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[SHARER IMAGE LOGO]
May 8, 2000
TO THE STOCKHOLDERS OF
SHARPER IMAGE CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sharper Image Corporation (the "Company") on June 12, 2000 at 10:00 a.m., which
will be held at the World Trade Club, Ferry Building, San Francisco, California
94111.
Details of business to be conducted at the Annual Meeting are given in the
attached Notice of Annual Meeting and Proxy Statement. At the Annual Meeting, we
will present a report on the progress of the Company during the past year.
Accompanying this Proxy Statement is our 1999 Annual Report to
Stockholders.
We hope that you will attend the Annual Meeting. Whether or not you plan to
attend the meeting, please sign, date and return the enclosed proxy card
promptly in the accompanying reply envelope so that your shares will be
represented at the Annual Meeting.
Sincerely yours,
Richard Thalheimer
Founder, Chairman of the Board, and
Chief Executive Officer
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SHARPER IMAGE CORPORATION
650 DAVIS STREET
SAN FRANCISCO, CALIFORNIA 94111
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 12, 2000
The Annual Meeting of Stockholders of Sharper Image Corporation (the
"Company") will be held at the World Trade Club, Ferry Building, San Francisco,
California 94111, on Monday, June 12, 2000, at 10:00 a.m., for the following
purposes:
1. To elect Directors to serve until the next Annual Meeting and until
their successors have been elected and qualified;
2. To approve the Company's 2000 Stock Incentive Plan under which
3,147,107 shares of Common Stock will initially be reserved for issuance,
of which 2,095,622 have been granted, but remain un-exercised under the
Company's previously approved stock option plans;
3. To ratify the selection of Deloitte & Touche LLP as the Company's
independent auditor for the fiscal year ending January 31, 2001; and
4. To transact any other business which may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Stockholders of record at the close of business on April 17, 2000 will be
entitled to vote at the Annual Meeting. Whether or not you plan to attend,
please sign, date, and return the enclosed proxy card in the envelope provided.
The prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Richard Thalheimer
Founder, Chairman of the Board, and
Chief Executive Officer
San Francisco, California
May 8, 2000
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[SHARER IMAGE LOGO]
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PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS OF
SHARPER IMAGE CORPORATION
TO BE HELD JUNE 12, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Sharper Image Corporation, a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders of the
Company to be held at 10:00 a.m. at the World Trade Club, Ferry Building, San
Francisco, California 94111 on June 12, 2000 and at any adjournments or
postponements thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders. This Proxy Statement and the proxy card were
first mailed to stockholders on or about May 8, 2000.
The address of the principal executive office of the Company is 650 Davis
Street, San Francisco, California 94111.
VOTING RIGHTS
Only stockholders of record of the Company's Common Stock ("Common Stock")
at the close of business on April 17, 2000 will be entitled to notice of and to
vote at the Annual Meeting. Each share of Common Stock entitles the holders
thereof to one vote on each matter to come before the Annual Meeting. On April
17, 2000, there were 12,026,259 shares of Common Stock outstanding.
The enclosed proxy is solicited by the Company's Board of Directors ("Board
of Directors" or "Board"), and, when returned properly completed, will be voted
as you direct on your proxy card. In the absence of contrary instructions,
shares represented by such proxies will be voted FOR the proposals discussed
herein and in the discretion of the proxy holders on other matters presented at
the Annual Meeting. Management does not know of any matters to be presented at
this Annual Meeting other than those set forth in this Proxy Statement and in
the Notice accompanying this Proxy Statement. If other matters should properly
come before the Annual Meeting, then in the discretion of the proxy holder,
shares represented by such proxies will be voted upon any other business.
Abstentions and broker non-votes are each included in the number of shares
present for quorum purposes. Abstentions which may be specified on all proposals
other than the election of Directors are counted in tabulations of the votes
cast on proposals presented to stockholders; whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting the shares covered by the
proxy in person.
SOLICITATION OF PROXIES
The entire cost of soliciting proxies will be borne by the Company. The
original solicitation of proxies by mail may be supplemented by solicitation by
telephone, facsimile, e-mail, or other means by directors, officers, employees
or agents of the Company who will not receive additional compensation for such
solicitation. Copies of the solicitation material will be furnished to brokerage
firms, fiduciaries and other custodians holding shares in their names that are
beneficially owned by others to forward to such beneficial owners. Such persons
will be reimbursed by the Company for their reasonable expenses incurred in
sending proxy material to beneficial owners of the Common Stock.
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PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, five (5) Directors are to be elected to serve until
the next Annual Meeting and until their successors are elected and qualified.
Set forth below is information regarding the nominees to the Board of Directors
for election as Directors.
It is intended that the proxies will be voted for the election as Directors
of the five nominees named below, unless authority to vote for any such nominee
is withheld. The five nominees receiving the highest number of affirmative votes
at the Annual Meeting will be elected. In the unanticipated event that a nominee
is unable or declines to serve as a Director at the time of the Annual Meeting,
the proxies will be voted for any nominee named by the present Board of
Directors to fill the vacancy. Each nominee has agreed to serve if elected, and
the Board of Directors is not aware of any nominee who is unable or will decline
to serve as a Director.
NOMINEES TO THE BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AGE
---- -------------------- ---
<S> <C> <C>
Richard Thalheimer................... Founder, Chairman of the Board and Chief Executive 52
Officer of Sharper Image Corporation
Alan Thalheimer...................... Retired Business Executive 74
Gerald Napier........................ Retired President, I. Magnin and Company 73
Morton David......................... Retired Chairman, Franklin Electronic Publishers 63
Inc..................................................
George James......................... Retired Senior Vice President and Chief Financial 62
Officer, Levi Strauss & Co.
</TABLE>
Richard Thalheimer is the founder of the Company and has served as Chief
Executive Officer and as a Director of the Company since 1978 and as Chairman of
the Board of Directors since 1985. Mr. Richard Thalheimer also served as
President of the Company through July 1993.
Alan Thalheimer has been a Director of the Company since June 1981 and was
President of Thalheimer, Inc. or its predecessor from May 1981 until retiring in
1993. Mr. Alan Thalheimer is the father of Mr. Richard Thalheimer.
Gerald Napier has been a Director of the Company since April 1997. Mr.
Napier was the President of I. Magnin and Company from February 1982 until
retiring in 1988. Mr. Napier was Senior Vice President of General Operations at
Abraham and Straus from 1977 to 1982.
Morton David has been a Director of the Company since January 1998. Mr.
David was Chairman, President and Chief Executive Officer of Franklin Electronic
Publishers, Inc. from May 1984 until his retirement in February 1998.
George James has been a Director of the Company since June 1999. Mr. James
was Senior Vice President and Chief Financial Officer of Levi Strauss & Co. from
1985 until his retirement in 1998. Mr. James was Executive Vice President and
Group President from 1984 to 1985, and was Executive Vice President and Chief
Financial Officer from 1982 to 1983 at Crown Zellerbach Corporation. Mr. James
was Senior Vice President and Chief Financial Officer from 1972 to 1982 with
Arcata Corporation. Mr. James is a Director of Crown Vantage, Inc.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held four meetings during fiscal
1999. Each Director attended more than seventy-five percent (75%) of the
aggregate of (i) the total number of such meetings held during
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the fiscal year, or a portion of the fiscal year, during which such Director
served as a member of the Board, and (ii) the total number of meetings held by
all committees of the Board on which such Director served as a member, except
Director George James who attended 67% of such meetings. The Board of Directors
has an Audit Committee and a Compensation Committee.
The Audit Committee of the Board was established in November 1987 and
during fiscal 1999 consisted of Directors Gerald Napier, Morton David, Alan
Thalheimer, Maurice Greg and George James. Mr. David was appointed to the Audit
Committee in April 1999. Mr. James was appointed to the Audit Committee in June
1999. As of January 31, 2000 the Audit Committee consisted of Messrs. Napier,
David and James. The Audit Committee is responsible for recommending engagement
of the Company's independent auditor, approving services performed by such
accountants and reviewing internal accounting controls, audit plans and results,
and financial reporting procedures. The Audit Committee held four meetings
during fiscal 1999.
