<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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
STYLING TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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
JUNE 14, 1999
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Styling Technology Corporation, a
Delaware corporation (the "Company"), will be held at 9:00 a.m. (local time), on
Monday, June 14, 1999, at the Company's corporate headquarters at 7400 East
Tierra Buena Lane, Scottsdale, Arizona 85260, for the following purposes:
1. To elect two directors for a three-year term expiring in 2002.
2. 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 750,000 to 1,000,000 shares.
3. To ratify the appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999.
4. 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 April 29, 1999
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.
Sincerely,
Michael L. Kaplan
Secretary
Scottsdale, Arizona
April 30, 1999
<PAGE> 3
STYLING TECHNOLOGY CORPORATION
7400 EAST TIERRA BUENA LANE
SCOTTSDALE, ARIZONA 85260
----------------------------------------------------------------------
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 9:00 a.m. (local time), on Monday, June 14, 1999 (the
"Meeting"), or at any adjournment or adjournments 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 Company's corporate
headquarters at 7400 East Tierra Buena Lane, Scottsdale, Arizona 85260.
These proxy solicitation materials are being mailed on or about May 7,
1999 to all stockholders entitled to vote at the Meeting.
VOTING SECURITIES AND VOTING RIGHTS
Stockholders of record at the close of business on April 29, 1999 (the
"Record Date") are entitled to notice of and to vote at the Meeting. On the
Record Date, there were issued and outstanding 4,067,503 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 outstanding shares of Common Stock 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 (a) to elect directors; (b) to approve the 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 (c) to ratify the
appointment of Arthur Andersen LLP as the independent auditors of the Company
for the fiscal year ending December 31, 1999.
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.
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 (1) "for" the election of the nominees set
forth in this Proxy Statement; (2) "for" approval of the amendment to the 1996
Plan to increase the shares of the Company's Common Stock that may be issued
pursuant to the 1996 Plan; and (3) for the appointment of Arthur Andersen LLP as
the independent auditors of the Company for the fiscal year ending December 31,
1999.
<PAGE> 4
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 1998 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 "Compensation Committee
Report on Executive Compensation" below and "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, UPON WRITTEN REQUEST, 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, 1998 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.
PROPOSAL TO ELECT DIRECTORS
NOMINEES
The Company's First Amended and Restated 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, and that number is divided into three classes, with one class
standing for election each year for three-year terms. The Board of Directors has
nominated James A. Brooks and Sylvan Schefler for re-election at the Meeting as
Class I directors for three-year terms expiring in 2002 or until their
respective successors are elected and qualified. Unless otherwise instructed,
the proxy holders will vote the proxies received by them for Messrs. Brooks and
Schefler. In the event that either nominee is unable or declines to serve as a
director at the time of the Meeting, the proxies will be voted for such
substitute nominee as may be selected by the current Board of Directors. The
Board of Directors has no reason to believe that either of the nominees will be
unable or will decline to serve as a director.
The Board of Directors recommends a vote "FOR" the nominees named
herein.
2
<PAGE> 5
The following table sets forth certain information regarding the
directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM EXPIRES
---- --- -------- ------------
<S> <C> <C>
Sam L. Leopold 45 Chairman of the Board, President, and Chief
Executive Officer(4) 2001
Richard R. Ross 32 Executive Vice President, Chief Financial
Officer, Treasurer, and Director 2001
James A. Brooks 68 Director(1)(4) 1999
Peter W. Burg 43 Director(2)(3)(5) 2000
Michael H. Feinstein 62 Director(1)(2)(3)(5) 2000
Sylvan Schefler 61 Director 1999
</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 and as President of the Company since February 1998.
Mr. Leopold previously owned and served as President and Chairman of Beauty
Boutique International, which was founded in 1990 and operated three retail
beauty salons in Arizona. 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 fewer than 20 retail salons to more than 50 retail
salons. From 1989 to 1991, Mr. Leopold served as President of Avanti
International, Inc. and developed a line of hair care products.
Richard R. Ross has served as Chief Financial Officer and Treasurer of
the Company since April 1997 and as Executive Vice President and a director of
the Company since May 1998. 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 with other
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 been President of Signe Inc., a management consulting firm
for major consumer product companies and a variety of salon industry companies,
since founding that 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
Simpson Eldredge Hersh & Houliston, 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 President and Chief Executive Officer of
Automated Solutions, Inc., a privately held Arizona company, since July 1998.
Mr. Feinstein also serves as a director of Automated Solutions, Inc. Mr.
Feinstein served as a consultant to Samoth Capital Corporation, a publicly owned
real estate company, from April 1998 to July 1998.
3
<PAGE> 6
Mr. Feinstein served as Senior Vice President and Chief Financial Officer of
Monaco Finance, Inc., a publicly held specialty finance company, from July 1995
to April 1998. From September 1993 to July 1995, Mr. Feinstein served initially
as Executive Vice President and subsequently as acting President and Chief
Executive Officer of American Southwest Financial Corporation, which engages 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.
Sylvan Schefler has served as a director of the Company since November
1996. Mr. Schefler has been Chairman of Maxima Group, LLC, a merchant banking
firm, since September 1997, and 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. 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 mutually
acceptable designee, to the Company's Board of Directors for such three-year
period. As a result of this agreement, Mr. Schefler serves as a member of the
Company's Board of Directors.
Directors hold office until their successors have been elected and
qualified. 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 consisting of one or more directors. The
Board of Directors has appointed the following standing committees: a
Compensation Committee, a Senior Committee, an Employee Committee, an Audit
Committee, and 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, which must consist of two or
more non-employee directors, administers the 1996 Stock Option Plan with respect
to executive officers and directors. The Employee Committee administers 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 nine meetings
during the fiscal year ended December 31, 1998. 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 which
such director was a member.
4
<PAGE> 7
DIRECTOR COMPENSATION AND OTHER INFORMATION
Officers of the Company receive no additional compensation for serving
on the Board of Directors. The Company pays each non-employee director an annual
retainer of $5,000 plus a fee of $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. 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. Accordingly, each of
Messrs. Brooks, Burg, Schefler, and Feinstein received options to purchase 2,500
shares of Common Stock at an exercise price equal to $24.00 per share
immediately following the Company's annual meeting of stockholders in May 1998.
In addition, 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.
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 regulations 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, 1998, 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, except that James Henrietta, a former officer of the Company and Mr.
Montrose each filed one late Form 3, and Mr. Burg filed two late Forms 4
covering two transactions.
5
<PAGE> 8
EXECUTIVE COMPENSATION
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, 1997, and 1998 by the Company's Chief Executive Officer and
its other most highly compensated officer whose aggregate cash compensation
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
AWARDS
-------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
-------------------
OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION (1) YEAR SALARY($)(2) BONUS($) (#)(3) ($)(4)
- ------------------------------- ---- ------------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Sam L. Leopold 1998 $200,000 $280,000 325,000(5) $3,750
Chairman of the Board, 1997 $150,000 -- 200,000 --
Chief Executive Officer, 1996 $16,538(6) -- -- --
and President
Richard R. Ross(4) 1998 $150,000 $122,500 125,000(7) $1,563
Executive Vice President, 1997 $ 86,667 -- 79,530 --
Chief Financial Officer,
Treasurer, and Director
</TABLE>
(1) The Company considers Sam L. Leopold, Richard R. Ross, N. Bruce
Cowgill, Michael L. Kaplan, and J. Timothy Montrose to be its executive
officers. Messrs. Cowgill and Kaplan began their employment with the
Company during fiscal 1998. The cash compensation for Messrs. Cowgill,
Kaplan, and Montrose did not exceed $100,000 during fiscal 1998.
(2) Other annual compensation did not exceed 10% of the total salary and
bonus for any of the Named Executive Officers. (3) The exercise prices
of all stock options granted were equal to the fair market value of the
Company's Common Stock on the date of grant.
(4) Amounts shown for fiscal 1998 represent matching contributions made by
the Company to the Company's 401(k) Plan.
(5) Includes 125,000 options that were cancelled in December 1998. See
"Executive Compensation - Option Repricings."
(6) Includes $16,538 in salary earned by Mr. Leopold in fiscal 1996 but
deferred to fiscal 1997.
(7) Includes 50,000 options that were cancelled in December 1998. See
"Executive Compensation - Option Repricings."
6
<PAGE> 9
OPTION GRANTS
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the fiscal year ended December
31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE
% VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Sam L. Leopold........ 125,000(3) 18.1% $15.875 1/29/08(3) $1,247,963 $3,162,583
75,000 10.9% $12.375 9/4/08 $585,693 $1,479,192
125,000 18.1% $9.750 1/29/08 $766,465 $1,942,374
Richard R. Ross....... 50,000(3) 7.3% $15.875 1/29/08(3) $499,185 $1,265,033
25,000 3.6% $12.375 9/4/08 $194,564 $493,064
50,000 7.3% $9.750 1/29/08 $306,586 $776,949
</TABLE>
(1) The options were granted at the fair market value of the shares on the
date of grant and have 10-year terms. One-third of the options vest and
became exercisable on each of the first, second, and third
anniversaries of the date of grant.
(2) Calculated from a base price equal to the exercise price of each
option, which was the fair market value of the Common Stock on the date
of grant. Potential gains are net of the exercise price, but before
taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at
the end of the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the SEC and
do not represent the Company's estimate or projection of the future
price of the Company's Common Stock. Actual gains, if any, on stock
option exercises will depend upon the future market prices of the
Company's Common Stock.
(3) These options were cancelled in December 1998. See "Executive
Compensation - Option Repricings."
