Exhibit 4
CTI INDUSTRIES CORPORATION
2001 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of the CTI Industries Corporation 2001 Stock Option Plan (the
"Plan") are to enable the Company to attract and retain the services of officers
and other key employees, to retain able consultants and advisors and to motivate
such persons to use their best efforts on behalf of the Company.
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any and all
amendments thereto.
(c) "Committee" means the committee appointed by the Board of Directors
from time to time to administer the Plan pursuant to Section 2.2.
(d) "Common Stock" means the Company's Common Stock, $.195 par value.
(e) "Fair Market Value" means, with respect to a specific date, the value
of the Common Stock as determined in good faith by the Committee on
the basis of such quotations and other considerations as the Committee
deems appropriate.
(f) "Incentive Stock Option" means an option granted under the Plan which
is intended to qualify as an incentive stock option under Section 422
of the Code.
(g) "NASDAQ" means the NASDAQ SmallCap Market
(h) "Non-Qualified Stock Option" means an option granted under the Plan
which is not an Incentive Stock Option.
(i) "Participant" means a person to whom a Stock Option has been granted
under the Plan.
(j) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended from time to time, or any successor
rule.
(k) "Stock Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted under the Plan.
(l) "Subsidiary" means 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 Stock Option, each of the corporations
other than the last corporation in the unbroken chain owns 50% or more
of the total voting power of all classes of stock in one of the other
corporations in such chain.
2.2 Administration of the Plan
(a) The Plan shall be administered by the Committee which shall at all
times consist of two (2) or more persons, each of whom shall be a
member of the Board of Directors. Each member of the Committee shall
be a non-employee (as such term is defined in Rule 16b-3). The Board
of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and
places as it may determine.
(b) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan and
Stock Options granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in
and revoke such rules and regulations (and in the exercise of this
power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan or any agreement evidencing the grant of any
Stock Option in a manner and to the extent it shall deem necessary to
make the Plan fully effective); (iii) determine those persons to whom
Stock Options shall be granted and the number of Stock Options to be
granted to any person; (iv) determine the terms of Stock Options
granted under the Plan, consistent with the provision of the Plan; and
(v) generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or expedient to
promote the best interests of the Company. The interpretation and
construction by the Committee of any provision of the Plan or of any
Stock Option shall be final, binding and conclusive.
(c) The Committee may act only by a majority of its members then in
office; however, the Committee may authorize any one (1) or more of
its members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in
good faith with respect to
2
the Plan, and the Company shall indemnify and hold harmless each
member of the Committee against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim
with the approval of the Committee) arising out of any act or omission
in connection with the administration or interpretation of the Plan,
unless arising out of such person's own fraud or bad faith.
2.3 Effective Date
The Plan shall become effective on June 1, 2001, upon its adoption by the
Board of Directors, and Stock Options may be granted upon such adoption and from
time to time thereafter, subject, however, to approval of the Plan by
affirmative vote of the holders of a majority of the shares of the Common Stock,
within 12 months after the adoption of the Plan by the Board of Directors. If
the Plan is not approved at such annual or special meeting or at any
adjournments thereof, this Plan and all Stock Options previously granted
thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in Section 2.3,
unless sooner terminated by the Board of Directors, the Plan shall remain in
effect for a period of ten (10) years following its adoption by the Board of
Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject to Stock
Options granted under the Plan shall be 100,000. The Stock Options shall be
subject to adjustment in accordance with Section 4.1, as appropriate, and shares
to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, cancelled or surrendered for any
reason without being exercised in full, the unpurchased shares of Common Stock
which were subject to such Stock Option or portion thereof shall be available
for future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in part,
at any time by the Board of Directors. The Board of Directors may from time to
time make such amendments to the Plan as it may deem advisable, including, with
respect to Incentive Stock Options, amendments deemed necessary or desirable to
comply with Section 422 of the Code and any
3
regulations issued thereunder; provided, however, that without the approval of
the Company's shareholders no amendment shall be made which:
(a) Increases the maximum number of shares of Common Stock which may be
subject to Stock Options granted under the Plan (other than as
provided in Section 4.1, as appropriate); or
(b) Extends the term of the Plan; or
(c) Increases the period during which a Stock Option may be exercised
beyond ten (10) years from the date of grant; or
(d) Otherwise materially increases the benefits accruing to Participants
under the Plan;
(e) Materially modifies the requirements as to eligibility for
participation in the Plan; or
(f) Will cause Stock options granted under the Plan to fail to meet the
requirements of Rule 16b-3.
Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) officers and other
employees of the Company and its Subsidiaries and (ii) consultants and advisors
who render bona fide services to the Company and its Subsidiaries, in each case,
where the Committee determines that such officer, employee, consultant or
advisor has the capacity to make a substantial contribution to the success of
the Company. The Committee may grant Stock Options to purchase such number of
shares of Common Stock (subject to the limitations of Sections 2.5, 3.6 and 3.9)
as the Committee may, in its sole discretion, determine. In granting Stock
Options under the Plan, the Committee, on an individual basis, may vary the
number of Incentive Stock Options or Non- Qualified Stock Options as between
Participants and may grant Incentive Stock Options and/or Non-Qualified Stock
Options to a Participant in such amounts as the Committee may determine in its
sole discretion.
