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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
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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.
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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
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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.
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(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
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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
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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.
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(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.
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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.
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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
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Michael W. Luce, President
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