[STRS LOGO to be inserted]
Notice of Annual Meeting of Stockholders
May 10, 2001
March __, 2001
Date: Thursday, May 10, 2001
Time: 1:30 p.m., Central Time
Place: Hotel Crescent Court
400 Crescent Court
Dallas, Texas
Purpose: . To elect one director;
. To ratify the appointment of the independent
auditors;
. To approve the proposal to amend our certificate
of incorporation to effect a reverse stock split
followed by a forward stock split;
. To vote on a new stock incentive plan; and
. To transact such other business as may properly
come before the meeting.
Record Date: Close of business on March 15, 2001.
Your vote is important. Whether or not you plan to attend
the meeting, please complete, sign and date the enclosed proxy
card and return it promptly in the enclosed envelope. Your
cooperation will be appreciated.
By Order of the Board of
Directors.
[Signature to be inserted]
KENNETH N.JONES
General Counsel and Secretary
Information about Attending the Annual Meeting
If you plan to attend the meeting, please bring the following:
1. Proper identification.
2. Proof of Ownership if your shares are held in "Street
Name."
Street Name means your shares are held of record by brokers,
banks or other institutions.
Acceptable Proof of Ownership is a letter from your broker
stating that you owned Stratus stock on the record date or an
account statement showing that you owned Stratus stock on the
record date.
Only stockholders of record on the record date may attend or vote
at the annual meeting.
Stratus Properties Inc.
98 San Jacinto Boulevard, Suite 220
Austin, Texas 78701
The 2000 Annual Report to Stockholders, including financial
statements, is being mailed to stockholders together with these
proxy materials on or about March __, 2001.
This proxy statement is furnished in connection with a
solicitation of proxies by the board of directors of Stratus
Properties Inc. for use at our Annual Meeting of Stockholders to
be held on May 10, 2001, and at any adjournments (the meeting).
Who Can Vote
Each share of our common stock that you held on the record
date entitles you to one vote at the meeting. On the record
date, there were [14,298,780] shares of common stock outstanding.
Voting Rights
Inspectors of election will count votes cast at the
meeting. Directors are elected by plurality vote. All other
matters are decided by majority vote present at the meeting,
except as otherwise provided by statute, our certificate of
incorporation and our by-laws.
Brokers holding shares of record for customers generally are
not entitled to vote on certain matters unless they receive
voting instructions from their customers. When brokers do not
receive voting instructions from their customers, they notify the
company on the proxy form that they lack voting authority. The
votes that could have been cast on the matter in question by
brokers who did not receive voting instructions are called
"broker non-votes."
Abstentions and broker non-votes will have no effect on the
election of directors. Abstentions as to all other matters to
come before the meeting will be counted as votes against those
matters. Broker non-votes as to all other matters will not be
counted as votes for or against and will
not be included in calculating the number of votes necessary for
approval of those matters.
Quorum
A quorum at the meeting is a majority of the common stock
entitled to vote, present in person or represented by proxy. The
persons whom we appoint to act as inspectors of election will
determine whether a quorum exists. Shares of common stock
represented by properly executed and returned proxies will be
treated as present. Shares of common stock present at the
meeting that abstain from voting or that are the subject of
broker non-votes will be counted as present for purposes of
determining a quorum.
1
How Your Proxy Will Be Voted
The board of directors is soliciting a proxy in the enclosed
form to provide you with an opportunity to vote on all matters
scheduled to come before the meeting, whether or not you attend
in person.
Granting Your Proxy. If you properly execute and return a
proxy in the enclosed form, your stock will be voted as you
specify. If you make no specifications, your proxy will be voted:
. in favor of the proposed director nominee;
. for the ratification of the appointment of
auditors;
. for the amendment of our certificate of
incorporation to effect a reverse stock split
followed by a forward stock split; and
. for the adoption of the 2001 Stock Incentive Plan.
We expect no matters to be presented for action at the
meeting other than the items described in this proxy statement.
The enclosed proxy will, however, confer discretionary authority
with respect to any other matter that may properly come before
the meeting. The persons named as proxies in the enclosed proxy
intend to vote in accordance with their judgment on any other
matters that may properly come before the meeting.
Revoking Your Proxy. If you submit a proxy, you may
subsequently revoke it or submit a revised proxy at any time
before it is voted. You may also attend the meeting in person and
vote by ballot, which would cancel any proxy that you previously
submitted.
Proxy Solicitation
We will pay all expenses of soliciting proxies for the
meeting. In addition to solicitations by mail, arrangements have
been made for brokers and nominees to send proxy materials to
their principals, and we will reimburse them for their reasonable
expenses. We have retained Georgeson Shareholder Communications
Inc., 17 State Street, New York, New York, to assist us in the
solicitation of proxies from brokers and nominees. It is
estimated that the fees for Georgeson's services will be $6,500
plus its reasonable out-of-pocket expenses. We may also have our
representatives, who will receive no compensation for their
services, solicit proxies by telephone, telecopy, personal
interview or other means.
2
Stockholder Proposals
If you want us to consider including a proposal in next
year's proxy statement, you must deliver it in writing to the
Corporate Secretary, Stratus Properties Inc., 98 San Jacinto
Boulevard, Suite 220, Austin, Texas 78701 by November __, 2001.
If you want to present a proposal at the next annual meeting
but do not wish to have it included in our proxy statement, you
must submit it in writing to the Corporate Secretary, at the
above address, by January __, 2002 in accordance with the
specific procedural requirements in our by-laws. If you would
like a copy of these procedures, please contact the Corporate
Secretary. Failure to comply with our by-law procedures and
deadlines may preclude the presentation of the matter at the
meeting.
Corporate Governance
The board of directors, which held four meetings during
2000, has primary responsibility for directing the management of
our business and affairs. The board currently consists of four
members. To provide for effective direction and management of our
business, the board of directors has established an audit
committee and a corporate personnel committee. The board does not
have a nominating committee.
Audit Meetings
Committee Members Functions of the Committee in 2000
- ------------------- -------------------------------- ---------
Michael D. Madden, . please refer to the Audit 4
Chairman Committee Report and the
Robert L. Adair III Audit Committee's Charter
James C. Leslie attached as Annex A to
this proxy statement
Corporate Personnel Meetings
Committee Members Functions of the Committee in 2000
- -------------------- -------------------------------- ---------
James C. Leslie, . please refer to the
Chairman Corporate Personnel Committee 3
Michael D. Madden Report on Executive
Compensation
3
Election of Directors
The board of directors has fixed the number of directors at
four. The board consists of three classes, each of which serves
for three years, with one class being elected each year. This
table shows the members of the different classes of the board and
the expiration of their terms.
Class Expiration of Term Class Members
- --------- ------------------------------- -------------------------
Class I 2002 Annual Stockholder Meeting Robert L. Adair III
Michael D. Madden
Class II 2003 Annual Stockholder Meeting James C. Leslie
Class III 2001 Annual Stockholder Meeting William H. Armstrong III
The board has nominated the Class III director named above
for an additional three-year term. The persons named as proxies
in the enclosed form of proxy intend to vote your proxy for the
re-election of the Class III director, unless otherwise directed.
If, contrary to our present expectations, the nominee should
become unavailable for any reason, votes may be cast pursuant to
the accompanying form of proxy for a substitute nominee
designated by the board.
Information About Nominee and Directors
This table provides certain information as of February 8,
2001 with respect to the director nominee and each other director
whose term will continue after the meeting. Unless otherwise
indicated, each person has been engaged in the principal
occupation shown for the past five years.
Principal Occupations, Other Year First
Name of Nominee or Age Directorships and Positions Elected a
Director with the Company Director
- ------------------------ ---- ------------------------------- -----------
Robert L. Adair III 57 President of Real Estate Value 1998
Managers LP since October 2000.
Director, President and Chief
Operating Officer of AMRESCO,
Inc., a diversified financial
services company, until March
2000. Director, Chairman and
Chief Executive Officer of
AMRESCO Capital Trust, a
commercial mortgage real
estate investment trust.
4
Principal Occupations, Other Year First
Name of Nominee or Age Directorships and Positions Elected a
Director with the Company Director
- ------------------------ ---- ------------------------------- -----------
William H. Armstrong III 36 Chairman of the Board and 1998
Chief Executive Officer of
the Company since 1998.
President since 1996. Chief
Operating Officer and Chief
Financial Officer until
1998. Executive Vice President
until 1996.
James C. Leslie 44 Director, President and Chief 1996
Operating Officer of The
Staubach Company, a commercial
real estate services firm.
President of Wolverine Holding
Company, a real estate
holding company. President
of Staubach Financial Services,
a financial real estate services
firm, until March 1996. Director
of AMRESCO Capital Trust.
Michael D. Madden 51 Partner of Questor Management Co., 1992
merchant bankers, since March
1999. Chairman of the Board
of Hanover Capital L.L.C.,
investment bankers. Vice
Chairman of the Board of
PaineWebber Incorporated,
investment bankers, until
December 1995.
Director Compensation
Cash Compensation
Each non-employee and non-officer director receives $500 for
attending each board committee meeting as well as an annual fee
consisting of (a) $10,000 for serving on the board, (b) $1,000
for each committee on which he serves, and (c) $1,000 for each
committee of which he is the chairman. Each director receives a
fee of $500 for attending each board meeting and reimbursement
for reasonable out-of-pocket expenses incurred in attending board
and committee meetings.
Stock Option Plan for Non-Employee Directors
Each non-employee and non-officer director is eligible for
the grant of options under the 1996 Stock Option Plan for Non-
Employee Directors. On September 1 of each year, each eligible
director is granted an option to purchase 5,000 shares of common
stock at 100% of the fair market value of the shares on the grant
date. Each option granted under this plan expires ten years after
the grant date. In accordance with this plan, on September 1,
2000, each eligible director was granted an option to purchase
5,000 shares of common stock at an exercise price of $4.6875.
5
Stock Ownership of Directors and Executive Officers
This table shows the amount of common stock each director
and named executive officer beneficially owned on February 8,
2001. The directors and executive officers as a group
beneficially owned approximately 2.9%. Each individual holds
less than 1% of the outstanding shares, with the exception of Mr.
Armstrong who beneficially owns 1.9%. All shares shown are held
with sole voting and investment power. This table also shows the
number of shares each director and named executive officer could
acquire as of April 9, 2001 upon the exercise of options granted
pursuant to our stock option plans.
Number of
Number of Shares Total
Shares Not Subject to Number of
Subject to Exercisable Shares Benefically
Name of Beneficial Owner Options Options Owned
---------------------------- ---------- ------------ -----------------
Robert L. Adair III 12,000 3,750 15,750
William H. Armstrong III 20,800 245,000 265,800
James C. Leslie 71,000 27,500 98,500
Michael D. Madden 0 27,500 27,500
All directors and executive
officers as a group(5 persons) 103,800 303,750 407,550
6
Stock Ownership of Certain Beneficial Owners
This table shows beneficial owners of more than 5% of our
outstanding common stock based on filings with the Securities and
Exchange Commission (the SEC). Unless otherwise indicated, all
information is presented as of December 31, 2000, and all shares
indicated as beneficially owned are held with sole voting and
investment power.
Number of Shares Percent
Name and Address of Person Beneficially Owned of Class(1)
----------------------------- ------------------ ------------
Ingalls & Snyder LLC 2,754,395(2) 19.3%
61 Broadway
New York, New York 10006
Carl E. Berg 2,308,400(3) 16.1%
10050 Bandley Drive
Cupertino, California 95014
Dimensional Fund Advisors Inc. 808,585(4) 5.7%
1299 Ocean Avenue - 11th Floor
Santa Monica, California 90401
___________________
(1)On December 31, 2000, there were 14,298,780 shares of common
stock outstanding.
(2)Based on the amended Schedule 13G dated February 7, 2001 that
Ingalls & Snyder LLC filed with the SEC, Ingalls & Snyder has
sole voting and investment power with respect to 353,700 of
those shares.
(3)Based on the amended Schedule 13G dated February 14, 2001
filed by Carl E. Berg with the SEC.
(4)Based on the Schedule 13G dated February 2, 2001 that
Dimensional Fund Advisors Inc. filed with the SEC,
Dimensional Fund Advisors disclaims beneficial ownership of
all such shares.
7
Executive Officer Compensation
The current Chairman of the Board, President and Chief
Executive Officer, William H. Armstrong III, was the only
executive officer we employed who earned in excess of $100,000
for services provided to us in 2000. The following table shows
compensation that we paid to Mr. Armstrong for all services
rendered to us and our subsidiaries in 2000, 1999 and 1998.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------ ----------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- -------------------------- ----- -------- -------- ------------ ---------- ------------
William H. Armstrong III 2000 $247,917 $250,000 $2,250 260,000 $25,248
Chairman of the Board 1999 225,000 250,000 2,250 100,000 24,000
President and Chief 1998 190,417 195,000 - 80,000 20,979
Executive Officer
__________
(1) Consists of matching gifts under the matching gifts program.
