) incentive and other stock option programs (including the recommendation of
persons who should receive options and the exercise price and other terms
therefor), and (iii) other perquisites. The current members of the Compensation
Committee consist of Messrs. Dube and Seifert. The Compensation Committee held
one meeting during the 1996 fiscal year.
Remuneration of Directors. Non-employee directors are to be paid $125 per
Board or Committee meeting attended and reimbursed for certain expenses in
connection therewith. The Board has suspended payment for non-employee directors
for fiscal 1997 until the Company has achieved sustained profitability.
Non-employee directors are also compensated with annual stock option grants of
5,000 shares, exercisable at fair market value on the date of grant and expiring
10 years after issuance (the "Directors' Options"). Directors' Options are
granted at the time of election or reelection at the Annual Shareholders'
Meeting unless a director is elected in between annual meetings in which case
the Directors' Options shall be granted on a pro rata basis. Messrs. Dube and
Seifert have each been granted Directors' Options to purchase 10,000 shares of
Common Stock at prices ranging from $2.00 to $3.50 a share under the Company's
1995 Stock Option Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
To the knowledge of the Company, based solely upon a review of Forms 3 and
4 furnished to the Company during the fiscal year ended December 31, 1996,
pursuant to Rule 16a-3(e) of the Rules and Regulations promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Forms 5
and amendments thereto furnished to the Company with respect to the year ended
December 31, 1996, each of Messrs. Ljungkull, Seidl and Dube failed to file on a
timely basis, one Form 4 report.
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EXECUTIVE COMPENSATION
The following table summarizes the cash and non-cash compensation paid to
or earned by Christopher R. Ljungkull, the Company's Chief Executive Officer and
James R. Seidl, the Company's President, the only executive officers of the
Company whose annual compensation exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Long-term
Name and Principal Fiscal Year Ended Compensation Compensation All Other
Position December 31, Salary Bonus Awards of Options Compensation
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Christopher R 1996 $ 94,708 $ 13,303 185,000(1) $ 0
Ljungkull, Chief
Executive Officer 1995 $ 72,810 $ 10,400 180,000 $ 9,504(2)
- - --------------------------------------------------------------------------------------------------------------
James R. Seidl, 1996 $ 94,708 $ 39,909 185,000(1) $ 0
President
1995 $ 72,842 $ 10,400 180,000 $ 9,504(2)
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of options granted in 1996 which were canceled in April 1997 with
the consent of the optionees.
(2) Consists of the balance of a receivable from a partnership owned equally by
Messrs. Ljungkull and Seidl which was relieved in lieu of an additional
bonus.
Stock Options
The following table summarizes option grants made during the fiscal year
ended December 31, 1996 to the executive officers named in the Summary
Compensation table:
<TABLE>
<CAPTION>
Options Grants in 1996 Fiscal Year
----------------------------------
Percent of
Total Granted
Options to Employees in Exercise Price Expiration
Name Year Granted Fiscal Year Per Share Date
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Christopher R. Ljungkull 1996 185,000(1) 35% $2.00 May 2001
James R. Seidl 1996 185,000(1) 35% $2.00 May 2001
</TABLE>
(1) Consists of options granted in 1996 which were canceled in April of 1997
with the consent of the optionees.
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The following table summarizes the value of the unexercised options held by
the executive officers named in the Summary Compensation table as of December
31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises and Fiscal Year-End Option Values
-------------------------------------------------------------
Value of Unexercised
Shares Number of Unexercised in-the-Money Options at
Acquired Value Options at Fiscal Year-End Fiscal Year-End
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Christopher R. Ljungkull --- --- 120,000/245,000 (2) $0/$0
- - ----------------------------------------------------------------------------------------------------------------
James R. Seidl --- --- 120,000/245,000 (2) $0/$0
</TABLE>
(1) Value of unexercised options are calculated by determining the difference
between the fair market value of the shares underlying the options at
December 31, 1996 and the exercise price of the options.
(2) Consists of options granted in 1995 under the Company's Existing Officers'
Stock Option Plan.
Employment Agreements
The Company entered into three-year employment agreements with each of
Christopher R. Ljungkull and James R. Seidl effective July 1, 1995. Effective
January 1, 1997, Messrs. Ljungkull and Seidl waived their right to receive
revenue based incentive compensation due them under their employment agreements.
Effective April 1997, Messrs. Ljungkull and Seidl salaries were increased to
$120,000 per year. The Board of Directors is currently considering entering into
new five year employment agreements with Messrs. Ljungkull and Seidl which
contain customary confidentially clauses, non-compete agreements and provide for
primarily profit-based incentive compensation. No action with respect to these
proposed employment agreements have been taken to date.
CERTAIN TRANSACTIONS
Consulting Arrangement with James J. Seifert. The Company has engaged James
J. Seifert, one of its directors, as a consultant to assist the Company with the
continued development of its CADRE program pursuant to a letter agreement dated
September 5, 1995 (the "Agreement"). Pursuant to the Agreement, for a one year
period, Mr. Seifert will provide various curriculum development, promotional,
and business planning services in consideration of $2,800 per month. The
Agreement is terminable by either party upon 90 days notice and automatically
renews for successive one-year periods. Mr. Seifert was paid $33,600 under this
Agreement during 1996.
