SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Check the appropriate box:
|_| Preliminary Proxy Statement
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CTI INDUSTRIES CORPORATION
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
|X| No Fee Required
CTI INDUSTRIES CORPORATION
22160 North Pepper Road
Barrington, Illinois 60010
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON JUNE 28, 2002
To: Shareholders of CTI Industries Corporation
The annual meeting of the shareholders of CTI Industries Corporation will
be held at The Holiday Inn Crystal Lake, 800 South Route 31, Crystal Lake,
Illinois 60014, on Friday, June 28, 2002, at 10:00 a.m., Central Daylight
Savings Time, for the following purposes:
1. To elect 5 directors to hold office during the year following the
annual meeting or until their successors are elected (Item No. 1 on
proxy card);
2. To approve the adoption of the CTI Industries Corporation 2002 Stock
Option Plan (Item No. 2 on proxy card);
3. To ratify the appointment of Grant Thornton, L.L.P. as auditors of
the Corporation for 2002 (Item No. 3 on proxy card); and
4. To transact such other business as may properly come before the
meeting.
The close of business on May 9, 2002, has been fixed as the record date
for determining the shareholders entitled to receive notice of and to vote at
the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS
May 15, 2002 /s/Stephen M. Merrick
----------------------------------------
Stephen M. Merrick, Secretary
YOUR VOTE IS IMPORTANT
It is important that as many shares as possible be represented at
the annual meeting. Please date, sign, and promptly return the proxy
in the enclosed envelope. Your proxy may be revoked by you at any
time before it has been voted.
CTI INDUSTRIES CORPORATION
22160 North Pepper Road
Barrington, Illinois 60010
PROXY STATEMENT
Information Concerning the Solicitation
This statement is furnished in connection with the solicitation of proxies
to be used at the Annual Shareholders Meeting (the "Annual Meeting") of CTI
Industries Corporation (the "Company"), an Illinois corporation, to be held at
10:00 a.m. Central Daylight Savings Time on Friday, June 28, 2002, at The
Holiday Inn Crystal Lake, 800 South Route 31, Crystal Lake, Illinois 60014. The
proxy materials are being mailed to shareholders of record at the close of
business on May 9, 2002.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mail,
but certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Quorum and Voting
Only shareholders of record at the close of business on May 9, 2002 are
entitled to vote at the Annual Meeting. On that day, there were issued and
outstanding 803,760 shares of Common Stock and 329,670 shares of Class B Common
Stock. Each share has one vote. A simple majority of the outstanding shares of
Common Stock and Class B Common Stock, as a single class, is required to be
present in person or by proxy at the meeting for there to be a quorum for
purposes of proceeding with the Annual Meeting. Holders of Class B Common Stock,
voting separately as a class, have the right to elect three of the Company's
five directors, and will vote together with holders of the Company's Common
Stock, as a single class, on the election of the remaining two directors. The
Company's Articles of Incorporation grants the holders of Class B Common Stock
the right to elect four of seven total directors but only three directors shall
be elected by the Class B Common Stock at this meeting. The Company's Articles
of Incorporation grants the holders of Common Stock the right to elect three of
seven total directors, but only two directors will be elected by the Company's
Common Stockholders at this meeting. The directors elected by the Class B Common
Stock reserve the right to appoint a director to fill the vacancy. Neither the
Common Stock nor Class B Common Stock possess cumulative voting rights, and the
election of directors will be by the vote of a majority of shares of Common
Stock and/or Class B Common Stock, as the case may be, present in person or by
proxy at the Annual Meeting. Approval of the 2002 Stock Option Plan will require
the vote of a simple majority of the shares of Common Stock and Class B Common
Stock outstanding as of the record date, voting together as a class.
Ratification of auditors will require the vote of a simple majority of the
shares of Common Stock and Class B Common Stock present at the meeting by person
or proxy, voting together as a class. Abstentions and withheld votes have the
effect of votes against these matters. Broker non-votes (shares of record held
by a
broker for which a proxy is not given) will be counted for purposes of
determining shares outstanding for purposes of a quorum, but will not be counted
as present for purposes of determining the vote on any matter considered at the
meeting.
A shareholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted by
notifying the Secretary of the Company in writing. If a shareholder specifies
how the proxy is to be voted with respect to any of the proposals for which a
choice is provided, the proxy will be voted in accordance with such
specifications. If a shareholder fails to so specify with respect to such
proposals, the proxy will be voted "FOR" the nominees for directors contained in
these proxy materials, "FOR" proposal 2, and "FOR" for proposal 3.
Stock Ownership by Management and Others
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of May 9, 2002 by (i)
each stockholder who is known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock or Class B Common Stock, (ii) each
director and executive officer of the Company who owns any shares of Common
Stock or Class B Common Stock, and (iii) all executive officers and directors as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the shares listed below have sole investment and voting power with
respect to such shares.
Shares of Class B Shares of Common
Common Stock Stock Beneficially Percent of
Name and Address(1) Beneficially Owned(2)(3) Owned(2) Common Stock
------------------- ------------------------ ------------------ ------------
John H. Schwan 109,890 369,354(4) 38.6(5)
Stephen M. Merrick 73,260 329,429(6) 34.9(5)
Howard W. Schwan 54,945 91,463(7) 15.5(5)
Brent Anderson -- 30,700(8) 3.7(5)
Samuel Komar -- 20,900(9) 2.5(5)
Mark Van Dyke -- 20,000(10) 2.4(5)
Stanley M. Brown -- 6,952(11) *
747 Glenn Avenue
Wheeling, Illinois 60090
Bret Tayne -- 5,837(12) *
6834 N. Kostner Avenue
Lincolnwood, Illinois 60712
2
Shares of Class B Shares of Common
Common Stock Stock Beneficially Percent of
Name and Address(1) Beneficially Owned(2)(3) Owned(2) Common Stock
------------------- ------------------------ ------------------ ------------
Michael Schrimmer -- 102,000 12.7
1161 Lake Cook Road
Suite B
Deerfield, Illinois 60015
Frances Ann Rohlen 91,575 51,170 15.9(5)
c/o Cheshire Partners
1504 Wells
Chicago, Illinois 60610
All directors and executive 238,095 874,635 61.4(5)
officers as a group (8 persons)
----------
*less than one percent
(1) Except as otherwise indicated, the address of each stockholder listed
above is c/o CTI Industries Corporation, 22160 North Pepper Road,
Barrington, Illinois 60010.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights that are currently exercisable or exercisable
within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options, warrants or
rights, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(3) Figures below represent all Class B Common Stock outstanding. Beneficial
ownership of shares of Class B Common Stock for Messrs. Merrick, John
Schwan, Howard Schwan and Ms. Rohlen include indirect ownership of such
shares through CTI Investors, L.L.C. See "Certain Transactions."
