KATY INDUSTRIES, INC. STAND-ALONE STOCK APPRECIATION RIGHTS AGREEMENT
KATY
INDUSTRIES, INC.
No.
of
Shares of Common Stock: ________
THIS
STAND-ALONE STOCK APPRECIATION RIGHTS AGREEMENT (this “Agreement”) is made by
and between Katy Industries, Inc., a Delaware corporation (the “Company”), and
____________________ (the “Participant”), on this the ____ day of
______________, 2006, to provide additional compensation to the Participant
to
serve as a non-employee member of the Board of Directors of the
Company.
1. Grant
of SAR.
In
return for the Participant’s service as a member of the Board of Directors, and
subject to the terms and conditions stated herein, the Company, effective as
of
the date set forth above (the “Date of Grant”), hereby grants to the Participant
a stock appreciation right (“SAR”) with respect to ________ shares of Common
Stock. This SAR entitles the Participant to receive in cash, with respect to
each share of Common Stock encompassed by the exercise of this SAR, the excess
of the Fair Market Value of such shares of Common Stock on the date of exercise
over the Initial Value of such shares, subject to applicable withholdings.
The
Initial Value of such shares is $___ per share of Common Stock, which is the
Fair Market Value of a share of Common Stock on the Date of Grant. This SAR
is
exercisable as hereinafter provided.
2. Terms
and Conditions.
This
SAR is subject to the following terms and conditions:
| (a) |
Expiration
Date.
This SAR shall expire at 11:59 p.m. on ____________ ___, 20__ (the
“Expiration Date”).
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| (b) |
Exercise
of SAR.
Except as otherwise provided in paragraphs 3 or 4, subject to the calendar
year limitation described in paragraph 2(d), this SAR is fully exercisable
with respect to One Hundred Percent (100%) of the shares of Common
Stock
subject to this SAR, provided the Participant is serving as a member
of
the Board of Directors on the Date of Grant. The Company shall pay
the
Participant the amounts described herein with respect to the number
of
shares of Common Stock encompassed by the exercise within 15 days after
exercise.
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| (c) |
Period
of Exercise.
This SAR shall continue to be exercisable, subject to the calendar
year
limitation described in paragraph 2(d), until the earlier of the
termination of the Participant’s rights hereunder pursuant to paragraphs 3
or 4 or the Expiration Date. A partial exercise of this SAR shall not
affect the Participant’s right to exercise this SAR with respect to the
remaining shares of Common Stock, subject to the terms and conditions
of
this Agreement.
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| (d) |
Method
of Exercise.
This SAR shall be exercised by delivering written notice of exercise
to
the attention of the Company’s Secretary at the Company’s principal office
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇.
The exercise date shall be the date the Company receives the notice
of
exercise. Notwithstanding any other provision of this Agreement, however,
except as otherwise described in paragraph 5, this SAR is subject to
a
calendar year limitation and may not be exercised in any calendar year
with respect to more than 50 percent of the cumulative number of shares
of
Common Stock with respect to which the SAR has become exercisable
(including, for purposes of determining the cumulative number of shares
with respect to which the SAR has become exercisable, shares for which
the
SAR is then exercisable and shares for which the SAR was exercised
previously). In the event this SAR terminates before the Participant
can
exercise it in full because of the calendar year limitation imposed
by
this paragraph 2(d), all rights that a Participant has regarding the
SAR
will be immediately discontinued and forfeited, and the Company shall
not
have any further obligation hereunder to the Participant with respect
to
the SAR and the SAR will not be exercisable for any number of shares
of
Common Stock (whether or not previously exercisable) on and after such
time.
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| (e) |
Nontransferability.
This SAR is nontransferable except by will or by the laws of descent
and
distribution, and, during the Participant’s lifetime, only the Participant
may exercise this SAR. If this SAR is transferred by will or the laws
of
descent and distribution, the SAR must be transferred in its entirety
to
the same person or persons or entity or entities. No right or interest
of
the Participant in this SAR shall be liable for, or subject to, any
lien,
obligation or liability of the
Participant.
