As filed with the Securities and Exchange Commission on March 1, 2002
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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EARFUL OF BOOKS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
87-0421089
(IRS Employer Identification Number)
907 West Fifth Street, Suite 203
Austin, Texas 78703
(Address of principal executive offices)
Paul A. Rush, Chairman and CEO
Earful of Books, Inc.
907 West Fifth Street, Suite 203
Austin, Texas 78703
(Name and address of agent for service)
(512) 343-2620
(Telephone number, including area code of agent for service)
2002 Directors, Officers and Consultants
Stock Option, Stock warrant and Stock Award Plan
(Full title of the Plans)
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Copy to:
Robert L. Sonfield, Jr.
Sonfield and Sonfield
770 South Post Oak Lane, Suite 435
Houston, Texas 77056-1913
CALCULATION OF REGISTRATION FEE
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Proposed maximum Proposed maximum
Title of securities to Amount to be offering price per aggregate offering Amount of
be registered registered share (1) price (1) registration fee
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common Stock,
$.001 par value 4,000,000 $.25 $1,000,000 92.00
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
(1) Calculated pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, as permitted by Rule 457(h)(1) of the Securities Act of 1933, as
amended, based upon the average of the bid and asked prices for the Company's
common shares as reported by the Electronic Bulletin Board on February 25, 2002.
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PART I
The documents containing the information specified in this Part I will
be sent or given to participants in the 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award Plan (the "Plan) as specified by
Rule 428(b)(1). Pursuant to the instructions for Form S-8, such documents need
not be filed with the Commission either as part of the Registration Statement or
as prospectuses or prospectus supplements pursuant to Rule 424. These documents
and the documents incorporated by reference in this Registration Statement
pursuant to Item 3 of Part II of this Registration Statement, taken together,
constitute a prospectus that meets the requirements of Section 10(a) of the
Securities Act of 1933, as amended. See Rule 428(a)(1).
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
The documents listed in (a) and (b) below have been filed by the
Registrant, Earful of Books, Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission (the "Commission") and are incorporated
by reference in this Registration Statement. All documents subsequently filed by
the Registrant pursuant to Section 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold shall be deemed
to be incorporated by reference in the Registration Statement and to be part
thereof from the date of filing of such documents.
(a) Form 4 filed on November 29, 2001, Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2001, filed on November
19, 2001 and Form 4 filed on October 5, 2001 and Form 8-K/A filed on
September 10, 2001. The above referenced reports, which were previously
filed with the Commission, are incorporated herein by reference.
(b) All other reports filed pursuant to Section 13 or 15(d) of
the Exchange Act since the end of the fiscal year covered by the
Registrant's Form 10-KSB for the period ended January 31, 2001.
The above referenced reports, which were previously filed with the
Commission, are incorporated herein by reference.
Item 4: Description of Securities
Not Applicable
Item 5: Interests of Named Experts and Counsel.
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None
Item 6: Indemnification of Directors and Officers.
-----------------------------------------
(a) Section 145 of the Delaware General Corporation Law provides that:
ss.145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE
(1) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such actions suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contenders or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(4) Any indemnification under subsections (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(7) A corporation shall power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee of agent or the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
(8) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(9) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Section.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(11) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court
of Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees). (As amended by Ch. 186, Laws of 1967,
Ch. 421, Laws of 1970, Ch. 437, Laws of 1974, Ch. 25, Laws of 198 1, Ch. 11
2, Laws of 1983, Ch. 289, Laws of 1986, Ch. 376, Laws of 1990, and Ch. 26 1,
Laws of 1994.)
(b) Section 102 of the Delaware General Corporation Law includes
the following provisions:
ss. 102. CERTIFICATE OF INCORPORATION; CONTENTS
(1) The certificate of incorporation shall set forth:
(2) In addition to the matters required to be set forth in the
certificate of incorporation by subsection (a) of this section the certificate
of incorporation may also contain any or all of the following matters:
(vii) A provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided
that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of this Title, or (iv) for any transaction
from which the director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision becomes
effective. All references in this paragraph to a director shall also be
deemed to refer (x) to a member of the governing body of a corporation
which is not authorized to issue capital stock and (y) to such other
person or persons, if any, who, pursuant to a provision of the
certificate of incorporation in accordance with subsection (a) of ss.
141 of this title, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by this
title.