OPTION EXERCISES AND HOLDINGS
The following table represents information on options exercised in the
last fiscal year by the Company's Named Executive Officers, and the value of
each such officer's unexercised options at December 31, 1998.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR-ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON REALIZED --------------------------- ----------------------------
NAME EXERCISE (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sam L. Leopold...... -- -- 233,334 166,666 $-- $--
Richard R. Ross..... 5,000 $66,250 69,386 80,144 $-- $--
</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.
7
<PAGE> 10
(2) The exercise prices of all options held by the Named Executive Officers
are greater than or equal to the closing sales price of the Common
Stock as quoted on the Nasdaq National Market on December 31, 1998 of
$9.25 per share.
OPTION REPRICINGS
The following table sets forth certain information with respect to the
cancellation of outstanding stock options held by and the grant of replacement
options to the Company's executive officers during fiscal 1998. The Company has
not repriced any other options held by any of the Company's other executive
officers since November 21, 1996, the date on which the Company's Common Stock
became registered under Section 12 of the Exchange Act as a result of the
Company's initial public offering. See "Compensation Committee Report on
Executive Compensation - Stock Option Grants."
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF MARKET LENGTH OF
SECURITIES PRICE OF EXERCISE ORIGINAL
UNDERLYING STOCK AT PRICE AT OPTION TERM
OPTIONS TIME OF TIME OF REMAINING AT
REPRICED OR REPRICING OR REPRICING OR DATE OF
NAME AND PRINCIPAL AMENDED AMENDMENT AMENDMENT NEW EXERCISE REPRICING OR
POSITION DATE (#) ($) ($) PRICE($) AMENDMENT
--------- ----- ---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sam L. Leopold............ 12/14/98 125,000 $9.750 $15.875 $9.750 9 yrs., 2 mos.
Richard R. Ross........... 12/14/98 50,000 $9.750 $15.875 $9.750 9 yrs., 2 mos.
N. Bruce Cowgill, Executive
Vice President - 12/14/98 50,000 $9.750 $12.375 $9.750 9 yrs., 9 mos.
Operations................
Michael L. Kaplan, Executive
Vice President, General
Counsel, and Secretary.. 12/14/98 12,500 $9.750 $12.375 $9.750 9 yrs., 9 mos.
J. Timothy Montrose, Chief
Accounting Officer..... 12/14/98 5,000 $9.750 $15.875 $9.750 9 yrs., 2 mos.
</TABLE>
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 received a base salary of $200,000
for 1998 and will receive a base salary of $250,000 per annum for the remainder
of the term of his employment agreement.
401(k) PROFIT SHARING PLAN
In April 1998, the Company established a defined contribution plan (the
"401(k) Plan") that qualifies as a cash or deferred profit sharing plan under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"). Under the 401(k) Plan, participating employees may
defer from 1% to 20% of their pre-tax compensation, subject to the maximum
allowed under the Internal Revenue Code. The Company will contribute $.50 for
each dollar contributed by the employee, up to a maximum contribution of 5% of
the employee's contribution. In addition, the 401(k) Plan provides that the
Company may make an employer profit sharing contribution in such amounts as may
be determined by the Board of Directors. The Company's matching contribution
vests 25% each year the employee remains in service, and employees will be fully
vested after four years of service. If the employee terminates service to the
Company, any unvested portion of the Company's matching contribution will remain
in the 401(k) plan.
8
<PAGE> 11
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan provides for the granting of stock
options and other awards to key personnel, including officers and directors, as
well as consultants and independent contractors who provide valuable services to
the Company. A maximum of 750,000 shares of Common Stock currently may be issued
under the 1996 Plan. The Board of Directors has amended the 1996 Plan to
increase the number of shares authorized for issuance from 750,000 to 1,000,000
shares, subject to stockholder approval at the Meeting. See "Proposal to Amend
the Company's 1996 Stock Option Plan."
1998 EMPLOYEE STOCK OPTION PLAN
GENERAL
The purpose of the 1998 Employee Stock Option Plan (the "1998 Plan") is
to further the interests of the Company and it stockholders by encouraging
employees associated with the Company to acquire shares of the Company's Common
Stock, thereby acquiring a proprietary interest in its business and an increased
personal interest in its continued success and progress. The 1998 Plan provides
for the grant of nonqualified options to acquire Common Stock of the Company.
The 1998 Plan is not intended to be the exclusive means by which the Company may
issue options or warrants to acquire its Common Stock. To the extent permitted
by applicable law and the rules and regulations of the Nasdaq National Market,
the Company may issue any other options, warrants, or awards other than pursuant
to the 1998 Plan without stockholder approval.
SHARES SUBJECT TO THE PLAN
A maximum of 150,000 shares of Common Stock of the Company may be
issued under the 1998 Plan. If any option expires or terminates without having
been exercised in full, stock not issued under such option will again be
available for the purposes of the 1998 Plan. If shares of stock are used to pay
for the exercise price, those shares will be added to the shares available under
the 1998 Plan. If any change is made in the stock subject to the 1998 Plan or
subject to any option granted under the 1998 Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, split-up,
combination of shares, exchange of shares, change in corporate structure, or
otherwise), the 1998 Plan provides that appropriate adjustments will be made as
to the maximum number of shares subject to the 1998 Plan and the number of
shares and exercise price per share of stock subject to outstanding options. As
of April 29, 1999, no shares of Common Stock have been issued upon exercise of
options granted under the 1998 Plan, 74,750 options were outstanding under the
1998 Plan, and an additional 75,250 options remained available for grant under
the 1998 Plan.
ELIGIBILITY AND ADMINISTRATION
Options may be granted pursuant to the 1998 Plan only to persons who at
the time of grant are employees of or consultants to the Company. Any executive
officer (as that term is defined in Rule 16a-1(f) under the Exchange Act) or
director of the Company and all persons who own 10 percent or more of the
Company's issued and outstanding stock are not eligible to receive options under
the 1998 Plan.
The Board of Directors administers the 1998 Plan, except that the Board
of Directors may delegate its power to administer the 1998 Plan (including the
power to amend the 1998 Plan) to a committee appointed by the Board of Directors
consisting of one or more persons who are members of the Board of Directors. The
plan administrator determines (i) which of the eligible persons will be granted
options; (ii) the number of shares to be covered by each grant; (iii) the time
or times at which each such option is to become exercisable; and (iv) the
maximum term for which the option is to be outstanding.
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<PAGE> 12
TERMS AND CONDITIONS OF OPTIONS; EXERCISE PRICES; EXERCISE OF OPTIONS
The plan administrator will determine the expiration date, vesting
conditions, maximum number of shares purchasable, and the other provisions of
the options at the time of grant. No option may be granted for a term in excess
of 10 years. Options will vest and 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. All outstanding options under the 1998 Plan will
automatically terminate upon completion of a merger or consolidation in which
the Company is not the surviving corporation. Although the plan administrator
will determine the exercise prices of the options at the time of grant, the
exercise price of all options granted under the 1998 Plan may not be less than
100 percent of the fair market value of the Common Stock on the date of the
grant.
To exercise an option, the optionholder will be required to provide the
Company written notice of his or her election to exercise the option, and
deliver to the Company full payment of the exercise price for the shares as to
which the option is being exercised. Generally, options can be exercised by
delivery of cash, check, or shares of Common Stock of the Company.
TRANSFERABILITY OF OPTIONS; TERMINATION OF EMPLOYMENT OR SERVICES
Except as otherwise allowed by the plan administrator, options granted
under the 1998 Plan are nontransferable other than by will or by the laws of
descent and distribution upon the death of the holder and, during the lifetime
of the holder, are exercisable only by such holder. If any holder terminates his
or her relationship with the Company for reasons other than death or permanent
disability (as defined in the Internal Revenue Code), the holder will have one
month to exercise some or all of the options that the holder was entitled to
exercise on the date of the termination of his or her relationship with the
Company, but in no event after the option's stated expiration date. If the
Company terminates a holder's relationship with the Company under certain
conditions, the holder will be unable to exercise such options.
In the event of the death of the holder, the holder's successors may
exercise the holder's options within the earlier of three months from his or her
death or the stated expiration date of his or her options. If a holder
terminates his or her relationship with the Company due to permanent disability
(as defined in the Internal Revenue Code), he or she shall have 12 months from
the date of termination of service to exercise options that he or she was
entitled to exercise on the date of the termination of his or her relationship
with the Company due to permanent disability, but in no event after the options
expire.
DURATION AND MODIFICATION
The 1998 Plan will remain in effect until May 4, 2008. The Board of
Directors of the Company may, without action on the part of the Company's
stockholders, amend, change, or add to the 1998 Plan from time to time as it
deems necessary or appropriate and in the best interests of the Company. The
Board of Directors may not, without the consent of the holders of options, take
any action which adversely affects or impairs (i) the rights of the holders of
options, or (ii) any options outstanding under the 1998 Plan.
10
<PAGE> 13
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS, AND OFFICERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock on April 29, 1999 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
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1)(2) PERCENT
---------------------- --------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Sam L. Leopold........................................................... 1,091,185(3) 25.4%
Richard R. Ross.......................................................... 69,386(4) 1.7%
N. Bruce Cowgill......................................................... 10,000(4) *
Michael L. Kaplan........................................................ 500 *
J. Timothy Montrose...................................................... 3,334(4) *
James A. Brooks.......................................................... 2,500(4) *
Peter W. Burg............................................................ 16,075(5) *
Michael H. Feinstein..................................................... 7,500(4) *
Sylvan Schefler.......................................................... 26,240(6) *
Directors and executive officers as a group (nine persons)............... 1,226,720(7) 27.7%
5% STOCKHOLDERS:
Lance Laifer............................................................. 722,800(8) 17.8%
Hilltop Partners, L.P.................................................... 363,100(8) 8.9%
Putnam Investments, Inc.................................................. 248,963(9) 6.1%
Jon D. Gruber............................................................ 248,000(10) 6.1%
J. Patterson McBaine..................................................... 229,300(10) 5.6%
Geoffrey Nixon........................................................... 206,500(11) 5.1%
</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. Except as otherwise indicated, each of such
persons may be reached through the Company at 7400 East Tierra Buena
Lane, Scottsdale, Arizona 85260.
