EXHIBIT 10.4
BMC STOCK OPTION EXERCISE LOAN PROGRAM
PURPOSE:
- To facilitate stock option holder's exercise of stock options.
- To encourage share ownership by key employees.
- To minimize tax consequences to employees on stock option exercises by
providing the means to carry BMC stock for a sufficient period to
qualify for long-term capital gains treatment.
- To minimize the need to sell shares in the open market to pay for
taxes due upon exercise of options.
ELIGIBILITY:
- Effective date of the Program is April 22, 1993.
- Any employee of BMC with exercisable non-qualified stock option grants
is eligible to participate in the Program.
- Approval of loans is at the sole and absolute discretion of the
Compensation Committee or its designee.
- Employees holding options which are exercisable and vested at the time
a loan is requested (whether or not exercisable and vested at the
effective date of the Program) are eligible to be considered by the
Compensation Committee for loan approval.
AMOUNT OF LOANS:
- The total amount which any employee may borrow under the Program shall
be determined by the Compensation Committee in its sole and absolute
discretion.
- In addition, any employee's first loan request may not exceed
100% of the exercise price of the option to be financed with such
loan, plus 100% of the state and federal income taxes actually
paid within 15 months of such exercise on any income recognized
by reason of such exercise.
- Any loan request by an employee under the Program subsequent to
the employee's first loan request may not exceed the lesser of
(a) 100% of the exercise price of the option to be financed with
such loan, plus 100% of the state and federal income taxes
actually paid within 15 months of such exercise on any income
recognized by reason of such exercise or (b) such amount that
when added to the principal amount of all then outstanding loans
under the Program will not exceed 60% of the market value of all
the BMC stock of such employee pledged as collateral immediately
following such loan under the Program (determined as provided
below under "Loan Terms") (including any stock pledged upon the
option exercise requested to be financed by such subsequent loan)
or (c) eight times the employee's then-current base annual
salary.
- The amount of any loan used for the payment of taxes shall be
advanced only as and when payment of such taxes is made by the
employee.
- In no event shall any advance under the Program be made which
would cause the aggregate amount of principal and accrued
interest outstanding under all loans to any employee to exceed
100% of the market value of all BMC stock of such employee
pledged as collateral under the Program at the time of such
advance.
- In no event shall the total outstanding balance of an employee's
loans, including principal and accrued interest, exceed 100% of
the market value of all BMC stock pledged as collateral for such
employee's loans under the Program.
LOAN TERMS:
- Loans to any employee under the Program shall be interest free (a)
with respect to all amounts advanced to pay any option exercise price,
and (b) with respect to amounts advanced to pay income taxes to the
extent the aggregate principal amount of such tax payment advances
outstanding under the Program to the employee is not greater than the
product of the amount of the employee's base annual compensation plus
target bonus amount under the Management Incentive Plan as of the
first day of the then current calendar quarter multiplied times two
(such product the "Interest Free Loan Amount").
- To the extent the aggregate outstanding principal amount of tax
payment advances to any employee is in excess of the Interest Free
Loan Amount at any time, the amount of such excess shall bear interest
at the following rates:
(a) The interest rate applicable under any short-term borrowings by
BMC if any such borrowings are outstanding at the beginning of
any calendar quarter, such rate to apply for the entire calendar
quarter.
(b) The interest rate payable to BMC under its short-term money
market investments if BMC has no short-term borrowings
outstanding at the beginning of any calendar quarter, such rate
to apply for the entire calendar quarter.
- Any interest shall accrue as provided above, but shall not be payable
except as provided below, and shall not compound whether or not paid
from year-to-year or otherwise.
- Notes will be in the form of a Demand Promissory Note.
- The BMC stock will be held as collateral for all loans under the
Program and "legended" to the Company.
- The "market value" of BMC stock as of any date shall be determined by
reference to the closing price of BMC stock on the NYSE on the
business day preceding such determination.
METHODS OF REPAYMENT:
- 30% of any payout under the Management Incentive Plan (net of
estimated applicable state and federal income taxes and other
withholding) received while a loan is outstanding will be
applied to repayment of the loan.
- Required Paydowns from Stock Sale Proceeds - A portion of proceeds
from the sale of BMC stock pledged under the Program would be
required to be applied to the repayment of amounts outstanding
under all loans under the Program in an amount equal to the
lesser of (a) 100% of such proceeds or (b) (i) the amount of all
accrued interest, plus (ii) the product of the amount of such
proceeds remaining after payment of all accrued interest multiplied
times a fraction the numerator of which is the principal amount of
the loan and the denominator of which is the market value of the BMC
stock pledged as collateral for such loan immediately following such
payment (stock will be legended but legend will be released upon
receipt of proceeds).