(4) Includes warrants to purchase up to 20,641 shares of Common Stock at $2.73
per share, warrants to purchase up to 207,346 shares of Common Stock at
$1.688 per share, warrants to purchase up to 66,666 shares of Common Stock
at $1.78 per share, options to purchase up to 13,333 shares of Common
Stock at $8.25 per share granted under the Company's 1997 Stock Option
Plan and options to purchase up to 20,000 shares of Common Stock at $2.475
per share granted under the Company's 1999 Stock Option Plan.
(footnotes continued on next page)
3
(5) Assumes conversion of all shares of Class B Common Stock owned by the
named person or collective into shares of Common Stock and the exercise of
all warrants and options owned by the named person or collective into
shares of Common Stock.
(6) Includes warrants to purchase up to 24,176 shares of Common Stock at $2.73
per share, warrants to purchase up to 186,612 shares of Common Stock at
$1.688 per share, warrants to purchase up to 33,334 shares of Common Stock
at $1.78 per share, options to purchase up to 13,333 shares of Common
Stock at $8.25 per share granted under the Company's 1997 Stock Option
Plan and options to purchase up to 20,000 shares of Common Stock at $2.475
per share granted under the Company's 1999 Stock Option Plan.
(7) Includes warrants to purchase up to 25,641 shares of Common Stock at $2.73
per share, warrants to purchase up to 29,621 shares of Common Stock at
$1.688 per share, options to purchase up to 13,333 shares of Common Stock
at $7.50 per share granted under the Company's 1997 Stock Option Plan and
options to purchase up to 20,000 shares of Common Stock at $2.25 per share
granted under the Company's 1999 Stock Option Plan.
(8) Includes options to purchase up to 4,000 shares of Common Stock at $7.50
per share granted under the Company's 1997 Stock Option Plan, options to
purchase up to 7,000 shares of Common Stock at $2.25 per share granted
under the Company's 1999 Stock Option Plan and options to purchase up to
15,000 shares of Common Stock at $1.75 per share, granted under the
Company's 2001 Stock Option Plan.
(9) Includes options to purchase up to 4,000 shares of Common Stock at $7.00
per share granted under the Company's 1997 Stock Option Plan, options to
purchase up to 6,700 shares of Common Stock at $2.25 per share granted
under the Company's 1999 Stock Option Plan, options to purchase up to
10,000 shares of Common Stock at $1.75 per share granted under the
Company's 2001 Stock Option Plan, and 200 shares of Common Stock held by
immediate family members.
(10) Includes options to purchase up to 20,000 shares of Common Stock at $1.75
per share granted under the Company's 2001 Stock Option Plan.
(11) Includes options to purchase up to 1,667 shares of Common Stock at $7.50
per share and options to purchase up to 1,667 shares of Common Stock at
$12.00 per share, both granted under the Company's 1997 Stock Option Plan,
and options to purchase up to 3,000 shares of Common Stock at $2.25 per
share granted under the Company's 1999 Stock Option Plan.
(12) Includes options to purchase up to 1,667 shares of Common Stock at $7.50
per share granted under the Company's 1997 Stock Option Plan and options
to purchase up to 3,000 shares of Common Stock at $2.25 per share granted
under the Company's 1999 Stock Option Plan.
4
PROPOSAL ONE - ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting to serve for terms of
one year expiring on the date of the Annual Meeting in 2003. Three directors
will be elected by holders of Class B Common Stock, voting separately as a
class, and the remaining two directors will be elected by the holders of the
Common Stock and Class B Common Stock, voting together as a class. Each director
elected will continue in office until a successor has been elected. If a nominee
is unable to serve, which the Board of Directors has no reason to expect, the
persons named in the accompanying proxy intend to vote for the balance of those
named and, if they deem it advisable, for a substitute nominee.
Information Concerning Nominees
The following is information concerning nominees for election as directors
of the Company. Each of such persons is presently a director of the Company.
Class B Common Stock Nominees
John H. Schwan, age 57, Chairman. Mr. Schwan has been an officer and
director of the Company since January, 1996. Mr. Schwan has been the President
and principal executive officer of Packaging Systems and affiliated companies
for over the last 14 years. Mr. Schwan has over 20 years of general management
experience, including manufacturing, marketing and sales. Mr. Schwan served in
the U.S. Army Infantry in Vietnam from 1966 to 1969, where he attained the rank
of First Lieutenant.
Stephen M. Merrick, age 60, Executive Vice President and Secretary. Mr.
Merrick was President of the Company from January, 1996 to June, 1997 when he
became Chief Executive Officer of the Company. In October, 1999, Mr. Merrick
became Executive Vice President. Mr. Merrick is a principal of the law firm of
Merrick & Klimek, P.C. of Chicago, Illinois and has been engaged in the practice
of law for more than 30 years. Mr. Merrick is also Senior Vice President,
Director and a member of the Management Committee of Reliv International, Inc.
(NASDAQ), a manufacturer and direct marketer of nutritional supplements and food
products.
Howard W. Schwan, age 47, President. Mr. Schwan has been associated with
the Company for 19 years, principally in the management of the production and
engineering operations of the Company. Mr. Schwan was appointed as Vice
President of Manufacturing in November, 1990, was appointed as a director in
January, 1996, and was appointed as President in June, 1997.
John H. Schwan and Howard W. Schwan are brothers.