(2) The percentages shown are calculated based upon 4,067,503 shares of
Common Stock outstanding April 29, 1999. The numbers and percentages
shown include the shares of Common Stock actually owned as of April 29,
1999 and the shares of Common Stock that the person or group had the
right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock that the identified
person or group had the right to acquire within 60 days of April 29,
1999 upon the exercise of options and warrants are deemed to be
outstanding for the purpose of computing the percentage of the shares
of Common Stock owned by such person or group, but are not deemed to be
outstanding for the purpose of computing the percentage of the shares
of Common Stock owned by any other person.
(3) Includes 233,334 shares of Common Stock issuable upon the exercise of
stock options.
(4) Represents shares of Common Stock issuable upon the exercise of stock
options.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise of
stock options.
(6) Includes 10,000 shares of Common Stock issuable upon the exercise of
stock options, and 16,240 shares of Common Stock issuable upon the
exercise of warrants issued to Mr. Schefler.
(7) Includes 346,054 shares of Common Stock issuable upon the exercise of
stock options and 16,240 shares of Common Stock issuable upon the
exercise of warrants.
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<PAGE> 14
(8) Mr. Laifer, as the President, sole director, and principal stockholder
of Laifer Capital Management, Inc., may be deemed to be the beneficial
owner of 363,100 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 359,700 shares of
Common Stock beneficially owned by Laifer Capital Management, Inc. in
its capacity as Investment Advisor to various other clients. These
clients include (i) various Wolfson family entitles, and (ii) Hilltop
Offshore Limited. Laifer Capital Management, Inc. has sole voting and
dispositive power with respect to the 363,100 shares of Common Stock
beneficially owned by Hilltop Partners, L.P. Laifer Capital Management,
Inc. also has sole voting and dispositive power with respect to 49,200
shares of Common Stock owned by Hilltop Offshore Limited and shared
voting and dispositive power with respect to 310,500 shares of Common
Stock beneficially owned by the various Wolfson family entities. The
address of Mr. Laifer and Hilltop Partners, L.P. 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 8, 1999.
(9) Represents shares of Common Stock beneficially owned by Putnam
Investments, Inc. ("PI"), a wholly owned subsidiary of Marsh & McLennan
Companies, Inc. ("M&MC"), each of which is a registered investment
adviser. All of such shares are beneficially owned by subsidiaries of
PI that are registered investment advisers. PI has shared dispositive
power with respect to all of such shares, and shared voting power with
respect to 10,263 of such shares. PI and M&MC disclaim beneficial
ownership of such shares, and disclaim any power to vote or dispose of
such shares. PI's principal address is One Post Office Square, Boston,
Massachusetts, 02109. Beneficial ownership information is based upon a
Schedule 13G filed with the SEC dated as of February 11, 1999.
(10) Represents shares of Common Stock beneficially owned by Jon D. Gruber
and J. Patterson McBaine in their capacities as the sole directors and
executive officers of Gruber and McBaine Capital Management and various
other entities controlled by Messrs. Gruber and McBaine. Mr. Gruber has
shared voting power and shared dispositive power with respect to
217,300 of such shares, and sole voting power and sole dispositive
power with respect to 30,700 of such shares. Mr. McBaine has shared
voting power and shared dispositive power with respect to 217,300 of
such shares, and sole voting power and sole dispositive power with
respect to 12,000 of such shares. The principal address of Messrs.
Gruber and McBaine is 50 Osgood Place, Penthouse, San Francisco,
California, 94133. Beneficial ownership information is based upon a
Schedule 13G filed with the SEC dated as of December 9, 1997.
(11) Represents 206,500 shares of Common Stock beneficially owned by
Geoffrey Nixon and various entities over which MCM Associates, Ltd.
("MCM") has sole investment discretion. Mr. Nixon is the sole
shareholder, director, and officer of MCM. Mr. Nixon, through joint
ownership with his wife, and MCM, as sole investment manager, have sole
voting power and sole dispositive power over the shares indicated. Mr.
Nixon's principal business address is 11 West 42nd Street, 19th Floor,
New York, New York 10036. Beneficial ownership information is based
upon a Schedule 13G filed with the SEC dated as of January 29, 1999.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Company's Board of Directors has appointed a Compensation Committee
consisting of two non-employee directors. Decisions on compensation of the
Company's executives generally are made by the Compensation Committee.
Performance evaluation and compensation decisions relating to 1998 were 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
12
<PAGE> 15
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.
The Company follows a subjective and flexible approach rather than an
objective or formula approach to compensation. Various factors (as discussed
below) receive consideration without any particular weighting or emphasis on any
one factor. In establishing compensation for the year ended December 31, 1998,
the Committee 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 Committee may use competitive surveys and
outside consultants to help determine the relative competitive pay levels. The
Committee 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.
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. During the fiscal year ended December 31, 1998, the Committee
issued cash bonuses of $280,000 to Mr. Leopold, and $122,500 to Mr. Ross.
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.
During 1998, the Board of Directors granted options to acquire 357,500
shares of Common Stock to certain key employees of the Company. These option
grants included options to acquire 125,000, 50,000, and 5,000 shares of Common
Stock to Messrs. Leopold, Ross, and Montrose, respectively, at an exercise price
of $15.875 per share, as well as options to acquire 50,000 and 12,500 shares of
Common Stock to Messrs. Cowgill and Kaplan, respectively, at an exercise price
of $12.375 per share. In December 1998, the Board of Directors authorized the
cancellation and regrant of these options. The exercise price for the
replacement options was fixed at $9.75 per share, which was the market price of
the Company's Common Stock at the time of the new grant. Stock options granted
to employees under the Company's stock option plans are intended to provide
incentives to the employees to work to achieve long-term success for the
Company. The decline in the market price of the Company's Common Stock following
the respective grant dates frustrated the purpose of the options, and the Board
of Directors deemed it to be in the best interest of the Company to cancel the
original options to these key employees and grant them replacement options with
an exercise price equal to market price at the time of the new grant. The
Committee did not modify the vesting period of the repriced options. See the
table included under "Executive Compensation - Option Repricings" for further
information on the option repricings.
OTHER BENEFITS
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company.
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<PAGE> 16
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 "Executive
Compensation - Employment Agreements." During the fiscal year ended December 31,
1998, Mr. Leopold's base pay was $200,000 and the Committee issued to Mr.
Leopold a cash bonus of $280,000. See the table under "Executive Compensation -
Option Grants" for information regarding options granted to Mr. Leopold in
fiscal 1998.
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
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, the Company's
Compensation Committee consisted of Peter S. Burg and Michael H. Feinstein,
currently directors of the Company. Neither of those individuals had any
contractual or other relationships with the Company during 1998 except as
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Burg, a member of the Company's Board of Directors, is a partner of
Burg Simpson Eldredge Hersh & Houliston, P.C., attorneys at law, who provided
legal services to the Company during fiscal 1998. The Company believes that
these services were provided on terms no less favorable to the Company than
could have been obtained from an unrelated firm.
14
<PAGE> 17
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 (a) 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 (b) an investment in the Index of $100 on
October 31, 1996. The graph covers the period from November 21, 1996 through the
fiscal year ended 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 12/96 12/97 12/98
<S> <C> <C> <C> <C>
Styling Technology Corporation 100 106 167 95
Peer Group 100 75 93 127
S&P SmallCap 600 100 106 134 137
</TABLE>
15
<PAGE> 18
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
full text of the 1996 Plan, as amended, is included as "Appendix A" to this
proxy statement.
The 1996 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 interests in
the Company as an incentive to remain in service to the Company. Presently, a
total of 750,000 shares of Common Stock may be issued under the 1996 Plan. As of
April 19, 1999, an aggregate of 17,800 shares of Common Stock had been issued
upon exercise of options granted under the 1996 Plan and there were 720,564
options outstanding under the 1996 Plan. At that time, the directors determined
that an increase was necessary to provide a sufficient number of shares to
enable the Company to continue to attract, retain, and motivate key personnel by
making additional grants under the 1996 Plan. Accordingly, on that date the
Board of Directors amended the 1996 Plan to increase the number of shares of
Common Stock that may be issued pursuant to the 1996 Plan from 750,000 to
1,000,000 shares. The Board of Directors recommends a vote "FOR" the proposed
amendment to the 1996 Plan.
GENERAL TERMS OF THE 1996 PLAN
The 1996 Plan is divided into 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 1996 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 1996 Plan, or subject
to any Option or SAR granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination of
shares, exchange of shares, change in corporate structure, or otherwise), the
1996 Plan provides that appropriate adjustments will be made as to the maximum
number of shares subject to the 1996 Plan and the number of shares and exercise
price per share of stock subject to outstanding Options or Awards. An
optionholder will not have any of the rights of a stockholder with respect to
optioned shares until such holder exercises the Option.
The 1996 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 1996 Plan without stockholder approval.
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
16
<PAGE> 19
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 is 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 16b-3(b)(3)(i)
promulgated under the Exchange Act) who are appointed by the Board of Directors
(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 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 1996 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. 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 1996 Plan may not exceed 50% of the shares of
stock covered by the 1996 Plan.