4
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by written
agreements executed by the Company and the Participant to whom granted, which
agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine, or, in the case of Incentive Stock Options, as may be required
by Section 422 of the Code, or any other applicable law.
3.2 Price
Subject to the provisions of Section 3.6(d) and 4.1, the purchase price per
share of Common Stock subject to a Stock Option shall, in no case, be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock
on the date the Stock Option is granted; provided, however, that the Board of
Directors may authorize the grant of a Non- Qualified Stock Option with a
purchase price per share less than the Fair Market Value if the amount of the
difference between the option purchase price and the Fair Market Value is
designated in the resolution authorizing the option.
3.3 Period
The duration or term of each Stock Option granted under the Plan shall be
for such period as the Committee shall determine but in no event more than ten
(10) years from the date of grant thereof.
3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable immediately upon
granting of the Stock Option or at such other time or times as the Committee
shall specify when granting the Stock Option. Once exercisable, a Stock Option
shall be exercisable, in whole or in part, by delivery of a written notice of
exercise to the Secretary of the Company at the principal office of the Company
specifying the number of shares of Common Stock as to which the Stock Option is
then being exercised together with payment of the full purchase price for the
shares being purchased upon such exercise. Until the shares of Common Stock as
to which a Stock Option is exercised are issued, the Participant shall have none
of the rights of a shareholder of the Company with respect to such shares.
5
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock Option
has been exercised and any amount required to be withheld, as contemplated by
Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company; or
(b) By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock
as to which the Stock Option is then being exercised or by the
withholding of whole shares of Common Stock having such Fair Market
Value upon the exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Special Rules for Incentive Stock Options
Notwithstanding any other provision of the Plan, the following provisions
shall apply to Incentive Stock Options granted under the Plan:
(a) Incentive Stock Options shall only be granted to Participants who are
employees of the Company or its Subsidiaries.
(b) To the extent that the aggregate Fair Market Value of Common Stock,
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under this Plan
and any other Plan of the Company or a Subsidiary exceeds $100,000,
such Stock Options shall be treated as Non-Qualified Stock Options.
(c) Any Participant who disposes of shares of Common Stock acquired upon
the exercise of an Incentive Stock Option by sale or exchange either
within two (2) years after the date of the grant of the Incentive
Stock Option under which the shares were acquired or within one (1)
year of the acquisition of such shares, shall promptly notify the
Secretary of the Company at the principal office of the Company of
such disposition, the amount realized, the purchase price per share
paid upon the exercise and the date of disposition.
6
(d) No Incentive Stock Option shall be granted to a Participant who, at
the time of the grant, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock
either of the Company or any parent or Subsidiary of the Company,
unless the purchase price of the shares of Common Stock purchasable
upon exercise of such Incentive Stock Option is at least one hundred
ten percent (110%) of the Fair Market Value (at the time the Incentive
Stock Option is granted) of the Common Stock and the Incentive Stock
Option is not exercisable more than five (5) years from the date it is
granted.
3.7 Termination of Employment
(a) In the event a Participant's employment by, or relationship with, the
Company shall terminate for any reason other than those reasons
specified in Sections 3.7(b), (c), (d) or (e) hereof while such
Participant holds Stock Options granted under the Plan, then all
rights of any kind under any outstanding Option held by such
Participant which shall not have previously lapsed or terminated shall
expire immediately.
(b) If a Participant's employment by, or relationship with, the Company or
its Subsidiaries shall terminate as a result of such Participant's
total disability, each Stock Option held by such Participant (which
has not previously lapsed or terminated) shall be exercisable by such
Participant for a period of six months after termination but only to
the extent the Option is otherwise exercisable during that period.
Notwithstanding the foregoing, the Committee may in the event of such
disability accelerate the date after which a Stock Option is
exercisable, in whole or in part, which change shall be in the
Committee's sole discretion and be final, binding and conclusive. For
purposes of this paragraph, "total disability" shall mean permanent
mental or physical disability as determined by the Committee.
(c) In the event of the death of a Participant, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
be exercisable by the executor or administrator of the Participant's
estate or by the person or persons to whom the deceased Participant's
rights thereunder shall have passed by will or by the laws of descent
or distribution, for a period of six (6) months after such
Participant's death but only to the extent the Option is otherwise
exercisable during that period. Notwithstanding the foregoing, the
Committee may in the event of such death accelerate the date after
which a Stock Option is exercisable, in whole or in part, which change
shall be in the Committee's sole discretion and be final, binding and
conclusive.
