THE STEPHAN CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 1, 2000
To the Stockholders:
The Annual Meeting of the Stockholders of The Stephan
Co. (the "Company") will be held on September 1, 2000, at 10 A.M., local
time, at Courtyard Marriott - Ft. Lauderdale North, 2440 W. Cypress Creek Road,
Ft. Lauderdale, FL 33309 for the following purposes:
1. To elect two Class II members of the Company's Board of
Directors;
2. To extend the Company's 1990 Key Employee Stock
Incentive Plan, as amended, for an additional ten (10)
years;
3. To extend the Company's 1990 Non-Employee
Directors' Stock Option Plan, as amended, for an additional
ten (10) years; and
4. To transact such other business as may properly
come before the annual meeting or any adjournment(s)
thereof.
The Company's Board of Directors has fixed the close of
business on July 5, 2000 as the record date for the determination
of stockholders entitled to notice of, and to vote at, the
Company's 2000 Annual Meeting of Stockholders (the "Meeting").
Only stockholders of record at the close of business on this date
will be entitled to notice of, and to vote at, the Meeting or any
adjournment(s) thereof.
By Order of the Board of Directors
PETER FEROLA
Secretary
July 5, 2000
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH
HAS BEEN PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO
EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU MAY, IF YOU
WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO
VOTE YOUR SHARES PERSONALLY.
PROXY STATEMENT
THE STEPHAN CO.
Annual Meeting of Stockholders
To Be Held on September 1, 2000
GENERAL INFORMATION
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of The Stephan
Co. (the "Company"), a Florida corporation, for use at its 2000
Annual Meeting of Stockholders to be held on September 1, 2000 and at
any adjournment(s) thereof (the "Meeting"), for the purposes set
forth in the accompanying Notice of Annual Meeting of
Stockholders. The Meeting is to be held at Courtyard Marriott - Ft.
Lauderdale North, 2440 W. Cypress Creek Road, Ft. Lauderdale, FL 33309, at
10 A.M., local time.
The principal executive offices of the Company are located
at 1850 West McNab Road, Fort Lauderdale, Florida 33309
(telephone no. 954-971-0600). The enclosed proxy card and this
proxy statement are being first sent to stockholders of the
Company on or about July 11, 2000.
Quorum; Received Votes; Solicitation and Revocation.
Proxies in the form enclosed are being solicited by, or on
behalf of, the Company's Board of Directors. The persons named
in the proxy have been designated as proxies by the Board of
Directors. If a quorum, consisting of the presence (in person or
by proxy) of holders of a majority of the outstanding shares of
common stock, $.01 par value, of the Company (the "Common
Stock"), exists at the Meeting, (i) the Class II directors shall
be elected by the affirmative vote of a plurality of the shares
of Common Stock cast at the Meeting; (ii) approval to extend, for
an additional ten years, each of the Company's 1990 Key Employee
Stock Incentive Plan, as amended, and the Company's 1990 Non-
Employee Directors' Stock Option Plan, as amended, shall require
the approval of a majority of the votes cast in respect of such
proposal at the Meeting; and (iii) approval of any other matters
which may properly come before the Meeting shall, subject to
applicable law, be approved if the number of votes cast in favor
of the matter at the Meeting exceeds the number of votes cast
opposing such matter at the Meeting. With regard to Proposal I,
votes may be cast in favor of, or withheld from any or all
nominees. Votes that are withheld with respect to this matter
will be excluded entirely from the vote and will have no effect,
other than for purposes of determining the presence of the
quorum.
1
Brokers who hold shares in street name for customers have
the authority under the rules of the various stock exchanges to
vote on certain items when they have not received instructions
from the beneficial owners. Brokers that do not receive
instructions are entitled to vote those shares with respect to
the election of directors, Proposal I, but may not vote on
Proposal II and Proposal III. A failure by brokers to vote those
shares will have no effect on Proposal II and Proposal III as
approval of Proposals II and III require a majority of the votes
cast. Any abstentions will have the same effect as votes against
the proposal.
Shares represented by properly executed proxies received by
the Company will be voted at the Meeting in the manner specified
therein or, if no specification is made, will be voted "FOR" the
election of the two nominees for directors named herein in the
class as set forth herein and "FOR" proposals 2 and 3. Proxies
solicited by the Board of Directors will be voted for the election
of the two nominees named herein, each to serve until the expiration
of his term, or until his successor has been duly elected and qualified.
In the event that any other matters are properly presented at the
Meeting for action, the persons named in the enclosed proxy will vote
the proxies (which confer authority upon them to vote on any such
matters) in accordance with their judgment. Any proxy given pursuant
to this solicitation may be revoked by the stockholder at any time
before it is exercised by written notification delivered to the
Secretary of the Company, by voting in person at the Meeting, or
by duly executing and delivering another proxy bearing a later date.
Attendance by a stockholder at the Meeting does not alone serve to
revoke his or her proxy.
The solicitation of proxies will be made primarily by mail but,
in addition, may be made by directors, officers and employees of the
Company personally or by telephone or telegraph, without extra
compensation therefor. Brokers, nominees and fiduciaries will be
reimbursed for their out-of-pocket and clerical expenses in
transmitting proxies and related material to beneficial owners.
The costs of soliciting proxies will be borne by the Company. It is
estimated that these costs will be nominal.
The Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1999, which contains audited financial statements,
is being mailed with this proxy statement to all persons who were
stockholders of record as of the close of business on July 5, 2000.
Additional copies of the Annual Report will be provided free of
charge upon written request to the Company, at 1850 West McNab Road,
Fort Lauderdale, Florida 33309, Attn.: Secretary.
2
Record Date; Voting
The Company's Board of Directors has fixed the close of business
on July 5, 2000 as the record date (the "Record Date") for the
determination of stockholders of the Company who are entitled to
receive notice of, and to vote at, the Meeting. At the close of
business on the Record Date, an aggregate of 4,541,457 shares of
Common Stock were issued and outstanding, each of which is entitled
to one vote on each matter to be voted upon at the Meeting. The
Company's stockholders do not have cumulative voting rights. The
Company has no other class of voting securities entitled to vote at
the Meeting.
SECURITY OWNERSHIP
Security Ownership by Certain Beneficial Owners
The following table sets forth, as of the Record Date, certain
information as to the stockholders (other than directors, nominees
and executive officers of the Company) which are known by the Company
to beneficially own more than 5% of the Common Stock (based solely
upon filings by said holders with the Securities and Exchange
Commission on Schedule 13G pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act")):
Number of Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned (1) of Class
FMR Corp.(2) 329,500 7%
82 Devonshire St.
Boston, Mass. 02109-7614
Dalton, Greiner, Hartman, 277,600 6%
Maher & Company
1100 Fifth Avenue South,
Ste. 301
Naples, FL 34102
Dimensional Fund Advisors,Inc.(3) 238,200 5%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
(1) Beneficial ownership, as reported in the above table, has
been determined in accordance with Rule 13d-3 under the Exchange Act.
(2) Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., is a beneficial owner of
3
the shares reflected above as a result of acting as a registered
investment adviser to various registered investment companies. One
such company, Fidelity Low-Priced Stock Fund, owns the shares of
Common Stock reflected above. FMR Corp., through its control of
Fidelity, has sole voting power with respect to none of the above
indicated shares and sole power to dispose of all the above indicated
shares.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors Act
of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as
investment manager to certain other commingled group trusts and
separate accounts. These investment companies, trusts and accounts
are referred to herein as the "Funds." In its role as investment advisor
or manager, Dimensional possesses voting and/or investment power
over the securities of the Company indicated above that are owned by
the Funds. All shares reported in the above table are directly owned
by the Funds. Dimensional disclaims beneficial ownership of such shares.
Ownership by Management
The following table sets forth, as of the Record Date, certain
information concerning beneficial ownership of Common Stock by each
nominee for election as a director of the Company (both of whom are
currently directors of the Company), each other director, the Named
Executives, as defined below, and all current directors of the Company
and executive officers of the Company as a group (based solely
upon information furnished by such persons):
Number of Shares
Name and Address Beneficially Percent
of Beneficial Owner (1) Owned(1)(2) of Class
Thomas M. D'Ambrosio . . . . . . . . 226,714 4.98%
John DePinto . . . . . . . . . . . . 133,514 2.92%
Frank F. Ferola. . . . . . . . . . . 712,435 (4)(5) 15.09%
Curtis Carlson . . . . . . . . . . . 20,248 (3)
Leonard Genovese . . . . . . . . . . 16,186 (3)
Shouky Shaheen . . . . . . . . . . . 317,182 6.97%
Peter Ferola . . . . . . . . . . . . 65,000 1.41%
David Spiegel. . . . . . . . . . . . 5,000 (3)
Franc Ferola . . . . . . . . . . . . 65,000 1.41%
Sam Lazar. . . . . . . . . . . . . . 0 (3)
Lucille Murphy . . . . . . . . . . . 22,500 (3)
John Incitti . . . . . . . . . . . . 3,000 (3)
Gerald Kotch . . . . . . . . . . . . 0 (3)
All executive officers and directors
as a group (13 persons). . . . . 1,586,779 31.99%
(1) Beneficial ownership, as reported in the above table, has
been determined in accordance with Rule 13d-3 under the Exchange Act.
4
Unless otherwise indicated, beneficial ownership includes both sole
voting and sole dispositive power. The business address of each
person, for purposes hereof, is c/o The Stephan Co., 1850 West McNab
Road, Fort Lauderdale, Florida 33309.
(2) Includes the following shares that may be acquired upon the
exercise of options held by the specified person within 60 days of the
Record Date: Mr. Thomas D'Ambrosio - 10,000; Mr. John DePinto - 25,310;
Mr. Frank Ferola - 180,000; Mr. Curtis Carlson - 20,248; Mr. Leonard
Genovese - 15,186; Mr. Shouky Shaheen - 10,124; Mr. Peter Ferola -
65,000; Mr. David Spiegel - 5,000; Mr. Franc Ferola - 65,000; Ms.
Lucille Murphy - 22,500; and all executive officers and directors as
a group - 418,368.
(3) Represents less than 1%.
(4) Does not include 79,195 shares covered by options granted to
Mr. Ferola, whose exercise is contingent on certain increases in the
trading price of the Common Stock, as more fully set forth in "Executive
Compensation" below.
(5) Includes 14,805 shares owned by Mr. Frank Ferola's personal
charitable foundation, of which Mr. Ferola is a co-trustee.
PROPOSAL I: ELECTION OF DIRECTORS
The Company's directors are elected on a staggered basis, with
each class of director consisting of one-third of the entire Board of
Directors, and standing for re-election for a three-year period.
The Company's By-Laws provide that the number of directors shall be
set from time to time by resolution of the Board of Directors and must
be a minimum of one. The Board of Directors has, by resolution, set
the size of the Board at six members. Only Class II directors are
being elected at the Meeting. Each of the two Class II nominees listed
below has consented to being named in this proxy statement and to serving
as a Class II director if elected. In the unexpected event that either
of such nominees should become unable to or for good cause will not serve,
it is intended that proxies will be voted for substitute Class II
nominee(s) designated by the current Board of Directors. The Board has
no reason to believe that either of the named Class II nominees will be
unable or unwilling to stand for election. Each of the two Class II
nominees for director were elected at the 1998 annual meeting, at which
meeting the Company's stockholders approved the staggered board.
Class I and Class III directors are not being elected at the Meeting.
At the Meeting, the shares of Common Stock represented by the proxies
5
in the accompanying form, unless otherwise specified, will be voted FOR
the election of each of the two Class II nominees listed on the
accompanying proxy card. Proxies cannot be voted for a greater number
of persons than the two Class II nominees named thereon. Directors
will be elected by a plurality of the affirmative votes cast by the
holders of shares of Common Stock at the Meeting (assuming a quorum
exists).
Set forth below is certain information with respect to the Class II
nominees for election as directors of the Company at the Meeting and
the Class I and Class III directors of the Company (based solely on
information furnished by such persons):
Year of Principal
Age First Occupation(s)During
(as of Election as Past Five Years;
Name 6-1-00) a Director Other Directorships
Class II nominees
Leonard 65 1997 For more than the five years
Genovese (1)(2) through June 14, 1999, when he
retired, Mr. Genovese was
Chairman and Chief Executive
Officer of Genovese Drug,
Inc., an American Stock
Exchange listed company. Mr.
Genovese remains a director of
two other publicly traded
companies: Kellwood Company
and Roslyn Bancorp, as well as
Eckerd Drug, a wholly-owned
subsidiary of JC Penney Co.
Curtis 47 1996 For more than the last five
Carlson (1) years, senior partner in his own
law firm. Currently, senior partner
in the Miami-based law firm of
Payton & Carlson, P.A.
Class I
John DePinto 82 1981 Retired executive for more
(1)(2) than the last five years.
Shouky A. 70 1998 For more than the past five
Shaheen (2) years, President of Shaheen
and Co. Mr. Shaheen is also
the former owner of Morris
6
Flamingo, L.P., which was
acquired by the Company in
March 1998.
The Class I directors are subject to election at the annual meeting to
be held in the year 2002.
Class III
Frank F. 57 1981 For more than the past five
Ferola years, Chairman of the Board,
President and Chief Executive
Officer of the Company.
Thomas M. 70 1981 For more than the past five
D'Ambrosio(3) years, Vice President and,
Treasurer of the Company;
practicing attorney.
The Class III directors are subject to election at the annual meeting
to be held in the year 2001.
(1) Member of the Audit Committee.
(2) Member of the Stock Option and Compensation Committee.
(3) Mr. D'Ambrosio has stated that he intends to devote
approximately 30% of his business time to the affairs
of the Company.
The Board of Directors unanimously recommends a vote "FOR" the
election of the two Class II nominees named above as directors of the
Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1999, the Company paid to Carlson & Associates, P.A.,
a law firm of which Curtis Carlson was a partner, approximately
$145,000 for legal services rendered by such firm to the Company. The
Company also paid $4,500 per month as a retainer to Thomas D'Ambrosio,
a director of the Company, for legal services rendered.