EXERCISE OF OPTIONS AND AWARDS
The expiration date, maximum number of shares purchasable, and the
other provisions of Options and Awards, including vesting provisions, are
established at the time of grant. Options may be granted for terms of up to 10
years. Options and Awards 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 or Awards. 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 1996 Plan).
The exercise prices of Options are determined by the Plan
Administrator, but if the Option is intended to be an incentive stock option, if
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.
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 1996 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.
17
<PAGE> 20
AWARDS
The Plan Administrators also may grant Awards to Eligible Persons under
the 1996 Plan. Awards may be granted in the form of SARs, Stock Awards, or Cash
Awards. Through April 29, 1999, no 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 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 1996 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. Cash
Awards entitle the recipient to receive direct payments of cash depending on the
market value or the appreciation of 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.
TERMS AND CONDITIONS OF AUTOMATIC OPTIONS
New non-employee members of the Board of Directors automatically
receive an option to acquire 5,000 shares of Common Stock ("Initial Automatic
Option") on the date of his or her first appointment or election to the Board of
Directors. Each year at the meeting of the Board of Directors held immediately
after the Company's annual meeting of stockholders, each non-employee member of
the Board of Directors automatically will be granted an option to acquire 2,500
shares of Common Stock ("Annual Automatic Option"). Each Automatic Option will
become exercisable and vest on the first anniversary of the applicable grant
date. A non-employee 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 member
receiving an Initial Automatic Option. The exercise price per share of Common
Stock subject to each Annual Automatic Option and Initial Automatic Option is
equal to 100% of the fair market value per share on the applicable date of
grant. 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.
DURATION AND MODIFICATION
The 1996 Plan will remain in force until September 2006. The Board of
Directors of the Company may amend the 1996 Plan at any time 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 (a) increase the maximum number of shares of Common Stock subject to the
1996 Plan, except in the case of certain organic changes to the Company, (b)
reduce the exercise price at which Options may be granted or the exercise price
for which any outstanding Option may be exercised, (c) extend the term of the
1996 Plan, (d) change the class of persons eligible to receive Options or Awards
under the 1996 Plan, or (e) materially increase the benefits accruing to
participants under the 1996 Plan. In addition, the Board may not, without the
consent of the optionholder, take any action that disqualifies any Option
previously granted under the 1996 Plan for treatment as an incentive stock
option or which adversely affects or impairs the rights of the holder of any
outstanding Option. Notwithstanding the foregoing, the Board of Directors may
amend the 1996 Plan from time to time as it deems necessary in order to meet the
requirements of any amendments to the rules under Section 16 of the Exchange Act
without the consent of the stockholders of the Company.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
Certain options granted under the 1996 Plan will be intended to qualify
as incentive stock options under Section 422 of the Internal Revenue Code.
Accordingly, there will be no taxable income to an employee when an incentive
stock option is granted to him or her or 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
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<PAGE> 21
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 1996 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
will be governed by the Internal Revenue Code. Under Section 83, the excess of
the fair market value of the shares of the Common Stock acquired pursuant to the
exercise 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 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
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.
REASONS FOR AND EFFECT OF THE PROPOSED AMENDMENT
The Board of Directors believes that the approval of the proposed
amendment to the 1996 Plan is necessary to achieve the purposes of the 1996 Plan
and to promote the welfare of the Company and its stockholders generally. The
Board of Directors believes that the proposed amendment to the 1996 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 interests of the directors, officers, and key
employees with that of the stockholders.
RATIFICATION BY STOCKHOLDERS OF THE AMENDMENT TO THE 1996 PLAN
Upon approval of the amendment to the Company's 1996 Plan by the
stockholders of the Company, the effective date of the amendment will be April
19, 1999. In the event that the amendment to the Company's 1996 Plan is not
approved by the stockholders, the 1996 Plan will remain in effect as previously
adopted. Any options outstanding under the 1996 Plan prior to the amendment will
remain valid and unchanged, except that if the stockholders do not approve the
proposed amendment, any options granted in excess of the 750,000 shares
originally authorized for issuance under the 1996 Plan will automatically be
terminated and of no further force and effect, as though they had never been
granted.
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, 1999 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 anticipate 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.
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DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented by stockholders
at the annual meeting of stockholders of the Company to be held during calendar
2000 must be received by the Company no later than January 7, 2000 to be
included in the proxy statement and form of proxy relating to such meeting.
Pursuant to Rule 14a-4 under the Exchange Act, the Company intends to retain
discretionary authority to vote proxies with respect to stockholder proposals
for which the proponent does not seek inclusion of the proposed matter in the
Company's proxy statement for the annual meeting to be held during calendar
2000, except in circumstances where (i) the Company receives notice of the
proposed matter no later than March 23, 2000, and (ii) the proponent complies
with the other requirements set forth in Rule 14a-4.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Meeting.
If any other matters properly come before the Meeting, the persons named in the
enclosed proxy card intend to vote the shares they represent as the Board of
Directors may recommend.
Dated: April 30, 1999
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APPENDIX A
STYLING TECHNOLOGY CORPORATION
1996 STOCK OPTION PLAN
(AS AMENDED THROUGH APRIL 19, 1999)
ARTICLE I
GENERAL
1.1 PURPOSE OF PLAN; TERM
1.1.1 ADOPTION. On September 19, 1996, the Board of Directors
(the "Board") of Styling Technology Corporation (formerly known as Leopold
Styling Products, Inc.), a Delaware corporation (the "Company"), adopted a stock
option plan to be known as the 1996 Stock Option Plan. On July 3, 1997, the
Board adopted a newly Amended and Restated 1996 Stock Option Plan whereby
certain technical changes were made. This Amended and Restated Stock Option Plan
shall be known as the Styling Technology Corporation 1996 Stock Option Plan (the
"Plan").
1.1.2 DEFINED TERMS. All initially capitalized terms used
hereby shall have the meaning set forth in Article V hereto.
1.1.3 GENERAL PURPOSE. The Plan shall be divided into two
programs: the Discretionary Grant Program and the Automatic Grant Program.
1.1.3.1. DISCRETIONARY GRANT PROGRAM. The purpose of the
Discretionary Grant Program is to further the interests of the Company and its
stockholders by encouraging key persons associated with the Company (or Parent
or Subsidiary Corporations) to acquire shares of the Company's Stock, thereby
acquiring a proprietary interest in its business and an increased personal
interest in its continued success and progress. Such purpose shall be
accomplished by providing for the discretionary granting of options to acquire
the Company's Stock ("Discretionary Options"), the direct granting of the
Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
1.1.3.2. AUTOMATIC GRANT PROGRAM. The purpose of the
Automatic Grant Program is to promote the interests of the Company by providing
non-employee members of the Company's Board of Directors (the "Board") the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company and to thereby have an increased personal
interest in its continued success and progress. Such purpose shall be
accomplished by providing for the automatic grant of options to acquire the
Company's Stock ("Automatic Options").
1.1.4 CHARACTER OF OPTIONS. Discretionary Options granted
under this Plan to employees of the Company (or Parent or Subsidiary
Corporations) that are intended to qualify as "incentive stock options" as
defined in Code section 422 ("Incentive Stock Options") will be specified in the
applicable stock option agreement. All other Options granted under this Plan
will be nonqualified options.
1.1.5 RULE 16b-3 PLAN. If the Company becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Plan is thereafter intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the 1934 Act. To the extent any provision of the Plan or action by a Plan
Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by such Plan Administrator. In
addition, the Board may amend the Plan from time to time as it deems necessary
in order to meet the requirements of any amendments to Rule 16b-3 without the
consent of the stockholders of the Company.
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1.1.6 DURATION OF PLAN. The term of the Plan is 10 years
commencing on the date of adoption of the Plan by the Board as specified in
Section 1.1(a) hereof. No Option or Award shall be granted under the Plan unless
granted within 10 years of the adoption of the Plan by the Board, but Options or
Awards outstanding on that date shall not be terminated or otherwise affected by
virtue of the Plan's expiration.
1.2 STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN.
1.2.1 DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The
shares of stock subject to the provisions of the Plan and issuable upon the
grant of Stock Awards or upon the exercise of SARs or Options granted under the
Plan are shares of the Company's common stock, $.0001 par value per share (the
"Stock"), which may be either unissued or treasury shares, as the Board may from
time to time determine. The Company may not issue more than 1,000,000 shares of
Stock pursuant to the Plan, unless the Plan is amended as provided in Section
1.3 or the maximum number of shares subject to the Plan is adjusted as provided
in Section 4.1.
1.2.2 CALCULATION OF AVAILABLE SHARES. The number of shares of
Stock available under the Plan shall be reduced: (i) by any shares of Stock
issued (including any shares of Stock withheld for tax withholding requirements)
upon exercise of an Option and (ii) by any shares of Stock issued (including any
shares of Stock withheld for tax withholding requirements) upon the grant of a
Stock Award or the exercise of a SAR.
1.2.3 RESTORATION OF UNPURCHASED SHARES. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 APPROVAL; AMENDMENTS.
1.3.1 APPROVAL BY STOCKHOLDERS. The Plan shall be submitted to
the stockholders of the Company for their approval at a regular or special
meeting to be held within 12 months after the adoption of the Plan by the Board.
Stockholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and voting at the meeting. The date such stockholder approval has been
obtained shall be referred to herein as the "Effective Date."