(d) If a Participant's employment by the Company shall terminate by reason
of such Participant's retirement in accordance with Company policies,
each Stock Option
7
held by such Participant at the date of termination (which has not
previously lapsed or terminated) shall be exercisable for a period of
three (3) months after termination, but only to the extent the Option
is otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a Participant
who at the time of such termination was an officer of the Company and
had been continuously employed by the Company during the two (2) year
period immediately preceding such termination, for any reason except
"good cause" (hereafter defined) and except upon such Participant's
death, total disability or retirement in accordance with Company
policies, each Stock Option held by such Participant (which has not
previously lapsed or terminated and which has been held by such
Participant for more than six (6) months prior to such termination)
shall be exercisable for a period of three (3) months after such
termination, but only to the extent the Option is otherwise
exercisable during that period. A termination for "good cause" shall
be deemed to have occurred only if the Participant in question (i) is
terminated by written notice for dishonesty, because of his conviction
of a felony, or because of his violation of any material provision of
any employment or other agreement with the Company or any of its
Subsidiaries, or (ii) shall voluntarily resign or terminate his
employment with the Company or any of its Subsidiaries under or
followed by such circumstances as would constitute a breach of any
material provision of any employment or other agreement between him
and the Company or any of its Subsidiaries, or (iii) shall have
committed an act of dishonesty not discovered by the Company or any of
its Subsidiaries prior to the cessation of his employment with the
Company or any of its Subsidiaries, but which would have resulted in
his discharge if discovered prior to such date, or (iv) shall, either
before or after cessation of his employment with the Company or any of
its Subsidiaries, without the written consent of the company or any of
its Subsidiaries, use (except for the benefit of the Company or any of
its Subsidiaries) or disclose to any other person any confidential
information relating to the business or any trade secrets of the
Company or any of its Subsidiaries obtained as a result of or in
connection with such employment.
3.8 Effect of Leaves of Absence
It shall not be considered a termination of employment when a Participant
is on military or sick leave or such other type leave of absence which is
considered as continuing intact the employment relationship of the Participant
with the Company or any of its Subsidiaries. In case of such leave of absence,
the employment relationship shall be deemed to have continued until the later of
(i) the date when such leave shall have lasted ninety (90) days in duration, or
(ii) the date as of which the Participant's right to employment shall have no
longer been guaranteed either by statute or contract.
8
3.9 Limitation on Number of Options Granted to Employees
The maximum number of shares for which options may be granted to an
employee of the Company during any calender year shall not exceed 100,000.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
(a) In the event of changes to the outstanding shares of Common Stock of
the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend,
stock consolidation or otherwise, or in the event of a sale of all or
substantially all of the assets of the Company, an appropriate and
proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding
adjustment changing the number or kind of shares and/or the purchase
price per share of unexercised Stock Options or portions thereof which
shall have been granted prior to any such change shall likewise be
made.
(b) Notwithstanding the foregoing, in the case of a reorganization, merger
or consolidation, or sale of all or substantially all of the assets of
the Company, in lieu of adjustments as aforesaid, the Committee may in
its discretion accelerate the date after which a Stock Option may or
may not be exercised or the stated expiration date thereof.
Adjustments or changes under this Section shall be made by the
Committee, whose determination as to what adjustments or changes shall
be made, and the extent thereof, shall be final, binding and
conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of descent
and distribution, nor shall any Stock Option be exercisable during the
Participant's lifetime by any person other than the Participant or his guardian
or legal representative.
4.3 Withholding
The Company's obligations under this Plan shall be subject to applicable
federal, state and local tax withholding requirements. Federal, state and local
withholding tax due at the time of a grant or upon the exercise of any Stock
Option may, in the discretion of the Committee, be paid in shares of Common
Stock already owned by the Participant or through the withholding of shares
otherwise issuable to such Participant, upon such terms and conditions as the
Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the
9
right to deduct from any payment of any kind otherwise due to such Participant
an amount equal to any federal, state or local taxes of any kind required to be
withheld by the Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be delivered under
the Plan except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and state
securities laws and withholding tax requirements and with the rules of NASDAQ
and of all other domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued to evidence shares for which a Stock Option
is exercised may bear legends and statements the Committee shall deem advisable
to assure compliance with federal and state laws and regulations. No Stock
Option shall be exercisable and no shares will be delivered under the Plan,
until the Company has obtained consent or approval from regulatory bodies,
federal or state, having jurisdiction over such matters as the Committee may
deem advisable. In the case of the exercise of a Stock Option by a person or
estate acquiring the right to exercise the Stock Option as a result of the death
of the Participant, the Committee may require reasonable evidence as to the
ownership of the Stock Option and may require consents and releases of taxing
authorities that it may deem advisable.
4.5 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the granting of
any Stock Options hereunder, shall confer upon any Participant under the Plan
any right to continue in the employ of the Company or any Subsidiary, or shall
in any way affect the right and power of the Company or any Subsidiary to
terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
4.6 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the recipient
shall be deemed to agree that any income realized upon the receipt or exercise
thereof or upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or "compensation"
in determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company or any Subsidiary.
4.7 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
10
4.8 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
4.9 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a convenience to
facilitate reference, such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of the Plan
or any provision hereof. The use of the masculine gender shall also include
within its meaning the feminine. The use of the singular shall also include
within its meaning the plural and vice versa.
4.10 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options shall be
used for the general corporate purposes of the Company.
4.11 Construction of Plan
The place of administration of the Plan shall be in the State of Illinois,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Illinois.
BOARD OF DIRECTORS APPROVAL April 12, 2001
SHAREHOLDER APPROVAL June 29, 2001
11