Common Stock and Class B Common Stock Nominees
Stanley M. Brown, age 55, Director. Mr. Brown was appointed as a director
of the Company in January, 1996. Since March, 1996, Mr. Brown has been President
of Inn-Room Systems, Inc., a manufacturer and lessor of in-room vending systems
for hotels. From 1968 to 1989, Mr. Brown was with the United States Navy as a
naval aviator, achieving the rank of Captain.
5
Bret Tayne, age 43, Director. Mr. Tayne was appointed as a director of the
Company in December, 1997. Mr. Tayne has been the President of Everede Tool
Company, a manufacturer of industrial cutting tools, since January, 1992. Prior
to that, Mr. Tayne was Executive Vice President of Unifin, a commercial finance
company, since 1986. Mr. Tayne received a Bachelor of Science degree from Tufts
University and an MBA from Northwestern University.
Executive Officers Other Than Nominees
Mark Van Dyke, age 52, Senior Vice President. Mr. Van Dyke rejoined the
Company in August, 2001, after having been employed by M&D Balloons, Inc. for
eight years, where he had achieved the position of Executive Director. Mr. Van
Dyke was previously employed by the Company for 12 years prior to his employment
with M&D Balloons, Inc. Overall, Mr. Van Dyke has over 24 years of experience in
the balloon industry.
Brent Anderson, age 35, Vice President of Manufacturing. Mr. Anderson has
been employed by the Company since January, 1989, and has held a number of
engineering positions with the Company including Plant Engineer and Plant
Manager. In such capacities Mr. Anderson was responsible for the design and
manufacture of much of the Company's manufacturing equipment. Mr. Anderson was
appointed Vice President of Manufacturing in June, 1997.
Samuel Komar, age 45, Vice President of Sales. Mr. Komar has been employed
by the Company since March of 1998, and was named Vice-President of Sales in
September of 2001. Mr. Komar has worked in sales for 15 years, and prior to his
employment with the Company, Mr. Komar was employed by Bob Gable & Associates, a
manufacturer of sporting goods. Mr. Komar received a Bachelor of Science Degree
in Sales and Marketing from Indiana University.
Alfred J. Lescher, age 38, Controller. Mr. Lescher has been employed by
the Company as Controller since February, 2002. He has been engaged in
accounting since 1994 and has held accounting positions with several companies.
He received a Bachelor of Science Degree in Finance from Arizona State
University in 1988 and a Bachelor of Science in Accounting equivalency at DePaul
University in 1993.
Committees of the Board of Directors
The Company's Board of Directors has a standing Audit Committee. The
Company has no standing nominating or compensation committees.
Audit Committee
Until January 29, 1998, the Company's Board of Directors acted as the
Audit Committee, which is responsible for nominating the Company's independent
accountants for approval by the Board of Directors, reviewing the scope, results
and costs of the audit with the Company's independent accountants, and reviewing
the financial statements, audit practices and internal controls of the Company.
On January 30, 1998, the Board of Directors elected a formal Audit Committee.
The current members are Stanley M. Brown III and Bret Tayne. On June 5, 2000,
the Board of
6
Directors adopted a formal Audit Committee Charter. During 2001, the Audit
Committee held 3 meetings. Mr. Tayne attended all and Mr. Brown two of these
meetings.
Report of the Audit Committee. The Audit Committee oversees the
Company's financial reporting process on behalf of the Board of Directors.
Management has the primary responsibility for the financial statements and
the reporting process including the systems of internal controls. In
fulfilling its oversight responsibilities, the Committee reviewed the
audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and
the clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be
discussed with the Committee under generally accepted auditing standards.
In addition, the Committee has discussed with the independent auditors the
auditor's independence from management and the Company including the
matters in the written disclosures required by the Independence Standards
Board.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The
Committee meets with the Company's internal and independent auditors, with
and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and
the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has
approved) that the audited financial statements be included in the Annual
Report on Form 10-KSB for the year ended December 31, 2001, for filing
with the Securities and Exchange Commission. The Committee and the board
have also recommended, subject to shareholder approval, the selection of
the Company's independent auditors.
April 30, 2002
Stanley M. Brown, III, Audit Committee Chair
Bret Tayne, Audit Committee Member
The Board of Directors met two times during fiscal 2001. Each director
attended both meetings of the Board of Directors.
7
Executive Compensation
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company to its President, Chief Executive
Officer and any other officer who received compensation in excess of $100,000
("Named Executive Officers").
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities All Other
Name and Salary Other Annual Underlying Compensation
Principal Position Year ($) Compensation Options ($)
----------------------- ---- -------- ------------ ---------- ------------
Howard W. Schwan 2001 $150,000 $ 5,000 -- $1,765(7)
President 2000 $135,000 $ 9,719(1) 20,000(2) $1,650(7)
1999 $129,900 $13,675(1) -- $1,650(7)
Stephen M. Merrick 2001 $81,750 -- -- --
Executive 2000 $75,000 -- 20,000(3) --
Vice-President 1999 $53,750 -- -- --
Mark Van Dyke 2001 $45,900 -- 20,000(4) --
Senior
Vice-President
Brent Anderson 2001 $82,700 -- 15,000(5) --
Vice President of
Manufacturing
Samuel Komar 2001 $85,000 -- 10,000(6) --
Vice President of
Sales
----------
(1) Perquisites include country club membership of $7,360 in 1999 and $3,950
in 2000.
(2) Stock options to purchase up to 20,000 shares of the Company's Common
Stock at $2.25 per share.
(3) Stock options to purchase up to 20,000 shares of the Company's Common
Stock at $2.475 per share.
(4) Stock options to purchase up to 20,000 shares of the Company's Common
Stock at $1.75 per share.
(5) Stock options to purchase up to 15,000 shares of the Company's Common
Stock at $1.75 per share.
(6) Stock options to purchase up to 10,000 shares of the Company's Common
Stock at $1.75 per share.
(7) Company contribution to the Company's 401(k) Plan as a pre-tax salary
deferral.