(2) Consists of contributions to defined contribution plans, our
payments for life insurance policies, and director fees as
follows:
Plan Director
Date Contributions Life Insurance Fees
---- ------------- -------------- --------
2000 $20,792 $ 2,456 $2,000
1999 22,000 - 2,000
1998 20,479 - 500
(3) Our corporate personnel committee awarded stock options for
2000 in February 2000 and for 2001 in December 2000. See
the table entitled "Option Grants in 2000."
8
This table shows all stock options that we granted to Mr.
Armstrong in 2000.
Option Grants in 2000
Number of Percent of
Securities Options
Underlying Granted to Grant Date
Options Employees Exercise or Present
Name Granted(1) in 2000 Base Price Expiration Date Value
- ------------------------ ---------- ---------- ----------- ----------------- ----------
William H. Armstrong III 125,000 27.25% $4.3438 February 10, 2010 $403,750(2)
135,000 29.43% $4.7188 December 21, 2010 446,850(3)
__________
(1) The stock options will become exercisable over a four-year
period. The stock options will become immediately
exercisable in their entirety if (a) any person or group of
persons acquires beneficial ownership of shares representing
20% or more of the company's total voting power or (b) under
certain circumstances, the composition of the board of
directors is changed after a tender offer, exchange offer,
merger, consolidation, sale of assets or contested election
or any combination thereof. In addition, each stock option
has an equal number of tandem "limited rights," which may be
exercisable only for a limited period in the event of a
tender offer, exchange offer, a series of purchases or other
acquisitions or any combination thereof resulting in a
person or group of persons becoming a beneficial owner of
shares representing 40% or more of the company's total
voting power. Each limited right entitles the holder to
receive cash equal to the amount by which the highest price
paid in such transaction exceeds the exercise price.
(2) The Black-Scholes option pricing model was used to determine
the grant date present value of the options that we granted
to Mr. Armstrong in February 2000. The grant date present
value was calculated to be $3.23. The following facts and
assumptions were used in making this calculation: (a) an
exercise price for each stock option of $4.3438; (b) a fair
market value of $4.3438 for one share on the grant date; (c)
a term for the stock options as set forth under the column
labeled "Expiration Date"; (d) a stock volatility of 56.9%,
based on an analysis of historical weekly closing prices of
the common stock over a 252-week period through the grant
date; and (e) an assumed risk-free interest rate of 6.80%,
this rate being equivalent to the yield on the grant date on
a zero coupon U.S. Treasury note with a maturity date
comparable to the expiration date of the options. No other
discounts or restrictions related to vesting or the
likelihood of vesting of the options were applied.
(3) The Black-Scholes option pricing model was used to determine
the grant date present value of the options that we granted
to Mr. Armstrong in December 2000. The grant date present
value was calculated to be $3.31. The following facts and
assumptions were used in making this calculation: (a) an
exercise price for each stock option of $4.7188; (b) a fair
market value of $4.7188 for one share on the grant date; (c)
a term for the stock options as set forth under
9
the column
labeled "Expiration Date"; (d) a stock volatility of 54.0%,
based on an analysis of historical weekly closing prices of
the common stock over a 298-week period through the grant
date; and (e) an assumed risk-free interest rate of 5.18%,
this rate being equivalent to the yield on the grant date on
a zero coupon U.S. Treasury note with a maturity date
comparable to the expiration date of the options. No other
discounts or restrictions related to vesting or the
likelihood of vesting of the options were applied.
This table shows all outstanding stock options held by Mr. Armstrong as
of December 31, 2000. Mr. Armstrong did not exercise any stock
options during 2000.
Option Values at December 31, 2000
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 2000 December 31, 2000
------------------------- -------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ ------------------------- -------------------------
William H. Armstrong III 188,750/391,250 $234,784/$65,536
Corporate Personnel Committee Report on Executive Compensation
The corporate personnel committee is composed of two
independent directors who are responsible for our executive
compensation programs. The committee's executive compensation
philosophy is to:
. emphasize performance-based compensation that balances
rewards for short- and long-term results;
. tie compensation to the interests of stockholders; and
. provide a level of total compensation that will enable us to
attract and retain talented executives.
Executive officer compensation for 2000 included base
salary, an annual cash incentive award, and long-term incentive
compensation in the form of stock options. In December 2000, the
committee also awarded stock options for the 2001 year.
10
Base Salaries
William H. Armstrong III, Chairman of the Board, President
and Chief Executive Officer, is the only executive officer whose
salary we pay. His salary is based on his level of
responsibility and the committee's assessment of his performance.
We adjusted his annual salary to its current level of $250,000
effective February 1, 2000.
Annual Incentive Awards
We provided annual cash incentives to our chief executive
officer and other officers for 2000 through our performance
incentive awards program. Each person selected to participate in
the program is assigned a target award based on level of
responsibility, which serves as a guideline amount. When
determining the actual amounts awarded to participants for any
year, the committee makes a subjective determination after
considering both individual performance and company performance
as measured by operational and financial accomplishments.
The committee determined that the level of company and
individual performance achieved in 2000 warranted the payment of
a cash bonus to the chief executive officer in the amount shown
in the Summary Compensation Table.
Long-Term Incentives
We also grant long-term incentives to our chief executive
officer and other officers in the form of stock options. The
stock option award guidelines are intended to reinforce the
relationship between compensation and increases in the market
price of our common stock and align the officer's financial
interests with those of our stockholders. The committee
establishes guidelines based upon the position of each
participating officer and then grants options within those
guidelines based upon the committee's assessment of individual
performance. The table entitled Option Grants in 2000 shows the
stock options that the committee granted in 2000 to the chief
executive officer based upon the committee's guidelines and
assessment.
Section 162(m)
Section 162(m) limits to $1 million a public company's
annual tax deduction for compensation paid to each of its most
highly compensated executive officers. Qualified performance-
based compensation is excluded from this deduction limitation if
certain requirements are met. The committee's policy is to
structure compensation that will be fully deductible where doing
so will further the purposes of our executive compensation
programs.
James C. Leslie, Chairman Michael D. Madden
11
Compensation Committee Interlocks and Insider Participation
The current members of our corporate personnel committee
are Messrs. Leslie and Madden. In 2000, none of our executive
officers served as a director or member of the compensation
committee of another entity, where an executive officer served
as our director or on our corporate personnel committee.
Audit Committee Report
The audit committee is currently composed of three
directors. The members of our committee are independent, as
defined in the National Association of Securities Dealers'
listing standards. We operate under a written charter approved
by our committee and adopted by the board of directors. Our
charter describes the functions we perform and is attached to
this proxy statement as Annex A.
Financial Statement Review; Discussions with Management and
Independent Auditors
We have reviewed and discussed the company's audited
financial statements for the year 2000 with management and the
company's independent auditors. Management represented to us
that the audited financial statements were prepared in accordance
with accounting principles generally accepted in the United
States.
We have received and reviewed the written disclosures and
the letter from the independent auditors required by Independence
Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," as amended, by the Independence Standards
Board, and have discussed with the independent auditors their
independence from the company and management. We have also
discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees," as amended, by the
Auditing Standards Board of the American Institute of Certified
Public Accountants.
In addition, we have discussed with the independent auditors
the overall scope and plans for their audit, and have met with
the independent auditors and management to discuss the results of
their examination, their understanding and evaluation of the
company's internal controls as they considered necessary to support
their opinion on the financial statements for the year 2000, and
various factors affecting the overall quality of the company's
financial reporting. The independent auditors also have had
opportunities to meet with us without management being present to
discuss any of these matters.
Based on these reviews and discussions, we recommended to
the board of directors that the financial statements referred to
above be included in the company's annual report on Form 10-K for
the year 2000. We also recommended, subject to the approval of
the company's stockholders, the selection of Arthur Andersen as
the independent auditors of the company's financial statements
for the year 2001.
12
Internal Audit
We also oversee the company's internal audit function,
including the selection and compensation of the company's
internal auditors. We have discussed with the company's internal
auditors the scope of their audit plan, and have met with the
internal auditors to discuss the results of their examination,
their evaluation of the company's processes and internal
controls, any difficulties or disputes with management
encountered during the course of their audit, and other matters
relating to the internal audit process.
Fees and Related Disclosures for Accounting Services
Audit and Review Fees. The independent auditors billed the
company $60,000 for professional services rendered for the audit
of the company's financial statements for 2000 and for the
reviews of the unaudited interim financial statements included in
the company's Forms 10-Q for 2000.
Financial Information Systems Design and Implementation
Fees. The company did not incur any fees for financial
information systems design and implementation services for 2000.
All Other Fees. The independent auditors billed the company
$124,709 for professional services rendered, other than audit and
review services, for 2000. Of this amount, $56,222 was for
professional services rendered pursuant to a review of the
company's financial information systems processes and security,
and $68,487 was for tax services rendered by Arthur Andersen in
2000 pursuant to a written arrangement with the company. These
tax services included tax consulting and compliance services, the
preparation of our federal and state tax returns for 1999, and
the preparation of our estimated tax payments for 2000.
Consideration of Auditors' Independence. We have considered
whether the provision of services covered under the sections
entitled "Financial Information Systems Design and Implementation
Fees" and "All Other Fees" for 2000 is compatible with
maintaining the auditors' independence and have discussed with
the auditors their independence from the company and management.
Michael D.Madden, Chairman Robert L.Adair III James C.Leslie
Performance Graph
The following graph compares the change in the cumulative
total stockholder return on the common stock with the cumulative
total return of the S&P 500 Stock Index and the Dow Jones Real
Estate Investment Companies Group from 1996 through 2000. This
comparison assumes $100 invested on December 31, 1995 in (a) our
common stock, (b) S&P 500 Stock Index and (c) Dow Jones Real
Estate Investment Companies Group.
13
Comparison of Cumulative Total Return*
Stratus Properties Inc., S&P 500 Stock Index &
Dow Jones Real Estate Investment Companies Group
[insert graph]
December 31,
-----------------------------------------------
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- ------- -------
Stratus Properties Inc. $100.00 $171.43 $296.40 $214.29 $239.31 $285.72
S&P 500 Stock Index 100.00 122.96 163.98 210.84 255.23 232.00
Dow Jones Real Estate 100.00 136.74 167.97 139.08 127.22 165.08
Investment Companies Group
* Total Return Assumes Reinvestment of Dividends
Stratus Properties Inc.
S&P 500 Stock Index
Dow Jones Real Estate Investment
Companies Group
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers, and 10% stockholders
to file with the SEC reports of ownership and changes in
ownership of our common stock. During 2000, a report covering a
purchase of our common stock by Mr. Adair was inadvertently filed
late.
Ratification of the Appointment of Auditors
The board of directors seeks stockholder ratification of
the board's appointment of Arthur Andersen LLP to act as the
independent auditors of our and our subsidiaries' financial
statements for 2001. The board has not determined what, if any,
action would be taken should the appointment of Arthur Andersen
not be ratified. One or more representatives of Arthur Andersen
will be available at the meeting to respond to appropriate
questions, and those representatives will also have an
opportunity to make a statement.
14
Proposal to Amend Our Certificate of Incorporation to Effect a
Reverse Stock Split Followed by a Forward Stock Split of Our
Common Stock
The board of directors has unanimously authorized, and
recommends for your approval, an amendment to our certificate of
incorporation effecting a reverse 1-for-50 stock split followed
immediately by a forward 25-for-1 stock split of our common
stock. As permitted under Delaware law, our stockholders who
hold fewer than 50 shares of our common stock will have their
shares converted into less than one share in the reverse 1-for-50
split and will receive cash payments equal to the fair value of
those fractional interests. Our stockholders who hold 50 or more
shares of our common stock will hold one-half the number of
shares of our common stock immediately after this transaction.
We will refer to the reverse and forward stock splits, together
with the related cash payments to our stockholders, as the
"Transaction." We will also refer to our stockholders whose
shares of common stock are registered in their names as
"registered stockholders."
Our common stock is currently listed on Nasdaq. The
Transaction, if approved, is not expected to adversely affect the
eligibility of our common stock to be traded on Nasdaq. Further,
we intend to take all steps necessary to maintain the eligibility
of our common stock for trading on Nasdaq after the Transaction.
In order to complete the Transaction, stockholders holding
a majority of the issued and outstanding shares of our common
stock entitled to vote at the meeting must approve the amendment
to our certificate of incorporation. The proposed amendment is
attached as Annex B to this proxy statement. Moreover, by voting
to approve the proposed amendment, our stockholders will be
authorizing the company, without further stockholder approval, to
make immaterial changes to the proposed amendment as our officers
executing the amendment may approve. If approved, the
Transaction will take place on the date the amendment is filed
with the Delaware Secretary of State; we will refer to this date
as the "effective date." The effective date is expected to occur
following the close of the Nasdaq on May 15, 2001 or as soon
thereafter as practicable.