The Compensation Committee was established in November 1987 and during
fiscal 1999 consisted of Directors Gerald Napier, Morton David, Maurice Gregg
and George James. Mr. James was appointed to the Compensation Committee in June
1999. As of January 31, 2000 the Compensation Committee consisted of Messrs.
Napier, David and James. The Compensation Committee is responsible for making
and reviewing recommendations regarding employee compensation and administering
the Company's Stock Option Plan (the "Option Plan"). The Compensation Committee
held one meeting during fiscal 1999.
The Board of Directors does not have a nominating committee or committee
performing similar functions.
DIRECTOR REMUNERATION
During fiscal 1999, for the first three quarters of the fiscal year each of
the Company's non-employee Directors was paid a quarterly retainer of $1,250 per
quarter plus $1,000 for attending each regular meeting of the Board of
Directors. Effective with the fourth quarter the quarterly retainer was
increased to $2,500 per quarter plus $2,000 for attending each regular meeting
of the Board of Directors. The general policy of the Company is to reimburse
Directors for all reasonable expenses incurred to attend each meeting of the
Board of Directors. All Directors are also eligible to participate in certain of
the Company's employee benefit plans. The non-employee directors are granted
automatic options at the start of each fiscal quarter under the 1999 amendment
of the Non-Employee Directors Stock Option Plan after six month's service on the
Board. On May 1, 1999, August 1, 1999, November 1, 1999 and February 1, 2000
each of the non-employee directors, Messrs. A Thalheimer, Napier and David, were
granted an option under the 1999 amendment of the Non-Employee Directors Stock
Option Plan to purchase 2,000 shares of Common Stock at an exercise price of
$10.375, $10.000, $11.500 and $9.375 respectively, the fair market value on
grant date. Mr. James was first elected to the Board of Directors on June 7,
1999 and, as a non-employee director was granted an option under the 1999
amendment of the Non-Employee Directors Stock Option Plan to purchase 2,000
shares upon first being elected to the Board of Directors at an exercise price
of $8.750, the fair market value on grant date. On February 1, 2000, Mr. James
was granted an option under the 1999 amendment of the Non-Employee Directors
Stock Option Plan to purchase 2,000 shares of Common Stock at an exercise price
of $9.375, the fair market value on grant date. The shares subject to these
options will vest upon the optionee's completion of one (1) year of Board
service measured from the grant date.
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PROPOSAL NO. 2
APPROVAL OF THE COMPANY'S 2000 STOCK INCENTIVE PLAN
GENERAL
The stockholders are being asked to approve the Company's 2000 Stock
Incentive Plan (the "Incentive Plan"), under which 3,147,107 shares of common
stock will initially be reserved for issuance. The Board adopted the Incentive
Plan on April 17, 2000, subject to stockholder approval. The Incentive Plan will
allow the Company to provide key employees (including officers and directors),
non-employee Board members and independent consultants and advisors in the
Company's service the continuing opportunity to acquire a meaningful equity
interest in the Company as an incentive for them to remain in service. The Board
believes that such equity incentives are a significant factor in the Company's
ability to attract and retain the key individuals who are essential to the
Company's long-term growth and financial success.
The Incentive Plan is a comprehensive equity incentive plan intended to
serve as the successor program to the Company's 1985 Stock Option Plan as
amended and 1994 Non-Employee Director Stock Option Plan as amended (the
"Predecessor Plans"). The 3,147,107 shares of common stock initially authorized
for issuance under the Incentive Plan will consist of (i) the number of shares
available for issuance under the Predecessor Plans on April 28, 2000
(2,397,107), including the shares subject to outstanding options (2,095,622) and
the shares available for future grant under those plans (301,485), and (ii) an
additional increase on June 12, 2000 of 750,000 shares. This share reserve will
automatically increase on the first trading day of each fiscal year, beginning
with fiscal year 2001 (which will begin February 1, 2001), by an amount equal to
three percent (3%) of the total number of shares of common stock outstanding on
the last trading day of the immediately preceding fiscal year, but in no event
will any such annual increase exceed 500,000 shares.
Should an outstanding option expire or terminate for any reason prior to
exercise in full (including options transferred from the Predecessor Plans and
options cancelled in accordance with the cancellation-regrant provisions
described below), the shares subject to the portion of the option not so
exercised will be available for subsequent issuance under the Incentive Plan.
Unvested shares issued under the Incentive Plan and subsequently repurchased by
the Company at the original option exercise price paid per share will be added
back to the share reserve and will accordingly be available for subsequent
issuance under the Incentive Plan. Shares subject to any stock appreciation
rights exercised under the Incentive Plan will not be available for subsequent
issuance.
In no event may any single participant in the Incentive Plan receive option
grants, separately exercisable stock appreciation rights or direct stock
issuances for more than 500,000 shares of common stock in the aggregate per
fiscal year.
The following is a summary description of the Incentive Plan. A copy of the
Incentive Plan is attached in its entirety to the proxy statement filed with the
Securities and Exchange Commission. The Securities and Exchange Commission
maintains a Web site that contains reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval Systems, which can be accessed at
http:\www.sec.gov. In addition a copy of the Incentive Plan can be obtained from
the Company through a request to the Company's principal executive office,
attention: Chief Financial Officer.
DESCRIPTION OF INCENTIVE PLAN
Plan Structure
The Incentive Plan is divided into four (4) separate equity incentive
programs: (i) the Discretionary Option Grant Program, (ii) the Stock Issuance
Program, (iii) the Automatic Option Grant Program and (iv) the Director Fee
Option Grant Program. The principal features of each program are described
below. The Compensation Committee of the Board will have exclusive authority to
administer the Discretionary Option Grant Program and the Stock Issuance Program
with respect to option grants and stock issuances made to the Company's
executive officers and non-employee Board members. The Compensation Committee
and a
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Secondary Committee of one or more Board members will each have separate but
concurrent authority to make option grants and stock issuances under those
programs to all other eligible individuals. The term "Plan Administrator," as
used in this Proposal, will mean either the Compensation Committee or the
Secondary Committee; to the extent each such entity is acting within the scope
of its administrative jurisdiction under the Incentive Plan. Neither the
Compensation Committee nor the Board will exercise any administrative discretion
with respect to option grants under the Automatic Option Grant or Director Fee
Option Grant Programs for the non-employee Board members. All grants under those
latter two programs will be made in strict compliance with the express
provisions of each such program.
The Discretionary Option Grant, Stock Issuance, Automatic Option Grant
Programs and Director Fee Option Grant Program under the Incentive Plan will
become effective at the time it is approved by the stockholders (the "Effective
Date").
On the Effective Date, all outstanding options under the Predecessor Plans
will be transferred to the Incentive Plan, and no further option grants or share
issuances will be made under the Predecessor Plans. The transferred options will
continue to be governed by their existing terms, unless the Plan Administrator
elects to extend one or more features of the Incentive Plan to those options.
Except as otherwise noted below, the transferred options have substantially the
same terms as will be in effect for grants made under the Discretionary Option
Grant Program of the Incentive Plan, or for options granted under the 1994 Non-
Employee Director Stock Option Plan, the same terms as will be in effect for
grants made under the Automatic Option Grant Program.
Eligibility
Employees (including officers), non-employee Board members, and independent
consultants and advisors in the service of the Company or its parent and
subsidiaries (whether now existing or subsequently established) will be eligible
to participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee Board members will also be eligible to participate in the Automatic
Option Grant and Director Fee Option Grant Programs.
DISCRETIONARY OPTION GRANT PROGRAM
Grants
The Plan Administrator will have complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
Price and Exercisability
Each granted option will have an exercise price per share not less than
100% of the fair market value per share of common stock on the option grant
date, and no granted option will have a term in excess of 10 years. Each option
will generally become exercisable for fully vested shares in a series of
installments over a specified period of service measured from the grant date.
However, one or more options may be structured so that they will be immediately
exercisable for any or all of the option shares. However, any shares acquired
under those options will be unvested and subject to repurchase by the Company,
at the exercise price paid per share, if the optionee ceases service with the
Company prior to vesting in those shares.