1.3.2 COMMENCEMENT OF PROGRAMS. The Automatic Grant Program
will not be effective until the later of the Effective Date or the Registration
Date. The "Registration Date" will be the first date that any equity security of
the Company becomes registered under Section 12 of the 1934 Act. The
Discretionary Grant Program is effective immediately, but if the Plan is not
approved by the stockholders within 12 months after its adoption by the Board,
the Plan and all Discretionary Options and Awards made under the Discretionary
Grant Program will automatically terminate and be forfeited to the same extent
and with the same effect as though the Plan had never been adopted.
1.3.3 AMENDMENTS TO PLAN. The Board may, without action on the
part of the Company's stockholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board may
not, without the consent of the applicable Optionholder, take any action which
disqualifies any Discretionary 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 Discretionary Option outstanding under the
Plan, and further provided that, except as provided in Article IV hereof, the
Board may not, without the approval of the Company's stockholders, (i) increase
the aggregate number of shares of Stock subject to the Plan, (ii) reduce the
exercise price at which Discretionary Options may be granted or the exercise
price at which any outstanding Discretionary Option may be exercised, (iii)
extend the term of the Plan, (iv) change the class of persons eligible to
receive Discretionary Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Discretionary Options or Awards may be granted under this Plan to
purchase shares of Stock in excess of the number of shares then available for
issuance under the Plan if (A) an amendment to increase the maximum number of
shares issuable under the Plan is adopted by the Board prior to the initial
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grant of any such Option or Award and within one year thereafter such amendment
is approved by the Company's stockholders and (B) each such Discretionary Option
or Award granted does not become exercisable or vested, in whole or in part, at
any time prior to the obtaining of such stockholder approval.
ARTICLE II
DISCRETIONARY GRANT PROGRAM
2.1 PARTICIPANTS; ADMINISTRATION.
2.1.1 ELIGIBILITY AND PARTICIPATION. Discretionary Options and
Awards may be granted only to persons ("Eligible Persons") who at the time of
grant are (i) key personnel (including officers and directors) of the Company or
Parent or Subsidiary Corporations, or (ii) consultants or independent
contractors who provide valuable services to the Company or Parent or Subsidiary
Corporations; provided that (1) Incentive Stock Options may only be granted to
key personnel of the Company (and its Parent or Subsidiary Corporations) who are
also employees of the Company (or its Parent or Subsidiary Corporations); and
(2) 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 shall not exceed 50
percent of the shares of stock covered by the Plan. A Plan Administrator shall
have full authority to determine which Eligible Persons in its administered
group are to receive Discretionary Option grants under the Plan, the number of
shares to be covered by each such grant, whether or not the granted
Discretionary Option is to be an Incentive Stock Option, the time or times at
which each such Discretionary Option is to become exercisable, and the maximum
term for which the Discretionary Option is to be outstanding. A Plan
Administrator shall also have full authority to determine which Eligible Persons
in such group are to receive Awards under the Discretionary Grant Program and
the conditions relating to such Award.
2.1.2 GENERAL ADMINISTRATION. The Eligible Persons under the
Discretionary Grant Program shall be divided into two groups and there shall be
a separate administrator for each group. One group will be comprised of Eligible
Persons that are Affiliates. For purposes of this Plan, the term "Affiliates"
shall mean all "officers" (as that term is defined in Rule 16a-1(f) promulgated
under the 1934 Act) and directors of the Company and all persons who own ten
percent or more of the Company's issued and outstanding equity securities.
Initially, the power to administer the Discretionary Grant Program with respect
to Eligible Persons that are Affiliates shall be vested with the Board. At any
time, however, the Board may vest the power to administer the Discretionary
Grant Program with respect to Persons that are Affiliates exclusively with a
committee (the "Senior Committee") comprised of two or more Non-Employee
Directors which are appointed by the Board. The Senior Committee, in its sole
discretion, may require approval of the Board for specific grants of
Discretionary Options or Awards under the Discretionary Grant Program. The
administration of all Eligible Persons that are not Affiliates
("Non-Affiliates") shall be vested exclusively with the Board. The Board,
however, may at any time appoint a committee (the "Employee Committee") of two
or more persons who are members of the Board and delegate to such Employee
Committee the power to administer the Discretionary Grant Program with respect
to the Non-Affiliates. In addition, the Board may establish an additional
committee or committees of persons who are members of the Board and delegate to
such other committee or committees the power to administer all or a portion of
the Discretionary Grant program with respect to all or a portion of the Eligible
Persons. Members of the Senior Committee, Employee Committee or any other
committee allowed hereunder shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any time. The Board
may at any time terminate all or a portion of the functions of the Senior
Committee, the Employee Committee, or any other committee allowed hereunder and
reassume all or a portion of powers and authority previously delegated to such
committee. The Board in its discretion may also require the members of the
Senior Committee, the Employee Committee or any other committee allowed
hereunder to be "outside directors" as that term is defined in any applicable
regulations promulgated under Code section 162(m).
2.1.3 PLAN ADMINISTRATORS. The Board, the Employee Committee,
Senior Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Discretionary Grant Program, to grant Discretionary Options or Awards under the
Discretionary Grant Program, to establish such rules and regulations
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as they may deem appropriate with respect to the proper administration of the
Discretionary Grant Program and to make such determinations under, and issue
such interpretations of, the Discretionary Grant Program and any outstanding
Discretionary Option or Award as they may deem necessary or advisable. Unless
otherwise required by law or specified by the Board with respect to any
committee, decisions among the members of a Plan Administrator shall be by
majority vote. Decisions of a Plan Administrator shall be final and binding on
all parties who have an interest in the Discretionary Grant Program or any
outstanding Discretionary Option or Award.
2.1.4 GUIDELINES FOR PARTICIPATION. In designating and
selecting Eligible Persons for participation in the Discretionary Grant Program,
a Plan Administrator shall consult with and give consideration to the
recommendations and criticisms submitted by appropriate managerial and executive
officers of the Company. A Plan Administrator also shall take into account the
duties and responsibilities of the Eligible Persons, their past, present and
potential contributions to the success of the Company and such other factors as
a Plan Administrator shall deem relevant in connection with accomplishing the
purpose of the Plan.
2.2 TERMS AND CONDITIONS OF DISCRETIONARY OPTIONS
2.2.1 ALLOTMENT OF SHARES. A Plan Administrator shall
determine the number of shares of Stock to be optioned from time to time and the
number of shares to be optioned to any Eligible Person (the "Optioned Shares").
The grant of a Discretionary Option to a person shall neither entitle such
person to, nor disqualify such person from, participation in any other grant of
Options or Stock Awards under this Plan or any other stock option plan of the
Company.
2.2.2 EXERCISE PRICE. Upon the grant of any Discretionary
Option, a Plan Administrator shall specify the option price per share. If the
Discretionary Option is intended to qualify as an Incentive Stock Option under
the Code, the option price per share may not be less than 100 percent of the
fair market value per share of the stock on the date the Discretionary Option is
granted (110 percent if the Discretionary Option is granted to a stockholder who
at the time the Discretionary Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of any Parent or Subsidiary Corporation). The
determination of the fair market value of the Stock shall be made in accordance
with the valuation provisions of Section 4.5 hereof.
2.2.3 INDIVIDUAL STOCK OPTION AGREEMENTS. Discretionary
Options granted under the Plan shall be evidenced by option agreements in such
form and content as a Plan Administrator from time to time approves, which
agreements shall substantially comply with and be subject to the terms of the
Plan, including the terms and conditions of this Section 2.2. As determined by a
Plan Administrator, each option agreement shall state (i) the total number of
shares to which it pertains, (ii) the exercise price for the shares covered by
the Option, (iii) the time at which the Options vest and become exercisable and
(iv) the Option's scheduled expiration date. The option agreements may contain
such other provisions or conditions as a Plan Administrator deems necessary or
appropriate to effectuate the sense and purpose of the Plan, including covenants
by the Optionholder not to compete and remedies for the Company in the event of
the breach of any such covenant.
2.2.4 OPTION PERIOD. No Discretionary Option granted under the
Plan that is intended to be an Incentive Stock Option shall be exercisable for a
period in excess of 10 years from the date of its grant (five years if the
Discretionary Option is granted to a stockholder who at the time the
Discretionary Option is granted owns or is deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or of any Parent or any Subsidiary Corporation), subject to earlier
termination in the event of termination of employment, retirement or death of
the Optionholder. A Discretionary Option may be exercised in full or in part at
any time or from time to time during the term of the Discretionary Option or
provide for its exercise in stated installments at stated times during the
Option's term.
2.2.5 VESTING; LIMITATIONS. The time at which Optioned Shares
vest with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
a Discretionary Option is intended to qualify as an Incentive Stock Option, the
aggregate fair market
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value (determined as of the respective date or dates of grant) of the Stock for
which one or more Options granted to any person under this Plan (or any other
option plan of the Company or its Parent or Subsidiary Corporations) may for the
first time become exercisable as Incentive Stock Options during any one calendar
year shall not exceed the sum of $100,000 (referred to herein as the "$100,000
Limitation"). To the extent that any person holds two or more Options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability as an Incentive Stock Option shall be applied
on the basis of the order in which such Options are granted.
2.2.6 NO FRACTIONAL SHARES. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Discretionary Option granted under the Plan.
2.2.7 METHOD OF EXERCISE. To exercise a Discretionary Option,
an Optionholder (or in the case of an exercise after an Optionholder's death,
such Optionholder's executor, administrator, heir or legatee, as the case may
be) must take the following action:
2.2.7.1. execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Discretionary
Option specifying the number of shares of Stock with respect to which the
Discretionary Option is being exercised;
2.2.7.2. pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
2.2.7.3. furnish appropriate documentation that the
person or persons exercising the Discretionary Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company will mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Discretionary Option under the Plan) a certificate or certificates
representing the Stock acquired upon exercise of the Discretionary Option. In no
event may any Discretionary Option be exercised for any fractional shares.