(c) Article VII of Registrant's Certificate of Incorporation provides:
The corporation shall indemnify to the fullest extent
permitted by, and in the manner permissible under, the laws of the
State of Delaware any person (and heirs, executors, administrators and
estate of such person) made, or threatened to be made, a party to any
threatened, pending or completed action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact
that he is or was a director or officer of the corporation, or served
another corporation, partnership, joint venture, trust or other
enterprise as a director, advisory director, officer, employee or agent
at the request of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding. The foregoing rights of indemnification
shall not be deemed exclusive of any other rights to which any such
person may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise. The Board of Directors in its
discretion shall have the power on behalf of the corporation to
indemnify similarly any person, other than a director or officer, made
a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was an advisory
director, employee or agent of the corporation. The provisions of this
Article VII shall be applicable to persons who have ceased to be
directors, advisory directors, officers, employees or agents of the
corporation and shall inure to the benefits of their heirs, executors
and administrators.
Item 7. Exemption From Registration Claimed.
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Not Applicable
Item 8: Exhibits
The following documents are filed as Exhibits to this Registration
Statement:
4.1 -- 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award
Plan
5 -- Opinion of Sonfield and Sonfield as to the
authorization and issuance of the shares
being registered.
24.1 -- Consent of Sonfield and Sonfield (included
in Exhibit 5)
24.2 -- Consent of Ham, Langston and Brezina, LLP,
Certified Public Accountants
Item 9: Undertakings
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement to include any material
information with respect to the plan of distribution
not previously disclosed in the registration
statement or any material change to such information
in the registration statement;
(b) that, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof; and
(c) to remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8, and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Houston, Texas, on the 26th day of February, 2002.
EARFUL OF BOOKS, INC.
By: /s/Paul A. Rush
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Paul A. Rush, Chief Executive Officer
By: /s/Myron Sappington
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Myron Sappington, Chief Financial Officer
EXHIBIT 4.1
Earful of Books, Inc.
2002 Directors, Officers and Consultants
STOCK OPTION, STOCK WARRANT AND STOCK AWARD PLAN
SECTION 1. PURPOSE OF THE PLAN. The purpose of the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan ("Plan") is to
maintain the ability of Earful of Books, Inc., a Delaware corporation (the
"Company") and its subsidiaries to attract and retain highly qualified and
experienced directors, employees and consultants and to give such directors,
employees and consultants a continued proprietary interest in the success of the
Company and its subsidiaries. In addition the Plan is intended to encourage
ownership of common stock, $.001 par value ("Common Stock"), of the Company by
the directors, employees and consultants of the Company and its Affiliates (as
defined below) and to provide increased incentive for such persons to render
services and to exert maximum effort for the success of the Company business.
The Plan provides eligible employees and consultants the opportunity to
participate in the enhancement of shareholder value by the grants of options,
warrants, stock appreciation rights, awards of restricted stock, bonuses and/or
fees payable in unrestricted stock warrants, or any combination thereof. In
addition, the Company expects that the Plan will further strengthen the
identification of the directors, employees and consultants with the
stockholders. Certain options and warrants to be granted under this Plan are
intended to qualify as Incentive Stock Options ("ISOs") pursuant to Section 422
of the Internal Revenue Code of 1986, as amended ("Code"), while other options
and warrants granted under this Plan will be nonqualified options or warrants
which are not intended to qualify as ISOs ("Nonqualified Options"), either or
both as provided in the agreements evidencing the options or warrants as
provided in Section 6 hereof. Employees, consultants and directors who
participate or become eligible to participate in this Plan from time to time are
referred to collectively herein as "Participants". As used in this Plan, the
term "Affiliates" means any "parent corporation" of the Company and any
"subsidiary corporation" of the Company within the meaning of Code Sections
424(e) and (f), respectively.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Composition of Committee. The Plan shall be administered by the
Board of Directors of the Company (the "Board"). When acting in such capacity
the Board is herein referred to as the "Committee," which shall also designate
the Chairman of the Committee. If the Company is governed by Rule 16b-3
promulgated by the Securities and Exchange Commission ("Commission") pursuant to
the Securities Exchange Act of 1934, as amended ("Exchange Act"), no director
shall serve as a member of the Committee unless he or she is a "disinterested
person" within the meaning of such Rule 16b-3.
(b) Committee Action. The Committee shall hold its meetings at such
times and places as it may determine. A majority of its members shall constitute
a quorum, and all determinations of the Committee shall be made by not less than
a majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be fully as effective as if it had
been made by a majority vote of its members at a meeting duly called and held.
The Committee may designate the Secretary of the Company or other Company
employees to assist the Committee in the administration of the Plan, and may
grant authority to such persons to execute award agreements or other documents
on behalf of the Committee and the Company. Any duly constituted committee of
the Board satisfying the qualifications of this Section 2 may be appointed as
the Committee.
(c) Committee Expenses. All expenses and liabilities incurred by
the Committee in the administration of the Plan shall be borne by the
Company. The Committee may employ attorneys, consultants, accountants or other
persons.