Lease with URSA Companies, Inc. The Company leases its office space from
URSA Companies, Inc. ("URSA"), a corporation which is owned and controlled by
Messrs. Ljungkull and Seidl, pursuant to the exact same terms and conditions of
a lease between URSA and URSA's landlord for such office space. This arrangement
between the Company and URSA is on terms no more favorable to the Company that
that which could be obtained by an unaffiliated third party from URSA.
Purchase of Common Stock and Warrants. In June 1995, Messrs. Seidl and
Ljungkull each purchased 13,148 shares of Common Stock at $2.70 per share and
also received a warrant entitling
7
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each to purchase 7,100 shares of Common Stock at $2.625 per share. The warrants
expire four years from the date of issuance and become exercisable one year from
the date of issuance. The warrants have identical terms to those warrants issued
to purchasers of notes in the Company's private placement of $500,000 of bridge
loans conducted in May and June of 1995.
Sale of Shares to Officers and Directors. On September 3, 1996 the Company
sold an aggregate of 1,040,000 shares of its common stock to three of its
officers and/or directors, at the closing price for the Company's common stock
on September 4, 1996, or $1.89 per share. The purchases were made through seven
year non-recourse notes, with the shares pledged as collateral. The notes bear a
fixed interest rate of 8.5% and cannot be prepaid anytime before September 2,
2003. The shares are restricted and cannot be sold or otherwise transferred
without repaying the notes.
Sale of CLO Shares to Director. In 1995, the Company created CLO to expand
its on-line activities similar to TLO, into the international market place. In
July 1996, as part of an employment agreement, the Company sold a 15% interest
to Mr. Dube as an inducement to become the new Chief Executive Officer of CLO
for a nominal sum. In August 1996, the Company consolidated management of all
Internet related activities under Mr. Dube. The Company is actively seeking
financing for CLO and intends to consolidate ownership of TLO under CLO when
additional financing is complete.
1997 STOCK OPTION PLAN
(Proposal #2)
The Board of Directors has approved the adoption of Legal Research Center,
Inc. 1997 Stock Option Plan ("1997 Plan"). The 1997 Plan provides for the
granting of options ("Options") to purchase up to an aggregate of 700,000 shares
of the Company's Common Stock to employees, consultants and independent
contractors. Options that are granted under the 1997 Plan may be either options
that qualify as "incentive options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, ("Incentive Options"), or those that
do not qualify as Incentive Options ("Non-statutory Options"). The 1997 Plan is
administered by the Compensation Committee of the Board of Directors. The Board
of Directors recommends a vote FOR this proposal.
Under the 1997 Plan, Options may not be granted at an exercise price less
than the fair market value of the Common Stock on the date of grant (or, for an
Incentive Option granted to a person holding more than 10% of the Company's
voting stock, at less than 110% of fair market value). An optionee who leaves
the Company for reasons other than death, disability or termination for cause
has three months after termination in which to exercise his or her Options.
Options may not be transferred other than by will or laws of descent and
distribution and may be exercised, during the lifetime of an optionee, only by
the optionee. Options which have been granted to employees who terminate
employment due to death or disability may be exercised for a period of one year
after termination by the optionee or the person(s) to whom the rights under such
Option shall have passed, as the case may be. The term of each Option, which is
fixed at the date of grant, may not exceed ten years from the date the Option is
granted (except that an Incentive Option granted to a person holding more than
10% of the Company's voting stock may exercisable only for five years). Options
may be made exercisable in whole or in installments, and the Plan contains a
cashless exercise feature enabling the holder to exercise Options by
surrendering previously owned Common Stock or other vested Options. The exercise
of the Options accelerates if the Company merges or consolidates with another
corporation and is not the surviving corporation or if the Company transfers all
or substantially all of its business or assets to another person or entity. No
Options are currently outstanding under the 1997 Plan.
8
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SELECTION OF AUDITORS
(Proposal #3)
The Board of Directors has selected McGladrey & Pullen, LLP as independent
auditors to examine the accounts of the Company for the fiscal year ending
December 31, 1997, and to perform other accounting services. McGladrey & Pullen,
LLP has acted as independent auditors of the Company since May 1995.
Representatives of McGladrey & Pullen, LLP are expected to be present at the
1997 Annual Meeting and will be given an opportunity to make a statement if so
desired and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
The rules of the Securities and Exchange Commission permit shareholders of
a company, after notice to the company, to present proposals for shareholder
action in the Company's proxy statement where such proposals are consistent with
applicable law, pertain to matters appropriate for shareholder action and are
not properly omitted by company action in accordance with the proxy rules. The
Legal Research Center, Inc. 1998 Annual Meeting of Shareholders is expected to
be held in June 1998. In order to be considered for inclusion in the Proxy
Statement for the June 1998 Annual Meeting, shareholder proposals prepared in
accordance with the proxy rules must be received by the Company on or before
January 15, 1998.
GENERAL
The Board of Directors of the Company does not intend to present and knows
of no matters other than the foregoing to be brought before the meeting.
However, the enclosed proxy gives discretionary authority in the event that any
additional matters should be presented.
BY ORDER OF THE BOARD OF DIRECTORS
Arun K. Dube, Chairman
9
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LEGAL RESEARCH CENTER, INC.