The exercise price may be paid in cash or in shares of the common stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm will affect an immediate sale of
the shares purchased under the option and pay over to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
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No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options will generally not be assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee. However,
the Plan Administrator may allow non-statutory options to be transferred or
assigned during the optionee's lifetime to one or more members of the optionee's
immediate family or to a trust established exclusively for one or more such
family members or to the optionee's former spouse, to the extent such transfer
or assignment is in furtherance of the optionee's estate plan or pursuant to a
domestic relations order. The optionee may also designate one or more
beneficiaries to automatically receive his or her outstanding options at death.
Termination of Service
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options for any shares in which the
optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Cancellation/Regrant Program
The Plan Administrator will have the authority to effect, with the consent
of the affected option holders, the cancellation of outstanding options under
the Option Grant Program (including options transferred from the Predecessor
Plans) in return for the grant of new options for the same or a different number
of option shares with an exercise price per share based upon the fair market
value of the common stock on the new grant date.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than their fair market value, payable in cash or, in the discretion of
the Plan Administrator, through a promissory note payable to the Company. Shares
may also be issued as a bonus for past services without any cash outlay required
of the recipient. Shares of common stock may also be issued under the Stock
Issuance Program pursuant to share right awards, which entitle the recipients to
receive those shares upon the attainment of designated performance goals or
completion of a specified service period. The Plan Administrator will have
complete discretion under the program to determine which eligible individuals
are to receive such stock issuances or share right awards, the time or times
when those issuances or awards are to be made, the number of shares subject to
each such issuance or award and the vesting schedule to be in effect for the
stock issuance or share rights award.
The shares issued may be fully and immediately vested upon issuance or may
vest upon the completion of a designated service period or the attainment of
pre-established performance goals. The Plan Administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the Stock Issuance Program.
Outstanding share right awards under the Stock Issuance Program will
automatically terminate, and no shares of common stock will actually be issued
in satisfaction of those awards, if the performance goals established for such
awards are not attained. The Plan Administrator, however, will have the
discretionary authority to issue shares of common stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals are not attained.
AUTOMATIC OPTION GRANT PROGRAM
Grants
Under the Automatic Option Grant Program, eligible non-employee Board
members will receive a series of option grants over their period of Board
service. Each individual who first becomes a non-employee Board
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member at any time on or after the 2000 Annual Meeting will receive an initial
option grant under the program for 2,000 shares of common stock on the date such
individual joins the Board, provided such individual has not been in the
Company's prior employ. In addition, on the first day of each fiscal quarter,
beginning with the first quarter ending after the 2000 Annual Meeting, each
individual who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 2,000 shares of common stock,
provided he or she has served as a non-employee Board member for at least six
(6) months. There will be no limit on the number of such 2000-share option
grants any one eligible non-employee Board member may receive over his or her
period of continued Board service, and non-employee Board members who have
previously been in the Company's employ will be eligible to receive one or more
such annual option grants over their period of Board service.
Option Terms
Each automatic grant will have an exercise price per share equal to the
fair market value per share of common stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of Board service. Each automatic option will be immediately
exercisable for all of the option shares; however, any unvested shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, should the optionee cease Board service prior to vesting
in those shares. The shares subject to each 2,000-share option will vest upon
the optionee's completion of one (1) year of Board service measured from the
grant date. However, the shares subject to each outstanding automatic option
grant will immediately vest in full upon certain changes in control or ownership
of the Company or upon the optionee's death or disability while a Board member.
Following the optionee's cessation of Board service for any reason, each option
will remain exercisable for the period designated by the Plan Administrator at
the time of the option grant and may be exercised during that time for any or
all shares in which the optionee is vested at the time of such cessation of
Board service.
DIRECTOR FEE OPTION GRANT PROGRAM
Each non-employee Board member may elect, prior to the start of each fiscal
year, to apply all or any portion of any annual retainer fee otherwise payable
in cash for his or her period of service on the Board for that year to the
acquisition of a stock option grant or restricted stock. The option grant or
restricted stock will automatically be made on the first trading day in the
fiscal year for which the director fee election is in effect. Any option will
have a maximum term of 10 years measured from the grant date and an exercise
price per share equal to the fair market value of the option shares on such
date. The number of shares subject to each option will be determined by dividing
the amount of the retainer fee applied to the acquisition of that option by the
fair market value of the option per share, as determined under a valuation
method approved by the Compensation Committee. Any grant of restricted stock
will be valued based on the trading price per share of common stock on the grant
date.
Any option will become exercisable in a series of 12 successive equal
monthly installments upon the optionee's completion of each month of Board
service in the fiscal year for which the retainer fee election is in effect,
subject to full and immediate acceleration upon certain changes in control or
ownership of the Company or upon the optionee's death or disability while a
Board member. Each option granted under the program will remain exercisable for
vested shares until the earlier of (i) the expiration of the ten-year option
term or (ii) the expiration of the 3-year period measured from the date of the
optionee's cessation of Board service. Restricted stock will vest in a series of
12 successive equal monthly installments upon the completion of each month of
Board service, subject to full acceleration upon the same circumstances that
would trigger acceleration under an option.
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GENERAL PLAN PROVISIONS
Valuation
For all valuation purposes under the Incentive Plan, the fair market value
per share of common stock on any relevant date will be deemed equal to the
closing selling price per share on that date, as reported on the Nasdaq National
Market.
Vesting Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will generally automatically accelerate
in full, and all unvested shares under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. However, the Plan Administrator may restrict acceleration
and it is anticipated that, as under the Predecessor Plans, no vesting would
occur if there were a management buyout of the Company.
The Plan Administrator will have complete discretion to grant one or more
options under the Discretionary Option Grant Program which will become fully
exercisable for all the option shares in the event those options are assumed in
the acquisition and the optionee's service with the Company or the acquiring
entity is involuntarily terminated within a designated period (not to exceed 18
months) following such acquisition. The vesting of outstanding shares under the
Stock Issuance Program may be accelerated upon similar terms and conditions. The
Plan Administrator will also have the authority to grant options, which will
immediately vest upon an acquisition of the Company, whether or not those
options are assumed by the successor corporation.
The Plan Administrator is also authorized under the Discretionary Option
Grant and Stock Issuance Programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in ownership or control of the
Company (whether by successful tender offer for more than 50% of the outstanding
voting stock or by a change in the majority of the Board by reason of one or
more contested elections for Board membership). Such accelerated vesting may
occur either at the time of such change in ownership or control or upon the
involuntary termination of the individual's service within a designated period
(not to exceed 18 months) following such change in ownership or control.
The Plan Administrator will have the discretionary authority to extend any
of the acceleration provisions of the Incentive Plan to one or more options
transferred from the Predecessor Plans, which do not otherwise contain those
provisions. Currently, the options transferred from the Company's Stock Option
Plan are structured so that those options will immediately vest if the Company
is acquired by merger or asset sale and the Company's repurchase rights with
respect to the unvested shares subject to those options are not to be assigned
to the successor entity or otherwise continued in effect.
The shares subject to each option under the Director Fee Option Grant
Program and the options transferred from the 1994 Non-Employee Director Stock
Option Plan will immediately vest upon (i) an acquisition of the Company by
merger or asset sale, (ii) the successful completion of a tender offer for more
than 50% of the Company's outstanding voting stock or (iii) a change in the
majority of the Board effected through one or more contested elections for Board
membership.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Reload Options
The Plan Administrator is authorized to grant options providing that, (i)
to the extent the exercise price of the options or (ii) the Federal, State and
local income and employment tax withholding obligations
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attributable to the exercise of the option, is paid in shares of common stock
either (a) delivered to the Corporation by the holder or (b) withheld from
shares otherwise issuable upon exercise, the holder will automatically be
granted a new option covering the number of shares so delivered or withheld. The
terms of the new option will be the same as the option so exercised, except that
the per share exercise price of the new option will generally be the fair market
value of one share of common stock on the date of grant of the new option and
the term of the new option will be equal to the remaining term of the option so
exercised.
Stock Appreciation Rights
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the Plan:
Tandem stock appreciation rights, which may be granted under the
Discretionary Option Grant Program, provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of common stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of common stock.