Board of Directors; Committees of the Board
The Board of Directors met 8 times during fiscal year 1999. During
fiscal year 1999, no director attended fewer than 75% of the total number
of meetings of the Board and of the committees of the Board on which he
served. The Board has established two standing committees, consisting
of an Audit Committee, and a Stock Option and Compensation Committee.
The current functions of such committees are as follows:
7
The Audit Committee, which held one meeting during fiscal 1999,
reviews the internal and external audit functions of the Company and
makes recommendations to the Board of Directors with respect thereto.
It also has primary responsibility for the formulation and development
of the auditing policies and procedures of the Company, and for making
recommendations to the Board of Directors with respect to the selection
of the Company's independent auditing firm. The Chairman of this
Committee is Curtis Carlson. The members of this Committee are Leonard
Genovese and John DePinto.
The Stock Option and Compensation Committee (the "Compensation
Committee"), which held various informal meetings, has primary
responsibility for the administration of the Company's 1990 Key Employee
Stock Incentive Plan, including primary responsibility for the granting
of options thereunder. The Compensation Committee is also responsible
for establishing the overall philosophy of the Company's executive
compensation program and overseeing the executive compensation plan
developed to execute the Company's compensation strategy. The Chairman
of the Compensation Committee is Shouky Shaheen.
Compensation of Directors
All directors of the Company are compensated for their services by
payment of $300 for each Board Meeting attended.
During fiscal 1999, options to purchase an aggregate of 20,248
shares of Common Stock, at an exercise price of $4.18 per share were
granted by the Company to the four directors of the Company who were
not employees or regularly retained consultants of the Company (each,
an "Outside Director") pursuant to the Company's 1990 Outside Directors'
Stock Option Plan.
Under such Plan, each Outside Director is automatically granted,
upon such person's election or re-election to serve as a director of
the Company, an option exercisable over five years, to purchase shares
of Common Stock. Upon initial election to the Board of Directors, an
Outside Director is granted an option to purchase 5,062 shares of
Common Stock at an exercise price equal to the fair market value of the
Common Stock on the date of grant. An option to purchase an additional
5,062 shares of Common Stock (at an exercise price equal to the fair
market value of such Common Stock on the date of such grant) is granted
to each incumbent Outside Director during each fiscal year of the Company
thereafter on the earlier of (i) June 30, or (ii) the date on which the
stockholders of the Company elect directors at an annual meeting of such
stockholders or any adjournment thereof. The aggregate number of shares
of Common Stock reserved for grant under the Outside Directors' Stock
Option Plan (as adjusted for stock splits) is 202,500, of which options
covering 121,116 shares have been granted.
8
Executive Officers
The executive officers of the Company consist of Mr. Frank F.
Ferola, President, Chairman of the Board and Chief Executive Officer;
Thomas M. D'Ambrosio, Vice President and Treasurer; David A. Spiegel,
Chief Financial Officer; Peter Ferola, Vice President/Administration
and Secretary; Lucille Murphy, President of Old 97 Company, a wholly-owned
subsidiary of the Company; Franc Ferola, Vice President/Operations;
Gerald Kotch, President of Trevor Sorbie of America, Inc., a wholly-owned
subsidiary of the Company; Mr. John Incitti, President of Williamsport
Barber and Beauty Supply Corporation, a wholly-owned subsidiary of
the Company; and Samuel Lazar, President of Scientific Research Products,
Inc. of Delaware, a wholly-owned subsidiary of the Company.
The following sets forth certain information with respect to the
executive officers of the Company who are not also directors (based solely
on information furnished by such persons):
Mr. David A. Spiegel, 52, was appointed as Chief Financial Officer
in January 1994. For more than the five years prior to 1994, Mr. Spiegel
was the independent public accountant for the Company.
Mr. Peter Ferola, 31, was appointed as Vice President/Administration
in January 1996. For more than the past five years, Mr. Ferola has been
employed by the Company in various capacities. In February 1997, Mr.
Ferola was selected as Secretary of the Company. Mr. Ferola had previously
been the Company's Assistant Secretary.
Ms. Lucille Murphy, 52, was appointed as President of Old 97 Company
in January 1996. For more than the past five years Ms. Murphy has been
employed by Old 97 Company, a wholly-owned subsidiary of the Company.
Mr. Sam Lazar, 54, was appointed as President of Scientific Research
Products, Inc. of Delaware, a wholly-owned subsidiary of the Company,
in April 1994, when such company was acquired by the Company, a position
which he had held for over five years prior to the acquisition.
Mr. John Incitti, 55, was appointed as President of Williamsport
Barber and Beauty Corporation, a wholly-owned subsidiary of the Company,
in August 1997. For more than the past five years, Mr. Incitti has been
employed by the Company.
Mr. Franc Ferola, 34, was appointed as Vice President/Operations in
January 1996. For more than the past five years, Mr. Ferola has been
employed by the Company in various capacities.
9
Mr. Gerald Kotch, 64, was appointed as President of Trevor Sorbie
of America, Inc., a wholly-owned subsidiary of the Company, in March 1998,
to fill the vacancy caused by the resignation of Charles V. Hall. For
more than five years prior thereto, Mr. Kotch was Vice President of Styling
Research Corporation.
Peter Ferola and Franc Ferola are brothers and are the sons of
Frank F. Ferola.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended
December 31, 1999, December 31, 1998 and December 31, 1997, with respect
to compensation earned by the Company's Chief Executive Officer and the
seven other most highly compensated executive officers of the Company
whose total annual salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company and its subsidiaries during 1999
(the "Named Executives").
10
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Name and Other Securities
Principal Fiscal Annual Underlying All Other
Position(s) Year Salary Bonus Compensation Options(#) Compensation
Frank F. 1999 $514,250 $0 $0 50,000(2) $0
Ferola, 1998 $467,500 $0 $0 80,000 $0
President, 1997 $425,000 $0 $0 59,195(1) $0
Chairman of
the Board
and Chief
Executive Officer
David 1999 $134,137 $0 $0 -0- $0
Spiegel, 1998 $108,272 $0 $0 -0- $0
Chief 1997 $100,000 $15,000 $0 -0- $0
Financial Officer
Franc 1999 $137,500 $0 $0 10,000(2) $0
Ferola, 1998 $125,000 $0 $0 35,000 $0
Vice 1997 $ 85,542 $25,000 $0 10,000(2) $0
President/
Operations
Sam Lazar, 1999 $141,250 $0 $0 -0- $0
President, 1998 $141,259 $0 $0 -0- $0
Scientific 1997 $134,456 $0 $0 -0- $0
Research
Products, Inc.
of Delaware
Lucille 1999 $137,500 $0 $0 -0- $0
Murphy 1998 $125,000 $0 $0 -0- $0
President/ 1997 $ 79,310 $25,000 $0 -0- $0
Old 97 Company
John 1999 $ 87,403 $22,821 $0 -0- $0
Incitti 1998 $ 92,400 $20,130 $0 -0- $0
President/ 1997 $ 85,891 $18,310 $0 -0- $0
Williamsport B&B
Peter 1999 $137,500 $0 $0 10,000(2) $0
Ferola, Vice 1998 $125,000 $0 $0 35,000 $0
President/ 1997 $ 85,542 $25,000 $0 10,000(2) $0
Administration
Gerald L. 1999 $124,040 $0 $0 -0- $0
Kotch 1998 $ 95,963 $0 $0 -0- $0
President/
Trevor Sorbie
of America
__________________________________________________________________________
(1) Includes the grant of options covering an aggregate of 9,195
shares of Common Stock, whose exercise is contingent on certain increases
in the trading price of the Common Stock. See- "Employment and Termination
Arrangements."
11
(2) Reflects options granted pursuant to employment agreements.
Stock Option Grants in the Last Fiscal Year
The following table sets forth certain information concerning stock
options granted to the Chief Executive Officer and those other Named
Executives who received stock options in fiscal year 1999.
Potential
Realizable
Percentage Value At Assumed
Annual
Number of of Total Rates of Stock Appreciation
Securities Options Granted for Option Term (2)
Underlying to Employees Exercise
Options in Fiscal Price Per Expiration
Name Granted(#) Year(%) Share($) Date 5% 10%
Frank F.
Ferola 50,000(1) 71.0% $10.25 1/01/2009 $834,808 $1,329,293
Peter
Ferola 10,000(1) 14.5% $10.25 1/01/2009 $166,961 $ 265,858
Franc
Ferola 10,000(1) 14.5% $10.25 1/01/2009 $166,961 $ 265,858
(1) Options granted pursuant to applicable employment agreements.
(2) Potential realizable value is based on the assumption that the
Common Stock appreciates at the annual rates shown (compounded annually)
from the date of grant until the expiration of the option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect any estimate or
prediction by the Company of future Common Stock trading prices.
For the 1990 Key Employee Stock Incentive Plan, as of April 15, 2000,
496,695 Options have been granted, and are currently outstanding, to
the Named Executives and 674,895 Options have been granted over the
history of the Plan to all employees, including current officers who
are not executive officers, as a group. Non-employee directors of
the Company are not granted Options under the 1990 Key Employee Stock
Incentive Plan but rather, are granted Options under the 1990 Outside
Directors' Stock Option Plan. See Proposal III.
Year-End Option Values
The following table sets forth certain information as of
12
December 31, 1999, in respect of the year-end number and value of
unexercised stock options held by the Chief Executive Officer and the
other Named Executives. The Chief Executive Officer and other Named
Executives did not exercise any stock options in fiscal year 1999.
The table also includes the value of the "in-the-money" unexercised
stock options which reflects the spread between the exercise price of
the existing stock options and the year-end price of the Common Stock.
Value of
Number of Unexercised In-the-
Unexercised Options Money Options at
Held at December 31, 1999 at December 31, 1999(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Frank F.
Ferola 30,000 129,195(2) $0 $0
Peter
Ferola 55,000 10,000 $0 $0
David A.
Spiegel 5,000 0 $0 $0
Thomas
D'Ambrosio 10,000 0 $0 $0
Lucille
Murphy 22,500 0 $0 $0
Franc
Ferola 55,000 10,000 $0 $0
(1) Based on the closing price of the Common Stock on December 31, 1999
($3.75).
(2) Includes options covering 79,195 shares of Common Stock whose
exercise is contingent on certain increases in the trading price of the
Common Stock, and includes options for 80,000 shares of Common Stock
which did not vest until January 1999. See - "Employment and Termination
Arrangements."
Employment and Termination Arrangements
In January 1997, the Company entered into an employment agreement
with Mr. Ferola. The term of the agreement is three years, expiring in
January 2000. Under such agreement, Mr. Ferola is to receive compensation
in the amount of $425,000 per annum, subject to an annual increase of 10%,
and an annual stock option grant of 50,000 shares of the Company's Common
Stock at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. In addition, Mr. Ferola is entitled to
13
receive an annual performance bonus based on increases of at least 10%
in the Company's earnings per share, as determined, by comparison to a
base year of 1996, pursuant to a formula set forth in the employment
agreement.
In the event of a change in control (as defined in the employment
agreement) of the Company, Mr. Ferola is entitled to receive an amount
equal to his base salary for the remaining term of the contract plus an
additional 24 months' salary. In addition, upon such an event, Mr. Ferola
will receive from the Company, by a lump sum payment, an amount equal to
the most recent annual bonus paid multiplied by the sum of the number of
years (including fractions thereof) remaining in the term of his agreement
plus two. In 1999, pursuant to the terms of his employment agreement,
Mr. Ferola renewed his agreement with the Company for an additional
three-year term.
In 1996, Mr. Frank Ferola conditionally relinquished $335,000
(approximately 50%) of the 1995 annual bonus to which he was otherwise
entitled. In consideration thereof, the Compensation Committee awarded
him a five-year option to purchase 70,000 shares of Common Stock, whose
exercise is contingent on the Common Stock trading for 20 consecutive
business days at a price of at least $19.175, a 30% increase over its
price on the date of grant ($14.75). If this condition were met, Mr.
Ferola would also receive a cash payment of $335,000, as a result of
the increased stock price.
In 1997, Mr. Ferola conditionally relinquished $100,000 of the 1996
annual bonus to which he was otherwise entitled. In consideration
thereof, the Compensation Committee awarded him a five-year option to
purchase 9,195 shares of the Common Stock, whose exercise is contingent
on the Common Stock trading for 20 consecutive business days at a price of
at least $14.138, a 30% increase over its price on the date of grant
($10.875). If this condition were met, Mr. Ferola would also receive a
cash payment of $100,000, as a result of the increased stock price.
In January 1996, the Company entered into an employment agreement
with Mr. Peter Ferola, effective for three years until January 1999.
Pursuant to such agreement, Peter Ferola received compensation of
$77,765 per annum subject to an annual increase of 10% and an annual stock
option grant of 10,000 shares of the Company's Common Stock at an exercise
price equal to the fair market value of the Company's Common Stock on
the date of grant. In addition, Peter Ferola was entitled to receive an
annual performance bonus based on increases of at least 10% in the Company's
earnings per share calculated by comparison to a base year of 1995, as
determined by a formula set forth in his employment agreement. In 1998
Peter Ferola unconditionally relinquished $20,000 of his 1997 annual bonus
to which he was otherwise entitled.
14
In July 1998, the Company entered into an amended employment agreement
with Peter Ferola. Such amendment extended the term of the agreement to
January 2001 and increased Peter Ferola's base salary to $125,000 per annum.
In addition, for the remaining term of the agreement, Mr. Ferola's
performance bonus based on Company earnings is to be calculated using a
base year of 1997.