PROXY
The undersigned shareholder of Legal Research Center, Inc. (the "Company")
hereby constitutes and appoints Christopher R. Ljungkull or James R. Seidl, or
both of them, his or her proxy, with full power of substitution, to attend the
Annual Meeting of shareholders of the Company to be held at the Hyatt Regency,
1300 Nicollet Mall, Minneapolis, Minnesota 55403 on Tuesday June 24, 1997 at
2:00 p.m., or at any and all adjournments thereof, and there to act for and to
vote all stock of the undersigned in the manner specified below, upon the
following matters.
1. Election of four directors to serve until the next Annual Meeting of
Shareholders or until their successors are elected:
Arun K. Dube, Christopher R. Ljungkull, James R. Seidl and James J. Seifert
|_| FOR all nominees listed above (except as indicated to the contrary
below)
|_| WITHHOLD AUTHORITY to vote for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual, write that
nominee's name in the space provided below.)
- - --------------------------------------------------------------------------------
2. Adopt the Legal Research Center, Inc. 1997 Stock Option Plan.
|_| FOR |_|AGAINST |_| ABSTAIN
3. Selection of McGladrey & Pullen, LLP as independent auditors of the Company
for the fiscal year ending December 31, 1997.
|_| FOR |_|AGAINST |_| ABSTAIN
4. In their discretion on any other matter that may properly come before the
meeting or any adjournment or adjournments thereof.
PLEASE FILL IN, SIGN, DATE AND MAIL IN THE ENCLOSED ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS. THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED BY THE
UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED
FOR APPROVAL OF PROPOSALS 1, 2 AND 3 AND GRANT DISCRETIONARY AUTHORITY ON ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.
10
<PAGE>
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE COMPANY'S NOTICE OF ANNUAL
SHAREHOLDERS MEETING TO BE HELD ON JUNE 24, 1997 AND PROXY STATEMENT.
Dated: __________________________ ____, 1997
_______________________________________
_______________________________________
IMPORTANT: Signature(s) should correspond with the name appearing on the books
of the Company. When signing in a fiduciary or representative capacity, give
full title as such. When more than one owner, each should sign.
LEGAL RESEARCH CENTER, INC.
1997 STOCK OPTION PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 Establishment. Legal Research Center, Inc. (the "Company") hereby
establishes a plan providing for the grant of stock options to certain eligible
individuals who have or will render services to the Company. This plan shall be
known as the Legal Research Center, Inc. 1997 Stock Option Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enhancing the Company's ability to attract and
retain qualified persons to perform services for the Company, by providing
incentives to such persons to put forth maximum efforts for the Company and by
rewarding persons who contribute to the achievement of the Company's economic
objectives.
ARTICLE 2.
DEFINITIONS
The following terms have the meanings set forth below, unless the context
otherwise requires:
2.1 "Affiliate" means with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Person, (ii) any person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any officer, director, or
general partner of such Person, or (iv) any Person who is an officer, director,
general partner or holder of ten percent (10%) or more of the voting interests
of any Person described in clauses (i) through (iii) of this sentence. For
purposes of this definition, the term "controls," "is controlled by," or "is
under common control with" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the group of individuals administering the Plan, as
provided in Article 3 of the Plan.
2.5 "Common Stock" means the common stock of the Company, par value $.01
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
2.6 "Disability" means the permanent and total disability of the
Participant within the meaning of Section 22(e)(3) of the Code.
2.7 "Eligible Recipient" means all employees (including, without
limitation, officers and directors who are also employees), Outside Directors,
consultants and independent contractors of the Company or any Subsidiary.
<PAGE>
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 "Fair Market Value" means, with respect to the Common Stock, the
following:
(a) If the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the last sale price of the Common Stock on such
exchange or reported by the NASDAQ National Market System as of such date
(or, if no shares were traded on such day, as of the next preceding day on
which there was such a trade).
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges or reported on the NASDAQ National Market System, and
bid and asked prices therefor in the over-the-counter market are reported
by The Nasdaq SmallCap Market7 or the National Quotation Bureau, Inc. (or
any comparable reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the NASDAQ System, or, if not so
reported thereon, as reported by the National Quotation Bureau, Inc. (or
such comparable reporting service).
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System, and
such bid and asked prices are not so reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion.
2.10 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.11 "Non-Statutory Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 or Article 7 of the Plan
that does not qualify as an Incentive Stock Option.
2.12 "Option" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.13 "Outside Director" means a member of the Board who is not an employee
of the Company or any Subsidiary or Affiliate thereof and who satisfies the
definition of (i) a Non-Employee Director pursuant to Rule 16b-3 of the Exchange
Act, and (ii) an "outside director" pursuant to Section 162(m) of the Code.
2.14 "Participant" means an Eligible Recipient who receives one or more
Options under the Plan.
2.15 "Person" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company or a wholly owned
subsidiary of the Company.
2.16 "Previously Acquired Shares" means shares of Common Stock that are
already owned by the Participant and shares of Common Stock that could be
acquired by the Participant pursuant to the exercise of an Option.