Limited stock appreciation rights may be granted under the Discretionary
Option Grant Program to one or more officers of the Company as part of
their option grants, and such rights will automatically be included as part
of each grant made under the Automatic Option Grant and Director Fee Option
Grant Programs. Options with such a limited stock appreciation right may be
surrendered to the Company upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from the Company in an amount per surrendered option
share equal to the excess of (a) the highest price per share of common
stock paid in connection with the tender offer over (b) the exercise price
payable for such share.
Changes in Capitalization
In the event any change is made to the outstanding shares of common stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
Incentive Plan, (ii) the maximum number and/or class of securities for which any
one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Incentive Plan per
fiscal year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option, (v) the number and/or class of securities and the exercise price per
share in effect under each outstanding option transferred from the Predecessor
Plans to the Incentive Plan and (vi) the maximum number and/or class of
securities by which the share reserve under the Incentive Plan is to increase
automatically each year. Such adjustments will be designed to preclude any
dilution or enlargement of benefits under the Plan or the outstanding options
there under.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the Option
Grant Program or the purchase of shares under the Stock Issuance Program under
the Incentive Plan. The Plan Administrator will determine the terms of any such
financial assistance. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of the
shares.
9
<PAGE> 13
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested share issuances under the Incentive Plan with the right to have the
Company withhold a portion of the shares otherwise issuable to such individuals
in satisfaction of the withholding taxes incurred by such individuals in
connection with the exercise of those options or the vesting of those shares.
Alternatively, the Plan Administrator may allow such individuals to deliver
previously acquired shares of common stock in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the Incentive Plan at any time, subject to
any required stockholder approval pursuant to applicable laws and regulations.
Unless sooner terminated by the Board, the Incentive Plan will terminate on the
earliest of (i) April 15, 2010, (ii) the date on which all shares available for
issuance under the Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
OTHER PLANS
Nothing in the Incentive Plan prohibits the Company from adopting other
equity compensation programs, including those for individuals who are eligible
for awards under the Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the Incentive Plan may be either incentive stock
options, which satisfy the requirements of Section 422 of the Internal Revenue
Code, or non-statutory options, which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a disposition. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition of the shares is made more
than two years after the date the option for those shares is granted and more
than one year after the date the option is exercised for such shares. If either
of these periods is not met, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date over (ii) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
10
<PAGE> 14
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date those
shares vest over (ii) the exercise price paid for such shares. The optionee may,
however, elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to the
excess of (i) the fair market value of the purchased shares on the exercise date
over (ii) the exercise price paid for those shares. If the Section 83(b)
election is made, the optionee will not recognize any additional income as and
when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the Incentive
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid with respect to those options
will remain deductible by the Company without limitation under Code Section
162(m).
ACCOUNTING TREATMENT
Under the current accounting principles in effect for equity incentive
programs such as the Incentive Plan, the option grants under the Discretionary
Option Grant and Automatic Option Grant Programs will not result in any direct
charge to the Company's reported earnings. However, the fair value of those
options is required to be disclosed in the notes to the Company's financial
statements, and the Company must also disclose, in footnotes to the Company's
financial statements, the pro-forma impact those options would have upon the
Company's reported earnings were the fair value of those options at the time of
grant treated as a compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully diluted basis.
Option grants or stock issuances made under the Incentive Plan with
exercise or issue prices less than the fair market value of the shares on the
grant or issue date will result in a direct compensation expense to the Company
in an amount equal to the excess of such fair market value over the exercise or
issue price. The expense must be amortized against the Company's earnings over
the period that the option shares or issued shares are to vest.
The Financial Accounting Standards Board recently issued an Interpretation
of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the
final Interpretation, Option grants made to non-employee consultants (but not
non-employee board members) after December 15, 1998 will result in a direct
11
<PAGE> 15
charge to the Company's reported earnings based upon the fair value of the
option measured initially as of the grant date and then subsequently on the
vesting date of each installment of the underlying option shares. Such charge
will accordingly include the appreciation in the value of the option shares over
the period between the grant date of the option (or, if later, the effective
date of the final interpretation, July 1, 2000) and the vesting date of each
installment of the option shares. In addition, any options which are repriced
after December 15, 1998 will also trigger a direct charge to the Company's
reported earnings measured by the appreciation in the value of the underlying
shares between the grant of the repriced option (or, if later, the effective
date of the final interpretation, July 1, 2000) and the date the repriced option
is exercised for those shares.
Should one or more individuals be granted stock appreciation rights under
the Incentive Plan, then such rights would result in a compensation expense to
be charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount (if any) by which the fair market value of the
shares of common stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock and preferred stock, voting together as a single
class, is required to approve the implementation of the Incentive Plan.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR implementation of the
Incentive Plan.
12
<PAGE> 16
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 28, 2000 by (i) all persons known by the Company to
beneficially own more than five percent (5%) of its outstanding Common Stock,
(ii) each Director, (iii) each of the Company's executive officers named in the
Summary Compensation Table below, and (iv) all Directors and executive officers
as a group. All shares are subject to the named person's sole voting and
investment power except where otherwise indicated or where subject to applicable
community property laws.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP OF CLASS
---- -------------------- --------
<S> <C> <C>
Richard Thalheimer.......................................... 5,000,145(1) 40.6%
Capital Research & Management............................... 935,000(2) 7.8%
Alan Thalheimer............................................. 20,301(3) *
Morton David................................................ 24,000(4) *
Gerald Napier............................................... 17,000(5) *
George James................................................ 19,000(6) *
Tracy Wan................................................... 52,000(7) *
Anthony Farrell............................................. 3,500(8) *
Gregory Alexander........................................... 8,333(9) *
Robert Thompson............................................. 3,334(10) *
All Directors and executive officers as a group (11
persons).................................................. 5,164,846(11) 41.6%
</TABLE>
- ---------------
* Less than one percent of class.
(1) Includes 3,751,491 shares owned by The Richard J. Thalheimer Revocable
Trust, of which Mr. Richard Thalheimer is trustee and sole beneficiary;
203,665 shares owned by The Richard J. Thalheimer and Elyse M. Thalheimer
Family Trust, of which Mr. Richard Thalheimer is a co-beneficiary; 238,000
shares owned by The Richard J. Thalheimer Children's Trust; 14,363 shares
owned by the Richard and Elyse Thalheimer Irrevocable Trust of 1995,
183,673 shares owned by the Richard J. Thalheimer 1997 Annuity Trust, of
which Mr. Richard Thalheimer is trustee, 318,430 shares owned by the
Richard J. Thalheimer 1997 Grantor Annuity Trust, of which Mr. Richard
Thalheimer is trustee, 523 shares owned by the Richard J. Thalheimer
Irrevocable Trust of 1999 and 290,000 shares issuable upon exercise of
options, which are currently exercisable or will become exercisable within
60 days after April 17, 2000. Mr. Thalheimer's address is The Sharper
Image, 650 Davis Street, San Francisco, California 94111.
(2) Capital Research and Management Company ("CRMC"), a registered investment
advisor, has sole dispositive power over 935,000 shares and sole voting
power over 160,000 shares as of December 31, 1999. SMALLCAP World Fund,
Inc. for which CRMC acts as an investment manager, has sole voting power
over 775,000 of these shares.
(3) Does not include 78,775 shares owned by Mr. Alan Thalheimer's wife.
Includes 2,301 shares owned by Alan Thalheimer. Does not include 238,000
shares owned by The Richard J. Thalheimer Children's Trust, or 14,363
shares owned by the Richard and Elyse Thalheimer Irrevocable Trust of 1995,
of which Mr. Alan Thalheimer is Trustee. Includes 18,000 shares issuable
upon exercise of options, which are currently exercisable or will become
exercisable within 60 days after April 17, 2000, of which 8,000 shares are
currently subject to repurchase by the Company.
(4) Includes 14,000 shares owned by Mr. Morton David. Includes 10,000 shares
issuable upon exercise of options, which are currently exercisable or will
become exercisable within 60 days after April 17, 2000, of which 8,000
shares are currently subject to repurchase by the Company.
(5) Includes 13,000 shares owned by the Napier Family Trust, of which Mr.
Gerald Napier is Trustee. Includes 4,000 shares issuable upon exercise of
options, which are currently exercisable or will become exercisable within
60 days after April 17, 2000. 8,000 shares are currently subject to
repurchase by the Company.