8
Certain Named Executive Officers have received warrants to purchase Common
Stock of the Company in connection with their guarantee of certain bank loans
secured by the Company and in connection with their participation in a private
offering of notes and warrants conducted by the Company. See "Board of Director
Affiliations and Related Transactions" below. The following stock option grants
were made to certain of the Company's executive officers in the fiscal year
ending December 31, 2001.
Option Grants in Last Fiscal Year
Individual Grants
Number of
Securities % of Total Options
Underlying Granted to Employees in Exercise Price
Name Options Granted Fiscal Year ($/share) Expiration Date
---- --------------- ----------- --------- ---------------
Mark Van Dyke 20,000 21.7% $1.75 12/27/2011
Brent Anderson 15,000 16.3% $1.75 12/27/2011
Samuel Komar 10,000 10.9% $1.75 12/27/2011
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Shares Number of Securities Underlying Value of Unexercised In-
Acquired on Value Unexercised Options at the-Money Options
Exercise Realized Year End (#) at Fiscal Year End ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------------- --------------------------
John H. Schwan 0 0 33,333/0 $0/0(1)
Howard W. Schwan 0 0 13,333/0 $0/0(1)
Stephen M. Merrick 0 0 13,333/0 $0/0(1)
Mark Van Dyke 0 0 20,000/0 $0/0(1)
Brent Anderson 0 0 26,000/0 $0/0(1)
Samuel Komar 300 0 27,700/0 $0/0(1)
----------
(1) The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's
Common Stock on December 31, 2001.
9
Employment Agreements
In June, 1997, the Company entered into an Employment Agreement with
Howard W. Schwan as President, which provides for an annual salary of not less
than $135,000. The term of the Agreement is through June 30, 2002. The Agreement
contains covenants of Mr. Schwan with respect to the use of the Company's
confidential information, establishes the Company's right to inventions created
by Mr. Schwan during the term of his employment, and includes a covenant of Mr.
Schwan not to compete with the Company for a period of three years after the
date of termination of the Agreement.
Director Compensation
John Schwan was compensated in the amount of $74,500 in fiscal 2001 for
his services as Chairman of the Board of Directors. Except for John Schwan,
directors received no cash compensation for their services as directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ Stock Market. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of such forms furnished to the Company, or
written representations that no Form 5's were required, the Company believes
that during calendar year 2001, all Section 16(a) filing requirements applicable
to the officers, directors and ten-percent beneficial shareholders were complied
with.
Board of Directors Affiliations and Related Transactions
In July, 2001, the Company issued Warrants to purchase up to 66,666 shares
of the Company's Common Stock to John H. Schwan and 33,334 shares of the
Company's Common Stock to Stephen M. Merrick. The warrants were issued in
consideration of Mr. Schwan and Mr. Merrick guaranteeing and securing loans to
the Company in the aggregate amount of approximately $1,600,000.00. The warrants
are exercisable for a period of five years at a price of $1.78 per share.
On November 9, 1999, the Company issued notes in the principal amounts of
$50,000, $350,000 and $315,000 to Messrs. H. Schwan, J. Schwan and Merrick,
respectively, in payment and replacement of prior notes in the same principal
amounts. The maturity dates of the November, 1999 notes was November 9, 2001. As
of that date, each payee under the November, 1999 notes had executed a consent
to extend the maturity on said notes to March 1, 2004.
10
Stephen M. Merrick, Executive Vice President of the Company, is a
principal of the law firm of Merrick & Klimek, P.C., which serves as general
counsel of the Company. In addition, Mr. Merrick is a principal stockholder of
the Company. Other principals of the firm of Merrick & Klimek, P.C. own less
than 1% of the Company's outstanding Common Stock. Legal fees incurred from the
firm of Merrick & Klimek, P.C. for the fiscal years ended December 31, 2000 and
December 31, 2001 were $124,308 and $121,305, respectively. Mr. Merrick is also
an officer and director of Reliv International, Inc. (NASDAQ-RELV).
John H. Schwan is President of Packaging Systems, L.L.C. and affiliated
companies. The Company made purchases of packaging materials from these entities
in the amount of $235,299 and $143,000 during each of the years ended December
31, 2000, and December 31, 2001, respectively.
The Company believes that each of the transactions set forth above were
entered into, and any future related party transactions will be entered into, on
terms as fair as those obtainable from independent third parties. All related
party transactions must be approved by a majority of disinterested directors.
PROPOSAL TWO - APPROVAL OF THE 2002 STOCK OPTION PLAN
General
In the opinion of the Board of Directors, the Company and its stockholders
will benefit substantially from having certain officers and key employees
acquire shares of the Company's Common Stock pursuant to options granted under
the Company's 2002 Stock Option Plan. Such options, in the opinion of the Board,
will be a highly effective incentive, and will create a commonality of purpose
between the Company's officers and key employees and its shareholders with
respect to the Company's strategies for profitable growth and share-value
appreciation. In the opinion of the Board, the Company's ability to provide
these stock options to its officers and other key employees in the future will
benefit the Company's long-term financial performance. In addition, the Board
believes the interests of the Company would be served if options could be
granted to consultants, advisors and other individuals who can contribute to the
success of the Company's business. The Board of Directors have previously
adopted after shareholder approval, the Company's 2001 Stock Option Plan.
Virtually all of the 100,000 shares of Common Stock that were authorized for
issuance under that plan have been exhausted. Accordingly, the Board of
Directors believes it is in the Company's best interests to adopt a new stock
option plan which, if adopted, will authorize the Company to award stock options
to its officers and other key employees and permit the Company to offer options
pursuant to the Plan to certain consultants and advisors.
The Plan and Participants
On April 24, 2002, the Board of Directors approved for adoption, the 2002
Stock Option Plan (the "Plan") which enables the Company to grant "incentive
stock options," as defined under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock
11
options. The Plan authorizes the grant of options to purchase up to an aggregate
of 120,000 shares of the Company's Common Stock, to (i) officers and other
full-time salaried employees of the Company and its subsidiaries with
managerial, professional or supervisory responsibilities and (ii) consultants
and advisors who render bona fide services to the Company and its subsidiaries,
in each case, where the Committee determines that such officer, employee,
consultant or advisor has the capacity to make a substantial contribution to the
success of the Company. As used herein with respect to the Plan, references to
the Company include subsidiaries of the Company.