2.2.8 PAYMENT OF OPTION PRICE. The aggregate Option Price
shall be payable in one of the alternative forms specified below:
2.2.8.1. Full payment in cash or check made payable to
the Company's order; or
2.2.8.2. Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
2.2.8.3. If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
2.2.9 REPURCHASE RIGHT. The Plan Administrator may, in its
sole discretion, set forth other terms and conditions upon which the Company (or
its assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to a Discretionary Option. Any repurchase right of the
Company shall be exercisable by the Company (or its assignees) upon such terms
and conditions as the Plan Administrator may specify in the Stock Repurchase
Agreement evidencing such right. The Plan Administrator may also in its
discretion establish as a term and condition of one or more Discretionary
Options granted under the Plan that the Company shall have a right of first
refusal with respect to any proposed sale or other disposition by the
Optionholder of any shares of Stock issued upon the exercise of such
Discretionary Options. Any such right of
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first refusal shall be exercisable by the Company (or its assigns) in accordance
with the terms and conditions set forth in the Stock Repurchase Agreement.
2.2.10 TERMINATION OF INCENTIVE STOCK OPTIONS.
2.2.10.1 TERMINATION OF SERVICE. If any Optionholder
ceases to be in Service to the Company for a reason other than death, then such
Optionholder must, within 90 days after the date of termination of such Service,
but in no event after the Incentive Stock Option's stated expiration date,
exercise some or all of the Incentive Stock Options that the Optionholder was
entitled to exercise on the date the Optionholder's Service terminated;
provided, that if the Optionholder is discharged for Cause or commits acts
detrimental to the Company's interests after the Service of the Optionholder has
been terminated, then the Incentive Stock Option will thereafter be void for all
purposes. "Cause" shall mean a termination of Service based upon a finding by
the applicable Plan Administrator that the Optionholder: (i) has committed a
felony involving dishonesty, fraud, theft or embezzlement; (ii) after written
notice from the Company has repeatedly failed or refused, in a material respect,
to follow reasonable policies or directives established by the Company; (iii)
after written notice from the Company, has willfully and persistently failed to
attend to material duties or obligations; (iv) has performed an act or failed to
act, which, if he were prosecuted and convicted, would constitute a theft of
money or property of the Company; or (v) has misrepresented or concealed a
material fact for purposes of securing employment with the Company. If any
Optionholder ceases to be in Service to the Company by reason of permanent
disability within the meaning of section 22(e)(3) of the Code (as determined by
the applicable Plan Administrator), the Optionholder will have 12 months after
the date of termination of Service, but in no event after the stated expiration
date of the Optionholder's Incentive Stock Options, to exercise Incentive Stock
Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated as a result of the disability.
2.2.10.2. DEATH OF OPTIONHOLDER. If an Optionholder
dies while in the Company's Service, the Optionholder's vested Incentive Stock
Options on the date of death will be exercisable within three months after such
date or until the stated expiration date of the Optionholder's Incentive Stock
Option, whichever occurs first, by the person or persons ("successors") to whom
the Optionholder's rights pass under a will or by the laws of descent and
distribution. As soon as practicable after receipt by the Company of the notice
of exercise and of payment in full of the Option Price as specified in Sections
2.2(g) and (h) hereof, a certificate or certificates representing the Optioned
Shares shall be registered in the name or names specified by the successors in
the written notice of exercise and shall be delivered to the successors.
2.2.11 TERMINATION OF NONQUALIFIED OPTIONS. Any Options which
are not Incentive Stock Options and which are outstanding at the time an
Optionholder dies while in Service to the Company or otherwise ceases to be in
Service to the Company shall remain exercisable for such period of time
thereafter as determined by the Plan Administrator at the time of grant and set
forth in the documents evidencing such Options; provided, however, that no
Option shall be exercisable after the Option's stated expiration date, and
provided further, that if the Optionholder is discharged for Cause (as defined
in Section 2.2(j)(i) hereof), then the Option will thereafter be void for all
purposes.
2.2.12 OTHER PLAN PROVISIONS STILL APPLICABLE. If a
Discretionary Option is exercised upon the termination of Service or death of an
Optionholder under this Section 2.2, the other provisions of the Plan shall
still be applicable to such exercise, including the requirement that the
Optionholder or its successor may be required to enter into a Stock Repurchase
Agreement.
2.2.13 DEFINITION OF "SERVICE". For purposes of this Plan,
unless it is evidenced otherwise in the option agreement with the Optionholder,
the Optionholder shall be deemed to be in "Service" to the Company so long as
such individual renders continuous services on a periodic basis to the Company
(or to its Parent or Subsidiary Corporations) in the capacity of an employee,
director, or an independent consultant or advisor. In the discretion of the
applicable Plan Administrator, an Optionholder shall be considered to be
rendering continuous services to the Company even if the type of services
change, e.g., from employee to independent consultant. The
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Optionholder will be considered to be an employee for so long as such individual
remains in the employ of the Company or one or more of its Parent or Subsidiary
Corporations.
2.3 TERMS AND CONDITIONS OF STOCK AWARDS
2.3.1 ELIGIBILITY. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. Except as provided otherwise in this Plan, the
grant of a Stock Award to a person (a "Grantee") shall neither entitle such
person to, nor disqualify such person from participation in, any other grant of
options or awards by the Company, whether under this Plan or under any other
stock option or award plan of the Company.
2.3.2 AWARD FOR SERVICES RENDERED. Stock Awards shall be
granted in recognition of an Eligible Person's services to the Company. The
grantee of any such Stock Award shall not be required to pay any consideration
to the Company upon receipt of such Stock Award, except as may be required to
satisfy any applicable Delaware corporate law, employment tax and/or income tax
withholding requirements.
2.3.3 CONDITIONS TO AWARD. All Stock Awards shall be subject
to such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
2.3.4 AWARD AGREEMENTS. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 TERMS AND CONDITIONS OF SARs
2.4.1 ELIGIBILITY. All Eligible Persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of a SAR to a person shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
2.4.2 AWARD OF SARs. Concurrently with or subsequent to the
grant of any Discretionary Option to purchase one or more shares of Stock, the
Plan Administrator may award to the Optionholder with respect to each share of
Stock underlying the Option, a related SAR permitting the Optionholder to be
paid the appreciation on the Stock underlying the Discretionary Option in lieu
of exercising the Option. In addition, a Plan Administrator may award to any
Eligible Person a SAR permitting the Eligible Person to be paid the appreciation
on a designated number of shares of the Stock, whether or not such Shares are
actually issued.
2.4.3 CONDITIONS TO SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
2.4.4 SAR AGREEMENTS. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
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2.4.5 EXERCISE. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified by the Plan
Administrator in the SAR agreement.
2.4.6 AMOUNT OF PAYMENT. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Discretionary Option related to the SAR was granted or
became effective, or, if the SAR is not related to any Option, on the date the
SAR was granted or became effective.
2.4.7 FORM OF PAYMENT. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon as practical after
exercise, the Company shall deliver to the SAR grantee a certificate or
certificates for such shares of Stock.
2.4.8 TERMINATION OF EMPLOYMENT; DEATH. Section 2.2(j),
applicable to Incentive Stock Options, and Section 2.2(k), applicable to
nonqualified options, shall apply to SARs.
2.5 OTHER CASH AWARDS
2.5.1 IN GENERAL. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
2.5.2 CONDITIONS TO AWARD. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
AUTOMATIC GRANT PROGRAM
3.1 ELIGIBLE DIRECTORS UNDER THE AUTOMATIC GRANT PROGRAM. The
Automatic Grant Program shall commence as of the date set forth in Section
1.3(b) hereof. The persons eligible to participate in the Automatic Grant
Program shall be limited to Board members who are not employed by the Company,
whether or not such persons qualify as Non-Employee Directors as defined herein
("Eligible Directors"). Persons who are eligible under the Automatic Grant
Program may also be eligible to receive Discretionary Options or Awards under
the Discretionary Grant Program or option grants or direct stock issuances under
other plans of the Company.
3.2 TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS.
3.2.1 AMOUNT AND DATE OF GRANT. During the term of this Plan,
grants of Automatic Options shall be made to each Eligible Director
("Optionholder") as follows:
(i) ANNUAL GRANTS. Each year on the Annual Grant
Date an Automatic Option to acquire 2,500 shares of Stock shall be granted to
each Eligible Director for so long as there are shares of Stock available under
Section 1.2 hereof. The "Annual Grant Date" shall be the date of the Company's
annual stockholders meeting commencing as of the next annual meeting occurring
after the Effective Date. Notwithstanding the foregoing, (i) any Eligible
Director whose term ended on the Annual Grant Date and who was not re-elected on
that date shall not be eligible to receive any Automatic Options on that Annual
Grant Date, and (ii) any Eligible Director that was granted an Automatic Option
under Section 3.2(a)(ii) hereof within 90 days of an Annual Grant Date shall be
ineligible to receive an Automatic Option Grant pursuant to this Section
3.2(a)(i) on such Annual Grant Date.
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(ii) INITIAL NEW DIRECTOR GRANTS. On the Initial
Grant Date, every new member of the Board who is an Eligible Director and has
not previously received an Automatic Option grant under this Section 3.2(a)(ii)
shall be granted an Automatic Option to acquire 5,000 shares of Stock as long as
there are shares of Stock available under Section 1.2 hereof. The "Initial Grant
Date" shall be the date that an Eligible Director is first appointed or elected
to the Board. Any Eligible Director that was granted an Automatic Option on the
Effective Date pursuant to Section 3.2(a)(iii) shall be ineligible to receive an
Automatic Option grant pursuant to this Section 3.2(a)(ii).