13
<PAGE> 17
(6) Includes 15,000 shares owned by Mr. George James. Includes 4,000 shares
issuable upon exercise of options, which are currently exercisable or will
become exercisable within 60 days after April 17, 2000, which are currently
subject to repurchase by the Company.
(7) Includes 52,000 shares issuable upon exercise of options, which are
currently exercisable or will become exercisable within 60 days after April
17, 2000.
(8) Includes 3,000 shares issuable upon exercise of options, which are
currently exercisable or will become exercisable within 60 days after April
17, 2000.
(9) Includes 8,333 shares issuable upon exercise of options, which are
currently exercisable or will become exercisable within 60 days after April
17, 2000.
(10) Includes 3,334 shares issuable upon exercise of options, which are
currently exercisable or will become exercisable within 60 days after April
17, 2000.
(11) Includes 422,000 shares issuable upon exercise of options, which are
currently exercisable or will become exercisable within 60 days after April
17, 2000.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (hereafter referred to as the "named executive
officers") serving in that capacity as of January 31, 2000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
FISCAL ---------------------
YEAR ANNUAL COMPENSATION SECURITIES UNDERLYING
ENDED --------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION JAN. 31 SALARY($) BONUS($) (# OF SHARES) COMPENSATION($)(1)
--------------------------- ------- --------- -------- --------------------- ------------------
<S> <C> <C> <C> <C> <C>
Richard Thalheimer.............. 2000 603,015 302,802 200,000 shares 88,580
Founder, Chairman of the
Board, 1999 549,341 269,157 90,000 shares 51,808
and Chief Executive Officer 1998 479,134 150,000 --0-- 78,783
Tracy Wan....................... 2000 283,231 100,000 175,000 shares 15,180
President, 1999 192,019 65,000 75,000 shares 3,945
Chief Operating Officer 1998 156,731 --0-- --0-- 775
Anthony Farrell................. 2000 202,692 50,000 61,000 shares 4,037
Senior Vice President,
Marketing 1999 97,480(2) 15,000 39,000 shares 221
Gregory Alexander............... 2000 194,135 50,000 65,000 shares 9,848
Senior Vice President, 1999 130,288 27,000 15,000 shares 2,821
Management Information Systems 1998 105,077 --0-- 15,000 shares 201
Robert Thompson................. 2000 190,865 50,000 60,000 shares 6,343
Senior Vice President, 1999 155,000(3) 31,000 20,000 shares 804
Merchandising
</TABLE>
- ---------------
(1) Represents the following amounts for the named executive officers for the
fiscal year ended January 31, 2000: (i) the premiums paid on the life
insurance coverage provided such individuals, (ii) the contribution made by
the Company to match the salary deferral contribution made by the officer to
the Company's 401(k) Savings plan, up to a maximum of $500, (iii) the
imputed value for goods and services provided by the Company, (iv)
profit-sharing paid by the Company, and (v) the cash value compensation of
the split-dollar life insurance policy maintained for Mr. Thalheimer. The
clause (v) dollar value was determined by the demand loan approach for the
benefit provided by the whole life portion of the premium paid by the
Company, projected on an actuarial basis (see "Life Insurance Agreement").
14
<PAGE> 18
Fiscal year ended January 31, 2000:
<TABLE>
<CAPTION>
SPLIT-DOLLAR
LIFE INSURANCE
PROFIT SHARING LIFE INSURANCE MATCHING 401(K) VALUE OF GOODS "CASH VALUE"
NAME CONTRIBUTIONS($) PREMIUM($) CONTRIBUTION($) AND SERVICES($) COMPENSATION($)
---- ---------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Richard Thalheimer... 35,625 1,315 500 23,919 27,221
Tracy Wan............ 14,214 466 500 --0-- --0--
Anthony Farrell...... 2,222 1,315 500 --0-- --0--
Gregory Alexander.... 9,047 301 500 --0-- --0--
Robert Thompson...... 4,528 1,315 500 --0-- --0--
</TABLE>
(2) Mr. Farrell joined the Company July 7, 1998. This reflects salary paid from
July 7, 1998 through January 31, 1999, based on an annual salary of
$156,000.
(3) Mr. Thompson joined the Company on January 19, 1998. This reflects salary
paid for the entire 1998 fiscal year.
EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL ARRANGEMENTS
During fiscal 1995, the Company adopted a Compensation Program for Mr.
Richard Thalheimer, the Company's Founder, Chief Executive Officer and Chairman
of the Board. The Compensation Program provides for the payment of base salary
to Mr. Thalheimer in respect of each fiscal year based on the Company's
performance during the prior fiscal year, and provides for the payment of a
bonus to Mr. Thalheimer in respect of each fiscal year based on the Company's
performance during that fiscal year. Specifically, the Compensation Program
provides that Mr. Thalheimer's base salary for any fiscal year will be increased
in the event the Company's earnings per share for the prior fiscal year has
increased as compared to the fiscal year preceding the prior fiscal year, and
will be reduced in the event that the Company's earnings per share for the
fiscal year has decreased as compared to the fiscal year preceding such prior
fiscal year. The Compensation Program also provides for bonus payments as a
percentage of base salary based on specific target percentage increases in the
Company's earnings per share for such fiscal years. The Compensation Program
provides that Mr. Thalheimer will not, in any event, be paid a base salary less
that the base salary established by the Compensation Committee for each fiscal
year. The base salary for fiscal 1999 was established at $605,603 and was
adjusted to $681,303 for 2000.
The Compensation Committee as administrator of the Company's Stock Option
Plan and its proposed 2000 Incentive Plan has the authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the Chief Executive Officer and the Company's other executive officers
or any unvested shares actually held by those individuals under those plans, in
the event their employment were to be terminated (whether involuntarily or
through a forced resignation) following an acquisition of the Company by merger
or asset sale.
LIFE INSURANCE AGREEMENT
Mr. Richard Thalheimer, the Company's Founder, Chairman of the Board, and
Chief Executive Officer, is presently the owner and holder of 4,710,145 shares
of the Company's Common Stock. The Company has been advised that on the death of
Mr. Thalheimer the estate may be required to publicly sell all or substantially
all of such shares to satisfy estate tax obligations. The public sale of such
number of shares in all probability would destabilize the market for the
Company's publicly traded stock. Accordingly, in May 1995, an agreement was
entered into, and later amended, (commonly known as a split-dollar life
insurance agreement) under the terms of which the Company will pay the premiums
for certain life insurance policies with an aggregate face value of $25,000,000
on the life of Richard Thalheimer. The Company will have an interest in the
insurance policies equal to the amount of premiums it has paid with the balance
payable to a trust created by Mr. Thalheimer. To secure the repayment of the
advances, the trust has assigned the life insurance policies to the Company as
collateral.
15
<PAGE> 19
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the information noted for all grants of
stock options made to the named executive officers listed in the Summary
Compensation Table during the fiscal year ended January 31, 2000. No stock
appreciation rights were granted during such fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
---------------------------------------------------- ASSUMED ANNUAL
PERCENTAGE RATES OF
OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH(3)) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard Thalheimer.................. 200,000(1) 16.3% $ 9.000 9/24/09 $1,132,010 $2,868,736
Tracy Wan........................... 75,000(2) 6.1% $10.625 4/26/09 501,150 1,270,013
100,000(1) 8.1% $ 9.000 9/24/09 566,005 1,434,368
Anthony Farrell..................... 61,000(1) 5.0% $ 9.000 9/24/09 345,263 874,965
Greg Alexander...................... 65,000(1) 5.3% $ 9.000 9/24/09 367,903 932,339
Robert Thompson..................... 60,000(1) 4.9% $ 9.000 9/24/09 339,603 860,621
</TABLE>
- ---------------
(1) The option grants have a maximum term of ten years, subject to earlier
termination upon the optionee's cessation of service. The option grants will
become exercisable in five successive equal annual installments beginning
January 31, 2001, provided the optionee continued in service. These options
were granted September 24, 1999.
(2) The option grant has a maximum term of ten years, subject to earlier
termination upon the optionee's cessation of service. The option grant
became exercisable in five successive equal annual installments beginning
January 31, 2000, provided the optionee continues in service. These options
were granted April 26, 1999.