-2-
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2.17 "Retirement" means the retirement of a Participant pursuant to and in
accordance with the regular or, if approved by the Board for purposes of the
Plan, any early retirement plan or practice of the Company or Subsidiary then
covering the Participant.
2.18 "Securities Act" means the Securities Act of 1933, as amended.
2.19 "Subsidiary" means any subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code.
ARTICLE 3.
PLAN ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Board or by a
committee of the Board consisting solely of two or more Outside Directors.
Members of such a committee, if established, shall be appointed from time to
time by the Board, shall serve at the pleasure of the Board and may resign at
any time upon written notice to the Board. A majority of the members of such a
committee shall constitute a quorum. Such a committee shall act by majority
approval of the members, shall keep minutes of its meetings and shall provide
copies of such minutes to the Board. Action of such a committee may be taken
without a meeting if unanimous written consent is given. Copies of minutes of
such a committee's meetings and of its actions by written consent shall be
provided to the Board and kept with the corporate records of the Company. As
used in this Plan, the term "Committee" will refer to the Board or to such a
committee, if established.
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the Plan, the
Committee shall have the authority to determine (i) the Eligible Recipients
who shall be selected as Participants, (ii) the nature and extent of the
Options to be granted to each Participant (including the number of shares
of Common Stock to be subject to each Option, the exercise price and the
manner in which Options will vest or become exercisable), (iii) the time or
times when Options will be granted, (iv) the duration of each Option, (v)
the restrictions and other conditions to which the exercisability or
vesting of Options may be subject, and (vi) such other provisions of the
Options as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan. The Committee shall determine the form or forms
of the option agreements with Participants which shall evidence the
particular terms, conditions, rights and duties of the Company and the
Participants with respect to Options granted pursuant to the Plan, which
agreements shall be consistent with the provisions of the Plan.
(b) With the consent of the Participant affected thereby, the
Committee may amend or modify the terms of any outstanding Option in any
manner, provided that the amended or modified terms are permitted by the
Plan as then in effect. Without limiting the generality of the foregoing
sentence, the Committee may, with the consent of the Participant affected
thereby, modify the exercise price, number of shares or other terms and
conditions of an Option, extend the term of an Option, accelerate the
exercisability or vesting or otherwise terminate any restrictions relating
to an Option, accept the surrender of any outstanding Option, or, to the
extent not previously exercised or vested, authorize the grant of new
Options in substitution for surrendered Options.
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(c) The Committee shall have the authority to interpret the Plan and,
subject to the provisions of the Plan, to establish, adopt and revise such
rules and regulations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's decisions and
determinations under the Plan need not be uniform and may be made
selectively among Participants, whether or not such Participants are
similarly situated. Each determination, interpretation or other action made
or taken by the Committee pursuant to the provisions of the Plan shall be
conclusive and binding for all purposes and on all persons, including,
without limitation, the Company and its Subsidiaries, the shareholders of
the Company, the Committee and each of its members, the directors, officers
and employees of the Company and its Subsidiaries, and the Participants and
their successors in interest. No member of the Committee shall be liable
for any action or determination made in food faith with respect to the Plan
or any Option granted under the Plan.
ARTICLE 4.
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
below, the maximum number of shares of Common Stock that shall be authorized and
reserved for issuance under the Plan shall be 700,000 shares of Common Stock.
4.2 Shares Available for Use. Shares of Common Stock that may be issued
upon exercise of Options shall be applied to reduce the maximum number of shares
of Common Stock remaining available for use under the Plan. Any shares of Common
Stock that are subject to an Option (or any portion thereof) that lapses,
expires or for any reason is terminated unexercised shall become available for
use under the Plan. Also, Previously Acquired Shares which are tendered to the
Company in satisfaction or partial satisfaction of the Exercise Price pursuant
to Section 6.6 or in satisfaction or partial satisfaction of withholding
obligations pursuant to Article 9 shall become available for use under the Plan
to the extent permitted by Rule 16b-3 of the Exchange Act.
4.3 Adjustments to Shares. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, extraordinary dividend or
divesture (including a spin-off) or any other change in the corporate structure
or shares of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation) may make appropriate adjustment (which determination shall be
conclusive) as to the number and kind of securities subject to outstanding
Options. Without limiting the generality of the foregoing, in the event that any
of such transactions are effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets, including cash, with
respect to or in exchange for such Common Stock, all Participants holding
outstanding Options shall upon the exercise of such Option receive, in lieu of
any shares of Common Stock they may be entitled to receive, such stock
securities or assets, including cash, as would have been issued to such
Participants if their Options had been exercised and such Participants had
received Common Stock prior to such transaction.
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ARTICLE 5.
PARTICIPATION
Participants in the Plan shall be those Eligible Recipients who, in the
judgment of the Committee, have performed, are performing, or during the term of
an Option will perform, services in the management, operation and development of
the Company or any Subsidiary or Affiliate thereof, and significantly
contributed, are significantly contributing or are expected to significantly
contribute to the achievement of corporate economic objectives. Eligible
Recipients may be granted from time to time one or more Options, as may be
determined by the Committee in its sole discretion. The number, type, terms and
conditions of Options granted to various Eligible Recipients need not be
uniform, consistent or in accordance with any plan, regardless of whether such
Eligible Recipients are similarly situated. Upon determination by the Committee
that an Option is to be granted to an Eligible Recipient, written notice shall
be given such person, specifying the terms, conditions, rights and duties
related thereto. Each Eligible Recipient to whom an Option is to be granted
shall enter into an agreement with the Company, in such form as the Committee
shall determine and which is consistent with the provisions of the Plan,
specifying such terms, conditions, rights and duties. Options shall be deemed to
be granted as of the date specified in the grant resolution of the Committee,
and the related option agreements shall be dated as of such date.
