<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
STYLES ON VIDEO, INC.
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NONE
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
STYLES ON VIDEO, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1996
To the Stockholders of
Styles On Video, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Styles On Video, Inc. (the "Company") will be held at the Conejo
Valley Masonic Hall, 2786 Crescent Way, Thousand Oaks, California 91360 on
October 28, 1996, at 10:00 a.m. (local time), for the following purposes:
(1) To elect two Directors, each for a term of three years;
(2) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to effect a one-for-ten reverse
stock split of the presently issued and outstanding shares of the
Company's Common Stock;
(3) To consider and vote upon a proposal to approve the Company's
1996 Incentive Stock Option Plan;
(4) To ratify the appointment of Corbin & Wertz as the Company's
independent auditors for fiscal 1995 and 1996; and
(5) To transact such other business as may properly come before the
Meeting and any adjournment(s) or postponements(s) thereof.
A Proxy Statement describing matters to be considered at the Meeting
is attached to this Notice. Only stockholders of record at the close of
business on September 25, 1996, will be entitled to notice of and to vote at the
Meeting.
You are cordially invited to attend the Meeting.
By Order of the Board of Directors
K. Eugene Shutler
Chairman of the Board and
Chief Executive Officer
Newbury Park, California
September 26, 1996
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED, POSTAGE
PREPAID ENVELOPE WHICH HAS BEEN PROVIDED FOR YOUR CONVENIENCE. IN THE EVENT YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>
STYLES ON VIDEO, INC.
667 Rancho Conejo Boulevard
Newbury Park, California 91320
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1996
GENERAL
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation of proxies by the Board of Directors of Styles
On Video, Inc., a Delaware corporation (the "Company"), for use at its Annual
Meeting of Stockholders (the "Meeting") and any adjournment(s) or
postponement(s) thereof. The Meeting is to be held on October 28, 1996 at 10:00
a.m. (local time) at the Conejo Valley Masonic Hall, 2786 Crescent Way, Thousand
Oaks, California 91360. The approximate date of the mailing of this Proxy
Statement and accompanying proxy card to the Company's stockholders is September
26, 1996.
In an effort to have as large a representation at the Meeting as
possible, proxy solicitation may be made personally or by telephone or telegram
by officers or employees of the Company, without added compensation. The
Company will reimburse brokers, banks and other custodians, nominees and
fiduciaries for their expenses in sending proxy materials to beneficial owners.
RECORD DATE AND VOTING SECURITIES
The close of business on September 25, 1996 (the "Record Date") has
been fixed as the Record Date for the determination of the stockholders of the
Company entitled to notice of and to vote at the Meeting. As of the Record
Date, the Company had outstanding 4,505,332 shares of Common Stock, par value
$.001 per share (the "Common Stock"). The Company also has outstanding 500
shares of 10% Senior Series A Convertible Preferred Stock, par value $.001 per
share (the "Series A Preferred"), and 500 shares of 10% Series B Senior
Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred," and collectively with the Series A Preferred, the "Preferred
Stock"). Each share of Common Stock entitles the record holder thereof to one
vote on all matters properly coming before the Meeting. Holders of the Series A
Preferred, voting as a separate series, have the right to elect four of the
Company's directors. See "Certain Related Party and Other Transactions.
-1-
<PAGE>
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth as of August 31, 1996, certain
information regarding the ownership of the Common Stock and the Preferred Stock
by (i) each person known by the Company to be the beneficial owner of more than
5% of the outstanding shares of the Common Stock or more than 5% of the
outstanding shares of the Preferred Stock, (ii) each of the Named Executives (as
defined below), (iii) each of the Company's directors, and (iv) all of the
Company's executive officers and directors as a group. Except as may be
indicated in the footnotes to the table and subject to applicable community
property laws, each of such persons has the sole voting and investment power
with respect to the shares owned. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. Under this Rule, certain shares may be deemed to be beneficially owned
by more than one person (such as where persons share voting power or investment
power). Unless otherwise stated, the address of each person is c/o Styles on
Video, Inc., 667 Rancho Conejo Boulevard, Newbury Park, California 91320.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
SHARES OF ----------- PREFERRED
COMMON STOCK OUTSTANDING STOCK PERCENT OF
BENEFICIALLY ----------- BENEFICIALLY OUTSTANDING
NAME OWNED SHARES(1) OWNED SHARES
---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
K. Eugene Shutler [175,000](2) 3.7% --- ---
Dana I. Arnold 21,936,862(3) 83.0% --- ---
John A. Edling 44,000(4) * --- ---
Ann Graham Ehringer 40,000(5) * --- ---
Marshall Geller --- --- ---
Barry Porter --- --- ---
James E. O'Brien 27,000(7) * --- ---
Nancy H. Galgas 27,000(7) * --- ---
Jeffrey A. Safchik 57,523,586(8) 93.3% 500/Series A 100%
500/Series B 100%
International Digital 57,523,586(8) 93.3% 500/Series A 100%
Investors, L.P. 500/Series B 100%
All Directors and Executive 22,249,862(9) 95.1% --- ---
Officers as a Group (8)
persons
</TABLE>
- - - -----------------------------
* Less than one percent.
(1) Based upon 4,505,332 shares of Common Stock outstanding. Shares are deemed
to be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the number of shares outstanding is deemed to
include the number of shares beneficially owned by such person (and only
such person) by reason of such acquisition rights. As a result, the
percentage of outstanding shares beneficially owned by any person as shown
in the table does not necessarily reflect the person's actual ownership or
voting power.
-2-
<PAGE>
(2) Includes [175,000] shares of Common stock issuable upon the exercise of
warrants which are or will become exercisable on or prior to February 28,
1997.
(3) Includes 21,936,862 shares of Common Stock issuable upon the exercise of
warrants which are or will become exercisable on or prior to February 28,
1997.
(4) Includes 30,000 shares of Common Stock issuable upon exercise of stock
options which are or will become exercisable on or prior to February 28,
1997.
(5) Includes 40,000 shares of Common Stock issuable upon the exercise of
warrants which are or will become exercisable on or prior to February 28,
1997.
(7) Includes 27,000 shares of Common Stock issuable upon exercise of stock
options which are or will become exercisable on or prior to February 28,
1997.
(8) Includes: 57,128,428 shares of Common Stock issuable upon exercise of
warrants which are or will become exercisable on or prior to February 28,
1997; 263,158 shares of Common Stock issuable upon conversation of the
Series A Preferred; 714,285 shares of Common Stock issuable upon conversion
of the Series B Preferred; and 132,000 shares of Common Stock held by
Greenstreet Partners, an affiliate of International Digital Investors, L.P.
("IDI"). Mr. Safchik is the President of IDI's managing general partner
and Messrs. Geller and Porter are partners of one of IDI's limited
partners. Messrs. Safchik, Geller and Porter disclaim beneficial ownership
of the securities held by IDI and its affiliates.
(9) Includes 22,235,862 shares of Common Stock issuable upon exercise of stock
options which are or will become exercisable on or prior to February 28,
1997.
-3-
<PAGE>
ELECTION OF DIRECTORS
[PROPOSAL NO. 1]
The Company's Certificate of Incorporation provides that the number of
directors, as determined from time to time by the Board of Directors, shall not
be less than four nor more than seven. It further provides that directors shall
be divided into three classes serving staggered three-year terms, with each
class to be as nearly equal as possible. The Board of Directors currently
consists of seven directors, with one vacancy. As set forth below and on the
proxy card, two nominees are to be elected at the Meeting. These directors
comprise the class whose current term expires in 1996 and whose term after the
Annual Meeting will expire in 1999. The remaining four incumbent directors are
currently serving terms which will expire in 1997 or 1998. Holders of the
Series A Preferred are entitled to elect four of the Company's seven directors.
Mr. Geller (whose term expires in 1997) and Messrs. Porter and Shutler (whose
terms expire in 1998) have been elected by the holders of the Series A
Preferred, and the holders of the Series A Preferred are entitled to elect a
director to fill the vacancy on the Board.
The Board of Directors has nominated John A. Edling and Ann Graham
Ehringer, each of whom is currently serving as a director, for election at the
Meeting for a term expiring at the 1999 Annual Meeting of Stockholders, in each
case until their successors are elected and qualified. Each nominee has
consented to being named in this Proxy Statement and to serve if elected. The
Board of Directors has no reason to expect that either of the nominees will be
unable to stand for election. In the event that a vacancy among the original
nominees occurs prior to the Meeting, the proxies will be voted for a substitute
nominee named by the Board of Directors and for the remaining nominee. The
affirmative vote of a majority of the shares of Common Stock present and
entitled to vote at the Meeting is required in order to elect each nominee.
Certain information regarding each nominee and each director continuing in
office after the Meeting is set forth below.
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 1999
JOHN A. EDLING Director Since November 1995
Mr. Edling, 41, is the Chief Executive Officer, President, Treasurer,
Secretary and a member of the Board of Directors of Dycam Inc. ("Dycam"), of
which the Company owns approximately 61% of the outstanding common stock. Mr.
Edling was a co-founder of Dycam and served as its Chief Operating Officer from
March 1991 until be became Chief Executive Officer and President in December
1991. Mr. Edling resigned as Chief Executive Officer of Dycam effective
November 1994 and was reappointed to that position effective March 1995. Since
the Company's acquisition of Dycam in February 1994, Mr. Edling has also served
as Dycam's Chief Financial Officer. From November 1988 until March 1991, Mr.
Edling was Development Engineering Manager for Dataproducts Corporation
("Dataproducts"), where he had responsibility for the design and marketing of
the Dataproducts line of laser printers. Mr. Edling holds a B.S. in Finance
from California State University, Northridge.
-4-
<PAGE>
ANN GRAHAM EHRINGER Director Since August 1994
Dr. Ehringer, 58, is currently the Chairman and Chief Executive Officer of
S.P. Land, Inc. and S.P. Lodge, Inc. and has been the owner of Saddle Peak
Lodge, a fine dining restaurant in Malibu, California since 1993. Dr. Ehringer
serves as a director of the Family & Closely-Held Businesses Program and
Associate Professor of the Entrepreneurship Program at the School of Business at
the University of Southern California. From 1990 to 1996, she was a management
consultant and chairman of The Executive Committee, an executive education
organization of 4,000 Chief Executive Officers. Dr. Ehringer is a director of
Guggenheim Dental Supply, Inc., Quality Transport/Truck Rail, Inc., American
Etching and Manufacturing, Inc., United Ad Label, Inc. and Dycam. Dr. Ehringer
also participates as a director in several non-profit corporations, including
the California Heritage Museum Advisory Council and the Pepperdine University
Crest Associates Advisory Board. Dr. Ehringer received a B.A. from the
University of Hawaii in 1960, an M.A. from Stanford University in 1967, an
O.P.M. from Harvard University School of Business, Owner, President Management
Program in 1982 and a Ph.D. in Business Management from the University of
Southern California in 1992.
THE BOARD OF DIRECTORS RECOMMENDS VOTE FOR THE ELECTION OF THE NOMINEES FOR
DIRECTOR.
INCUMBENT DIRECTORS CONTINUING IN OFFICE FOR TERMS EXPIRING IN 1997
DANA I. ARNOLD Director Since November 1995
Mr. Arnold, 48, serves as the Assistant Secretary of the Company. From
March 1995 until November 1995, Mr. Arnold served as the Acting Chief Executive
Officer and President of the Company. Since April 1994, Mr. Arnold has served
as Chief Executive Officer, Treasurer and Secretary of Forever Yours, Inc.
("FYI"), a wholly owned subsidiary of the Company. From 1989 to April 1994, Mr.
Arnold was the Chief Executive Officer and President of the Pacifica
Corporation. Mr. Arnold is a graduate of the University of California at Los
Angeles and holds a Presidential M.B.A. from Pepperdine University.
MARSHALL GELLER Director Since November 1995
Mr. Geller, 58, has served as Chairman, Chief Executive Officer and
Founding Partner of Geller & Friend Capital Partners, Inc. since November 1995.
From 1991 to October 1995, Mr. Geller was the Senior Managing Partner and
founder of Golenberg & Geller, Inc., a merchant banking investment company.