(3) The exercise price may be paid in cash or in shares of common stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving same-day sale of the purchased shares.
(4) There is no assurance that the actual stock price appreciation over the
ten-year option term will be at those assumed rates or at any other level.
Unless the market price of the Company's common stock does in fact
appreciate over the option term, no value will be realized from the option
grants.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the named
executive officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year. No stock
appreciation rights have been granted under the Stock Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END
NUMBER OF UNEXERCISED (MARKET PRICE OF SHARES
SHARES VALUE REALIZED OPTIONS AT FISCAL AT FISCAL YEAR-END ($9.250)
ACQUIRED (MARKET PRICE AT YEAR-END(#) LESS EXERCISE PRICE)($)
ON EXERCISE DATE LESS --------------------------- ----------------------------
NAME EXERCISE(#) EXERCISE PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Thalheimer.... -- -- 290,000 300,000 $1,591,250 $592,500
Tracy Wan............. 15,000 $261,688 52,000 219,000 202,000 349,625
Anthony Farrell....... -- -- 3,000 97,000 16,125 178,750
Gregory Alexander..... -- -- 8,333 91,667 45,207 172,919
Robert Thompson....... -- -- 3,334 76,666 17,920 103,330
</TABLE>
16
<PAGE> 20
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
Directors and greater than ten-percent stockholders are required by regulation
of the Securities and Exchange Commission to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 2000, all other
Section 16(a) filing requirements applicable to its Officers, Directors and
greater than ten-percent beneficial owners were complied with.
ANNUAL REPORT
A copy of the Annual Report of the Company for fiscal 1999 has been mailed
concurrently with this Proxy Statement to all Stockholders entitled to notice of
and to vote at the Annual Meeting. The Annual Report is not incorporated into
this Proxy Statement and is not considered proxy solicitation material.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's compensation policies and programs. The Committee has
responsibility for executive compensation matters, including setting the base
salaries of the Company's executive officers, approving individual bonuses and
bonus programs for executive officers, administering certain of the Company's
employee benefit programs, and the administration of the Company's Stock Option
Plan, under which grants may be made to executive officers and other key
employees. The following is a summary of policies of the Committee that affects
the compensation paid to executive officers, as reflected in the tables and text
set forth elsewhere in this Proxy Statement.
General Compensation Policy. The overall policy of the Committee is to
offer the Company's executive officers competitive compensation opportunities
based upon their personal performance, the financial performance of the Company
and their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's financial success as well as upon such executive officer's
own level of performance. Each executive officer's compensation package is
generally comprised of three elements: (i) base salary, which is determined
primarily on the basis of the individual's position and responsibilities and the
level of the individual's performance, (ii) incentive performance awards payable
in cash and tied to the Company's financial performance and individual
performance, and (iii) long-term stock-based incentive awards designed to
strengthen the mutuality of interests between the executive officers and the
Company's stockholders. Generally, as an executive officer's level of
responsibility increases, a greater portion of such executive officer's total
compensation will be dependent upon Company performance and stock price
appreciation rather than base salary.
Factors. The principal factors considered in establishing the components of
each executive officer's compensation package, other than the Chief Executive
Officer, for the fiscal year ended January 31, 2000 are summarized below. The
Committee may at its discretion apply entirely different factors, such as
different measures of financial performance, for future fiscal years.
Base Salary. The base salary for each officer is set primarily on the
basis of personal performance, level of responsibility, salary levels for
comparable positions of other retailers (as estimated based on the
Committee's knowledge of the retail industry), internal comparability
considerations, and, to a lesser extent, on the financial performance of
the Company.
Incentive Compensation. Annual bonuses are earned by an executive
officer on the basis of the Company's financial performance and the base
salary, personal performance and level of responsibility of
17
<PAGE> 21
such executive officer. The specific amount paid to each executive officer,
other than the Chief Executive Officer, was determined by the Company's
Chief Executive Officer on the basis of personal performance and level of
responsibility of each such executive officer, subject to the Committee's
approval.
Long-Term Stock-Based Incentive Compensation. Generally, the Committee
approves annual grants of stock options to each of the Company's executive
officers under the Stock Option Plan. These grants would continue under the
Company's proposed 2000 Incentive Plan. The grants are designed to align
the interests of each executive officer with those of the stockholders and
provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business. Each
grant generally allows the officer to acquire shares of the Company's
common stock at a fixed price per share (the market price on the grant
date) over a specified period of time (up to 10 years), thus providing a
return to the executive officer only if the market price of the shares
appreciates over the option term. The Committee may also grant certain
performance-based stock options. The size of the option grant to each
executive officer generally is designed to create a meaningful opportunity
for stock ownership and is based upon the executive officer's current
position with the Company, internal comparability considerations regarding
option grants made to other executive officers of the Company, the
executive officer's current level of performance and the executive
officer's potential for future responsibility and promotion over the option
term. The Committee also considers the number of vested and unvested
options held by the executive officer at the time of the proposed grant in
order to maintain an appropriate level of equity incentive for that
individual. However, the Committee does not adhere to any specific
guidelines as to the relative option holdings of the Company's executive
officers.
CEO Compensation. During fiscal 1995, the Company adopted a Compensation
Program for Mr. Richard Thalheimer, the Company's Founder, Chief Executive
Officer and Chairman of the Board. The Compensation Program provides for the
payment of base salary to Mr. Thalheimer in respect of each fiscal year based on
the Company's performance during the prior fiscal year, and provides for the
payment of a bonus to Mr. Thalheimer in respect of each fiscal year based on the
Company's performance during that fiscal year. Specifically, the Compensation
Program provides that Mr. Thalheimer's base salary for any fiscal year will be
increased in the event the Company's earnings per share for the prior fiscal
year has increased as compared to the fiscal year preceding the prior fiscal
year, and will be reduced in the event that the Company's earnings per share for
the fiscal year has decreased as compared to the fiscal year preceding such
prior fiscal year. The Compensation Program also provides for bonus payments as
a percentage of base salary based on specific target percentage increases in the
Company's earnings per share for such fiscal years. The Compensation Program
provides that Mr. Thalheimer will not, in any event, be paid a base salary less
that the base salary established by the Compensation Committee for each fiscal
year. The base salary for fiscal 1999 was established at $605,603 and was
adjusted to $681,303 for fiscal 2000. On the basis of the earnings per share for
the fiscal year ended January 31, 2000, Mr. Thalheimer was paid a bonus of
$302,802. The Committee has also established a split-dollar life insurance
arrangement for Mr. Thalheimer as discussed above under "Life Insurance
Agreement."
Tax Limitation. As a result of Section 162(m) of the Internal Revenue Code,
which was enacted into law in 1993, the Company will not be allowed a federal
income tax deduction for compensation paid to certain executive officers, to the
extent that compensation exceeds $1 million per officer in any one year. This
limitation will be in effect for each fiscal year of the Company beginning after
December 31, 1993 and will apply to all compensation paid to the covered
executive officers which is not considered to be performance based. Compensation
which does qualify as performance-based compensation will not have to be taken
into account for purposes of this limitation.
The Company's Stock Option Plan and its proposed 2000 Incentive Plan are
structured so that any compensation deemed paid to an executive officer in
connection with the exercise price of option grants made under those plans will
qualify as performance-based compensation which will not be subject to the $1
million limitation. Because it is very unlikely that the non-performance based
cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Committee has decided
at this time not to take any other action to limit or restructure the elements
of cash compensation
18
<PAGE> 22
payable to the Company's executive officers. The Committee will reconsider this
decision should the individual cash compensation of any executive officer ever
approach the $1 million level.
Submitted by the Company's Compensation Committee of the Board of
Directors:
Gerald Napier, Member, Compensation Committee
Morton David, Member, Compensation Committee
George James, Member, Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. No member of the Compensation Committee is a former or
current officer or employee of the Company.