ARTICLE 6.
STOCK OPTIONS
6.1 Grant. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option;
provided, however, that an Incentive Stock Option shall be granted only to an
Eligible Recipient who is an employee of the Company or a Subsidiary or
Affiliate thereof. The terms of the agreement relating to a Non-Statutory Stock
Option shall expressly provide that such Option shall not be treated as an
Incentive Stock Option. Options shall be granted for no cash consideration
unless minimal cash consideration is required by applicable law.
6.2 Exercise. An Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the Committee
in its sole discretion at the time the Option is granted. Upon the completion of
its exercise period, an Option, to the extent not then exercised, shall expire.
6.3 Exercise Price.
(a) Incentive Stock Options. The per share price to be paid by the
Participant at the time an Incentive Stock Option is exercised shall be
determined by the Committee, in its discretion, at the date of its grant;
provided, however, that such price shall not be less than (i) 100% of the
Fair Market Value of one share of Common Stock on the date the Option is
granted, or (ii) 110% of the Fair Market Value of one share of Common Stock
on the date the Option is granted if, at that time the Option is granted,
the Participant owns, directly or indirectly (as determined pursuant to
Section 424(d) of the Code), more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary or parent
corporation of the Company (within the meaning of Sections 424(f) and
424(e), respectively, of the Code).
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(b) Non-Statutory Stock Options. The per share price to be paid by the
Participant at the time a Non-Statutory Stock Option is exercised shall be
determined by the Committee in its sole discretion at the time the Option
is granted; provided, however, that such price shall not be less than 100%
of the Fair Market Value of one share of Common Stock on the date the
Option is granted.
6.4 Duration.
(a) Incentive Stock Options. The period during which an Incentive
Stock Option may be exercised shall be fixed by the Committee in its sole
discretion at the time such Option is granted; provided, however, that in
no event shall such period exceed ten (10) years from its date of grant or,
in the case of a Participant who owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary or parent corporation of the Company (within the meaning of
Section 424(f) and 424(e), respectively, of the Code), five (5) years from
its date of grant.
(b) Non-Statutory Stock Options. The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the Committee
in its sole discretion at its date of grant.
(c) Effect of Termination of Employment or Other Service.
Notwithstanding this Section 6.4, except as provided in Articles 7 and 8 of
the Plan, all Options granted to a Participant shall terminate and may no
longer be exercised upon the termination of the Participant's employment or
other status with the Company, its Affiliates or Subsidiaries.
6.5 Manner of Exercise. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained herein
and in the agreement evidencing such Option, by delivery, in person or through
certified or registered mail, of written notice of exercise to the Company at
its principal executive office (Attention: Chief Financial Officer), and by
paying in full the total Option exercise price for the shares of Common Stock
purchased. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Option (or portion thereof) that is being exercised
and the number of shares with respect to which the Option is being exercised.
Subject to compliance with Section 11.1 of the Plan, the exercise of the Option
shall be deemed effective upon receipt of such notice and payment complying with
the terms of the Plan and the agreement evidencing such Option. As soon as
practicable after the effective exercise of the Option, the Participant shall be
recorded on the stock transfer books of the Company as the owner of the shares
purchased, and the Company shall deliver to the Participant one or more duly
issued stock certificates evidencing such ownership. If a Participant exercises
any Option with respect to some, but not all, of the shares of Common Stock
subject to such Option, the right to exercise such Option with respect to the
remaining shares shall continue until its expires or terminates in accordance
with its terms. An Option shall only be exercisable with respect to whole
shares.
6.6 Payment of Exercise Price. The total purchase price of the shares to be
purchased upon exercise of an Option shall be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion, may allow such payments to be made, in whole or in part, by
transfer from the Participant to the Company of Previously Acquired Shares. In
determining whether or upon what terms and conditions a
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Participant will be permitted to pay the purchase price of an Option in a form
other than cash, the Committee may consider all relevant facts and
circumstances, including, without limitation, the tax and securities law
consequences to the Participant and the Company and the financial accounting
consequences to the Company. In the event the Participant is permitted to pay
the purchase price of an Option in whole or in part with Previously Acquired
Shares, the value of such shares shall be equal to their Fair Market Value on
the date of exercise of the Option. No shares of the Common Stock shall be
delivered pursuant to the exercise of any Option until payment in full of any
amount required to be paid pursuant to the Plan or the applicable option
agreement is, or is arranged to be, received by the Company.
6.7 Rights as a Shareholder. The Participant shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Participant shall have become the holder of record of such shares, and
no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine pursuant to Section 4.3 of the Plan.