Purpose of the Transaction
As of the record date, approximately 5,500 record holders
of our common stock, or approximately 70% of the total number of
record holders of our common stock, owned fewer than 50 shares.
In addition, these stockholders owned in the aggregate fewer than
70,000 shares of our common stock, representing less than 1/2% of
our total shares outstanding. Based on the average daily closing
price per share of our common stock on Nasdaq for the ten days
immediately preceding March 15, 2001 of approximately $____,
ownership of 49 shares of our common stock would have a market
value of approximately $____.
The cost of administering each stockholder's account and
the amount of time spent by our management in responding to
stockholder requests is the same regardless of the number of
shares held in the account. Accordingly, our cost of maintaining
many small accounts is disproportionately high when compared with
the total number of shares involved. In view of the
disproportionate cost
15
to us of maintaining small stockholder
accounts, we believe that it would be beneficial to the company
and our stockholders as a whole to eliminate the administrative
burden and cost associated with the approximately 5,500 accounts
containing fewer than 50 shares. We expect that the direct cost
of administering stockholder accounts to be reduced by
approximately $25,000 per year if the Transaction is consummated.
The Transaction will enable holders of record of fewer
than 50 shares of our common stock to dispose of their investment
at market value and, in effect, avoid brokerage fees on the
transaction. Stockholders owning a small number of our shares
would, if they chose to sell their shares otherwise, likely incur
brokerage fees disproportionately high relative to the market
value of their shares. In some cases, these stockholders might
encounter difficulty in finding a broker willing to handle such
small transactions.
The board of directors anticipates that the decrease in
the number of our outstanding shares resulting from the reverse
stock split followed by the forward stock split (which will have
the same net effect as a 1-for-2 reverse stock split for those
stockholders who own 50 or more shares prior to the effective
date) will result in a higher market price range that may be more
attractive to potential holders of our common stock. There can
be no assurance that this effect will occur or that the market
for our common stock will be improved. Moreover, the board of
directors cannot predict what effect the Transaction, as a whole,
will have on the market price of our common stock.
Structure of the Transaction
The Transaction includes both a reverse stock split and a
forward stock split of our common stock. If the Transaction is
approved and occurs, the reverse split will occur following the
market close on the effective date. All registered stockholders
on the effective date will receive 1 share of our common stock
for every 50 shares of our common stock held in their record
accounts at that time. Any registered stockholder who holds
fewer than 50 shares of our common stock in a record account
prior to the Transaction will receive a cash payment instead of a
fractional share. We will refer to such a stockholder as a
"cashed-out stockholder." This cash payment will be based on the
average daily closing price per share of our common stock on
Nasdaq for the ten trading days immediately preceding the
effective date.
Immediately following the reverse split, all registered
stockholders who are not cashed-out stockholders will receive in
the forward 25-for-1 split a number of shares of our common stock
equal to 25 times the number of shares of our common stock held
after the reverse stock split. If a stockholder holds 50 or more
shares in a record account prior to the Transaction, any
fractional share resulting from the reverse split will not be
cashed out and the total number of shares originally held in that
account will be decreased by half as a result of the Transaction.
However, any fractional share resulting from the forward stock
split will be cashed out. Thus, if a stockholder currently holds
50 or more shares in an odd amount in a record account, the
fractional share in the account resulting from the Transaction
will be cashed out based on the average daily closing price per
share of our common stock on Nasdaq for the ten trading days
immediately preceding the effective date.
16
Effect of the Transaction on Our Stockholders
If approved at the annual meeting, the Transaction will affect
our stockholders as follows:
. Registered stockholders with fewer than 50 shares in a
registered account.
.You will not receive a fractional share of our common stock
as a result of the reverse split.
.Instead of receiving a fractional share of our common stock,
you will receive cash equal to the purchase price of your
affected shares. See the section entitled "Determination of
Purchase Price" below for an explanation of how we will determine
this price.
.After the reverse split, you will have no further interest
in the company with respect to your cashed-out shares. These
shares will no longer entitle you to the right to vote as a
stockholder or share in our assets, earnings, or profits. In
other words, you will no longer hold your cashed-out shares, you
will just have the right to receive cash for those shares.
.You will not have to pay any service charges or brokerage
commissions in connection with the Transaction.
.As soon as practicable after the effective date, you will
receive cash for your shares of our common stock held in your
record account immediately prior to the reverse split in
accordance with the following procedures.
.You will receive a transmittal letter from us as soon as
practicable after the effective date. This transmittal letter
will contain instructions on how to surrender your certificates
to our transfer agent, Mellon Investor Services LLC, for your
cash payment. You will not receive your cash payment until you
surrender your outstanding certificates to Mellon Investor
Services, together with a completed and executed transmittal
letter.
.All amounts owed to you will be subject to applicable
federal income tax and state abandoned property laws.
.You will not receive any interest on cash payments owed to
you as a result of the Transaction.
Note: If you want to continue to hold shares of our common
stock after the Transaction, you may do so by taking either
of the following actions far enough in advance so that it is
complete prior to the effective date:
.purchase a sufficient number of shares of our common stock
on the open market and have them registered in your name so that
you hold at least 50 shares of our common stock in your record
account prior to the Transaction; or
17
.if applicable, consolidate your record accounts so that you
hold at least 50 shares of our common stock in one record account
prior to the Transaction.
. Registered stockholders with 50 or more shares in a
registered account.
.You will hold half as many shares of our common stock in
your registered account and, if you hold an odd number of shares,
you will receive cash in lieu of the fractional share resulting
from the Transaction. See the section entitled "Determination of
Purchase Price" below for an explanation of how we will determine
this price.
.Following the Transaction, existing stock certificates
cannot be used for either transfers or deliveries of our common
stock. You will receive a transmittal letter from us as soon as
practicable after the effective date, which will contain
instructions on how to surrender your old certificates to our
transfer agent, Mellon Investor Services LLC, and receive new
certificates. You will not receive your new certificates until
you surrender your outstanding certificates to our transfer
agent, together with a completed and executed transmittal
letter.
. Stockholders with shares in street name, i.e., held of
record by brokers, banks or other institutions.
.We do not intend the Transaction to affect our stockholders
who beneficially own our common stock in street name, except that
after the Transaction these stockholders will hold half as many
shares and stockholders who beneficially own an odd number of
shares will receive cash in lieu of the fractional share
resulting from the Transaction.
.Nominees may have different procedures and stockholders
holding our common stock in street name should contact their
nominees to determine whether they will be otherwise affected by
the Transaction.
Note: If you are a beneficial owner of fewer than 50 shares
of our common stock and want to have your shares exchanged
for cash in the Transaction, you should instruct your
nominee to transfer your shares into a record account in
your name in a timely manner so that you will be considered
a holder of record prior to the effective date.
Determination of Purchase Price
We will value each outstanding share of our common stock
held at the close of business on the effective date at the
average daily closing price per share of our common stock on
Nasdaq for the ten trading days immediately preceding the
effective date, without interest. However, if no shares of our
common stock have been traded on any such trading day, the
closing price per share
18
will be the average of the highest bid
and lowest asked prices for our stock on such trading day as
reported by Nasdaq. We will refer to this per-share price as the
"purchase price."
Each cashed-out stockholder will receive cash in the amount
of the purchase price multiplied by the number of shares of our
common stock held immediately prior to the reverse stock split.
Each registered stockholder holding 50 or more shares in an odd
amount will receive cash in lieu of the fractional share
resulting from the Transaction in the amount of the purchase
price multiplied by the fractional share. All amounts payable to
these stockholders will be subject to applicable federal income
tax and state abandoned property laws. No service charges or
brokerage commissions will be payable by these stockholders in
connection with the Transaction. Moreover, we will pay no
interest on cash sums due any stockholder pursuant to the
Transaction.
Certain Considerations
Our certificate of incorporation currently authorizes the
issuance of 150,000,000 shares of our common stock. As a result
of the Transaction, the number of shares of our common stock
outstanding will be decreased from approximately 14.3 million
shares to approximately 7.1 million shares. Based upon our best
estimates, if the Transaction had been consummated as of the
record date, the number of holders of record of our common stock
would have been reduced from approximately 7,900 to approximately
2,400.
Our common stock is currently registered under Section 12(b)
of the Securities Exchange Act of 1934, as amended, and, as a
result, we are subject to the periodic reporting and other
requirements of the Exchange Act. The Transaction will not
affect the registration of our common stock under the Exchange
Act, and we have no current intention of terminating its
registration under the Exchange Act to become a "private"
company. In addition, consummation of the Transaction is not
expected to adversely affect the eligibility of our common stock
to be traded on Nasdaq.
We announced a stock repurchase program on February 9, 2001.
Under this program, we repurchased _______ shares over the period
from February __, 2001 through March __, 2001 at an average price
of $______ per share. We have chosen to discontinue this program
during the period from March __, 2001 through consummation of the
Transaction. However, we may resume the repurchase program at
any time thereafter.
Based on the aggregate number of our shares owned by holders
of record of fewer than 50 shares as of the record date and the
average daily closing price per share of our common stock on
Nasdaq for the ten trading days immediately preceding the record
date, we estimate that payments to record stockholders who held
fewer than 50 shares of our common stock prior to the Transaction
will total approximately $420,000 (70,000 shares multiplied by an
assumed purchase price of $6.00 per share).
19
Certain Federal Income Tax Consequences
We have summarized below certain federal income tax
consequences to the company and our stockholders resulting from
the Transaction. This summary does not discuss all aspects of
federal income taxation that may be relevant to you in light of
your individual circumstances, and it is not intended to
constitute advice regarding the federal income tax consequences
of the Transaction. Many of our stockholders (such as financial
institutions, insurance companies, broker-dealers, tax-exempt
organizations, foreign persons and individuals who acquired our
common stock pursuant to the exercise of an employee stock
option) may be subject to special tax rules. Other stockholders
may also be subject to special tax rules, including but not
limited to stockholders who have held, or will hold, stock as
part of a straddle, hedging, or conversion transaction for
federal income tax purposes. In addition, this summary does not
discuss any state, local or foreign tax laws (or any federal tax
laws other than those pertaining to the income tax). This
summary assumes that you are a U.S. person and have held, and
will hold, your shares as capital assets within the meaning of
Section 1221 of the Internal Revenue Code. You should consult
your tax advisor as to the particular federal, state, local,
foreign, and other tax consequences of the Transaction, in light
of your specific circumstances.
Our discussion is based on the Internal Revenue Code, the
regulations promulgated thereunder and rulings now in effect,
current administrative rulings and practice, and judicial
precedent, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax
consequences of the Transaction to the company or our
stockholders.
We believe that the Transaction will be treated as a tax-
free "recapitalization" for federal income tax purposes.
Accordingly, the Transaction will result in no material federal
income tax consequences to the company.
Federal Income Tax Consequences to Our Stockholders Who are
Not Cashed Out by the Transaction. If you (1) continue to hold
our common stock immediately after the Transaction, and (2) you
receive no cash as a result of the Transaction, you will not
recognize any gain or loss in the Transaction and you will have
the same adjusted tax basis and holding period in your common
stock as you had immediately prior to the Transaction.
Federal Income Tax Consequences to Our Stockholders Who
Receive Cash in the Transaction. If you receive cash as a result
of the Transaction, your tax consequences will depend on whether,
in addition to receiving cash, you or a person or entity related
to you continues to hold our common stock immediately after the
Transaction, as explained below.
Stockholders Who Exchange All of Their Stock for Cash as a Result
of the Transaction
If you (1) receive cash in exchange for a fractional share
as a result of the Transaction, (2) you do not continue to hold
any of our common stock immediately after the Transaction, and
(3) you are not related to any person or entity that holds our
common stock immediately after the
20
Transaction, you will
recognize capital gain or loss. The amount of capital gain or
loss you recognize will equal the difference between the cash you
receive for your common stock and your aggregate adjusted tax
basis in such stock.
If you are related to a person or entity who continues to
hold our common stock immediately after the Transaction, you will
recognize gain in the same manner as set forth in the previous
paragraph, provided that your receipt of cash either (1) is "not
essentially equivalent to a dividend," or (2) is a "substantially
disproportionate redemption of stock," as described below:
. "Not Essentially Equivalent to a Dividend." You will
satisfy the "not essentially equivalent to a dividend" test if
the reduction in your proportionate interest in the company
resulting from the Transaction is considered a "meaningful
reduction" given your particular facts and circumstances. The
Internal Revenue Service has ruled that a small reduction by a
minority stockholder whose relative stock interest is minimal and
who exercises no control over the affairs of the corporation will
meet this test.