In the event of a change in control (as defined in the employment
agreement) of the Company, Peter Ferola is entitled to receive an amount
equal to his base salary for the remaining term of the contract plus an
additional twelve months' salary. In addition, upon such an event, Peter
Ferola is entitled to receive from the Company, by a lump sum payment, an
amount equal to the most recent annual bonus paid multiplied by the sum of
the number of years (including fractions thereof) remaining in the term
of his agreement plus one.
In January 1996, the Company entered into an employment agreement
with Ms. Lucille Murphy, effective for three years until January 1999.
Pursuant to such agreement, Ms. Murphy received compensation of $72,100
per annum subject to an annual increase of 10%. Under the terms of the
contract, Ms. Murphy was also entitled to an annual bonus, the amount
of which was to be determined each year by the Compensation Committee.
In July 1998, the Company entered into an amended employment agreement
with Ms. Murphy. Such amendment extended the term of the agreement to
January 2001 and increased Ms. Murphy's base salary to $125,000 per annum.
In the event of a change in control (as defined in the employment
agreement) of the Company, Ms. Murphy is entitled to receive an amount
equal to her base salary for the remaining term of the contract plus an
additional twelve months' salary. In addition, upon such an event, Ms.
Murphy is entitled to receive from the Company, by a lump sum payment,
an amount equal to the most recent annual bonus paid multiplied by the sum
of the number of years (including fractions thereof) remaining in the term
of her agreement plus one.
In January 1996, the Company entered into an employment agreement
with Mr. Franc Ferola, effective for three years until January 1999.
Pursuant to such agreement, Franc Ferola received compensation of $77,765
per annum subject to an annual increase of 10% and an annual stock
option grant of 10,000 shares of the Company's Common Stock at an exercise
price equal to the fair market value of the Company's Common Stock on the
date of grant. In addition, Franc Ferola was entitled to receive an
annual performance bonus based on increases of at least 10% in the Company's
earnings per share, as determined by a formula set forth in his employment
agreement calculated by comparison to a base year of 1995. In 1998,
Franc Ferola unconditionally relinquished $20,000 of his 1997 annual bonus
to which he was otherwise entitled.
15
In July 1998, the Company entered into an amended employment agreement
with Franc Ferola. Such amendment extended the term of the agreement to
January 2001 and increased Franc Ferola's base salary to $125,000 per annum.
In addition, for the remaining term of the agreement, Franc Ferola's
performance bonus is to be calculated using a base year of 1997.
In the event of a change in control (as defined in the employment
agreement) of the Company, Franc Ferola is entitled to receive an amount
equal to his base salary for the remaining term of the contract plus an
additional twelve months' salary. In addition, upon such an event, Franc
Ferola is entitled to receive from the Company, by a lump sum payment, an
amount equal to the most recent annual bonus paid multiplied by the sum
of the number of years (including fractions thereof) remaining in the term
of his agreement plus one.
In July 1998, the Company entered into a two-year employment agreement,
commencing on April 1, 1998, with David Spiegel. Under the terms of the
agreement, Mr. Spiegel is entitled to receive a base salary of $125,000 per
annum with annual increases of 10%. Additionally, in the event of a change
of control, Mr. Spiegel is entitled to receive the lesser of his salary for
the remaining term of his contract or six months' salary payable by a lump
sum. In addition, Mr. Spiegel is entitled to receive an amount equal to
the most recent bonus paid to him divided by twelve and multiplied by the
number of months remaining in his contract.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed
entirely of non-employee directors. The Compensation Committee is
responsible for reviewing and approving policies and programs pursuant to
which compensation is paid or awarded to the Company's executive officers
and key employees and for administration of the Company's 1990 Key
Employee Stock Option Incentive Plan (the "Incentive Plan").
Compensation Strategy
The Company's executive compensation program has been designed to (i)
align executive compensation with stockholder interests, (ii) attract,
retain and motivate a highly competent executive team, (iii) link
compensation to individual and Company performance and (iv) achieve a
balance between incentives for short-term and long-term results. The
Company's executive compensation package consists of the payment of base
16
salary, annual bonus, and stock options awarded through participation in
the Incentive Plan. The Compensation Committee reviews annually the
compensation to be paid to the Company's executive officers. In making
such review, the Compensation Committee evaluates information supplied by
management. The Compensation Committee also participates in the
negotiation of employment contracts, including provisions for salary and
bonuses, with the Company's executive officers. Currently, pursuant to
the Company's employment agreements with certain of its executive officers,
each such executive officer receives a fixed annual base salary and certain
of such executive officers, including the Chief Executive Officer, are
entitled to receive a bonus amount determined by a formula based on
the Company's net earnings per share for each fiscal year during the term
of the agreement.
Base Salary
Base salary for executive officers is generally determined by
reference to written employment agreements between the Company and such
executives. The Compensation Committee's policy is to negotiate salaries in
relation to industry norms, the principal job duties and responsibilities
undertaken by such executives, individual performance and other relevant
criteria. A base salary comparison for the Company's Chief Executive
Officers was made to a group of public companies which the Compensation
Committee believes provides a meaningful comparison to the Company.
Several of these companies are included in the custom composite of
companies in the Standard & Poor's Midcap Consumer Products Index. See
"Stock Performance Chart" below. The base salary paid to the Company's
Chief Executive Officer for fiscal year 1999 was in the middle of the
range of base salary paid by such companies.
Annual Bonus
Annual bonuses for the Chief Executive Officer and two other Named
Executives (Peter Ferola and Franc Ferola) are determined by reference to
specific bonus formulae set forth in written employment agreements between
the Company and such officers. If the Company's net earnings per share
increase by more than 10% compared to the executives' base years (i.e.
1996 for the Chief Executive Officer and 1997 for the two other Named
Executives), the Chief Executive Officer is entitled to receive $20,000
and the two other Named Executives are each entitled to receive $5,000 for
each 1% increase in net earnings per share above the 10% threshold. In
addition, the Chief Executive Officer is entitled to receive a $100,000
bonus and the two other Named Executives are entitled to each receive a
$25,000 bonus for reaching the 10% increase in net earnings per share
compared to the base year. The Chief Executive Officer is also entitled
17
to receive a $150,000 bonus payment and the two other Named Executives
are entitled to each receive an additional $25,000 bonus payment upon the
Company's attaining a 15% increase in net earnings per share compared
to the base year. Payment of annual bonuses for other executives is at
the discretion of the Compensation Committee.
Stock Options
Long-term incentive compensation of executives is granted through
participation in the Incentive Plan. The Incentive Plan permits the
Company to grant stock options to executive officers at a price no less
than 100% of the fair market value of the Common Stock on the date of
the grant. In addition to contractual obligations, stock options are
granted in the Compensation Committee's discretion to executive officers
based upon its perception of the ability of such executive officers to
influence the long-term growth and profitability of the Company.
The Compensation Committee believes that providing a portion of the
executive's annual incentive compensation in the form of stock options
encourages the officers to share with outside stockholders the goals of
increasing the value of the Company's stock and contributing to the
success of the Company.
Compensation Committee's Actions for Fiscal Year 1999
After various informal meetings during 1999, The Stock Option and
Compensation Committee decided not to award any stock option, grant salary
increases, or bonuses to any of the named executives.
The Chief Executive Officer Compensation
The Compensation Committee approved an employment agreement in 1997
for Mr. Frank F. Ferola. In approving such agreement, the Compensation
Committee authorized a base annual salary of $425,000, an annual 10% increase
in such salary, and an annual grant of options to purchase 50,000 shares of
the Common Stock at an exercise price equal to the fair market value of the
Common Stock on the date of grant for Mr. Ferola. Based on the earnings
formula described above, Mr. Ferola was not entitled to receive a bonus in
fiscal 1999.
Section 162(m) Compliance
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally disallows a tax deduction to a public company for
compensation over $1 million annually paid to its chief executive officer
and four other most highly compensated executive officers. Qualifying
performance based compensation will not be subject to the deduction
18
limitation if certain requirements are met. The Compensation Committee's
current policy is to structure the performance-based portion of the
compensation of the Company's executive officers (currently consisting of
stock option grants and cash bonuses) in a manner that complies with
Section 162(m) of the Code whenever practicable and appropriate, in the
judgment of the Compensation Committee.
Members of the Compensation Committee:
Shouky Shaheen, Chairman
John DePinto
Leonard Genovese
Compensation Committee Interlocks and Insider Participation
The Compensation Committee conducted deliberations through various
informal meetings concerning executive compensation during the last
completed fiscal year. None of the Compensation Committee members are or
ever were officers or employees of the Company. During the last fiscal
year, none of the executive officers of the Company has served on
the board of directors or on the Compensation Committee of any other
entity, any of whose executive officers served on the Board of Directors
of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
As a public company, the Company's directors, executive officers
and more than 10% beneficial owners are subject to reporting requirements
under Section 16(a) of the Exchange Act. None of the Company's directors,
executive officers or such 10% beneficial owners delinquently filed, to the
Company's knowledge, any reports required under Section 16(a) of such Act
during fiscal year 1999.
19
STOCK PERFORMANCE CHART
Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
The Stephan Co. $100 $123 $102 $106 $82 $31
S&P 500 $100 $138 $169 $226 $290 $351
Custom Composite $100 $115 $120 $143 $143 $145
Index (10 stocks)
Custom Composite $100 $296 $162 $74 $35 $52
Index (4 stocks)
The 10 Stock Custom Composite is made up of the companies that comprised
the S&P MidCap Consumer Products Index upon its termination in July, 1996.
The 10 stocks are Carter-Wallace, Church & Dwight, A.T. Cross Co., Enesco
Group Inc. (The Stanhome Inc.), First Brands Corp., Gibson Greetings
Lancaster Colony, National Presto, Perrigo Co., and Tambrands Inc.
(thru the second quarter of 1997; Co. acquired).
The 4 Stock New Custom Composite is made up of Carson Inc., Parlux
Fragrances, Inc., Azurel Ltd. and Lamaur Corp.
20
PROPOSAL II: APPROVAL AND ADOPTION
OF THE COMPANY'S 1990 KEY EMPLOYEE STOCK INCENTIVE PLAN,
AS AMENDED
In 1990, the Company's stockholders adopted the 1990 Key Employee
Stock Incentive Plan (the "1990 Plan") providing for awards of Common
Stock to certain employees. Pursuant to its current provisions, the 1990
Plan expired as of April 15, 2000.
The Board of Directors believes that the Company would be at a
disadvantage in attracting and retaining qualified and experienced persons
to serve as officers and key employees were it limited in its ability to
grant stock or stock-related incentive awards. Based on certain reviews it
has conducted, the Company believes that the level and amount of awards
it has granted in the past are consistent with those of other companies
of the Company's size and nature of business.
In light of the foregoing, the Board of Directors believes that
the proposal to extend the 1990 Plan is in the best interests of the
Company and its stockholders.
The purpose of the 1990 Plan is to offer to the Company's key employees
(including those of its subsidiaries) long-term performance-based stock
and/or other equity interests in the Company, thereby enhancing the
Company's ability to attract, retain and reward such key employees and to
increase the mutuality of interests between those employees and the
Company's stockholders. The Company believes that in connection with any
potential acquisition, the opportunity for key employees of acquired
companies to participate in the 1990 Plan would provide such employees
with an incentive to remain with the Company following the acquisition.
The 1990 Plan presently authorizes the granting of incentive awards
for up to 870,000 shares of Common Stock, subject to adjustments as discussed
below. As of April 15, 2000, approximately 35 officers and employees were
granted options to purchase a total of 674,895 shares of Common Stock.
No other awards have been made under the 1990 Plan. If the 1990 Plan is
extended and assuming that all outstanding options (including all
unvested and contingent options) are exercised, 195,105 shares of Common
Stock would be available for grant through stock option grants, restricted
stock awards, deferred stock awards, and other stock-based awards.
The purpose of the amendment would be to extend the 1990 Plan for an
additional ten years.
The following summary of the 1990 Plan does not purport to be
complete and is subject to and qualified in its entirety by reference to
the text of the 1990 Plan, as proposed to be amended, annexed hereto as
Exhibit A.
21
Summary of the Plan
Incentive awards consist of stock options, restricted stock awards,
deferred stock awards, and other stock-based awards as described below.
The shares of Common Stock available for incentive awards will be made
available from either authorized and unissued shares or issued shares to be
purchased or otherwise acquired by the Company. The 1990 Plan expired at
the close of business on April 15, 2000. Officers and key employees of
the Company and its subsidiaries (but excluding members of the Compensation
Committee and any directors who receive options under the Outside
Directors' Plan) are eligible to receive incentive awards ("Eligible
Persons"). Approximately 40 officers and other employees are currently
eligible to participate in the 1990 Plan.
The 1990 Plan is administered by the Compensation Committee, which
has the authority to determine the persons to whom awards will be granted,
the number of awards to be granted and the specific term of each grant,
subject to the provisions of the 1990 Plan.
Types of Incentive Awards
Incentive and Nonqualified Options. The 1990 Plan provides both for
"incentive stock options" ("Incentive Options") as defined in Section 422 of
the Code and for options not qualifying as Incentive Options ("Nonqualified
Options"), both of which may be granted with other stock-based awards
available under the 1990 Plan. The Compensation Committee shall determine
the Eligible Persons to whom Options (defined below) may be granted.
Pursuant to the 1990 Plan, the Compensation Committee shall determine
the exercise price for each share issued in connection with a grant of
options (collectively referred to as "Options"), but the exercise price
shall in all cases be not less than 100% of the fair market value of
Common Stock on the date the Option is granted (or in the case of an
Incentive Option granted to an Eligible Employee owning more than 10% of
the outstanding Common Stock, not less than 110% of such fair market value).
The exercise price must be paid in full at the time of exercise, either
in cash, or subject to any limitations as the Compensation Committee may
impose, in securities of the Company or through other cashless exercise
mechanisms permitted by the Company.
The Compensation Committee shall determine when Options may be
exercised, which in no event shall be more than ten years from the date of
grant (or in the case of an Incentive Option granted to an eligible
person owning more than 10% of the outstanding Common Stock, not more than
five years), and the manner in which each Option shall become exercisable.