6.8 Disposition of Common Stock Acquired Pursuant to the Exercise of
Incentive Stock Options. Prior to making a disposition (as defined in Section
424(c) of the Code) of any shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted under the Plan before the
expiration of two years after its date of grant or before the expiration of one
year after its date of exercise and the date on which such shares of Common
Stock were transferred to the Participant pursuant to exercise of the Option,
the Participant shall send written notice to the Company of the proposed date of
such disposition, the number of shares to be disposed of, the amount of proceeds
to be received from such disposition and any other information relating to such
disposition that the Company may reasonably request. The right of a Participant
to make any such disposition shall be conditioned on the receipt by the Company
of all amounts necessary to satisfy any federal, state or local withholding and
employment-related tax requirements attributable to such disposition. The
Committee shall have the right, in its sole discretion, to endorse the
certificates representing such shares with a legend restricting transfer and to
cause a stop transfer order to be entered with the Company's transfer agent
until such time as the Company receives the amounts necessary to satisfy such
withholding and employment-related tax requirements or until the later of the
expiration of two years from its date of grant or one year from its date of
exercise and the date on which such shares were transferred to the Participant
pursuant to the exercise of the Option.
6.9 Aggregate Limitation of Stock Subject to Incentive Stock Options. To
the extent that the aggregate Fair Market Value (determined as of the date an
Incentive Stock Option is granted) of the shares of Common Stock with respect to
which incentive stock options (within the meaning of Section 422 of the Code)
are exercisable for the first time by a Participant during any calendar year
(under the Plan and any other incentive stock option plans of the Company or any
subsidiary or any parent corporation of the Company (within the meaning of
Sections 424(f) and 424(e), respectively, of the Code)) exceeds $100,000 (or
such other amount as may be prescribed by the Code from time to time), such
excess Options shall be treated as Non-Statutory Stock Options. The
determination shall be made by taking incentive stock options into account in
the order in which they were granted. If such excess only applies to a portion
of an incentive stock option, the Committee, in its discretion, shall designate
which shares shall be treated as shares to be acquired upon exercise of an
incentive stock option.
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ARTICLE 7.
EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE
7.1 Termination of Employment or Other Service Due to Death, Disability or
Retirement. In the event a Participant's employment or other service with the
Company and all Subsidiaries or Affiliates is terminated by reason of such
Participant's death, Disability or Retirement, all outstanding Options then held
by the Participant shall become immediately exercisable in full and remain
exercisable after such termination for a period of three months in the case of
Retirement and one year in the case of death or Disability (but in no event
after the expiration date of any such Option).
7.2 Termination of Employment or Other Service for Reasons Other than
Death, Disability or Retirement. Unless otherwise determined by the Committee
either at the time an Option is granted or thereafter, in the event of
termination of the Participant's employment or other status with the Company and
all Subsidiaries or Affiliates in relation to which the Option was granted for
any reason other than death, Disability or Retirement, all rights of the
Participant under the Plan shall immediately terminate without notice of any
kind, and no Options then held by the Participant shall thereafter be
exercisable; provided, however, that if such termination is due to any reason
other than termination by the Company or any Subsidiary or Affiliate for
"cause," all outstanding Options then held by such Participant shall remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination (but in no event after the expiration date
of any such Option). For purposes of this Section 7.2, "cause" shall be as
defined in any employment or other agreement or policy applicable to the
Participant or, if no such agreement or policy exists, shall mean (a)
dishonesty, fraud, misrepresentation, embezzlement or material or deliberate
injury or attempted injury, in each case related to the Company or any
Subsidiary, (b) any unlawful or criminal activity of a serious nature, (c) any
willful breach of duty, habitual neglect of duty or unreasonable job
performance, or (d) any material breach of a confidentiality or noncompetition
agreement entered into with the Company or any Subsidiary.
7.3 Modification of Effect of Termination. Notwithstanding the provisions
of this Article 7, upon a Participant's termination of employment or other
status with the Company and all Subsidiaries or Affiliates with respect to which
Options were granted, the Committee may, in its sole discretion (which may be
exercised before or following such termination) cause Options, or any portions
thereof, then held by such Participant to become exercisable and remain
exercisable following such termination in the manner determined by the
Committee; provided, however, that no Option shall be exercisable after the
expiration date thereof and any Incentive Stock Option that remains unexercised
more than three months following employment termination by reason of Retirement
or more than one year following employment termination by reason of death or
Disability shall thereafter be deemed to be a Non-Statutory Stock Option.
7.4 Date of Termination. Unless the Committee shall otherwise determine in
its sole discretion, a Participant's employment or other service shall, for
purposes of the Plan, be deemed to have terminated on the date such Participant
ceases to perform services for the Company and all Subsidiaries or Affiliates,
as determined in good faith by the Committee.
ARTICLE 8.
CHANGE OF CONTROL
8.1 Change in Control. For purposes of this Article 8, a "Change in
Control" of the Company shall mean (a) the sale, lease, exchange or other
transfer of all or substantially all
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of the assets of the Company (in one transaction or in a series of related
transactions) to a corporation that is not controlled by the Company, (b) the
approval by the shareholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company, or (c) a change in control of the
Company of a nature that would be required to be reported (assuming such event
has not been "previously reported") in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the effective date of the Plan, pursuant to
Section 13 or 15(d) of the Exchange Act, whether or not the Company is then
subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (i) any Person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 20% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors, or (ii) individuals who constitute the board of directors of the
Company on the effective date of the Plan cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors comprising or deemed pursuant hereto to comprise the
Board on the effective date of the Plan (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director) shall be, for purposes of this clause (ii) and the
following sentence, considered as though such person were a member of the Board
on the effective date of the Plan. Notwithstanding anything in the foregoing to
the contrary, no Change in Control shall be deemed to have occurred for purposes
of this Section 8.1 by virtue of any transaction which shall have been approved
by the affirmative vote of at least a majority of the members of the Board on
the effective date of the Plan.