The purposes of the Plan are to enable the Company to attract and retain
persons of ability as officers and other key employees with managerial,
professional or supervisory responsibilities, to retain able consultants and
advisors, and to motivate such persons to use their best efforts on behalf of
the Company by providing them with an equity participation in the Company. The
full text of the Plan is set forth in Appendix A hereto, and the following
description is qualified in its entirety by reference to Appendix A.
The Plan will be administered by the Committee, which will be appointed by
the Company's Board of Directors and must consist of two or more members of the
Board of Directors, each of whom must be a "disinterested" person within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934. Under the terms
of the Plan, the Committee will have the authority to determine, subject to the
terms and conditions of the Plan, and the persons to whom options are granted,
the number of options granted to each optionee and the terms and conditions of
each option, including its duration.
The Plan can be amended, suspended, reinstated or terminated by the Board
of Directors; provided, however, that without approval of the Company's
shareholders, no amendment shall be made which (i) increases the maximum number
of shares of Common Stock which may be subject to stock options granted under
the Plan, except for specified adjustment provisions, (ii) extends the term of
the Plan (iii) increases the period during which a stock option may be exercised
beyond ten years from the date of the grant, (iv) materially increases the
benefits accruing to optionees under the Plan, (v) materially modifies the
requirements as to eligibility for participation in the Plan or (vi) will cause
stock options granted under the Plan to fail to meet the requirements of Rule
16(b)-3. Unless previously terminated by the Board of Directors, the Plan will
terminate on July 1, 2012, and no additional options may be granted under the
Plan after that date.
Options Terms and Grants
Stock options may be granted to purchase Common Stock under the Plan at
not less than the fair market value of the shares as of the date of grant (or
110% of fair market value in the case of incentive stock options granted to any
officer or employee holding in excess of 10% of the combined voting power of all
classes of the Company's stock as of the date of grant). No optionee may be
granted incentive stock options under the Plan to purchase Common Stock having a
fair market value (determined as of the date of grant) which exceeds $100,000
with respect to incentive stock options which are exercisable for the first time
by such optionee in any calendar year, under all stock option plans of the
Company as of the date of grant. The maximum number of shares for which options
12
may be issued to an employee of the Company during any calendar year may not
exceed 100,000. Other than the limitations set forth above, there is no
limitation on the number of non-qualified stock options which may be granted to
any optionee pursuant to the Plan.
Incentive stock options may be granted for a term of up to five years in
the case of optionees who own in excess of 10% of the combined voting power of
all classes of the Company's stock and up to ten years, in the Committee's sole
discretion, in the case of all other optionees. Non-qualified stock options may
be granted for a term of up to ten years.
The Plan provides that if a stock option or portion thereof expires or is
terminated, cancelled or surrendered for any reason without being exercised in
full, the unpurchased shares of Common Stock which were subject to such stock
option or portion thereof shall be available for future grants of stock options
under the Plan.
Pursuant to the terms of the Plan, the option price for all options must
be paid in cash, by check, bank draft or money order, with Common Stock of the
Company owned by the optionee and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares to be so purchased,
or a combination thereof.
As of the date hereof, no options have been granted pursuant to the Plan.
Options granted pursuant to the Plan will not be assignable or
transferable except by will or the laws on intestate succession. Options
acquired pursuant to the Plan may be exercised by the optionee (or the
optionee's legal representative) only while the optionee is employed by the
Company, or within six months after termination of employment due to a permanent
disability, or within three months after termination of employment due to
retirement. The executor or administrator of a deceased optionee's estate or the
person or persons to whom the deceased optionee's rights thereunder have passed
by will or by the laws of descent or distribution shall be entitled to exercise
the option within the sixth months after the decedent's death. Options expire
immediately in the event an optionee is terminated with or without cause or
resigns; provided, however, in the event the Company terminates the employment
of an optionee who at the time of such termination was an officer of the Company
and had been continuously employed by the Company during the two year period
immediately preceding such termination, for any reason except "good cause" (as
defined in the Plan), each stock option held by such optionee (which had not
then previously lapsed or terminated and which had been held by such optionee
for more than six (6) months prior to such termination) shall be exercisable for
a period of three months after such termination to the extent otherwise
exercisable during that period. All of the aforementioned exercise periods set
forth in this paragraph are subject to the further limitation that an option
shall not, in any case, be exercisable beyond its stated expiration date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted pursuant to the Plan, and the number of shares
which may be granted pursuant to the Plan, are subject to adjustment in certain
events, including stock splits, recapitalization and reorganizations.
13
Federal Tax Aspects of the Plan
Set forth below is a general summary of the Federal income tax
consequences associated with the Plan.
An employee will not be deemed to have received income upon the grant of
an incentive stock option or, except as noted below, upon the exercise of such
option. Unless Shares acquired upon exercise are disposed of within two years of
the date of grant or within one year of exercise, upon the sale of such Shares,
the optionee will generally recognize capital gain or loss measured by the
difference between the amount realized on the sale and the price paid for the
Shares. If a sale is made prior to either of such dates, an optionee's gain on
the sale of the Shares will be treated as ordinary income to the extent of the
lesser of the excess of the fair market value of the Shares at the time of
exercise over the option price and the excess of the amount realized on the sale
of stock over the option price. The Company will be allowed a deduction at the
time of sale in the amount of ordinary income recognized by the optionee. The
balance of any gain realized will be treated as long-term or short-term capital
gain depending upon the length of time the Shares were held by the optionee.
Generally, the excess of the fair market value of an incentive stock
option at the time of exercise (or, if the stock subject to the option is
restricted within the meaning of Code Section 83, at such time as the Shares
become transferable or are not longer subject to a substantial risk of
forfeiture) over the option price constitutes an item of tax preference for
purposes of calculating "alternative minimum taxable income" and may result in
imposition of the "alternative minimum tax" for the participant pursuant to
Section 55 of the Code.
