EXHIBIT 10.4
THE HILLMAN COMPANIES, INC.
2004 STOCK OPTION PLAN
ARTICLE I
Purpose of Plan
The 2004 Stock Option Plan (the "Plan") of The Hillman
Companies, Inc., a Delaware corporation (the "Company"), adopted by the Board
and approved by the stockholders of the Company on March 31, 2004, for executive
and other key employees of the Company and its subsidiaries, is intended to
advance the best interests of the Company and its subsidiaries by providing
those persons who have a substantial responsibility for its management and
growth with additional incentives by allowing them to acquire an ownership
interest in the Company and thereby encouraging them to contribute to the
success of the Company and its subsidiaries and to remain in their employ. The
availability and offering of stock options under the Plan also increases the
Company's and its subsidiaries' ability to attract and retain individuals of
exceptional managerial talent upon whom, in large measure, the sustained
progress, growth and profitability of the Company and its subsidiaries depends.
All options granted under the Plan are intended to qualify for
an exemption (the "Exemptions") from the registration requirements (i) under the
Securities Act of 1933, as amended (the "Act"), pursuant to Rule 701 of the Act
and (ii) under applicable state securities laws. In the event that any provision
of the Plan would cause any options granted under the Plan to not qualify for
any Exemptions, the Plan shall be deemed automatically amended to the extent
necessary to cause all options granted under the Plan to qualify for such
Exemptions.
ARTICLE II
Definitions
For purposes of the Plan, except where the context clearly
indicates otherwise, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean, with respect to any Person, any other
Person which, directly or indirectly, controls, is controlled by or under common
control with such Person.
"Board" shall mean the board of directors of the Company.
"Cause" shall have the meaning assigned to such term in any
Participant's written Executive Securities Agreement or, in the absence of any
such written Executive Securities Agreement, shall mean (i) a material breach by
a Participant of this Plan, his Option Agreement or any employment or
noncompetition agreement to which the Participant is a party, (ii) the
Participant's failure to adhere to any written policy of the Company or any of
its subsidiaries if the Participant has been given a reasonable opportunity to
comply with such policy or to cure his failure to comply, (iii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company or any of its subsidiaries, including attempting to secure or
securing any personal profit in connection with any transaction entered into on
behalf of the Company or
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any of its subsidiaries, (iv) the misappropriation (or attempted
misappropriation) of any of the Company's or any of its subsidiaries' funds or
property, (v) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment, (vi) any act or acts of disloyalty,
misconduct or moral turpitude by the Participant injurious to the interest,
property, operations, business or reputation of the Company or any of its
subsidiaries or (vii) the Participant's failure or inability (other than by
reason of the Participant's Disability) to carry out effectively the
Participant's duties and obligations to the Company or any of its subsidiaries
or to participate effectively and actively in the management of the Company or
any of its subsidiaries, as determined in the reasonable judgment of the Board.
"Class B Common Stock" shall mean the Company's Class B Common
Stock, par value $0.01 per share, or if the outstanding Class B Common Stock is
hereafter changed into or exchanged for different stock or securities of the
Company, such other stock or securities.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and any successor statute.
"Committee" shall mean the compensation committee of the
Board. The Committee shall be composed of two or more directors as appointed
from time to time to serve by the Board.
"Disability" shall have the meaning assigned to such term in
any Participant's written Executive Securities Agreement or, in the absence of
any such written Executive Securities Agreement, shall mean the inability, due
to illness, accident, injury, physical or mental incapacity or other disability,
of any Participant to carry out effectively his duties and obligations to the
Company or any of its subsidiaries or to participate effectively and actively in
the management of the Company or any of its subsidiaries for a period of at
least 90 consecutive days or for shorter periods aggregating at least 120 days
(whether or not consecutive) during any twelve-month period, as determined in
the reasonable judgment of the Board.
"Executive Securities Agreement" shall mean any Executive
Securities Agreement entered into on March 31, 2004 between the Company and a
Participant.
"Fair Market Value" of the Class B Common Stock shall be
determined by the Committee or, in the absence of the Committee, by the Board.