From 1988 to 1990, he was the Vice Chairman of Gruntal & Company, a New York
Stock Exchange listed investment banking firm. From 1967 through 1988, Mr.
Geller was a Senior Managing Director of Bear, Stearns & Co., Inc. Mr. Geller
formerly served as Interim Co-Chairman of Hexcel Corporation. Mr. Geller also
serves on the Board of Directors of Players International, Inc., Value Vision
International, Inc., Ballantyne of Omaha, Inc. and Dycam.
-5-
<PAGE>
INCUMBENT DIRECTORS CONTINUING IN OFFICE FOR TERMS EXPIRING IN 1998
BARRY PORTER Director Since November 1995
Mr. Porter, 39, has served as a Managing Director of Pacific Capital Group,
Inc., a private merchant banking firm, since December 1993. Prior thereto, Mr.
Porter was a Senior Managing Director in the investment banking group of Bear,
Stearns & Co. Inc., a firm he joined in 1986. Mr. Porter serves on the Board of
Directors of OpTel, Inc., Campuslink Communications Systems, Inc. and Dycam.
Mr. Porter is a graduate of the Wharton School of the University of
Pennsylvania, he earned an M.B.A. at the University of California at Berkeley
Graduate School of Business Administration and a J.D. from UC-Berkeley's Boalt
Hall School of Law.
K. EUGENE SHUTLER Director Since August 1996
Mr. Shutler, 58, was Executive Vice President and a Director of MGM Grand,
Inc. from February 1991 to November 1995. Thereafter, he was of counsel to the
law firm of Beckley, Singleton, Jennison & List, Chartered from April to August
1996, when he was elected Chairman of the Board and Chief Executive Officer of
the Company. Mr. Shutler is a graduate of the University of Pennsylvania and
Yale Law School.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the 1995 fiscal year, the Board of Directors of the Company met on
16 occasions. Each of the directors attended all meetings of the Board of
Directors and the meetings held by all committees of the Board on which such
director served during the periods that such director served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee, a Compensation Committee and a Policy
Review Committee. Prior to November 1995, the Company also had an Executive
Committee and a Stock Option Committee.
The Audit Committee's duties include recommending to the Board of Directors
the engagement of the Company's independent certified public accountants, review
with such accountants of the Company's business plan and results of their
examination of the financial statements of the Company and determining the
independence of such accountants. From January through late November 1995, the
Audit Committee consisted of Harold J. Meyers and Thomas Lenagh. Messrs. Meyers
and Lenagh are not longer affiliated with the Company. The Audit Committee
consisted of Marshall Geller, Barry Porter, and Jeffrey A. Safchik from late
November 1995. Mr. Safchik resigned as a director in July 1996. The Audit
Committee met on five occasions in 1995.
The Compensation Committee reviews and makes recommendations with respect
to compensation of officers and directors of the Company. From January through
late November
-6-
<PAGE>
1995, the Compensation Committee consisted of Harold J. Meyers and Ann Graham
Ehringer. Mr. Meyers is no longer affiliated with the Company. Beginning in late
November 1995, the Compensation Committee has consisted of Marshall Geller, Ann
Graham Ehringer and Barry Porter. The Compensation Committee met on two
occasions in 1995.
The Policy Review Committee reviews transactions between the Company and
Dycam for potential conflicts of interest and advises the companies with respect
to the possible resolutions of any conflict. The Policy Review Committee is
comprised of one member from the Board of Directors of each of the Company and
Dycam and a non-voting chairman, who may not be a member of the Board of
Directors of either corporation. Through late November 1995, Thomas Lenagh
served as the Company's representative and Jim Alexiou served as Dycam's
representative. Mr. Lenagh is no longer affiliated with the Company. From late
November 1995 through August 26, 1996, the Policy Review Committee consisted of
Mr. Alexiou, and since August 26, 1996, has consisted of K. Eugene Shutler, as
the Company's representative, and Mr. Alexiou, as Dycam's representative. The
Policy Review Committee did not meet in 1995.
The Executive Committee's duties included, among other things, review of
management's performance. From January through November 1995, the Executive
Committee consisted of Guy de Vreese (through February 1995), Ann Graham
Ehringer and Harold J. Meyers. Messrs. de Vreese and Meyers are no longer
affiliated with the Company. The Executive Committee, which was disbanded on
November 28, 1995, met on two occasions in 1995.
The Stock Option Committee's duties included review of the grant of options
under the Company's various stock incentive plans. From January through
November 1995, the Stock Option Committee consisted of Thomas Lenagh and Franck
Verhaeghe (through February 1995). Messrs. Lenagh and Verhaeghe are no longer
affiliated with the Company. The Stock Option Committee met on three
occasions in 1995. Since late November 1995, the Company has not maintained a
Stock Option Committee, and its duties have been performed by the Compensation
Committee.
In April 1996, the Board of Directors appointed Ann Graham Ehringer and
Dana I. Arnold as members of an Independent Committee to review the terms of a
financing transaction with IDI. The Independent Committee met on six occasions
and was disbanded upon completion of the IDI transaction. See "Certain Related
Party and Other Transactions."
There is no outstanding nominating committee or other committee performing
similar functions.
COMPENSATION OF DIRECTORS
In October 1995, the Board of Directors approved the grant of options to
acquire 40,000 shares of Common Stock to each of Harold J. Meyers and Thomas
Lenagh, directors of the Company who resigned from the Board of Directors in
November 1995.
-7-
<PAGE>
Ann Graham Ehringer was paid $1,000 for each day she performed services as
a member of the Independent Committee, for an aggregate of $6,000. In addition,
in April 1996, the Board of Directors granted to Dr. Ehringer warrants to
acquire 80,000 shares of Common Stock in consideration for her services as
Chairman of the Independent Committee.
From January through November 1995, non-employee directors received $500
per meeting of the Board of Directors that they attended. Additionally, non-
employee members of the Board's Executive Committee received $1,000 for each
meeting of the Executive Committee that they attended. Commencing in November
1995, the Board's compensation was revised. Non-employee directors now receive
$2,500 per calendar quarter for serving on the Board of Directors and $500 for
each meeting of the Board or any of its committees that they attend.
-8-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities to the Company and its subsidiaries for the three
years ended December 31, 1995, 1994 and 1993 of those persons who were (1) the
Chief Executive Officer of the Company and (2) executive officers of the Company
whose total salary and bonus exceeded $100,000 for services performed by such
persons for the Company during 1995 (collectively the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Name & Principal Underlying All Other
Position Year Salary Bonus Options/SARs(1) Compensation(2)
---------------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Safchik (3) 1995 $ 41,667 - - -
Former Chairman of the Board, 1994 - - - -
Chief Executive Officer, 1993 - - - -
Treasurer and Secretary of
the Company
Dana I. Arnold (4) 1995 $219,000(5) - - -
Director, Asst. Secy. and 1994 125,967 - - -
Former Acting CEO of the 1993 - - - -
Company; Chief Executive Officer,
Treasurer and
Secretary of FYI
Guy de Vreese(6) 1995 $ 93,896 - -
Former Chairman of 1994 275,000 - - $6,686 (8)
the Board and CEO of the Company 1993 175,000 - 600,000(7)
Jerry Krant (9) 1995 $120,000
Former V.P. of Software of 1994 101,000 - 112,240 -
the Company 1993 100,000 - - -
James E. O'Brien (10) 1995 $122,000 $25,000 50,000 -
Former Acting Chief Executive of 1994 72,000 - - -
the Company; Chief Operating 1993 - - - -
Officer of FYI
Nancy H. Galgas (11) 1995 $118,000(12) $25,000 50,000 -
Acting Chief Financial Officer of the 1994 48,000 - - -
Company; CEO of FYI 1993 - - - -
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Name & Principal Underlying All Other
Position Year Salary Bonus Options/SARs(1) Compensation(2)
---------------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John E. Edling(13) 1995 $120,000 - - (14) $3,600 (15)
Director of the Company; Director, 1994 120,000 $ 6,725 45,000 (14) 1,500 (15)
CEO, President, Treasurer, and 1993 80,700 - - -
Secretary of Dycam
</TABLE>
_______________________
(1) All numbers reflect the number of shares of the Company's Common Stock
subject to options granted during the fiscal year.
(2) Does not include compensation paid to individuals in consideration for
serving on the Company's Board of Directors. See "Compensation of Directors."
(3) Mr. Safchik joined the Company in November 1995. In January 1996, the
Company's Board of Directors elected to provide Mr. Safchik with an annual base
salary of $125,000, which was reduced to zero in April 1996. In July 1996, Mr.
Safchik resigned from all positions with the Company.
(4) Mr. Arnold served as Acting Chief Executive Officer of the Company
from March 1995 through November 1995. Mr. Arnold's current responsibilities
with FYI commenced in April 1994. All salary shown as having been received by
Mr. Arnold in 1994 and 1995 was paid by FYI, however, a portion of such
compensation was allocated to the Company.
(5) Mr. Arnold's responsibilities with FYI commenced in April 1994. His
1994 annual base salary was set at $180,000, and his 1995 annual base salary was
$225,000. In May 1996, Mr. Arnold's annual base compensation was reduced to
$100,000.
(6) Mr. de Vreese served as Chief Executive Officer of the Company from
its inception (July 1, 1992) until his resignation in February 1995.
(7) Mr. de Vreese surrendered options to purchase 37,500 shares in 1993.
He was granted options to purchase an additional 450,000 shares of the Company's
common stock in 1993; and surrendered 187,500 of such options in march 1993.
Further, Mr. de Vreese was granted options to purchase an additional 150,000
shares of the Company's Common Stock in June 1993, pursuant to the Company's
1992 Stock Incentive Plan. He exercised options to purchase 300,000 shares in
1993 and 37,500 shares in 1994.
(8) Consists of a car allowance.
(9) Mr. Krant served as Vice President of Software of the Company from
inception (July 1, 1992) until January 1996. During 1995, Mr. Krant received an
annual base salary of $120,000.
(10) Mr. O'Brien serves as a Vice President of the Company and, from March
1995 through November 1995, served as Acting Chief Operating Officer of the
Company. Mr. O'Brien continues to serve as the Chief Operating Officer of FYI,
where his current responsibilities commenced on April 1, 1994. In March 1995
Mr. O'Brien received an annual base salary of $125,000 and a bonus of $25,000.
In addition, during 1995, Mr. O'Brien received options to purchase 50,000 shares
of the Company's Common Stock. In May 1996, Mr. O'Brien's annual base
compensation was reduced to $100,000.
(11) Ms. Galgas has served as Chief Financial Officer of the Company since
March 1995. In addition, Ms. Galgas' current responsibilities as Chief
Financial Officer of FYI commenced on April 1, 1994.
-10-
<PAGE>
(12) All salary shown in this chart as having been received by Ms. Galgas
in 1994 was paid by FYI and represents nine months part-time salary at an annual
full-time base rate of $108,000. A portion of such compensation expense was
allocated to the Company. In March 1995, Ms. Galgas received from the Company
an annual base salary of $125,000 and a bonus of $25,000. In addition, during
1995, Ms. Galgas received options to purchase 50,000 shares of the Company's
Common Stock. In May 1996, Ms. Galgas' annual base compensation was reduced to
$100,000.
(13) All monies shown in this chart as having been received by Mr. Edling
in 1992 through 1995 were paid by Dycam.
(14) Does not include options to purchase 100,000 shares of Dycam Common
Stock granted to Mr. Edling in 1994 or 100,000 shares of Dycam Common Stock
granted to Mr. Edling in 1995.
(15) Consists of Dycam's contributions to Mr. Edling's 401(k) plan account.
EMPLOYMENT CONTRACTS
Effective as of April 5, 1994, FYI entered into an Employment Agreement
with Dana I. Arnold. This agreement provided that Mr. Arnold would serve as
Chairman of the Board, Chief Executive Officer, President and Secretary of FYI.
In addition, the agreement covered a three-year term expiring in April 1997, for
which the annual base compensation to be paid was $180,000. The agreement was
cancelled in May 1996, and FYI entered into a new employment agreement with Mr.