SECTION 3. STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided in
Section 6(m) hereof, the aggregate number of shares of Common Stock that may be
optioned or issued under the Plan is 4,000,000. The shares subject to the Plan
shall consist of authorized but unissued shares of Common Stock and such number
of shares shall be and is hereby reserved for sale for such purpose. Any of such
shares which may remain unsold and which are not subject to outstanding options
or warrants at the termination of the Plan shall cease to be reserved for the
purpose of the Plan, but until termination of the Plan or the termination of the
last of the options or warrants granted under the Plan, whichever last occurs,
the Company shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. Should any option or warrant expire or be cancelled
prior to its exercise in full, the shares theretofore subject to such option or
warrant may again be made subject to an option or warrant under the Plan.
Immediately upon the grant of any option, warrant or award, the number
of shares of Common Stock that may be issued or optioned under the Plan will be
increased. The number of shares of such increase shall be an amount such that
immediately after such increase the total number of shares issuable under the
Plan and reserved for issuance upon exercise of outstanding options or warrants
will equal 15% of the total number of issued and outstanding shares of Common
Stock of the Company. Such increase in the number of shares subject to the Plan
shall occur without the necessity of any further corporate action of any kind or
character.
SECTION 4. ELIGIBILITY. The Participants shall include directors, employees,
including officers, of the Company and its divisions and subsidiaries, and
consultants and attorneys who provide bona fide services to the Company.
Participants are eligible to be granted warrants, options, restricted stock,
unrestricted stock and other awards under this Plan and to have their bonuses
and/or consulting fees payable in warrants, restricted stock, unrestricted stock
and other awards. A Participant who has been granted an option or warrant
hereunder may be granted an additional option, warrant options or warrants, if
the Committee shall so determine.
SECTION 5. GRANT OF OPTIONS OR WARRANTS.
(a) Committee Discretion. The Committee shall have sole and absolute
discretionary authority (i) to determine, authorize, and designate those persons
pursuant to this Plan who are to receive warrants, options, restricted stock, or
Common Stock under the Plan, (ii) to determine the number of shares of Common
Stock to be covered by such grant or such options or warrants and the terms
thereof, (iii) to determine the type of Common Stock granted: Restricted stock
unrestricted Common Stock or a combination of restricted and unrestricted Common
Stock, and (iv) to determine the type of option or warrant granted: ISO,
Nonqualified Option or a combination of ISO and Nonqualified Options. The
Committee shall thereupon grant options or warrants in accordance with such
determinations as evidenced by a written option or warrant agreement. Subject to
the express provisions of the Plan, the Committee shall have discretionary
authority to prescribe, amend and rescind rules and regulations relating to the
Plan, to interpret the Plan, to prescribe and amend the terms of the option or
warrant agreements (which need not be identical) and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(b) Stockholder Approval. All ISOs granted under this Plan are subject
to, and may not be exercised before, the approval of this Plan by the
stockholders prior to the first anniversary date of the Board meeting held to
approve the Plan, by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present, or represented by proxy, and entitled
to vote thereat, or by written consent in accordance with the laws of the State
of Delaware, provided that if such approval by the stockholders of the Company
is not forthcoming, all options or warrants and stock awards previously granted
under this Plan other than ISOs shall be valid in all respects.
(c) Limitation on Incentive Stock Options and Warrants. The aggregate
fair market value (determined in accordance with Section 6(b) of this Plan at
the time the option or warrant is granted) of the Common Stock with respect to
which ISOs may be exercisable for the first time by any Participant during any
calendar year under all such plans of the Company and its Affiliates shall not
exceed $1,000,000.
SECTION 6. TERMS AND CONDITIONS. Each option or warrant granted under the Plan
shall be evidenced by an agreement, in a form approved by the Committee, which
shall be subject to the following express terms and conditions and to such other
terms and conditions as the Committee may deem appropriate.
(a) Option or Warrant Period. The Committee shall promptly notify the
Participant of the option or warrant grant and a written agreement shall
promptly be executed and delivered by and on behalf of the Company and the
Participant, provided that the option or warrant grant shall expire if a written
agreement is not signed by said Participant (or his agent or attorney) and
returned to the Company within 60 days from date of receipt by the Participant
of such agreement. The date of grant shall be the date the option or warrant is
actually granted by the Committee, even though the written agreement may be
executed and delivered by the Company and the Participant after that date. Each
option or warrant agreement shall specify the period for which the option or
warrant thereunder is granted (which in no event shall exceed ten years from the
date of grant) and shall provide that the option or warrant shall expire at the
end of such period. If the original term of an option or warrant is less than
ten years from the date of grant, the option or warrant may be amended prior to
its expiration, with the approval of the Committee and the Participant, to
extend the term so that the term as amended is not more than ten years from the
date of grant. However, in the case of an ISO granted to an individual who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or its Affiliate
("Ten Percent Stockholder"), such period shall not exceed five years from the
date of grant.
