SCHLOTZSKY'S, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Schlotzsky's, Inc. Employee
Stock Purchase Plan, effective as of July 1, 1998.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Subsidiaries with an opportunity to purchase Common Stock of the
Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under section 423 of the Code. The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "ACQUIRED COMPANY" shall mean any company 50% or more of whose
stock or assets has been acquired by the Company or 50% or more of whose
assets have been acquired by a Subsidiary.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the common stock, no par value, of the
Company.
(e) "COMPANY" shall mean Schlotzsky's, Inc., a Texas corporation, or
any successor which adopts this Plan.
(f) "COMPENSATION" for the Offering Period shall mean the regular
straight-time earnings paid to the Employee by the Employer.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence that meets the requirements of paragraph 10(b). An Employee who was
employed by an Acquired Company on the date of such acquisition and at the
time of such acquisition was hired by an Employer will be deemed to have
Continuous Status as an Employee from the date of employment by the
Acquired Company, absent any interruption or termination of service.
(h) "EMPLOYEE" shall mean any person, including an officer, who is
customarily employed for at least twenty (20) hours per week and for more
than five (5) months in the calendar year by an Employer and whose wages
are determined, in the sole judgment of the Employer, at the time of
payment to be subject to withholding for purposes of federal income taxes.
(i) "EMPLOYER" shall mean the Company and each of its Subsidiaries,
excluding any Subsidiary that has declined to participate in the Plan.
(j) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
(k) "EXERCISE DATE" shall mean the last day of each Offering Period.
(l) "EXERCISE PRICE" shall have the meaning as defined in paragraphs
7(b) and 7(c).
(m) "OFFERING PERIOD" shall mean the period of six (6) months during
which an option granted pursuant to the Plan may be exercised, as described
in paragraph 4.
(n) "PARTICIPANT" shall mean an Eligible Employee in Continuous
Status as an Employee who has been offered the opportunity to purchase
Common Stock hereunder and who has elected to participate herein.
(o) "PARTICIPANT ACCOUNT" shall mean that separate account maintained
hereunder to record the amount that a Participant has contributed to the
Plan.
(p) "PLAN" shall mean the Schlotzsky's, Inc. Employee Stock Purchase
Plan.
"PLAN CUSTODIAN" shall mean the party appointed by the Plan
administrator or any successor appointed by the Plan administrator.
(r) "SIX MONTHS OF SERVICE" shall mean a consecutive one
hundred-eighty (180) day period of Continuous Status as an Employee,
beginning the date on which an Employee commences employment with an
Employer, a Subsidiary or an Acquired Company.
(s) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which at the time of the granting of the option pursuant to paragraph 7,
not less than 50% of the total combined voting power of all classes of
stock are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company
or a Subsidiary.
3. ELIGIBILITY.
(a) GENERAL RULE. Any Employee, as defined in paragraph 2, who has
completed Six Months of Service and is employed by an Employer on a given
Enrollment Date shall be eligible to participate in the Plan as an
"Eligible Employee," subject to the requirements of paragraphs 3(b) and
5(a) and the limitations imposed by section 423(b) of the Code. Any
Eligible Employee who terminates employment and rehires with an Employer
prior to an Enrollment Date within one year from the date of the Employee's
termination shall not be required to complete another Six Months of
Service.
(b) EXCEPTIONS. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option to purchase Common
Stock under the Plan if:
(i) Immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to
section 424(d) of the Code) would own stock (including for purposes of
this paragraph 3(b) any stock he holds outstanding options to
purchase) possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary computed in accordance with the Code Section 423(b)(3), or
(ii) Such option would permit such Employee's right to purchase
stock under all employee stock purchase plans (described in section
423 of the Code) of the Company and its Subsidiaries to accrue at a
rate which exceeds Twenty-five Thousand Dollars ($25,000) of the fair
market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at
any time, in accordance with the provisions of Code Section
423(b)(8).
4. OFFERING PERIODS. The first Offering Period begins July 1, 1998, and
shall end December 31, 1998, unless terminated earlier in accordance with
paragraph 19. Absent action by the Board, each subsequent Offering Period shall
be for a period of six (6) months, and shall commence on each January 1 and July
1. The Board shall have the power to change the duration of the Offering Periods
with respect to future offerings without stockholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
5. PARTICIPATION.
(a) An Eligible Employee may become a Participant in the Plan by
completing a subscription agreement, in a form prescribed by the Plan
administrator ("Subscription Agreement"), and filing it with the Company's
Human Resources Department prior to an applicable Enrollment Date, unless a
later time for filing the Subscription Agreement is set by the Board for
all eligible Employees with respect to a given Offering Period.