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3. Exercise
After Termination of Service.
Except
as otherwise provided in paragraph 4, this SAR shall be exercisable for all
or part of the number of shares of Common Stock that the Participant is entitled
to purchase pursuant to paragraph 2(b) as of the date the Participant ceases
to
serve on the Board of Directors, reduced by the number of shares of Common
Stock
for which the Participant previously exercised the SAR, if the Participant
ceases to serve as a member of the Board of Directors, other than on account
of
removal from the Board of Directors for Cause or for engaging in Detrimental
Activity, prior to the termination of the Participant’s rights under
paragraphs 2(a) or 4, subject to the calendar year limitation of paragraph
2(d). In that event the Participant may exercise this SAR for such number of
shares during the remainder of the period preceding the Expiration Date or
until
the date that is 180 days after the date he ceases to serve as a member of
the
Board of Directors other than on account of removal from the Board of Directors
for Cause, whichever is shorter, subject to the calendar year limitation of
paragraph 2(d).
4. Removal
for Cause and Engaging in Detrimental Activities.
Notwithstanding any other provision of this Agreement, all rights of the
Participant hereunder will be immediately discontinued and forfeited, and the
Company shall not have any further obligation hereunder to the Participant,
and
the SAR will not be exercisable for any number of shares of Common Stock, on
and
after the time the Participant (i) is removed from the Board of Directors for
Cause or for engaging in Detrimental Activity or (ii) engages in any Detrimental
Activity.
5. Change
in Control.
Notwithstanding any provision of this Agreement to the contrary, in the event
of
or in anticipation of a Change in Control, the Company in its discretion (i)
may
declare that this SAR shall terminate as of a date on or after an Acceleration
Date or before or on the Control Change Date without any payment to the
Participant, provided the Company gives prior written notice to the Participant
of such termination and gives the Participant the right to exercise the
Participant’s SAR at least 15 days before such termination date to the extent
then exercisable or (ii) may terminate on or after an Acceleration Date or
before or on the Control Change Date this SAR in consideration of a cash payment
to the Participant, with respect to each share of Common Stock to which the
SAR
is then exercisable, of the amount payable at that time upon exercise of the
exercisable portion of the SAR. The Company in its discretion may take the
actions described in (i) or (ii) above contingent on consummation of
the Change in Control. The preceding sentences to the contrary notwithstanding,
the SAR shall not be terminated to the extent that written provision is made
for
its continuance, assumption or substitution by a successor employer or its
parent or subsidiary in connection with the Change in Control. The calendar
year
limitation described in paragraph 2(d) will not apply where the Company takes
either of the actions described above or otherwise waives the calendar year
limitation in connection with a Change in Control.
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6. Minimum
Exercise.
This
SAR may not be exercised for less than 500 shares of Common Stock unless it
is
exercised for the full number of shares that remain subject to the SAR or the
maximum number of shares that the Participant may exercise with respect to
the
calendar year limitation described in paragraph 2(d).
7. Fractional
Shares.
When
any provision hereof may entitle the Participant to rights to a fractional
share, such fractional share shall be disregarded.
8. Change
in Capital Structure.
The
terms of this SAR shall be adjusted as the Company determines is equitably
required in the event that (a) the Company (i) effects one or more stock
dividends, stock split-ups, subdivisions or consolidations of shares of Common
Stock or (ii) engages in a transaction which Section 424 of the Code
describes or any similar event or (b) there occurs any other event which, in
the
judgment of the Company, necessitates such action. In addition, the Company
may
make such other adjustments to the terms of this SAR to the extent equitable
and
necessary to prevent an enlargement or dilution of the Participant’s rights as a
result of any such transaction. Any determination the Company makes under this
paragraph shall be final and conclusive on all parties. The issuance by the
Company of either shares of stock of any class or securities convertible into
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the terms of this SAR.
9. No
Right to Continued Service.
This
SAR does not confer upon the Participant any right with respect to continued
service on the Board of Directors, nor shall it interfere in any way with the
right of the shareholders to terminate the Participant’s service on the Board of
Directors at any time without assigning a reason therefor.