8.2 Acceleration of Vesting. If a Change of Control of the Company shall
occur, the Committee, in its sole discretion, may determine that all outstanding
Options shall become immediately exercisable in full and shall remain
exercisable during the remaining term thereof, regardless of whether the
employment or other status of the Participants with respect to which Options
have been granted shall continue with the Company or any Subsidiary.
8.3 Cash Payment. If a Change of Control of the Company shall occur, then
the Committee, in its sole discretion, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options shall receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change of Control of the Company over the exercise price per share of such
Options.
8.4 Limitation on Change in Control Payments. Notwithstanding anything in
Section 8.2 or 8.3 above to the contrary, if, with respect to a Participant, the
acceleration of the exercisability of an Option as provided in Section 8.2 or
the payment of cash in exchange for all or part of an Option as provided in
Section 8.3 above (which acceleration or payment could be deemed a "payment"
within the meaning of Section 280G(b)(2) of the Code), together with any other
payments which such Participant has the right to receive from the Company or any
corporation which is a member of an "affiliated group" (as defined in Section
1504(a) of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Code), then the acceleration of exercisability and the
payments to such Participant pursuant to Sections 8.2 and 8.3 above shall be
reduced to the largest extent or amount as, in the sole judgment of the
Committee, will result in no portion of such payments being subject to the
excise tax imposed by Section 4999 of the Code.
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ARTICLE 9.
RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES
The Company is entitled to (a) withhold and deduct from future wages of the
Participant (or from other amounts which may be due and owing to the Participant
from the Company) or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements (i) attributable to the
grant or exercise of an Option or to a disqualifying disposition of stock
received upon exercise of an Incentive Stock Option, or (ii) otherwise incurred
with respect liability to an Option, or (b) require the Participant promptly to
remit the amount of such withholding liability to the Company before taking any
action with respect to the exercise of an Option or the issuance of any stock
certificate either to the Participant or any transferee. The Committee, in its
sole discretion, may permit a Participant to pay all or a portion of such
withholding liability either by surrendering Previously Acquired Shares already
owned by the Participant or by electing to have the Company retain shares
subject to the Option, provided that the Committee determines that the fair
market value of the surrendered Previously Acquired Shares or the retained
shares is equal to such withholding liability.
ARTICLE 10.
RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS;
TRANSFERABILITY
10.1 Employment or Service. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, or
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
10.2 Restrictions on Transfer. Other than pursuant to a qualified domestic
relations order (as defined by the Code), no right or interest of any
Participant in an Option prior to the exercise of such Options shall be
assignable or transferrable, or subjected to any lien, during the lifetime of
the Participant, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, including execution, levy, garnishment,
attachment, pledge, divorce or bankruptcy. In the event of a Participant's
death, such Participant's rights and interest in Options shall be transferrable
by testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options (to the
extent permitted pursuant to Article 7 of the Plan) may be made by, the
Participant's legal representatives, heirs or legatees. If in the opinion of the
Committee a Participant holding an Option is disabled from caring for his or her
affairs because of mental condition, physical condition or age, any payments due
the Participant may be made to, and any rights of the Participant under the Plan
shall be exercised by, such Participant's guardian, conservator or other legal
personal representative upon furnishing the Committee with evidence satisfactory
to the Committee of such status.
10.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is intended
to amend, modify or rescind any previously approved compensation plans or
programs entered into by the Company. The Plan will be construed to be in
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the Plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
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ARTICLE 11.
SECURITIES LAW RESTRICTIONS
11.1 Share Issuances. Notwithstanding any other provision of the Plan or
any agreements entered into pursuant hereto, the Company shall not be required
to issue or deliver any certificate for shares of Common Stock under this Plan,
and an Option shall not be considered to be exercised notwithstanding the tender
by the Participant of any consideration therefor, unless and until each of the
following conditions has been fulfilled:
(a) (i) There shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its sole discretion, shall have
determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the Committee has
determined not to so register the shares of Common Stock to be issued under
the Plan, (A) exemptions from registration under the Securities Act and
applicable state securities laws shall be available for such issuance (as
determined by counsel to the Company) and (B) there shall have been
received from the Participant (or, in the event of death or disability, the
Participant's heir(s) or legal representative(s)) any representations or
agreements requested by the Company in order to permit such issuance to be
made pursuant to such exemptions; and
(b) There shall have been obtained any other consent, approval or
permit from any state or federal governmental agency which the Committee
shall, in its sole discretion upon the advice of counsel, deem necessary or
advisable.