Other than as set forth herein, the rules relating to the terms of Options
apply to both Incentive Options and Nonqualified Options. Options may not
22
be transferred by the grantee other than by will or the laws of descent
and distribution.
Restricted Stock Awards. The Compensation Committee may award shares
of restricted stock ("Restricted Stock"). Shares of Restricted Stock may
be issued either alone or in addition to other awards granted under the 1990
Plan. The Compensation Committee shall determine the Eligible Persons
to whom and the time or times at which, grants of Restricted Stock will
be made, the number of shares to be awarded, the price (if any) to be paid
by the recipient, the time or times within which such awards may be subject
to forfeiture (the "Restriction Period"), the vesting schedule and rights
to acceleration thereof, and all other terms and conditions of the awards.
The Compensation Committee may condition the grant of Restricted Stock
upon the attainment of specified performance goals or such other factors or
criteria as the Compensation Committee may determine.
Restricted Stock awarded under the 1990 Plan may not be sold, exchanged,
assigned, transferred, pledged, encumbered or otherwise disposed of other
than to the Company during the applicable Restriction Period. Except for
the foregoing restrictions, the grantee shall, even during the Restriction
Period, have all of the rights of a stockholder, including the right to
receive all dividends declared on, and the right to vote, such shares.
In order to enforce the foregoing restrictions, the 1990 Plan requires
that all shares of Restricted Stock awarded to the grantee remain in the
physical custody of the Company until the restrictions on such shares have
terminated.
Deferred Stock Awards. The Compensation Committee may award shares
of deferred stock ("Deferred Stock"). Shares of Deferred Stock may be
awarded either alone or in addition to other awards granted under the 1990
Plan. The Compensation Committee shall determine the Eligible Persons to
whom and the time or times at which Deferred Stock shall be awarded, the
number of shares of Deferred Stock to be awarded to any person, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the stock will be deferred, and all
other terms and conditions of the awards.
The Compensation Committee may condition the grant of Deferred Stock
upon the attainment of specified performance goals or such other factors
or criteria as the Compensation Committee may determine.
Deferred Stock awards granted under the 1990 Plan may not be sold,
exchanged, assigned, transferred, pledged, encumbered or otherwise
disposed of other than to the Company during the applicable Deferral Period.
23
The grantee, as determined by the Compensation Committee, may be paid
dividends declared currently or deferred and deemed to be reinvested in
additional Deferred Stock. The grantee may request to defer the receipt
of an award for an additional specified period. The Compensation Committee
may accelerate vesting of all or any part of the Deferred Stock award
and/or may waive the deferral limitations for all or any part of a
Deferred Stock award.
If a grantee of an award ceases to be an employee of the Company
prior to the expiration of the Deferral Period applicable to all or any
part of the Deferred Stock awarded to such grantee, then, all shares of
Stock theretofore awarded to the grantee which are still subject to
the Deferral Period shall, upon such termination of employment, vest or be
forfeited in accordance with the terms and conditions established by the
Compensation Committee at the time of grant.
Other Stock-Based Awards. The Compensation Committee may grant
performance shares and shares of stock valued with reference to the
performance of the Company or any subsidiary, either alone, in addition to
or in tandem with Options, Restricted Stock or Deferred Stock
(collectively "Stock-Based Awards"). Subject to the terms of the 1990 Plan,
the Compensation Committee has complete discretion to determine the terms
and conditions applicable to Stock-Based Awards. Such terms and conditions
may require, among other things, continued employment and/or the attainment
of specified performance objectives.
Shares of stock subject to Stock-Based Awards may not be sold, assigned,
transferred, pledged or otherwise encumbered, prior to the date the shares
are issued or, if later, the date on which any applicable restriction or
performance or deferral period lapses.
Other Terms and Conditions
Agreements; Transferability. Options, Restricted Stock, Deferred Stock,
and Stock-Based Awards granted under the 1990 Plan will be evidenced by
agreements consistent with the 1990 Plan in such form as the Compensation
Committee may prescribe. Neither the 1990 Plan nor any agreements
thereunder confer any right to continued employment upon any holder of an
Option, Restricted Stock, Deferred Stock, or Stock-Based Award. Further,
all agreements will generally provide that the right to exercise Options or
receive Restricted Stock before the expiration of the Restriction Period or
Deferred Stock before the expiration of the Deferral Period or to receive
payment under Stock-Based Awards, cannot be transferred except by will or
the laws of descent and distribution.
Change of Control Provisions. In the event of a "Change of Control"
24
(as defined in the 1990 Plan) of the Company, the Compensation Committee may
at its discretion do any or all of the following, either at the time an award
is made, or at any time prior to or concurrently with such Change of
Control: (i) allow the exercise in full of all outstanding Options and allow
such Options to remain exercisable in full until their expiration date, and
(ii) allow for the lapse of all restrictions and deferral limitations on
Restricted Stock awards, Deferred Stock awards, and Stock-Based Awards. The
Compensation Committee may further change or limit any such awards in any way
it deems appropriate and in the Company's best interest.
Amendments and Termination. The Board may at any time, and from time
to time, amend any of the provisions of the 1990 Plan, and may at any time
suspend or terminate the 1990 Plan. However, no amendment, pursuant to the
terms of the 1990 Plan, shall be effective unless and until it has been
duly approved by the holders of the outstanding shares of Common Stock if
(i) it increases the aggregate number of shares of Common Stock which may be
issued under the 1990 Plan (except as described under the caption
"Adjustment" below), or (ii) the failure to obtain such approval would
adversely affect the compliance of the 1990 Plan with the requirements of any
applicable law, rule or regulation. The Compensation Committee may amend the
terms of any Option or other award theretofore granted under the 1990 Plan.
However, subject to the adjustments described below, no such amendment may be
made by the Compensation Committee which in any material respect impairs the
rights of the participant without the participant's consent.
Adjustment. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a dividend or its equivalent which is
credited to a 1990 Plan participant or a regular cash dividend), Common
Stock split, or other change in corporate structure affecting the Common
Stock, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the 1990 Plan, in the number and
option price of shares subject to outstanding Options granted under the
1990 Plan, and in the number of shares subject to other outstanding awards
(including but not limited to awards of Restricted Stock, Deferred Stock and
other Stock-Based Awards) granted under the 1990 Plan as may be determined to
be appropriate by the Compensation Committee in order to prevent dilution or
enlargement of rights, provided that the number of shares subject to any
award shall always be a whole number.
Certain Federal Income Tax Consequences of the 1990 Plan
The following is a brief summary of the Federal income tax aspects of
awards made under the 1990 Plan based upon statutes, regulations and
interpretations in effect on the date hereof. This summary is not intended
to be exhaustive, and does not describe foreign, state or local tax
consequences.
25
1. Incentive Options. The participant will recognize no taxable
income upon the grant or exercise of an Incentive Option. Upon a
disposition of the shares after the later of two years from the date of
the grant and one year after the transfer of shares to the participant,
(i) the participant will recognize the difference, if any, between the
amount realized and the exercise price as long-term capital gain or long-
term capital loss (as the case may be) if the shares are capital assets;
and (ii) the Company will not qualify for any deduction in connection
with the grant or exercise of the Options. The excess, if any, of the
fair market value of the shares on the date of exercise of an Incentive
Option over the exercise price will be treated as an item of adjustment
for a participant's taxable year in which the exercise occurs and may
result in an alternative minimum tax liability for the participant. In
the case of a disposition of shares in the same taxable year as the
exercise, where the amount realized on the disposition is less than the
fair market value of the shares on the date of exercise, there will be no
adjustment since the amount treated as an item of adjustment, for
alternative minimum tax purposes, is limited to the excess of the amount
realized on such disposition over the exercise price which is the same
amount included in regular taxable income.
If Common Stock acquired upon the exercise of an Incentive Option is
disposed of prior to the expiration of the holding periods described above,
(i) the participant will recognize ordinary compensation income in the
taxable year of disposition in an amount equal to the excess, if any, of
the lesser of the fair market value of the shares on the date of exercise or
the amount realized on the disposition of the shares, over the exercise
price paid for those shares; and (ii) the Company will qualify for a
deduction equal to any such amount recognized, subject to the limitation
that the compensation be reasonable and other applicable limitations under
the Code. The participant will recognize the excess, if any, of the amount
realized over the fair market value of the shares on the date of exercise,
if the shares are capital assets, as short-term or long-term capital gain,
depending on the length of time that the participant held the shares, and the
Company will not qualify for a deduction with respect to such excess.
Subject to certain exceptions for disability or death, if an Incentive
Option is exercised more than three months following the termination of
the participant's employment, the option will generally be taxed as a
nonqualified stock option. See "Nonqualified Options."
2. Nonqualified Options. Except as noted below, with respect to
Nonqualified Options (i) upon grant of the option, the participant will
recognize no income; (ii) upon exercise of the option (if the shares of
Common Stock are not subject to a substantial risk of forfeiture), the
26
participant will recognize ordinary compensation income in an amount equal
to the excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price, and the Company will qualify for a
deduction in the same amount, subject to the requirement that the
compensation be reasonable and other applicable limitations under the Code;
(iii) the Company will be required to comply with applicable Federal income
tax withholding requirements with respect to the amount of ordinary
compensation income recognized by the participant; and (iv) on a sale of
the shares, the participant will recognize gain or loss equal to the
difference, if any, between the amount realized and the sum of the
exercise price and the ordinary compensation income recognized. Such
gain or loss will be treated as capital gain or loss if the shares are
capital assets and as short-term or long-term capital gain or loss,
depending upon the length of time that the participant held the shares.
If the shares acquired upon exercise of a Nonqualified Option are
subject to substantial risk of forfeiture, the participant's and the Company's
Federal income tax consequences of the exercise and disposition of the shares
will be determined under rules similar to those set forth below under the
caption "Restricted Stock."
3. Restricted Stock. A participant who receives Restricted Stock
will recognize ordinary compensation income in an amount equal to the excess,
if any, of the fair market value of the Restricted Stock at the time the
Restricted Stock is no longer subject to a substantial risk of forfeiture,
over the consideration paid for the Restricted Stock. However, a participant
may elect, under Section 83(b) of the Code, within 30 days of the transfer of
the Restricted Stock, to recognize ordinary compensation income on the
date of transfer in an amount equal to the excess, if any, of the fair
market value on the date of such transfer of the shares of Restricted Stock
(determined without regard to the restrictions) over the consideration paid
for the Restricted Stock. If the participant makes such election and
thereafter forfeits the shares, he or she will qualify for a deduction
only in an amount equal to the excess, if any, of the consideration paid
for the shares over the amount realized on such forfeiture. With respect to
a sale of shares after the forfeiture period has expired where the
participant has not made election under Section 83(b), the holding period
to determine whether the participant has long-term or short-term capital
gain or loss begins when the Restriction Period expires, and the tax basis
for such shares will generally be the fair market value of such shares on
such date. If the participant makes an election under Section 83(b), the
holding period will commence on the day after the date of transfer and the
tax basis will equal the fair market value of such shares (determined
without regard to the restrictions) on the date of transfer. A
participant's shares are treated as being subject to a substantial risk of
forfeiture so long as his or her sale of the shares could subject him or her
27
to a suit under Section 16(b) of the Exchange Act.
Whether or not the participant makes an election under Section 83(b),
the Company generally will qualify for a deduction (subject to the
reasonableness of compensation limitation and other applicable limitations
under the Code) equal to the amount that is taxable as ordinary income to
the participant, in its taxable year in which or with which ends the
taxable year of the participant in which such income is included in the
participant's gross income. The income recognized by the participant will be
subject to applicable withholding tax requirements.
Dividends paid on Restricted Stock which is subject to a substantial
risk of forfeiture generally will be treated as compensation that is
taxable as ordinary compensation income to the participant and will be
deductible by the Company subject to the reasonableness limitation and
other applicable limitations under the Code. If, however, the participant
makes a Section 83(b) election, the dividends will be treated as dividends
and taxable as ordinary income to the participant, but will not be deductible
by the Company.
4. Deferred Stock. A participant who receives an award of Deferred
Stock will recognize no income on the grant of such award. However, he or
she will recognize ordinary compensation income on the transfer of the
Deferred Stock (or the later lapse of a substantial risk of forfeiture to
which the Deferred Stock is subject, if the participant does not make a
Section 83(b) election), in accordance with the same rules as discussed above
under the caption "Restricted Stock."
5. Other Stock-Based Awards. The Federal income tax treatment of
other Stock-Based Awards will depend on the nature of any such award and
the restrictions applicable to such award. Such an award may, depending on
the nature of and conditions applicable to the award, be taxable as an
Option or an award of Restricted Stock.
Employees who may participate in the 1990 Plan in the future and the
amounts and terms of their awards will be determined by the Compensation
Committee, in its discretion, as summarized above. Because no such
determinations have yet been made, it is not possible to state the terms of
any awards which may be granted under the 1990 Plan or the names, positions
of, or respective amounts of awards to any individuals who are eligible for
awards under the 1990 Plan. There are no agreements or commitments to make
any such awards as of the date hereof.
The closing sales price of the Common Stock on the American Stock
Exchange on April 15, 2000 was $4.63.
Approval and adoption of the 1990 Plan, as amended, requires approval
by a majority of votes cast in respect of such proposal at the Meeting, in
28
person or by proxy.
The Board of Directors unanimously recommends a vote "FOR" the approval
and adoption of Proposal II.
PROPOSAL III: APPROVAL AND ADOPTION
OF THE COMPANY'S 1990 DIRECTORS' STOCK OPTION PLAN,
AS AMENDED
In 1990, the Company's stockholders adopted the 1990 Directors' Stock
Option Plan (the "Directors' Plan") providing for awards of Common Stock for
Outside Directors of the Company.