. "Substantially Disproportionate Redemption of Stock." The
receipt of cash in the Transaction will be a "substantially
disproportionate redemption of stock" for you if the percentage
of the outstanding shares of our common stock owned by you
immediately after the Transaction is less than 80% of the
percentage of shares of our common stock owned by you immediately
before the Transaction.
In applying these tests, you will be treated as owning
shares actually or constructively owned by certain individuals
and entities related to you. If the taxable amount is not
treated as capital gain under any of the tests, it will be
treated first as ordinary dividend income to the extent of your
ratable share of our undistributed earnings and profits, then as
a tax-free return of capital to the extent of your aggregate
adjusted tax basis in your shares; any remaining amount will be
treated as capital gain. Please refer to the section entitled
"Maximum Tax Rates Applicable to Capital Gains" below.
Stockholders Who Both Receive Cash and Continue to Hold Our
Common Stock Immediately After the Transaction
If you both receive cash as a result of the Transaction and
continue to hold our common stock immediately after the
Transaction, you generally will recognize gain, but not loss, in
an amount equal to the lesser of (1) the excess of the sum of the
aggregate fair market value of your shares of our common stock
immediately after the Transaction plus the cash received over
your adjusted tax basis in the shares, or (2) the amount of cash
received in the Transaction. In determining whether you continue
to hold stock immediately after the Transaction, you will be
treated as owning shares actually or constructively owned by
certain individuals and entities related to you. Your aggregate
adjusted tax basis in your shares of our common stock held
immediately after the Transaction will be equal to your aggregate
adjusted tax basis in your shares of our common stock held
immediately prior to the Transaction, increased by any gain
recognized in the Transaction, and decreased by the amount of
cash received in the Transaction.
21
Any gain recognized in the Transaction will be treated, for
federal income tax purposes, as capital gain, provided that your
receipt of cash either (1) is "not essentially equivalent to a
dividend" with respect to you, or (2) is a "substantially
disproportionate redemption of stock" with respect to you, as
discussed above. In applying these tests, you may be able to
take into account sales of shares of our common stock that occur
at or near the same time as the Transaction. If your gain is not
treated as capital gain under either of these tests, the gain
will be treated as ordinary dividend income to you to the extent
of your ratable share of our undistributed earnings and profits,
then as a tax-free return of capital to the extent of your
aggregate adjusted tax basis in your shares; any remaining amount
will be treated as capital gain.
Maximum Tax Rates Applicable to Capital Gains
Under current federal income tax law, certain capital gains
realized by individuals (but not corporations) are taxed at
preferential rates. If you are an individual, your net capital
gain (defined generally as your total capital gains in excess of
capital losses for the year) recognized upon the sale of capital
assets that have been held for more than 12 months generally will
be subject to tax at a rate not to exceed 20%, while your net
capital gain recognized upon the sale of capital assets that have
been held for 12 months or less will be subject to tax at
ordinary income tax rates. In addition, capital gain recognized
by a corporate taxpayer will continue to be subject to tax at the
ordinary income tax rates applicable to corporations.
As explained above, the amounts paid to you as a result of
the Transaction may result in dividend income, capital gain
income, or some combination of dividend and capital gain income
to you depending on your individual circumstances. You are
strongly advised to consult your tax advisor as to the particular
federal, state, local, foreign, and other tax consequences of the
transaction, in light of your specific circumstances.
Appraisal Rights
Dissenting stockholders do not have appraisal rights under
Delaware state law or under our certificate of incorporation or
bylaws in connection with the Transaction.
Reservation of Rights
The board of directors reserves the right to abandon the
Transaction without further action by our stockholders at any
time before the filing of the amendment to our certificate of
incorporation with the Delaware Secretary of State, even if the
Transaction has been authorized by our stockholders at the
meeting. We further reserve the right to make immaterial changes
to the proposed amendment as set forth in Annex B to this proxy
statement without further action by our stockholders even if the
Transaction has been authorized by our stockholders at the
meeting.
22
Vote Required for Approval of the Transaction
Approval of the Transaction requires the affirmative vote of
the holders of a majority of the outstanding shares of common
stock entitled to vote at the meeting. Proxies solicited by the
board of directors will be voted FOR this proposal, unless you
specify otherwise in your proxy.
The board of directors unanimously recommends a vote for
this proposal.
23
Proposal to Adopt a New Stock Incentive Plan
Our board of directors unanimously proposes that our
stockholders approve the 2001 Stock Incentive Plan, which is
summarized below and attached as Annex C to this proxy statement.
Because this is a summary, it does not contain all the
information that may be important to you. You should read Annex
C carefully before you decide how to vote.
Reasons for the Proposal
We believe that our growth depends significantly upon the
efforts of our officers and employees and that such individuals
are best motivated to put forth maximum effort on our behalf if
they own an equity interest in our company. As of December 31,
2000, a total of 209,250 shares of common stock remained
available for grant under our current stock option plans. So
that we may continue to motivate and to reward our key personnel
with stock-based awards at an appropriate level, our board
believes that it is important that we establish a new equity-
based plan at this time.
Summary of the 2001 Stock Incentive Plan
Administration
Awards under the 2001 Stock Incentive Plan will be made by
the corporate personnel committee of our board of directors,
which is currently made up of two independent members of our
board. The corporate personnel committee has full power and
authority to designate participants, to set the terms of awards
and to make any determinations necessary or desirable for the
administration of the plan.
Eligible Participants
The following persons are eligible to participate in the
2001 Stock Incentive Plan:
. our officers (including non-employee officers and officers
who are also directors) and employees;
. officers and employees of existing or future subsidiaries;
. officers and employees of any entity with which we or a
subsidiary has contracted to receive executive, management or
legal services and who provide services to us or a subsidiary
under such arrangement;
. consultants and advisers who provide services to us or a
subsidiary; and
. any person who has agreed in writing to become an eligible
participant within 30 days.
24
A subsidiary is defined to include an entity in which we
have a direct or indirect economic interest that is designated as
a subsidiary by the corporate personnel committee. The corporate
personnel committee may delegate to one or more of our officers
the power to grant awards and to modify or terminate awards
granted to eligible persons who are not our executive officers or
directors, subject to limitations to be established by the
corporate personnel committee. It is anticipated that the
corporate personnel committee's determinations as to which
eligible individuals will be granted awards and the terms of the
awards will be based on each individual's present and potential
contributions to our success. While all employees, consultants
and executive, management and legal service providers will be
eligible for awards under this plan, we anticipate that awards
will be granted to approximately 10 persons, consisting of 7
officers and 3 employees of our company.
Number of Shares
The maximum number of shares of common stock with respect to
which we will be permitted to grant awards under the 2001 Stock
Incentive Plan is 850,000, or 5.9% of the outstanding common
stock as of the record date. However, in the event our
stockholders approve, and the company implements, the proposal
contained in this proxy statement to amend our certificate of
incorporation to effect a reverse stock split followed by a
forward stock split of our common stock, the maximum number of
shares of common stock with respect to which we will be permitted
to grant awards under the 2001 Stock Incentive Plan will be
425,000.
Awards that may be paid only in cash will not be counted
against this share limit. Moreover, no individual may receive in
any year awards under this plan, whether payable in cash or
shares, that relate to more than 250,000 shares of common stock
(125,000 shares if the reverse-forward stock split is approved
and implemented).
Shares subject to awards that are forfeited or canceled will
again be available for awards, as will shares issued as
restricted stock or other stock-based awards that are forfeited
or reacquired by us by their terms. In addition, to the extent
that shares are delivered to pay the exercise price of options
under the 2001 Stock Incentive Plan, the number of shares
delivered will again be available for the grant of awards under
this plan, other than the grant of incentive stock options under
Section 422 of the Internal Revenue Code. Under no circumstances
may the number of shares issued pursuant to incentive stock
options exceed 250,000 shares (125,000 shares if the reverse-
forward stock split is approved and implemented). The number of
shares with respect to which awards of restricted stock and other
stock-based awards for which a per share purchase price of less
than 100% of fair market value is paid may not exceed 250,000
shares (125,000 shares if the reverse-forward stock split is
approved and implemented). The shares to be delivered under this
plan will be made available from the authorized but unissued
shares of common stock, from treasury shares or from shares
acquired by us on the open market or otherwise. Subject to the
terms of this plan, shares of common stock issuable under this
plan may also be used as the form of payment of compensation
under other plans or arrangements that we offer or that we assume
in a business combination.
25
On March 15, 2001, the closing price on the Nasdaq National
Market of a share of common stock was $_______.
Types of Awards
Stock options, stock appreciation rights, limited rights,
restricted stock and other stock-based awards may be granted
under the 2001 Stock Incentive Plan in the discretion of the
corporate personnel committee. Options granted under this plan
may be either non-qualified or incentive stock options. Only our
employees or employees of our subsidiaries will be eligible to
receive incentive stock options. Stock appreciation rights and
limited rights may be granted in conjunction with or unrelated to
other awards and, if in conjunction with an outstanding option or
other award, may be granted at the time of the award or
thereafter, at the exercise price of the other award.
The corporate personnel committee has discretion to fix the
exercise price of stock options at a price not less than 100% of
the fair market value of the underlying common stock at the time
of grant (or at the time of grant of the related award in the
case of a stock appreciation right or limited right granted in
conjunction with an outstanding award). This limitation on the
corporate personnel committee's discretion, however, does not
apply in the case of awards granted in substitution for
outstanding awards previously granted by an acquired company or a
company with which we combine. The corporate personnel committee
has broad discretion as to the terms and conditions upon which
options and stock appreciation rights are exercisable, but under
no circumstances will an option, a stock appreciation right or a
limited right have a term exceeding 10 years. This plan
prohibits the repricing of stock options without stockholder
approval.
The option exercise price may be paid
. in cash;
. by check;
. in shares of common stock that, unless otherwise determined
by the corporate personnel committee, have been held by the
optionee for six months;
. if permitted by the corporate personnel committee, through a
broker-assisted cashless exercise; or
. in any other manner authorized by the corporate personnel
committee.
Upon the exercise of a stock appreciation right with respect
to common stock, a participant will be entitled to receive, for
each share subject to the right, the excess of the fair market
value of the shares on the date of exercise over the exercise
price. The corporate personnel committee has the authority to
determine whether the value of a stock appreciation right is paid
in cash or common stock or a combination of the two.
26
Limited rights generally are exercisable only during a
period beginning not earlier than one day and ending not later
than 90 days after the expiration date of any tender offer,
exchange offer or similar transaction which results in any person
or group becoming the beneficial owner of more than 40% of all
classes and series of our outstanding stock, taken as a whole,
that have voting rights with respect to the election of our
directors (not including preferred shares that may be issued in
the future that have the right to elect directors only if we fail
to pay dividends). Upon the exercise of a limited right granted
under the 2001 Stock Incentive Plan, a participant would be
entitled to receive, for each share of common stock subject to
that right, the excess, if any, of the highest price paid in or
in connection with the transaction over the grant price of the
limited right.
The corporate personnel committee may grant restricted
shares of common stock to a participant that are subject to
restrictions regarding the sale, pledge or other transfer by the
employee for a specified period. All shares of restricted stock
will be subject to the restrictions that the corporate personnel
committee may designate in an agreement with the participant,
including, among other things, that the shares are required to be
forfeited or resold to us in the event of termination of
employment under certain circumstances or in the event specified
performance goals or targets are not met. A restricted period of
at least three years is generally required, except that if the
vesting or grant of shares of restricted stock is subject to the
attainment of performance goals, the restricted period may be one
year or more. Subject to the restrictions provided in the
participant's agreement, a participant receiving restricted stock
will have all of the rights of a stockholder as to the restricted
stock, including dividend and voting rights.
The corporate personnel committee may also grant
participants awards of common stock and other awards, including
restricted stock units, that are denominated in, payable in,
valued in whole or in part by reference to, or are otherwise
based on the value of, common stock (Other Stock-Based Awards).
The corporate personnel committee has discretion to determine the
participants to whom Other Stock-Based Awards are to be made, the
times at which such awards are to be made, the size of the
awards, the form of payment, and all other conditions of the
awards, including any restrictions, deferral periods or
performance requirements. The terms of the Other Stock-Based
Awards will be subject to the rules and regulations that the
corporate personnel committee determines.
Any award under the 2001 Stock Incentive Plan may provide
that the participant has the right to receive currently or on a
deferred basis dividends or dividend equivalents, all as the
corporate personnel committee determines.
Performance-Based Compensation under Section 162(m)
Stock options, stock appreciation rights and limited rights,
if granted in accordance with the terms of the 2001 Stock
Incentive Plan, are intended to qualify as performance based
compensation under Section 162(m) of the Internal Revenue Code.