Non-qualified options granted under the Plan are not intended to qualify
for the favorable Federal income tax treatment accorded to incentive stock
options under the Plan. An optionee should not recognize any income for Federal
income tax purposes at the time of the grant of non-qualified options under the
Plan. When non-qualified options are exercised, however, the excess of the fair
market value of the shares of Common Stock acquired pursuant to such exercise,
determined at the time of exercise, over the option price will constitute
ordinary income to the optionee. Subject to applicable limitations, the Company
is entitled to a corresponding income tax deduction equal to the amount of such
ordinary income for the taxable year in which the optionee is required to
recognize such income for Federal income tax purposes.
Vote Required for Approval of the Plan
The Company's Board of Directors has approved the Plan. However, the Plan
will not be adopted unless the holders of at least a majority of the shares of
Common Stock present or represented at the meeting and entitled to vote thereon
vote "FOR" approval of the plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PLAN.
14
PROPOSAL THREE - SELECTION OF AUDITORS
Grant Thornton, L.L.P.
Subject to ratification by the shareholders, the Board of Directors has
reappointed Grant Thornton, L.L.P. as independent auditors to audit the
financial statement of the Company for the current fiscal year. Aggregate fees
billed to date for the last annual audit were $121,078, and all other fees
billed to date were $116,781, including audit related services of $15,393 and
nonaudit services of $0. Audit related services generally include fees for
pension and statutory audits, business acquisitions, accounting consultants,
internal audit and SEC registration statements.
The Board of Directors have selected and approved Grant Thornton as the
principal independent auditor to audit the financial statements of the Company
for 2002, subject to ratification by the shareholders. It is expected that a
representative of the firm of Grant Thornton, L.L.P. will be present at the
annual meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" SUCH
RATIFICATION.
Stockholder Proposals for 2003 Proxy Statement
Proposals by shareholders for inclusion in the Company's Proxy Statement
and form of proxy relating to the 2003 Annual Meeting of Stockholders, which is
tentatively scheduled to be held on June 27, 2003 should be addressed to the
Secretary, CTI Industries Corporation, 22160 North Pepper Road, Barrington,
Illinois 60010, and must be received at such address no later than December 31,
2002. Upon receipt of any such proposal, the Company will determine whether or
not to include such proposal in the Proxy Statement and proxy in accordance with
applicable law. It is suggested that such proposal be forwarded by certified
mail, return receipt requested.
15
Other Matters to Be Acted Upon at the Meeting
The management of the Company knows of no other matters to be presented at
the meeting. Should any other matter requiring a vote of the shareholders arise
at the meeting, the persons named in the proxy will vote the proxies in
accordance with their best judgment.
BY ORDER OF THE
BOARD OF DIRECTORS
Dated: May 15, 2002 /s/ Stephen M. Merrick
-----------------------------------
Stephen M. Merrick, Secretary
16
APPENDIX A
CTI INDUSTRIES CORPORATION
2002 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of the CTI Industries Corporation 2002 Stock Option Plan (the
"Plan") are to enable the Company to attract and retain the services of officers
and other key employees, to retain able consultants and advisors and to motivate
such persons to use their best efforts on behalf of the Company.
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any and
all amendments thereto.
(c) "Committee" means the committee appointed by the Board of Directors
from time to time to administer the Plan pursuant to Section 2.2.
(d) "Common Stock" means the Company's Common Stock, no par value.
(e) "Fair Market Value" means, with respect to a specific date, the
value of the Common Stock as determined in good faith by the
Committee on the basis of such quotations and other considerations
as the Committee deems appropriate.
(f) "Incentive Stock Option" means an option granted under the Plan
which is intended to qualify as an incentive stock option under
Section 422 of the Code.
(g) "NASDAQ" means the NASDAQ SmallCap Market
(h) "Non-Qualified Stock Option" means an option granted under the Plan
which is not an Incentive Stock Option.
(i) "Participant" means a person to whom a Stock Option has been granted
under the Plan.
(j) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended from time to time, or any successor
rule.
(k) "Stock Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted under the Plan.
(l) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of the Stock Option, each of the corporations
other than the last corporation in the unbroken chain owns 50% or
more of the total voting power of all classes of stock in one of the
other corporations in such chain.
2.2 Administration of the Plan
(a) The Plan shall be administered by the Committee which shall at all
times consist of two (2) or more persons, each of whom shall be a
member of the Board of Directors. Each member of the Committee shall
be a non-employee (as such term is defined in Rule 16b-3). The Board
of Directors may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board of Directors. The Committee
shall select one of its members as Chairman, and shall hold meetings
at such times and places as it may determine.
(b) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan and
Stock Options granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes
in and revoke such rules and regulations (and in the exercise of
this power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan or any agreement evidencing the grant of
any Stock Option in a manner and to the extent it shall deem
necessary to make the Plan fully effective); (iii) determine those
persons to whom Stock Options shall be granted and the number of
Stock Options to be granted to any person; (iv) determine the terms
of Stock Options granted under the Plan, consistent with the
provision of the Plan; and (v) generally, exercise such powers and
perform such acts in connection with the Plan as are deemed
necessary or expedient to promote the best interests of the Company.
The interpretation and construction by the Committee of any
provision of the Plan or of any Stock Option shall be final, binding
and conclusive.
(c) The Committee may act only by a majority of its members then in
office; however, the Committee may authorize any one (1) or more of
its members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
2
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in
good faith with respect to the Plan, and the Company shall indemnify
and hold harmless each member of the Committee against any cost or
expense (including counsel fees) or liability (including any sum
paid in settlement of a claim with the approval of the Committee)
arising out of any act or omission in connection with the
administration or interpretation of the Plan, unless arising out of
such person's own fraud or bad faith.