"Good Reason" shall have the meaning assigned to such term in
any Participant's written Executive Securities Agreement or, if the Participant
has not entered into an Executive Securities Agreement, shall mean if the
Participant resigns from employment with the Company and its Subsidiaries as a
result of one or more of the following reasons: (i) the Company reduces his
responsibilities in a manner materially inconsistent with the positions he holds
or (ii) the Company changes his place of work to a location more than 75 miles
from his present place of work; provided that, the Participant must give written
notice to the Company of his objection to any such act within 10 days of such
act and such act shall not be deemed to constitute Good Reason if it is of such
a nature that substantially all detriment otherwise resulting to the
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Participant can be cured by appropriate action which the Company causes to be
taken within 30 days following written notice from the Participant.
"Investors" shall have the meaning set forth in the
Stockholders Agreement.
"Options" shall have the meaning set forth in Article IV.
"Participant" shall mean any executive or other key employee
of the Company or any of its subsidiaries who has been selected to participate
in the Plan by the Committee or the Board.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" shall mean a public offering and sale,
registered under the 1933 Act, of shares of the Company's common stock.
"Sale of the Company" shall mean any transaction or series of
transactions pursuant to which any Person(s) or a group of related Persons
(other than the Investors and their Affiliates) in the aggregate acquire(s) (i)
capital stock of the Company possessing the voting power (other than voting
rights accruing only in the event of a default, breach, event of noncompliance
or other contingency) to elect a majority of the Board (whether by merger,
consolidation, reorganization, combination, sale or transfer of the Company's
capital stock, shareholder or voting agreement, proxy, power of attorney or
otherwise) or (ii) all or substantially all of the Company's assets determined
on a consolidated basis; provided, that a Sale of the Company shall not include
a Public Offering.
"Stockholders Agreement" shall mean the Stockholders
Agreement, dated as of March 31, 2004, by and among the Company and certain of
its stockholders, as amended from time to time in accordance with its terms.
ARTICLE III
Administration
The Plan shall be administered by the Committee; provided that
if for any reason the Committee shall not have been appointed by the Board, all
authority and duties of the Committee under the Plan shall be vested in and
exercised by the Board. Subject to the limitations of the Plan, the Committee
shall have the sole and complete authority to: (i) select Participants, (ii)
grant Options to Participants in such forms and amounts as it shall determine,
(iii) impose such limitations, restrictions and conditions upon such Options as
it shall deem appropriate, (iv) interpret the Plan and adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) correct any defect or omission or reconcile any inconsistency in the Plan or
in any Option granted hereunder and (vi) make all other determinations and take
all other actions necessary or advisable for the implementation and
administration of the Plan; provided, that in making determinations under the
Plan the Committee shall take into consideration the recommendations of the
Company's chief executive
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officer. The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other Persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Committee may, as approved by the Board and to the extent
permissible by law, delegate any of its authority hereunder to such persons as
it deems appropriate.
ARTICLE IV
Limitation on Aggregate Shares
The number of shares of Class B Common Stock with respect to
which options may be granted under the Plan (the "Options") and which may be
issued upon the exercise thereof shall not exceed, in the aggregate, 256.41
shares; provided that the type and the aggregate number of shares which may be
subject to Options shall be subject to adjustment in accordance with the
provisions of Section 6.8 below, and further provided that to the extent any
Options expire unexercised or are canceled, terminated or forfeited in any
manner without the issuance of Class B Common Stock thereunder, or if any
Options are exercised and the shares of Class B Common Stock issued thereunder
are repurchased by the Company, such shares shall again be available under the
Plan. The 256.41 shares of Class B Common Stock available under the Plan may be
either authorized and unissued shares, treasury shares or a combination thereof,
as the Committee shall determine.
ARTICLE V
Awards
5.1 Options. The Committee may grant Options to
Participants in accordance with this Article V.
5.2 Form of Option. Options granted under this Plan shall
be nonqualified stock options and are not intended to be "incentive stock
options" within the meaning of Section 422 of the Code or any successor
provision.
5.3 Exercise Price. The option exercise price per share
of Class B Common Stock shall be fixed by the Committee.
5.4 Exercisability. Options shall be exercisable at such
time or times as the Committee shall determine at or subsequent to grant;
provided that any Options granted hereunder shall fully vest and become
exercisable on the second anniversary of the date of grant, but only if the
applicable Participant is still employed by the Company or any of its
subsidiaries as of such anniversary.