Arnold, expiring in May 1998, with an annual base compensation of $100,000. If
certain cash flow conditions are met, the [annual base] compensation to be paid
under this agreement will be increased to $175,000. The agreement also provides
that Mr. Arnold will continue to serve as Chairman of the Board, Chief Executive
Officer, President and Secretary of FYI and that if Mr. Arnold is terminated
without cause, he is entitled to receive a lump sum payment equal to the
aggregate salary due to him for the then remaining term of the agreement and
immediate vesting of any unvested options and warrants. See "Certain Related
Party and Other Transactions."
In August 1996, the Company entered into an employment agreement with K.
Eugene Shutler, whereby Mr. Shutler was employed by the Company as its Chief
Executive Officer. The agreement has an initial two-year term and is
automatically renewed thereafter for successive one-year periods, provided
neither the Company nor Mr. Shutler notifies the other that the agreement shall
not be so extended. Pursuant to the agreement, the Company will pay Mr. Shutler
an annual base salary of $230,000, subject to increase from time to time in the
sole discretion of the Board of Directors. In addition, Mr. Shutler will be
eligible to receive a one-time bonus (the "Incentive Bonus") of $50,000 if the
unaudited accounts of the Company reflect a cash-flow break even for any
consecutive three-month period during the term of the agreement. Mr. Shutler
shall also be eligible to receive discretionary bonuses in the sole discretion
of the Board of Directors. In the event Mr. Shutler's employment is terminated
without cause (as defined), Mr. Shutler will be entitled to a termination
benefit equal to (i) 50% of his annual base salary then in effect, subject to
reduction to the extent of earnings from other employment or self-employment,
plus (ii) any Incentive Bonus accrued but unpaid. In the event, Mr. Shutler's
employment is terminated within six months following a change of control (as
defined), he will be entitled to receive (i) the lesser of 100% of his annual
base salary then in effect or, if the unexpired portion of the term of the
agreement is less than twelve months, such portion of the
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<PAGE>
annual base salary as would be payable through the end of such term, plus (ii)
any Incentive Bonus accrued but unpaid.
On February 7, 1994, Dycam entered into an employment agreement with John
A. Edling. This agreement provides that Mr. Edling will serve as President of
Dycam and provides for (a) an initial three-year term, (b) a base salary of
$120,000 per annum and (c) options to purchase 45,000 shares of the Company's
Common Stock at [$8.67] per share.
OPTION PLANS
In January 1993, the Company adopted a stock incentive plan (the "1992
Plan") which provides for the granting of (i) incentive stock options to
employees, (ii) stock purchase rights to employees, or (iii) non-qualified stock
options to employees, officers and, under certain circumstances, directors. The
Company has reserved 450,000 shares of Common Stock for issuance under this
plan.
In June 1993, the Company adopted an additional stock incentive plan (the
"1994 Plan") pursuant to which there are 450,000 shares of Common Stock
reserved. The 1994 Plan is substantially identical in terms to the 1992 Plan.
In January 1993, the Company adopted a stock option plan for directors (the
"Directors' Plan") of the Company. The Company has reserved 150,000 shares of
Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
Set forth below is information regarding options granted to the Named
Executives during the 1995 fiscal year.
<TABLE>
<CAPTION>
Potential
Realizable Value
Percentage of at Assumed
Number of Shares Total Options Annual Rates of
Underlying Granted to Exercise or Stock Price
Options Employees in Base Price Expiration Appreciation For
Name Granted (#) Fiscal 1995 ($/Share) Date Option Term(1)
---- ----------- ----------- --------- ---- --------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Nancy H. Galgas 50,000 50% $.075 5/05 $2,355 $5,963
James E. O'Brien 50,000 50% $.075 5/05 $2,355 $5,963
</TABLE>
- - - ------------------
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent upon the future performance of the Common Stock and overall stock
market conditions.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
Set forth below is information with respect to options exercised by the
Named Executives during the 1995 fiscal year and the number and value of
unexercised stock options held by the Named Executives at the end of the fiscal
year.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS HELD AT MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END (1)
SHARES VALUE --------------------------- ---------------------------
ACQUIRED ON REALIZED
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Edling -0- $ -- 30,000 15,000 -0- -0-
Nancy H. Galgas -0- -- 20,000 30,000 -0- -0-
James E. O'Brien -0- -- 20,000 30,000 -0- -0-
</TABLE>
- - - ----------------
(1) None of the unexercised options were in-the-money at fiscal year end. The
exercise price on all outstanding options was reduced to $0.75 in May 1996.
-13-
<PAGE>
CERTAIN RELATED PARTY AND
OTHER TRANSACTIONS
IDI FINANCING TRANSACTIONS
The Company and FYI have entered into a series of transactions with IDI and
certain related entities for the purpose of raising capital to fund the
Company's operations and those of FYI. Jeffrey A. Safchik is Chief Executive
Officer of IDI's corporate general partner and was elected Chief Executive
Officer of the Company after the series of transactions in 1995 described below
which gave IDI a majority of seats on the Company's Board of Directors. Mr.
Safchik resigned all positions with the Company in July 1996. Upon exercise of
warrants and conversion of the Preferred Stock, IDI will own approximately 75%
of the Company's outstanding Common Stock on a fully diluted basis.
In September 1995, the Company and FYI received short-term bridge financing
of $300,000 from Multinational Trading Corp., a Florida corporation ("MTC").
MTC and IDI are companies with overlapping but not identical management. In
October 1995, MTC made additional advances of $75,000 to the Company. The
Company repaid the $375,000, plus interest accrued thereon and transaction fees,
with a portion of the $3,000,000 it received from IDI in the transaction
described immediately below. In November 1995, pursuant to a Note and Preferred
Stock Purchase Agreement, dated as of November 20, 1995 (the "1995 Agreement"),
the Company and FYI issued to IDI $2,950,000 principal amount of 10% Senior
Notes due June 30, 1998 (the "1995 Notes"). Additionally, the Company issued to
IDI 500 shares of Series A Preferred for $50,000 and Common Stock Purchase
Warrants (the "1995 Warrants") entitling IDI to purchase shares of the Company's
Common Stock equivalent to 40% of the fully diluted shares of Common Stock
outstanding on November 20, 1995. The exercise price of the 1995 Warrants was
$1.12 per warrant, which represented the estimated consolidated per share book
value per issued and outstanding share of the Company on the date of the 1995
Agreement. The exercise price of the 1995 Warrants was subsequently reduced to
$.075 per warrant as described below. The warrants may be exercised at any time
prior to November 20, 2005.
The terms of the Series A Preferred give the holder of the Series A
Preferred the right to designate four of the seven members of the Company's
Board of Directors. IDI has appointed Messrs. Geller, Porter and Shutler as its
designees on the Board of Directors and has the right to elect a director to
fill the current vacancy on the Board.
In May 1996, pursuant to a Note and Preferred Stock Purchase Agreement,
dated as of May 14, 1996 (the "1996 Agreement), as amended, the Company and FYI
agreed to issue up to $1,200,000 aggregate principal amount of 10% Senior Notes
Due June 30, 1998 (the "1996 Notes" and together with the 1995 Notes, the
"Notes") in a series of purchases of such 1996 Notes between the Closing Date
(as defined) and September 15, 1996. Each purchase of 1996 Notes is contingent
upon the Company and FYI meeting certain minimum performance targets. IDI also
purchased 500 shares of Series B Preferred, for $50,000 and received Common
Stock Purchase Warrants (the "1996 Warrants" and together with the 1995
Warrants, the "Warrants".)
-14-
<PAGE>
On May 30, 1996, IDI purchased $371,712 principal amount of 1996 Notes, of
which $271,712 was used to repay principal and interest on certain interim loans
made to the Company and FYI by IDI and IDI-related entities in April 1996. IDI
purchased an additional $250,000, $100,000 and $150,000 principal amount of 1996
Notes in June, July and August 1996, respectively.
The 1995 Agreement and the 1995 Warrants were amended in 1996 to conform to
the provisions of the 1996 Agreement and the 1996 Warrants, and the exercise
price of the 1995 Warrants was reduced to $0.075, the exercise price of the 1996
Warrants.
Due to the issuance of the 1996 Warrants and the Series B Preferred, the
anti-dilution provisions of the 1995 Warrants and the Series A Preferred were
triggered, resulting in the 1995 Warrants and the Series A Preferred being
exercisable for and convertible into 3,914,882 shares of Common Stock and
238,095 shares of Common Stock, respectively. The 1996 Warrants are exercisable
for 53,286,228 shares of Common Stock, and the Series B Preferred is convertible
into 666,666 shares of Common Stock. On a fully-diluted basis, IDI holds
Warrants and Preferred Stock exercisable for and convertible into 58,105,871
shares of Common Stock.
The authorized Common Stock of the Company consists of 10,000,000 shares,
of which _________ shares are issued and outstanding and reserved for issuance
pursuant to outstanding warrants or stock option plans before taking into
account the Preferred Stock and the Warrants. The Company intends to issue
1,750,000 warrants in connection with the settlement of certain class action and
derivative law suits against the Company and certain of its directors (the
"Class Action").
Pursuant to the terms of the 1996 Agreement, the Company has agreed that by
no later than October 31, 1996, it shall have taken all corporate action,
including stockholder action, necessary to authorize and reserve for issuance a
number of shares of Common Stock at least equal to the number of shares of
Common Stock into which the Series A Preferred, Series B Preferred, 1996
Warrants and 1995 Warrants as well as the other outstanding warrants may be
converted or exercised. Failure of the Company to take all corporate action
necessary to authorize and reserve for issuance a number of shares of Common
Stock underlying all of the foregoing Stock by October 31, 1996 would be a
breach of a restrictive covenant in the 1996 Agreement, resulting in an event of
default which could cause the acceleration of the 1996 Notes. If such corporate
actions are not taken by October 31, 1996, holders of the Series B Preferred
will be entitled to elect one director to the Company's Board of Directors.
The 1996 Warrants and the other warrants issued in connection with the 1996
financing transaction are exercisable upon the earlier to occur of October 31,
1996 and the date on which all such corporate and stockholder actions are taken
by the Company, and remain exercisable until November 20, 2005.
The Notes bear interest at the rate of 10% per annum, payable monthly. The
1995 Notes provide for principal payments of $500,000 on March 31, June 30,
September 30 and December 31, 1997 and March 31, 1998. The 1996 Notes are
payable in five equal quarterly installments commencing June 30, 1996. The
remaining principal is due and payable on June 30, 1998. The
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<PAGE>
1996 Agreement amended the 1995 Agreement to allow the Company to defer interest
payments due between May 31, 1996 and December 31, 1996, if the combined
operating cash flow of the Company and FYI is negative, provided that monthly
interest payments must be made in months where the combined operating cash flow
of the Company and FYI is positive and that all deferred accrued and unpaid
interest shall be paid in full on or before December 31, 1996.
The Notes are subject to mandatory redemption (in whole or in part) under
certain circumstances, including upon receipt of proceeds from the issuance of
equity by the Company or FYI (subject to certain exceptions) or proceeds of a
sale or other disposition of assets (other than sales of inventory in the
ordinary course of business, certain sales of obsolete or worn out equipment and
certain approved sales). Holders of the Notes have a put right enabling them to
cause the Company and FYI to repurchase the Notes, at par, in the event of a
sale, merger, change of control or the public offering of securities involving
the Company or FYI.
Substantially all of the assets of the Company and FYI are pledged as
collateral for the Notes. The holder of the Notes has the right to foreclose on
such assets or take other protective measures upon the occurrence of an event of
default under 1995 Agreement or the 1996 Agreement which is not timely cured or
waived. The Company and FYI are subject to various restrictive covenants,
including limitations on the incurrence of additional indebtedness, capital
expenditures, investments, transactions with affiliates and consolidation,
merger and sale of assets. The Company and FYI also must satisfy certain
financial tests during the term of the Agreement, including the maintenance of
certain mandatory net worth and earnings levels, determined at the end of each
calendar quarter. The failure to comply with the restrictive covenants or pass
the financial tests constitute an event of default under the 1995 Agreement and
the 1996 Agreement.