2.3 Effective Date
The Plan shall become effective on April 24, 2002 upon its adoption by the
Board of Directors, and Stock Options may be granted upon such adoption and from
time to time thereafter, subject, however, to approval of the Plan by
affirmative vote of the holders of a majority of the shares of the Common Stock,
within 12 months after the adoption of the Plan by the Board of Directors. If
the Plan is not approved at such annual or special meeting or at any
adjournments thereof, this Plan and all Stock Options previously granted
thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in Section
2.3, unless sooner terminated by the Board of Directors, the Plan shall remain
in effect for a period of ten (10) years following its adoption by the Board of
Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject to Stock
Options granted under the Plan shall be 120,000. The Stock Options shall be
subject to adjustment in accordance with Section 4.1, as appropriate, and shares
to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, cancelled or surrendered for any
reason without being exercised in full, the unpurchased shares of Common Stock
which were subject to such Stock Option or portion thereof shall be available
for future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in part,
at any time by the Board of Directors. The Board of Directors may from time to
time make such amendments to the Plan as it may deem advisable, including, with
respect to Incentive Stock Options, amendments deemed necessary or desirable to
comply with Section 422 of the Code and any
3
regulations issued thereunder; provided, however, that without the approval of
the Company's shareholders no amendment shall be made which:
(a) Increases the maximum number of shares of Common Stock which may be
subject to Stock Options granted under the Plan (other than as
provided in Section 4.1, as appropriate); or
(b) Extends the term of the Plan; or
(c) Increases the period during which a Stock Option may be exercised
beyond ten (10) years from the date of grant; or
(d) Otherwise materially increases the benefits accruing to Participants
under the Plan;
(e) Materially modifies the requirements as to eligibility for
participation in the Plan; or
(f) Will cause Stock options granted under the Plan to fail to meet the
requirements of Rule 16b-3.
Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) officers and other
employees of the Company and its Subsidiaries and (ii) consultants and advisors
who render bona fide services to the Company and its Subsidiaries, in each case,
where the Committee determines that such officer, employee, consultant or
advisor has the capacity to make a substantial contribution to the success of
the Company. The Committee may grant Stock Options to purchase such number of
shares of Common Stock (subject to the limitations of Sections 2.5, 3.6 and 3.9)
as the Committee may, in its sole discretion, determine. In granting Stock
Options under the Plan, the Committee, on an individual basis, may vary the
number of Incentive Stock Options or Non- Qualified Stock Options as between
Participants and may grant Incentive Stock Options and/or Non-Qualified Stock
Options to a Participant in such amounts as the Committee may determine in its
sole discretion.
4
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by written
agreements executed by the Company and the Participant to whom granted, which
agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine, or, in the case of Incentive Stock Options, as may be required
by Section 422 of the Code, or any other applicable law.
3.2 Price
Subject to the provisions of Section 3.6(d) and 4.1, the purchase price
per share of Common Stock subject to a Stock Option shall, in no case, be less
than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted; provided, however, that the Board
of Directors may authorize the grant of a Non- Qualified Stock Option with a
purchase price per share less than the Fair Market Value if the amount of the
difference between the option purchase price and the Fair Market Value is
designated in the resolution authorizing the option.
3.3 Period
The duration or term of each Stock Option granted under the Plan shall be
for such period as the Committee shall determine but in no event more than ten
(10) years from the date of grant thereof.
3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable immediately upon
granting of the Stock Option or at such other time or times as the Committee
shall specify when granting the Stock Option. Once exercisable, a Stock Option
shall be exercisable, in whole or in part, by delivery of a written notice of
exercise to the Secretary of the Company at the principal office of the Company
specifying the number of shares of Common Stock as to which the Stock Option is
then being exercised together with payment of the full purchase price for the
shares being purchased upon such exercise. Until the shares of Common Stock as
to which a Stock Option is exercised are issued, the Participant shall have none
of the rights of a shareholder of the Company with respect to such shares.
5
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock Option
has been exercised and any amount required to be withheld, as contemplated by
Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company;
or
(b) By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock
as to which the Stock Option is then being exercised or by the
withholding of whole shares of Common Stock having such Fair Market
Value upon the exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Special Rules for Incentive Stock Options
Notwithstanding any other provision of the Plan, the following provisions
shall apply to Incentive Stock Options granted under the Plan:
(a) Incentive Stock Options shall only be granted to Participants who
are employees of the Company or its Subsidiaries.
(b) To the extent that the aggregate Fair Market Value of Common Stock,
with respect to which Incentive Stock Options are exercisable for
the first time by a Participant during any calendar year under this
Plan and any other Plan of the Company or a Subsidiary exceeds
$100,000, such Stock Options shall be treated as Non-Qualified Stock
Options.
(c) Any Participant who disposes of shares of Common Stock acquired upon
the exercise of an Incentive Stock Option by sale or exchange either
within two (2) years after the date of the grant of the Incentive
Stock Option under which the shares were acquired or within one (1)
year of the acquisition of such shares, shall promptly notify the
Secretary of the Company at the principal office of the Company of
such disposition, the amount realized, the purchase price per share
paid upon the exercise and the date of disposition.
6
(d) No Incentive Stock Option shall be granted to a Participant who, at
the time of the grant, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock
either of the Company or any parent or Subsidiary of the Company,
unless the purchase price of the shares of Common Stock purchasable
upon exercise of such Incentive Stock Option is at least one hundred
ten percent (110%) of the Fair Market Value (at the time the
Incentive Stock Option is granted) of the Common Stock and the
Incentive Stock Option is not exercisable more than five (5) years
from the date it is granted.
3.7 Termination of Employment
(a) In the event a Participant's employment by, or relationship with,
the Company shall terminate for any reason other than those reasons
specified in Sections 3.7(b), (c), (d) or (e) hereof while such
Participant holds Stock Options granted under the Plan, then all
rights of any kind under any outstanding Option held by such
Participant which shall not have previously lapsed or terminated
shall expire immediately.
(b) If a Participant's employment by, or relationship with, the Company
or its Subsidiaries shall terminate as a result of such
Participant's total disability, each Stock Option held by such
Participant (which has not previously lapsed or terminated) shall be
exercisable by such Participant for a period of six months after
termination but only to the extent the Option is otherwise
exercisable during that period. Notwithstanding the foregoing, the
Committee may in the event of such disability accelerate the date
after which a Stock Option is exercisable, in whole or in part,
which change shall be in the Committee's sole discretion and be
final, binding and conclusive. For purposes of this paragraph,
"total disability" shall mean permanent mental or physical
disability as determined by the Committee.
