<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
STYLING TECHNOLOGY CORPORATION
(Name of Registrant as Specified In Its Charter)
RICHARD R. ROSS
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
STYLING TECHNOLOGY CORPORATION
-------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 1998
-------------------------------------------------------------
The Annual Meeting of Stockholders of Styling Technology Corporation, a
Delaware corporation (the "Company"), will be held at 10:00 a.m. (local time),
on Monday, May 4, 1998, at The Arizona Biltmore, 24th Street and Missouri,
Phoenix, Arizona 85016, for the following purposes:
1. To elect directors (who will be divided into three classes if
the proposal in item 2 is approved by the stockholders).
2. To approve an amendment to the Company's Certificate of
Incorporation to classify the Board of Directors of the Company into three
classes with staggered terms of office.
3. To approve an amendment to the Company's Certificate of
Incorporation to add a provision allowing the Board of Directors to consider
certain factors when evaluating certain matters such as tender offers.
4. To approve an amendment to the Company's Certificate of
Incorporation to eliminate actions by written consent of stockholders.
5. To approve an amendment to the Company's Certificate of
Incorporation to add certain minimum price and procedural requirements in
connection with certain transactions such as business combinations.
6. To approve an amendment to the Company's 1996 Stock Option
Plan to increase the number of shares of the Company's Common Stock that may be
issued pursuant to the 1996 Stock Option Plan from 400,000 to 750,000 shares.
7. To ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1998.
8. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 26, 1998
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date, and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
Phoenix, Arizona
March 31, 1998
<PAGE> 3
STYLING TECHNOLOGY CORPORATION
2390 EAST CAMELBACK ROAD, SUITE 435
PHOENIX, ARIZONA 85016
-------------------------------------------------------------
PROXY STATEMENT
-------------------------------------------------------------
VOTING AND OTHER MATTERS
GENERAL
The enclosed proxy is solicited on behalf of Styling Technology
Corporation, a Delaware corporation (the "Company"), by the Company's board of
directors (the "Board of Directors") for use at the Annual Meeting of
Stockholders to be held at 10:00 a.m. (local time), on Monday, May 4, 1998 (the
"Meeting"), or at any adjournment thereof, for the purposes set forth in this
Proxy Statement and in the accompanying Notice of Annual Meeting of
Stockholders. The Meeting will be held at The Arizona Biltmore, 24th Street and
Missouri, Phoenix, Arizona 85016.
These proxy solicitation materials were first mailed on or about
March 31, 1998 to all stockholders entitled to vote at the Meeting.
VOTING SECURITIES AND VOTING RIGHTS
Stockholders of record at the close of business on March 26, 1998 (the
"Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 4,034,703 shares of the Company's
Common Stock, $0.0001 par value per share (the "Common Stock").
The presence, in person or by proxy, of the holders of a majority of
the total number of shares of Common Stock of the Company outstanding
constitutes a quorum for the transaction of business at the Meeting. Each
stockholder voting at the Meeting, either in person or by proxy, may cast one
vote per share of Common Stock held on all matters to be voted on at the
Meeting. Assuming that a quorum is present, the affirmative vote of a majority
of the shares of Common Stock present in person or represented by proxy at the
Meeting and entitled to vote is required to elect directors, to approve an
amendment to the 1996 Stock Option Plan (the "1996 Plan") to increase the shares
of the Company's Common Stock that may be issued pursuant to the 1996 Plan, and
to ratify the appointment of Arthur Andersen LLP as the independent auditors of
the Company for the fiscal year ending December 31, 1998. The affirmative vote
of a majority of the outstanding shares of Common Stock is required for approval
of each of the amendments to the Company's Certificate of Incorporation.
Votes cast by proxy or in person at the Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
<PAGE> 4
VOTING OF PROXIES
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. If no specification is
indicated, the shares will be voted (i) "for" the election of the nominees set
forth in this Proxy Statement; (ii) "for" approval of an amendment to the
Company's Certificate of Incorporation to classify the Board of Directors of the
Company into three classes with staggered terms of office; (iii) "for" approval
of an amendment to the Company's Certificate of Incorporation to add a provision
allowing the Board of Directors to consider certain factors when evaluating
certain matters such as tender offers; (iv) "for" approval of an amendment to
the Company's Certificate of Incorporation to eliminate actions by written
consent of stockholders; (v) "for" approval of an amendment to the Company's
Certificate of Incorporation to add certain minimum price and procedural
requirements in connection with certain transactions such as business
combinations; (vi) "for" approval of an amendment to the 1996 Plan to increase
the shares of the Company's Common Stock that may be issued pursuant to the 1996
Plan; (vii) for the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998; and (viii)
in the best judgement of the proxy holders as to any other matters that may
properly come before the meeting.
REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to the Company written notice of revocation or a duly executed
proxy bearing a later date or by attending the Meeting and voting in person.
SOLICITATION
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation materials to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
ANNUAL REPORT AND OTHER MATTERS
The 1997 Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the activities of the Company, but is not incorporated
into this Proxy Statement and is not to be considered a part of these proxy
soliciting materials. The information contained in the "Report of the
Compensation Committee of the Board of Directors" below and "Company Performance
Graph" below shall not be deemed "filed" with the Securities and Exchange
Commission (the "SEC") or subject to Regulations 14A or 14C or to the
liabilities of Section 18 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
The Company will provide, without charge to each stockholder of record
as of the Record Date, a copy of the Company's annual report on Form 10-K for
the year ended December 31, 1997 as filed with the SEC. Any exhibits listed in
the Form 10-K report also will be furnished upon request at the actual expense
incurred by the Company in furnishing such exhibit. Any such requests should be
directed to the Company's Secretary at the Company's executive offices as set
forth in this Proxy Statement.
2
<PAGE> 5
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation provides that the number of
directors shall be fixed from time to time by resolution of the Board of
Directors. Presently, the number of directors is fixed at six. Unless otherwise
instructed, proxies will be voted in favor of SAM L. LEOPOLD, JAMES A. BROOKS,
PETER W. BURG, MICHAEL H. FEINSTEIN, all of whom currently are directors of the
Company, as well as RICHARD R. ROSS, who serves as Vice President, Chief
Financial Officer, Treasurer, and Secretary of the Company. In the event that
any nominee is unable or declines to serve as a director at the time of the
Meeting, the proxies will be voted for such substitute nominees as may be
selected by the current Board of Directors. The Board of Directors has no reason
to believe that any of the nominees will be unable or will decline to serve as a
director. The term of office of each person elected as a director will continue
until a successor has been elected and qualified or until his earlier
resignation or removal. If the proposed amendment of the Company's Certificate
of Incorporation to classify the Board of Directors, which is described below in
the section entitled "Proposals to Amend the Company's Certificate of
Incorporation - Proposal Concerning Classification of the Board of Directors,"
is approved, and all of the nominees listed above are elected directors, the
directors will be divided among the classes as follows: Class 1: (To serve until
the 1999 Annual Meeting of Stockholders) - James A. Brooks and Sylvan Schefler;
Class 2: (To serve until the 2000 Annual Meeting of Stockholders) - Peter W.
Burg and Michael H. Feinstein; Class 3: (To serve until the 2001 Annual Meeting
of Stockholders) - Sam L. Leopold and Richard R. Ross.
At the time that the term of a class of directors expires, an election
of directors will occur for that same class of directors to serve a new
three-year term. If the stockholders do not adopt the proposed amendment, all
nominees who are elected as directors will serve until the 1999 Annual Meeting
of Stockholders or until their respective successors are elected and qualified.
3
<PAGE> 6
The following table sets forth certain information regarding the
directors and nominees for directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sam L. Leopold................................ 43 Chairman of the Board, President, and Chief Executive
Officer(4)
Richard R. Ross............................... 31 Vice President, Chief Financial Officer,
Treasurer, and Secretary
James A. Brooks............................... 67 Director(1)
Peter W. Burg................................. 41 Director(2)(3)(4)(5)
Michael H. Feinstein.......................... 61 Director(2)(3)(5)
Sylvan Schefler............................... 59 Director(1)
</TABLE>
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Senior Committee.
(4) Member of the Employee Committee.
(5) Member of the Nominating Committee.
Sam L. Leopold, a founder of the Company, has served as Chairman of the
Board and Chief Executive Officer of the Company since the Company's
incorporation in June 1995 as President of the Company since February
1998. Mr. Leopold owns and previously served as President and Chairman of Beauty
Boutique International, which was founded in 1990 and operates three retail
salons in Arizona. Mr. Leopold is not involved with the day-to-day operations of
Beauty Boutique International, although Beauty Boutique International purchases
products from the Company in the ordinary course of business. From 1986 to 1991,
Mr. Leopold served as Executive Vice President of Consumer Beauty Supply, Inc.
(dba Beauty Express), a mall-based retail chain of beauty supply salons. During
that time, Mr. Leopold was responsible for day-to-day operations and oversaw the
growth and development of Beauty Express from less than 20 retail salons to more
than 50 retail salons and from approximately $8 million in annual revenue to
approximately $25 million in annual revenue. From 1989 to 1991, Mr. Leopold
served as President of Avanti International, Inc., developing a line of hair
care products. Mr. Leopold served as in-house counsel to MDC Holdings, Inc., a
publicly held national home builder, from 1982 to 1984.
Richard R. Ross has served as Chief Financial Officer, Secretary, and
Treasurer of the Company since April 1997 and as Vice President of the Company
since June 1997. Mr. Ross served in the audit and business advisory group of
Arthur Andersen LLP from June 1989 to April 1997, most recently in the position
of Manager. In his capacity at Arthur Andersen LLP, Mr. Ross worked with the
Company from its inception in June 1995, as well as acquisition-oriented public
companies, until joining the Company in April 1997. Mr. Ross is a certified
public accountant.
James A. Brooks has served as a director of the Company since September
1996. Mr. Brooks has served as President of Signe Inc., a management consulting
firm for major consumer product companies and a variety of salon industry
companies, since founding the company in December 1984. Mr. Brooks served as
Senior Vice President of Sales and Marketing of Lamaur, Inc. from 1983 to 1984,
at that time a publicly traded company listed on the New York Stock Exchange and
a leading domestic producer and marketer of a broad range of hair care products.
Mr. Brooks served as Senior Vice President of Sales and Marketing of Redken
Laboratories, Inc. from 1977 to 1983.
Peter W. Burg has served as a director of the Company since February
1997. Mr. Burg has been a director and shareholder in the law firm of Burg &
Eldrege, P.C. (and its predecessor Burg & Aspinwall, P.C.) since October 1984.
Michael H. Feinstein has served as a director of the Company since June
1997. Mr. Feinstein has served as Senior Vice President and Chief Financial
Officer of Monaco Finance, Inc., a publicly held specialty finance company,
4
<PAGE> 7
since July 1995. From September 1993 to June 1995, Mr. Feinstein served
initially as Executive Vice President and subsequently as acting President and
Chief Executive Officer of American Southwest Financial Corporation, which
engaged in the securitization and administration of mortgage-backed bonds and
certificates. From January 1983 through September 1993, Mr. Feinstein served in
various senior management positions, including, at different times, Chief
Financial Officer, Treasurer, Chief Operating Officer, and Executive and Senior
Vice President of Asset Investors Corporation, a New York Stock Exchange-listed
REIT, and MDC Holdings Inc., a New York Stock Exchange-listed national
homebuilder. Prior to 1983, Mr. Feinstein was a partner in the public accounting
firm now known as Deloitte & Touche. Mr. Feinstein has a B.S. degree in
economics from the Wharton School of the University of Pennsylvania.
Sylvan Schefler has served as a director of the Company since November
1996. Mr. Schefler has served as Chairman of Maxima Group, LLC, a merchant
banking firm since September 1997. Mr. Schefler has been a partner of Crystal
Asset Management Group, Ltd., a merchant banking firm, since 1990. Mr. Schefler
served as Vice Chairman of Prime Charter Ltd., an investment banking firm and
one of the representatives of the underwriters of the Company's initial public
offering, from 1995 to April 1997. Mr. Schefler served as chairman of the
Investment Banking Division and as a member of the Executive Committee of Prime
Charter Ltd. from September 1994 to April 1997. Previously, Mr. Schefler was
Chief Executive Officer of Hampshire Securities Corporation, an investment
banking firm, from 1990 to 1992. Mr. Schefler previously served in various
capacities with Drexel Burnham Lambert Incorporated for over 30 years, including
as a member of its Executive committee and Board of Directors. Mr. Schefler has
served as a director of GSE Systems, Inc., a supplier of software systems for
manufacturing industries, since August 1995.