The holders of the Preferred Stock are entitled to receive dividends of $10
per share per annum prior to the distribution of any dividends to the holders of
Common Stock. Dividends accrue whether or not declared by the Board of
Directors of the Company. The Preferred Stock is subject to optional redemption
by the Company, at a redemption price of $100 per share plus any accrued
dividends. In the event of a change of control (as defined) the Company must
offer to redeem the Preferred Stock. The Preferred Stock is convertible at any
time, in whole or in part, into shares of Common Stock, at a per share
conversion price equal to the higher of the current market or book value of the
Common Stock at the date of conversion. As long as none of the 1996 Warrants
have been exercised, the holders of the Series A Preferred, voting as a class,
are entitled to elect four of the Company's seven directors.
IDI also received certain registration rights with respect to the Warrants,
the shares of Common Stock issuable upon conversion of the Preferred Stock and
the shares of Common Stock issuable upon exercise of the Warrants. FYI and the
Company have guaranteed each other's obligations under the Agreement.
The 1996 Agreement was conditioned upon settlement of a lawsuit brought by
the Company against its former outside accounting firm and certain individual
defendants entitled Styles on Video, Inc. v. Kellogg & Andelson, et al.,
---------------------------------------------------
Superior Court of the State of California, County of Los Angeles, case No. BC
14268. Pursuant to the settlement, Kellogg & Andelson
-16-
<PAGE>
agreed to pay $1,700,000. The funds were released from escrow upon the
settlement of the Class Action in July 1996. $870,000 of the settlement proceeds
was applied to repayment of the 1996 Notes. After payment of certain legal
expenses, the net proceeds of the settlement to the Company were $430,000, which
have been added to general working capital.
The Company and FYI have guaranteed each other's obligations under the 1995
Agreement and the 1996 Agreement.
CANCELLATION OF CERTAIN FYI COMMON STOCK
In connection with the transactions contemplated by the 1996 Agreement,
Dana Arnold, President of FYI, exchanged his shares of FYI common stock (20% of
the outstanding shares) for warrants exercisable for 7,749,449 shares of the
Common Stock of the Company. The shares of FYI previously held by Arnold were
cancelled. As a result of such transactions, FYI is now a wholly owned
subsidiary of the Company.
LOAN TRANSACTION WITH DYCAM
In December 1994, Dycam made a secured loan of $500,000 to the Company.
Dycam determined that extending this loan was in the best interest of Dycam and
its shareholders, as the loan enabled the Company to continue funding FYI, and
thereby supported the development and manufacture of the specialized digital
camera which FYI would purchase from Dycam. In January 1995, Dycam approved an
additional secured loan of $500,000 to the Company. The two loans have been
memorialized in a single note (the "Secured Note") which bears interest at the
prime rate plus two percentage points and calls for payments of interest only
for eight months with all principal and accrued interest due and payable on
September 1, 1995. In connection with the 1995 Agreement, Dycam extended the
maturity date of the Secured Note to December 31, 1998. The Company has made
all interest payments on the Secured Note in a timely fashion. The note is
secured by 1,916,667 shares of Dycam's common stock owned by the Company. If
the Company should default on its obligation pursuant to the Notes, Dycam may
not be repaid under the Secured Note and will be entitled to receive back the
1,916,667 shares of Dycam's common stock held by the Company.
LOAN TO AFFILIATE OF FORMER DIRECTOR
In April 1995, H.J. Meyers & Co. ("Meyers Co."), the underwriter of the
Company's initial public offering (and of which Harold J. Meyers, a former Board
member, was chairman), repaid the remaining outstanding amount of a $648,000
loan, which was collateralized by 62,000 shares of Common Stock (the "Warrant
Loan"). The Warrant Loan was made so that Meyers & Co. might exercise certain
common stock purchase warrants which it was issued in connection with the
Company's initial public offering. originally due March 31, 1995, in April
1995.
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<PAGE>
LOAN TRANSACTIONS WITH FORMER CHIEF EXECUTIVE OFFICER
At December 31, 1993, Guy De Vreese, the then-Chief Executive Officer of
the Company, owed the Company $214,000 on a loan which the Company had extended
to Mr. de Vreese principally to enable him to purchase Common Stock of the
Company. Mr. De Vreese repaid this loan in full on April 14, 1994. In December
1994, the Company received a $200,000 advance from Mr. de Vreese. Approximately
$150,000 was repaid during the three months ended March 31, 1995 and
approximately $50,000 of this advance, which was not memorialized in a written
document, was outstanding as of December 31, 1995. In July 1996, the Company
was released from such obligation in connection with the settlement of the Class
Action.
INTERCOMPANY TRANSACTION BETWEEN FYI AND DYCAM
Under the terms of an agreement with FYI, Dycam agreed to provide FYI an
exclusive right to use Dycam technology in the hospital baby portrait market
through April 2005. FYI received an option to purchase up to 5,000 Dycam
cameras at predetermined prices and to receive continual upgrades of camera
technology and agreed to pay Dycam royalties of 7.5% of net sales from all
hospitals using FYI portrait services. Dycam agreed to defer this royalty until
the earlier of the first month in which FYI has positive operating cash flow and
April 30, 1997. If FYI has its camera system manufactured by someone other than
Dycam, FYI agreed to pay to Dycam a "Camera Technology Fee" for each camera
installed in a hospital served by FYI, instead of the 7.5% royalty described
above. Dycam earned approximately $32,000 under this agreement in the year
ended December 31, 1995. Dycam also agreed to finance the first 150 cameras
bought by FYI for terms of 36 to 48 months with equal monthly payments of
principal and interest, with interest computed at a rate of 2 percent over the
Wall Street Journal prime rate.
EMPLOYEES' SALARY DEFERRAL
From August 1, 1995 to October 15, 1995, eight FYI employees, including the
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and
three Vice Presidents, agreed to defer one hundred percent of their salaries to
improve FYI's cash flow and provide funds needed for operations as negotiations
were occurring between the Company and MTC and IDI for the Company and FYI to
secure the financing described above. In November 1995, the employees were
repaid for all amounts deferred, together with accrued interest calculated at
the rate of ten percent per annum.
REVERSE STOCK SPLIT
[PROPOSAL NO. 2]
GENERAL
The Board of Directors of the Company has proposed to amend the Certificate
of Incorporation to effect a one-for-ten reverse stock split (the "Reverse
Split") of the Company's Common Stock. The complete text of the amendment to
the Certificate of Incorporation (the
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<PAGE>
"Certificate of Amendment") for the Reverse Split is set forth in Exhibit A to
this Proxy Statement. If the Reverse Split is approved by the requisite vote of
the Company's stockholders, upon filing of the Certificate of Amendment with the
Secretary of State of the State of Delaware, the Reverse Split will be
effective, and each certificate representing shares of Common Stock outstanding
immediately prior to the Reverse Split (the "Old Shares") will be deemed
automatically, without any action on the part of the shareholders, to represent
one-tenth the number of shares of Common Stock after of the Reverse Split (the
"New Shares"); provided, however, that no fractional New Shares will be issued
as a result of the Reverse Split. In lieu thereof, each stockholder whose Old
Shares are not evenly divisible by ten will receive one additional New Share for
the fractional New Share that such shareholder would otherwise be entitled to
receive as a result of the Reverse Split. After the Reverse Stock Split becomes
effective, stockholders will be asked to surrender certificates representing Old
Shares in accordance with the procedures set forth in a letter of transmittal to
be sent by the Company. Upon such surrender, a certificate representing the New
Shares will be issued and forwarded to the shareholders, however, each
certificate representing Old Shares will continue to be valid and represent New
Shares equal to one-tenth the number of Old Shares (plus one additional New
Share where such Old Shares are not evenly divisible by ten).
The New Shares issued in lieu of fractional shares pursuant to the Reverse
Split will be fully paid and nonassessable. The voting and other rights that
presently characterize the Common Stock will not be altered by the Reverse
Split.
PURPOSE OF THE PROPOSED REVERSE SPLIT
The Board of Directors believes the Reverse Split is desirable for several
reasons. The Company has issued warrants which, if exercised would exceed the
number of authorized shares of Common Stock. Pursuant to the May 1996
transaction described under "Certain Related Party and Other Transactions-
Financing Transactions," IDI has agreed to loan up to $1,200,000 to Company
through September 1996 in exchange for notes and warrants, contingent upon the
Company reaching certain specified performance goals. IDI also purchased Series
B preferred for an additional consideration of $50,000. As a result of the
financing transaction completed in November 1995, IDI had already loaned the
Company $2,950,000 and purchased Series A Preferred and Warrants exercisable for
an aggregate of 43% of the Company Common Stock, on a fully-diluted basis.
Assuming exercise of all warrants and conversion of all Preferred Stock now
owned by IDI, IDI would own approximately 75% of the Common Stock of the
Company, on a fully-diluted basis. Failure to increase the number of shares
authorized will cause the Company to be in default under the 1995 Agreement and
the 1996 Agreement and could result in acceleration of the notes held by IDI.
See "Certain Related Party and Other Transactions - IDI Financing Transitions."
In addition, management believes that the Reverse Split should enhance the
acceptability of the Common Stock by the financial community and investing
public. The reduction in the number of issued and outstanding shares of Common
Stock caused by the Reverse Split is expected to increase the market value of
the Common Stock. The Board of Directors also believes that the Reverse Split
will result in a broader market for the Common Stock than that which currently
exists. A variety of brokerage house policies and practices tend to discourage
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<PAGE>
individual brokers within those firms from dealing with lower priced stocks.
Some of those policies and practices pertain to the payment of broker's
commissions and to time consuming procedures that function to make the handling
of lower priced stock economically unattractive to brokers. In addition, the
structure of trading commissions also tends to have an adverse impact upon
holders of lower priced stock because the brokerage commission on a sale of
lower priced stock generally represents a higher percentage of the sales price
than the commission on a relatively higher priced issue. The proposed Reverse
Split should result in a price level for the Common Stock that will reduce, to
some extent, the effect of the above-referenced policies and practices of
brokerage firms and diminish the adverse impact of trading commissions on the
market for the Common Stock. The expected increased price level may also
encourage interest and trading in the Common Stock and possibly promote greater
liquidity for the Company's shareholders, although such liquidity could be
adversely affected by the reduced number of shares of Common Stock outstanding
after the Reverse Split Effective Date.
However, there can be no assurance that any or all of these effects will
occur; including, without limitation, that the market value per New Share of
Common Stock after the Reverse Split will be ten times the market price per Old
Share of Common Stock before the Reverse Split, or that such price will either
exceed or remain in excess of the current market price. Further, there is no
assurance that the market for the Common Stock will be improved. Shareholders
should note that the Board of Directors cannot predict what effect the Reverse
Split will have on the market price of the Common Stock.
EFFECTIVENESS OF THE REVERSE SPLIT
Assuming approval of the Reverse Split by the requisite vote of the
shareholders at the meeting, the Certificate of Amendment will thereafter be
filed with the Delaware Secretary of State as promptly as practicable and the
Reverse Split will become effective as of 5:00 p.m., Eastern Standard Time, on
the date of such filing (the "Reverse Split Effective Date"). Without any
further action on the part on the part of the Company or the stockholders, after
the Reverse Split, the certificates representing Old Shares will be deemed to
represent one-tenth the number of New Shares (plus one additional New Share
where such Old Shares are not evenly divisible by ten).
Shareholders have no right under Delaware law to dissent from the Reverse
Split.
The Company has, assuming shareholder ratification of Proposal No. 2,
authorized capital stock of 100,000 shares of Common Stock. The authorized
capital stock will not be changed by reason of the Reverse Split. The Reverse
Split will not affect the number of authorized shares of Common Stock. As of
August 31, 1996, the number of issued and outstanding Old Shares was
[4,505,332]. The following table illustrates the principal effects of the
proposed Reverse Split and decrease in Outstanding Common Stock assuming no
additional shares of Common Stock are issued prior to the Reverse Split
Effective Date as a result of the exercise of any options or warrants:
-20-
<PAGE>
<TABLE>
<CAPTION>
Share of Prior to Proposed After Proposed
Common Stock Reverse Split Reverse Split
------------ ----------------- --------------
<S> <C> <C>
Outstanding 4,505,332 450,534(1)
- - - -----
</TABLE>
(1) Does not include New Shares of Common Stock to be issued in lieu of
fractional shares.