10. Binding
Effect.
Subject
to the limitations stated herein, this Agreement shall be binding upon and
inure
to the benefit of the legatees, distributees, and personal representatives
of
the Participant and the successors of the Company.
11. Rights
as a Stockholder.
The
Participant shall have no rights as a stockholder of the Company with respect
to
any shares of Common Stock subject to the SAR.
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12. Unfunded
Benefits.
The
Agreement is unfunded, and the Company shall not be required to segregate any
assets that may at any time be payable under this Agreement. Any liability
of
the Company to the Participant hereunder shall be based solely upon any
contractual obligations that may be created hereunder. No such obligation of
the
Company shall be deemed to be secured by any pledge of, or other encumbrance
on,
any assets or property of the Company.
13. Withholding
of Taxes.
The
Company shall, as necessary, withhold from any amounts due and payable by the
Company to the Participant the amount of any withholding or other tax due with
respect to the exercise of the SAR.
14. Compliance.
This
SAR shall not be exercisable, and no payment shall be made, except in compliance
with all applicable federal and state laws and regulations (including, without
limitation, withholding tax requirements), any listing agreement with any stock
exchange to which the Company is a party, and the rules of all domestic stock
exchanges on which the Company’s shares may be listed. The Company shall have
the right to rely on an opinion of its counsel as to such compliance. This
SAR
shall not be exercisable, and no payment shall be made hereunder, until the
Company has obtained such consent or approval as the Company may deem advisable
from regulatory bodies having jurisdiction over such matters.
15. Postponement
of Exercise.
The
Company may postpone the exercise of this SAR (i) for such time as the Company
in its sole discretion may deem necessary in order to permit the Company to
effect, amend or maintain any registration of shares of Common Stock under
the
securities laws or to permit any action to be taken in order to list shares
of
Common Stock or comply with restrictions or regulations incident to the
maintenance of a public market for such shares of Common Stock, including any
rules or regulations of any stock exchange on which the shares of Common Stock
are listed, or to comply with any other applicable law, including without
limitation, securities laws, (ii) during any such time the Company is prohibited
from making any such payments to the Participant under applicable law, including
without limitation, during the course of an investigation of the Company or
(iii) to otherwise comply with any prohibition on such payments during any
applicable blackout period; and the Company shall not be obligated by virtue
of
any terms and conditions of this Agreement to recognize the exercise of the
SAR
in violation of the securities laws or the laws of any government having
jurisdiction thereof or any of the provisions hereof. Any such postponement
shall not extend the term of the SAR and neither the Company nor its directors,
officers or employees shall have any obligation or liability to the Participant
or to any other person with respect to any payment as to which the SAR shall
lapse because of such postponement.
16. Exemption
from Section 409A.
This SAR
is intended to be an exempt stock appreciation right within the meaning of
Section 409A of the Code and shall be construed and interpreted in accordance
with such exemption provisions. Any provisions of this SAR which are
inconsistent with Section 409A or any existing or forthcoming Internal Revenue
Service guidance related thereto shall be void and without effect. Notwithstanding
the preceding,
the
Company shall not be liable to the Participant or any other person if the
Internal Revenue Service or any court or other authority having jurisdiction
over such matter determines for any reason that the
SAR
is subject to taxes, penalties or interest as a result of failing to comply
with
Section 409A of the Code.
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17. Rules
of Construction.
Headings are given to the paragraphs of this Agreement solely as a convenience
to facilitate reference. The reference to any statute, regulation or other
provision of law shall be construed to refer to any amendment to or successor
of
such provision of law.
18. Amendment
and Termination.
The
Company in its sole and absolute discretion may amend this SAR from time to
time. However, no amendment shall, without the Participant’s consent, adversely
affect any rights of the Participant at the time such amendment is made, except
as otherwise set forth in this Agreement.
19. Notices.
All
notices, demands or other communications to be given or delivered under or
by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or mailed by certified
or
registered mail, return receipt requested and postage prepaid, to the recipient.