19
<PAGE> 23
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS*
OF THE COMPANY, THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE RUSSELL 2000 INDEX AND THE NASDAQ RETAIL TRADE INDEX
The following graph compares the yearly percentage changes in the
cumulative total stockholder return on the Company's Common Stock with the
cumulative total return on the Nasdaq Stock Market (U.S.) Index, the Russell
2000 Index and the Nasdaq Retail Trade Index during the five fiscal years ended
January 31, 2000. The comparison assumes that $100 was invested on January 31,
1995 in the Company's Common Stock and in each of the foregoing indices and
assumes reinvestment of dividends.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
SHARPER IMAGE NASDAQ STOCK NASDAQ RETAIL
CORPORATION MARKET (U.S.) RUSSELL 2000 TRADE
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
1/95 100.00 100.00 100.00 100.00
1/96 67.27 141.30 130.03 112.99
1/97 54.55 185.26 159.18 138.98
1/98 59.09 218.66 202.86 162.09
1/99 208.18 342.21 188.88 198.74
1/00 134.55 532.68 185.41 164.03
</TABLE>
- ---------------
* $100 INVESTED ON 01/31/95 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS, FISCAL YEAR ENDING JANUARY 31.
CERTAIN TRANSACTIONS
There were no reportable transactions during fiscal 1999.
20
<PAGE> 24
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The firm of Deloitte & Touche LLP served as independent auditor for the
Company for the fiscal year ended January 31, 2000. The Board of Directors has
selected the firm to continue in this capacity for the current fiscal year.
Accordingly, the Company is asking the stockholders to ratify the selection of
Deloitte & Touche LLP as independent auditor.
Although the selection of Deloitte & Touche LLP is not required to be
submitted to a vote of the stockholders, the Board of Directors believes it
appropriate as a matter of policy to request that the stockholders ratify the
selection of the independent auditor for the fiscal year ending January 31,
2001. In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board feels that such a
change would be in the best interests of the Company and its stockholders.
The Company anticipates that a representative of Deloitte & Touche LLP will
be present at the Annual Meeting. Such representative will be given the
opportunity to make a statement if he or she desires to do so, and is expected
to be available to respond to questions at the meeting.
The Board of Directors recommends a vote FOR ratification of the selection
of Deloitte & Touche LLP as the Company's independent auditor for the fiscal
year ending January 31, 2001.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held in
2001 must be received by the Company no later than December 29, 2000. The
proposal must be mailed to the Company's principal executive offices at 650
Davis Street, San Francisco, California 94111. Such proposals may be included in
next year's Proxy Statement if they comply with certain rules and regulations
promulgated by the Securities and Exchange Commission.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the meeting. Should any other matter requiring a vote of
the stockholders arise, the enclosed proxy card gives authority to the persons
listed on the card to vote at their discretion on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
Richard Thalheimer
Founder, Chairman of the Board, and
Chief Executive Officer
May 8, 2000
San Francisco, California
21
<PAGE> 25
SHARPER IMAGE CORPORATION
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests
of Sharper Image Corporation, a Delaware corporation, by providing eligible
persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity incentives
programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
<PAGE> 26
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
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<PAGE> 27
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the 2000 Annual
Stockholder's Meeting, whether through appointment by the Board or election by
the Corporation's stockholders, and (ii) those individuals who continue to serve
as non-employee Board members after the 2000 Annual Stockholder's Meeting,
provided such individual has served on the Board for at least six months. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
E. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 3,147,107
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plans as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plans, (ii) plus
an additional increase of
3
<PAGE> 28
approximately 750,000 shares to be approved by the Corporation's stockholders
prior to the Plan Effective Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of February each
fiscal year during the term of the Plan, beginning with fiscal year 2001, by an
amount equal to three percent (3%) of the total number of shares of Common Stock
outstanding on the last trading day in January of the immediately preceding
fiscal year, but in no event shall any such annual increase exceed 500,000
shares.
C. No one person participating in the Plan may receive stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 500,000 shares of Common Stock in the aggregate per
calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plans) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section II of Article Four or
Section III of Article Five of the Plan shall NOT be available for subsequent
issuance under the Plan.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price
4
<PAGE> 29
per share in effect under each outstanding option incorporated into this Plan
from the Predecessor Plans and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5
<PAGE> 30
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on
the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to
be withheld by the Corporation by reason of such exercise and (b)
the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the
sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6
<PAGE> 31
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct or should the Optionee otherwise engage in Misconduct while
holding one or more outstanding options under this Article Two, then all
those options shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
7
<PAGE> 32
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. Non-Statutory Options shall be subject to the
same restriction, except that a Non-Statutory Option may be assigned in whole or
in part during the Optionee's lifetime to one or more members of the Optionee's
family or to a trust established exclusively for one or more such family members
or to Optionee's former spouse, to the extent such assignment is in connection
with the Optionee's estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Two, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
8
<PAGE> 33
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option under the Discretionary Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully vested shares of Common Stock. However, an
outstanding option shall NOT become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights under the Discretionary Option
Grant Program shall automatically terminate, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent: (i) those repurchase rights
are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
9
<PAGE> 34
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options under the Discretionary Option Grant
Program shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year. To the extent the actual holders of the Corporation's outstanding Common
Stock receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under the Discretionary Option Grant
Program, substitute one or more shares of its own common stock with a fair
market value equivalent to the cash consideration paid per share of Common Stock
in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become exercisable for all the shares of
Common Stock at the time subject to those options in the event the Optionee's
Service is subsequently terminated by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. In addition, the Plan Administrator may
structure one or more of the Corporation's repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
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G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation 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.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and
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the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender
each such option to the Corporation. In return for the surrendered
option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock at the time subject to such option
(whether or not the option is otherwise at that time exercisable for
those shares) over (B) the aggregate exercise price payable for those
shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
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VI. RELOAD OPTIONS
The Plan Administrator shall have the authority to grant to selected
optionees an option providing that, to the extent that the exercise price of an
option (or the Federal, state and local income and employment tax withholding
obligations attributable thereto) is paid in shares of Common Stock (whether
delivered to the Corporation by the holder or withheld from shares otherwise
issuable upon exercise), the holder will automatically be granted a new option
covering the number of shares so delivered or withheld; the terms of the new
option shall be the same as the option so exercised, except that the per share
exercise price of the new option shall be the Fair Market Value of one share of
Common Stock on the date of grant of the new option and the term of the new
option shall be equal to the remaining term of the option so exercised.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Six, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of
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any stock dividend, stock split, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration shall be issued subject
to (i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
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B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, either upon the occurrence of a Change in Control
or upon the subsequent termination of the Participant's Service by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of that Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the 2000 Annual Stockholder's
Meeting shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 2,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
2. Each individual who is to continue to serve as a non-employee
Board member shall automatically be granted on the first day of each fiscal
quarter, beginning with the fiscal quarter following the 2000 Annual
Stockholder's meeting, a Non-Statutory Option to purchase 2,000 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six (6) months. There shall be no limit on the number of such 2,000-share
option grants any one non-employee Board member may receive over his or her
period of Board service, and non-employee Board members who have previously been
in the employ of the Corporation (or any Parent or Subsidiary) or who have
otherwise received one or more stock option grants from the Corporation prior to
the Effective Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each 2,000 share
grant shall vest, and the Corporation's repurchase right shall lapse, upon the
Optionee's completion of one (1) year of service measured from the option grant
date.
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E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) Should the Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while holding one
or more automatic option grants under the Plan, then such individual
shall have a six (6)-month period following the date of such cessation
of Board service in which to exercise each such option for any or all of
the option shares in which the Optionee is vested at the time of such
cessation of Board service. Each such option shall immediately terminate
and cease to be outstanding, at the time of such cessation of Board
service, with respect to any option shares in which the Optionee is not
otherwise at that time vested.
(ii) Should the Optionee die within six (6) months after
cessation of Board service, then any automatic option grant held by the
Optionee at the time of death may subsequently be exercised, for any or
all of the option shares in which the Optionee is vested at the time of
his or her cessation of Board service (less any option shares
subsequently purchased by the Optionee prior to death) by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. The right to
exercise each such option shall lapse upon the expiration of the twelve
(12) month period measured from the date of the Optionee's death.