The Company has agreed that, for a period of three years from its
initial public offering in November, 1996, the representatives of the
underwriters of the Company's initial public offering (the "Representatives")
will have the right to send a representative to observe each meeting of the
Company's Board of Directors, or in lieu of such observer, the Representatives
may elect to require the Company to use its best efforts to elect Sylvan
Schefler, formerly Vice Chairman of Prime Charter Ltd., or another acceptable
designee, to the Company's Board of Directors for such three-year period. The
Company has agreed to nominate Mr. Schefler to continue as a member of its Board
of Directors.
Directors hold office until their successors have been elected.
Officers serve at the pleasure of the Board of Directors. There are no family
relationships among any of the directors or officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's bylaws authorize the Board of Directors to appoint among
its members one or more committees composed of one or more directors. In June
1997, the Board of Directors appointed the following standing committees: a
Compensation Committee, a Senior Committee, an Executive Committee, and an Audit
Committee. In February 1998, the Board of Directors appointed a Nominating
Committee. The Compensation Committee reviews and acts on matters relating to
compensation levels and benefit plans for key executives of the Company. The
Senior Committee's function is to administer the 1996 Stock Option Plan with
respect to executive officers and directors. The 1996 Stock Option Plan requires
that the Senior Committee consist of two or more non-employee directors. The
Employee Committee's function is to administer the 1996 Stock Option Plan with
respect to employees. The Audit Committee reviews the annual financial
statements and significant accounting issues and the scope of the audit with the
Company's independent auditors and is available to discuss with the auditors any
other audit related matters that may arise during the year. The Nominating
Committee reviews credentials of existing and prospective directors and selects
classes of directors.
The Board of Directors of the Company held a total of six meetings
during the fiscal year ended December 31, 1997. No director attended fewer than
75% of the aggregate of (i) the total number of meetings of the Board of
Directors, and (ii) the total number of meetings held by all committees of the
Board on which such director was a member.
DIRECTOR COMPENSATION AND OTHER INFORMATION
The Company pays each independent director an annual retainer of $5,000
and $1,500 for each meeting of the Board of Directors attended in person.
Directors also receive $500 for each meeting of a committee of the Board of
Directors attended. In addition, independent directors receive stock options
under the Company's 1996 Stock Option Plan. Under the terms of the Company's
1996 Stock Option Plan, non-employee directors receive stock options to purchase
5,000 shares upon their initial election to the Board of Directors and options
to purchase 2,500 shares at the meeting of the Board of Directors held
immediately after the annual meeting of stockholders. Under the Company's 1996
Stock Option Plan, Messrs. Brooks, Burg, and Schefler received options to
purchase 2,500 shares of Common Stock at an exercise price equal to $10.875 per
share immediately following the Company's annual meeting of stockholders in June
1997. Mr. Burg and Mr. Feinstein each received options to purchase 5,000 shares
of Common Stock at exercise prices equal to $11.875 and $10.875, per share,
respectively, upon appointment to the Board of Directors in February 1997 and
June 1997. Pursuant to the 1996 Stock Option Plan, each of Messrs. Brooks, Burg,
Feinstein, and Schefler will receive an automatic grant of options to purchase
2,500 shares of Common Stock at the time of the Board of Directors meeting
immediately following the Meeting. Officers of the Company receive no additional
compensation for serving on the Board of Directors.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
None of the Company's executive officers received compensation in
excess of $100,000 during fiscal 1995 or 1996. The Company conducted no
operations prior to its initial public offering in November 1996. As a result,
no salaries were paid or accrued by the Company prior to such time.
The following table sets forth the total compensation received for
services rendered in all capacities to the Company for the fiscal years ended
December 31, 1996 and 1997 by the Company's Chief Executive Officer and its
other most highly compensated officer whose aggregate cash compensation exceeded
$100,000 as well as Richard R. Ross, the Company's Chief Financial Officer
(together the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- -------------------------- -------
NAME AND
PRINCIPAL POSITION RESTRICTED
- ------------------ OTHER ANNUAL STOCK SECURITIES LTIP ALL OTHER
COMPENSATION AWARD(S) UNDERLYING PAYOUTS COMPENSATION
YEAR SALARY ($) BONUS($) ($)(1) ($) OPTIONS (#) ($) ($)
---- ---------- -------- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sam L. Leopold
Chairman of the Board, 1997 $150,000 --- --- --- 200,000 --- ---
Chief Executive 1996 $ 16,538(2) --- --- --- --- --- ---
Officer, and President.
Thomas M. Clifford(3) 1997 $150,000 --- --- --- --- --- ---
Former President ...... 1996 $ 1,154 --- --- --- --- --- ---
Richard R. Ross(4)
Vice President, Chief
Financial Officer,
Treasurer, 1997 $ 86,667 --- --- --- 79,530 --- ---
and Secretary .........
</TABLE>
(1) Other annual compensation did not exceed the lesser of $50,000 or 10%
of the total salary and bonus for any of the Named Executive Officers,
except as noted.
(2) Includes $16,538 in salary earned by Mr. Leopold in 1996 but deferred
to 1997.
(3) Mr. Clifford retired from the Company effective January 1998.
(4) Mr. Ross joined the Company in April 1997 as Chief Financial Officer,
Secretary, and Treasurer.
6
<PAGE> 9
OPTION GRANTS
The following table represents the options granted to the Named
Executive Officers in the last fiscal year and the value of such options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable
% Value at Assumed
Number of of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise or Option Term(1)
Options Employees in Base Price Expiration ----------------------
Granted(#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---------- ------------ ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sam L. Leopold........................ 125,000(2) 35% $9.750 5/1/07 $766,465 $1,942,374
75,000(3) 21% $11.375 7/3/07 $536,526 $1,359,662
Richard R. Ross....................... 54,530(4) 15% $9.250 4/30/07 $317,216 $ 803,888
25,000(3) 7% $11.375 7/3/07 $178,872 $ 453,221
</TABLE>
(1) Calculated from a base price equal to the exercise price of each option,
which was the fair market value of the Common Stock on the date of grant.
Potential gains are net of the exercise price, but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the SEC and do not represent the
Company's estimate or projection of the future price of the Company's
Common Stock. Actual gains, if any, on stock option exercises will depend
upon the future market prices of the Company's Common Stock.
(2) The options were granted at the fair market value on the date of grant and
have a 10-year term. The options vested on the date of grant.
(3) The options were granted at the fair market value on the date of grant and
have a 10-year term. One-third of the options vest on each of the first,
second, and third anniversaries of the date of grant.
(4) The options were granted at the fair market value on the date of grant and
have a 10-year term. One-fifth of the options vest on the date of grant
and on each of the first, second, third, and fourth anniversaries of the
date of grant.
7
<PAGE> 10
OPTION EXERCISES AND HOLDINGS
The following tables represent certain information respecting the
options held by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at Fiscal Year-End (#) at Fiscal Year-End ($)(2)
Exercise Realized ------------------------------ -------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- -------- ----- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sam L. Leopold......... --- --- 125,000 75,000 $1,281,250 $ 646,875
Thomas M. Clifford(3).. --- --- --- 161,571 --- $ 1,791,100
Richard R. Ross........ --- --- 10,906 68,624 $ 117,240 $ 684,583
</TABLE>
(1) Calculated based on the market price at exercise multiplied by the number
of options exercised less the total exercise price of the options
exercised.
(2) Calculated based on $20.00 per share, which was the closing sales price of
the Common Stock as quoted on the Nasdaq National Market on March 16,
1998, multiplied by the number of applicable shares in-the-money less the
total exercise price.
(3) Mr. Clifford retired from the Company effective January 1998. Pursuant to
an agreement with the Company, the number of options held by Mr. Clifford
was reduced from 161,571 to 90,000, and the vesting schedule of such
options was accelerated so that 81,000 options became exercisable in
January 1998 and the remaining 9,000 will become exercisable in January
1999. The value of the unexercised in-the-money options at the fiscal year
ended December 31, 1997 with respect to such 90,000 options would have
been $1,791,000, based on the March 16, 1998 closing sales price of the
Company's Common Stock.
Assuming the proposed amendment of the 1996 Plan to increase the shares
of Common Stock that may be issued from 400,000 to 750,000 shares is approved,
as described under "Proposal to Amend the Company's 1996 Stock Option Plan," the
following table sets forth certain information with respect to options that will
be received by or allocated to (i) the Named Executive Officers, (ii) all
current executive officers as a group, (iii) all current directors who are not
executive officers as a group, and (iv) all employees, including all current
officers who are not executive officers, as a group.
NEW PLAN BENEFITS
1996 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF UNITS
- ----------------- ---------------
<S> <C>
Sam L. Leopold
Chairman of the Board, Chief Executive Officer, and President......................... 125,000
Thomas M. Clifford
Former President...................................................................... ---
Richard R. Ross
Vice President, Chief Financial Officer, Secretary, and Treasurer..................... 50,000
Executive Group......................................................................... 175,000
Non-Executive Director Group............................................................ ---
Non-Executive Officer Employee Group.................................................... 28,500
</TABLE>
8
<PAGE> 11
EMPLOYMENT AGREEMENTS
The Company's employment agreement with Mr. Leopold provides for Mr.
Leopold to serve as Chairman of the Board and Chief Executive Officer of the
Company through September 2001. Mr. Leopold will receive a base salary of
$200,000 for 1998 and $250,000 per annum for the remainder of the term of his
employment agreement.
1996 STOCK OPTION PLAN
The 1996 Plan provides for the grant of incentive and nonqualified
stock options to acquire Common Stock of the Company, the direct grant of Common
Stock, the grant of stock appreciation rights ("SARs"), and the grant of other
cash awards to key personnel, directors, consultants, independent contractors,
and others providing valuable services to the Company and its subsidiaries. The
Plan is more fully described At "Proposal to Amend the Company's 1996 Stock
Option Plan."
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Company's Board of Directors has appointed a Compensation Committee
consisting entirely of non-employee directors. Performance evaluation and
compensation decisions relating to 1997 were made by the Compensation Committee.
Decisions on compensation of the Company's executives generally are made by the
Compensation Committee. The Compensation Committee makes every effort to ensure
that the compensation plan is consistent with the Company's values and is
aligned with the Company's business strategy and goals.
The Company's compensation program for executive officers consists
primarily of base salary, bonus, and long-term incentives in the form of stock
options. Executives also participate in various other benefit plans, which
generally are available to all employees of the Company.
The Company's philosophy is to pay base salaries to executives at
levels that enable the Company to attract, motivate, and retain highly qualified
executives. The bonus program is designed to reward individuals for performance
based on the Company's financial results as well as the achievement of personal
and corporate objectives that contribute to the long-term success of the Company
in building stockholder value. Stock option grants are intended to result in
minimal or no rewards if the Company's stock price does not appreciate, but may
provide substantial rewards to executives as stockholders benefit from stock
price appreciation.
The Company follows a subjective and flexible approach rather than an
objective or formula approach to compensation. Various factors (as discussed
herein) receive consideration without any particular weighting or emphasis on
any one factor. In establishing compensation for the year ended December 31,
1997, the Company took into account, among other things, compensation levels for
executive officers employed by companies of similar size in similar industries.
BASE SALARY AND ANNUAL INCENTIVES
Base salaries for executive positions are established relative to the
Company's financial performance and comparable positions in similarly sized
companies. From time to time, the Company may use competitive surveys and
outside consultants to help determine the relative competitive pay levels. The
Company targets base pay at the level required to attract and retain highly
qualified executives. In determining salaries, the Committee also will take into
account individual experience and performance, salary levels relative to other
positions with the Company, and specific needs particular to the Company.
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<PAGE> 12
Annual incentive awards are based on the Company's financial
performance and the efforts of its executives. Performance is measured based on
profitability and revenue and the successful achievement of functional and
personal goals. No annual bonuses to current executive officers were paid during
the fiscal year ended December 31, 1997.
STOCK OPTION GRANTS
The Company strongly believes in tying executive rewards directly to
the long-term success of the Company and increases in stockholder value through
grants of executive stock options. Stock option grants also will enable
executives to develop and maintain a significant stock ownership position in the
Company's Common Stock. The amount of options granted takes into account options
previously granted to an individual.
The Company granted Mr. Leopold, the Company's Chairman of the Board,
President, and Chief Executive Officer, options to acquire 125,000 and 75,000
shares of Common Stock at exercise prices equal to $9.75 and $11.375 per share,
respectively, during 1997. In addition, the Company granted Mr. Ross, the
Company's Vice President and Chief Financial Officer, options to acquire 54,530
and 25,000 shares of Common Stock at exercise prices equal to $9.25 and $11.375
per share, respectively, during 1997.
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee uses the same factors and criteria described above in
making compensation decisions regarding the Chief Executive Officer. Mr. Leopold
is compensated pursuant to the employment agreement described under the section
entitled "Executive Compensation - Employment Agreements." During the fiscal
year ended December 31, 1997, Mr. Leopold's base pay was $150,000. See the table
under "Executive Compensation -- Option Grants" for information regarding
options granted to Mr. Leopold in fiscal 1997.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Internal Revenue Code currently limits the deductibility for
federal income tax purposes of compensation paid to the Company's five most
highly compensated executive officers. The Company may deduct certain types of
compensation paid to any of these individuals only to the extent that such
compensation during any fiscal year does not exceed $1.0 million. The Company
does not believe that its compensation arrangements with any of its executive
officers will exceed the limits on deductibility during its current fiscal year.