(b) Option or Warrant Price. The purchase price of each share of Common
Stock subject to each option or warrant granted pursuant to the Plan shall be
determined by the Committee at the time the option or warrant is granted and, in
the case of ISOs, shall not be less than 100% of the fair market value of a
share of Common Stock on the date the option or warrant is granted, as
determined by the Committee. In the case of an ISO granted to a Ten Percent
Stockholder, the option or warrant price shall not be less than 110% of the fair
market value of a share of Common Stock on the date the option or warrant is
granted. The purchase price of each share of Common Stock subject to a
Nonqualified Option or Warrant under this Plan shall be determined by the
Committee prior to granting the option or warrant. The Committee shall set the
purchase price for each share subject to a Nonqualified Option or Warrant at
either the fair market value of each share on the date the option or warrant is
granted, or at such other price as the Committee in its sole discretion shall
determine.
At the time a determination of the fair market value of a share of
Common Stock is required to be made hereunder, the determination of its fair
market value shall be made by the Committee in such manner as it deems
appropriate.
(c) Exercise Period. The Committee may provide in the option or warrant
agreement that an option or warrant may be exercised in whole, immediately, or
is to be exercisable in increments. In addition, the Committee may provide that
the exercise of all or part of an option or warrant is subject to specified
performance by the Participant.
(d) Procedure for Exercise. Options or warrants shall be exercised in
the manner specified in the option or warrant agreement. The notice of exercise
shall specify the address to which the certificates for such shares are to be
mailed. A Participant shall be deemed to be a stockholder with respect to shares
covered by an option or warrant on the date specified in the option or warrant
agreement . As promptly as practicable, the Company shall deliver to the
Participant or other holder of the warrant, certificates for the number of
shares with respect to which such option or warrant has been so exercised,
issued in the holder's name or such other name as holder directs; provided,
however, that such delivery shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited such certificates with
a carrier for overnight delivery, addressed to the holder at the address
specified pursuant to this Section 6(d).
(e) Termination of Employment. If an executive officer to whom an
option or warrant is granted ceases to be employed by the Company for any reason
other than death or disability, any option or warrant which is exercisable on
the date of such termination of employment may be exercised during a period
beginning on such date and ending at the time set forth in the option or warrant
agreement; provided, however, that if a Participant's employment is terminated
because of the Participant's theft or embezzlement from the Company, disclosure
of trade secrets of the Company or the commission of a willful, felonious act
while in the employment of the Company (such reasons shall hereinafter be
collectively referred to as "for cause"), then any option or warrant or
unexercised portion thereof granted to said Participant shall expire upon such
termination of employment. Notwithstanding the foregoing, no ISO may be
exercised later than three months after an employee's termination of employment
for any reason other than death or disability.
(f) Disability or Death of Participant. In the event of the
determination of disability or death of a Participant under the Plan while he or
she is employed by the Company, the options or warrants previously granted to
him may be exercised (to the extent he or she would have been entitled to do so
at the date of the determination of disability or death) at any time and from
time to time, within a period beginning on the date of such determination of
disability or death and ending at the time set forth in the option or warrant
agreement, by the former employee, the guardian of his estate, the executor or
administrator of his estate or by the person or persons to whom his rights under
the option or warrant shall pass by will or the laws of descent and
distribution, but in no event may the option or warrant be exercised after its
expiration under the terms of the option or warrant agreement. Notwithstanding
the foregoing, no ISO may be exercised later than one year after the
determination of disability or death. A Participant shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee, he or she
is incapable of performing services for the Company of the kind he or she was
performing at the time the disability occurred by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long, continued and indefinite duration. The date of
determination of disability for purposes hereof shall be the date of such
determination by such physician.
(g) Assignability. An option or warrant shall be assignable or
otherwise transferable, in whole or in part, by a Participant.
(h) Incentive Stock Options. Each option or warrant agreement may
contain such terms and provisions as the Committee may determine to be necessary
or desirable in order to qualify an option or warrant designated as an incentive
stock option.
(i) Restricted Stock Awards. Awards of restricted stock under this Plan
shall be subject to all the applicable provisions of this Plan, including the
following terms and conditions, and to such other terms and conditions not
inconsistent therewith, as the Committee shall determine:
(A) Awards of restricted stock may be in addition to or in
lieu of option or warrant grants. Awards may be conditioned on the
attainment of particular performance goals based on criteria
established by the Committee at the time of each award of restricted
stock. During a period set forth in the agreement (the "Restriction
Period"), the recipient shall not be permitted to sell, transfer,
pledge, or otherwise encumber the shares of restricted stock; except
that such shares may be used, if the agreement permits, to pay the
option or warrant price pursuant to any option or warrant granted under
this Plan, provided an equal number of shares delivered to the
Participant shall carry the same restrictions as the shares so used.