(b) An Eligible Employee may waive his right to participate for any
Offering Period by declining to authorize a payroll deduction. Such
declination must be filed in writing in the time and manner specified by
the Company. The filing of a written declination shall result in the
Employee's waiver of participation for the current Offering Period and all
subsequent offering periods and shall be irrevocable with respect to the
current Offering Period. Except as otherwise provided in this paragraph,
an Employee's waiver of participation for a specified Offering Period shall
not, in and of itself, adversely impact the right of such Employee to
participate in the Plan during any subsequent Offering Periods.
6. PAYMENT FOR COMMON STOCK.
(a) At the time a Participant files his or her Subscription
Agreement, such Participant shall elect to have payroll deductions made on
each pay date during the Offering Period at the rate of not less than 1% of
and not to exceed fifteen percent (15%) of the Compensation which he or she
receives on each pay date during the Offering Period, provided that the
aggregate amount of such payroll deductions during the Offering Period
shall not exceed fifteen percent (15%) of the Participant's aggregate
Compensation during said Offering Period.
(b) All payroll deductions made by a Participant shall be credited to
his or her Participant Account under the Plan.
(c) A Participant may discontinue or change the rate of his or her
payroll deductions during the Offering Period by completing and filing with
the Human Resources Department of the Company a new Subscription Agreement.
Such change or discontinuance shall be effective as soon as
administratively feasible after the Company's receipt of the new
Subscription Agreement.
7. GRANT OF OPTION.
(a) On the Enrollment Date of each Offering Period each Eligible
Employee in such Offering Period shall be granted an option to purchase on
each Exercise Date during such Offering Period up to a number of whole
shares of the Company's Common Stock determined by dividing fifteen percent
(15%) of the Eligible Employee's Compensation by the Exercise Price on the
Exercise Date for such Offering Period; provided, however, that the number
of shares subject to such option shall be reduced, if necessary, to a
number of shares which would not exceed the limitations described in
paragraph 3(b) or paragraph 12(a) hereof. In addition, the maximum number
of shares any Participant may be granted an option to purchase in any
Offering Period is one thousand (1000) shares. The Exercise Price of a
share of the Company's Common Stock shall be determined as provided in
paragraph 7(b) herein.
(b) The exercise price per share of the shares offered in a given
Offering Period shall be the lesser of (i) 85% of the fair market value of
a share of the Common Stock on the Exercise Date or (ii) 85% of the fair
market value of a share of the Common Stock on the Enrollment Date of such
Offering Period. The fair market value of the Company's Common Stock on a
given date shall be the closing price of such Stock as reported by the
Nasdaq Stock Market (or reported on such other national exchange on which
it may, from time to time, be reported) for the Exercise Date or the
Enrollment Date, as the case may be, (or if the Common Stock did not trade
on such date, for the most recent trading day preceding the Exercise Date
or the Enrollment Date, as the case may be, on which the Common Stock
traded), unless the Common Stock ceases to be traded on a national
exchange. If the Common Stock ceases to be traded on a national exchange,
its fair market value shall be determined by the Board in its discretionor
the Board may discontinue the Plan and refund all uninvested payroll
deduction accounts. Notwithstanding any provision of the Plan to the
contrary, no determination made with respect to the fair market value of
Common Stock shall be inconsistent with Code Section 423 or the regulations
thereunder.
8. EXERCISE OF OPTION. The Participant's option for the purchase of
Common Stock
will be exercised automatically on each Exercise Date of each Offering
Period, and the maximum number of whole shares subject to such option will be
purchased at the applicable exercise price with the funds in his or her
Participant Account and held in the Participant Account unless prior to such
Exercise Date the Participant has withdrawn from the Offering Period pursuant
to paragraph 10. Any unused payroll deductions from a Participant Account
will carry forward to the next offering period unless requested to be
refunded by the Participant. During a Participant's lifetime a Participant's
option to purchase shares hereunder is exercisable only by such Participant.
9. DELIVERY AND VOTING. Shares issued pursuant to the exercise of the
option will be held in custody by the Plan Custodian until withdrawal by the
Participant. The Participant may request a certificate for full shares held in
his or her Participant Account immediately after the Exercise Date or as of the
10th of any month thereafter. A Participant shall be entitled to vote any shares
held by the Plan Custodian in his or her Participant account by furnishing
instructions to the Plan Custodian. Unless directions are given by the
Participant, the shares shall not be voted.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all, but not less than all, of the
payroll deductions credited to his or her Participant Account and not yet
used toward the exercise of his or her option under the Plan at any time by
giving written notice to the Company on a form prescribed by the Plan
administrator. Withdrawal shall be effective no earlier than the date such
notice is received by the Board or the committee appointed by the Board
pursuant to paragraph 13. All of the Participant's unused payroll
deductions credited to his or her Participant Account will be paid to such
Participant promptly after receipt of his or her notice of withdrawal. A
withdrawal of a Participant's Participant Account shall terminate the
Participant's participation for the Offering Period in which the withdrawal
occurs, and no further payroll deductions for the purchase of shares will
be made during that Offering Period.