The Common Stock is currently registered under Section 12(b) of the
Securities and Exchange Act of 1934 (the "Exchange Act") and, as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The Reverse Split will not effect the registration of the Common
Stock under the Exchange Act. The Common Stock was formerly listed in the
American Stock Exchange and is now traded in the over-the-counter market.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Reverse Split Effective Date, the Company
will send a letter of transmittal to each holder of record of Old Shares of
Common Stock outstanding on the Reverse Split Effective Date. The letter of
transmittal will contain instructions for the surrender of certificate(s)
representing such Old Shares to U.S. Stock Transfer Corporation, the Company's
exchange agent (the "Exchange Agent"). Upon proper completion and execution of
the letter of transmittal and return thereof to the Exchange Agent, together
with the Certificate(s) representing Old Shares, a shareholder will be entitled
to receive a certificate representing the number of New Shares of Common Stock
into which his Old Shares have been reclassified and changed as a result of the
Reverse Split.
Shareholders should not submit any certificates until requested to do so.
No new Certificate will be issued to a shareholder until he has surrendered his
outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the Exchange Agent.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Split. The Company, however, believes that because
the Reverse Split is not part of a plan to periodically increase a shareholder's
proportionate interest in the assets or earnings and profits of the Company, the
Reverse Split will have the following federal income tax effects.
1. A shareholder will not recognize gain or loss on the exchange. In the
aggregate, the shareholder's basis in the New Shares will equal his
basis in the Old Shares.
2. A shareholder's holding period for the New Shares will be the same as
the holding period of the Old Shares exchanged therefor.
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<PAGE>
3. The Reverse Split will constitute a reorganization within the meaning
of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended, and the Company will not recognize any gain or loss as a
result of the Reverse Split.
MISCELLANEOUS
The Board of Directors may abandon the Reverse Split at any time before or
after the Annual Meeting and prior to the Reverse Split Effective Date if for
any reason the Board of Directors deems it advisable to abandon the proposal.
The Board of Directors may consider abandoning the proposed Reverse Split if it
determines, in its sole discretion, that the Reverse Split would adversely
effect the ability of the Company to raise capital or the liquidity of the
Common Stock, among other things. In addition, the Board of Directors may make
any and all changes to the Certificate of Amendment that it deems necessary to
file it with the Delaware Secretary of State and give effect to the Reverse
Split.
RECOMMENDATION AND VOTE
The affirmative vote of a majority of the outstanding Common Stock present
in person or by proxy and entitled to vote at the Annual Meeting is required to
approve the amendment for the Reverse Split. The Board is of the opinion that
the Reverse Split is advisable and in the best interests of the Company. All
proxies will be voted to approve the Reverse Spilt unless a contrary vote is
indicated on the enclosed proxy card.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AUTHORIZATION AND APPROVAL OF
THE REVERSE STOCK SPLIT.
ADOPTION OF 1996 INCENTIVE STOCK OPTION PLAN
[PROPOSAL NO. 3]
On August 26, 1996, the Board of Directors, subject to the approval of the
stockholders, adopted the 1996 Incentive Stock Option Plan (the "1996 Plan").
The Board of Directors believes that the 1996 Plan will benefit the Company by
helping to attract, motivate and retain qualified executive, administrative and
professional employees. Consistent with the Company's compensation objectives,
rewards under the 1996 Plan are dependent upon those factors which directly
benefit the Company's stockholders and appreciation in the market value of the
Common Stock. A copy of the 1996 Plan is attached hereto as Exhibit A. The
following summary of the principal features of the 1996 Plan is qualified in its
entirety by reference to Exhibit A.
The affirmative vote of the holders of at least a majority of the share of
Common Stock voted at the Annual Meeting is required to approve the Option Plan.
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<PAGE>
DESCRIPTION OF THE 1996 PLAN
The Plan will cover up to an aggregate of 5,000,000 shares of Common Stock,
and has a ten-year duration. The 1996 Plan is administered by the Board of
Directors . All employees of the Company and its subsidiaries are eligible to
receive options. As of August 31, 1996, there were approximately 150 employees
currently eligible to participate in the 1996 Plan.
The exercise price in each instance is not less than 100% of the fair
market value of the Common Stock on the date of grant (110% with respect to
optionees who own at least 10% of the outstanding Common Stock), subject to any
repricing at the option of the Board of Directors, and is payable in cash or
shares of previously acquired Common Stock having a fair market value equal to
the option exercise price. The vesting schedule and term (which shall not
exceed ten years, or five years with respect to optionees who own at least 10%
of the outstanding Common Stock) of options granted under the 1996 Plan is at
the discretion of the Board of Directors. Generally, options terminate six
months (three months in the case of an incentive option) after termination of
the optionee's employment for any reason other than the optionee's death and one
year after termination of the optionee's employment due to death. Options are
non-transferable by the holder other than by will or laws of descent and
distribution.
In the event any change is made in the Company's capitalization that
results from a stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares of any similar change
affecting the Common Stock, appropriate adjustment, as determined by the Board
of Directors will be made in the exercise price and in the number and class of
shares subject to the option.
In the event of a sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another corporation, holders
of outstanding options will have the right to receive, upon exercise of the
option and payment of the exercise price, the same consideration which the
stockholders of the Company received pursuant to such transaction.
The Board of Directors may amend or terminate the 1996 Plan from time to
time in such respects as the Board may deem advisable; provided that any
amendment requiring stockholder approval pursuant to Rule 16b-3 (as in effect
from time to time) under the Securities Exchange Act of 1934, as amended, shall
not be effective unless such approval is obtained.
An optionee who is granted an incentive option generally will not recognize
taxable income either upon the grant or the exercise of an incentive option,
although the exercise may be subject to the alternative minimum tax. No
deduction will ordinarily be available to the Company as a result of the grant
or exercise of incentive options. Upon the sale or exchange of the shares
underlying an incentive option more than two years after the date of grant and
one year after the date of exercise, any gain or loss will be treated as long-
term capital gain or loss. If these holding periods are not satisfied, the
optionee will recognize ordinary income at the time
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<PAGE>
of sale or exchange equal to the difference between the exercise price and the
lower of (i) the fair market value of the shares of the date of exercise or (ii)
the sale price of the shares. Any gain recognized on such a premature
disposition of shares in excess of the amount treated as ordinary income will be
characterized as long-term or short-term capital gain, depending on the holding
period.
An optionee granted nonqualified stock options will not recognize any
taxable income at the grant of the option, but will generally realize ordinary
income for federal income tax purposes at the time of exercise of such options
equal to the difference between the fair market value of the Common Stock on the
date of exercise and the exercise price. Any taxable income recognized in
connection with an option exercised by an optionee who is an employee of the
Company will be subject to tax withholding by the Company. Upon resale of such
shares by the optionee, any difference between the sale price and the optionee's
exercise price, to the extent not recognized as taxable income as described
above, will be treated as long-term or short-term capital gain or loss,
depending upon on the holding period. The Company will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee
with respect to shares acquired upon exercise of a nonstatutory option.
An employee who pays the exercise price upon exercise of nonqualified stock
option, in whole or in part, by delivering shares of the Company's Common Stock
already owned by him will realize no gain or loss for Federal income tax
purposes on the shares surrendered, but otherwise will be taxed according to the
rules described above for nonqualified stock options. With respect to shares
acquired upon exercise which are equal in number to the shares surrendered, the
basis of such shares will be equal to the basis of the shares surrendered, and
the holding period of such shares will include the holding period of the shares
surrendered. The basis of additional shares received upon exercise will be
equal to the fair market value of such shares on the date of exercise, and the
holding period for such additional shares will commence on the date the option
is exercised.
When shares of the Company's Common Stock are surrendered upon exercise of
an incentive option, (i) no gain or loss will be recognized as a result of the
exchange, (ii) a number of shares received which are equal in number to the
shares surrendered will have a basis equal to the shares surrendered, and
(except for purposes of determining whether a disposition will be a
disqualifying disposition) will have a holding period which includes the holding
period of the shares exchanged and (iii) any additional shares received will
have a zero basis and will have a holding period which begins on the date of the
exchange. If any of the shares received are disposed od within two years of the
date of grant of the incentive option or within one year after exercise, the
shares with the lowest basis (i.e., a zero basis) will be deemed to be disposed
of first, and such disposition will be a disqualifying disposition giving rise
to ordinary income as discussed above.
The Federal income tax consequences with respect to the grant of a stock
purchase right depend on the facts and circumstances of each grant and, in
particular, the nature of any restrictions imposed in connection with any such
grant. In general, if the stock which is the subject of the grant of the
purchase right is actually issued to the grantee but is subject to a
"substantial risk of forfeiture; "i.e.: if rights to ownership are conditioned
upon continued
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service by the grantee, then a taxable event occurs only when the risk of
forfeiture ceases. In addition, so long as the sale of the stock at a profit by
the grantee could subject the grantee to suit under Section 16(b) of the
Exchange Act, the stock is considered to be subject to a substantial risk of
forfeiture. At such time as the substantial risk of forfeiture ceases, the
grantee will realize ordinary income to the extent of the excess of the fair
market value of the Common Stock on the date the risk of forfeiture terminates,
over the grantee's cost for such stock, and the same amount is then deductible
by the Company as a compensation expense. Under certain circumstances the
grantee, by making an election under Section 83(b) purposes, to have been
transferred to the grantee. I there are no restrictions on the stock to be
purchased by the grantee, or if the restrictions are such that they do not
subject the optionee to a "substantial risk of forfeiture" of the stock, then
the grantee will realize ordinary income with respect to the excess, at the time
of grant, of the fair market value of the Common Stock over the grantee's cost
therefor; and the Company will be entitled to a deduction in the same amount.
The foregoing is only a summary of certain effects of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of options under the 1996 Plan, does not purport to be complete and
does not discuss the tax consequences of the optionee's death or the income tax
laws of any local, state or foreign jurisdiction in which any optionee may
reside.
Approval of the 1996 Plan will require the affirmative vote of a majority
of the shares of Common Stock present and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE 1996 PLAN.
RATIFICATION OF AUDITORS
[PROPOSAL NO. 4]
Corbin & Wertz has been selected by the Board of Directors to serve as the
independent auditors for the Company for the fiscal year ended December 31, 1995
and for the fiscal year ending December 31, 1996. This firm was engaged on June
17, 1996 to act as independent auditors for the Company. Prior to the engagement
of Corbin & Wertz, the Company did not consult with Corbin & Wertz regarding (i)
the application of accounting procedures to a specified transaction or the type
of audit opinion that might be rendered on the Company's financial statements or
(ii) any matter that was the subject of a disagreement with or a reportable
event regarding the registrant's former independent public accountants.
Coopers & Lybrand L.L.P. resigned as independent accountants to the Company
effective March 29, 1996. The Board of Directors took no action in respect of
the resignation of Coopers & Lybrand L.L.P. During the most recent fiscal year
and subsequent interim period prior to March 29, 1996, there have been no
disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
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<PAGE>
or procedure or any reportable events. Coopers & Lybrand did not serve the
Company as independent accountants for any prior period.
Coopers & Lybrand L.L.P.'s report on the financial statements for the
fiscal year ended December 31, 1994 includes an explanatory paragraph concerning
substantial doubt about the ability of the registrant to continue as a going
concern. Otherwise, during the time period during which it was engaged as
independent accountants for the registrant, Coopers & Lybrand's report contained
no adverse opinion or disclaimer of opinion and was not qualified or modified as
to any uncertainty, audit scope or accounting principle.
A representative of Corbin & Wertz will be present at the Meeting and will
be given the opportunity to make a statement if he or she so desires and to
respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF CORBIN & WERTZ AS THE COMPANY'S INDEPENDENT AUDITORS FOR FISCAL
1995 AND FISCAL 1996.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1997 Annual Meeting
must be received by the Company for inclusion in its proxy statement and form of
proxy by May 29, 1997. To assure that a stockholder's proposal is included in
the proxy statement and form of proxy, it will be necessary for the stockholder
to comply with the regulations of the SEC governing inclusion of such proposals
in such documents. In addition, stockholders may directly nominate persons for
director only by complying with the following procedure set forth in the
Company's By-Laws: the stockholder must submit the names of such persons in
writing to the Secretary of the Company not less than 50 days nor more than 90
days prior to the date of the annual meeting. The nominations must be
accompanied by all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, and the name, record address, and class and number of
shares of the Company owned by the stockholder making the nomination. A
stockholder may properly bring business before the Annual Meeting of
Stockholders only by complying with the following procedure set forth in the
Company's By-Laws: the stockholder must submit to the Secretary of the Company,
not less than 50 days nor more than 90 days prior to the date of the annual
meeting, a written statement describing the business at the Annual Meeting, the
name, record address, and class and number of shares of the Company owned by the
stockholder making the submission, and a description of any material interest of
the stockholder in such business. If, however, the annual meeting is held
earlier than the first week in the month of November, such notices and
nominations must be given on or before the later of (i) 50 days prior to the
annual meeting and (ii) ten business days after the first public disclosure,
which may include any public filing with the Securities and Exchange Commission
or press release to Dow Jones and Company or any similar service, of the earlier
date of the annual meeting.