Shares of restricted stock shall become free of all restrictions if
during the Restriction Period, (i) the recipient dies, (ii) the
recipient's directorship, employment, or consultancy terminates by
reason of permanent disability, as determined by the Committee, (iii)
the recipient retires after attaining both 59 1/2 years of age and five
years of continuous service with the Company and/or a division or
subsidiary, or (iv) if provided in the agreement, there is a "change in
control" of the Company (as defined in such agreement). The Committee
may require medical evidence of permanent disability, including medical
examinations by physicians selected by it. Unless and to the extent
otherwise provided in the agreement, shares of restricted stock shall
be forfeited and revert to the Company upon the recipient's termination
of directorship, employment or consultancy during the Restriction
Period for any reason other than death, permanent disability, as
determined by the Committee, retirement after attaining both 59 1/2
years of age and five years of continuous service with the Company
and/or a subsidiary or division, or, to the extent provided in the
agreement, a "change in control" of the Company (as defined in such
agreement), except to the extent the Committee, in its sole discretion,
finds that such forfeiture might not be in the best interests of the
Company and, therefore, waives all or part of the application of this
provision to the restricted stock held by such recipient. Certificates
for restricted stock shall be registered in the name of the recipient
but shall be imprinted with the appropriate legend and returned to the
Company by the recipient, together with a stock power endorsed in blank
by the recipient. The recipient shall be entitled to vote shares of
restricted stock and shall be entitled to all dividends paid thereon,
except that dividends paid in Common Stock or other property shall also
be subject to the same restrictions.
(B) Restricted Stock shall become free of the foregoing
restrictions upon expiration of the applicable Restriction Period and
the Company shall then deliver to the recipient Common Stock
certificates evidencing such stock. Restricted stock and any Common
Stock received upon the expiration of the restriction period shall be
subject to such other transfer restrictions and/or legend requirements
as are specified in the applicable agreement.
(j) Bonuses and Past Salaries and Fees Payable in Unrestricted Stock.
----------------------------------------------------------------
(A) In lieu of cash bonuses otherwise payable under the
Company's or applicable division's or subsidiary's compensation
practices to employees and consultants eligible to participate in this
Plan, the Committee, in its sole discretion, may determine that such
bonuses shall be payable in unrestricted Common Stock or partly in
unrestricted Common Stock and partly in cash. Such bonuses shall be in
consideration of services previously performed and as an incentive
toward future services and shall consist of shares of unrestricted
Common Stock subject to such terms as the Committee may determine in
its sole discretion. The number of shares of unrestricted Common Stock
payable in lieu of a bonus otherwise payable shall be determined by
dividing such bonus amount by the fair market value of one share of
Common Stock on the date the bonus is payable, with fair market value
determined as of such date in accordance with Section 6(b).
(B) In lieu of salaries and fees otherwise payable by the
Company's to employees, attorneys and consultants eligible to
participate in this Plan that were incurred for services rendered
during, prior or after the year of 2002, the Committee, in its sole
discretion, may determine that such unpaid salaries and fees shall be
payable in unrestricted Common Stock or partly in unrestricted Common
Stock and partly in cash. Such awards shall be in consideration of
services previously performed and as an incentive toward future
services and shall consist of shares of unrestricted Common Stock
subject to such terms as the Committee may determine in its sole
discretion. The number of shares of unrestricted Common Stock payable
in lieu of a salaries and fees otherwise payable shall be determined by
dividing each calendar month's of unpaid salary or fee amount by the
average trading value of the Common Stock for the calendar month during
which the subject services were provided.
(k) No Rights as Stockholder. No Participant shall have any rights as a
stockholder with respect to shares covered by an option or warrant until the
option or warrant is exercised as provided in clause (d) above.
(l) Extraordinary Corporate Transactions. The existence of outstanding
options or warrants shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges, or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Common Stock or other securities or subscription
rights thereto, or any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company recapitalizes or
otherwise changes its capital structure, or merges, consolidates, sells all of
its assets or dissolves (each of the foregoing a "Fundamental Change"), then
thereafter upon any exercise of an option or warrant theretofore granted the
Participant shall be entitled to purchase under such option or warrant, in lieu
of the number of shares of Common Stock as to which option or warrant shall then
be exercisable, the number and class of shares of stock and securities to which
the Participant would have been entitled pursuant to the terms of the
Fundamental Change if, immediately prior to such Fundamental Change, the
Participant had been the holder of record of the number of shares of Common
Stock as to which such option or warrant is then exercisable. If (i) the Company
shall not be the surviving entity in any merger or consolidation (or survives
only as a subsidiary of another entity), (ii) the Company sells all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary), (iii) any person or entity (including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains
ownership or control of (including, without limitation, power to vote) more than
50% of the outstanding shares of Common Stock, (iv) the Company is to be
dissolved and liquidated, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), the Committee, in its sole discretion, may accelerate the
time at which all or a portion of a Participant's option or warrants may be
exercised for a limited period of time before or after a specified date.