(b) Upon termination of the Participant's Continuous Status as an
Employee of the Company for any reason, he or she will be deemed to have
elected to withdraw from the Plan and any full shares held by the Plan
Custodian for the Participant will be issued in the name of the
Participant and mailed together with a check for any fractional shares.
Any funds credited to his or her Participant Account and not then used
toward the exercise of his or her option will be returned to such
Participant and his or her option will be cancelled; provided, however,
that a Participant who goes on a leave of absence shall be permitted to
remain in the Plan with respect to an Offering Period which commenced prior
to the beginning of such leave of absence. If such Participant is not
guaranteed re-employment by contract or statute and the leave of absence
exceeds ninety (90) days, such Participant shall be deemed to have
terminated employment on the ninety-first day of such leave of absence.
Payroll deductions for a Participant who has been on a leave of absence
will resume upon return to work at the same rate as in effect prior to such
leave unless changed by such Participant or unless the leave of absence
begins in one Offering Period and ends in a subsequent Offering Period, in
which case the Participant shall not
be permitted to re-enter the Plan until a new Subscription Agreement is
filed with respect to any Offering Period which commences after such
Participant has returned to work from the leave of absence.
(c) A Participant's withdrawal from one Offering Period will not have
any effect upon his or her eligibility to participate in a different
Offering Period or in any similar Plan which may hereafter be adopted by
the Company.
11. INTEREST. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 250,000 (two
hundred fifty thousand) shares, subject to adjustment upon changes in
capitalization of the Company as provided in paragraph 18. Either
authorized and unissued shares or issued shares heretofore or hereafter
reacquired by the Employer may be made subject to purchase under the Plan,
in the sole and absolute discretion of the Board. Further, if for any
reason any purchase of Common Stock under the Plan is not consummated,
shares subject to such purchase agreement may be subjected to a new
Subscription Agreement under the Plan. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make
a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable. In such event, the Company shall give written notice of such
reduction of the number of shares which each Employee shall be allowed to
purchase. Notwithstanding anything to the contrary herein, the Company
shall not be obligated to issue Common Stock hereunder if, in the opinion
of counsel for the Company, such issuance would constitute a violation of
Federal or state securities laws.
(b) The Participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised and the
shares purchased.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or, at the prior written request
of the Participant, in the names of the Participant and his or her spouse.
13. ADMINISTRATION. The Plan shall be administered by the Board or a
committee appointed by the Board. If a committee is appointed by the Board,
such committee shall have all of the powers of the Board with respect to the
Plan except for those powers set forth in paragraph 19 hereof. Members of the
Board who are eligible employees are permitted to participate in the Plan;
provided, however, that (i) members of the Board who are Eligible Employees may
not vote on any matter affecting the administration of the Plan or the grant of
any option pursuant to the Plan, and (ii) if a committee is appointed by the
Board to administer the Plan, no committee member will be eligible to
participate in the Plan. The Board or a committee appointed
hereunder shall have the following powers and duties:
(a) To direct the administration of the Plan in accordance with the
provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for the
administration of the Plan provided the rules are not inconsistent with the
terms of the Plan;
(c) To determine all questions with regard to rights of Employees and
Participants under the Plan, including, but not limited to, rights of
eligibility of an Employee to participate in the Plan;
(d) To enforce the terms of the Plan and the rules and regulations it
adopts;
(e) To direct the distribution of the shares of Common Stock
purchased hereunder;
(f) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(g) To engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
it with the performance of its duties;
(h) To prescribe procedures to be followed by Participants in
electing to participate herein;
(i) To receive from each Employer and from Employees such information
as shall be necessary for the proper administration of the Plan;
(j) To maintain, or cause to be maintained, separate accounts in the
name of each Participant to reflect the Participant's Participant Account
under the Plan; and
(k) To interpret and construe the Plan.
14. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who
is to receive any shares from the Participant's Participant Account under
the Plan in the event of such Participant's death subsequent to an Exercise
Date on which an option is exercised but prior to the issuance of such
shares. In addition, a Participant may file a written designation of a
beneficiary who is to receive any cash from the Participant's Participant
Account under the Plan in the event of such Participant's death prior to
the Exercise Date of the option.
(b) Such designation of beneficiary may be changed by the Participant
at any time by written notice. In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one
or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as
the Company may designate.
15. TRANSFERABILITY. Neither any monies credited to Participant's
Participant Account nor any rights with regard to the exercise of an option to
receive shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in paragraph 14 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such funds. The Plan shall not be
construed as creating any trust or fiduciary relationship.