This report has been furnished by the members of the Compensation
Committee of the Board of Directors of the Company.
Peter S. Burg
Michael H. Feinstein
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<PAGE> 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, the Company's
Compensation Committee consisted of Peter S. Burg and Michael H. Feinstein,
currently directors of the Company.
COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors,
officers, and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the SEC. Officers, directors, and greater than 10% stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it during the fiscal year ended December 31, 1997, and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer,
or beneficial owner of more than 10% of the Company's Common Stock complied with
all Section 16(a) filing requirements during such fiscal year or prior fiscal
years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Leopold, the Company's Chairman of the Board, President and Chief
Executive Officer, owns three Beauty Boutique International stores in Arizona.
The Company's 1997 sales to these Beauty Boutique International stores
approximated $150,000. The total accounts receivable as of December 31, 1997
with respect to such sales approximated $95,000. The sales to these Beauty
Boutique International stores were made in the ordinary course of business and
on terms no more favorable than terms extended to the Company's other customers.
Mr. Brooks, a member of the Company's Board of Directors, was paid a
$150,000 fee by the Company in connection with the acquisition of U.K. ABBA
Products, Inc. and the related financing.
Sylvan Schefler, a member of the Company's Board of Directors, is a
general partner of Crystal Asset Management ("Crystal") and chairman of Maxima
Group, LLC ("Maxima"). The Company paid Crystal a $560,000 fee in connection
with the acquisitions of U.K. ABBA Products, Inc. and paid Maxima a $560,000 fee
in connection with the acquisition of certain product lines of Inverness
Corporation and Inverness (UK) Limited and the related financings.
The Company's initial public offering in November 1996 was co-managed
by Friedman, Billings, Ramsey & Co., Inc. ("Friedman") and Prime Charter Ltd.
("Prime Charter"). Mr. Schefler was the Vice Chairman of Prime Charter at the
time of the initial public offering, but was not a director of the Company at
that time. In connection with the public offering, Friedman and Prime Charter
each received warrants to purchase up to 101,500 shares of the Company's Common
Stock.
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<PAGE> 14
PERFORMANCE GRAPH
The following line graph compares cumulative total stockholder returns
for (i) the Company's Common Stock; (ii) The Standard & Poor's Small Cap 600
Index (the "Index"); and (iii) a peer group consisting of the following four
companies in the personal care industry: Advanced Polymer Systems, Inc.; Carson,
Inc.; Regis Corporation; and The Stephan Co. (the "Peer Group"). The graph
assumes an investment of $100 in each of the Company's Common Stock and the Peer
Group on November 21, 1996, the date on which the Company's Common Stock became
registered under Section 12 of the Exchange Act as a result of the Company's
initial public offering, and an investment in the Index of $100 on October 31,
1996. The graph covers the period from November 21, 1996 through fiscal year
ended December 31, 1997, as well as the first two months of the Company's fiscal
year ending December 31, 1998.
The calculation of cumulative stockholder return on the Company's
Common Stock does not include reinvestment of dividends because the Company did
not pay dividends during the measurement period. The performance shown is not
necessarily indicative of future performance.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------------------------
11/21/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 2/28/98
<S> <C> <C> <C> <C> <C> <C> <C>
Styling Technology Corp STYL 100 106 105 115 154 167 203
PEER GROUP 100 75 76 91 97 91 100
S & P SMALLCAP 600 100 106 101 119 138 134 143
</TABLE>
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<PAGE> 15
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS, DIRECTORS,
AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock on March 10, 1998 by (i) each director
and each nominee for director; (ii) each Named Executive Officer; (iii) all
directors and executive officers of the Company as a group; and (iv) each person
known by the Company to be the beneficial owner of more than five percent of the
Common Stock.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY
OWNED
NAME OF BENEFICIAL OWNER (1)(2) PERCENT
- ------------------------ ------ -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Sam L. Leopold(3)............................................................... 1,024,518 24.4%
Richard R. Ross(4).............................................................. 30,146 *
James A. Brooks(5).............................................................. 5,000 *
Peter W. Burg(6)................................................................ 11,158 *
Michael H. Feinstein............................................................ --- *
Sylvan Schefler(7).............................................................. --- *
Jim Henrietta................................................................... --- *
Directors and Executive Officers as a group
(seven persons)(8)............................................................ 1,070,822 25.2%
5% STOCKHOLDERS:
Lance Laifer(9)................................................................. 870,400 21.6%
Hilltop Partners, L.P.(10)...................................................... 444,000 11.0%
</TABLE>
- ----------
* Less than one percent
(1) Except as indicated, and subject to community property laws when
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes shares of Common Stock issuable to the identified person
pursuant to stock options that may be exercised within 60 days after
March 10, 1998. In calculating the percentage of ownership, such shares
are deemed to be outstanding for the purpose of computing the
percentage of shares of Common Stock owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of
shares of Common Stock owned by any other stockholders.
(3) Includes 166,667 shares of Common Stock issuable upon the exercise of
stock options.
(4) Includes 30,146 shares of Common Stock issuable upon the exercise of
stock options.
(5) Includes 5,000 shares of Common Stock issuable upon the exercise of
stock options.
(6) Includes 5,000 shares of Common Stock issuable upon the exercise of
stock options.
(7) Excludes 101,500 shares of Common Stock issuable upon exercise of
warrants issued to Prime Charter Ltd. in connection with the Company's
initial public offering. Mr. Schefler formerly served as Vice Chairman
of Prime Charter and claims to own 50,750 of such warrants, which Prime
Charter disputes. See Certain Relationships and Related Transactions.
(8) Includes 206,813 shares of Common Stock issuable upon the exercise of
stock options.
(9) Mr. Laifer, as the President, sole director, and principal stockholder
of Laifer Capital Management, Inc, may be deemed to be the beneficial
owner of 444,000 shares of Common Stock beneficially owned by Laifer
Capital Management, Inc. in its capacity as General Partner and
Investment Advisor to Hilltop Partners, L.P., and 426,400 shares of
Common Stock beneficially owned by Laifer Capital Management, Inc. in
its capacity
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<PAGE> 16
as Investment Advisor to various other clients. These clients include
(i) various Wolfson family entities, and (ii) Hilltop Offshore Limited.
Laifer Capital Management, Inc. has sole voting and dispositive power
with respect to the 444,000 shares of Common Stock beneficially owned
by Hilltop Partners, L.P. See footnote 9. Laifer Capital Management,
Inc. also has sole voting and dispositive power with respect to 123,800
shares of Common Stock owned by Hilltop Offshore Limited and shared
voting and dispositive power with respect to 302,600 shares of Common
Stock beneficially owned by the various Wolfson family entities. Mr.
Laifer's address is 45 West 45th Street, New York, NY 10036. Beneficial
ownership information is based upon a Schedule 13D/A filed with the SEC
dated as of January 7, 1998.
(10) Beneficial ownership information based upon a Schedule 13D/A filed with
the SEC dated as of January 7, 1998. The address of Hilltop Partners,
L.P. is 45 West 45th Street, New York, NY 10036.
PROPOSALS TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION
INTRODUCTION
At the Meeting, the stockholders of the Company will be asked to
approve four separate proposals concerning amendments to the Company's
Certificate of Incorporation (the "Company's Certificate"), each of which was
approved and adopted by the Board of Directors on February 23, 1998. At that
time, the Board of Directors also approved the restatement of the Company's
Certificate to incorporate those proposals approved by the stockholders at the
Meeting. Following the effectiveness of the four proposed amendments, the
Company intends to file a Restated Certificate of Incorporation substantially in
the form set forth as Appendix A to this Proxy Statement, which reflects the
Company's Certificate substantially in the form it presently exists and assumes
that all four proposed amendments have been adopted by the stockholders. If
fewer than all four proposed amendments are approved by the stockholders, the
Company intends to file a Restated Certificate of Incorporation reflecting those
amendments that have been approved by the stockholders and have become
effective. The Board of Directors recommends a vote "for" each amendment to the
Company's Certificate.
A description of each of the four proposals is set forth below. The
descriptions are a summary only and are qualified in their entirety by reference
to the text of such amendments as set forth in the proposed Restated Certificate
of Incorporation, which will be substantially as set forth in Appendix A to this
Proxy Statement. The text of the proposed Restated Certificate of Incorporation
in Appendix A is subject to revision if any of the four proposals as set forth
below is not approved by the stockholders.
Although these proposals individually and together with other
provisions already present in the Company's Certificate and bylaws may have the
effect of discouraging a holder of a large block of the Company's securities
from attempting a merger, tender offer, proxy contest, or other assumption of
control with or for the Company or the removal of incumbent management, the
Company is not aware of any proposed attempt to take over the Company or of any
attempt to acquire a large block of the Company's Common Stock, and the proposed
amendments to the Company's Certificate are not in response to any specific
effort to do so.
PROPOSAL CONCERNING CLASSIFICATION OF THE BOARD OF DIRECTORS
Description of Provision. The Board of Directors has approved and
recommends stockholder approval of an amendment to the Company's Certificate to
add a new Article VIII to provide for the classification of directors (the
"Classified Board Provision"). At a meeting of the Board of Directors duly
called and noticed, all directors voted in favor of the Classified Board
Provision. The proposed amendment provides that the directors of the Company
14
<PAGE> 17
would be divided into three equal or nearly equal classes, designated Class 1,
Class 2, and Class 3. If the stockholders approve the Classified Board
Provision, directors will be divided into the three classes. The initial term of
Class 1 directors, which would consist of James A. Brooks, would extend to the
1999 Annual Meeting of Stockholders; the initial term of the Class 2 directors,
which would consist of Peter W. Burg and Michael H. Feinstein, would extend to
the 2000 Annual Meeting of Stockholders; and the initial term of the Class 3
directors, which would consist of Sam L. Leopold and Richard R. Ross, would
extend until the 2001 Annual Meeting of Stockholders. At each succeeding annual
meeting of stockholders, successors to directors whose terms expired at that
annual meeting would be included in the same class as the directors they succeed
and they would be elected for three-year terms. Any vacancy prior to the
expiration of a term may be filled only by the vote of the remaining directors,
and the director filling that vacancy would serve the remainder of the full
term, until the next annual meeting of stockholders at which directors of that
class are elected. Directors elected through a right granted to holders of any
series of Preferred Stock would not be classified and would be elected annually
unless the rights granted to those holders provide otherwise. The Company
currently does not have any outstanding shares of Preferred Stock.
Any alteration, amendment, or repeal of any provision of the Classified
Board Provision would require the affirmative vote of the holders of at least 66
2/3% of the combined voting power of all issued and outstanding shares of voting
stock, voting together as a single class. Absent this requirement, Delaware law
would allow an amendment by the affirmative vote of the holders a majority of
the voting power of all outstanding shares of voting stock, present in person or
by proxy.
The Company's Certificate and bylaws presently contain a number of
other provisions that may have the effect of discouraging, delaying, or
preventing hostile takeovers, including those that might result in a premium
over the market price, or discouraging, delaying, or preventing changes in
control or management of the Company. These provisions include (a) the authority
of the Board of Directors to fill vacancies on the Board of Directors and (b)
the authority of the Board of Directors to issue series of preferred stock with
such voting rights and other powers as the Board of Directors may determine.
Purposes and Effects. The Classified Board Provision is intended to
promote continuity and stability of the Company's management and policies
because a majority of the Company's directors at any given time will have prior
experience as directors with the Company.
The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors
in a relatively short period of time because at least two annual meetings of
stockholders, instead of one, generally would be required to effect a change in
the majority of the Board of Directors. Although the delay necessary to effect a
change in the majority of the Board of Directors may discourage certain attempts
at takeovers of the Company, such a provision would have the effect of
encouraging potential acquirors to negotiate with the Company and obtain the
specified approval of the directors or stockholders. The Board of Directors
believes that the benefits of encouraging stability of the Board of Directors
and encouraging negotiations with the Company outweigh the possible disadvantage
of making it more difficult for stockholders to change the composition of the
Board of Directors in a relatively short period of time.
PROPOSAL CONCERNING BOARD DISCRETION TO CONSIDER VARIOUS FACTORS WHEN
DETERMINING TO TAKE CORPORATION ACTION
Description of Provision. The Board of Directors has approved and
recommends stockholder approval of an amendment to the Company's Certificate to
add a new Article XIV granting discretion to the Board to consider various
factors when determining to take certain corporate actions (the "Corporate
Action Discretion Provision"). This proposed provision states that in addition
to any other considerations that the Board of Directors lawfully shall take into
15
<PAGE> 18
account in determining whether to take or refrain from taking corporate action
on any matter, the Board of Directors may consider all factors it deems
relevant. These factors include, without limitation, the potential impact on
employees, customers, suppliers, partners, joint venturers, and other
constituencies of the Company and the effect upon communities in which the
Company does business.