(m) Changes in Company's Capital Structure. If the outstanding shares
of Common Stock or other securities of the Company, or both, for which the
option or warrant is then exercisable shall at any time be changed or exchanged
by declaration of a stock dividend, stock split, combination of shares,
recapitalization, or reorganization, the number and kind of shares of Common
Stock or other securities which are subject to the Plan or subject to any
options or warrants theretofore granted, and the option or warrant prices, shall
be appropriately and equitably adjusted so as to maintain the proportionate
number of shares or other securities without changing the aggregate option or
warrant price.
(n) Acceleration of Options and Warrants. Except as hereinbefore
expressly provided, (i) the issuance by the Company of shares of stock or any
class of securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, (ii) the payment
of a dividend in property other than Common Stock or (iii) the occurrence of any
similar transaction, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to options or warrants theretofore
granted or the purchase price per share, unless the Committee shall determine,
in its sole discretion, that an adjustment is necessary to provide equitable
treatment to Participant. Notwithstanding anything to the contrary contained in
this Plan, the Committee may, in its sole discretion, accelerate the time at
which any option or warrant may be exercised, including, but not limited to,
upon the occurrence of the events specified in this Section 6, and is authorized
at any time (with the consent of the Participant) to purchase options or
warrants pursuant to Section 7.
SECTION 7. RELINQUISHMENT OF OPTIONS OR WARRANTS.
(a) The Committee, in granting options or warrants hereunder, shall
have discretion to determine whether or not options or warrants shall include a
right of relinquishment as hereinafter provided by this Section 7. The Committee
shall also have discretion to determine whether an option or warrant agreement
evidencing an option or warrant initially granted by the Committee without a
right of relinquishment shall be amended or supplemented to include such a right
of relinquishment. Neither the Committee nor the Company shall be under any
obligation or incur any liability to any person by reason of the Committee's
refusal to grant or include a right of relinquishment in any option or warrant
granted hereunder or in any option or warrant agreement evidencing the same.
Subject to the Committee's determination in any case that the grant by it of a
right of relinquishment is consistent with Section 1 hereof, any option or
warrant granted under this Plan, and the option or warrant agreement evidencing
such option or warrant, may provide:
(i) That the Participant, or his or her heirs or other legal
representatives to the extent entitled to exercise the option or
warrant under the terms thereof, in lieu of purchasing the entire
number of shares subject to purchase thereunder, shall have the right
to relinquish all or any part of the then unexercised portion of the
option or warrant (to the extent then exercisable) for a number of
shares of Common Stock to be determined in accordance with the
following provisions of this clause (i):
(A) The written notice of exercise of such right of
relinquishment shall state the percentage of the total number
of shares of Common Stock issuable pursuant to such
relinquishment (as defined below) that the Participant elects
to receive;
(B) The number of shares of Common Stock, if any,
issuable pursuant to such relinquishment shall be the number
of such shares, rounded to the next greater number of full
shares, as shall be equal to the quotient obtained by dividing
(i) the Appreciated Value by (ii) the purchase price for each
of such shares specified in such option or warrant;
(C) For the purpose of this clause (C), "Appreciated
Value" means the excess, if any, of (x) the total current
market value of the shares of Common Stock covered by the
option or warrant or the portion thereof to be relinquished
over (y) the total purchase price for such shares specified in
such option or warrant;
(ii) That such right of relinquishment may be exercised only
upon receipt by the Company of a written notice of such relinquishment
which shall be dated the date of election to make such relinquishment;
and that, for the purposes of this Plan, such date of election shall be
deemed to be the date when such notice is sent by registered or
certified mail, or when receipt is acknowledged by the Company, if
mailed by other than registered or certified mail or if delivered by
hand or by any telegraphic communications equipment of the sender or
otherwise delivered; provided, that, in the event the method just
described for determining such date of election shall not be or remain
consistent with the provisions of Section 16(b) of the Exchange Act or
the rules and regulations adopted by the Commission thereunder, as
presently existing or as may be hereafter amended, which regulations
exempt from the operation of Section 16(b) of the Exchange Act in whole
or in part any such relinquishment transaction, then such date of
election shall be determined by such other method consistent with
Section 16(b) of the Exchange Act or the rules and regulations
thereunder as the Committee shall in its discretion select and apply;
(iii) That the "current market value" of a share of Common
Stock on a particular date shall be deemed to be its fair market value
on that date as determined in accordance with Paragraph 6(b); and
(iv) That the option or warrant, or any portion thereof, may
be relinquished only to the extent that (A) it is exercisable on the
date written notice of relinquishment is received by the Company, and
(B) the holder of such option or warrant pays, or makes provision
satisfactory to the Company for the payment of, any taxes which the
Company is obligated to collect with respect to such relinquishment.