For grants of restricted stock and Other Stock-Based Awards that
are intended to qualify as performance-based compensation under
Section 162(m), the corporate personnel committee will establish
specific performance goals for each performance period not later
than 90 days after the beginning of the performance period. The
27
corporate personnel committee will also establish a schedule,
setting forth the portion of the award that will be earned or
forfeited based on the degree of achievement of the performance
goals by our company, a division or a subsidiary at the end of
the performance period. The corporate personnel committee will
use any or a combination of the following performance measures:
earnings, share price, return on assets, an economic value added
measure, stockholder return, earnings per share, return on
equity, return on investment, return on fully-employed capital,
reduction of expenses, containment of expenses within budget,
cash provided by operating activities, or increase in cash flow
of our company, a division or a subsidiary. For any performance
period, the performance objectives may be measured on an absolute
basis or relative to a group of peer companies selected by the
corporate personnel committee, relative to internal goals, or
relative to levels attained in prior years.
If there is a change of control of our company or if a
participant retires, dies or becomes disabled during the
performance period, the corporate personnel committee may provide
that all or a portion of the restricted stock and Other Stock-
Based Awards will automatically vest. If an award of restricted
stock or an Other Stock-Based Award is intended to qualify as
performance-based compensation under Section 162(m), the
corporate personnel committee must certify in writing that the
performance goals and all applicable conditions have been met
prior to payment.
The corporate personnel committee retains authority to
change the performance goal objectives with respect to future
grants to any of those provided in the 2001 Stock Incentive Plan.
As a result, the regulations under Section 162(m) require that
the material terms of the performance goals be reapproved by the
stockholders within five years following initial stockholder
approval.
Adjustments
If the corporate personnel committee determines that any
stock split, stock dividend or other distribution (whether in the
form of cash, securities or other property), recapitalization,
reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares, issuance of
warrants or other rights to purchase shares or other securities
of our company, or other similar corporate event affects the
common stock in such a way that an adjustment is appropriate to
prevent dilution or enlargement of the benefits intended to be
granted and available for grant under the 2001 Stock Incentive
Plan, then the corporate personnel committee has discretion to:
. make equitable adjustments in
. the number and kind of shares (or other securities or
property) that may be the subject of future awards under this
plan, and
. the number and kind of shares (or other securities or
property) subject to outstanding awards and the respective grant
or exercise prices; and
28
. if appropriate, provide for the payment of cash to a
participant.
The corporate personnel committee may also adjust awards to
reflect unusual or nonrecurring events that affect us or our
financial statements or to reflect changes in applicable laws or
accounting principles.
Amendment or Termination
The 2001 Stock Incentive Plan may be amended or terminated at any
time by the board of directors, except that no amendment may be
made without stockholder approval if the amendment would:
. materially increase the benefits accruing to participants
under this plan;
. materially increase the number of shares of common stock
that may be issued under this plan;
. materially expand the classes of persons eligible to
participate in this plan; or
. permit repricing of options.
Employee Stock Option Plans
This table shows the number of stock options and stock
appreciation rights authorized under each of our employee stock
option plans, the number of stock options and stock appreciation
rights we granted in 2000, and the number of stock options and
stock appreciation rights outstanding and available for grant as
of December 31, 2000.
Options
Options and Options and Options and
Rights Rights and Rights
Authorized Granted Rights Available
Name of Plan for Issuance in 2000 Outstanding for Grant
- --------------------- ------------ ----------- ----------- ---------
Stock Option Plan 850,000 237,500 837,500 0
1998 Stock Option Plan 850,000 221,250 640,750 209,250
----------- ----------- ----------- ---------
Total 1,700,000 458,750 1,478,250 209,250
Federal Income Tax Consequences of Stock Options
The grant of non-qualified or incentive stock options will
not generally result in tax consequences to our company or to the
optionee. When an optionee exercises a non-qualified option, the
difference between the exercise price and any higher fair market
value of the common stock on the date of exercise will be
ordinary income to the optionee (subject to withholding) and,
29
subject to Section 162(m), will generally be allowed as a
deduction at that time for federal income tax purposes to his or
her employer.
Any gain or loss realized by an optionee on disposition of
the common stock acquired upon exercise of a non-qualified option
will generally be capital gain or loss to the optionee, long-term
or short-term depending on the holding period, and will not
result in any additional federal income tax consequences to the
employer. The optionee's basis in the common stock for
determining gain or loss on the disposition will be the fair
market value of the common stock determined generally at the time
of exercise.
When an optionee exercises an incentive stock option while
employed by us or within three months (one year for disability)
after termination of employment, no ordinary income will be
recognized by the optionee at that time, but the excess (if any)
of the fair market value of the common stock acquired upon such
exercise over the option price will be an adjustment to taxable
income for purposes of the federal alternative minimum tax. If
the common stock acquired upon exercise of the incentive stock
option is not disposed of prior to the expiration of one year
after the date of acquisition and two years after the date of
grant of the option, the excess (if any) of the sale proceeds
over the aggregate option exercise price of such common stock
will be long-term capital gain, but the employer will not be
entitled to any tax deduction with respect to such gain.
Generally, if the common stock is disposed of prior to the
expiration of such periods (a Disqualifying Disposition), the
excess of the fair market value of such common stock at the time
of exercise over the aggregate option exercise price (but not
more than the gain on the disposition if the disposition is a
transaction on which a loss, if realized, would be recognized)
will be ordinary income at the time of such Disqualifying
Disposition (and the employer will generally be entitled to a
federal income tax deduction in a like amount). Any gain
realized by the optionee as the result of a Disqualifying
Disposition that exceeds the amount treated as ordinary income
will be capital in nature, long-term or short-term depending on
the holding period. If an incentive stock option is exercised
more than three months (one year for disability) after
termination of employment, the federal income tax consequences
are the same as described above for non-qualified stock options.
If the exercise price of an option is paid by the surrender
of previously owned shares, the basis of the previously owned
shares carries over to an equal number of shares received in
replacement. If the option is a non-qualified option, the income
recognized on exercise is added to the basis. If the option is
an incentive stock option, the optionee will recognize gain if
the shares surrendered were acquired through the exercise of an
incentive stock option and have not been held for the applicable
holding period. This gain will be added to the basis of the
shares received in replacement of the previously owned shares.
We believe that taxable compensation arising in connection
with stock options granted under the 2001 Stock Incentive Plan
should be fully deductible by the employer for purposes of
Section 162(m). Section 162(m) may limit the deductibility of an
executive's compensation in excess of $1,000,000 per year.
30
The acceleration of the exercisability of stock options upon
the occurrence of a change of control may give rise, in whole or
in part, to excess parachute payments within the meaning of
Section 280G of the Internal Revenue Code to the extent that the
payments, when aggregated with other payments subject to Section
280G, exceed certain limitations. Excess parachute payments will
be nondeductible to the employer and subject the recipient of the
payments to a 20% excise tax.
If permitted by the corporate personnel committee, at any
time that a participant is required to pay to us the amount
required to be withheld under applicable tax laws in connection
with the exercise of a stock option or the issuance of common
stock under the 2001 Stock Incentive Plan, the participant may
elect to have us withhold from the shares that the participant
would otherwise receive shares of common stock having a value
equal to the amount to be withheld. This election must be made
prior to the date on which the amount of tax to be withheld is
determined.
This discussion summarizes the federal income tax
consequences of the stock options that may be granted under the
2001 Stock Incentive Plan based on current provisions of the
Internal Revenue Code, which are subject to change. This summary
does not cover any foreign, state or local tax consequences of
the stock options.
Awards to be Granted
The grant of awards under the 2001 Stock Incentive Plan is
entirely in the discretion of the corporate personnel committee.
The corporate personnel committee has not yet made a
determination as to the awards to be granted under the 2001 Stock
Incentive Plan, if it is approved by our stockholders at the
meeting.
Vote Required for Approval of the 2001 Stock Incentive Plan
Approval of the 2001 Stock Incentive Plan requires the
affirmative vote of the holders of a majority of the shares of
common stock present in person or by proxy at the meeting.
The board of directors unanimously recommends a vote for this proposal.
31
Annex A
STRATUS PROPERTIES INC.
Charter of the Audit Committee
of the Board of Directors
I. Scope of Responsibility of Audit Committee.
A. General.
The Audit Committee's primary function is to assist the
Board of Directors in fulfilling the Board's oversight
responsibilities by monitoring (1) the Company's development of a
system of financial reporting, auditing, internal controls and
legal compliance, (2) the operation of the system and (3) the
independence and performance of the Company's external and
internal auditors.
B. Relationship to Other Groups.
1. Allocation of Responsibilities. The Company's
management is principally responsible for developing and
consistently applying the Company's accounting practices,
preparing the Company's financial statements and maintaining an
appropriate system of internal controls. The Company's external
auditors are responsible for auditing the Company's financial
statements to obtain reasonable assurance about whether the
financial statements are free from material misstatement. In
this regard, the external auditors develop an overall
understanding of the Company's accounting and internal controls
to the extent necessary to support their report on the Company's
financial statements. The internal auditors are responsible for
objectively assessing management's accounting processes and
internal controls and the extent of compliance therewith. The
Audit Committee, as the delegate of the Board of Directors, is
responsible for overseeing this process.
2. Accountability of the Auditors. The external and
internal auditors will be apprised that they are ultimately
accountable to the Board of Directors and the Audit Committee.
3. Accountability of the Audit Committee and the
Board of Directors. The Board of Directors and the Audit
Committee have the ultimate authority and responsibility to
select, evaluate the performance of, and replace the external and
internal auditors.
A-1
4. Communication. The Audit Committee will strive to
maintain an open and free avenue of communication among
management, the external auditors, the internal auditors, and the
Board of Directors.
II. Composition of Audit Committee.
The Audit Committee will be comprised of three or more
directors selected in accordance with the Company's by-laws, each
of whom will meet the standards of independence and any other
qualifications required from time to time by the National
Association of Securities Dealers, Inc. (or, if the Company's
common stock is listed or traded on some other exchange or
trading system, the standards of independence and any other
qualifications required by the other exchange or system).
III. Meetings of Audit Committee.
The Audit Committee will meet at least three times annually,
or more frequently if the Committee determines it to be
necessary. To foster open communications, the Audit Committee
may invite other directors or representatives of management, the
external auditors or the internal auditors to attend any of its
meetings, but reserves the right in its discretion to meet in
executive session. The Audit Committee will maintain written
minutes of all its meetings, which will be available to every
member of the Board of Directors.
IV. Powers of Audit Committee.
A. Activities and Powers Relating to the External and
Internal Audits.
1. Planning the External and Internal Audits. In
connection with its oversight functions, the Audit Committee will
monitor the planning of both the external audit of the Company's
financial statements and the internal audit process, including
taking any or all of the following actions that the Audit
Committee deems to be necessary or appropriate:
a. recommend, approve or ratify the selection
and compensation of the external auditors and the terms of
the external auditors' annual engagement letter;
b. recommend, approve or ratify the selection
and compensation of the internal auditors and the internal
auditors' annual plan and the terms of the internal
auditors' annual engagement letter;
c. review significant relationships between the
external auditors and the Company, including those described
in written statements of the external auditors furnished
under Independence Standards Board Standard No. 1;
d. discuss with the external and internal auditors
any disclosed relationships or services that may impact the
objectivity and independence of the external or
A-2
internal auditors
and take, or recommend that the Board of Directors take,
appropriate action to ensure the independence of the external and
internal auditors; and
e. discuss with the external and internal auditors
the scope and comprehensiveness of their respective audit plans.
2. Review of the External Audit. The Audit Committee will
review the results of the annual external audit with the external
auditors, including a review of any or all of the following
matters that the Audit Committee deems to be necessary or
appropriate:
a. the Company's annual financial statements and
related footnotes, and any report, opinion or review that either
the external auditors or management renders;
b. other sections of the Company's 10-K annual report
that pertain principally to financial matters;
c. significant audit findings, adjustments, risks or
exposures;
d. "reportable conditions" or other matters that are
required by generally accepted auditing standards to be
communicated by external auditors to the Audit Committee;
e. difficulties or disputes with management
encountered during the course of the audit;
f. the external auditors' views regarding the clarity
of the Company's financial disclosures, the quality of the
Company's accounting principles as applied, the underlying
estimates and other significant judgments that management made in
preparing the financial statements, and the compatibility of the
Company's principles and judgments with prevailing practices and
standards;
g. significant changes in the Company's accounting
principles, practices or policies during the prior year;
h. the accounting implications of significant new
transactions;
i. the integrity and the adequacy of the Company's
financial reporting processes and internal controls;
j. significant changes required in the external
auditors' audit plan for future years; and
A-3
k. the extent to which the Company has implemented
changes and improvements in financial and accounting practices or
internal controls that the external auditors previously
recommended or Audit Committee previously approved.