Any alteration, amendment, or repeal of Article XIV will require the
affirmative vote of the holders of at least 66 2/3% of the combined voting power
of all issued and outstanding shares of voting stock, voting together as a
single class. Absent this requirement, Delaware law would allow an amendment by
the affirmative vote of the holders of a majority of the voting power of all
outstanding shares of voting stock, present in person or by proxy.
As stated above, the Company's Certificate and bylaws presently contain
a number of other provisions that may have the effect of discouraging, delaying,
or preventing hostile takeovers, including those that might result in a premium
over the market price, or discouraging, delaying, or preventing changes in
control or management of the Company. These provisions include (i) the authority
of the Board of Directors to fill vacancies on the Board of Directors and (ii)
the authority of the Board of Directors to issue series of preferred stock with
such voting rights and other powers as the Board of Directors may determine.
Purposes and Effects. The Corporate Action Discretion Provision is
designed to give consideration to nonstockholder constituencies, such as
employees of the Company and the communities in which the Company operates. The
Corporate Action Discretion Provision also is intended to provide the Board of
Directors greater bargaining power to negotiate on behalf of stockholders in the
event of a proposed takeover. If an offer is made to purchase all or part of the
outstanding shares of the Company at a premium above the then-market price of
those securities, the Board of Directors might feel constrained to support the
offer even if the Board did not believe that the offer is in the stockholders'
overall best interests. This belief may be based on a number of factors,
including, for example, the belief that the Company has significant additional
value, not reflected in the then-current market price, that will be realized in
the longer term. While the Board of Directors believes that it currently has the
right and obligation to make these determinations, the Board believes that the
Corporate Action Discretion Provision will reinforce the Board's rights and put
potential acquirors on notice of the factors to be considered by the Board. This
provision, however, may discourage or make more difficult a takeover or
acquisition of control. Therefore, this provision could deprive stockholders of
possible opportunities to realize a premium for their shares and reduce the risk
to management that it might be displaced by a takeover.
PROPOSAL TO ELIMINATE ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
Description of Provision. The Board of Directors has approved and
recommends stockholder approval of an amendment to the Company's Certificate
to add a new Article XV providing for the elimination of actions by written
consent of stockholders. Pursuant to Delaware law, unless otherwise provided in
the certificate of incorporation, any action required or permitted to be taken
by stockholders of a corporation may be taken without a meeting and without a
stockholder vote, provided a written consent setting forth the action to be
taken is signed by the holders of shares of outstanding stock having a requisite
number of votes that would be necessary to authorize such action at a meeting of
stockholders. The Company's certificate currently does not provide for any
alteration from this provision. The proposed amendment would require that action
by holders of Common Stock be taken at an annual or special meeting and would
prohibit action by holders of Common Stock by written consent other than at such
a meeting.
Any amendment, alteration, or repeal of Article XV would require the
affirmative vote of the holders of at least 66 2/3% of the combined voting power
of all issued and outstanding shares of voting stock, voting together as a
single class. Absent this requirement, Delaware law would allow an amendment by
the affirmative vote of the holders of a majority of the voting power of all
outstanding shares of voting stock, present in person or by proxy.
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<PAGE> 19
Purposes and Effects. The provisions limiting action by holders of
Common Stock by written consent give all holders of Common Stock the opportunity
to participate in the discussion of any proposed action and would prevent the
holders of a majority of Common Stock from using the written consent procedure
to take action other than at a meeting of holders of Common Stock.
PROPOSAL TO ADD CERTAIN MINIMUM PRICE AND PROCEDURAL REQUIREMENTS IN CONNECTION
WITH CERTAIN TRANSACTIONS SUCH AS BUSINESS COMBINATIONS
Description of Provision. The Board of Directors has approved and
recommends stockholder approval of an amendment to the Company's Certificate to
add a new Article XVI requiring that certain minimum price and procedural
requirements, intended for the protection of the Company and its stockholders as
a whole, be observed by any party that acquires 15% or more of the Company's
Common Stock and then seeks to accomplish a merger or other business combination
or transaction that would eliminate or could significantly change the interests
of the remaining stockholders, unless approved by a majority of Continuing
Directors (as defined below) (the "Fair Price Amendment"). If the specified
requirements of the Fair Price Amendment are not observed by such an acquiring
party, an increased stockholder vote would be required as a condition for a
subsequent business combination. Adoption of the Fair Price Amendment may
significantly affect a third party's interest in acquiring a substantial or
controlling position in shares of Common Stock of the Company, as well as
enhance the ability of the Board of Directors to take action in light of such an
acquisition by a third party.
In connection with the developments discussed above, the Board of
Directors has observed that it has become relatively common in corporate
takeover practice for a third party to pay cash to acquire a substantial or
controlling equity interest in a corporation and then to acquire the remaining
equity interest by paying the balance of the stockholders a price for their
shares that is lower than the price paid to acquire control and/or is in a less
desirable form of consideration, such as securities of the acquiring party that
do not have an established trading market at the time of issue.
In two-tier acquisitions, arbitrageurs and professional investors may
be in a better position to take advantage of a more lucrative first-step
acquisition than many long-term stockholders, who may have to accept a lower
price in the second step. Changes in the federal securities laws have reduced,
but not eliminated, advantages enjoyed by such arbitrageurs and professional
investors. Moreover, in two-tier transactions, even stockholders who tender
their shares in response to a higher first-step cash tender offer may not be
assured that all of their shares will be accepted, as there are often proration
provisions limiting the number of shares which the acquiring party is obliged to
accept at the higher price. As a result, many stockholders may receive only the
average price offered by the acquiring party for all of the shares of the
corporation. In many cases this average price might not be high enough to have
caused a majority of a corporation's stockholders to tender their shares if the
acquiring party's offer had been to purchase all of the corporation's shares for
that average price per share.
In addition, while federal securities laws and regulations applicable
to business combinations govern the disclosure required to be made to
stockholders in order to consummate such a transaction, they do not assure
stockholders that the terms of the business combination will be fair from a
financial standpoint or that minority stockholders effectively can prevent the
consummation of a business combination that is opposed by its board of
directors. Although SEC rules require the pro rata acceptance of all shares
tendered prior to the expiration of a tender offer, the SEC has recognized that
this rule is not intended to deal with two-tier pricing.
The Board of Directors is concerned that such two-tier pricing tactics
may be unfair to a corporation's stockholders. By their very nature, such
tactics tend (and are often designed) to cause concern on the part of
17
<PAGE> 20
stockholders that, if they do not act promptly, they risk either being relegated
to the status of minority stockholders in a controlled corporation or being
forced to accept a lower price for all of their shares. Thus, such tactics may
pressure stockholders into selling as many of their shares as possible either to
the acquiring party or in the open market without having the opportunity to make
a considered investment choice between remaining a stockholder of the
corporation or disposing of their shares. Moreover, their very actions in
selling their shares might facilitate an acquiring party's acquisition of a
controlling interest, at which point an acquiring party may be able to force the
exchange of the remaining shares in a business combination for a lower price.
The Fair Price Amendment is designed to deter an acquiring party from
utilizing two-tier pricing and similar inequitable tactics in an attempt to take
over the Company. However, the amendment is not designed to prevent or deter all
tender offers for shares of the Company. It does not affect an offer for all
shares at the same price or preclude offers at different prices. Nor does the
amendment preclude an acquiring party from making a tender offer for some of the
shares of the Company without proposing a Business Combination (as defined
below). Except for the restrictions on Business Combinations, the amendment will
not prevent a holder of a controlling interest in the Company's Common Stock
from exercising control over or increasing its interest in the Company.
Moreover, the holder of a controlling interest could increase its ownership to
66 2/3% by any one or more purchases of shares and meet the 66 2/3% voting
requirement of the amendment.
It should be noted that while the Fair Price Amendment is designed to
help assure fair treatment of all stockholders in the event of a takeover
attempt, it is not its purpose to provide assurance that stockholders will
receive a premium price for their shares in a takeover attempt. Accordingly, the
Board of Directors is of the view that the adoption of the Fair Price Amendment
would not preclude the Board of Directors from opposing any future takeover
proposal that it believes not to be in the best interests of the Company and its
stockholders, whether or not such a proposal satisfies the minimum price
criteria and procedural requirements of the amendment.
66 2/3% Vote Required for Certain Business Combinations. At present,
mergers, consolidations, sales of substantially all of the assets of the
Company, the adoption of a plan of liquidation or dissolution of the Company,
and reclassification of securities and recapitalizations of the Company
involving amendments to its Certificate of Incorporation must be approved by the
vote of the holders of a majority of shares of Common Stock outstanding. Certain
other transactions, such as sales of less than substantially all of the assets
of the Company, certain mergers involving wholly owned subsidiaries of the
Company, and recapitalizations and reclassifications not involving any
amendments to the Certificate of Incorporation do not require stockholder
approval. If adopted, the Fair Price Amendment would require the affirmative
vote of the holders of 66 2/3% of Common Stock to approve a Business Combination
involving an Interested Stockholder (as defined below), except in cases in which
either certain price criteria and procedural requirements are satisfied or the
transaction is approved by a majority of the Disinterested Directors. In the
event the price criteria and procedural requirements were to be met or the
requisite approval of the Board of Directors were to be given with respect to a
particular Business Combination, the normal requirements of Delaware law would
apply, and, accordingly, the affirmative vote of the holders of only a majority
of outstanding shares of Common Stock would be required, or, for certain
transactions, as noted above, no stockholder vote would be necessary. Thus,
depending upon the circumstances, the Fair Price Amendment would require the
affirmative vote of the holders of 66 2/3% of Common Stock for a Business
Combination in cases in which either a majority vote or no vote is presently
required under state law and the Certificate of Incorporation.
An "Interested Stockholder" is defined in the Fair Price Amendment as
any person (other than the Company or any Subsidiary (which for purposes of the
definition of "Interested Stockholder" means a corporation of which a majority
of each class of equity security is owned, directly or indirectly, by the
Company)) who is (i) the beneficial owner, directly or indirectly, of more than
15% of the voting power of the then outstanding Common Stock; or (ii) an
Affiliate of the Company (as defined by the federal securities laws) and who, at
any time within the two-year period
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<PAGE> 21
immediately prior to the date in question, was the beneficial owner, directly or
indirectly, of more than 15% of the voting power of the then outstanding Common
Stock; or (iii) an assignee of or other successor to any shares of Common Stock
in a transaction or series of transactions not involving a public offering that
were at any time within the two-year period immediately prior to the date in
question beneficially owned by an Interested Stockholder. A person shall be
deemed a "beneficial owner" of any Common Stock if such person or any of its
Affiliates beneficially owns, directly or indirectly, or has the right to
acquire or to vote such stock.
A "Business Combination" includes the following transactions: (a) any
merger or consolidation of the Company or any Subsidiary (which for purposes of
the definition of "Business Combination" means a corporation of which a majority
of any class of equity securities is owned, directly or indirectly, by the
Company) with an Interested Stockholder or with any other corporation which is,
or after such merger or consolidation would be, an Affiliate of an Interested
Stockholder; (b) any sale, lease, license, exchange, mortgage, pledge, transfer
or other disposition to or with any Interested Stockholder or any Affiliate of
any Interested Stockholder of any assets of the Company or any Subsidiary having
an aggregate fair market value (calculated as provided in the Fair Price
Amendment) of $10,000,000 or more; (c) the issuance or transfer by the Company
or any Subsidiary of any securities of the Company or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested Stockholder having an
aggregate fair market value (so calculated) of $10,000,000 or more; (d) the
adoption of any plan or proposal for the liquidation or dissolution of the
Company proposed by or on behalf of an Interested Stockholder or any Affiliate
of any Interested Stockholder; or (e) any reclassification of securities
(including any reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Company or any Subsidiary which is directly or
indirectly owned by an Interested Stockholder or any Affiliate of any Interested
Stockholder.
A "Continuing Director" is any member of the Board of Directors who is
unaffiliated with an Interested Stockholder and who was a member of the Board of
Directors prior to the date on which the Interested Stockholder became an
Interested Stockholder (the "Determination Date"), and any successor of a
Continuing Director who is unaffiliated with an Interested Stockholder and is
recommended to succeed a Continuing Director by a majority of the total number
of Continuing Directors then on the Board of Directors.
Exceptions to High Vote Requirements. The affirmative vote of the
holders of at least 66 2/3% of Common Stock would not be required if (1) the
transaction has been approved by a majority of the Continuing Directors or (2)
all of the minimum price criteria and procedural requirements described in
paragraphs (a) and (b) below are satisfied.