(iii) INITIAL EXISTING DIRECTOR GRANTS. On the
commencement date of the Automatic Grant Program, each Eligible Director shall
be granted an Automatic Option to acquire 5,000 shares of Stock.
3.2.2 EXERCISE PRICE. The exercise price per share of Stock
(the "Optioned Shares") subject to each Automatic Option grant shall be equal to
100 percent of the fair market value per share of the Stock on the date the
Automatic Option was granted as determined in accordance with the valuation
provisions of Section 4.5 hereof (the "Option Price").
3.2.3 VESTING. Each Automatic Option grant shall become
exercisable and vest on the first anniversary of the date of such grant. Each
Automatic Option shall only vest and become exercisable if the Optionholder has
not ceased being in Service to the Company as of such anniversary date.
3.2.4 METHOD OF EXERCISE. In order to exercise an Automatic
Option with respect to any vested Optioned Shares, an Optionholder (or in the
case of an exercise after an Optionholder's death, such Optionholder's executor,
administrator, heir or legatee, as the case may be) must take the following
action:
3.2.4.1. execute and deliver to the Company a written
notice of exercise signed in writing by the person exercising the Automatic
Option specifying the number of shares of Stock with respect to which the
Automatic Option is being exercised;
3.2.4.2. pay the aggregate Option Price in one of the
alternate forms as set forth in Section 3.2(e) below; and
3.2.4.3. furnish appropriate documentation that the
person or persons exercising the Automatic Option (if other than the
Optionholder) has the right to exercise such Option.
As soon as practicable after the Exercise Date, the Company shall mail or
deliver to or on behalf of the Optionholder (or any other person or persons
exercising the Automatic Option in accordance herewith) a certificate or
certificates representing the Stock for which the Automatic Option has been
exercised in accordance with the provisions of this Plan. In no event may any
Automatic Option be exercised for any fractional shares.
3.2.5 PAYMENT OF OPTION PRICE. The aggregate Option Price
shall be payable in one of the alternative forms specified below:
3.2.5.1. full payment in cash or check made payable to
the Company's order; or
3.2.5.2. full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 4.5 hereof); or
3.2.5.3. if a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall
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concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
3.2.6 TERM OF OPTION. Each Automatic Option shall expire on
the tenth anniversary of the date on which an Automatic Option grant was made
("Expiration Date"). Except as provided in Article IV hereof, should an
Optionholder's Service to the Company cease prior to the Expiration Date for any
reason while an Automatic Option remains outstanding and unexercised, then the
Automatic Option term shall immediately end and the Automatic Option shall cease
to be outstanding in accordance with the following provisions:
(i) The Automatic Option shall immediately terminate
and cease to be outstanding for any Optioned Shares of Stock
which were not vested at the time of the Optionholder's
cessation of Service to the Company.
(ii) Should an Optionholder cease, for any reason
other than death, to be in Service to the Company, then the
Optionholder shall have 90 days measured from the date of such
cessation of Service to the Company in which to exercise the
Automatic Options which vested prior to the time of such
cessation of Service to the Company. In no event, however, may
any Automatic Option be exercised after the Expiration Date of
such Automatic Option.
(iii) Should an Optionholder die while in Service to
the Company or within 90 days after cessation of Service to
the Company, then the personal representative of the
Optionholder's estate (or the person or persons to whom the
Automatic Option is transferred pursuant to the Optionholder's
will or in accordance with the laws of descent and
distribution) shall have a 90 day period measured from the
date of the Optionholder's cessation of Service in which to
exercise the Automatic Options which vested prior to the time
of such cessation of Service. In no event, however, may any
Automatic Option be exercised after the Expiration Date of
such Automatic Option.
ARTICLE IV
MISCELLANEOUS
4.1 CAPITAL ADJUSTMENTS. The aggregate number of shares of Stock
subject to the Plan, the number of shares of Stock covered by outstanding
Options and Awards and the price per share stated in such Options and Awards,
and the number of Automatic Options to be granted pursuant to the Automatic
Grant Program shall be proportionately adjusted for any increase or decrease in
the number of outstanding shares of Stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment or the
payment of a stock dividend or any other increase or decrease in the number of
such shares effected without the Company's receipt of consideration therefor in
money, services or property.
4.2 MERGERS, ETC. If the Company is the surviving corporation in
any merger or consolidation (not including a Corporate Transaction), any Option
or Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 4.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
4.3 CORPORATE TRANSACTION. In the event of stockholder approval of
a Corporate Transaction, (a) all unvested Automatic Options shall automatically
accelerate and immediately vest so that each outstanding Automatic Option shall,
one week prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the Optioned Shares and (b) the Plan
Administrator shall have the discretion and authority, exercisable at any time,
to provide for the automatic acceleration of one or more of the outstanding
Discretionary Options or Awards granted by it under the Plan. Upon the
consummation of the Corporate Transaction, all Options shall, to the extent not
previously exercised, terminate and cease to be outstanding.
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4.4 CHANGE IN CONTROL.
4.4.1 AUTOMATIC GRANT PROGRAM. In the event of a Change in
Control, all unvested Automatic Options shall automatically accelerate and
immediately vest so that each outstanding Automatic Option shall, immediately
prior to the effective date of such Change in Control, become fully exercisable
for all of the Optioned Shares. Thereafter, each Automatic Option shall remain
exercisable until the Expiration Date of such Automatic Option.
4.4.2 DISCRETIONARY GRANT PROGRAM. In the event of a Change in
Control, a Plan Administrator shall have the discretion and authority,
exercisable at any time, whether before or after the Change in Control, to
provide for the automatic acceleration of one or more outstanding Discretionary
Options or Awards granted by it under the Plan upon the occurrence of such
Change in Control. A Plan Administrator may also impose limitations upon the
automatic acceleration of such Options or Awards to the extent it deems
appropriate. Any Options or Awards accelerated upon a Change in Control will
remain fully exercisable until the expiration or sooner termination of the
Option term.
4.4.3 INCENTIVE STOCK OPTION LIMITS. The exercisability of any
Discretionary Options which are intended to qualify as Incentive Stock Options
and which are accelerated by the Plan Administrator in connection with a pending
Corporation Transaction or Change in Control shall, except as otherwise provided
in the discretion of the Plan Administrator and the Optionholder, remain subject
to the $100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
4.5 CALCULATION OF FAIR MARKET VALUE OF STOCK. The fair market
value of a share of Stock on any relevant date shall be determined in accordance
with the following provisions:
4.5.1 If the Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market, the
fair market value shall be the mean between the highest bid and lowest asked
prices (or, if such information is available, the closing selling price) per
share of Stock on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its Nasdaq system or any successor system. If there are no reported bid and
asked prices (or closing selling price) for the Stock on the date in question,
then the mean between the highest bid price and lowest asked price (or the
closing selling price) on the last preceding date for which such quotations
exist shall be determinative of fair market value.
4.5.2 If the Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the closing
selling price per share of Stock on the date in question on the stock exchange
determined by the Board to be the primary market for the Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no reported sale of Stock on such exchange on the date in question,
then the fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
4.5.3 If the Stock at the time is neither listed nor admitted
to trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value shall be determined by the Board after taking into account
such factors as the Board shall deem appropriate, including one or more
independent professional appraisals.
4.6 USE OF PROCEEDS. The proceeds received by the Company from the
sale of Stock pursuant to the exercise of Options or Awards hereunder, if any,
shall be used for general corporate purposes.
4.7 CANCELLATION OF OPTIONS. Each Plan Administrator shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionholders, the cancellation of any or all outstanding
Discretionary Options granted under the Plan by that Plan Administrator and to
grant in substitution therefore new Discretionary Options under the Plan
covering the same or different numbers of shares of Stock as long as such new
Discretionary Options have an exercise price per share of Stock no less than the
minimum exercise price as set forth in Section 2.2(b) hereof on the new grant
date.
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4.8 REGULATORY APPROVALS. The implementation of the Plan, the
granting of any Option or Award hereunder, and the issuance of Stock upon the
exercise of any such Option or Award shall be subject to the procurement by the
Company of all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the Options or Awards granted under it and the Stock
issued pursuant to it.
4.9 INDEMNIFICATION. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any member
thereof may be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith.
4.10 PLAN NOT EXCLUSIVE. This Plan is not intended to be the
exclusive means by which the Company may issue options or warrants to acquire
its Stock, stock awards or any other type of award. To the extent permitted by
applicable law, any such other option, warrants or awards may be issued by the
Company other than pursuant to this Plan without stockholder approval.
4.11 COMPANY RIGHTS. The grants of Options shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
4.12 PRIVILEGE OF STOCK OWNERSHIP. An Optionholder shall not have
any of the rights of a stockholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date of such exercise and full payment for
such Optioned Shares.
4.13 ASSIGNMENT. The right to acquire Stock or other assets under
the Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. Except as may be
specifically allowed by a Plan Administrator at the time of grant and set forth
in the documents evidencing an Option or Award, no Option or Award granted under
the Plan or any of the rights and privileges conferred thereby shall be
assignable or transferable by an Optionholder or grantee other than by will or
the laws of descent and distribution, and such Option or Award shall be
exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. The provisions of the Plan shall inure to the benefit
of, and be binding upon, the Company and its successors or assigns, and the
Optionholders, the legal representatives of their respective estates, their
respective heirs or legatees and their permitted assignees.