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<PAGE>
Any such proposal should be communicated in writing to the Secretary of the
Company at 667 Rancho Conejo Blvd., Newbury Park, CA 91320.
VOTING PROCEDURES
At the Meeting, stockholders will be requested to act upon the matters set
forth in this Proxy Statement. If you are not present at the Meeting, your
shares can be voted only when represented by proxy. The shares represented by
your proxy will be voted in accordance with your directions if the proxy is
properly signed and returned to the Company at or before the Meeting. If no
instructions are specified in the proxy with respect to any proposal, the shares
represented thereby will be voted for the nominees for the Board Of Directors
listed in this Proxy Statement. If any other matters shall properly come before
the Meeting, the enclosed proxy will be voted in accordance with the best
judgment of the persons voting such proxy.
A proxy may be revoked at any time prior to it being voted at the Meeting
by delivering to the Secretary of the Company a signed writing revoking the
proxy or a duly executed proxy bearing a later date, or by appearing and voting
in person at the Meeting. The mere presence at the Meeting of a person
appointing a proxy does not revoke the appointment. Please note that it is
important to date your proxy because the last dated proxy will revoke any
earlier dated proxies and will be the one that is voted at the Meeting.
A majority of the outstanding shares of Common Stock represented at the
Meeting, in person or by proxy, will constitute a quorum. The votes of
stockholders present in person or represented by proxy at the Meeting will be
tabulated by an inspector of election appointed by the Company. The nominees
for directors of the Company who receive the greatest number of votes cast by
stockholders present in person or represented by proxy at the Meeting and
entitled to vote thereon will be elected directors of the Company. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Meeting is required to ratify the appointment of the
independent auditors. Abstentions will have no effect on the outcome of the
vote for the election of directors in proposal 1, but will have the effect of
being cast against each of proposals 2 and 3 which must be approved by a
majority of the outstanding Common Stock. Broker "non-votes" will have no
effect on proposals 2, 3 and 4 but will have the effect of being cast against
proposal 1.
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented for
action at the Meeting other than as set forth in this Proxy Statement. If any
other business should properly come before the Meeting, the persons named in the
proxy intend to vote thereon in accordance with their best judgment.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1995 (which contains a copy of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995) accompanies this Proxy
Statement.
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<PAGE>
THE COMPANY'S 1995 ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO) AND QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1996 AND JUNE 30, 1996 WILL BE PROVIDED WITHOUT
CHARGE TO EACH STOCKHOLDER UPON WRITTEN REQUEST. EACH REQUEST MUST SET FORTH A
GOOD FAITH REPRESENTATION THAT, AS OF SEPTEMBER 16, 1996, THE RECORD DATE FOR
THE MEETING, THE PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF SHARES OF
COMMON STOCK OF THE COMPANY. THE REQUEST SHOULD BE DIRECTED TO: ______________,
SECRETARY, STYLES ON VIDEO, INC., 667 RANCHO CONEJO BLVD. NEWBURY PARK, CA
91320.
By Order of the Board of Directors
K. Eugene Shutler
Chairman of the Board and
Chief Executive Officer
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EXHIBIT A
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
RESOLVED, the Restated Certificate of Incorporation of Styles On Video, Inc. is
amended by inserting an Article XI so that after Article X, there appears the
following text:
ARTICLE XI
On the effective date of this amendment to the Restated Certificate of
Incorporation (the "Effective Date"), the Common Stock of the Corporation will
be reverse split on a one-for-ten basis so that each share of Common Stock
issued and outstanding immediately prior to the Effective Date shall
automatically be converted into and reconstituted as one-tenth of a share of
Common Stock (the "Reverse Split"). No fractional shares will be issued by the
Corporation as a result of the Reverse Split. In lieu thereof, each Stockholder
whose shares of Common Stock are not evenly divisible by ten will receive one
additional share of Common Stock for the fractional share that such Stockholder
would otherwise be entitled to as a result of the Reverse Split.
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<PAGE>
EXHIBIT A
STYLES ON VIDEO, INC.
1996 STOCK INCENTIVE OPTION PLAN
ARTICLE 1
GENERAL PURPOSE OF PLAN
The name of this plan is the Styles on Video, Inc. 1996 Incentive
Stock Option Plan (the "Plan"). The purpose of the plan is to enable Styles on
Video, Inc. (the "Company") and any Parent or any Subsidiary to obtain and
retain the services of the types of employees, consultants, officers and
Directors who will contribute to the Company's long range success and to provide
incentives which are linked directly to increases in share value which will
inure to the benefit of all shareholders of the Company.
ARTICLE 2
DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"Administrator" shall have the meaning as set forth in Article 3.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.
"Committee" means a committee of at least two Non-Employee Directors.
"Company" means Styles on Video, Inc., a corporation organized under
the laws of the State of Delaware (or any successor corporation).
"Date of Grant" means the date on which the Administrator adopts a
resolution expressly granting a Right to a Participant.
"Date of Purchase" means the date a Participant consummates the
purchase of a Purchase Right.
"Director" means a member of the Board.
"Disability" means permanent and total disability as defined by the
Administrator.
"Election" shall have the meaning set forth in Section 10.3(b) of the
Plan.
<PAGE>
"Eligible Person" means an employee, former employee, officer or
consultant or (subject to the limitations set forth in Article 5) Director of
the Company, any Parent or any Subsidiary.
"Exchange Act" shall mean the Securities and Exchange Act of 1934.
"Exercise Price" shall have the meaning set forth in Section 6.2 of
the Plan.
"Fair Market Value" per share at any date shall mean (i) if the Stock
is listed on an exchange or exchanges, or admitted for trading in the NASDAQ
National Market System ("NMS"), the last reported sales price per share on the
last business day prior to such date on the principal exchange on which it is
traded, or on the NMS, as applicable, or if no sale was made on such day on such
principal exchange or on the NMS, as applicable, the last reported sales price
per share on the most recent day prior to such date on which a sale was reported
on such exchange or the NMS, as applicable; or (ii) if the Common Stock is not
then traded on an exchange or in the NMS, the average of the closing bid and
asked prices per share for the Common Stock in the over-the-counter market as
quoted on NASDAQ on the day prior to such date; or (iii) if the Common Stock is
not listed on an exchange or quoted on NASDAQ, an amount determined in good
faith by the Administrator.
"Incentive Stock Option" means a Stock Option intended to qualify as
an "incentive stock option" as that term is defined in Section 422 of the Code.
"Non-Employee Director" shall have the meaning ascribed to it in Rule
16b-3(b)(3) promulgated by the Securities and Exchange Commission under the
Exchange Act.
"Non-Statutory Option" means a Stock Option intended to not qualify as
an Incentive Stock Option.
"Offeree" means an Eligible Participant who is granted a Purchase
Right pursuant to the Plan.
"Optionee" means an Eligible Participant who is granted a Stock Option
pursuant to the Plan.
"Parent" means any present or future corporation which would be a
"parent corporation" as that term is defined in Section 424 of the Code.
"Participant" means any Eligible Person selected by the Administrator,
pursuant to the Administrator's authority in Article 3, to receive grants of
Rights.
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<PAGE>
"Plan" means the Styles on Video, Inc. 1996 Incentive Stock Option
Plan, as the same may be amended or supplemented from time to time.
"Purchase Price" shall have the meaning set forth in Section 7.2(b) of
the Plan.
"Purchase Right" means the right to purchase Stock granted pursuant to
Article 7.
"Rights" means Stock Options and Purchase Rights.
"Retirement" means retirement from active employment with the Company
or any Parent or Subsidiary as defined by the Administrator.
"Section 16(b) Person" shall mean a person subject to Section 16(b) of
the Exchange Act.
"Special Terminating Event" with respect to a Participant shall mean
the death, Disability or Retirement of that Participant.
"Stock" means the Common Stock, par value $0.001 per share, of the
Company.
"Stock Option" means any option to purchase shares of Stock granted
pursuant to Article 6.
"Subsidiary" means any present or future corporation which would be a
"subsidiary corporation" as that term is defined in Section 424 of the Code.
"Tax Date" shall have the meaning set forth in Section 10.3(b) of the
Plan.
"Ten Percent Shareholder" means a person who on the Date of Grant
owns, either directly or through attribution as provided in Section 424(d) of
the Code, Stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any Parent or Subsidiary.
"Withholding Right" shall have the meaning set forth in Section
10.3(b) of the Plan.
ARTICLE 3
ADMINISTRATION
SECTION 3.1 THE ADMINISTRATOR.
-----------------
(a) Administrator. The Plan shall be administered, at the option of
-------------
the Board, by either (i) the Board; or (ii) the
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<PAGE>
Committee (the group that administers the Plan is referred to as the
"Administrator").
(b) Powers in General. The Administrator shall have the power and
-----------------
authority to grant to Eligible Persons, pursuant to the terms of the Plan: (i)
Stock Options; (ii) Purchase Rights; or (iii) any combination of the foregoing.
(c) Specific Powers. In particular, the Administrator shall have the
---------------
authority: (i) to construe and interpret the Plan and apply its provisions; (ii)
to promulgate, amend and rescind rules and regulations relating to the
administration of the Plan; (iii) to authorize any person to execute, on behalf
of the Company, any instrument required to carry out the purposes of the Plan;
(iv) to determine when Rights are to be granted under the Plan; (v) from time to
time to select, subject to the limitations set forth in this Plan, those
Eligible Participants to whom Rights shall be granted; (vi) to determine the
number of shares of Stock to be made subject to each Right; (vii) to prescribe
the terms and conditions of each Stock Option, including, without limitation,
the exercise price and medium of payment, to determine whether the Stock Option
is to be an Incentive Stock Option or a Non-Statutory Option and to specify the
provisions of the Stock Option agreement relating to such Stock Option; (viii)
to prescribe the terms and conditions of each Stock Option and Purchase Right,
including, without limitation, the purchase price and medium of payment, vesting
provisions and repurchase provisions, and to specify the provisions of the stock
option agreement or stock purchase agreement relating to such sale; (ix) to
amend any outstanding Rights for the purpose of modifying the purchase price or
exercise price, as the case may be, thereunder or otherwise, subject to
applicable legal restrictions and to the consent of the other party to such
agreement; (x) to determine when a consultant's relationship with the Company is
sufficient to constitute employment with the Company for purposes of the Plan;
(xi) to determine the duration and purpose of leaves of absences which may be
granted to a Participant without constituting termination of their employment
for purposes of the Plan; and (xii) to make any and all other determinations
which it determines to be necessary or advisable for administration of the Plan.
(d) Decisions Final. All decisions made by the Administrator pursuant
---------------
to the provisions of the Plan shall be final and binding on the Company and the
Participants.
(e) The Committee. The Board may, in its sole and absolute
-------------
discretion, from time to time delegate any or all of its duties and authority
with respect to the Plan to a Committee of not less than two Non-Employee
Directors to be appointed by and to serve at the pleasure of the Board. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase or decrease (to not
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<PAGE>
less than two members) the size of the Committee, add additional members to,
remove members (with or without cause) from, appoint new members in substitution
therefor, and fill vacancies, however caused, in the Committee. The Committee
shall act pursuant to a vote of the majority of its members or, in the case of a
committee comprised of two Non-Employee Directors, the unanimous vote of its
members, whether present or not, or by the written consent of the majority of
its members or, in the case of a committee comprised of two Non-Employee
Directors, the unanimous vote of its members, and minutes shall be kept of all
of its meetings and copies thereof shall be provided to the Board. Subject to
the limitations prescribed by the Plan and the Board, the Committee may
establish and follow such rules and regulations for the conduct of its business
as it may determine to be advisable.