(a) Minimum Price Criteria. In general, in a Business Combination
involving cash or other consideration being paid to holders of a particular
class of outstanding Common Stock, the consideration would be required to be
either in cash or in the same form as the Interested Stockholder has previously
paid for shares of such class. In addition, the fair market value of such
consideration (calculated as provided in the Fair Price Amendment) as of the
date of the consummation of the Business Combination (the "Consummation Date")
would be required to meet certain minimum price criteria described below.
In the case of payments to holders of the Company's Common Stock of the
class currently outstanding, the aggregate amount of the cash and the fair
market value (calculated as provided in the Fair Price Amendment) as of the
Consummation Date of consideration other than cash per share to be received by
such holders would have to be at least equal to the higher of (i) the highest
per share price paid by the Interested Stockholder for any shares of such Common
Stock acquired by it within the two years immediately prior to the first public
announcement of the proposed Business Combination (the "Announcement Date") or
in the transaction in which it became an Interested Stockholder, whichever
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is higher, (ii) the fair market value (so calculated) per share of such Common
Stock on the Announcement Date or on the Determination Date, whichever is
higher, and (iii) the price per share equal to the fair market value (determined
pursuant to (ii) above) multiplied by the ratio of (A) the highest per share
price paid by the Interested Stockholder for any shares of Common Stock acquired
by it within the two-year period immediately prior to the Announcement Date to
(B) the fair market value (so calculated) per share of Common Stock on the first
day in such two-year period upon which the Interested Stockholder acquired any
shares of Common Stock. In general, for the purposes of the Fair Price
Amendment, fair market value of such Common Stock on the Announcement Date or
Determination Date would be the highest closing sale price during the 30-day
period immediately preceding the date in question.
In case of payments to holders of shares of any other class of Common
Stock, the fair market value per share of such payments would have to be at
least equal to the higher of (i) the highest per share price determined with
respect to such class in the same manner as described in clauses (i), (ii), or
(iii) of the preceding paragraphs or, (ii) the highest preferential amount per
share to which the holders of shares of such class are entitled in the event of
a voluntary or involuntary liquidation, dissolution, or winding up of the
Company.
Under the minimum price criteria, the fair market value (calculated as
provided in the Fair Price Amendment) of non-cash consideration to be received
by holders of shares of any class of Common Stock in a Business Combination is
to be determined as of the Consummation Date. Where the definitive terms of such
non-cash consideration are established in advance of the Consummation Date,
intervening adverse developments, either in the economy or the market generally
or in the financial condition or business of the Interested Stockholder, could
result in a decline in the originally anticipated fair market value of such
consideration. As a result, a Business Combination which had theretofore been
considered as not requiring either a 66 2/3% stockholder vote or approval by a
majority of Continuing Directors (because it was expected to satisfy the minimum
price criteria and it satisfied the procedural requirements) could not be
consummated because it would not have received such vote or approval (even if it
had received the vote required by Delaware law (without giving effect to the
increase provided for in the Fair Price Amendment) and any separate class vote
required by the terms of any class of then outstanding Common Stock) under
circumstances in which the minimum price criteria are applicable. Thus, an
Interested Stockholder who wishes to use non-cash consideration in a Business
Combination may not know with certainty at the time the Business Combination is
submitted to stockholders whether such consideration will meet the minimum price
criteria. However, an Interested Stockholder could avoid such a situation by
establishing, in advance, terms for the Business Combination whereby the
non-cash consideration was to be finalized by reference to its fair market value
on the Consummation Date. Such an approach, which has been used in connection
with mergers and similar second-step transactions in the past, would help to
assure that the Interested Stockholder would bear the risk of a decline in the
actual market value of the offered consideration prior to the consummation of
the Business Combination.
Under the Fair Price Amendment, the Interested Stockholder would be
required to meet the minimum price criteria with respect to each class of Common
Stock, whether or not the Interested Stockholder owned shares of that class
prior to proposing a Business Combination. If the minimum price criteria and the
procedural requirements discussed below were not met with respect to each class
of Common Stock, then a 66 2/3% vote of stockholders would be required to
approve the Business Combination unless the transaction were approved by a
majority of the Continuing Directors. It should also be noted that if the
transaction does not involve any cash or other property being received by any of
the other stockholders, such as a sale of assets or an issuance of the Company's
securities to an Interested Stockholder, then the price criteria discussed above
would not apply and a 66 2/3% vote of stockholders would be required unless the
transaction were approved by a majority of Continuing Directors.
(b) Procedural Requirements. Under the Fair Price Amendment, in
order to avoid the 66 2/3% stockholder vote requirement, after an Interested
Stockholder becomes an Interested Stockholder it would have to
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comply with the procedural requirements, as well as the minimum price criteria,
unless the Business Combination is approved by a majority of Continuing
Directors.
Under the Fair Price Amendment, a 66 2/3% stockholder vote would be
required (unless a majority of the Continuing Directors approves the Business
Combination) if the Company, after the Interested Stockholder has proposed a
Business Combination and prior to the consummation of such Business Combination,
fails to pay full quarterly dividends on its Preferred Stock, fails to increase
the quarterly rate of dividends on shares of Common Stock of the class currently
outstanding as necessary to reflect any recapitalization, reorganization or
similar transaction which has the effect of reducing the number of outstanding
shares of such Common Stock, or reduces the quarterly rate of dividends paid on
such Common Stock (except as necessary to reflect any subdivision of such Common
Stock), unless such failures or reduction are approved by a majority of the
Continuing Directors. This provision is designed to prevent an Interested
Stockholder who controls the necessary voting power or a majority of the Board
of Directors (other than Continuing Directors) from attempting to depress the
market price of the Company's shares prior to consummating a Business
Combination by reducing dividends thereon and thereby reducing the consideration
required to be paid pursuant to the minimum price provisions of the Fair Price
Amendment.
The Fair Price Amendment would also require a 66 2/3% stockholder vote
on a proposed Business Combination (unless a majority of the Continuing
Directors approved the Business Combination) if the Interested Stockholder
acquired any additional shares of Common Stock, directly from the Company or
otherwise, in any transaction subsequent to the time it proposes a Business
Combination. This provision is intended to prevent an Interested Stockholder
from purchasing additional shares of Common Stock at prices that are lower than
those set by the minimum price criteria after it proposes a Business
Combination.
Additionally, under the Fair Price Amendment, a 66 2/3% stockholder
vote is required (unless a majority of the Continuing Directors approves the
Business Combination) if the Interested Stockholder receives at any time after
it became an Interested Stockholder, whether in connection with the proposed
Business Combination or otherwise, the benefit of any loans or other financial
assistance or tax advantages provided by the Company (other than proportionately
as a stockholder). This provision is intended to deter an Interested Stockholder
from self-dealing or otherwise taking advantage of its equity position in the
Company by using the Company's resources to finance the proposed Business
Combination or otherwise for its own purposes in a manner not proportionately
available to all stockholders.
Under the Fair Price Amendment, in order to avoid the 66 2/3%
stockholder vote requirement, a proxy or information statement disclosing the
terms and conditions of a proposed Business Combination and complying with the
requirements of the proxy rules promulgated under the Exchange Act would have to
be mailed to all stockholders of the Company entitled to vote thereon at least
30 days prior to the consummation of a Business Combination, unless the Business
Combination were approved by a majority of the Continuing Directors. This
provision (taken together with the provisions of the proposed amendment that
would prohibit the taking of action by written consent by holders of Common
Stock other than at a meeting) is intended to assure that the Company's
stockholders would be fully informed of the terms and conditions of the proposed
Business Combination even if the Interested Stockholder were not otherwise
legally required to disclose such information to stockholders.
It should be noted that none of the minimum price criteria and
procedural requirements described above would apply in the case of a Business
Combination approved by a majority of the Continuing Directors and that, in the
absence of such approval, all of such requirements would have to be satisfied to
avoid the 66 2/3% stockholder vote requirement.
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Any amendment, alteration, or repeal of Article XVI will require the
affirmative vote of the holders of at least 66 2/3% of the combined voting power
of all issued and outstanding shares of voting stock, voting together as a
single class. Absent this requirement, Delaware law would allow an amendment by
the affirmative vote of the holders of a majority of the voting power of all
outstanding shares of voting stock present in person or by proxy.
Purposes and Effects. As previously discussed, a number of publicly
held corporations have been the subject of tender offers for, or other
acquisitions of, substantial positions in their shares. In many cases, such
transactions have been followed by proposed business combinations in which the
tender offeror or other purchaser has paid or proposed to pay a lower price or
less desirable form of consideration for the remaining outstanding shares than
the price it paid in acquiring its original interest. Federal securities laws
and regulations govern the disclosure required to be made to minority
stockholders in such transactions, but do not assure fairness to stockholders of
the terms of a business combination. Moreover, the statutory right of the
remaining stockholders of a corporation to dissent in connection with certain
business combinations and receive the "fair value" of their shares in cash may
not be available in all cases or may involve significant expense, delay, or
uncertainty to dissenting stockholders. While the Delaware Supreme Court has
expanded the factors that may be taken into consideration in determining "fair
value" for appraisal purposes, stockholders have no assurance that "fair value"
as determined under this standard would be equivalent to the minimum price as
determined pursuant to the Fair Price Amendment. In the case of many business
combinations, including reclassifications or recapitalizations of the
outstanding shares of any class of a corporation's stock, the statutory right to
dissent may not be available at all.
The Fair Price Amendment is intended, in part, to meet these gaps in
federal and Delaware law and to prevent certain of the potential inequities of
Business Combinations that involve two or more steps by requiring that in order
to complete a Business Combination that is not approved by a majority of the
Continuing Directors, an Interested Stockholder must either acquire (or assure
itself of obtaining the affirmative votes of) at least 66 2/3% of the Common
Stock prior to the stockholder vote on the Business Combination, or be prepared
to meet the minimum price criteria and procedural requirements. The Fair Price
Amendment is also designed to protect those stockholders who have not tendered
or otherwise sold their shares to a third party who is attempting to acquire
control by helping to assure that at least the same price and form of
consideration are paid to such stockholders in a Business Combination as were
paid to stockholders in the initial step of the acquisition. In the absence of
these changes, an Interested Stockholder who acquires control of the Company
could subsequently, by virtue of such control, force minority stockholders to
sell or exchange their shares at a price that may not reflect any premium the
Interested Stockholder may have paid in order to acquire its interest. Such a
price could be lower than the price paid by the Interested Stockholder in
acquiring control and could also be in a less desirable form of consideration
(e.g., equity or debt securities of the Interested Stockholder instead of cash).
In many situations, the minimum price criteria and procedural
requirements would require that an Interested Stockholder pay stockholders a
higher price for their shares and/or structure the transaction differently from
what would be the case without the amendment. Accordingly, the Board believes
that, to the extent a Business Combination were involved as part of a plan to
acquire control of the Company, adoption of the Fair Price Amendment would
increase the likelihood that an Interested Stockholder would negotiate directly
with the Board. The Board believes that it is in a better position than
individual stockholders of the Company to negotiate effectively on behalf of all
stockholders in that the Board is likely to be more knowledgeable than most
individual stockholders in assessing the business and prospects of the Company.
Therefore, the Board is of the view that negotiations between the Board and an
Interested Stockholder would increase the likelihood that stockholders in
general would receive a higher price for their shares than otherwise might be
obtained.
Although some substantial acquisitions of a corporation's shares are
made without the objective of effecting a subsequent business combination, a
purchaser acquiring control in many cases desires to have the option to
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consummate such a business combination. Assuming that to be the case, the Fair
Price Provision would tend to deter a potential purchaser whose objective is to
seek control of the Company at a relatively cheap price, because acquiring the
remaining equity interest would not be assured unless the minimum price criteria
and procedural requirements were satisfied or a majority of Continuing Directors
were to approve the transaction. Adoption of the Fair Price Amendment should
also help to deter the accumulation of large blocks of the Company's shares,
which the Board believes to be potentially disruptive to the stability of
vitally important relationships of the Company with its customers and employees
and which could precipitate a change of control of the Company on terms
unfavorable to the Company's other stockholders.
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price of a corporation's
stock. In addition, acquisitions of stock by persons attempting to acquire
control through market purchases may cause the market price of the stock to
reach levels that are higher than might otherwise be the case. The presence of a
fair price provision may deter such purchases, particularly those of less than
all of a corporation's shares, and may therefore deprive holders of a
corporation's shares of an opportunity to sell their stock at a temporarily
higher market price. Because of the higher percentage requirements for
stockholder approval of any subsequent business combination and the possibility
of having to pay a higher price to other stockholders in such a business
combination, a fair price provision may make it more costly for a third party to
acquire control of a corporation. Thus, the Fair Price Amendment may decrease
the likelihood that a tender offer will be made for less than 66 2/3% of the
Company's Common Stock and, as a result, may adversely affect those stockholders
who would desire to participate in such a tender offer. It should be noted that
the provisions of the Fair Price Amendment would not necessarily deter a person
who might be willing to seek control by acquiring a substantial portion of the
Company's Common Stock when they have no intention of acquiring the remaining
shares.