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- Any dividends received by an employee in respect of BMC stock pledged
for a loan under the Program, net of deduction for applicable
estimated state and federal income taxes and other withholdings on
such dividends, shall be applied to repayment of the loan.
- Repayment can be effected by other means at the employee's option,
including through payroll deduction, use of the employee's flex
account, or bonus proceeds beyond the 30% described above.
- All payments shall be applied first to accrued interest, next to any
amount of principal advanced to pay income taxes and then to all other
principal.
- Partial Release of Pledged Stock upon Payment (whether or not with
stock sale proceeds) - If the market value of BMC stock pledged as
collateral for loans under the Program to any employee (excluding
the market value of any shares sold to yield payment proceeds)
exceeds the amount of the loans prior to payment on a loan, such
stock shall be released upon any payment of all then accrued
interest and any amount of principal, upon request of the employee,
such that ratio of the principal amount of the loan outstanding
immediately after such payment to the market value of the shares
remaining pledged immediately after such release is not greater than
the ratio of the principal amount of the loan outstanding immediately
prior to such payment to the market value of the shares immediately
prior to such release (excluding the market value of any shares sold
to yield payment proceeds). No such release shall be required unless
at least 100 shares of pledged BMC stock is eligible for release.
- Required Paydown Due to Drop in Stock Value - If the market value of
BMC stock pledged by an employee as collateral for loans under the
Program falls below 100% of the employee's total outstanding balance
for all loans under the Program, including principal and accrued
interest, the employee shall be required, within five (5) business
days notice of demand by the Compensation Committee, to either
(i) contribute additional shares of BMC stock as collateral in an
amount sufficient to raise the market value of BMC stock held as
collateral in excess of the total outstanding balance or (ii) pay to
BMC the difference in cash between the total outstanding balance and
the market value of all BMC stock pledged as collateral for the
employee's loans.
EVENTS TRIGGERING DEMAND FOR PAYMENT:
- Termination of employment from BMC would require repayment of
principal within 45 days or such longer period determined at the
discretion of the Compensation Committee.
- In the event of the death or long-term disability of the employee,
repayment may be extended up to six months or longer at the discretion
of the Compensation Committee.
- Employee's declaration of bankruptcy would require immediate repayment
of principal.
- Drop in market value of BMC stock held as collateral below 100% of an
employee's total outstanding loan balance, including principal and
accrued interest, under the Program.
- Notwithstanding these events, demand for repayment may be made at any
time by the Compensation Committee.
EVENTS PERMITTING EXTENSION OF REPAYMENT:
- Written consent of the Compensation Committee, at its sole and
absolute discretion.
- Where it is determined by the Compensation Committee in its sole and
absolute discretion that repayment would result in adverse
consequences to the Company or employee. For example:
- Sale of BMC stock to enable repayment would cause personal
liability under Section 16(b) of the Exchange Act.
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- Sale of BMC stock at current prices, or in large blocks may
abnormally suppress market price of the stock or cause similar
hardship.
CONSEQUENCES TO EMPLOYEE:
- For tax purposes, the employee must recognize income in an amount
equal to the interest-free discount received on the loan proceeds.
On a "demand" note, this amount is calculated each December on the
principal amount of the loan using the "applicable federal rate"
(AFD).
- Imputed interest will not be subject to federal or state income tax
withholding but WILL be subject to FICA and/or Medicare tax
withholding prescribed by the tax regulations.
- Employee SHOULD be entitled to an offsetting interest deduction in the
current year if the employee has sufficient net investment income, or
in the year the stock is sold as an offset to the gain on the stock.
- Employees should, however, consult with their own tax advisers to
determine the actual tax consequences of participation in the Program.
REQUIRED DISCLOSURES:
- Schedule II of Form 10-K requires the disclosure of aggregate
indebtedness of more than $100,000 from any employee. Disclosure
includes name, amount of indebtedness, due date, interest rate,
terms of repayment and collateral.
- The Annual Report requires disclosure of the sum total of all amounts
due from officers and directors, even though the dollar amount may be
relatively small.
- Proxy disclosure of the loan amount and the compensation element is
required. Filings necessary to comply with margin stock rules will be
made.
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