Such notices, demands and other communications shall be sent to the Participant
and to the Company at the addresses indicated below:
(a) If
to the
Participant:
(b) If
to the
Company:
Katy
Industries, Inc.
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Attention:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy
No.: (▇▇▇) ▇▇▇-▇▇▇▇
With
a
copy to:
Hunton
& ▇▇▇▇▇▇▇▇ LLP
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Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy
No.: (▇▇▇) ▇▇▇-▇▇▇▇
or
to
such other address or to the attention of such other person as the recipient
party has specified by prior written notice to the send party.
20. Administration.
The
Board of Directors, without the Participant, shall administer this Agreement
and
shall have the complete authority to interpret all provisions of this Agreement
(but not to waive the calendar year limitation on the exercise of a SAR other
than as set forth herein); to adopt, amend and rescind rules and regulations
pertaining to the administration of the Agreement; and to make all other
determinations necessary or advisable for the administration of this Agreement.
The Board of Directors shall not be liable for any act done or not done in
good
faith with respect to this Agreement. The Company shall bear all expenses of
administering this Agreement.
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21. Parachute
Payments.
Despite
any other provisions of this Agreement to the contrary, if any payment,
accelerated vesting or other rights under this Agreement would subject a
Participant to tax under Code Section 4999, the Company may determine whether
some amount of payments, accelerated vesting or other rights would meet the
definition of a “Reduced Amount.” If the Company determines that there is a
Reduced Amount, the total payments, accelerated vesting or other rights to
the
Participant hereunder must be reduced to such Reduced Amount, but not below
zero. If the Company determines that payments, accelerated vesting or other
rights must be reduced to the Reduced Amount, the Company must promptly notify
the Participant of that determination, with a copy of the detailed calculations
by the Company. All determinations of the Company under this paragraph 21 are
binding upon the Company and the Participant. For purposes of this paragraph
21,
(i) “Net After Tax Receipt” means the Present Value of payments or other
benefits under this Agreement net of all taxes imposed on Participant with
respect thereto under Code Sections 1, 3101 and 4999, determined by applying
the
highest marginal rate under Code Section 1 which is expected to apply to
the Participant’s taxable income for the taxable year; (ii) ”Present Value”
means the value determined in accordance with Code Section 280G(d)(4); and
(iii) ”Reduced Amount” means the smallest aggregate amount of all payments
or benefits under this Agreement which (a) is less than the sum of all
payments or benefits under this Agreement and (b) results in aggregate Net
After Tax Receipts which are equal to or greater than the Net After Tax Receipts
which would result if the aggregate payments or benefits under this Agreement
were any other amount less than the sum of all payments or benefits to be made
under this Agreement.
22. Governing
Law.
This
Agreement shall be governed by the laws of the State of Delaware, except to
the
extent federal law applies.
23. Definitions.
The
following terms shall have the following definitions for purposes of this
Agreement:
| (a) |
“Acceleration
Date”
means the earlier of (i) the date that the Board of Directors approves
a
transaction or series of transactions that, if consummated, would result
in a Change in Control or (ii) the date that an agreement is entered
into
with respect to a transaction or series of transactions that, if
consummated, would result in a Change in
Control.
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| (b) |
“Board
of Directors” means the Board of Directors of the
Company
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| (c) |
“Cause”
means (i) any criminal act or act of dishonesty or willful or gross
misconduct by the Participant that has a material adverse affect on
the
property, operations, business or reputation of the Company or any
Subsidiary, (ii) the material breach by the Participant of the terms
of any confidentiality, noncompetition, nonsolicitation, or service
agreement that the Participant has with the Company or any Subsidiary,
(iii) acts by the Participant of willful malfeasance or gross
negligence in a matter of material importance to the Company or any
Subsidiary or a deliberate breach of any fiduciary duty the Participant
owes the Company or any Subsidiary, or (v) the continued failure of
the
Participant to perform substantially the Participant’s duties as a member
of the Board of Directors.