In certain cases, the Fair Price Amendment's minimum price provisions,
while providing objective pricing criteria, could be arbitrary and not
indicative of value. In addition, an Interested Stockholder may be unable, as a
practical matter, to comply with all of the procedural requirements. In these
circumstances, unless an Interested Stockholder were willing to purchase 66 2/3%
of the Company's shares in advance of the stockholder vote on a proposed
Business Combination, it would be forced either to negotiate with the Board and
offer terms acceptable to the Board or to abandon such proposed Business
Combination.
Another effect of the Fair Price Amendment would be to give veto power
to the holders of a minority of the Common Stock with respect to a proposed
Business Combination that is opposed by a majority of the Continuing Directors
but that a majority of stockholders may believe to be desirable and beneficial.
In addition, because only the Continuing Directors will have the authority to
reduce to a simple majority or eliminate the 66 2/3% stockholder vote required
for a particular Business Combination, the Fair Price Amendment may tend to
insulate incumbent Directors against the possibility of removal in the event of
a takeover attempt. Conversely, if an Interested Stockholder has replaced all of
the Directors who were in office on the date it became an Interested Stockholder
with nominees of its choice, there would be no Continuing Directors and,
consequently, such 66 2/3% stockholder vote requirement would apply to any
Business Combination consummated subsequent to such replacement that did not
satisfy all of the minimum price criteria and procedural requirements of the
Fair Price Amendment.
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REQUIRED VOTE
The Board of Directors has unanimously approved all of the proposed
amendments to the Company's Certificate of Incorporation. The affirmative vote
of a majority of the outstanding shares of the Company's Common Stock is
required for approval of each of the amendments to the Company's Certificate of
Incorporation. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE FOUR
PROPOSED AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION DESCRIBED
ABOVE.
PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN
The Board of Directors has approved a proposal to amend the Company's
1996 Stock Option Plan, subject to approval by the Company's stockholders. The
amendment to the Plan will increase the number of shares of Common Stock that
may be issued pursuant to the Plan from 400,000 to 750,000 shares. The Board of
Directors recommends a vote "For" the proposed amendment to the Plan.
The Plan is intended to promote the interests of the Company by
providing key employees, members of the Board of Directors, consultants, and
independent contractors who provide valuable services to the Company with the
opportunity to acquire, or otherwise increase, their proprietary interest in the
Company as an incentive to remain in service to the Company. Presently, the
number of shares of Common Stock with respect to which options may be issued
under the Plan is 400,000. Through December 31, 1997, the Company has granted
options covering 386,030 shares of Common Stock previously reserved for issuance
under the Plan.
1996 STOCK OPTION PLAN
GENERAL
The Plan, as amended, is divided into two programs: the Discretionary
Grant Program and the Automatic Option Program. The Discretionary Grant Program
provides for the granting of options to acquire Common Stock of the Company
("Options"), the direct granting of the Common Stock of the Company ("Stock
Awards"), the granting of stock appreciation rights ("SARs"), or the granting of
other cash awards ("Cash Awards") (Stock Awards, SARs, and Cash Awards are
collectively referred to herein as "Awards"). Options and Awards under the Plan
may be issued to executives, key employees, and others providing valuable
services to the Company and its subsidiaries. The Options issued may be
incentive stock options or nonqualified stock options. The Company believes that
the Discretionary Grant Program represents an important factor in attracting and
retaining executives and other key employees and constitutes a significant part
of the compensation program for employees. The Automatic Option Program provides
for the automatic grant of Options to acquire the Company's Common Stock
("Automatic Options"). Automatic Options are granted to members of the Company's
Board of Directors who are not employed by the Company ("Eligible Directors").
The Company believes that the Automatic Option Program promotes the interests of
the Company by providing such directors the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company and
an increased personal interest in its continued success and progress.
If any change is made in the stock subject to the Plan, or subject to
any Option or SAR granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, change in corporate structure, or otherwise), the
Plan provides that appropriate adjustments will be made as to the maximum number
of shares subject to the Plan and the number of shares and exercise price per
share of stock subject to outstanding Options. An optionholder will not have any
of the rights of a stockholder with respect to optioned shares until such holder
exercises the Option.
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ELIGIBILITY AND ADMINISTRATION
Options and Awards may be granted only to persons ("Eligible Persons")
who at the time of grant are either (i) key personnel (including officers and
directors) of the Company or subsidiaries of the Company, or (ii) consultants
and independent contractors who provide valuable services to the Company or to
subsidiaries of the Company. Options that are incentive stock options may be
granted only to key personnel of the Company (and its subsidiaries) who are also
employees of the Company (or its subsidiaries).
The Eligible Persons under the Discretionary Grant Program are divided
into two groups, and there will be a separate administrator (a "Plan
Administrator") for each group. One group consists of Eligible Persons who are
executive officers and directors of the Company and all persons who own 10% or
more of the Company's issued and outstanding stock. The power to administer the
Discretionary Grant Program with respect to those persons may be vested either
with the Board of Directors or with a committee comprised of two or more
"Non-Employee Directors" (as such term is defined under Rule 16(b)(3)(i)
promulgated under the Exchange Act) who are appointed by the Board (the "Senior
Committee"). The Senior Committee, in its sole discretion, may require approval
of the Board of Directors for specific grants of Options or Awards under the
Discretionary Grant Program. Members of the Senior Committee may participate in
the Discretionary Grant Program as permitted by Section 16 rules promulgated
under the Exchange Act (the "Rules"). The second group consists of Eligible
Persons who are not executive officers or directors of the Company and those who
do not own 10% or more of the Company's issued and outstanding stock. The power
to administer the Discretionary Grant Program with respect to the second group
of Eligible Persons may be vested exclusively with the Board of Directors of the
Company or with a committee of two or more directors who are appointed by the
Board (the "Employee Committee"). Each Plan Administrator will determine (a)
which of the Eligible Persons in its group will be granted Options and Awards,
(b) the amount and timing of such grant, and (c) such other terms and conditions
as may be imposed by the Plan Administrator consistent with the Plan.
To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the qualification
requirements set forth in the Internal Revenue Code of 1986, as amended (the
"Code"). The maximum number of shares of stock with respect to which Options or
SARs may be granted to any employee during the term of the Plan may not exceed
50% of the shares of stock covered by the Plan.
EXERCISE OF OPTIONS
The expiration date, maximum number of shares purchasable, and the
other provisions of the Options, including vesting provisions, are established
at the time of grant. Options may be granted for terms of up to 10 years.
Options vest and thereby become exercisable in whole or in one or more
installments at such time as may be determined by the Plan Administrator upon
the grant of the Options. However, a Plan Administrator has the discretion to
provide for the automatic acceleration of the vesting of any Options or Awards
granted under the Discretionary Grant Program in the event of a "Change in
Control" (as defined in the Plan).
The exercise prices of Options are determined by the Plan
Administrator, but if the option is intended to be an incentive stock option, it
may not be less than 100% (110% if the option is granted to a stockholder who at
the time the option is granted owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
subsidiaries) of the fair market value of the Common Stock at the time of the
grant.
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Options or awards granted pursuant to the Discretionary Grant Program
may be assigned, encumbered, or otherwise transferred by the optionholder or
grantee if specifically allowed by the Plan Administrator upon the grant of such
Option or Award. If any optionholder ceases to be in service to the Company for
a reason other than death or disability, such optionholder may, within three
months after the termination of such employment, exercise some or all of the
vested incentive stock options held by such employee. However, termination for
cause terminates all Options held by such employee.
Under the Plan, Options that are not incentive stock options and that
are outstanding at the time an optionholder's service to the Company terminates
will remain exercisable for such period of time thereafter as determined by the
Plan Administrator at the time of grant of such Options. However, if the
optionholder is discharged for cause, all Options held by such optionholder will
terminate.
AWARDS
The Plan Administrators also may grant Awards to Eligible Persons under
the Plan. Awards may be granted in the form of SARs, Stock Awards or Cash
Awards. Through December 31, 1997, no Stock Awards have been granted under the
Plan.
Awards granted in the form of SARs entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of Common Stock from the price stated in the award agreement to the market value
of the Common Stock on the date first exercised or surrendered. The Plan
Administrators may determine, consistent with the Plan, such terms, conditions,
restrictions, and limitations, if any, on any SARs.
Awards granted in the form of Stock Awards entitle the recipient to
receive Common Stock directly. Awards granted in the form of cash entitle the
recipient to receive direct payments of cash depending on the market value or
the appreciation of the Common Stock or other securities of the Company. The
Plan Administrators may determine such other terms, conditions and limitations,
if any, on any Awards.
The Plan provides that it is not intended to be the exclusive means by
which the Company may issue options or warrants to acquire its Common Stock,
stock awards, or any other type of award. To the extent permitted by applicable
law, the Company may issue any other options, warrants, or awards other than
pursuant to the Plan without stockholder approval.
TERMS AND CONDITIONS OF AUTOMATIC OPTIONS
Each year at the meeting of the Board of Directors held immediately
after the Company's annual meeting of stockholders, each independent member of
the Board of Directors automatically will be granted an option to acquire 2,500
shares of Common Stock ("Annual Automatic Option"). New independent members of
the Board of Directors automatically will receive an option to acquire 5,000
shares of Common Stock ("Initial Automatic Option") on the date of their first
appointment or election to the Board of Directors. Each Automatic Option will
become exercisable and vest on the first anniversary of the applicable grant
date. An independent member of the Board of Directors is not eligible to receive
an Annual Automatic Option if the grant date is within 90 days of such
independent member receiving an Initial Automatic Option. The exercise price per
share of Common Stock subject to each Annual and Initial Automatic Option is
equal to 100% of the fair market value per share on the date of the grant of the
Annual or Initial Automatic Option, as the case may be. Cessation of service to
the Company terminates any Annual or Initial Automatic Options for shares that
were not vested at the time of such cessation.
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The Plan is not intended to be the exclusive means by which the Company
may issue options or warrants to acquire its Common Stock, stock awards, or any
other type of award. To the extent permitted by applicable law and Nasdaq
requirements, the Company may issue any other options, warrants, or awards other
than pursuant to the Plan without stockholder approval.
DURATION AND MODIFICATION
The Plan will remain in force until September 2006. The Board of
Directors of the Company at any time may amend the Plan except that, without the
approval by the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the Company, the Board of Directors may not (i)
increase, except in the case of certain organic changes to the Company, the
maximum number of shares of Common Stock subject to the Plan, (ii) reduce the
exercise price at which Options may be granted or the exercise price for which
any outstanding Option may be exercised, (iii) extend the term of the Plan, (iv)
change the class of persons eligible to receive Options or Awards under the
Plan, or (v) materially increase the benefits accruing to participants under the
Plan. In addition, the Board may not, without the consent of the optionholder,
take any action that disqualifies any Option previously granted under the Plan
for treatment as an incentive stock option or which adversely affects or impairs
the rights of the optionholder of any outstanding Option. Notwithstanding the
foregoing, the Board of Directors may amend the Plan from time to time as it
deems necessary in order to meet the requirements of any amendments to the Rules
without the consent of the stockholders of the Company.
REASONS FOR AND EFFECT OF THE PROPOSED AMENDMENT
The Board of Directors believes that the approval of the proposed
amendment to the Plan is necessary to achieve the purposes of the Plan and to
promote the welfare of the Company and its stockholders generally. The Board of
Directors believes that the proposed amendment to the Plan will aid the Company
in attracting and retaining directors, officers and key employees and motivating
such persons to exert their best efforts on behalf of the Company. In addition,
the Company expects that the proposed amendment will further strengthen the
identity of interest of the directors, officers, and key employees with that of
the stockholders.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
Certain options granted under the Plan will be intended to qualify as
incentive stock options under Code Section 422. Accordingly, there will be no
taxable income to an employee when an incentive stock option is granted to him
or her when that option is exercised. The amount by which the fair market value
of the shares at the time of exercise exceeds the option price generally will be
treated as an item of preference in computing the alternate minimum taxable
income of the optionholder. If an optionholder exercises an incentive stock
option and does not dispose of the shares within either two years after the date
of the grant of the option or one year after the date the shares were
transferred to the optionholder, any gain realized upon disposition will be
taxable to the optionholder as a capital gain. If the optionholder does not
satisfy the applicable holding periods, however, the difference between the
option price and the fair market value of the shares on the date of exercise of
the option will be taxed as ordinary income, and the balance of the gain, if
any, will be taxed as capital gain. If the shares are disposed of before the
expiration of the one-year or two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the employee's
ordinary income is limited to the amount realized less the option exercise price
paid. The Company will be entitled to a tax deduction only to the extent the
optionholder has ordinary income upon the sale or other disposition of the
shares received when the option was exercised.