(b) The Committee shall have sole discretion to consent to or
disapprove, and neither the Committee nor the Company shall be under any
liability by reason of the Committee's disapproval of, any election by a holder
of an option or warrant to relinquish such option or warrant in whole or in part
as provided in Paragraph 7(a), except that no such consent to or approval of a
relinquishment shall be required under the following circumstances. Each
Participant who is subject to the short-swing profits recapture provisions of
Section 16(b) of the Exchange Act ("Covered Participant") shall not be entitled
to receive shares of Common Stock when options or warrants are relinquished
during any window period commencing on the third business day following the
Company's release of a quarterly or annual summary statement of sales and
earnings and ending on the twelfth business day following such release ("Window
Period"). A Covered Participant shall be entitled to receive shares of Common
Stock upon the relinquishment of options or warrants outside a Window Period.
(c) The Committee, in granting options or warrants hereunder, shall
have discretion to determine the terms upon which such options or warrants shall
be relinquishable, subject to the applicable provisions of this Plan, and
including such provisions as are deemed advisable to permit the exemption from
the operation from Section 16(b) of the Exchange Act of any such relinquishment
transaction, and options or warrants outstanding, and option agreements
evidencing such options, may be amended, if necessary, to permit such exemption.
If an option or warrant is relinquished, such option or warrant shall be deemed
to have been exercised to the extent of the number of shares of Common Stock
covered by the option or warrant or part thereof which is relinquished, and no
further options or warrants may be granted covering such shares of Common Stock.
(d) Any option or warrant or any right to relinquish the same to the
Company as contemplated by this Paragraph 7 shall be assignable by the
Participant.
(e) Except as provided in Section 7(f) below, no right of
relinquishment may be exercised within the first six months after the initial
award of any option or warrant containing, or the amendment or supplementation
of any existing option or warrant agreement adding, the right of relinquishment.
(f) No right of relinquishment may be exercised after the initial award
of any option or warrant containing, or the amendment or supplementation of any
existing option or warrant agreement adding the right of relinquishment, unless
such right of relinquishment is effective upon the Participant's death,
disability or termination of his relationship with the Company for a reason
other than "for cause."
SECTION 8. AMENDMENTS OR TERMINATION. The Board may amend, alter or discontinue
the Plan, but no amendment or alteration shall be made which would impair the
rights of any Participant, without his consent, under any option or warrant
theretofore granted.
SECTION 9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of options or warrants thereunder, and the obligation of the Company to
sell and deliver shares under such options or warrants, shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any governmental or regulatory agency as may be required. The Company shall
not be required to issue or deliver any certificates for shares of Common Stock
prior to the completion of any registration or qualification of such shares
under any federal or state law or issuance of any ruling or regulation of any
government body which the Company shall, in its sole discretion, determine to be
necessary or advisable. Any adjustments provided for in subparagraphs 6(l), (m)
and (n) shall be subject to any shareholder action required by Delaware
corporate law.
SECTION 10. PURCHASE FOR INVESTMENT. Unless the options or warrants and shares
of Common Stock covered by this Plan have been registered under the Securities
Act of 1933, as amended, or the Company has determined that such registration is
unnecessary, each person acquiring or exercising an option or warrant under this
Plan may be required by the Company to give a representation in writing that he
or she is acquiring such option or warrant or such shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof.
SECTION 11. TAXES.
(a) The Company may make such provisions as it may deem appropriate for
the withholding of any taxes which it determines is required in connection with
any options or warrants granted under this Plan.
(b) Notwithstanding the terms of Paragraph 11 (a), any Participant may
pay all or any portion of the taxes required to be withheld by the Company or
paid by him or her in connection with the exercise of a nonqualified option or
warrant by electing to have the Company withhold shares of Common Stock, or by
delivering previously owned shares of Common Stock, having a fair market value,
determined in accordance with Paragraph 6(b), equal to the amount required to be
withheld or paid. A Participant must make the foregoing election on or before
the date that the amount of tax to be withheld is determined ("Tax Date"). All
such elections are irrevocable and subject to disapproval by the Committee.
Elections by Covered Participants are subject to the following additional
restrictions: (i) such election may not be made within six months of the grant
of an option or warrant, provided that this limitation shall not apply in the
event of death or disability, and (ii) such election must be made either six
months or more prior to the Tax Date or in a Window Period. Where the Tax Date
in respect of an option or warrant is deferred until six months after exercise
and the Covered Participant elects share withholding, the full amount of shares
of Common Stock will be issued or transferred to him upon exercise of the option
or warrant, but he or she shall be unconditionally obligated to tender back to
the Company the number of shares necessary to discharge the Company's
withholding obligation or his estimated tax obligation on the Tax Date.