ARTICLE 4
STOCK SUBJECT TO PLAN
SECTION 4.1 STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Article 8, the total number of
shares of Stock reserved and available for issuance under the Plan shall be
5,000,000 shares. Shares reserved hereunder may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
SECTION 4.2 UNEXERCISED RIGHTS.
------------------
To the extent that any Rights expire or are otherwise terminated
without being exercised, the shares underlying such Rights (and shares related
thereto) shall not be available for issuance in connection with future Rights
under the Plan. Shares acquired by the Company upon exercise of Rights pursuant
to Section 6.2(e) or Section 7.2(c) or Section 10.3 shall increase the
shares available for issuance under the Plan.
ARTICLE 5
ELIGIBILITY
Officers, employees, former employees, consultants and Directors (if
and only if he or she has by resolution of the Board been designated as an
"eligible director") of the Company, any Parent or any Subsidiary who are
responsible for or contribute to the management, growth or profitability of the
business of the Company, any Parent or any Subsidiary shall be eligible to be
granted Rights hereunder subject to limitations set forth on this Plan.
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<PAGE>
ARTICLE 6
STOCK OPTIONS
SECTION 6.1 GENERAL.
-------
Stock Options may be granted alone or in addition to other Rights
granted under the Plan. Any Stock Option granted under the Plan shall be in
such form as the Administrator may from time to time approve, and the provisions
of Stock Option grants need not be the same with respect to each Optionee or
each Stock Option granted. Stock Options granted under the Plan may be either
Incentive Stock Options or Non-Statutory Options.
SECTION 6.2 TERMS AND CONDITIONS OF STOCK OPTIONS.
-------------------------------------
Each Stock Option granted pursuant to the Plan shall be evidenced by a
written option agreement between the Company and the Optionee, which agreement
shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Stock Option agreement shall state the
----------------
number of shares of Stock to which the Stock Options relates.
(b) Type of Option. Each Stock Option agreement shall identify the
--------------
portion (if any) of the Stock Option which constitutes an Incentive Stock
Option.
(c) Exercise Price. Each Stock Option agreement shall state the price
--------------
at which shares subject to the Stock Option may be purchased (the "Exercise
Price"), which shall with respect to Incentive Stock Options be not less than
one hundred percent (100%) of the Fair Market Value of the shares of Stock on
the Date of Grant. In the case of Non-Statutory Options, the Exercise price
shall be determined in the sole discretion of the Administrator; provided,
however, that the Exercise Price shall be no less than 85% of the Fair Market
Value of the shares of Stock on the Date of Grant of the Non-Statutory Option.
In the case of either an Incentive Stock Option or a Statutory Option granted to
a Ten Percent Shareholder, the Exercise Price shall not be less than one hundred
ten percent (110%) of such Fair Market Value.
(d) Value of Shares. The Fair Market Value of the shares of Stock
---------------
(determined as of the Date of Grant) with respect to which Incentive Stock
Options are exercisable by an Optionee under this Plan and all other incentive
option plans of the Company and any Parent or Subsidiary shall not, in the
aggregate, exceed $100,000 in any calendar year.
(e) Medium and Time of Payment. The Exercise Price shall be paid in
--------------------------
full, at the time of exercise, in cash or cash
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<PAGE>
equivalents or, with the approval of the Administrator, in shares of Stock which
have been held by the Optionee for a period of at least six calendar months
preceding the date of surrender and which have a Fair Market Value equal to the
Exercise Price, or in a combination of cash and such shares, and may be effected
in whole or in part (i) with monies received from the Company at the time of
exercise as a compensatory cash payment; or (ii) to the extent that the Exercise
Price exceeds the par value of the shares so purchased, with monies borrowed
from the Company in accordance with Section 10.5.
(f) Term and Exercise of Stock Options. Stock Options shall be
----------------------------------
exercisable over the exercise period at the times the Administrator may
determine, as reflected in the related Stock Option agreements. [THE STOCK
OPTION AGREEMENTS SHALL PROVIDE THAT OPTIONEES SHALL HAVE THE RIGHT TO EXERCISE
THE STOCK OPTIONS AT THE RATE OF AT LEAST 20% PER YEAR OVER 5 YEARS FROM THE
DATE OF GRANT OF SUCH STOCK OPTIONS.] The exercise period of any Stock Option
shall be determined by the Administrator, but shall not exceed ten years from
the Date of Grant of the Stock Option. In the case of an Incentive Stock Option
granted to a Ten Percent Shareholder, the exercise period shall be determined by
the Administrator, but shall not exceed five years from the Date of Grant of the
Stock Option. The exercise period shall be subject to earlier termination as
provided in Section 10.6. A Stock Option may be exercised, as to any or all
full shares of Stock as to which the Stock Option has become exercisable, by
giving written notice of such exercise to the Company.
ARTICLE 7
PURCHASE RIGHTS
SECTION 7.1 GENERAL.
-------
Purchase Rights may be granted alone or in addition to other Rights
under the Plan. Each sale of Stock under this Article 7 shall be evidenced by a
stock purchase agreement between the Offeree and the Company in the form from
time to time adopted by the Administrator and containing such terms and
conditions which the Administrator deems appropriate; provided, that such terms
--------
and conditions are not inconsistent with the Plan. The provisions of the
various stock purchase agreements entered into under the Plan need not be
identical.
SECTION 7.2 TERMS AND CONDITIONS OF PURCHASE RIGHTS.
---------------------------------------
Each Purchase Right granted pursuant to the Plan shall be evidenced by
a written stock purchase agreement between the Company and the Offeree, which
agreement shall comply with and be subject to the following terms and
conditions:
- 7 -
<PAGE>
(a) Number of Shares. Each stock purchase agreement shall state the
----------------
number of shares of Stock which may be purchased pursuant to such agreement.
(b) Purchase Price. Each stock purchase agreement shall state the
--------------
price at which the Stock subject to such purchase agreement may be purchased
(the "Purchase Price"), which, with respect to Stock Purchase Rights, shall be
determined in the sole discretion of the Administrator; provided, however, that
the Purchase Price shall be no less than 85% of the Fair Market Value of the
shares of Stock on either the Date of Grant or the Date of Purchase of the
Purchase Right. In the case of a Purchase Right granted to a Ten Percent
Shareholder, the Purchase Price shall not be less than 100% of the Fair Market
Value of the shares of Stock on either the Date of Grant or the Date of the
Purchase Right.
(c) Medium and Time of Payment. The Purchase Price shall be paid in
--------------------------
full, at the time of exercise, in cash or cash equivalent or, with the approval
of the Administrator, in shares of Stock which have been held by the Offeree for
a period of at least six calendar months preceding the date of surrender and
which have a Fair Market Value equal to the Purchase Price or in a combination
of cash and cash equivalent and such shares, and may be effected in whole or in
part (i) with monies received from the Company at the time of exercise as a
compensatory cash payment; or (ii) to the extent the purchase price exceeds the
par value of the shares so purchased, with monies borrowed from the Company in
accordance with Section 10.5 of the Plan.
ARTICLE 8
ADJUSTMENTS
SECTION 8.1 EFFECT OF CERTAIN CHANGES.
-------------------------
(a) Stock Dividends, Splits, Etc.. If there is any change in the
-----------------------------
number of outstanding shares of Stock through the declaration of Stock dividends
or through a recapitalization resulting in Stock splits, or combinations or
exchanges of the outstanding shares, (i) the number of shares of Stock available
for Rights, (ii) the number of shares covered by outstanding Rights and (iii)
the Exercise Price or Purchase Price of any Stock Option or Purchases Right, in
effect prior to such change shall be proportionately adjusted by the
Administrator to reflect any increase or decrease in the number of issued shares
of Stock; provided, however, that any fractional shares resulting from the
-------- -------
adjustment shall be eliminated.
(b) Liquidating Event. In the event of the proposed dissolution or
-----------------
liquidation of the Company, or in the event of any Corporate separation or
division, including, but not limited to, a split-up, split-off or spin-off
(each, a "liquidating event"),
- 8 -
<PAGE>
the Administrator may provide that the holder of any Right then exercisable
shall have the Right to exercise such Right (at the price provided in the Rights
agreement) subsequent to the liquidating event, and for the balance of its term,
solely for the kind and amount of shares of Stock and other securities,
property, cash or any combination thereof receivable upon such liquidating event
by a holder of the number of shares of Stock for or with respect to which such
Right might have been exercised immediately prior to such liquidating event; or
the Administrator may provide, in the alternative, that each Right granted under
the Plan shall terminate as of a date to be fixed by the Board; provided,
however, that not less than 30 days written notice of the date so fixed shall be
given to each Rights holder and if such notice is given, each Rights holder
shall have the right, during the period of 30 days preceding such termination,
to exercise the Right as to all or any part of the shares of Stock covered
thereby, without regard to any installment or vesting provisions in his or her
Rights agreement, on the condition, however, that the liquidating event actually
occurs; and if the liquidating event actually occurs, such exercise shall be
deemed effective (and, if applicable, the Rights holder shall be deemed a
shareholder with respect to the Rights exercised immediately preceding the
occurrence of the liquidating event, or the date of record for shareholders
entitled to share in such liquidating event, if a record date is set).
(c) Merger or Consolidation. Each outstanding Right shall terminate
-----------------------
upon a merger or consolidation in which the Company is not the surviving
corporation, provided that (A) each Rights holder to whom no Rights have been
tendered by the surviving corporation pursuant to the terms of item (B)
immediately below shall have the right exercisable during a ten-day period
ending on the fifth day prior to such merger or consolidation in which the
Company is not the surviving corporation, to exercise his or her Rights in whole
or in part, without regard to any installment provisions under his or her Rights
agreement on the condition, however, that the merger or consolidation is
actually effected; such exercise shall be deemed effective (and, if applicable,
the Participant shall be deemed a shareholder with respect to the Rights
exercised) immediately preceding the effective time of such merger or
consolidation (on the date of record for shareholders entitled to share in the
securities or property distributed in such merger or consolidation, if a record
date is set); and (B) in its sole and absolute discretion, the surviving
corporation may, but shall not be obligated to, tender to any Rights holder
Rights with respect to the surviving corporation, and such new Rights shall
contain such terms and provisions as shall substantially preserve the rights and
benefits of any Rights then outstanding under this Plan.
(d) Where Company Survives. Section 8.1(c) shall not apply to a
----------------------
merger or consolidation in which the Company is the surviving corporation,
unless shares of Stock are converted into
- 9 -
<PAGE>
or exchanged for securities other than publicly-traded common stock, cash
(excluding cash in payment for actual shares) or any other thing of value.
Notwithstanding the preceding sentence, in case of any consolidation or merger
of another corporation into the Company in which the Company is the surviving
corporation and in which there is a reclassification or change (including a
change to the right to receive an amount of money payable by cash or cash
equivalent or other property) of the shares of Stock (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination, but including any change in such shares into two or more classes or
series of shares), the Administrator may provide that the holder of each Right
then exercisable shall have the right to exercise such Right solely for the kind
and amount of shares of Stock and other securities (including those of any new
direct or indirect Parent of the Company), property, cash or any combination
thereof receivable upon such reclassification change, consolidation or merger by
the holder of the number of shares of Stock for which such Right might have been
exercised.
(e) Surviving Corporation Defined. The determination as to which
-----------------------------
party to a merger or consolidation is the "surviving corporation" shall be made
on the basis of the relative equity interests of the shareholders in the
corporation existing after the merger or consolidation, as follows: if
following any merger or consolidation the holders of outstanding voting
securities of the Company immediately prior to the merger or consolidation own
equity securities possessing more than fifty percent (50%) of the voting power
of the corporation existing following the merger or consolidation, then for
purposes of this Plan, the Company shall be the surviving corporation. In all
other cases, the Company shall not be the surviving corporation. In making the
determination of ownership by the shareholders of a corporation immediately
after the merger or consolidation, of equity securities pursuant to this Section
8.1(e), equity securities which the shareholders owned immediately before the
merger or consolidation as shareholders of another party to the transaction
shall be disregarded. Further, for purposes of this Section 8(e) only,
outstanding voting securities of a corporation shall be calculated by assuming
the conversion of all equity securities convertible (immediately or at some
future time) into shares entitled to vote.