Certain other options issued under the Plan, including options issued
automatically to the non-employee members of the Board of Directors, will be
nonqualified options. The income tax consequences of nonqualified options
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will be governed by Code Section 83. Under Code Section 83, the excess of the
fair market value of the shares of the Common Stock acquired pursuant to the
exercise of any option over the amount paid for such stock (hereinafter referred
to as "Excess Value") must be included in the gross income of the optionholder
in the first taxable year in which the Common Stock acquired by the optionholder
is not subject to a substantial risk of forfeiture. In calculating Excess Value,
fair market value will be determined on the date that the substantial risk of
forfeiture expires, unless a Section 83(b) election is made to include the
Excess Value in income immediately after the acquisition, in which case fair
market value will be determined on the date of the acquisition. Generally, the
Company will be entitled to a federal income tax deduction in the same taxable
year that the optionholder recognizes income. The Company will be required to
withhold income tax with respect to income reportable pursuant to Code Section
83 by an optionholder. The basis of the shares acquired by an optionholder will
be equal to the option price of those shares plus any income recognized pursuant
to Code Section 83. Subsequent sales of the acquired shares will produce capital
gain or loss. Such capital gain or loss will be long term if the stock has been
held for one year from the date of the substantial risk of forfeiture lapsed,
or, if a Section 83(b) election is made, one year from the date the shares were
acquired.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1998 and recommends that
stockholders vote in favor of the ratification of such appointment. In the event
of a negative vote on such ratification, the Board of Directors will reconsider
its selection. The Board of Directors anticipates that representatives of Arthur
Andersen LLP will be present at the Meeting, will have the opportunity to make a
statement if they desire, and will be available to respond to appropriate
questions.
DEADLINE FOR RECEIPT OF STOCKHOLDERS PROPOSALS
Stockholder proposals that are intended to be presented at the annual meeting of
stockholders of the Company for the fiscal year ending December 31, 1998 must be
received by the Company no later than December 1, 1998 in order to be included
in the proxy statement and form of proxy relating to such meeting.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Board of Directors may recommend.
Dated: March 31, 1998
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APPENDIX A
FIRST RESTATED CERTIFICATE OF INCORPORATION
OF
STYLING TECHNOLOGY CORPORATION
1. The name of the corporation is STYLING TECHNOLOGY CORPORATION (which
is hereinafter referred to as the "Corporation").
2. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on June 29, 1995, under the name
LEOPOLD STYLING PRODUCTS, INC.
3. The original Certificate of Incorporation was amended on September
23, 1996 providing for a reverse stock split and changing the name of the
Corporation to Styling Technology Corporation.
4. This First Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by the stockholders of the Corporation at a
meeting duly called, and duly executed and acknowledged by the officers of the
Corporation in accordance with the provisions of Sections 103 and 245 of the
General Corporation Law of the State of Delaware, and restates and integrates
the provisions of the Certificate of Incorporation of the Corporation and, upon
filing with the Secretary of State in accordance with Section 103, shall
thenceforth supersede the Certificate of Incorporation and all amendments
thereto, and shall, as it may thereafter be amended in accordance with its terms
and applicable law, be the Certificate of Incorporation of the Corporation.
5. The text of the Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation shall be Styling Technology Corporation.
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ARTICLE II
ADDRESS
The registered office of the Corporation in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name
and address of the Corporation's registered agent is The Corporation Trust
Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(the "GCL").
ARTICLE IV
STOCK
The Corporation shall be authorized to issue two classes of shares of
capital stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares of Common Stock and Preferred Stock which the
Corporation shall have authority to issue is eleven million (11,000,000) of
which ten million (10,000,000) shares shall be Common Stock and one million
(1,000,000) shall be Preferred Stock. The par value of the shares of Common
Stock is one hundredth of one cent per share. The par value of the shares of
Preferred Stock is one hundredth of one cent per share.
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations, or restrictions thereof,
including, but not limited to, the fixing or alteration of the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of shares of Preferred
Stock, or any of them; and to increase or decrease the number of shares of any
series subsequent to the issue of the shares of that series, but not below the
number of shares of that series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of that series.
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ARTICLE V
ADDRESS OF INCORPORATOR
The name and mailing address of the incorporator is M.C. Kinnamon, 1209
Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
ARTICLE VI
BOARD OF DIRECTORS
The number of directors which shall comprise the initial Board of
Directors of the Corporation shall be two (2). The size of the Board of
Directors may be increased or decreased in the manner provided in the Bylaws of
the Corporation.
All corporate powers of the Corporation shall be exercised by or under
the direction of the Board of Directors except as otherwise provided herein or
by law.
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors is expressly authorized:
(i) to fix, abolish, determine, and vary from time to time the
amount or amounts to be set apart as reserves;
(ii) to adopt, amend, and repeal Bylaws of the Corporation;
(iii) to authorize and cause to be executed mortgages and
liens, with or without limit as to amount, upon the real or personal property of
the Corporation;
(iv) from time to time to determine whether and to what
extent, at what time and place, and under what conditions and regulations the
accounts and books of the Corporation, or any of them, shall be open to the
inspection of any stockholder; and no stockholder shall have any right to
inspect any account or book or document of the Corporation except as conferred
by statute or bylaw or as authorized by resolution of the stockholders or Board
of Directors;
(v) to authorize the payment of compensation to the directors
for services to the Corporation, including fees for attendance at meetings of
the Board of Directors or of any committee thereof and/or salaries for serving
as such directors or committee members, and to determine the amount of such
compensation;
(vi) from time to time to formulate, establish, promote, and
carry out, and to amend, alter, change, revise, recall, repeal, or abolish, a
plan or plans for the participation by all or any of the employees, including
directors and officers, of the Corporation, or of any
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corporation, company, association, trust, or organization in which or in the
welfare of which the Corporation has any interest, and those actively engaged in
the conduct of the Corporation's business, in the profits, gains, or business of
the Corporation or of any branch or division thereof, as part of the
Corporation's legitimate expenses, and/or for the furnishing to such employees,
directors, officers, or persons, or any of them, at the Corporation's expense,
of medical services, insurance against accident, sickness, or death, pensions
during old age, disability or unemployment, education, housing, social services,
recreation, or other similar aids for their relief or general welfare, in such
manner and upon such terms and conditions as the Board of Directors shall
determine; and
(vii) to authorize the guaranty by the Corporation of
securities, evidences of indebtedness, and obligations of other persons, firms,
associations, and corporations.
ARTICLE VII
ELECTION OF DIRECTORS
Unless and except to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VIII
STRUCTURE OF BOARD OF DIRECTORS
A. The Board (other than those directors elected by the holders of any
series of Preferred Stock provided for or fixed pursuant to the provisions of
Article IV hereof ("Preferred Stock Directors") shall be divided into three
classes, as nearly equal in number as possible, designated Class I, Class II and
Class III. Class I directors shall initially serve until the 1999 meeting of
stockholders; Class II directors shall initially serve until the 2000 meeting of
stockholders; and Class III directors shall initially serve until the 2001
meeting of stockholders. Commencing with the annual meeting of stockholders in
1999, directors of each class, the term of which shall then expire, shall be
elected to hold office for a three-year term and until the election and
qualification of their respective successors in office. In case of any increase
or decrease, from time to time, in the number of directors (other than Preferred
Stock Directors), the number of directors in each class shall be apportioned as
nearly equal as possible.
B. Any director chosen to fill a vacancy or newly created directorship
shall hold office until the next election of the class for which such director
shall have been chosen and until his or her successor shall be elected and
qualified or until their earlier death, resignation, disqualification or
removal.
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ARTICLE IX
INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust, employee benefit plan, or other enterprise, shall be
indemnified and held harmless by the Corporation, and the Corporation shall
advance expenses to such person, to the fullest extent legally permissible under
the GCL, against all expenses, liabilities and losses (including attorneys'
fees, judgments, fines and amounts paid in settlement) reasonably incurred or
suffered by him or her in connection therewith. Nothing contained herein shall
affect any rights to indemnification to which employees other than directors and
officers may be entitled by law. No amendment or repeal of this Article IX shall
apply to or have any effect on any right to indemnification provided hereunder
with respect to any acts or omissions occurring prior to such amendment or
repeal. The right of indemnification shall be a contract right that may be
enforced in any manner desired by such person. The right of indemnification
shall not be exclusive of any other right that such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaws, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article. Notwithstanding
any other provision of this Article IX, no person shall be entitled to
indemnification or advancement of expenses under this Article with respect to
any Proceeding, or any claim therein, brought or made by him or her against the
Corporation, unless such Proceeding or claim is approved by the Board of
Directors of the Corporation.
The Board of Directors may adopt bylaws from time to time with respect
to indemnification to provide at all time the fullest indemnification permitted
by the GCL, and may cause the Corporation to purchase and maintain insurance, at
the Corporation's expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation, or
as its representative in a partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the Corporation would
have the power to indemnify such person against such liability. The Corporation
may also create a trust fund, grant a security interest and/or use other means
(including, but not limited to, letters of credit, surety bonds and/or other
similar arrangements), as well as enter into contracts providing indemnification
to the full extent authorized or permitted by law and including as part thereof
provisions with respect to any or all of the foregoing, to ensure the payment of
such amounts as may become necessary to effect indemnification as provided
therein, or elsewhere.
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ARTICLE X
REMOVAL OF DIRECTORS
Any director or the entire Board of Directors may be removed, with or
without cause, at any time by the holders of a majority of the shares then
entitled to vote at an election of directors, and the vacancy in the Board of
Directors caused by such removal may be filled by the stockholders at the time
of such removal.
ARTICLE XI
LIMITATION ON LIABILITY FOR BREACH OF FIDUCIARY DUTY
A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring
prior to such repeal or modification.
ARTICLE XII
AMENDMENT OF BYLAWS
Subject to the power of the stockholders of the Corporation to alter or
repeal any Bylaw made by the Board of Directors, the Board of Directors is
expressly authorized and empowered to make, alter and repeal the Bylaws of the
Corporation.
ARTICLE XIII
AMENDMENT OF ARTICLES
The Corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this First Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this First Restated Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this Article.
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ARTICLE XIV
BOARD CONSIDERATIONS UPON SIGNIFICANT EVENTS
The Board, when evaluating any (A) tender offer or invitation for
tenders, or proposal to make a tender offer or request or invitation for
tenders, by another party, for any equity security of the Corporation, or (B)
proposal or offer by another party to (1) merge or consolidate the Corporation
or any subsidiary with another corporation or other entity, (2) purchase or
otherwise acquire all or a substantial portion of the properties or assets of
the Corporation or any subsidiary, or sell or otherwise dispose of to the
Corporation or any subsidiary all or a substantial portion of the properties or
assets of such other party, or (3) liquidate, dissolve, reclassify the
securities of, declare an extraordinary dividend of, recapitalize or reorganize
the Corporation, shall take into account all factors that the Board deems
relevant, including, without limitation, to the extent so deemed relevant, the
potential impact on employees, customers, suppliers, partners, joint venturers
and other constituents of the Corporation and the communities in which the
Corporation operates.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal relating to
this Article XIV must be approved by the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the combined voting power of
the issued and outstanding shares of Voting Stock (as defined in Article XVI),
voting together as a single class.
ARTICLE XV
STOCKHOLDER CONSENT
No action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
In addition to any affirmative vote required by applicable law and in
addition to any vote of the holders of any series of Preferred Stock provided
for or fixed pursuant to the provisions of Article IV of this First Restated
Certificate of Incorporation, any alteration, amendment or repeal relating to
this Article XV must be approved by the affirmative vote of the holders of at
least sixty six and two-thirds percent (66 2/3%) of the combined voting power of
the issued and outstanding shares of Voting Stock (as defined in Article XVI),
voting together as a single class.