11.2 Share Transfers. Shares of Common Stock issued pursuant to Options
granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of, whether voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, except pursuant to
registration under the Securities Act and applicable state securities laws or
pursuant to exemptions from such registrations. The Company may condition the
sale, assignment, transfer, pledge, encumbrance or other disposition of such
shares not issued pursuant to an effective and current registration statement
under the Securities Act and all applicable state securities laws on the receipt
from the party to whom the shares of Common Stock are to be so transferred of
any representations or agreement requested by the Company in order to permit
such transfer to be made pursuant to exemptions from registration under the
Securities Act and applicable state securities laws.
11.3 Holding Period Requirements. Any Options granted and any Common Stock
acquired pursuant to the exercise of Options under this Plan may be subject to a
six-month holding requirement from the grant date in order for the transaction
to be exempt from the short-swing trading profits provision of Section 16(b) of
the Exchange Act.
11.4 Legends.
(a) Unless a registration statement under the Securities Act and
applicable state securities laws is in effect with respect to the issuance
or transfer of shares of Common Stock under the Plan, each certificate
representing any such shares shall be endorsed with a legend in
substantially the following form, unless counsel for the Company is of the
opinion as to any such certificate that such legend is unnecessary:
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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH
STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
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(b) The Committee, in its sole discretion, may endorse certificates
representing shares issued pursuant to the exercise of Incentive Stock
Options with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF ON OR
BEFORE [THE LATER OF THE ONE-YEAR OR TWO-YEAR INCENTIVE STOCK OPTION
HOLDING PERIODS], WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY.
ARTICLE 12.
PLAN AMENDMENT; MODIFICATION AND TERMINATION
12.1 Amendment; Modification; Termination. The Board may suspend or
terminate the Plan or any portion thereof at any time, and may amend the Plan
from time to time in such respects as the Board may deem advisable in order that
Options under the Plan shall conform to any change in applicable laws or
regulations or in any other respect the Board may deem to be in the best
interests of the Company; provided, however, that no such amendment shall be
effective, without approval of the shareholders of the Company, if shareholder
approval of the amendment is then required to comply with or obtain exemptive
relief under any tax or regulatory requirement the Board deems desirable to
comply with or obtain exemptive relief under, including without limitation, Rule
16b-3 under the Exchange Act or any successor rule or Section 422 of the Code or
under the applicable rules or regulations of any securities exchange or the
NASD; and provided further that the provisions of Sections 7.1, 7.2 and 7.3
hereof may not be amended more often than once during any six (6) month period
other than to comport with changes in the Code, the Employee Retirement Security
Act, or the rules and regulations thereunder. No termination, suspension or
amendment of the Plan shall alter or impair any outstanding Option without the
consent of the Participant affected thereby; provided, however, that this
sentence shall not impair the right of the Committee to take whatever action it
deems appropriate under Section 4.3 or Article 8 of the Plan.
ARTICLE 13.
EFFECTIVE DATE OF THE PLAN
13.1 Effective Date. The Plan is effective as of April 15, 1997, the date
adopted by the Board. Notwithstanding any other provision contained herein, if
the company has not obtained shareholder approval of this Plan within 12 months
of the effective date specified above, this Plan shall become null and void as
if it had never been adopted by the Board.
13.2 Duration of the Plan. The Plan shall terminate at midnight on April
14, 2007, and may be terminated prior thereto by Board action, and no Option
shall be granted after such termination. Options outstanding upon termination of
the Plan may continue to be exercised in accordance with their terms.
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<PAGE>
ARTICLE 14.
MISCELLANEOUS
14.1 Construction and Headings. The use of the masculine gender shall also
include within its meaning the feminine, and the singular may include the plural
and the plural may include the singular, unless the context clearly indicates to
the contrary. The headings of the Articles, Sections and subparts of the Plan
are for convenience of reading only and are not meant to be of substantive
significance and shall not add or detract from the meaning of such Article,
Section or subpart.
14.2 Governing Law. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed by
and construed exclusively and solely in accordance with the laws of the State of
Minnesota without regard to conflict of laws provisions of any jurisdictions.
All parties agree to submit to the jurisdiction of the state and federal courts
of Minnesota with respect to matters relating to the Plan and agree not to raise
or assert the defense that such forum is not convenient for such party.
14.3 Successors and Assigns. This Plan shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company, including,
without limitation, whether by way of merger, consolidation, operation of law,
assignment, purchase or other acquisition of substantially all of the assets or
business of the Company, and any and all such successors and assigns shall
absolutely and unconditionally assume all of the Company's obligations under the
Plan.
14.4 Survival of Provisions. The rights, remedies, agreements, obligations
and covenants contained in or made pursuant to the Plan, any agreement
evidencing an Option and any other notices or agreements in connection
therewith, including, without limitation, any notice of exercise of an Option,
shall survive the execution and delivery of such notices and agreements and the
delivery and receipt of shares of Common Stock and shall remain in full force
and effect.
IN WITNESS WHEREOF, and as evidence of the adoption of this Plan by the
Company, the Company has caused this Plan to be signed by the undersigned
officer, thereunto duly authorized pursuant to the resolutions of the Board of
Directors adopted on April 15, 1997.
Date: April 15, 1997
LEGAL RESEARCH CENTER, INC.
By:__________________________________
Name: Christopher R. Ljungkull
Title: Chief Executive Officer
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