SECTION 12. REPLACEMENT OF OPTIONS AND WARRANTS. The Committee from time to time
may permit a Participant under the Plan to surrender for cancellation any
unexercised outstanding option or warrant and receive from the Company in
exchange an option or warrant for such number of shares of Common Stock as may
be designated by the Committee. The Committee may, with the consent of the
person entitled to exercise any outstanding option or warrant, amend such option
or warrant, including reducing the exercise price of any option or warrant to
not less than the fair market value of the Common Stock at the time of the
amendment and extending the term thereof.
SECTION 13. NO RIGHT TO COMPANY EMPLOYMENT. Nothing in this Plan or as a result
of any option or warrant granted pursuant to this Plan shall confer on any
individual any right to continue in the employ of the Company or interfere in
any way with the right of the Company to terminate an individual's employment at
any time. The option or warrant agreements may contain such provisions as the
Committee may approve with reference to the effect of approved leaves of
absence.
SECTION 14. LIABILITY OF COMPANY. The Company and any Affiliate which is in
existence or hereafter comes into existence shall not be liable to a
Participant or other persons as to:
(a) The Non-Issuance of Shares. The non-issuance or sale of shares as
to which the Company has been unable to obtain from any regulatory body having
jurisdiction the authority deemed by the Company's counsel to be necessary to
the lawful issuance and sale of any shares hereunder; and
(b) Tax Consequences. Any tax consequence expected, but not
realized, by any Participant or other person due to the exercise of any
option or warrant granted hereunder.
SECTION 15. EFFECTIVENESS AND EXPIRATION OF PLAN. The Plan shall be effective on
the date the Board adopts the Plan. The Plan shall expire ten years after the
date the Board approves the Plan and thereafter no option or warrant shall be
granted pursuant to the Plan.
SECTION 16. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the Board nor
the submission of the Plan to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including without
limitation, the granting of restricted stock or stock options or warrants
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
SECTION 17. GOVERNING LAW. This Plan and any agreements hereunder shall be
interpreted and construed in accordance with the laws of the State of Delaware
and applicable federal law.
SECTION 18. CASHLESS EXERCISE. The Committee also may allow cashless exercises
as permitted under Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions. or by any other means which the Committee
determines to be consistent with the Plan's purpose and applicable law. The
proceeds from such a payment shall be added to the general funds of the Company
and shall be used for general corporate purposes.
EXHIBIT 5 and 24.1
LETTERHEAD OF SONFIELD AND SONFIELD
February 26, 2002
Board of Directors
Earful of Books, Inc.
907 West Fifth Street, Suite 203
Austin, Texas 78703
Ladies and Gentlemen:
In our capacity as counsel for Earful of Books, Inc., a Delaware
corporation (the "Company"), we have participated in the corporate proceedings
relative to the authorization and issuance by the Company of a maximum of
4,000,000 shares of common stock pursuant to the Plan as set out and described
in the Company's Registration Statement on Form S-8 (File No. 000-23356) under
the Securities Act of 1933 (the "Registration Statement"). We have also
participated in the preparation and filing of the Registration Statement.
Based upon the foregoing and upon our examination of originals (or
copies certified to our satisfaction) of such corporate records of the Company
and other documents as we have deemed necessary as a basis for the opinions
hereinafter expressed, and assuming the accuracy and completeness of all
information supplied us by the Company, having regard for the legal
considerations which we deem relevant, we are of the opinion that:
(1) The Company is a corporation duly organized and
validly existing under the laws of the State of Delaware;
(2) The Company has taken all requisite corporate action and
all action required by the laws of the State of Delaware with respect
to the authorization, issuance and sale of common stock to be issued
pursuant to the Registration Statement;
(3) The 4,000,000 shares of common stock, when issued and
distributed pursuant to the Registration Statement, will be validly
issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the references to our firm in the Registration
Statement.
Yours very truly,
/s/SONFIELD and SONFIELD
SONFIELD and SONFIELD
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO: Earful of Books, Inc.
As independent certified public accountants, we hereby consent to
the incorporation by reference in this Registration Statement on Form S-8, of
our reports dated August 27, 2001 of Earful of Books, Inc. (formerly Audiobooks
of Texas, Inc.), as of December 31, 2000 and 1999 and each of the years in the
two-year period ended December 31, 2000, and to all references to our Firm
included in this Registration Statement
/s/Ham, Langston and Brezina, LLP
Houston, Texas
February 26, 2002