5.5 Payment of Exercise Price. Options shall be exercised
in whole or in part by written notice to the Company (to the attention of the
Company's Secretary) accompanied by payment in full of the option exercise
price. Payment of the option exercise price shall be made in cash (including
check, bank draft or money order).
5.6 Terms of Options. The Committee shall determine the
term of each Option, which term shall in no event exceed ten years from the date
of grant.
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5.7 Annual Limitation on Grant of Options. Unless
otherwise consented to by the Board, the aggregate number of shares of Class B
Common Stock for which Options may be granted by the Committee in any calendar
year shall not exceed 20% of the shares of Class B Common Stock reserved under
Article IV of the Plan.
ARTICLE VI
General Provisions
6.1 Conditions and Limitations on Exercise. Subject to
Section 5.4 hereof, Options may be made exercisable in one or more installments,
upon the happening of certain events, upon the passage of a specified period of
time, upon the fulfillment of certain conditions or upon the achievement by the
Company or any of its subsidiaries of certain performance goals, as the
Committee shall decide in each case when the Options are granted.
6.2 Sale of the Company. In the event of a Sale of the
Company, the Committee may terminate (i) any vested Options without payment of
any kind provided that each Participant shall first be given notice of such
termination and at least 15 days to exercise all vested Options that are to be
so terminated or (ii) any vested Options for a payment of (x) cash and/or (y)
consideration in the same form as that received by the holders of the Company's
Common Stock in connection with such Sale of the Company, equal to the excess of
the Fair Market Value per share of Class B Common Stock (measured as of the date
of such Sale of the Company) over such Option's exercise price multiplied by the
number of Options to be terminated or (iii) any Option without payment of any
kind that on the date of such Sale of the Company (x) is not vested or (y) has a
Fair Market Value less than or equal to the aggregate exercise price of such
Option. In the event of a Sale of the Company, the Committee shall immediately
vest any unvested Options, causing such Options to become immediately
exercisable, but only if a Participant is employed by the Company or any of its
subsidiaries as of the date of such Sale of the Company.
6.3 Written Agreement. Each Option granted hereunder to a
Participant shall be embodied in a written agreement (an "Option Agreement")
which shall be signed by the Participant and by the President of the Company for
and in the name and on behalf of the Company and shall be subject to the terms
and conditions of the Plan prescribed in the Option Agreement (including, but
not limited to, (i) the right of the Company and such other Persons as the
Committee shall designate ("Designees") to repurchase from each Participant, and
such Participant's transferees, all shares of Class B Common Stock issued or
issuable to such Participant on the exercise of an Option, in the event of such
Participant's termination of employment, (ii) rights of first refusal granted to
the Company and Designees, (iii) holdback and other registration right
restrictions in the event of a public registration of any equity securities of
the Company and (iv) any other terms and conditions which the Committee shall
deem necessary and desirable).
6.4 Listing, Registration and Compliance with Laws and
Regulations. Options shall be subject to the requirement that if at any time the
Committee shall determine, in its discretion, that the listing, registration or
qualification of the shares subject to the Options upon any securities exchange
or under any state or federal securities or other law or regulation, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a
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condition to or in connection with the granting of the Options or the issuance
or purchase of shares thereunder, no Options may be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options shall supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other Persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of an Option that, in the Committee's discretion, are
necessary or desirable in order to comply with such Section 16(b) and the rules
and regulations thereunder. If the Company, as part of an offering of securities
or otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Committee, may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days written notice to the holders
thereof.
6.5 Nontransferability. Options may not be transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the Participant, may be exercised only by such Participant (or his
legal guardian or legal representative). In the event of the death of a
Participant, exercise of Options granted hereunder shall be made only:
(i) by the executor or administrator of the
estate of the deceased Participant or the Person or Persons to whom the
deceased Participant's rights under the Option shall pass by will or
the laws of descent and distribution; and
(ii) to the extent that the deceased Participant
was entitled thereto at the date of his death, unless otherwise
provided by the Committee in such Participant's Option Agreement.