4.14 SECURITIES RESTRICTIONS
4.14.1 LEGEND ON CERTIFICATES. All certificates representing
shares of Stock issued under the Plan shall be endorsed with a legend reading as
follows:
The shares of Common Stock evidenced by this certificate have
been issued to the registered owner in reliance upon written
representations that these shares have been purchased solely
for investment. These shares may not be sold, transferred or
assigned unless in the opinion of the Company and its legal
counsel such sale, transfer or assignment will not be in
violation of the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
4.14.2 PRIVATE OFFERING FOR INVESTMENT ONLY. The Options and
Awards are and shall be made available only to a limited number of present and
future key personnel who have knowledge of the Company's financial condition,
management and its affairs. The Plan is not intended to provide additional
capital for the Company, but to encourage ownership of Stock among the Company's
key personnel. By the act of accepting an Option or Award, each grantee agrees
(i) that, any shares of Stock acquired will be solely for investment and not
with any intention to resell or redistribute those shares and (ii) such
intention will be
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confirmed by an appropriate certificate at the time the Stock is acquired if
requested by the Company. The neglect or failure to execute such a certificate,
however, shall not limit or negate the foregoing agreement.
4.14.3 REGISTRATION STATEMENT. If a Registration Statement
covering the shares of Stock issuable upon exercise of Options granted under the
Plan is filed under the Securities Act of 1933, as amended, and is declared
effective by the Securities Exchange Commission, the provisions of Sections
4.14(a) and (b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.
4.15 TAX WITHHOLDING.
4.15.1 GENERAL. The Company's obligation to deliver Stock
under the Plan shall be subject to the satisfaction of all applicable federal,
state and local income tax withholding requirements.
4.15.2 SHARES TO PAY FOR WITHHOLDING. The Board may, in its
discretion and in accordance with the provisions of this Section 4.15(b) and
such supplemental rules as it may from time to time adopt, or provide any or all
Optionholders or Grantees with the right to use shares of Stock in satisfaction
of all or part of the federal, state and local income tax liabilities incurred
by such Optionholders or Grantees in connection with the receipt of Stock
("Taxes"). Such right may be provided to any such Optionholder or Grantee in
either or both of the following formats:
4.15.2.1. STOCK WITHHOLDING. An Optionholder or Grantee
may be provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable,
a portion of those shares of Stock with an aggregate fair market value equal to
the percentage of the applicable Taxes (not to exceed 100 percent) designated by
the Optionholder or Grantee.
4.15.2.2. STOCK DELIVERY. The Board may, in its
discretion, provide the Optionholder or Grantee with the election to deliver to
the Company, at the time the Option is exercised or Stock is awarded, one or
more shares of Stock previously acquired by such individual (other than pursuant
to the transaction triggering the Taxes) with an aggregate fair market value
equal to the percentage (not to exceed 100 percent) of the taxes incurred in
connection with such Option exercise or Stock Award designated by the
Optionholder or Grantee.
4.16 GOVERNING LAW. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE V
DEFINITIONS
The following capitalized terms used in this Plan shall have the
meaning described below:
"AFFILIATES" shall mean all "officers" (as that term is defined in Rule
16a-1(f) promulgated under the 1934 Act) and directors of the Company and all
persons who own ten percent or more of the Company's issued and outstanding
Stock.
"ANNUAL GRANT DATE" shall mean the date of the Company's annual
stockholder meeting.
"AUTOMATIC GRANT PROGRAM" shall mean that program set forth in Article
III of this Agreement pursuant to which Eligible Directors, as defined herein,
are automatically granted Options upon certain events.
"AUTOMATIC OPTION GRANT" shall mean those automatic option grants made
on the Annual Grant Date, on the Initial Grant Date, and on the Effective Date.
"AUTOMATIC OPTIONS" shall mean those Options granted pursuant to the
Automatic Grant Program.
"AWARD" shall mean a Stock Award, SAR or Cash Award under the
Discretionary Grant Program.
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"BOARD" shall mean the Board of Directors of the Company.
"CASH AWARD" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"CHANGE IN CONTROL" shall mean and include the following transactions
or situations:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act). For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a
single transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this definition, the term "Beneficial Owner" shall
have the same meaning as given to that term in Rule 13d-3 promulgated under the
1934 Act, provided that any pledgee of voting securities shall not be deemed to
be the Beneficial Owner thereof prior to its acquisition of voting rights with
respect to such securities.
(iv) Any consolidation or merger of the Company with or into
an Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
(vi) A change in control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the General
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purposes of this Plan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" shall mean Styling Technology Corporation, a Delaware
corporation.
"CORPORATE TRANSACTION" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
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"DISCRETIONARY GRANT PROGRAM" shall mean the program described in
Article II of this Plan pursuant to which certain Eligible Persons are granted
Options or Awards in the discretion of the Plan Administrator.
"DISCRETIONARY OPTIONS" shall mean options granted under the
Discretionary Grant Program.
"EFFECTIVE DATE" shall mean the date that the Plan has been approved by
the stockholders as required by Section 1.3(a) hereof.
"ELIGIBLE DIRECTOR" shall mean, with respect to the Automatic Grant
Program, those Board members who are not employed by the Company, whether or not
such members are Non-Employee Directors as defined herein.
"ELIGIBLE PERSONS" shall mean (a) with respect to the Discretionary
Grant Program, those persons who, at the time that the Discretionary Option or
Award is granted, are 5.0.0.1. key personnel (including officers and directors)
of the Company or Parent or Subsidiary Corporations or 5.0.0.1. consultants or
independent contractors who provide valuable services to the Company or Parent
or Subsidiary Corporations, and (b) with respect to the Automatic Grant Program,
the Eligible Directors.
"EMPLOYEE COMMITTEE" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of two
or more persons who are members of the Board.
"EXERCISE DATE" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"EXPIRATION DATE" shall be the 10-year anniversary of the date on which
an Automatic Option Grant was made.
"GRANTEE" shall mean an Eligible Person or Eligible Director that has
received an Award.
"INCENTIVE STOCK OPTION" shall mean a Discretionary Option that is
intended to qualify as an "incentive stock option" under Code section 422.
"INITIAL GRANT DATE" shall mean the date that an Eligible Director is
first appointed or elected to the Board.
"NON-AFFILIATES" shall mean all persons who are not Affiliates.
"NON-EMPLOYEE DIRECTORS" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 LIMITATION" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
"OPTIONHOLDER" shall mean an Eligible Person or Eligible Director to
whom Options have been granted.
"OPTIONED SHARES" shall be those shares of Stock to be optioned from
time to time to any Eligible Person or Eligible Director.
"OPTION PRICE" shall mean (i) with respect to Discretionary Options,
the exercise price per share as specified by the Plan Administrator pursuant to
Section 2.2(b) hereof, and (ii) with respect to Automatic Options, the exercise
price per share specified by Section 3.2(b) hereof.
"OPTIONS" shall mean options to acquire Stock granted under the Plan to
acquire Stock.
A-15
<PAGE> 38
"PARENT CORPORATION" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"PLAN" shall mean this stock option plan for Styling Technology
Corporation.
"PLAN ADMINISTRATOR" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Discretionary Grant Program as it relates to Affiliates
and (b) either the Board, the Employee Committee, or any other committee,
whichever is applicable, with respect to the administration of the Discretionary
Grant Program as it relates to Non-Affiliates and with respect to the Automatic
Grant Program.
"REGISTRATION DATE" shall have the meaning set forth in Section 1.3(b)
hereof.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereof.
"SENIOR COMMITTEE" shall mean that committee appointed by the Board to
administer the Discretionary Grant Program with respect to the Affiliates and
comprised of two or more Non-Employee Directors.
"SERVICE" shall have the meaning set forth in Section 2.2(m) hereof.
"STOCK" shall mean shares of the Company's common stock, $.0001 par
value per share, which may be unissued or treasury shares, as the Board may from
time to time determine.
"STOCK AWARDS" shall mean Stock directly granted under the
Discretionary Grant Program.
"SUBSIDIARY CORPORATION" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 19th day of April 1999.
STYLING TECHNOLOGY CORPORATION
By: /s/ Sam L. Leopold
-------------------------------
Name: Sam L. Leopold
Its: Chairman of the Board and Chief
Executive Officer
ATTESTED BY:
/s/ Michael L. Kaplan
- ----------------------------
Michael L. Kaplan, Secretary
A-16
<PAGE> 39
STYLING TECHNOLOGY CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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
April 30, 1999, and hereby appoints Sam L. Leopold and Michael L. Kaplan, 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 1999 Annual Meeting of Stockholders of the Company, to be
held on Monday, June 14, 1999, at 9:00 a.m., local time, at the Company's
corporate headquarters at 7400 East Tierra Buena Lane, Scottsdale, Arizona
85260, and at any adjournment or adjournments thereof, and to vote all shares
of the Company's Common Stock that the undersigned would be entitled to vote
if then and there personally present, on the matters set forth below:
(Continued, and to be signed and dated, on the reverse side.)
SEE REVERSE SIDE
<PAGE> 40
/x/ VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
<TABLE>
<S> <C> <C>
FOR all nominees WITHHOLD AUTHORITY
listed below(except to vote for all nominees
1. ELECTION OF as indicated) listed below.
Directors / / / /
</TABLE>
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name below:
James A. Brooks, Sylvan Schefler
2. PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN
FOR AGAINST ABSTAIN
/ / / / / /
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY.
FOR AGAINST ABSTAIN
/ / / / / /
And upon such matters which may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS; FOR THE APPROVAL OF THE
AMENDMENT TO THE 1996 STOCK OPTION 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 proxies 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 proxies hereunder.
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature(s) Dated , 1999
----------------------------- ------------
(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.)