The Board of Directors believes that the Company would be at a
disadvantage in attracting and retaining qualified and experienced persons
to serve on the Board were it limited in its ability to grant stock or stock-
related incentive awards. Based on certain reviews it has conducted, the
Company believes that the level and amount of awards it has granted in the
past are consistent with those of other companies of the Company's size and
nature of business. However, as a result of its term, the aforementioned
Plan expired as of June 21, 2000.
In light of the foregoing, the Board of Directors believes that the
proposal to extend the Directors' Plan is in the best interests of the
Company and its stockholders.
The Directors' Plan presently authorizes the granting of incentive awards
for up to 202,500 shares of Common Stock, subject to adjustments as
discussed below. As of April 15, 2000, seven Eligible Directors (defined
below) were granted options to purchase a total of 121,116 shares of Common
Stock. No other awards have been made under the Directors' Plan. If the
Directors' Plan is extended and assuming that all outstanding options
(including all unvested and contingent options) are exercised, 75,945
shares of Common Stock would be available for grant through stock option
grants, restricted stock awards, deferred stock awards, and other stock-based
awards. The purpose of the amendment would be to extend the life of the
Directors' Plan for an additional ten years.
The closing sales price of the Common Stock on the American Stock
Exchange on June 21, 2000 was $4.81.
Approval and adoption of the Directors' Plan, as amended, requires
approval by a majority of the votes cast in respect of such proposal at the
Meeting, in person or by proxy.
The Board of Directors unanimously recommends a vote "FOR" the
approval and adoption of Proposal III.
The following summary of the Directors' Plan does not purport to be
29
complete and is subject to and qualified in its entirety by reference to the
text of the 1990 Plan, as proposed to be amended, annexed hereto as Exhibit B.
SUMMARY OF THE PLAN
Title of Plan and Issuer
The title of the Plan pursuant to which securities are issuable is
"The Stephan Co. 1990 Directors' Stock Option Plan". The issuer of
the securities offered pursuant to such Plan is The Stephan Co., a Florida
corporation. The securities reserved for issuance pursuant to the Plan
and offered for sale hereby are up to 202,500 shares of the company's
common stock, par value $.0l per share. Participants in the Plan may obtain
additional information about the Plan and its administrators by writing to
or calling the Company at 1850 West McNab Road, Fort Lauderdale, Florida
33309,(305)971-0600.
Purpose and Eligibility
The purposes of the Plan are to advance the interests of the Company and
its stockholders by affording Eligible Directors an opportunity to acquire or
increase their proprietary interests in the Company, and thereby to encourage
their continued service as directors and to provide them with additional
incentives to achieve the growth objectives of the Company.
Options granted under the Plan may be granted only to directors of the Company
who are elected to a regular term as a director and who are not employees or
regularly retained consultants of the Company (the "Eligible Directors").
An Eligible Director will be granted Options on the date that he/she is
initially elected to the Board and thereafter once in each fiscal year of the
Company that he/she is re-elected, on the earlier of June 30 or the date on
which the Company's shareholders elect directors at an annual meeting or
any adjournment thereof. Eligible Directors on the Effective Date were each
granted an Option for 2,000 shares of Common Stock.
Options granted under the Plan do not qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
Effective Date and Term
The Plan became effective on June 21, 1990 and shall continue thereafter
until June 21, 2000, unless sooner terminated. See, "Termination" and
"Amendments".
Shares Available for Purchase
Under the Plan, an aggregate of up to 202,500 shares of Common Stock are
30
reserved for issuance and purchase by Eligible Directors. These shares will
be shares of authorized but unissued Common Stock. However, any shares of
Common Stock with respect to which an Option has already been exercised
shall not be available again for option under the Plan. If outstanding
Options granted under the Plan shall terminate or expire for any reason
without being wholly exercised, new Options may be granted covering the
unexercised shares subject to such earlier options.
In the event that the outstanding shares of Common Stock are changed into
or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares,
stock split or stock dividend:
a) The aggregate number and kind of shares of Common Stock for which
Options may be granted will be adjusted appropriately;
b) The rights under outstanding Options, both as to the number of subject
shares and the exercise prices, will be adjusted appropriately; and
c) Upon the dissolution or liquidation of the Company or any merger or
combination in which the Company is not the surviving corporation, each
outstanding option shall terminate, but the optionee shall have the right,
immediately prior to such dissolution, liquidation, merger or combination,
to exercise his option, in whole or in part, without regard to the date on
which such option would otherwise have been exercisable.
The above described adjustments and their application will be determined
solely by the Board, and any adjustment may provide for the elimination of
fractional share interests. In addition, the above described adjustments
will apply to any successors of the Company and will be made regardless of
the number or type of successive events requiring adjustment.
Administration
The Plan will be administered, at the expense of the Company, by a Stock
Option and Compensation Committee appointed by the Board which shall consist
of not less than two members of the Board and shall serve at the Board's
pleasure (the "Committee"). The Committee may request advice or assistance
of or employ any persons it deems necessary for the proper administration of
the Plan. Subject to the express provisions of the Plan, the Committee has
the authority to interpret the Plan, to prescribe, amend and rescind rules
and regulations relating to it and to make all other determinations necessary
or advisable in administering the Plan, all of which determinations shall
be final and binding upon the Eligible Directors and on all persons claiming
31
rights pursuant to the Plan through Eligible Directors, unless otherwise
determined by the Board. For the purposes of the Plan, a quorum of the
Committee will consist of a majority of its members. Any action may be
taken by the Committee at a duly called meeting, or without a meeting by a
written consent signed by all members of the Committee.
The names of the present members of the Committee are set forth on Appendix A
hereto. Such members are directors of the Company who are not members of the
Company's management. Other than their position as directors of the Company,
the members of the Committee do not have any material relationship with the
Company, its employees or any affiliates of either. The members of the
Committee are selected by the Board and serve at the pleasure of the Board.
Options
Option Grant, Number of Shares and Agreement. Each then Eligible Director
as of June 21, 1990 (the "Effective Date") was granted an option to purchase
5,062 shares of Common Stock (such number has been adjusted to four three-
for-two stock splits by way of stock dividend). Thereafter, on each Date
of Grant (as hereinafter defined) each Eligible Director has been and will
be automatically granted an option to purchase 5,062 shares of Common Stock
(as such number has and may be adjusted for certain events). Each option
so granted shall be evidenced by a written stock option agreement, dated as
of the Date of Grant and executed by the Company and the optionee, stating
the Option's duration, time of exercise and exercise price. The terms and
conditions of the Option must be consistent with the Plan.
Exercise Price. The exercise price for the Common Stock subject to each
option will be the Fair Market Value (as hereinafter defined) of the
Common Stock on its Date of Grant.
As used herein and with respect to the Plan, "Date of Grant" shall mean
the Effective Date, the date an Eligible Director is initially elected to the
Board and for each respective fiscal year of the Company thereafter the
earlier of: (i) June 30, or (ii) the date on which the shareholders of the
Company shall elect directors at an annual meeting of such shareholders or
any adjournment thereof.
As used herein and with respect to the Plan, the "Fair Market Value" of a
share of Common Stock on any business day means: (a) if the principal market
for the Common Stock is the Boston Stock Exchange, any other national
securities exchange or the NASDAQ National Market System, the closing
sales price of the Common Stock on such day as reported by such exchange or
market system, or on a consolidated tape reflecting transactions on such
exchange or market system, (b) if the principal market for the Common Stock
is not a national securities exchange or the National Market System
32
and the Common Stock is quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the mean between the closing
bid and the closing asked prices for the Common Stock on such days quoted
on such System, or (c) if the principal market for the Common Stock is not
quoted on NASDAQ, the mean between the highest bid and lowest asked prices
for the Common Stock on such day as reported by the National Quotation
Bureau, Inc. However, if clauses (a), (b) and (c) of this paragraph are
all inapplicable, or if no trades have been made or no quotes are available
for such day, the Fair Market Value of the Common Stock shall be determined
by the Company by any method which it deems appropriate. Any determination
of the Company will be conclusive as to the Fair Market Value of the
Common Stock.
Exercise Period. The period for the exercise of each option will commence
on the Date of Grant and expire on the fifth anniversary thereof (the
"Exercise Period"), whether or not the Eligible Director continues to serve
as a director.
Option Exercise.
(a) Any other Option granted under the Plan became or will become exercisable
in full on the first anniversary of its Date of Grant. However, if an
Eligible Director has voluntarily resigned, or been removed "for cause", as
a member of the Board on or prior to the first anniversary of the Date of
Grant, his option will automatically terminate. An Option will remain
exercisable at all times during the Exercise Period, regardless of whether
the optionee thereafter continues to serve as a member of the Board.
(b) An Option may be exercised at any time during the Exercise Period as
to any or all whole shares which become exercisable, but not as to less
than 25 shares of Common Stock unless all of the remaining shares of Common
Stock that are exercisable number less than 25. The exercise price must be
paid in full in cash upon the exercise of the Option. The holder of an
option shall not have any of the rights of a stockholder of the Company with
respect to the shares of Common Stock subject to the option until such shares
of Common Stock have been issued or transferred to him upon the exercise of
his Option.
(c) An Option is to be exercised by delivering written notice of its exercise
to the Company, along with cash payment of the full amount of the exercise
price for the shares of Common Stock covered by the Option. Prior to the
issuance of a certificate representing the shares of Common Stock obtained
pursuant to an Option exercise, the optionee must also pay to the Company
in cash the full amount of any Federal and state withholding or other
employment taxes applicable to the taxable income of such optionee resulting
from the exercise.
33
Non-transferability of Option. Options may not be transferred by an
optionee otherwise than by will or the laws of descent and distribution.
During the lifetime of an optionee, his Option may be exercised only by him
(or by his guardian or legal representative, should one be appointed). In
the event of the death of an optionee, any Option held by him may be
exercised by his legatee(s) or other distributee(s) or by his personal
representative.
Options Granted.
As of the date hereof, Options covering 121,116 shares of Common Stock
have been granted to all Eligible Directors, past and present. The closing
sales price of the Common Stock, as reported by the American Stock Exchange,
on June 21, 2000 was $4.81.
Each of the Eligible Directors who has been granted Options has agreed not
to sell, assign, transfer, pledge, or otherwise dispose of the shares of
Common Stock underlying such options for a period of one year after the date
of their exercise.
Other Plan Information
The Plan does not permit an Eligible Director to hypothecate or pledge
his interest, or any portion thereof, in the Plan. The Company believes that
no person has or may create a lien on any funds or securities held under
the Plan pursuant to the terms of the Plan or of any contract in connection
with it.
After an Eligible Director has purchased shares of Common Stock pursuant
to the Plan, he may resell such shares without restriction, except for any
applicable Federal or state securities law restrictions. See, "GENERAL
INFORMATION" above.
Other than any reports and other information required pursuant to Rule 428
under the Securities Act, the Company will not provide any regular reports to
Eligible Directors with respect to the Plan.
All shares of Common Stock purchased, or deemed to be purchased, by an
Eligible Director shall be acquired directly from the Company. No fees,
commissions or other charges shall be required to be paid by an Eligible
Director in connection with any such purchase to any person, including any
person affiliated with the Company or any person having a material
relationship with the Company. The entire exercise price for the shares of
Common Stock acquired by an Eligible Director shall be directed to the
Company.
The intent of the Plan is to comply with the rules promulgated under Section
16 of the Exchange Act, including preservation of the status of the
participants as disinterested persons for purposes of the Company's other
34
employee stock and benefit plans. The Board is empowered under the Plan to
make any amendment it deems advisable, without requiring further
shareholder approval, including any amendments required in order to comply
with the rules under Section 16 of the Exchange Act. See, "Amendments"
Termination
The Plan became effective on the Effective Date and will continue until its
termination. Unless sooner terminated, the Plan will terminate on June 21,
2000 and no further Options may be granted thereunder after such date.
See also, "Amendments".
Amendments
The Board may at any time terminate the Plan, and may at any time and, in
any respect, amend or modify the Plan.
Tax Aspects of the Plan
The following summary of the Federal income tax consequences of the grant
of Options to purchase and of the purchase and sale of shares of Common Stock
acquired pursuant to Options granted under the Plan is general, does
not apply to all specific transactions that may occur and does not purport
to be complete. For advice as to specific transactions, each Eligible
Director should consult his or her own tax advisor. In addition, Eligible
Directors should consider the state, local and foreign tax consequences of
participating in the Plan and the effect, if any, of gift, estate and
inheritance taxes.
Any option granted under the Plan is not intended to qualify as an
"incentive stock option", as that term is defined in Section 422 of the Code.
Neither the optionholder nor the Company will incur any Federal income
tax consequences on the grant of an Option under the Plan. On the "Income
Recognition Date," as defined below, the optionholder will recognize
ordinary compensation income in an amount equal to the excess, if any, of
the fair market value of the shares of common Stock on the Income Recognition
Date over the exercise price. The "Income Recognition Date" for shares of
Common Stock received upon exercise of an Option is generally the date six
months after exercise, unless the optionholder elects to recognize income
as of the date of transfer by making an election, under section 83(b) of
the Code, within 30 days of the transfer of the shares, in which case the
Income Recognition Date is the date of transfer.
On a subsequent sale of any shares of Common Stock obtained upon the exercise
of an option, the optionholder will recognize capital gain or loss equal to
the difference, if any, between the amount realized and his or her tax basis
in the shares. Such capital gain or loss will be a long-term gain or loss
35
if the sale occurs more than one year after the Income Recognition Date and
a short-term capital gain or loss if the sale occurs one year or less after
the Income Recognition Date. The tax basis of the shares, for purposes of
computing gain or loss, will be the sum of the exercise price and the amount
of ordinary income recognized on the Income Recognition Date.
The Company will qualify for a deduction for Federal income tax purposes in
its taxable year in which or with which ends the taxable year of the
optionholder in which such income is included in his/her gross income.
The Company's deduction will equal the ordinary compensation income
recognized by the optionholder, to the extent that such income is considered
reasonable compensation under the Code.