3. Review of Internal Audit. The Audit Committee will
review the results of the internal audit process with the
internal auditors, including a review of any or all of the
following matters that the Audit Committee deems to be necessary
or appropriate:
a. significant audit findings;
b. the integrity and adequacy of the Company's
management reporting processes, internal controls and corporate
compliance procedures;
c. difficulties or disputes with management
encountered during the course of the audit;
d. significant changes required in the internal
auditors' audit plan for future years; and
e. the extent to which the Company has implemented
changes and improvements in management reporting practices or
internal controls that the internal auditors previously
recommended or the Audit Committee previously approved.
4. Post-Audit Review Activities. In connection with or
following the completion of its review of the external and
internal audits, the Audit Committee or its Chairman may in their
discretion elect to meet with the external auditors, internal
auditors or management to discuss any changes required in the
audit plan for future periods and any other appropriate matters
regarding the audit process.
B. Other Powers.
The Audit Committee may also take any or all of the
following actions that it deems to be necessary or appropriate:
1. meet jointly or separately from time to time with
representatives of the external auditors, the internal auditors,
or any member of management;
2. make recommendations to management or the Board of
Directors regarding (a) the replacement of the external auditors,
(b) the replacement of the internal auditors, or (c) changes in
the practices of the external or internal auditors;
A-4
3. review (a) any significant consulting or other non-
audit services that the external auditors provide to the Company
or (b) any other matters that may affect the independence of the
external auditors;
4. request management or the external auditors to
provide analysis or reports regarding (a) any "second opinion"
sought by management from an audit firm other than the Company's
external auditors, (b) the amount of fees earned by the external
auditors with respect to consulting or other non-audit services,
or (c) any other information that the Audit Committee deems
necessary to perform its oversight functions;
5. conduct or authorize investigations into any
matters within the Audit Committee's scope of responsibilities,
and employ independent legal counsel or other professionals to
assist in any investigations;
6. review periodically the effectiveness and adequacy
of the Company's corporate compliance procedures, including the
Company's Business Conduct Policy, and consider and recommend to
the Board of Directors any proposed changes that the Audit
Committee deems appropriate or advisable;
7. review periodically the travel, entertainment and
other expenses of the Company's most senior executives;
8. review periodically with the Company's legal
counsel litigation, inquiries received from governmental
agencies, or any other legal matters that may have a material
impact on the Company's financial statements, internal controls,
or corporate compliance procedures;
9. consult periodically with the Company's legal
counsel concerning the Audit Committee's responsibilities;
10. report periodically to the Board of Directors
concerning the activities and recommendations of the Audit
Committee;
11. authorize the external auditors to perform
supplemental reviews or audits as the Audit Committee considers
advisable, including reviews of interim condensed financial
statements to be included in the Company's quarterly reports on
Form 10-Q during each year;
12. recommend changes and improvements in financial
and accounting practices and internal controls of the Company;
communicate recommended changes and improvements to management
and the Board of Directors; and take appropriate steps to assure
that recommended changes and improvements are implemented, unless
otherwise directed by the Board of Directors;
13. undertake any special projects assigned by the
Board of Directors;
A-5
14. issue any reports or perform any other duties
required by (a) the Company's certificate of incorporation or by-
laws, (b) applicable law or (c) rules or regulations of the
Securities and Exchange Commission, the National Association of
Securities Dealers, Inc. or any other self-regulatory
organization having jurisdiction over the affairs of the Audit
Committee; and
15. consider and act upon any other matters concerning
the financial affairs of the Company as the Audit Committee, in
its discretion, may determine to be advisable in connection with
its oversight functions.
Notwithstanding anything in Section IV to the contrary, the Audit
Committee will not be required to take all of the actions or to
exercise all of the powers enumerated above, and the Audit
Committee's failure to take any one or more such actions or to
exercise any one or more such powers in connection with the good
faith exercise of its oversight functions will in no way be
construed as a breach of its duties or responsibilities to the
Company, its directors or its shareholders.
V. Review of Charter
The Audit Committee will review this Charter annually, and
may consider, adopt and submit to the Board of Directors any
proposed changes that the Audit Committee deems appropriate or
advisable.
****************
Approved by the Audit Committee on May 11, 2000
Adopted by the Board of Directors on May 11, 2000
A-6
Annex B
PROPOSED AMENDMENT AMENDING AND RESTATING ARTICLE FOURTH OF
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT THE PROPOSED REVERSE STOCK SPLIT
AND FORWARD STOCK SPLIT
RESOLVED, that Article FOURTH of the Amended and Restated
Certificate of Incorporation of the Corporation is hereby amended
and restated to read in its entirety as follows:
FOURTH: (a) The total number of shares of capital stock
which the Corporation shall have authority to issue is
200,000,000 shares, of which 50,000,000 shares shall be Preferred
Stock with a par value of $.01 per share and 150,000,000 shares
shall be Common Stock with a par value of $.01 per share.
(b) The Preferred Stock may be issued from time to time in
one or more series, each of such series to have such voting
powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series
adopted by the Board of Directors. If so provided in such
resolution or resolutions and as and to the extent permitted by
law, the shares of any series of the Preferred stock may be made
subject to redemption, or convertible into or exchangeable for
shares of any other class or series, by the Corporation at its
option or at the option of the holders or upon the happening of a
specified event.
Subject to such special voting rights as holders of any
shares of the Preferred Stock may be entitled to exercise, each
holder of Common Stock of the Corporation shall be entitled to
one vote for each share of such Common Stock standing in the name
of such holder on the books of the Corporation.
(c) No holder of shares of any class shall be entitled, as
such, as matter of right, to subscribe for or purchase any part
of any new or additional issue of stock of any class or series
whatsoever, or of securities convertible into, or accompanied by
rights to subscribe to, stock of any class or series whatsoever,
whether now or hereafter authorized, or whether issued for cash
or otherwise.
(d) At 5:00 p.m. (Eastern Time) on the effective date of
the amendment amending and restating this Article FOURTH (the
"Effective Date"), each share of Common Stock held of record as
of 5:00 p.m. (Eastern Time) on the Effective Date or held in the
Corporation's treasury as of such time shall be automatically
reclassified and converted, without further action on the part of
the holder thereof, into one-fiftieth (1/50) of one share of
Common Stock (the "Reverse Stock Split"). No fractional share of
Common Stock shall be issued to any Fractional Holder (as defined
below) as a result of the Reverse Stock Split. From and after
5:00 p.m. (Eastern Time) on the Effective Date,
B-1
each Fractional
Holder shall have no further interest as a stockholder in respect
of any fractional share resulting from the Reverse Stock Split
and, in lieu of receiving such fractional share, shall be
entitled to receive, upon surrender of the certificate or
certificates representing such fractional share, the cash value
of such fractional share based on the average daily closing price
per share of the Common Stock on Nasdaq for the 10 trading days
immediately preceding the Effective Date, without interest;
provided, however, that if no shares of Common Stock have been
traded on any such trading day, the closing price per share of
the Common Stock for such trading day shall be the average of the
highest bid and lowest asked prices for the Common Stock for such
trading day as reported by Nasdaq. As used herein, the term
"Fractional Holder" shall mean a holder of record of fewer than
50 shares of Common Stock as of 5:00 p.m. (Eastern Time) on the
Effective Date who would be entitled to less than one whole share
of Common Stock in respect of such shares as a result of the
Reverse Stock Split.
At 5:01 p.m. (Eastern Time) on the Effective Date, each
share of Common Stock, and any fraction thereof (excluding any
interest in the Corporation held by a Fractional Holder converted
into cash) held by a holder of record of one or more shares of
Common Stock as of 5:01 p.m. (Eastern Time) on the Effective
Date, or held in the Corporation's treasury as of such time,
shall be automatically reclassified and converted, without
further action on the part of the holder thereof, into shares of
Common Stock on the basis of 25 shares of Common Stock for each
share of Common Stock then held (the "Forward Stock Split").
Each stockholder who holds an odd number of shares of Common
Stock in a record account immediately prior to the Effective
Date, in lieu of the fractional share in the account resulting
from the Forward Stock Split, shall be entitled to receive, upon
surrender of the certificate or certificates representing such
fractional share, the cash value of such fractional share based
on the average daily closing price per share of the Common Stock
on Nasdaq for the 10 trading days immediately preceding the
Effective Date, without interest; provided, however, that if no
shares of Common Stock have been traded on any such trading day,
the closing price per share of the Common Stock for such trading
day shall be the average of the highest bid and lowest asked
prices for the Common Stock for such trading day as reported by
Nasdaq.
B-2
Annex C
STRATUS PROPERTIES INC.
2001 STOCK INCENTIVE PLAN
SECTION 1
Purpose. The purpose of the Stratus Properties Inc. 2001
Stock Incentive Plan (the "Plan") is to motivate and reward key
employees, consultants and advisers by giving them a proprietary
interest in the Company's success.
SECTION 2
Definitions. As used in the Plan, the following terms shall
have the meanings set forth below:
"Award" shall mean any Option, Stock Appreciation Right,
Limited Right, Restricted Stock or Other Stock-Based Award.
"Award Agreement" shall mean any notice of grant, written
agreement, contract or other instrument or document evidencing
any Award, which may, but need not, be executed or acknowledged
by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean, until otherwise determined by the
Board, the Corporate Personnel Committee of the Board.
"Company" shall mean Stratus Properties Inc.
"Designated Beneficiary" shall mean the beneficiary
designated by the Participant, in a manner determined by the
Committee, to receive the benefits due the Participant under the
Plan in the event of the Participant's death. In the absence of
an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Eligible Individual" shall mean (i) any person providing
services as an officer of the Company or a Subsidiary, whether or
not employed by such entity, including any such person who is
also a director of the Company, (ii) any employee of the Company
or a Subsidiary, including any director who is also an employee
of the Company or a Subsidiary, (iii) any officer or employee of
an entity with which the Company has contracted to receive
executive, management or legal services who provides services to
the Company or a Subsidiary through such arrangement, (iv) any
consultant
C-1
or adviser to the Company, a Subsidiary or to an
entity described in clause (iii) hereof who provides services to
the Company or a Subsidiary through such arrangement and (v) any
person who has agreed in writing to become a person described in
clauses (i), (ii), (iii) or (iv) within not more than 30 days
following the date of grant of such person's first Award under
the Plan.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
"Incentive Stock Option" shall mean an option granted under
Section 6 of the Plan that is intended to meet the requirements
of Section 422 of the Code or any successor provision thereto.
"Limited Right" shall mean any right granted under Section 8
of the Plan.
"Non-qualified Stock Option" shall mean an option granted
under Section 6 of the Plan that is not intended to be an
Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or
series of purchases or other acquisitions, or any combination of
those transactions, as a result of which any person, or any two
or more persons acting as a group, and all affiliates of such
person or persons, shall beneficially own more than 40% of all
classes and series of the Company's stock outstanding, taken as a
whole, that has voting rights with respect to the election of
directors of the Company (not including any series of preferred
stock of the Company that has the right to elect directors only
upon the failure of the Company to pay dividends).
"Offer Price" shall mean the highest price per Share paid in
any Offer that is in effect at any time during the period
beginning on the ninetieth day prior to the date on which a
Limited Right is exercised and ending on and including the date
of exercise of such Limited Right. Any securities or property
that comprise all or a portion of the consideration paid for
Shares in the Offer shall be valued in determining the Offer
Price at the higher of (i) the valuation placed on such
securities or property by the person or persons making such
Offer, or (ii) the valuation, if any, placed on such securities
or property by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a Non-
qualified Stock Option.
"Other Stock-Based Award" shall mean any right or award
granted under Section 10 of the Plan.
"Participant" shall mean any Eligible Individual granted an
Award under the Plan.
"Person" shall mean any individual, corporation,
partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization, government or
political subdivision thereof or other entity.
C-2
"Restricted Stock" shall mean any restricted stock granted
under Section 9 of the Plan.
"Reverse-Forward Stock Split" shall mean the proposal
contained in the Company's Notice of Annual Meeting of
Stockholders, dated March __, 2001, to amend the Company's
Certificate of Incorporation to effect a reverse stock split
followed by a forward stock split of the Common Stock, par value
$0.01, of the Company.
"Section 162(m)" shall mean Section 162(m) of the Code and
all regulations promulgated thereunder as in effect from time to
time.
"Shares" shall mean the shares of Common Stock, par value
$0.01 per share, of the Company and such other securities of the
Company or a Subsidiary as the Committee may from time to time
designate.
"Stock Appreciation Right" shall mean any right granted
under Section 7 of the Plan.
"Subsidiary" shall mean (i) any corporation or other entity
in which the Company possesses directly or indirectly equity
interests representing at least 50% of the total ordinary voting
power or at least 50% of the total value of all classes of equity
interests of such corporation or other entity and (ii) any other
entity in which the Company has a direct or indirect economic
interest that is designated as a Subsidiary by the Committee.