17. REPORTS. Individual Participant Accounts will be maintained for each
Participant in the Plan. Statements of Participant Account will be given to
participating Employees promptly following an Exercise Date, which statements
will set forth the amounts of payroll deductions, the per share purchase price,
the number of shares purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If an option under this
Plan is exercised subsequent to any stock dividend, stock split, spin-off,
recapitalization, merger, consolidation, exchange of shares or the like,
occurring after such option was granted, as a result of which shares of any
class shall be issued in respect of the outstanding shares, or shares shall be
changed into a different number of the same or another class or classes, the
number of shares to which such option shall be applicable and the option price
for such shares shall be appropriately adjusted by the Company. Any such
adjustment, however, in the Common Stock shall be made without change in the
total price applicable to the portion of the Common Stock purchased hereunder
which has not been fully paid for, but with a corresponding adjustment, if
appropriate, in the price for each share of Common Stock.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. In the event
of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation,
each option under the Plan shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of
its sole discretion and in lieu of such assumption or
substitution, that (i) the Participant shall have the right to exercise
the option; or (ii) the Plan shall be terminated and any uninvested
payroll deduction amount refunded to Participant. If the Board makes an
option fully exercisable, in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify the Participant
that the option shall be fully exercisable for a period of thirty (30) days
from the date of such notice, and the option will terminate upon the
expiration of such period.
19. AMENDMENT OR TERMINATION. The Board may at any time and for any
reason terminate or amend the Plan. The Plan shall automatically terminate on
the Exercise Date that Participants become entitled to purchase a number of
shares greater than the number of shares available for purchase under paragraph
12. In the event of an automatic termination, reserved shares remaining as of
such Exercise Date shall be sold to Participants on a pro rata basis, as
described in paragraph 12.
Except as specifically provided in the Plan, as required to comply with
Code section 423, or as required to obtain a favorable ruling from the
Internal Revenue Service, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant.
20. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL. The Plan is adopted subject to shareholder
approval within 12 months of the adoption of the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Act, the rules and regulations
promulgated under both sets of laws, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute, such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan becomes effective on July 1, 1998. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
paragraph 19.
24. NO RIGHTS IMPLIED. Nothing contained in this Plan or any modification
or amendment to the Plan or in the creation of any Participant Account, or the
execution of any
participation election form, or the issuance of any shares of Stock, shall
give any Employee or Participant any right to continue employment, any legal
or equitable right against the Employer or Company or any officer, director,
or Employee of the Employer or Company, except as expressly provided by the
Plan.
25. SEVERABILITY. In the event any provision of the Plan shall be held to
be illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan, but shall be fully severable and
the Plan shall be construed and enforced as if the illegal or invalid provision
had never been included herein.
26. NOTICE. Any notice required to be given herein by the Employer, the
Company or the Board shall be deemed delivered, when (a) personally delivered,
or (b) placed in the United States mails, in an envelope addressed to the last
known address of the person to whom the notice is given.
27. WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice.
28. SUCCESSORS AND ASSIGNS. The Plan shall be binding upon all persons
entitled to purchase Common Stock under the Plan, their respective heirs,
legatees, and legal representatives upon the Employer, its successors and
assigns.
29. HEADINGS. The titles and headings of the paragraphs are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
30. LAW. All questions arising with respect to the provisions of this
Agreement shall be determined by application of the laws of the State of Texas
except to the extent Texas law is preempted by Federal statute. The obligation
of the Employer to sell and deliver Common Stock under the Plan is subject to
applicable laws and to the approval of any governmental authority required in
connection with the authorization, issuance, sale or delivery of such Common
Stock.
31. NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the members of
the Board nor any member of the committee (nor their delegates) shall be liable
for any act, omission, or determination taken or made in good faith with respect
to the Plan or any right to purchase shares of Common Stock granted under it,
and members of the Board and the committee (and their delegates) shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage, or expense (including attorneys' fees, the costs of
settling any suit, provided such settlement is approved by independent legal
counsel selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising therefrom to the full
extent permitted by law and under any directors and officers liability or
similar insurance coverage that may from time to time be in effect.
32. PARTICIPATING EMPLOYERS. This Plan shall constitute the employee
stock purchase plan of each Subsidiary which shall be deemed to have adopted
this Plan until and unless its board of directors declines in writing to do so.
A Subsidiary may withdraw from the Plan as of any Enrollment Date by giving
written notice to the Board, which notice must be received by the
Board at least thirty (30) days prior to such Enrollment Date.
IN WITNESS WHEREOF, this Stock Purchase Plan has been executed as of
May 29, 1998.
SCHLOTZSKY'S, INC.
By: /s/ John C. Wooley
--------------------------------------
John C. Wooley,
President and Chief Executive Officer