(iii) Should the Optionee die or become Permanently Disabled
while serving as a Board member, then the shares of Common Stock at the
time subject to each automatic option grant held by such Optionee shall
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immediately vest in full (and the Corporation's repurchase right with
respect to those shares shall terminate), and the Optionee (or, in the
event of Optionee's death, the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or the laws of inheritance or the
designated beneficiary or beneficiaries of such option) shall have a
twelve (12)-month period following the date of such cessation of Board
service in which to exercise each such option for any or all of those
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the
post-service exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of a Corporate Transaction while the Optionee
remains a Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the option shares as fully vested shares
of Common Stock and may be exercised for any or all of those vested shares.
Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In the event of a Change in Control while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully vested shares of Common Stock and
may be exercised for any or all of those vested shares. Each such option shall
remain exercisable for such fully vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. All outstanding repurchase rights under this under this Automatic
Option Grant Program shall automatically terminate, and the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction or Change in Control.
D. Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each of his or her outstanding options
under this Automatic Option Grant Program.
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The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to each surrendered option (whether
or not the Optionee is otherwise at the time vested in those shares) over (ii)
the aggregate exercise price payable for such shares. Such cash distribution
shall be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Automatic Option Grant Program, substitute one or more shares
of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation 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.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the fiscal year or years for which the Director Fee Option Grant
Program is to be in effect. For each such fiscal year the program is in effect,
each non-employee Board member may irrevocably elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service on
the Board for that year to the acquisition of a special option or restricted
stock grant under this Director Fee Option Grant Program. Such election must be
filed with the Corporation's Chief Financial Officer prior to the first day of
the fiscal year for which the annual retainer fee which is the subject of that
election is otherwise payable. Each non-employee Board member who files such a
timely election shall automatically be granted an option or shares of restricted
stock under this Director Fee Option Grant Program on the first trading day in
February in the fiscal year for which the retainer fee election is in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined by dividing the amount of the retainer
fee applied to the acquisition of the option by the fair market value of the
option, per share, as determined under a valuation method approved by the
Compensation Committee.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the fiscal year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
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D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. To the extent such
option is held by the Optionee at the time of his or death, that option may be
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of such option.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to
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whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. RESTRICTED STOCK GRANTS
Each restricted stock grant shall be governed by the terms and
conditions specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be the Fair Market Value
per share of Common Stock on the option grant date.
2. The purchase price shall become immediately due upon purchase
of the shares of restricted stock and shall be payable in one or more of the
alternative forms authorized under the Stock Issuance Program.
B. NUMBER OF SHARES OF RESTRICTED STOCK. The number of shares of
restricted stock shall be determined by dividing the amount of the retainer fee
applied to the acquisition of the option by the Fair Market Value per share of
common stock on the grant date.
C. VESTING. The shares of restricted stock shall become vested in a
series of twelve (12) equal monthly installments upon the participant's
completion of each calendar month of Board service during the fiscal year for
which the retainer fee election is in effect.
D. TERMINATION OF BOARD SERVICE. Should the participant cease Board
service for any reason (other than death or Permanent Disability) while holding
unvested shares under this Director Fee Option Grant Program, then those
unvested shares shall be immediately surrendered to the Corporation for
cancellation, and the participant shall have no further stockholder rights with
respect to those shares.
E. DEATH OR PERMANENT DISABILITY. Should the participant's service
as a Board member cease by reason of death or Permanent Disability, then each
share of restricted stock held by such participant under this Director Fee
Option Grant Program shall immediately become fully vested for all the shares of
Common Stock.
IV. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option
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<PAGE> 48
Grant Program shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. Each such outstanding option shall terminate immediately
following the Corporate Transaction, except to the extent assumed by the
successor corporation (or parent thereof) in such Corporate Transaction. Any
option so assumed and shall remain exercisable for the fully vested shares until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the Optionee's
cessation of Board service.
B. In the event of a Change in Control while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over while the Optionee
remains a Board member, such Optionee shall have a thirty (30)-day period in
which to surrender to the Corporation each outstanding option held by him or her
under the Director Fee Option Grant Program. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the option is otherwise at
the time exercisable for those shares) over (ii) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five (5)
days following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under the Director Fee Option Grant Program, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
24
<PAGE> 49
E. In the event of any Corporate Transaction while the participant
remains a Board member, each share of restricted stock held by such participant
under this Director Fee Option Grant Program shall automatically accelerate so
that each such share of restricted stock shall, immediately prior to the
effective date of the Corporate Transaction, become a fully vested share of
Common Stock.
F. In the event of a Change in Control while the participant remains
a Board member, each share of restricted stock held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such share of restricted stock shall, immediately prior to the effective date of
the Change in Control, become a fully vested share of Common Stock.
G. The grant of options or restricted stock under the Director Fee
Option Grant Program shall in no way affect the right of the Corporation 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.
V. REMAINING TERMS
The remaining terms of each option and each restricted stock grant
under this Director Fee Option Grant Program shall be the same as the terms in
effect for option grants made under the Discretionary Option Grant Program and
restricted stock grants made under the Stock Issuance Program.
25
<PAGE> 50
ARTICLE SIX
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest-bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
26
<PAGE> 51
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Director Fee Option Grant Program shall not be implemented
until such time as the Primary Committee may deem appropriate. Options may be
granted under the Discretionary Option Grant at any time on or after the Plan
Effective Date.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) April
15, 2010, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on April 15, 2010, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund
27
<PAGE> 52
to the Optionees and the Participants the exercise or purchase price paid for
any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
subject to the terms of any written employment agreement executed by both
parties, to terminate such person's Service at any time for any reason, with or
without cause.
VIII. OTHER PROGRAMS
Nothing in the Plan will prevent the Corporation from adopting other
equity compensation programs, including programs that may include persons
eligible to participate in this Plan.
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<PAGE> 53
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation),
directly or indirectly acquires beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, or
(ii) there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning of
such period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean any of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Corporation is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation; or
A-1.
<PAGE> 54
(iii) any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction,
G. CORPORATION shall mean Sharper Image Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Sharper Image Corporation which shall by appropriate
action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Five of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market and published in The Wall Street Journal. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange and published in The Wall Street
Journal. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price
A-2.
<PAGE> 55
per share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
M. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept, and more than fifty percent (50%) of the securities so
acquired in such tender or exchange offer are accepted from holders other than
the officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3.
<PAGE> 56
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
W. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as
set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean the date the Plan is approved by
the Corporation's shareholders.
Z. PREDECESSOR PLANS shall mean the Corporation's Employee Stock
Option Plan and Non-Employee Director Stock Option Plan in effect immediately
prior to the Plan Effective Date hereunder.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
A-4.
<PAGE> 57
PROXY
SHARPER IMAGE CORPORATION
650 DAVIS STREET, SAN FRANCISCO, CA 94111
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard Thalheimer and Jeffrey Forgan, and
each of them, with full power of substitution, the proxy or proxies of the
undersigned to vote all shares of Common Stock of Sharper Image Corporation
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of Sharper Image Corporation to be held at the World Trade Club, Ferry Building,
San Francisco, California 94111, on June 12, 2000 at 10:00 a.m., and at any
adjournments or postponements thereof, with the same force and effect as the
undersigned might or could do if personally present thereat:
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- --------------------------------------------------------------------------------
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<PAGE> 58
Please mark
your votes as [X]
indicated in
this example.
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
all nominees to vote for all
listed below nominees listed below
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS [ ] [ ]
AUTHORITY TO VOTE FOR ANY NOMINEE
MAY BE WITHHELD BY LINING THROUGH SUCH
NOMINEE'S NAME BELOW.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RICHARD J. THALHEIMER, ALAN R. THALHEIMER,
GERALD NAPIER, MORTON DAVID, GEORGE JAMES
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE COMPANY'S 2000 [ ] [ ] [ ]
STOCK OPTION PLAN. (The Board of Directors
recommends a vote FOR.)
FOR AGAINST ABSTAIN
3. PROPOSAL TO RATIFY THE SELECTION OF [ ] [ ] [ ]
DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITOR. (The Board of Directors
recommends a vote FOR.)
4. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting and at any adjournments or
postponements thereof.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2, 3 AND 4 IN THE DISCRETION OF THE PROXY
HOLDERS, UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING AND AT ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
Signature(s)______________________________________________ Dated:________, 2000
Please sign exactly as name appears above. When shares are held jointly, every
holder should sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