LEGAL MATTERS
Legal matters in connection with the issuance of the shares of Common Stock
offered hereby will be passed upon for the Company by Bert Sager, Esq.,
special counsel to the Company.
EXPERTS
The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, which are
incorporated by reference in the Company's Registration Statement, have
been audited by David A. Spiegel, C.P.A., the Company's independent public
accountant for the periods indicated in his report included in such Annual
Report on Form 10-K, and are hereby incorporated by reference herein in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
APPENDIX A
Names of the members of the Company's Compensation Committee regulating
the 1990 Directors' Stock Option Plan:
1. John DePinto
2. Shouky Shaheen
3. Leonard Genovese
36
EXHIBIT A
THE STEPHAN CO.
1990 Key Employee Stock Incentive Plan
As Amended, July 15, 1994, April 12, 1996
and February 19, 1997
Section 1. Purpose; Definitions.
The purpose of The Stephan Co. 1990 Key Employee Stock Incentive Plan (the
"Plan") is to enable The Stephan Co. to offer to its key employees and to key
employees of its subsidiaries, long term performance-based stock and/or
other equity interests in The Stephan Co. thereby enhancing its ability to
attract, retain and reward such key employees, and to increase the mutuality
of interests between those employees and the stockholders of The Stephan
Co. The various types of long-term incentive awards which may be provided
under the Plan will enable The Stephan Co. to respond to changes in
compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
For purposes of the Plan, the following terms shall be defined as set forth
herein:
(a) "Board" means the Board of Directors of The Stephan Co.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(c) "Committee" means the Stock Option Committee of the Board or any
other committee of the Board which the Board may designate.
(d) "Company" means The Stephan Co., a corporation organized under the
laws of the state of Florida.
(e) "Deferred Stock" means stock to be received, under an award made
pursuant to Section 7 hereof, at the end of a specified deferral period.
(f) "Disability" means disability as determined under procedures
established by the Committee for purpose of the Plan.
(g) "Early Retirement" means retirement from active employment with
the Company or any subsidiary prior to age 65.
(h) "Fair Market Value," unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means as of any
given date: (i) if the Common Stock (as hereinafter defined) is listed on a
national securities exchange or quoted on the NASDAQ National Market System,
37
the closing price of the Common Stock on the last preceding day on which the
Common Stock was traded, as reported on the composite tape or by NASDAQ/NMS
System Statistics, as the case may be; (ii) if the Common Stock is not
listed on a national securities exchange or quoted on the NASDAQ National
Market System, but is traded in the over-the-counter market, the average of
the bid and asked prices for the Common Stock on the last preceding day
for which such quotations are reported by NASDAQ; and (iii) if the fair
market value of the Common Stock cannot be determined pursuant to clause
(i) or (ii) hereof, such price as the Committee shall determine.
(i) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(k) "Normal Retirement" means retirement from active employment with
the Company or any subsidiary on or after age 65.
(l) "Other Stock-Based Award" means an award under Section 8 hereof
that is valued in whole or in part by reference to, or is otherwise based
on, stock.
(m) "Plan" means this The Stephan Co. 1990 Key Employee Stock Incentive
Plan, as hereinafter amended from time to time.
(n) "Restricted Stock" means Stock, received under an award made
pursuant to Section 6 hereof, that is subject to restrictions under said
Section 6.
(o) "Retirement" means normal retirement or early retirement.
(p) "Stock" means the Common Stock of the Company, par value $.01 per
share.
(q) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
(r) "Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code, or any
successor thereto.
Section 2. Administration
The Plan shall be administered by the Committee, the membership of which
shall be at all times constituted so as not to adversely affect the
compliance of the Plan with the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in
effect from time to time, or with the requirements of any other applicable
law, rule or regulation.
38
The Committee shall have full authority to grant, pursuant to the terms of
the Plan, to officers and other key employees eligible under Section 4 hereof:
(i) Options, (ii) Restricted Stock, (iii) Deferred Stock, and/or (iv) other
Stock-Based Awards.
For purposes of illustration and not of limitation, the Committee shall
have the authority (subject to express provisions of this plan):
(i) to select the officers and other key employees of the Company or
any Subsidiary to whom Stock Options, Restricted Stock and/or other Stock-
Based Awards may from time to time be granted hereunder;
(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock, Deferred Stock and/or other Stock-Based Awards,
or any combination thereof, if any, to be granted hereunder to one or more
eligible employees;
(iii) to determine the number of shares to be covered by each award granted
hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any award granted hereunder (including, but not
limited to, share price, any restrictions or limitations, and any vesting,
acceleration, or forfeiture provisions, as the Committee shall determine);
(v) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other cash awards made by the Company or any Subsidiary outside of
this Plan;
(vi) to determine the extent and circumstances under which Stock and
other amounts payable with respect to an award hereunder shall be deferred,
which may be either automatic or at the election of the participant; and
(vii) to substitute (A) new Stock Options for previously granted Stock
Options, which previously granted Stock Options have higher option exercise
prices and/or certain other less favorable terms, and (B) new awards of any
type for previously granted awards of the same type, which previously
granted awards are upon less favorable terms.
Subject to Section 10 hereof, the Committee shall have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable, to
interpret the terms and provisions of the Plan and any award issued under
the Plan (and to determine the form and substance of all agreements relating
39
thereto), and to otherwise supervise the administration of the Plan.
Subject to Section 10 hereof, all decisions made by the Committee pursuant to
the provisions of the Plan shall be made in the Committee's sole discretion
and shall be final and binding upon all persons, including the Company,
its Subsidiaries and Plan participants.
Section 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 870,000 shares. Such shares may consist, in whole or
in part, of authorized and unissued shares.
If any shares of Stock that have been optioned cease to be subject to a
Stock Option, or if any shares of Stock that are subject to any Restricted
Stock, Deferred Stock award or Other Stock-Based Award granted hereunder are
forfeited or any such award terminates without a payment being made to the
participant in the form of cash and/or Stock, such shares shall again be
available for distribution in connection with future grants and awards under
the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
dividend (other than a dividend or its equivalent which is credited to a Plan
participant or a regular cash dividend), Stock split, or other change in
corporate structure affecting the Stock, such substitution or adjustment
shall be made in the aggregate number of shares reserved for issuance under
the Plan, in the number and option price of shares subject to outstanding
options granted under the Plan, and in the number of shares subject to
other outstanding awards (including but not limited to awards of Restricted
Stock, Deferred Stock and other Stock-Based Awards) granted under the Plan as
may be determined to be appropriate by the Committee in order to prevent
dilution or enlargement or rights, provided that the number of shares subject
to any award shall always be a whole number.
Section 4. Eligibility
Officers and key employees of the Company or any Subsidiary (but excluding
members of the Committee and any director who receives options under a
directors' stock option plan) who are at the time of the grant of an award
nder this Plan employed by the Company or any Subsidiary and who are
responsible for or contribute to the management, growth, and/or
profitability of the business of the Company or any Subsidiary, are
eligible to granted Options and awards under the Plan. Eligibility under the
Plan shall be determined by the Committee.
40
Section 5. Stock Options
(a) Grant and Exercise. Stock Options granted under the Plan may be of two
types: (I) Incentive Stock Options and (ii) Non-Qualified Stock Options.
Any Stock Option granted under the Plan shall contain such terms as the
Committee may from time to time approve. The Committee shall have the
authority to grant to any optionee Incentive Stock Options, Non-Qualified
Stock Options, or both types of Stock Options and may be granted alone or in
addition to other awards granted under the Plan. To the extent that any
Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options or any agreement providing for
Incentive Stock Options shall be interpreted, amended or altered, nor shall
any discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or, without the consent
of the optionee(s) affected, to disqualify any Incentive Stock Option under
Section 422.
(b) Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant but
shall not be less than 100% (110%, in the case of an Incentive Stock Option
granted to an optionee ("10% Stockholder") who, at the time of the grant,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or its parent (if any) or subsidiary
corporations, as those terms are defined in Sections 424(e) and (f) of the
Code) of the Fair Market Value of the Stock at the time of grant.
(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years (five years, in the case of an Incentive Stock Option granted to a 10%
Stockholder) after the date on which the Option is granted and no Non-
Qualified Stock Option shall be exercisable more than ten years and one day
after the date on which the option is granted.
(iii) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee at the time of the grant; provided, however, that except as
otherwise provided in this Section 5 and Section 9 below, unless waived by
the Committee at or after the time of grant, no Stock Options shall be
exercisable prior to the first anniversary date of the grant of the Option.
41
If the Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such installment
exercise provisions at any time at or after the time at or after the time of
grant in whole or in part, based upon such factors as the Committee shall
determine.
(iv) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the option period,
by giving written notice of exercise to the Company specifying the number
of shares of Stock to be purchased. Such notice shall be accompanied by
payment in full of he purchase price, which shall be (i) in cash; (ii)
unless otherwise provided in the Stock Option Agreement referred to in
Section 5(b) (xii) below, in whole shares of Stock which are already owned
by the holder of the Option; (iii) unless otherwise provided in the Stock
Option agreement referred to in Section 5(b) (xii) below, in whole shares
of stock which are already owned by the holder of the Option; (iii) unless
otherwise provided in the Stock Option agreement referred to in Section
5(b)(xii) below, partly in cash and partly in such Stock; or (iv) any other
form of consideration which has been approved by the Committee, including
any approved cashless exercise mechanism (including, if so approved, by
means of irrevocable broker's instruction letter and of the application of a
specified portion of the shares of Stock issuable upon exercise of a Stock
Option as payment of the exercise price therefor). Cash payments shall be
made by wire transfer, certified bank check or personal check, in each case
payable to the order of the Company; provided, however, that the Company
shall not be required to deliver certificates for shares of Stock with
respect to which an Option is exercised by payment of cash until the
Company has confirmed the receipt of good and available funds in payment of
the purchase price thereof. Payment in the form of Stock (which shall be
valued at the Fair Market Value of a share of Stock on the date of exercise)
shall be made by delivery of stock certificates in negotiable form which are
effective to transfer good and valid title thereto the Company, free of any
liens or encumbrances. The right to deliver in full or partial payment of
the exercise price of a Stock Option any consideration other than cash shall
be limited to such frequency and/or amount as the Committee shall determine
in its sole and absolute discretion. Except as otherwise expressly provided
in this Plan, no Option may be exercised at any time unless the holder
thereof is then an employee of the Company or of a subsidiary. The holder
of an option shall have none of the rights of a stockholder with respect to
the shares subject to the Option until such shares shall be transferred to
the holder upon the exercise of the Option.
(v) Transferability; Exercisability. No Stock Option shall be
42
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(vi) Termination by Reason of Death. Subject to Section 5(b)(x) below,
if an optionee's employment by the Company or a Subsidiary terminates by
reason of death, any Stock Option held by such optionee, unless otherwise
determined by the Committee at grant, shall be fully vested and may
thereafter be exercised by the legal representative of the estate or by the
legatee of the optionee under the will of the optionee, for a period of one
year (or such other period as the Committee may specify at grant) from the
date of such death or until the expiration of the stated term of such Stock
Option, which ever period is the shorter.
(vii) Termination by Reason of Disability. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or any Subsidiary
terminates by reason of Disability, any Stock Option held by such Optionee,
unless otherwise determined by the Committee at the time of grant, shall be
fully vested and may thereafter be exercised by the optionee for a period of
three years (or such other period as the Committee shall specify at the time
of grant), from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the optionee dies within such three-year
period (or such other period as the Committee shall specify at the time of
the grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the
time of death for a period of one year from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is the shorter.
(viii) Termination by Reason of Retirement. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or a Subsidiary terminates
by reason of Normal Retirement, any Stock Option held by such optionee,
unless otherwise determined by the Committee at grant, shall be fully
vested and may thereafter by exercised by the optionee for a period of three
years (or such other period as the Committee may specify at the time of
grant) from the date of such termination of employment or the expiration of
the stated term of such Stock Option, whichever period is the shorter;
provided, however, that if the optionee dies within such three year period,
any unexercised Stock Option held by such optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of death,
for a period of one year from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter. If an optionee's employment with the Company or any Subsidiary
43
terminates by reason of Early Retirement, any Stock Option held by such
optionee, unless otherwise determined by the Committee at the time of grant,
shall be fully vested and may thereafter be exercised by the optionee for a
period of one (1) year (or such longer period as the Committee may specify
at the time of grant, but in no event more than three (3) years) from the
date of such termination of employment or the expiration of the stated term
of such Stock Option, whichever period is the shorter.
(ix) Other Termination. Subject to the provisions of Section 12(g)
below and unless otherwise determined by the Committee at the time of grant,
if an optionee's employment by the Company or any Subsidiary terminates for
any reason other than death, Disability or Retirement, the Stock Option
shall thereupon automatically terminate, except that if the optionee is
involuntarily terminated by the Company or a Subsidiary without cause, such
Stock Option may be exercised for the lesser of three months after
termination of employment or the balance of such Option's term.
(x) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the amount of aggregate Fair Market Value of
Stock (determined at the time of grant of the Option) with respect which
Incentive Stock Options are exercisable for the first time by an optionee
during any calendar year (under all such plans of optionee's employer
corporation and its parent and subsidiary corporations, as defined in Sections
424(e) and (f) of the Code) shall not exceed $100,000.
(xi) Buyout and Settlement Provisions. The Committee may at any time
offer to buy out a Stock Option previously granted, based upon such terms and
conditions as the Committee shall establish and communicate to the optionee
at the time that the offer is made.
(xii) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an agreement executed by
the Company and the participant.
Section 6. Restricted Stock.
(a) Grant and Exercise. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee
shall determine the eligible persons to whom, and the number of shares to be
awarded, the price (if any) that will be paid by the recipient, the time or
times within which such awards may be subject to forfeiture (the "Restriction
Period"), the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the attainment
of specified performance goals or such other factors as the Committee may
44
determine.