(c) In the event of the death of a Participant, each Stock Option held
by such Participant (which has not previously lapsed or terminated)
shall be exercisable by the executor or administrator of the
Participant's estate or by the person or persons to whom the
deceased Participant's rights thereunder shall have passed by will
or by the laws of descent or distribution, for a period of six (6)
months after such Participant's death but only to the extent the
Option is otherwise exercisable during that period. Notwithstanding
the foregoing, the Committee may in the event of such death
accelerate the date after which a Stock Option is exercisable, in
whole or in part, which change shall be in the Committee's sole
discretion and be final, binding and conclusive.
(d) If a Participant's employment by the Company shall terminate by
reason of such Participant's retirement in accordance with Company
policies, each Stock Option held by such Participant at the date of
termination (which has not previously
7
lapsed or terminated) shall be exercisable for a period of three (3)
months after termination, but only to the extent the Option is
otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a Participant
who at the time of such termination was an officer of the Company
and had been continuously employed by the Company during the two (2)
year period immediately preceding such termination, for any reason
except "good cause" (hereafter defined) and except upon such
Participant's death, total disability or retirement in accordance
with Company policies, each Stock Option held by such Participant
(which has not previously lapsed or terminated and which has been
held by such Participant for more than six (6) months prior to such
termination) shall be exercisable for a period of three (3) months
after such termination, but only to the extent the Option is
otherwise exercisable during that period. A termination for "good
cause" shall be deemed to have occurred only if the Participant in
question (i) is terminated by written notice for dishonesty, because
of his conviction of a felony, or because of his violation of any
material provision of any employment or other agreement with the
Company or any of its Subsidiaries, or (ii) shall voluntarily resign
or terminate his employment with the Company or any of its
Subsidiaries under or followed by such circumstances as would
constitute a breach of any material provision of any employment or
other agreement between him and the Company or any of its
Subsidiaries, or (iii) shall have committed an act of dishonesty not
discovered by the Company or any of its Subsidiaries prior to the
cessation of his employment with the Company or any of its
Subsidiaries, but which would have resulted in his discharge if
discovered prior to such date, or (iv) shall, either before or after
cessation of his employment with the Company or any of its
Subsidiaries, without the written consent of the company or any of
its Subsidiaries, use (except for the benefit of the Company or any
of its Subsidiaries) or disclose to any other person any
confidential information relating to the business or any trade
secrets of the Company or any of its Subsidiaries obtained as a
result of or in connection with such employment.
3.8 Effect of Leaves of Absence
It shall not be considered a termination of employment when a Participant
is on military or sick leave or such other type leave of absence which is
considered as continuing intact the employment relationship of the Participant
with the Company or any of its Subsidiaries. In case of such leave of absence,
the employment relationship shall be deemed to have continued until the later of
(i) the date when such leave shall have lasted ninety (90) days in duration, or
(ii) the date as of which the Participant's right to employment shall have no
longer been guaranteed either by statute or contract.
8
3.9 Limitation on Number of Options Granted to Employees
The maximum number of shares for which options may be granted to an
employee of the Company during any calender year shall not exceed 100,000.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
(a) In the event of changes to the outstanding shares of Common Stock of
the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend,
stock consolidation or otherwise, or in the event of a sale of all
or substantially all of the assets of the Company, an appropriate
and proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding
adjustment changing the number or kind of shares and/or the purchase
price per share of unexercised Stock Options or portions thereof
which shall have been granted prior to any such change shall
likewise be made.
(b) Notwithstanding the foregoing, in the case of a reorganization,
merger or consolidation, or sale of all or substantially all of the
assets of the Company, in lieu of adjustments as aforesaid, the
Committee may in its discretion accelerate the date after which a
Stock Option may or may not be exercised or the stated expiration
date thereof. Adjustments or changes under this Section shall be
made by the Committee, whose determination as to what adjustments or
changes shall be made, and the extent thereof, shall be final,
binding and conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of
descent and distribution, nor shall any Stock Option be exercisable during the
Participant's lifetime by any person other than the Participant or his guardian
or legal representative.
4.3 Withholding
The Company's obligations under this Plan shall be subject to applicable
federal, state and local tax withholding requirements. Federal, state and local
withholding tax due at the time of a grant or upon the exercise of any Stock
Option may, in the discretion of the Committee, be paid in shares of Common
Stock already owned by the Participant or through the withholding of shares
otherwise issuable to such Participant, upon such terms and conditions as the
Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the
9
right to deduct from any payment of any kind otherwise due to such Participant
an amount equal to any federal, state or local taxes of any kind required to be
withheld by the Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be delivered under
the Plan except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and state
securities laws and withholding tax requirements and with the rules of NASDAQ
and of all other domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued to evidence shares for which a Stock Option
is exercised may bear legends and statements the Committee shall deem advisable
to assure compliance with federal and state laws and regulations. No Stock
Option shall be exercisable and no shares will be delivered under the Plan,
until the Company has obtained consent or approval from regulatory bodies,
federal or state, having jurisdiction over such matters as the Committee may
deem advisable. In the case of the exercise of a Stock Option by a person or
estate acquiring the right to exercise the Stock Option as a result of the death
of the Participant, the Committee may require reasonable evidence as to the
ownership of the Stock Option and may require consents and releases of taxing
authorities that it may deem advisable.
4.5 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the granting of
any Stock Options hereunder, shall confer upon any Participant under the Plan
any right to continue in the employ of the Company or any Subsidiary, or shall
in any way affect the right and power of the Company or any Subsidiary to
terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
4.6 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the recipient
shall be deemed to agree that any income realized upon the receipt or exercise
thereof or upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or "compensation"
in determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company or any Subsidiary.
4.7 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
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4.8 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
4.9 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a convenience to
facilitate reference, such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of the Plan
or any provision hereof. The use of the masculine gender shall also include
within its meaning the feminine. The use of the singular shall also include
within its meaning the plural and vice versa.
4.10 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options shall be
used for the general corporate purposes of the Company.
4.11 Construction of Plan
The place of administration of the Plan shall be in the State of Illinois,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Illinois.
BOARD OF DIRECTORS APPROVAL April 24, 2002
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