SECTION 3
(a) Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law,
and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii)
determine the type or types of Awards to be granted to an
Eligible Individual; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv)
determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, whole Shares, other whole
securities, other Awards, other property or other cash amounts
payable by the Company upon the exercise of that or other Awards,
or canceled, forfeited or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited or
suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable by the Company with respect
to an Award shall be deferred either automatically or at the
election of the holder thereof or of the Committee; (vii)
interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (viii) establish,
amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination
and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other
C-3
decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive
and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any
Award, any stockholder of the Company and any Eligible
Individual.
(b) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more
officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant and set
the terms of, to cancel, modify or waive rights with respect to,
or to alter, discontinue, suspend, or terminate Awards held by
Eligible Individuals who are not officers or directors of the
Company for purposes of Section 16 of the Exchange Act, or any
successor section thereto, or who are otherwise not subject to
such Section.
SECTION 4
Eligibility. Any Eligible Individual shall be eligible to
be granted an Award.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as
provided in Section 5(b):
(i) Calculation of Number of Shares Available.
(A) Subject to the other provisions of this
Section 5(a), the number of Shares with respect to which Awards
payable in Shares may be granted under the Plan shall be 850,000;
provided, that in the event the Reverse-Forward Stock Split has
been approved and implemented, the number of Shares with respect
to which Awards payable in Shares may be granted under the Plan
shall be 425,000. Awards that by their terms may be settled only
in cash shall not be counted against the maximum number of Shares
provided herein.
(B) The number of Shares that may be issued
pursuant to Incentive Stock Options may not exceed 250,000 Shares
(125,000 Shares if the Reverse-Forward Stock Split has been
approved and implemented).
(C) Subject to the other provisions of this
Section 5(a), the maximum number of Shares with respect to which
Awards in the form of Restricted Stock or Other Stock-Based
Awards payable in Shares for which a per share purchase price
that is less than 100% of the fair market value of the securities
to which the Award relates shall be 250,000 Shares (125,000
Shares if the Reverse-Forward Stock Split has been approved and
implemented).
(D) To the extent any Shares covered by an Award
are not issued because the Award is forfeited or canceled or the
Award is settled in cash, such Shares shall again be available
for grant pursuant to new Awards under the Plan.
C-4
(E) In the event that Shares are issued as
Restricted Stock or Other Stock-Based Awards under the Plan and
thereafter are forfeited or reacquired by the Company pursuant to
rights reserved upon issuance thereof, such Shares shall again be
available for grant pursuant to new Awards under the Plan.
(F) If the exercise price of any Option is
satisfied by tendering Shares to the Company, only the number of
Shares issued net of the Shares tendered shall be deemed issued
for purposes of determining the maximum number of Shares
available for issuance under Section 5(a)(i)(A). However, all of
the Shares issued upon exercise shall be deemed issued for
purposes of determining the maximum number of Shares that may be
issued pursuant to Incentive Stock Options.
(ii) Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist of authorized and
unissued Shares or of treasury Shares, including Shares held by
the Company or a Subsidiary and Shares acquired in the open
market or otherwise obtained by the Company or a Subsidiary. The
issuance of Shares may be effected on a non-certificated basis,
to the extent not prohibited by applicable law or the applicable
rules of any stock exchange.
(iii) Individual Limit. Any provision of the Plan
to the contrary notwithstanding, no individual may receive in any
year Awards under the Plan, whether payable in cash or Shares,
that relate to more than 250,000 Shares (125,000 Shares if the
Reverse-Forward Stock Split has been approved and implemented).
(iv) Use of Shares. Subject to the terms of the Plan
and the overall limitation on the number of Shares that may be
delivered under the Plan, the Committee may use available Shares
as the form of payment for compensation, grants or rights earned
or due under any other compensation plans or arrangements of the
Company or a Subsidiary and the plans or arrangements of the
Company or a Subsidiary assumed in business combinations.
(b) Adjustments. In the event that the Committee
determines that any dividend or other distribution (whether in
the form of cash, Shares, Subsidiary securities, other securities
or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities
of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it
may deem equitable, adjust any or all of (i) the number and type
of Shares (or other securities or property) with respect to which
Awards may be granted, (ii) the number and type of Shares (or
other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award and,
if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award and, if deemed appropriate, adjust
outstanding Awards to provide the rights contemplated by Section
11(b) hereof; provided, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized
to the extent that such
C-5
authority would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto
and, with respect to all Awards under the Plan, no such
adjustment shall be authorized to the extent that such authority
would be inconsistent with the requirements for full
deductibility under Section 162(m); and provided further, that
the number of Shares subject to any Award denominated in Shares
shall always be a whole number.
SECTION 6
(a) Stock Options. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine
the Eligible Individuals to whom Options shall be granted, the
number of Shares to be covered by each Option, the option price
thereof, the conditions and limitations applicable to the
exercise of the Option and the other terms thereof. The
Committee shall have the authority to grant Incentive Stock
Options, Non-qualified Stock Options or both and the other terms
thereof. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with
such rules as may be required by Section 422 of the Code, as from
time to time amended, and any implementing regulations. Except
in the case of an Option granted in assumption of or substitution
for an outstanding award of a company acquired by the Company or
with which the Company combines, the exercise price of any Option
granted under this Plan shall not be less than 100% of the fair
market value of the underlying Shares on the date of grant.
(b) Exercise. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Committee
may, in its sole discretion, specify in the applicable Award
Agreement or thereafter, provided, however, that in no event may
any Option granted hereunder be exercisable after the expiration
of 10 years after the date of such grant. The Committee may
impose such conditions with respect to the exercise of Options,
including without limitation, any condition relating to the
application of Federal or state securities laws, as it may deem
necessary or advisable. An Option may be exercised, in whole or
in part, by giving written notice to the Company, specifying the
number of Shares to be purchased. The exercise notice shall be
accompanied by the full purchase price for the Shares.
(c) Payment. The Option price shall be payable in United
States dollars and may be paid by (i) cash; (ii) check; (iii)
delivery of shares of Common Stock, which shares shall be valued
for this purpose at the Fair Market Value on the business day
immediately preceding the date such Option is exercised and,
unless otherwise determined by the Committee, shall have been
held by the optionee for at least six months; (iv) if permitted
by the Committee, delivery (including by facsimile) of a properly
executed exercise notice together with irrevocable instructions
to a broker approved by the Company (with a copy to the Company)
to sell a sufficient number of Shares and to deliver promptly to
the Company the amount of sale proceeds to pay the exercise
price; or (v) in such other manner as may be authorized from time
to time by the Committee. In the case of delivery of an
uncertified check upon exercise of an Option, no Shares shall be
issued until the check has been paid in full. If the Committee
permits cashless exercises through a broker, as described in (iv)
above, the par value of such shares shall be deemed paid in
services previously provided to the Company by
C-6
the Participant.
Prior to the issuance of Shares upon the exercise of an Option, a
Participant shall have no rights as a shareholder.
SECTION 7
(a) Stock Appreciation Rights. Subject to the provisions
of the Plan, the Committee shall have sole and complete authority
to determine the Eligible Individuals to whom Stock Appreciation
Rights shall be granted, the number of Shares to be covered by
each Award of Stock Appreciation Rights, the grant price thereof,
the conditions and limitations applicable to the exercise of the
Stock Appreciation Right and the other terms thereof. Stock
Appreciation Rights may be granted in tandem with another Award,
in addition to another Award, or freestanding and unrelated to
any other Award. Stock Appreciation Rights granted in tandem
with or in addition to an Option or other Award may be granted
either at the same time as the Option or other Award or at a
later time. Stock Appreciation Rights shall not be exercisable
after the expiration of 10 years after the date of grant. Except
in the case of a Stock Appreciation Right granted in assumption
of or substitution for an outstanding award of a company acquired
by the Company or with which the Company combines, the grant
price of any Stock Appreciation Right granted under this Plan
shall not be less than 100% of the fair market value of the
Shares covered by such Stock Appreciation Right on the date of
grant or, in the case of a Stock Appreciation Right granted in
tandem with a then outstanding Option or other Award, on the date
of grant of such related Option or Award.
(b) A Stock Appreciation Right shall entitle the holder
thereof to receive upon exercise, for each Share to which the
Stock Appreciation Right relates, an amount equal to the excess,
if any, of the fair market value of a Share on the date of
exercise of the Stock Appreciation Right over the grant price.
Any Stock Appreciation Right shall be settled in cash, unless the
Committee shall determine at the time of grant of a Stock
Appreciation Right that it shall or may be settled in cash,
Shares or a combination of cash and Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine
the Eligible Individuals to whom Limited Rights shall be granted,
the number of Shares to be covered by each Award of Limited
Rights, the grant price thereof, the conditions and limitations
applicable to the exercise of the Limited Rights and the other
terms thereof. Limited Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and
unrelated to any Award. Limited Rights granted in tandem with or
in addition to an Award may be granted either at the same time as
the Award or at a later time. Limited Rights shall not be
exercisable after the expiration of 10 years after the date of
grant and shall only be exercisable during a period determined at
the time of grant by the Committee beginning not earlier than one
day and ending not more than ninety days after the expiration
date of an Offer. Except in the case of a Limited Right granted
in assumption of or substitution for an outstanding award of a
company acquired by the Company or with which the Company
combines, the grant price of any Limited Right granted under this
Plan shall not be less than 100% of the fair market value of
C-7
the
Shares covered by such Limited Right on the date of grant or, in
the case of a Limited Right granted in tandem with a then
outstanding Option or other Award, on the date of grant of such
related Option or Award.
(b) A Limited Right shall entitle the holder thereof to
receive upon exercise, for each Share to which the Limited Right
relates, an amount equal to the excess, if any, of the Offer
Price on the date of exercise of the Limited Right over the grant
price. Any Limited Right shall be settled in cash, unless the
Committee shall determine at the time of grant of a Limited Right
that it shall or may be settled in cash, Shares or a combination
of cash and Shares.
SECTION 9
(a) Grant of Restricted Stock. Subject to the provisions
of the Plan, the Committee shall have sole and complete authority
to determine the Eligible Individuals to whom Restricted Stock
shall be granted, the number of Shares to be covered by each
Award of Restricted Stock and the terms, conditions, and
limitations applicable thereto. The Committee shall also have
authority to grant restricted stock units. Restricted stock
units shall be subject to the requirements applicable to Other
Stock-Based Awards under Section 10. An Award of Restricted
Stock may be subject to the attainment of specified performance
goals or targets, restrictions on transfer, forfeitability
provisions and such other terms and conditions as the Committee
may determine, subject to the provisions of the Plan. An award
of Restricted Stock may be made in lieu of the payment of cash
compensation otherwise due to an Eligible Individual. To the
extent that Restricted Stock is intended to qualify as
"performance-based compensation" under Section 162(m), it must
meet the additional requirements imposed thereby.
(b) The Restricted Period. At the time that an Award of
Restricted Stock is made, the Committee shall establish a period
of time during which the transfer of the Shares of Restricted
Stock shall be restricted (the "Restricted Period"). Each Award
of Restricted Stock may have a different Restricted Period. A
Restricted Period of at least three years is required, except
that if the grant or vesting of the Shares is subject to the
attainment of specified performance goals, a Restricted Period of
one year or more is permitted. The expiration of the Restricted
Period shall also occur as provided under Section 12(a) hereof.
(c) Escrow. The Participant receiving Restricted Stock
shall enter into an Award Agreement with the Company setting
forth the conditions of the grant. Certificates representing
Shares of Restricted Stock shall be registered in the name of the
Participant and deposited with the Company, together with a stock
power endorsed in blank by the Participant. Each such
certificate shall bear a legend in substantially the following
form:
The transferability of this certificate and the
shares of Common Stock represented by it are
subject to the terms and conditions (including
conditions of forfeiture) contained in the Stratus
Properties Inc. 2001 Stock Incentive Plan (the
"Plan") and a notice of grant issued thereunder to
the registered
C-8
owner by Stratus Properties Inc..
Copies of the Plan and the notice of grant are on
file at the principal office of Stratus Properties
Inc..
(d) Dividends on Restricted Stock. Any and all cash and
stock dividends paid with respect to the Shares of Restricted
Stock shall be subject to any restrictions on transfer,
forfeitability provisions or reinvestment requirements as the
Committee may, in its discretion, prescribe in the Award
Agreement.
(e) Forfeiture. In the event of the forfeiture of any
Shares of Restricted Stock under the terms provided in the Award
Agreement (including any additional Shares of Restricted Stock
that may result from the reinvestment of cash and stock
dividends, if so provided in the Award Agreement), such forfeited
shares shall be surrendered and the certificates canceled. The
Participants shall have the same rights and privileges, and be
subject to the same forfeiture provisions, with respect to any
additional Shares received pursuant to Section 5(b) or Section
11(b) due to a recapitalization, merger or other change in
capitalization.