(b) Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(i) Issuance; Certificates. Restricted Stock, when issued, will be
represented by a stock certificate or certificates registered in the name of
the holder to whom such Restricted Stock shall have been awarded. During
the Restriction Period certificates representing the Restricted Stock and
any securities constituting Retained Distributions (as defined below) shall
bear a restrictive legend to the effect that ownership of the Restricted
Stock (and such Retained Distributions), and the enjoyment of all rights
appurtenant thereto, are subject to the restrictions, terms and conditions
provided in the Plan and the applicable Restricted Stock agreement. Such
certificates shall be deposited by the holder with the Company, together
with stock powers or other instruments of assignment, each endorsed in blank,
which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the
Plan and the applicable Restricted Stock agreement.
(ii) Rights of Holder. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute on such Restricted
Stock and to exercise all other rights, powers and privileges of a holder
of Common Stock with respect to such Restricted Stock, with the exceptions
that (A) the holder will not be entitled to delivery of the stock certificate
or certificates representing such Restricted Stock until the Restriction
Period shall have expired and unless all other vesting requirements with
respect thereto shall have been fulfilled; (B) the Company will retain
custody of the stock certificate or certificates representing the Restricted
Stock during the Restriction Period; (C) other than regular cash dividends and
other equivalent distributions as the Board may in its sole discretion
designate, pay or distribute, the Company will retain custody of all
distributions ("Retained Distributions") made or declared with respect to
the Restricted Stock (and such Retained Distributions will be subject to the
same restrictions, terms and conditions as are applicable to the Restricted
Stock) until such time, if ever, as the Restricted Stock with respect to which
such Retained Distributions shall have been made, paid or declared shall have
become vested an with respect to which the Restriction Period shall have
expired; (D) the holder may not sell, assign, transfer, pledge, exchange,
encumber or dispose of the Restricted Shares or any Retained Distributions
45
during the Restriction Period; and (E) a breach of any of the restrictions,
terms or conditions contained in this Plan or the Restricted Stock agreement
referred to in the following clause (iv) or otherwise established by the
Committee with respect to any Restricted Stock or Retained Distributions
will cause a forfeiture of such Restricted Stock and any Retained
Distributions with respect thereto.
(iii) Expiration of Restriction Period. Upon the expiration of the
Restriction Period with respect to each award of Restricted Stock and the
satisfaction of any other applicable restrictions, terms and conditions
(A) all or part of such Restricted Stock shall become vested in accordance
with the terms of the Restricted Stock agreement referred to in the
following clause (iv), and (B) any Retained Distributions with respect to
such Restricted Stock shall become vested to the extent that the Restricted
Stock related thereto shall have become vested. Any such Restricted Stock
and Retained Distributions that do not vest shall be forfeited to the
Company and the holder shall not thereafter have any rights with respect
to such Restricted Stock and Retained Distributions that have been so
forfeited.
(iv) Restricted Stock Agreement. Each Restricted Stock award shall be
confirmed by, and shall be subject to the terms of, an agreement executed by
the Company and the participant.
Section 7. Deferred Stock
(a) Grant and Exercise. Deferred Stock may be awarded
either alone or in addition to other awards granted under
the Plan. The Committee shall determine the eligible
persons to whom, and the time or times at which Deferred
Stock shall be awarded, the number of shares of Deferred
Stock to be awarded to any person, the duration of the
period (the "Deferral Period") during which, and the
conditions under which, receipt of the stock will be
deferred, and all the other terms and conditions of the
awards. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals or
such other factors or criteria as the Committee may
determine.
(b) Terms and Conditions. Each Deferred Stock award shall
be subject to the following terms and conditions:
(i) Transferability. Subject to the provisions of this
Plan, and the award agreement referred to in Section 7 (b)
(vii) below, Deferred Stock awards may not be sold,
assigned, transferred, pledged or otherwise encumbered
during the Deferral Period. At the expiration of the
Deferral Period (or the Additional Deferral Period referred
to in Section 7(b)(vi) below, where applicable), share
certificates shall be delivered to the participant, or his
legal representative, in a number equal to the shares
46
covered by the Deferred Stock award.
(ii) Dividends. As determined by the Committee at the
time of award, amounts equal to any dividends declared
during the Deferral Period (or the Additional Deferral
Period referred to in Section 7(b)(vi) below, where
applicable) with respect to the number of shares covered by
a Deferred Stock award may be paid to the participant
currently or deferred and deemed to be reinvested in
additional Deferred Stock.
(iii) Termination of Employment. Subject to the
provisions of the award agreement and this Section 7 and
Section 12(g) below, upon termination of a participant's
employment with the Company or any Subsidiary for any
reason during the Deferral Period (or the Additional
Deferral Period referred to in Section 7(b)(vi) below,
where applicable) for a given award, the Deferred Stock in
question will vest or be forfeited in accordance with the
terms and conditions established by the Committee at the
time of grant.
(iv) Modification by Committee. The Committee may,
after grant, accelerate the vesting of all or any part of
any Deferred Stock award and/or waive the deferral
limitations for all or any part of a Deferred Stock award.
(v) Waiver of Deferral Limitations. In the event of
hardship or other special circumstances of a participant
whose employment with the Company or any Subsidiary is
involuntarily terminated (other than for cause), the
Committee may waive in whole or in part any or all of the
remaining deferral limitations imposed hereunder or
pursuant to the award agreement referred to in Section
7(b)(vii) below with respect to any or all of the
participant's Deferred Stock.
(vi) Request for Modification. A participant may
request to, and the Committee may at any time, defer the
receipt of an award (or an installment of an award) for an
additional specified period or until a specified event (the
"Additional Deferral Period"). Subject to any exceptions
adopted by the
Committee, such request must generally be made at least one
year prior to expiration of the Deferral Period for such
Deferred Stock award (or such installment).
(vii) Deferred Stock Agreement. Each Deferred Stock
award shall be confirmed by, and shall be subject to the
terms of, an agreement executed by the Company and the
participant.
Section 8. Other Stock-Based Awards.
(a) Grant and Exercise. Other Stock-Based Awards which
may include performance shares, and shares valued by
reference to the performance of the Company or any
Subsidiary, any be granted either alone or in addition to
or in tandem with Stock Options, Restricted Stock or
47
Deferred Stock.
The Committee shall determine the eligible persons to whom
and the time or times at which, such awards shall be made,
the number of shares of Stock to be awarded pursuant to
such awards, and all other terms and conditions of the
awards. The Committee may also provide for the grant of
Stock under such awards upon the completion of a specified
performance period.
(b) Terms and Conditions. Each Other Stock-Based Award
shall be subject to the following term and conditions:
(i) Transferability. Shares of Stock subject to an
Other Stock-Based Award may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the
date on which the shares are issued, or, if later, the date
on which any applicable restriction, performance or
deferral period lapses.
(ii) Dividends. The recipient of any other Stock-
Based Award shall be entitled to receive, currently or on a
deferred basis, dividends or dividend equivalents with
respect to the number of shares covered by the award, as
determined by the Committee at the time of the award. The
Committee may provide that such amounts (if any) shall be
deemed to have been reinvested in additional stock.
(iii) Vesting. Any Other Stock-Based Award and any
Stock covered by an Other Stock-Based Award shall vest or
be forfeited to the extent so provided in the award
agreement, as determined by the Committee.
(iv) Disability; Death. In the event of a
participant's Retirement, Disability or death, or in case
of special circumstances, the Committee may waive in whole
or in part any or all of the limitations imposed hereunder
(if any) with respect to any or all of an Other Stock-Based
Award.
(v) Other Stock-Based Award Agreement. Each Other
Stock-Based Award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the
Company and by the participant.
Section 9. Change in Control Provisions.
(a) A "Change in Control" shall be deemed to have occurred
on the tenth day after:
(i) any individual, firm, corporation or other entity,
or any group (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Act")) becomes,
directly or indirectly, the beneficial owner (as defined in
the General Rules and Regulations of the Securities and
Exchange Commission with respect to Sections 13(d) and
13(g) of the Act) of more than 20% of the then outstanding
48
shares of the Company's capital stock entitled to vote
generally in the election of directors of the Company; or
(ii) the commencement of, or the first public
announcement of the intention of any individual, firm,
corporation or other entity or of any group (as defined in
Section 13(d)(3) of the Act) to commence, a tender or
exchange offer subject to Section 14(d)(1) of the Act for
any class of the Company's capital stock; or
(iii) the stockholders of the Company approve (A) a
definitive agreement for the merger or other business
combination of the Company with or into another
corporation, pursuant to which the stockholders of the
Company do not own, immediately after the transaction, more
than 50% of the voting power of the corporation that
survives and is a publicly owned corporation and not a
subsidiary of another corporation, or (B) a definitive
agreement for the sale, exchange, or other disposition of
all or substantially all of the assets of the Company, or
(C) any plan or proposal for the liquidation or dissolution
of the Company; provided, however, that a "Change of
Control" shall not be deemed to have taken place if
beneficial ownership is acquired by, or a tender or
exchange offer is commenced or announced by, the Company,
any profit-sharing, employee ownership or other employee
benefit plan of the Company, or any trustee of or fiduciary
with respect to any such plan when acting in such capacity,
or any group comprised solely of such entities.
(b) In the event of a "Change of Control" as defined in
subsection (a) above, awards granted under the Plan will be
subject to the following provisions, unless the provisions
of this Section 9 are suspended or terminated by an
affirmative vote of a majority of the Board prior to the
occurrence of a "Change of Control":
(i) all outstanding Stock Options, which have been
outstanding for at least six months, shall become
exercisable in full, whether or not otherwise exercisable at
such time, any such Stock Option shall remain exercisable in
full thereafter until it expires pursuant to its terms; and
(ii) all restrictions and deferral limitations
contained in Restricted Stock awards, Deferred Stock awards
and other Stock-Based awards granted under the Plan shall
lapse.
Section 10. Amendments and Termination.
The Board may at any time, and from time to time, amend any
of the provisions of the Plan, an may at any time suspend
or terminate the Plan; provided, however, that no such
amendment shall be effective unless and until it has been
49
duly approved by the holders of the outstanding shares of
Stock if (a) it increases the aggregate number of shares of
Stock which are available pursuant to the Plan, (except as
provided in Section 3 above) or (b) the failure to obtain
such approval would adversely affect the compliance of the
Plan with the requirements of Rule 16b-3 under the Exchange
Act, as in effect from time to time, or with the
requirements of any other applicable law, rule or
regulation. The Committee may amend the terms of any Stock
Option or other award theretofore granted under the Plan;
provided, however, that subject to Section 3 above, no such
amendment may be made by the Committee which in any
material respect impairs the rights of the participant
without the participant's consent.
Section 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any
payments not yet made to a participant or optionee by the
Company, nothing contained herein shall give any such
participant or optionee rights that are greater than those
of a general creditor of the Company.
Section 12. General Provisions.
(a) Investment Representations; Legend. The Committee may
require each person acquiring shares of Stock pursuant to a
Stock Option or other award under the Plan to represent to
and agree with the Company in writing that the optionee or
participant is acquiring the shares for investment without
a view to distribution thereof.
All certificates for shares of stock delivered under the
Plan shall be subject to such stop transfer order and other
restrictions as the Committee may deem advisable under the
rules and regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, any applicable Federal or
state securities law, and any applicable corporate law, and
the Committee may cause a legend or legends to be put on
any such certificate to make appropriate reference to such
restrictions.
(b) Additional Incentive Arrangements. Nothing contained
in the Plan shall prevent the Board from adopting such
other or additional incentive arrangements as it may deem
desirable, including, but not limited to, the granting of
stock options and the awarding of stock and cash otherwise
than under the Plan; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) No Right of Employment. Nothing contained in the Plan
or in any award hereunder shall be deemed to confer upon
any employee of the Company or any Subsidiary any right to
50
continued employment with the Company or any Subsidiary,
nor shall it interfere in any way with the right of the
Company or any Subsidiary to terminate the employment of
any employee at any time.
(d) Payment of Taxes. Not later than the date as of which
an amount first becomes includible in the gross income of
the participant with respect to any option or other award
under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Committee
regarding payment of, any Federal, state and local taxes of
any kind required by law to be withheld or paid with
respect to such amount. If permitted by the Committee, tax
withholding or payment obligations may be settled with
Stock, including Stock that is part of the award that gives
rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional upon such
payment or arrangements and the Company or the
participant's employer (if not the Company) shall, to the
extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the
participant from the Company or any Subsidiary.
(e) Applicable Law. The Plan and all awards made and
actions taken hereunder shall be governed by and construed
in accordance with the laws of the State of Florida
(without regard to choice of law provisions).
(f) Compensation. Any Stock Option granted or other award
made under the Plan shall not be deemed compensation for
purposes of computing benefits under any retirement plan of
the Company or any Subsidiary and shall not affect any
benefits under any other benefit plan now or subsequently
in effect under which the availability or amount of
benefits is related to the level of compensation (unless
required by a specific reference in any such other plan to
awards under this Plan).
(g) Leave of Absence; Change of Employment. A leave of
absence, unless otherwise determined by the Committee prior
to the commencement thereof, shall not be considered a
termination of employment. Any Stock Option granted or
awards made under the Plan shall not be affected by any
change of employment, so long as the holder continues to be
an employee of the Company or any Subsidiary.
(h) Transferability. Except as otherwise expressly
provided in the Plan, no right or benefit under the Plan
may be alienated, sold, assigned, hypothecated, pledged,
exchanged, transferred, encumbered or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be
liable for or subject to the debts, contracts, liabilities
or torts of the person entitled to such benefit.
51
(i) Securities Laws. The obligations of the Company with
respect to all Stock Options and awards under the Plan
shall be subject to (I) all applicable laws, rules and
regulations and such approvals by any governmental agencies
as may be required, including, without limitation, the
effectiveness of a registration statement under the
Securities Act of 1933, as amended, and (ii) the rules and
regulations of any securities exchange on which the Stock
may be listed.