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ARTICLE XVI
BUSINESS COMBINATIONS; FAIR PRICE
A. In addition to any affirmative vote required by law or this First
Restated Certificate of Incorporation, and except as otherwise expressly
provided in paragraph B of this Article XVI:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder
(as hereinafter defined), or (b) any other corporation, partnership or
other entity (whether or not itself an Interested Stockholder) which
is, or after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder other than a merger
enacted in accordance with Section 253 of the Delaware General
Corporation Law or any successor thereof; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, including all Affiliates of the
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of ten million dollars ($10,000,000) or more; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder, including all Affiliates of the Interested Stockholder, in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of ten million dollars
($10,000,000) or more (other than on a pro rata basis to all holders of
Voting Stock of the same class held by the Interested Stockholder
pursuant to a stock split, stock dividend or distribution of warrants
or rights and other than in connection with the exercise or conversion
of securities exercisable for or convertible into securities of the
Corporation of any of its subsidiaries which securities have been
distributed pro rata to all holders of Voting Stock); or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliates of an Interested Stockholder;
or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not an Interested Stockholder is a party
thereto) which has the effect, directly or indirectly, of increasing
the proportionate share by more than one percent (1%) of the issued and
outstanding shares of any class of equity or convertible securities of
the Corporation or any Subsidiary which are directly or indirectly
owned by any Interested Stockholder or one or more Affiliates of the
Interested Stockholder;
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shall require the affirmative vote of the holders of at least sixty six and
two-thirds percent (66 2/3%) of the voting power of the then issued and
outstanding Voting Stock, as hereinafter defined, voting together as a single
class, including the affirmative vote of the holders of at least sixty six and
two-thirds percent (66 2/3%) of the voting power of the then issued and
outstanding Voting Stock not Beneficially Owned directly or indirectly by an
Interested Stockholder or any Affiliate of any Interested Stockholder. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be permitted, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article XVI shall not be
applicable to any particular Business Combination (as hereinafter defined), and
such Business Combination shall require only such affirmative vote as is
required by law or any other provision of this First Restated Certificate of
Incorporation, if the conditions specified in either of the following paragraph
1 or 2 are met:
1. the Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined); or
2. all of the following price and procedural conditions shall
have been met:
(a) the aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration other than
cash, to be received per share by the holders of Common Stock in such
Business Combination, shall be at least equal to the highest of the
following:
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of Common Stock acquired by it (A) within the
two (2) year period immediately prior to the first public
announcement of the proposal of such Business Combination (the
"Announcement Date"), or (B) in the transaction in which it
became an Interested Stockholder, whichever is higher;
(ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date on which
the Interested Stockholder became an Interested Stockholder
(the "Determination Date"), whichever is higher; and
(iii) (if applicable) the price per share
equal to the Fair Market Value per share of Common Stock
determined pursuant to paragraph 2(a)(ii) above, multiplied by
the ratio of (A) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any shares of
Common Stock acquired by it within the two (2) year period
immediately prior to the Announcement Date to (B) the Fair
Market Value per share of Common Stock on the first day in such
two (2) year
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period upon which the Interested Stockholder acquired any
shares of Common Stock; and
(b) the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share
by holders of shares of any other class, other than Common Stock or
Excluded Preferred Stock, of issued and outstanding Voting Stock shall
be at least equal to the highest of the following (it being intended
that the requirements of this paragraph 2(b) shall be required to be
met with respect to every such class of issued and outstanding Voting
Stock, whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share
price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it (A)
within the two (2) year period immediately prior to the
Announcement Date, or (B) in the transaction in which it became
an Interested Stockholder, whichever is higher;
(ii) (if applicable) the highest
preferential amount per share to which the holders of shares of
such class of Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation;
(iii) the Fair Market Value per share of
such class of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(iv) (if applicable) the price per share
equal to the Fair Market Value per share of such class of
Voting Stock determined pursuant to paragraph 2(b)(iii) above,
multiplied by the ratio of (A) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it
within the two (2) year period immediately prior to the
Announcement Date to (B) the Fair Market Value per share of
such class of Voting Stock on the first day in such two (2)
year period upon which the Interested Stockholder acquired any
shares of such class of Voting Stock; and
(c) the consideration to be received by holders of a
particular class of issued and outstanding Voting Stock (including
Common Stock and other than Excluded Preferred Stock) shall be in cash
or in the same form as the Interested Stockholder has previously paid
for shares of such class of Voting Stock (if the Interested Stockholder
has paid for shares of any class of Voting Stock with varying forms of
consideration, the form of consideration for such class of Voting Stock
shall be either cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired by it); and
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(d) after such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (i) there shall have been no failure to declare and pay at
the regular date therefor any full quarterly dividends (whether or not
cumulative) on any issued and outstanding preferred stock, except as
approved by a majority of the Continuing Directors; (ii) there shall
have been no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors; (iii) there shall have been an increase in the annual rate
of dividends as necessary fully to reflect any recapitalization
(including any reverse stock split), reorganization or any similar
reorganization which has the effect of reducing the number of issued
and outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the Continuing
Directors; and (iv) such Interested Stockholder shall not have become
the Beneficial Owner of any additional Voting Stock except as part of
the transaction which results in such Interested Stockholder becoming
an Interested Stockholder; and
(e) after such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except proportionately as
a shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise; and
(f) a proxy or information statement describing the
proposed Business Combination and complying with the requirements of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to stockholders of the Corporation at
least thirty (30) days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be marked pursuant to such Act or subsequent provisions).
C. For purposes of this Article XVI the following terms shall
have the following meanings:
1. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on June 21,
1996.
2. "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations of the Securities
Exchange Act of 1934, as in effect on June 21, 1996. In addition, a Person shall
be the "Beneficial Owner" of any Voting Stock which such Person or any of its
Affiliates or Associates has: (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; or (b) the right to
vote pursuant to any agreement, arrangement or understanding (but neither such
Person nor any such Affiliate or Associate shall be deemed to be
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the Beneficial Owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of the stockholders, pursuant
to a public solicitation of proxies for such meeting, and with respect to which
shares neither such Person nor any such Affiliate of Associate is otherwise
deemed the Beneficial Owner).
3. "Business Combination" shall mean any transaction
described in any one or more of clauses (1) through (5) of Section A of this
Article XVI.
4. "Continuing Director" shall mean any member of the Board
who is unaffiliated with and is not the Interested Stockholder and was a member
of the Board prior to the time that the Interested Stockholder became an
Interested Stockholder, and any director who is thereafter chosen to fill any
vacancy on the Board or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder and in connection with his or her initial
assumption of office is recommended for appointment or election by a majority of
Continuing Directors then on the Board.
5. "Excluded Preferred Stock" means any series of Preferred
Stock with respect to which a majority of the Continuing Directors have approved
a Preferred Stock Designation creating such series that expressly provides that
the provisions of this Article XVI shall not apply.
6. "Fair Market Value" shall mean: (a) in the case of
stock, the highest closing sale price during the thirty (30) day period
immediately preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange listed stocks, or, if such stock is
not quoted on the composite tape, on the New York Stock Exchange, or, if such
stock is not listed on such exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock during the
thirty (30) day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotation System or any system
then in use in its stead, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board in accordance with Section D of this Article XVI; and (b) in the case
of property other than cash or stock, the fair market value of such property on
the date in question as determined by the Board in accordance with Section D of
this Article XVI.
7. "Interested Stockholder" shall mean any Person to or
which:
(a) itself, or along with its Affiliates, is the
Beneficial Owner, directly or indirectly, of more than fifteen
percent (15%) of the then issued and outstanding Voting Stock;
or
(b) is an Affiliate of the Corporation and at any
time within the two (2) year period immediately prior to the
date in question was itself, or along with its Affiliates, the
Beneficial Owner, directly or indirectly, of fifteen percent
(15%) or more of the then issued and outstanding Voting Stock;
or
12
<PAGE> 43
(c) is an assignee of or has otherwise succeeded to
any Voting Stock which was at any time within the two (2) year
period immediately prior to the date in question beneficially
owned by an Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
For the purpose of determining whether a Person is an
Interested Stockholder pursuant to paragraph 7 of this Section C, the number of
shares of Voting Stock deemed to be issued and outstanding shall include shares
deemed owned through application of paragraph 2 of this Section C but shall not
include any other shares of Voting Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options or otherwise.
Notwithstanding anything to the contrary contained in this
First Restated Certificate of Incorporation, for purposes of this First Restated
Certificate of Incorporation, the term "Interested Stockholder" shall not, for
any purpose, include, and the provisions of Article XVI(A) hereof shall not
apply to: (a) the Corporation or any Subsidiary; or (b) any employee stock
ownership plan of the Corporation or any Subsidiary.
8. In the event of any Business Combination in which
the Corporation survives, the phrase "other consideration to be received" as
used in paragraphs 2(a) and (b) and paragraph B of this Article XVI shall
include the shares of Common Stock and/or the shares of any other class of
issued and outstanding Voting Stock retained by the holders of such shares.
9. "Person" shall mean any individual, firm,
corporation, partnership or other entity.
10. "Subsidiary" shall mean any corporation or other
entity of which the Corporation owns, directly or indirectly, securities that
enable the Corporation to elect a majority of the board of directors or other
persons performing similar functions of such corporation or entity or that
otherwise give to the Corporation the power to control such corporation or
entity.
11. "Voting Stock" means all issued and outstanding
shares of capital stock of the Corporation that pursuant to or in accordance
with this First Restated Certificate of Incorporation are entitled to vote
generally in the election of directors of the Corporation, and each reference
herein, where appropriate, to a percentage or portion of shares of Voting Stock
shall refer to such percentage or portion of the voting power of such shares
entitled to vote. The issued and outstanding shares of Voting Stock shall not
include any shares of Voting Stock that may be issuable pursuant to any
agreement, or upon the exercise or conversion of any rights, warrants or options
or otherwise.
D. The Continuing Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article XVI, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article XVI, including, without limitation: (i)
whether a Person is an Interested Stockholder; (ii) the number of shares of
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<PAGE> 44
Voting Stock beneficially owned by any Person; (iii) whether a Person is an
Affiliate or Associate of another; (iv) whether the applicable conditions set
forth in paragraph 2 of paragraph B of this Article XVI have been met with
respect to any Business Combination; (v) the Fair Market Value of stock or other
property in accordance with paragraph 6 of paragraph C of this Article XVI; and
(vi) whether the assets which are the subject of any Business Combination have,
or the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of ten million dollars ($10,000,000) or more.
E. Nothing contained in this Article XVI shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. In addition to any affirmative vote required by applicable
law and in addition to any vote of the holders of any series of Preferred Stock
provided for or fixed pursuant to the provisions of Article IV of this First
Restated Certificate of Incorporation, any alteration, amendment or repeal
relating to this Article XVI must be approved by the affirmative vote of the
holders of at least sixty six and two-thirds percent (66 2/3%) of the combined
voting power of the issued and outstanding shares of Voting Stock, voting
together as a single class.
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<PAGE> 45
IN WITNESS WHEREOF, this First Restated Certificate of
Incorporation has been signed this ____ day of June 1998.
STYLING TECHNOLOGY CORPORATION
By:_____________________________________
Sam L. Leopold
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<PAGE> 46
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
STYLING TECHNOLOGY CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of STYLING TECHNOLOGY CORPORATION, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement of the Company, each dated March 31,
1998, and hereby appoints Sam L. Leopold and Richard R. Ross, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
1998 Annual Meeting of Stockholders of the Company, to be held on May 4, 1998,
at 10:00 a.m., local time, at The Arizona Biltmore, 24th Street and Missouri,
Phoenix, Arizona 85016, and at any adjournment or adjournments thereof, and to
vote all shares of Common Stock that the undersigned would be entitled to vote
if then and there personally present, on the matters set forth below:
1. ELECTION OF DIRECTORS:
[ ] FOR the six nominees listed below, except as indicated
[ ] WITHHOLD AUTHORITY to vote for the five nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike
a line through that nominee's name in the list below:
SAM L. LEOPOLD, RICHARD R. ROSS, JAMES A. BROOKS, PETER W. BURG, MICHAEL H.
FEINSTEIN, AND SYLVAN SCHEFLER
2. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION (THE
"CERTIFICATE") TO CLASSIFY THE BOARD OF DIRECTORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO AMEND THE CERTIFICATE TO ADD A PROVISION ALLOWING THE BOARD OF
DIRECTORS TO CONSIDER CERTAIN FACTORS WHEN EVALUATING CERTAIN MATTERS SUCH AS
TENDER OFFERS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO AMEND THE CERTIFICATE TO ELIMINATE ACTIONS BY WRITTEN CONSENT OF
STOCKHOLDERS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO AMEND THE CERTIFICATE TO ADD CERTAIN MINIMUM PRICE AND PROCEDURAL
REQUIREMENTS IN CONNECTION WITH CERTAIN TRANSACTIONS SUCH AS BUSINESS
COMBINATIONS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN (THE "PLAN") TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE PURSUANT TO THE PLAN
FROM 400,000 TO 750,000.
7. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof.
(continued, and to be signed, on other side)
<PAGE> 47
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, FOR THE ELECTION OF DIRECTORS; FOR THE AMENDMENTS TO THE CERTIFICATE;
FOR THE AMENDMENT TO THE PLAN; FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY; AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
A majority of such attorneys or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
Dated: , 1998
-----------------------------------
Signature
-----------------------------------
Signature
(This Proxy should be dated, signed
by the stockholder(s) exactly as
his or her name appears hereon, and
returned promptly in the enclosed
envelope. Persons signing in a
fiduciary capacity should so
indicate. If shares are held by
joint tenants or as community
property, both stockholders should
sign.)