(f) Expiration of Restricted Period. Upon the expiration
or termination of the Restricted Period and the satisfaction of
any other conditions prescribed by the Committee or at such
earlier time as provided for in Section 9(b) and in the Award
Agreement or an amendment thereto, the restrictions applicable to
the Restricted Stock shall lapse and a stock certificate for the
number of Shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such
restrictions and legends, except any that may be imposed by law,
to the Participant or the Participant's estate, as the case may
be.
(g) Rights as a Shareholder. Subject to the terms and
conditions of the Plan and subject to any restrictions on the
receipt of dividends that may be imposed in the Award Agreement,
each Participant receiving Restricted Stock shall have all the
rights of a shareholder with respect to Shares of stock during
any period in which such Shares are subject to forfeiture and
restrictions on transfer, including without limitation, the right
to vote such Shares.
(h) Performance-Based Restricted Stock under Section
162(m). The Committee shall determine at the time of grant if a
grant of Restricted Stock is intended to qualify as "performance-
based compensation" as that term is used in Section 162(m). Any
such grant shall be conditioned on the achievement of one or more
performance measures. The performance measures pursuant to which
the Restricted Stock shall vest shall be any or a combination of
the following: earnings per share, return on assets, an economic
value added measure, shareholder return, earnings, share price,
return on equity, return on investment, return on fully-employed
capital, reduction of expenses, containment of expenses within
budget, cash provided by operating activities or increase in cash
flow of the Company, a division of the Company or a Subsidiary.
For any performance period, such performance objectives may be
measured on an absolute basis or relative to a group of peer
companies selected by the Committee, relative to internal goals
or relative to levels attained in prior years. For grants of
Restricted Stock intended to qualify as "performance-based
compensation," the
C-9
grants of Restricted Stock and the
establishment of performance measures shall be made during the
period required under Section 162(m).
SECTION 10
(a) Other Stock-Based Awards. The Committee is hereby
authorized to grant to Eligible Individuals an "Other Stock-Based
Award", which shall consist of an Award that is not an instrument
or Award specified in Sections 6 through 9 of this Plan, the
value of which is based in whole or in part on the value of
Shares, including a restricted stock unit. Other Stock-Based
Awards may be awards of Shares or may be denominated or payable
in, valued in whole or in part by reference to, or otherwise
based on or related to, Shares (including, without limitation,
securities convertible or exchangeable into or exercisable for
Shares), as deemed by the Committee consistent with the purposes
of the Plan. The Committee shall determine the terms and
conditions of any such Other Stock-Based Award and may provide
that such awards would be payable in whole or in part in cash.
To the extent that an Other Stock-Based Award is intended to
qualify as "performance-based compensation" under Section 162(m),
it must be made subject to the attainment of one or more of the
performance goals specified in Section 10(b) hereof and meet the
additional requirements imposed by Section 162(m).
(b) Performance-Based Other Stock-Based Awards under
Section 162(m). The Committee shall determine at the time of
grant if the grant of an Other Stock-Based Award is intended to
qualify as "performance-based compensation" as that term is used
in Section 162(m). Any such grant shall be conditioned on the
achievement of one or more performance measures. The performance
measures pursuant to which the Other Stock-Based Award shall vest
shall be any or a combination of the following: earnings per
share, return on assets, an economic value added measure,
shareholder return, earnings, share price, return on equity,
return on investment, return on fully-employed capital, reduction
of expenses, containment of expenses within budget, cash provided
by operating activities or increase in cash flow of the Company,
a division of the Company or a Subsidiary. For any performance
period, such performance objectives may be measured on an
absolute basis or relative to a group of peer companies selected
by the Committee, relative to internal goals or relative to
levels attained in prior years. For grants of Other Stock-Based
Awards intended to qualify as "performance-based compensation,"
the grants of Other Stock-Based Awards and the establishment of
performance measures shall be made during the period required
under Section 162(m).
(c) Dividend Equivalents. In the sole and complete
discretion of the Committee, an Award, whether made as an Other
Stock-Based Award under this Section 10 or as an Award granted
pursuant to Sections 6 through 9 hereof, may provide the holder
thereof with dividends or dividend equivalents, payable in cash,
Shares, Subsidiary securities, other securities or other property
on a current or deferred basis.
C-10
SECTION 11
(a) Amendment or Discontinuance of the Plan. The Board may
amend or discontinue the Plan at any time; provided, however,
that no such amendment may
(i) without the approval of the stockholders, (i)
increase, subject to adjustments permitted herein, the
maximum number of shares of Common Stock that may be
issued through the Plan, (ii) materially increase the
benefits accruing to participants under the Plan, (iii)
materially expand the classes of persons eligible to
participate in the Plan, or (iv) amend Section 11(c) to
permit repricing of options; or
(ii) materially impair, without the consent of the
recipient, an Award previously granted.
(b) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events
described in Section 5(b) hereof) affecting the Company, or the
financial statements of the Company or any Subsidiary, or of
changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such
adjustments are appropriate to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available
under the Plan.
(c) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may
cause any Award granted hereunder to be canceled in consideration
of a cash payment or alternative Award made to the holder of such
canceled Award equal in value to such canceled Award.
Notwithstanding the foregoing, no options granted under the Plan
shall be repriced without the approval of the stockholders of the
Company. The determinations of value under this subparagraph
shall be made by the Committee in its sole discretion.
SECTION 12
(a) Award Agreements. Each Award hereunder shall be
evidenced by an agreement or notice delivered to the Participant
(by paper copy or electronically) that shall specify the terms
and conditions thereof and any rules applicable thereto,
including but not limited to the effect on such Award of the
death, retirement or other termination of employment or cessation
of consulting or advisory services of the Participant and the
effect thereon, if any, of a change in control of the Company.
(b) Withholding. (i) A Participant may be required to pay
to the Company, and the Company shall have the right to deduct
from all amounts paid to a Participant (whether under the Plan or
otherwise), any taxes required by law to be paid or withheld in
respect of Awards hereunder
C-11
to such Participant. The Committee
may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting,
exercise or payment of any Award.
(ii) At any time that a Participant is required to pay
to the Company an amount required to be withheld under the
applicable tax laws in connection with the issuance of shares of
Common Stock under the Plan, the Participant may, if permitted by
the Committee, satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold from the
issuance shares of Common Stock having a value equal to the
minimum statutory amount required to be withheld for federal,
state and local taxes. The value of the shares withheld shall be
based on the fair market value of the Common Stock on the date
that the amount of tax to be withheld shall be determined in
accordance with applicable tax laws (the "Tax Date").
(iii) Each Election must be made prior to the Tax
Date. The Committee may suspend or terminate the right to make
Elections at any time.
(iv) A Participant may also satisfy his or her total
tax liability related to the Award by delivering Shares owned by
the Participant. The value of the Shares delivered shall be
based on the fair market value of the Shares on the Tax Date.
(c) Transferability. No Awards granted hereunder may be
transferred, pledged, assigned or otherwise encumbered by a
Participant except: (i) by will; (ii) by the laws of descent and
distribution; (iii) pursuant to a domestic relations order, as
defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv)
if permitted by the Committee and so provided in the Award
Agreement or an amendment thereto, Options and Limited Rights
granted in tandem therewith may be transferred or assigned (a) to
Immediate Family Members, (b) to a partnership in which Immediate
Family Members, or entities in which Immediate Family Members are
the owners, members or beneficiaries, as appropriate, are the
partners, (c) to a limited liability company in which Immediate
Family Members, or entities in which Immediate Family Members are
the owners, members or beneficiaries, as appropriate, are the
members, or (d) to a trust for the benefit of Immediate Family
Members; provided, however, that no more than a de minimus
beneficial interest in a partnership, limited liability company
or trust described in (b), (c) or (d) above may be owned by a
person who is not an Immediate Family Member or by an entity that
is not beneficially owned solely by Immediate Family Members.
"Immediate Family Members" shall be defined as the spouse and
natural or adopted children or grandchildren of the Participant
and their spouses. To the extent that an Incentive Stock Option
is permitted to be transferred during the lifetime of the
Participant, it shall be treated thereafter as a Nonqualified
Stock Option. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of Awards, or levy of
attachment or similar process upon Awards not specifically
permitted herein, shall be null and void and without effect. The
designation of a Designated Beneficiary shall not be a violation
of this Section 12(c).
(d) Share Certificates. All certificates for Shares or
other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer
orders and
C-12
other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements
of the SEC, any stock exchange upon which such Shares or other
securities are then listed, and any applicable federal or state
laws, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions.
(e) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company from adopting or
continuing in effect other compensation arrangements, which may,
but need not, provide for the grant of options, stock
appreciation rights and other types of Awards provided for
hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may
be either generally applicable or applicable only in specific
cases.
(f) No Right to Employment. The grant of an Award shall
not be construed as giving a Participant the right to be retained
in the employ of or as a consultant or adviser to the Company or
any Subsidiary or in the employ of or as a consultant or adviser
to any other entity providing services to the Company. The
Company or any Subsidiary or any such entity may at any time
dismiss a Participant from employment, or terminate any
arrangement pursuant to which the Participant provides services
to the Company or a Subsidiary, free from any liability or any
claim under the Plan, unless otherwise expressly provided in the
Plan or in any Award Agreement. No Eligible Individual or other
person shall have any claim to be granted any Award, and there is
no obligation for uniformity of treatment of Eligible
Individuals, Participants or holders or beneficiaries of Awards.
(g) Governing Law. The validity, construction, and effect
of the Plan, any rules and regulations relating to the Plan and
any Award Agreement shall be determined in accordance with the
laws of the State of Delaware.
(h) Severability. If any provision of the Plan or any
Award is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any
Award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company
and a Participant or any other Person. To the extent that any
Person acquires a right to receive payments from the Company
pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(j) No Fractional Shares. No fractional Shares shall be
issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash, other securities or other
C-13
property shall be paid or transferred in lieu of any fractional
Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(k) Deferral Permitted. Payment of cash or distribution of
any Shares to which a Participant is entitled under any Award
shall be made as provided in the Award Agreement. Payment may be
deferred at the option of the Participant if provided in the
Award Agreement.
(l) Headings. Headings are given to the subsections of the
Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to
the construction or interpretation of the Plan or any provision
thereof.
SECTION 13
Term of the Plan. Subject to Section 11(a), the Plan shall
remain in effect until all Awards permitted to be granted under
the Plan have either been satisfied, expired or canceled under
the terms of the Plan and any restrictions imposed on Shares in
connection with their issuance under the Plan have lapsed.
C-14
STRATUS PROPERTIES INC.
Proxy Solicited on Behalf of the Board of Directors for Annual
Meeting of Stockholders, May 10, 2001
The undersigned hereby appoints William H. Armstrong III and
Kenneth N. Jones, or either of them, as proxies, with full power
of substitution, to vote the shares of the undersigned in Stratus
Properties Inc. at the Annual Meeting of Stockholders to be held
on Thursday, May 10, 2001, at 1:30 p.m., and at any adjournment
thereof, on all matters coming before the meeting. The proxies
will vote: (1) as you specify on the back of this card, (2) as
the Board of Directors recommends where you do not specify your
vote on a matter listed on the back of this card, and (3) as the
proxies decide on any other matter.
If you wish to vote on all matters as the Board of Directors
recommends, please sign, date and return this card. If you wish
to vote on items individually, please also mark the appropriate
boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE
(continued on reverse side)
- -----------------------------------------------------------------
FOLD AND DETACH HERE
Please mark your votes as indicated in this example [x ]
The Board of Directors recommends a vote FOR:
Item 1 - Election of the nominee for director.
Nominee for director of Stratus Properties Inc. For [ ] Withhold [ ]
William H. Armstrong III
Item 2 - Ratification of appointment of Arthur Andersen LLP as
independent auditors.
For [ ] Against [ ] Abstain [ ]
Item 3 - Approval of the proposed 2001 Stock Incentive Plan.
For [ ] Against [ ] Abstain [ ]
Item 4 - Approval of the proposed amendment to the certificate of
incorporation to effect a reverse stock split followed by a
forward stock split.
For [ ] Against [ ] Abstain [ ]
Signature(s)___________________________Dated:_________________, 2001
You may specify your votes by marking the appropriate boxes on
this side. You need not mark any boxes, however, if you wish to
vote all items in accordance with the Board of Directors'
recommendation. If your votes are not specified, this proxy will
be voted FOR the election of the nominee for director and FOR
Items 2, 3 and 4.
- -----------------------------------------------------------------
FOLD AND DETACH HERE