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| (d) |
“Change
in Control”
means, and shall be deemed to have occurred upon, any of the following
events: (i) a sale of 100 percent of the Company’s outstanding capital
stock, as may be outstanding from time to time; (ii) a sale of all
or
substantially all of the Company’s Operating Subsidiaries or assets; or
(iii) a transaction or series of transactions in which any third party
acquires an equity ownership in the Company greater than that held
by KKTY
Holding Company, L.L.C. and in which Kohlberg & Co., L.L.C.
relinquishes its right to nominate a majority of the candidates for
election to the Board. For purposes of this paragraph, “Operating
Subsidiary” shall mean any Subsidiary owning assets with an aggregate fair
market value in excess of $50,000.
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| (e) |
“Code”
means the Internal Revenue Code of 1986, as
amended.
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| (f) |
“Common
Stock”
means the common stock, $1.00 par value per share, of the
Company.
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| (g) |
“Control
Change Date”
means the date on which a Change in Control occurs. If a Change in
Control
occurs on account of a series of transactions, the “Control Change Date”
is the date of the last of such
transactions.
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| (h) |
“Detrimental
Activity”
means any of the following: (i) engaging in competition with any part
of
the business of the Company or any of its Subsidiaries, (ii) diverting
or
attempting to divert from the Company or any of its Subsidiaries business
of any kind, including, without limitation, interference with any business
relationship with suppliers, customers, licensees, licensors or
contractors, (iii) making, causing or attempting to cause any other
person
to make a statement, whether written or oral, or conveying any information
about the Company or any Subsidiary, which is disparaging or which
in any
way reflects negatively upon the Company or any Subsidiary, (iv) engaging
in any other activity that is contrary or harmful to the interests
of the
Company or any Subsidiary, including without limitation, influencing
or
advising any person who is employed by or in the service of the Company
or
any Subsidiary to leave such employment or service to compete with
the
Company or any Subsidiary or to enter into the employment or service
of
any actual or prospective competitor of the Company or any Subsidiary
or
influencing or advising any competitor of the Company or any Subsidiary
to
employ or otherwise engage the services of any person who is employed
by
the Company or any Subsidiary or in the service of the Company or any
Subsidiary or improperly disclosing or otherwise misusing any confidential
information regarding the Company or any Subsidiary, or (v) the refusal
or
failure of the Participant to provide, upon the request of the Company
or
any Subsidiary, a written certification, in a form satisfactory to
the
Company or any Subsidiary, that such Participant is not engaging in
any of
the activities described in (i) through (iv)
above.
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| (i) |
“Fair
Market Value”
means, on any given date, the fair market value of a share of Common
Stock
as the Company in its discretion shall determine; provided, however,
if
the shares of Common Stock are traded on any stock exchange, the Fair
Market Value of a share of Common Stock shall be the closing price
of a
share of Common Stock as reported on such stock exchange as of the
immediately preceding date, or if the shares of Common Stock are not
traded on such stock exchange on such immediately preceding date, then
on
the next preceding day that the shares of Common Stock were traded
on such
stock exchange, or if the shares of Common Stock are not traded on
any
stock exchange but are quoted on an automated system, the Fair Market
Value of a share of Common Stock shall be as quoted on such automated
system on such immediately preceding date or if the shares of Common
Stock
are not quoted on such immediately preceding date, then on the next
preceding date that the Shares of Common Stock are quoted, all as reported
by such source as the Company shall select. The Fair Market Value that
the
Company determines shall be final, binding and conclusive on the Company,
each Subsidiary and each Participant.
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| (j) |
“Subsidiary”
means any corporation (other than the Company) in an unbroken chain
of
corporations beginning with the Company, if each of the corporations
other
than the last corporation in the unbroken chain owns stock possessing
50
percent or more of the total combined voting power of all classes of
stock
in one of the other corporations in such chain. A Subsidiary includes
any
such corporation that becomes such on and after the Date of
Grant.
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IN
WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly
authorized officer, and the Participant has affixed his signature
hereto.
COMPANY:
KATY
INDUSTRIES, INC.
By:
Name:
Title:
PARTICIPANT:
Participant
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