(j) Conflict of Plan with Certain Laws. If any of the
terms or provisions of the Plan conflict with the
requirements of Rule 16b-3 under he Exchange Act, as in
effect from time to time, or with the requirements of any
other applicable law, rule or regulation, and/or with
respect to Incentive Stock Options, Section 422 of the
Code, then such term or provisions shall be deemed
inoperative to the extent they so conflict with the
requirements of said Rule 16b-3 and/or with respect to
Incentive Stock Options, Section 422 of the Code. With
respect to Incentive Stock Options, if this Plan does not
contain any provision required to be included herein under
Section 422 of the Code, such provision shall be deemed to
be incorporated herein with the same force and effect as if
such provision had been set out at length herein.
(k) Termination for Failure to Execute Agreement. The
Committee may terminate any Stock Option or other award
made under the Plan if a written agreement relating thereto
is not executed and returned to the Company within 30 days
after such agreement has been delivered to the participant
for his or her execution.
Section 13. Effective Date of Plan.
The Plan shall be effective as of April 16, 1990, subject
to the approval of the Plan by the holders of the Company's
Stock at a meeting of stockholders held within one year
after the effective date. Any grants of Stock Options or
awards under the Plan prior to such approval shall be
effective when made (unless therwise specified by the
Committee at the time of grant), but shall be conditioned
upon, and subject to, such approval of the Plan by the
Company's stockholders (and no Stock Options may be exercised,
and no awards of Restricted Stock, Deferred Stock or other
Stock-Based Awards shall best or otherwise become free or
restrictions, prior to such approval).
Section 14. Term of Plan.
No Stock Option, Restricted Stock Award, Deferred Stock or
Other Stock-Based Award shall be granted pursuant to the
Plan on of after the tenth anniversary of the effective
date, but awards granted prior to such tenth anniversary
may extend beyond that date.
52
EXHIBIT B
THE STEPHAN CO.
1990 DIRECTORS' STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates
to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean The Stephan Co.
(c) "Date of Grant" shall mean the Effective Date of the Plan,
the date an Eligible Director is initially elected to the
Board of Directors and for each respective fiscal year of
the Company thereafter the earlier of: (i) each June 30, or
(ii) the date on which the Stockholders of the Company
shall elect directors at an Annual Meeting of such
Stockholders or any adjournment thereof.
(d) Fair Market Value: As said term is used in the Plan, the
"Fair Market Value" of a share of Stock on any day means:
(a) if the principal market for the Stock is the Boston
Stock Exchange, any other national securities exchange or
the NASDAQ National Market System, the closing sales price
of the Stock on such day as reported by such exchange or
market system, or on a consolidated tape reflecting
transactions on such exchange or market system, or (b) if
the principal market for the Stock is not a national
securities exchange and the Stock is quoted in the National
Association of Securities Dealers Automated Quotations
System, the mean between the closing bid and the closing
asked prices for the Stock on such day as quoted on such
System, or (c) if the principal market for the Stock is not
quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the highest
bid and lowest asked prices for the Stock on such day as
reported by the National Quotation Bureau, Inc.; provided
that if clauses (a), (b) and (c) of this paragraph are all
inapplicable, or if no trades have been made or quotes are
available for such day, the Fair Market Value of the Stock
shall be determined by the Company by any method which it
deems to be appropriate. The determination of the Company
shall be conclusive as to the Fair Market Value of the
Stock.
(e) "Effective Date of the Plan" shall mean the date of
adoption by the stockholders of the Company.
53
(f) "Eligible Director" shall mean any Director of the Company
who is not an employee or regularly retained consultant of
the Company.
(g) "Option" shall mean an Eligible Director's stock option to
purchase Stock granted pursuant to the provisions of
Article V hereof.
(h) "Optionee" shall mean an Eligible Director to whom an
Option has been granted hereunder.
(i) "Option Price" shall mean the price at which an Optionee
may purchase a share of Stock under a Stock Option
Agreement.
(j) "Plan" shall mean the Common Stock, par value $.01 per
share, of the Company or, in the event that the outstanding
shares of Stock are hereafter changed into or exchanged for
different stock or securities of the Company or some other
corporation, such other stock or securities.
(k) "Stock Option Agreement" shall mean an agreement between
the Company and the Optionee under which the Optionee may
purchase Stock in accordance with the Plan.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as "The Stephan
Co. 1990 Directors' Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance
the interests of the Company and its Stockholders by
affording Eligible Directors of the Company an opportunity
to acquire or increase their proprietary interests in the
Company, and thereby to encourage their continued service
as directors and to provide them additional incentives to
achieve the growth objectives of the Company.
2.3 Effective Date. The Effective Date of the Plan is
the date of adoption by the stockholders of the Company.
2.4 Termination Date. The Plan shall terminate and no
further Options shall be granted hereunder upon the tenth
anniversary of the Effective Date of the Plan.
ARTICLE III
PARTICIPANTS
Each Eligible Director shall participate in the Plan,
provided that he is elected to a regular term as such a
54
member at an Annual Meeting of Stockholders, or any
adjournment thereof.
ARTICLE IV
SHARES OF STOCK SUBJECT TO PLAN
4.1 Limitations. Subject to any antidilution
adjustment pursuant to the provisions of Section 4.2
hereof, the maximum number of shares of Stock which may be
issued and sold hereunder shall not exceed 202,500 shares
of Stock. Shares of Stock subject to an Option may be
either authorized and unissued or shares issued and later
acquired by the Company; provided, however, the shares of
Stock with respect to which an Option has been exercised
shall not again be subject to an Option hereunder. If
outstanding Options granted hereunder shall terminate or
expire for any reason without being wholly exercised prior
to the end of the period during which Options may be
granted hereunder, new Options may be granted hereunder
covering such unexercised shares.
4.2 Antidilution. In the event that the outstanding
shares of Stock are changed into or exchanged for a
different number or kind of shares or other securities of
the Company or of another corporation by reason of merger,
consolidation, reorganization, reclassification,
combination of shares, stock split or stock dividend:
(a) The aggregate number and kind of shares of Stock for
which Options may be granted hereunder shall be adjusted
appropriately;
(b) The rights under outstanding Options granted
hereunder, both as to the number of subject shares and the
Option price, shall be adjusted appropriately; and
(c) Where dissolution or liquidation of the Company or
any merger or combination in which the Company is not a
surviving corporation is involved, each outstanding Option
granted hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such dissolution,
liquidation, merger or combination, to exercise his Option,
in whole or in part, to the extent that it shall not have
been exercised, without regard to the date on which such
Option would otherwise have become exercisable pursuant to
Sections 5.4 and 5.6.
The foregoing adjustments and the manner of application
thereof shall be determined solely by the Board, and any
such adjustment may provide for the elimination of
fractional share interests. The adjustments required under
this Article shall apply to any successor or successors of
the Company and shall be made regardless of the number or
type of successive events requiring adjustments hereunder.
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ARTICLE V
OPTIONS
5.1 Option Grant, Number of Shares and Agreement.
Each Eligible Director, as of the Effective Date, shall
automatically be granted an option to purchase 5,062 shares
of Stock. Thereafter, on each Date of Grant, each Eligible
Director shall automatically be granted an Option to
purchase 5,062 shares of Stock. Each Option so granted
shall be evidenced by a written Stock Option Agreement,
dated as of the Date of Grant and executed by the Company,
and the Optionee, stating the Option's duration, time of
exercise, and exercise price. The terms and conditions of
the Option shall be consistent with the Plan.
5.2 Option Price. The Option Price of the Stock
subject to each Option shall be the Fair Market Value of
the Stock on its Date of Grant.
5.3 Exercise Period. The period for the exercise of
each Option shall expire on the fifth anniversary of the
Date of Grant.
5.4 Option Exercise.
(a) Any option granted under the Plan shall become
exercisable in full on the first anniversary of the Date of
Grant, provided that the Eligible Director has not
voluntarily resigned, or been removed "for cause", as a
member of the Board of Directors on or prior to the first
anniversary of the Date of Grant. An Option shall remain
exercisable after its exercise date at all times during the
Exercise Period, regardless of whether the Optionee
thereafter continued to serve as a member of the Board.
(b) An Option may be exercised at any time or from time to
time during the term of the Option as to any or all full
shares which have become exercisable in accordance with
this Section, but not as to less than 25 shares of stock
unless the remaining shares of Stock that are so
exercisable are less than 25 shares of Stock. The Option
price is to be paid in full in cash upon the exercise of
the Option. The holder of an Option shall not have any of
the rights of a Stockholder with respect to the shares of
Stock subject to the Option until such shares of Stock have
been issued or transferred to him upon the exercise of his
Option.
(c) An Option shall be exercised by written notice of
exercise of the Option, with respect to a specified number
of shares of Stock, delivered to the Company at its
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principal office, and by cash payment to the Company at
said office of the full amount of the Option price for such
number of shares. In addition to, and prior to the
issuance of a certificate for shares pursuant to any Option
exercise, the Optionee shall pay to the Company in cash the
full amount of any federal and state withholding or other
employment taxes applicable to the taxable income of such
Optionee resulting from such exercise.
5.5 Non-transferability of Option. Options may not
be transferred by an Optionee otherwise than by will or the
laws of descent and distribution. During the lifetime of
an Optionee, his Option may be exercised only by him (or by
his guardian or legal representative, should one be
appointed). In the event of the death of an Optionee, any
Option held by him may be exercised by his legatee(s) or
other distributee(s) or by his personal representative.
ARTICLE VI
STOCK CERTIFICATES
The Company shall not be required to issue or deliver
any certificate for shares of Stock purchased upon the
exercise of any Option granted hereunder or any portion
thereof unless, in the opinion of counsel to the
Corporation, there has been compliance with all applicable
legal requirements. An Option granted under the Plan may
provide that the Company's obligation to deliver shares of
Stock upon the exercise thereof may be conditioned upon the
receipt by the Company of a representation as to the
investment intention of the holder thereof in such form as
the Company shall determine to be necessary or advisable
solely to comply with the provisions of the Securities Act
of 1933, as amended, or any other federal, state or local
securities laws.
ARTICLE VII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time terminate the Plan, and may
at any time and from time to time and, in any respect amend
or modify the Plan.
ARTICLE VIII
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall neither affect any other
stock option, incentive or other compensation plans in
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effect for the Company or any of its subsidiaries, nor shall
the adoption of the Plan preclude the Company from
establishing any other forms of incentive or other
compensation plan for directors of the Company.
ARTICLE IX
MISCELLANEOUS
9.1 Plan Binding on Successors. The Plan shall
be binding upon the successors and assigns of the Company.
9.2 Singular, Plural; Gender. Whenever used
herein, nouns in the singular shall include the plural, and
the masculine pronoun shall include the female gender.
9.3 Headings etc., Not Part of Plan. Headings of
articles and paragraphs hereof are inserted for convenience
and reference, and do not constitute a part of the Plan.
THE STEPHAN CO.
FIRST AMENDMENT TO
1990 DIRECTORS' STOCK OPTION PLAN
WHEREAS, the Board of Directors of The Stephan Co. (the
"Company") adopted the Company's 1990 Directors' Stock
Option Plan (the "Plan"), effective June 21, 1990; and
WHEREAS, the Company's Board has determined that it is
necessary to amend the Plan in order to comply with certain
amendments to Rule 16b-3 promulgated pursuant to the
Securities and Exchange Act of 1934,
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Amendment to Article VII. Article VII of the Plan
is hereby amended to read as follows:
"The Board may at any time terminate the Plan.
The Plan may not be amended more than once every six
months, other than to comport with changes to the
Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules thereunder."
2. No Further Amendments. The amendment set
forth above shall be effective as of the date it is formally
approved by the Company's Board of Directors. Except as
expressly amended hereby, all provisions of the Plan shall
continue in full force and effect from and after the date
hereof.
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INDEPENDENT AUDITORS
Pursuant to a recommendation of the Audit Committee,
the Board of Directors has selected and retained the firm of
Deloitte & Touche to act as independent certified public
accountants for the Company for the 2000 fiscal year.
Representatives of Deloitte & Touche are expected to be
present at the Meeting, to have the opportunity to make a
statement, if they so desire, and to be available to respond
to appropriate questions.
OTHER MATTERS
At the date of this proxy statement, the Board of
Directors has no knowledge of any business which will be
presented for consideration at the Meeting, other than as
described above. If any other matter or matters are
properly brought before the Meeting or any adjournment(s)
thereof, it is the intention of the persons named in the
accompanying form of proxy to vote all proxies on such
matter(s) in accordance with their judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
In accordance with Rules 14a-4(c) and 14a-5(e)
promulgated under the Exchange Act, the Company hereby
notifies its shareholders that it did not receive by January
19, 2000 notice of any proposed matter to be submitted for
stockholder vote at the Meeting, and therefore any proxies
received in respect of the meeting will be voted in the
discretion of the Company's management on other matters
which may properly come before the Meeting.
The Company further notifies its shareholders that if
the Company does not receive notice by January 19, 2001 of a
proposed matter to be submitted for stockholder vote at the
2001 Annual Meeting of Stockholders, then any proxies held
by members of the Company's management in respect of such
meeting may be voted at the discretion of such management
members on such matter if it shall properly come before such
meeting, without any discussion of such proposed matter in
the proxy statement to be distributed in respect of such
meeting.
Any proposal which is intended to be presented by any
stockholder for action at the 2001 Annual Meeting of
Stockholders must be received in writing by the Secretary of
the Company at 1850 West McNab Road, Fort Lauderdale,
Florida 33309, not later than January 19, 2001, in order for
such proposal to be considered for inclusion in the
Company's proxy statement and form of proxy relating to the
2001 Annual Meeting of Stockholders.
By Order of the Board of Directors
Peter Ferola
Secretary
Dated: July 5, 2000
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