(f) Par Value Changes. In the event of a change in the Stock of the
-----------------
Company as presently constituted which is limited to a change of all of its
authorized shares with par value, into the same number of shares without par
value, or a change in the par value, the shares resulting from any such change
shall be "Stock" within the meaning of the Plan.
(g) Decision of Administrator Final. To the extent that the foregoing
-------------------------------
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Administrator,
- 10 -
<PAGE>
whose determination in that respect shall be final, binding and conclusive;
provided that each Incentive Stock Option granted pursuant to the Plan shall not
be adjusted in a manner that causes such Stock Option to fail to continue to
qualify as an Incentive Stock Option.
(h) No Other Rights. Except as hereinbefore expressly provided in
---------------
this Article 8, no Rights holder shall have any rights by reason of any
subdivision or consolidation of shares of Stock or the payment of any dividend
or any other increase or decrease in the number of shares of Stock of any class
or by reason of any liquidating event, merger, or consolidation of assets or
stock of another corporation, or any other issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class;
and except as provided in this Article 8, none of the foregoing events shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Stock subject to Rights. The grant of a Right
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or part of its business or assets.
(i) No Rights as Shareholder. Except as specifically provided in this
------------------------
Article 8, a Rights holder or a transferee of a Right shall have no rights as a
shareholder with respect to any shares covered by the Rights until the date of
the issuance of a Stock certificate to him or her for such shares, and no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions of other rights for which
the record date is prior to the date such Stock certificate is issued, except as
provided in Section 8.1.
ARTICLE 9
AMENDMENT AND TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of a
Participant under any Right theretofore granted without such Participant's
consent, or which without the approval of the shareholders would:
(a) except as provided in Article 8, increase the total number of
shares of Stock reserved for the purposes of the Plan;
(b) materially increase the benefits accruing to Participants or
Eligible Persons under the Plan; or
- 11 -
<PAGE>
(c) materially modify the requirements for eligibility under the Plan.
The Administrator may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to Article 3, no such
amendment shall impair the rights of any holder without his or her consent.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.1 GENERAL RESTRICTIONS.
--------------------
(a) No View to Distribute. The Administrator may require each person
---------------------
acquiring shares of Stock pursuant to the Plan to represent to and agree with
the Company in writing that such person is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any
legend which the Administrator deems appropriate to reflect any restrictions on
transfer.
(b) Legends. All certificates for shares of Stock delivered under the
-------
Plan shall be subject to such stop transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Administrator may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
SECTION 10.2 OTHER COMPENSATION ARRANGEMENTS.
-------------------------------
Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
SECTION 10.3 WITHHOLDING TAXES.
-----------------
(a) Withholding Required. Each Participant shall, no later than the
--------------------
date as of which the value of a Right first becomes includable in the gross
income of the Participant for federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Administrator regarding payment of, any
federal, state or local taxes of any kind required by law to be withheld with
respect to the Right or its exercise. The obligations of the Company under the
Plan shall be conditioned upon such payment or arrangements and the Participant
shall, to the extent permitted by law, have the right to request that the
- 12 -
<PAGE>
Company deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(b) Withholding Right. The Administrator may, in its discretion,
-----------------
grant a Rights holder the right (a "Withholding Right") to elect to make such
payment by irrevocably requiring the Company to withhold from shares issuable
upon exercise of the Right that number of full shares of Common Stock having a
Fair Market Value on the Tax Date (as defined below) equal to the amount (or
portion of the amount) required to be withheld. The Withholding Right may be
granted with respect to all or any portion of the Right.
(c) Exercise of Withholding Right. To exercise a Withholding Right,
-----------------------------
the Rights holder must follow the election procedures set forth below, together
with such additional procedures and conditions as may be set forth in the
related Rights agreement or otherwise adopted by the Administrator:
(i) The Rights holder must deliver to the Company his or her
written notice of election (the "Election") to have the Withholding
Right apply to all (or a designated portion) of his or her Right.
(ii) If the Rights holder on the date of delivery of the Election
to the Company was not a Section 16(b) Person, the following
additional provisions will apply:
(A) The Election must be delivered to the Company not less
than 20 days before the date of exercise of the Right to which it
relates;
(B) unless disapproved by the Administrator as provided in
Subsection (C) below, the Election once made will be irrevocable;
and
(C) no Election is valid unless the Administrator consents
to the Election; the Administrator has the right and power, in its
sole discretion, with or without cause or reason therefor, to
consent to the Election, to refuse to consent to the Election, or
to disapprove the Election; and if the Administrator has not
consented to the Election on or prior to the date that the amount
of tax to be withheld is, under applicable federal income tax
laws, fixed and determined by the Company (the "Tax Date"), the
Election will be deemed approved.
(iii) If the Rights holder on the date of delivery of the
Election to the Company is a Section 16(b) Person, the Rights Holder
must, in addition to the requirements stated in Subsection (c)(ii)
above, make the Election at such time and in such a manner, and do
anything else necessary so that
- 13 -
<PAGE>
the exercise of the Withholding Right is exempt from Section 16(b) of
the Exchange Act.
(d) Effect. If the Administrator consents to an Election of a Rights
------
Holder's Withholding Right, upon the exercise of the Right (or any portion
thereof) to which the Withholding Right relates, the Company will withhold from
the shares otherwise issuable that number of full shares of Stock having an
actual Fair Market Value equal to the amount (or portion of the amount, as
applicable) required to be withheld under applicable federal and/or state income
tax laws as a result of the exercise.
SECTION 10.4 INDEMNIFICATION.
---------------
In addition to such other rights of indemnification as they may have
as Directors or members of the Committee, and to the extent allowed by
applicable law, the Administrators shall be indemnified by the Company against
the reasonable expenses, including attorney's fees, actually incurred in
connection with any action, suit or proceeding or in connection with any appeal
therein, to which they or any one of them may be partly by reason of any action
taken or failure to act under the Plan, and against all amounts paid by them in
settlement thereof (provided that the settlement has been approved by the
Company, which approval shall not be unreasonably withheld) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Administrator did not act in good faith and in a manner
which such person reasonably believed to be in the best interests of the
Company, and in the case of a criminal proceeding, had no reason to believe that
the conduct complained of was unlawful; provided, however, that within 60 days
-------- -------
after institution of any such action, suit or proceeding, such Administrator
shall, in writing, offer the Company the opportunity at its own expense to
handle and defend such action, suit or proceeding.
SECTION 10.5 LOANS.
-----
The Company may make loans to Optionees and Offerees as the
Administrator, in its discretion, may determine in connection with the exercise
of outstanding Stock Options and Purchase Rights granted under the Plan. Such
loans shall (i) be evidenced by promissory notes entered into by the holders in
favor of the Company; (ii) be subject to the terms and conditions set forth in
this Section 10.5 and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine; and (iii) bear interest, if any, at
such rate as the Administrator shall determine. In no event may the principal
amount of any such loan exceed the Exercise Price or the Purchase Price less the
par value of the shares of Stock covered by the Stock Option or Purchase Right,
or portion thereof, exercised by the Optionee or Offeree. The initial term of
the loan, the
- 14 -
<PAGE>
schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal and applicable interest and the conditions upon which the loan will
become payable in the event of the holder's termination of employment shall be
determined by the Administrator; provided, however, tat the term of the loan,
including extensions, shall not exceed 10 years. Unless the Administrator
determines otherwise, when a loan shall be pledged by the holder to the Company
as security for payment of the unpaid balance of the loan and such pledge shall
be evidenced by a pledge agreement, the terms of which shall be determined by
the Administrator, in its discretion; provided, however, that each loan shall
comply with all applicable laws, regulations and rules of the Board of Governors
of the Federal Reserve System and any other governmental agency having
jurisdiction.
SECTION 10.6 SPECIAL TERMINATING EVENTS.
--------------------------
If a Special Terminating Event occurs, all Rights theretofore granted
to such Rights holder may, unless earlier terminated in accordance with their
terms, be exercised by the Rights holder or by his or her estate or by a person
who acquired the right to exercise such Right by bequest or inheritance or
otherwise by reason of the death or Disability of the Rights holder, at any time
within one year after the date of the Special Terminating Event. Notwithstanding
the foregoing, an Incentive Stock Option shall only be exercisable at any time
within three months after the date of Retirement or termination of employment of
an Optionee.
SECTION 10.7 NON-TRANSFERABILITY OF RIGHTS.
-----------------------------
Rights granted under the Plan shall not be transferable otherwise
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order (as defined in the Code), and Rights may be
exercised, during the lifetime of the Rights holder, only by the Rights holder
or by his or her guardian or legal representative.
SECTION 10.8 REGULATORY MATTERS.
------------------
Each Rights agreement shall provide that no shares shall be purchased
or sold thereunder unless and until (A) any then applicable requirements of
state or federal laws and regulatory agencies shall have been fully complied
with to the satisfaction of the Company and its counsel, and (B) if required to
do so by the Company, the Optionee or Offeree shall have executed and delivered
to the Company a letter of investment intent in such form and containing such
provisions as the Board or Committee may require.
- 15 -
<PAGE>
SECTION 10.9 RECAPITALIZATION.
----------------
Each Stock Option and Purchase Right Agreement shall contain
provisions required to reflect the provisions of Article 8.
SECTION 10.10 DELIVERY.
--------
Upon exercise of a Right granted under this Plan, the Company shall
issue Stock or pay any amounts due within a reasonable period of time
thereafter. Subject to any statutory obligations the Company may otherwise have,
for purposes of this Plan, thirty days shall be considered a reasonable period
of time.
SECTION 10.11 OTHER PROVISIONS.
----------------
The Rights Agreements authorized under the Plan may contain such other
provisions not inconsistent with this Plan, including, without limitation,
restrictions upon the exercise of the Rights, as the Administrator may deem
advisable.
ARTICLE 11
EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date on which the Plan is
adopted by the Board, subject to approval by the Company's shareholders, which
approval must be obtained within one year from the date the Plan is adopted by
the Board.
ARTICLE 12
TERM OF PLAN
No right shall be granted pursuant to the Plan on or after January 1,
2006, but Rights theretofore granted may extend beyond that date.
ARTICLE 13
INFORMATION TO RIGHTS HOLDERS
The Company will cause a report to be sent to each Right holder not
later than 120 days after the end of each fiscal year. Such report shall consist
of the financial statements of the Company for such fiscal year and shall
include such other information as is provided by the Company to its
Shareholders.
- 16 -
<PAGE>
PRELIMINARY COPY
PROXY
-----
STYLES ON VIDEO, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- OCTOBER 28, 1996
The undersigned hereby appoints _____________ and __________________, and
each of them, proxies with power of substitution each, for and in the name of
the undersigned to vote all shares of Common Stock of Styles On Video, Inc., a
Delaware corporation (the "Company"), that the undersigned would be entitled to
vote at the Company's 1996 Annual Meeting of Stockholders (the "Meeting"), and
at any adjournments thereof, upon the matters set forth in the Notice of the
Meeting as stated hereon, hereby revoking any proxy heretofore given. In their
discretion, the proxies are further authorized to vote upon such other business
as may properly come before the Meeting.
The undersigned acknowledges receipt of the Notice of the Meeting and the
accompanying Proxy Statement and Annual Report.
<PAGE>
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3 AND 4
Please mark your vote as indicated in this example: [X]
1. Election of Directors Below.
Nominees:
--------
John A. Edling and Ann Graham Ehringer
For, except vote withheld from the following nominee(s):
- - - --------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
2. Approve and adopt a proposal to amend [_] [_] [_]
the Company's Certificate of Incorporation
to effect a one-for-ten reverse stock
split
3. Adoption of the Company's 1996 Incentive [_] [_] [_]
Stock Option Plan.
4. Ratification of the appointment of [_] [_] [_]
Corbin & Wertz as the Company's
independent auditors for fiscal 1995
and 1996.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ABOVE AND FOR
PROPOSALS 2, 3 AND 4 AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY COME BEFORE THE MEETING.
SIGNATURE _______________________ SIGNATURE ______________________
Date: _____________________ Date: ______________________
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