6.6 Expiration of Options.
(a) Normal Expiration. In no event shall any part of any
Option be exercisable after the date of expiration thereof (the "Expiration
Date"), as determined by the Committee pursuant to Section 5.6 above.
(b) Early Expiration Upon Termination of Employment.
Except as otherwise provided by the Committee in the Option Agreement, any
portion of a Participant's Option that was not vested and exercisable on the
date of the termination of such Participant's employment shall expire and be
forfeited as of such date, and any portion of a Participant's Option that was
vested and exercisable on the date of the termination of such Participant's
employment shall expire and be forfeited as of such date, except that the Option
Agreement may delay such expiration for such period as the Committee determines.
6.7 Withholding of Taxes. The Company shall be entitled,
if necessary or desirable, to withhold from any Participant from any amounts due
and payable by the Company or any of its subsidiaries to such Participant (or
secure payment from such Participant in lieu of withholding) the amount of any
withholding or other tax due from the Company with respect to any shares
issuable under the Options, and the Company may defer such issuance unless
indemnified to its satisfaction.
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6.8 Adjustments. In the event of a reorganization,
recapitalization, stock dividend or stock split, or combination or other change
in the shares of Class B Common Stock, the Board or the Committee may, in order
to prevent the dilution or enlargement of rights under outstanding Options, make
such adjustments in the number and type of shares authorized by the Plan, the
number and type of shares covered by outstanding Options and the exercise prices
specified therein as may be determined to be appropriate and equitable. The
issuance by the Company of shares of stock of any class, or options or
securities exercisable or convertible into shares of stock of any class, for
cash or property, or for labor or services either upon direct sale, or upon the
exercise of rights or warrants to subscribe therefor, or upon exercise or
conversion of other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Class B
Common Stock then subject to any Options.
6.9 No Right to Employment. Nothing in this Plan shall
interfere with or limit in any way the right of the Company or any of its
subsidiaries to terminate any Participant's employment at any time (with or
without Cause), nor confer upon any Participant any right to continue in the
employ of the Company or any of its subsidiaries for any period of time or to
continue his present (or any other) rate of compensation, and except as
otherwise provided under this Plan or by the Committee in the Option Agreement,
in the event of any Participant's termination of employment (including, but not
limited to, the termination by the Company or any of its subsidiaries without
Cause) any portion of such Participant's Option that was not previously vested
and exercisable shall expire and be forfeited as of the date of such
termination. No employee shall have a right to be selected as a Participant or,
having been so selected, to be selected again as a Participant.
6.10 Amendment, Suspension and Termination of Plan. The
Board or the Committee may suspend or terminate the Plan or any portion thereof
at any time and may amend it from time to time in such respects as the Board or
the Committee may deem advisable; provided that no such amendment shall be made
without stockholder approval to the extent such approval is required by law,
agreement or the rules of any exchange upon which the Common Stock is listed,
and no such amendment, suspension or termination shall impair the rights of
Participants under outstanding Options without the consent of the Participants
affected thereby; provided, further, that no amendment that increases the
maximum number of shares of Class B Common Stock with respect to which Options
may be granted and which may be issued upon the exercise thereof shall be
effective without the approval of Code Hennessy & Simmons IV LP and, for so long
as Ontario Teachers' Pension Plan Board, an Ontario corporation ("Teachers"),
owns Stockholder Shares (as defined in the Stockholders Agreement) and shares of
Investment Company Preferred Stock (as defined in the Stockholders Agreement)
with an aggregate Original Cost (as defined in the Stockholders Agreement) to
Teachers of at least $25,000,000, Teachers.
6.11 Amendment, Modification and Cancellation of
Outstanding Options. The Committee may amend or modify any Option in any manner
to the extent that the Committee would have had the authority under the Plan
initially to grant such Option; provided that no such amendment or modification
shall impair the rights of any Participant under any Option without the consent
of such Participant. With the Participant's consent, the Committee may cancel
any Option and issue a new Option to such Participant.
6.12 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or the Committee, the
members of the Board and the
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Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under 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) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding;
provided that any such Board or Committee member shall be entitled to the
indemnification rights set forth in this Section 6.12 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Board or Committee member shall give the Company
written notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Board or Committee member undertakes to handle and
defend it on his own behalf.
* * * *
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