<PAGE> 1
CSS INDUSTRIES, INC.
1845 Walnut Street
Philadelphia, Pennsylvania 19103
------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------
The 1995 Annual Meeting of Stockholders of CSS Industries, Inc. (the
"Company") will be held at The Locust Club of Philadelphia, 1614 Locust
Street, Philadelphia, PA 19103 on Tuesday, May 2, 1995, at 11 o'clock a.m.
local time, for the following purposes:
1. To elect a board of nine directors;
2. To consider approval of the 1994 Equity Compensation Plan; and
3. To transact such other business as may properly come before the
meeting and at any adjournments thereof.
The board of directors has fixed March 7, 1995 as the record date for the
meeting. Accordingly, only stockholders of record at the close of business on
such date will be entitled to notice of the meeting and to vote at the
meeting and any adjournments thereof. A list of the stockholders of the
Company entitled to vote at the meeting will be available for inspection at
the Company's offices during normal business hours by any stockholder for the
ten days prior to the meeting.
By order of the board of directors,
STEPHEN V. DUBIN
Secretary
Philadelphia, Pennsylvania
March 27, 1995
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
YOU ARE URGED TO COMPLETE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
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CSS INDUSTRIES, INC.
1845 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19103
------
PROXY STATEMENT
1995 ANNUAL MEETING OF STOCKHOLDERS
------
This proxy statement is furnished in connection with the solicitation of
proxies by the board of directors of CSS Industries, Inc. ("CSS" or the
"Company") for use at the 1995 annual meeting of stockholders of the Company
(the "Meeting") to be held at The Locust Club of Philadelphia, 1614 Locust
Street, Philadelphia, Pennsylvania 19103 on Tuesday, May 2, 1995, at 11:00
a.m. local time, and at any adjournments thereof. The approximate date on
which this proxy statement and the accompanying form of proxy are first being
sent to stockholders is March 27, 1995.
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by telephone by
officers, directors or employees of the Company or its subsidiaries who will
not be specially compensated for such services. Arrangements will also be
made with banks, brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of shares held of record by such persons, and the Company will
reimburse such persons for reasonable out-of-pocket expenses incurred in that
regard.
Arthur Andersen LLP served as the Company's independent public accountants
for 1994 and has been selected to serve as the Company's independent public
accountants in 1995. The Company has requested that a representative of
Arthur Andersen LLP attend the Meeting. Such representative will have an
opportunity to make a statement, if he or she desires, and will be available
to respond to appropriate stockholders' questions.
VOTING AT THE MEETING
Stockholders of record at the close of business on March 7, 1995 are
entitled to vote at the Meeting. As of that date, there were outstanding
10,994,773 shares of common stock, par value $.10 per share ("Common Stock"),
of the Company. Each share of Common Stock is entitled to one vote on all
matters.
The holders of a majority of the shares entitled to vote, present in
person or represented by proxy, constitute a quorum. Directors are to be
elected by a plurality of the votes cast at the Meeting. The affirmative vote
of the holders of a majority of the shares present in person or represented
by proxy entitled to vote at the Meeting is required to approve the adoption
of the 1994 Equity Compensation Plan (the "1994 Plan") or to take action with
respect to any other matter that may properly be brought before the Meeting.
Shares cannot be voted at the Meeting unless the holder of record is present
in person or by proxy. The enclosed proxy is a means by which a stockholder
may authorize the voting of his or her shares at the Meeting. The shares of
Common Stock represented by each properly executed proxy card will be voted
at the Meeting in accordance with each stockholder's direction. Stockholders
are urged to specify their choices by marking the appropriate boxes on the
enclosed proxy card; if no choice has been specified, the shares will be
voted as recommended by the board of directors. If any other matters are
properly presented to the Meeting for action, the proxy holders will vote the
proxies (which confer discretionary authority to vote on such matters) in
accordance with their best judgment.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect, other than for purposes of determining the presence of a
quorum. Abstentions may be specified on the proposal to approve the adoption
of the 1994 Plan (but not for the election of directors). Abstentions will be
considered present and entitled to vote at the Meeting, but will not be
counted as votes cast in the affirmative. Abstentions on the proposal to
approve the adoption of the 1994 Plan will have the effect of a negative vote
because this proposal requires the affirmative vote of a majority of the
shares present in person or represented by proxy at the Meeting and entitled
to vote. Brokers that are member firms of the New York Stock Exchange
("NYSE") and who hold shares in street name for customers, but have not
received instructions from a beneficial owner, have the authority under the
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rules of the NYSE to vote those shares with respect to the election of directors
but not with respect to the proposal to approve the adoption of the 1994 Plan. A
failure by brokers to vote those shares will have no effect on the outcome of
the proposal to approve the adoption of the 1994 Plan because such shares will
not be considered shares present and entitled to vote with respect to such
matter.
Proxies may be revoked at any time prior to the time that the vote is
taken at the Meeting. Proxies may be revoked by filing with the Secretary of
the Company a written revocation or another form of proxy bearing a date
later than the date of the proxy previously furnished. A proxy may also be
revoked by attending the Meeting and voting in person. Attendance at the
Meeting will not in and of itself constitute revocation of a proxy.
Your proxy vote is important. Accordingly, you are asked to complete, sign
and return the accompanying proxy whether or not you plan to attend the
Meeting.
CSS SECURITY OWNERSHIP
The following table sets forth certain information (as of March 7, 1995,
except as otherwise noted), with respect to shares of Common Stock
beneficially owned by owners of more than five percent of the outstanding
Common Stock, by all current directors, by the executive officers of the
Company named in the Summary Compensation Table included elsewhere in this
proxy statement and by all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Number
of Shares
Beneficially Percent of
Beneficial Owner Owned(1) Class(2)
- --------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
T. Rowe Price Associates, Inc. ...................................... 561,000(3) 5.1%
Willard M. Bright ................................................... 6,400(4) *
James H. Bromley .................................................... 537,988(5) 4.9%
John R. Bunting, Jr. ................................................ 7,200(6) *
Jack Farber ......................................................... 3,164,480(7) 28.8%
Richard G. Gilmore .................................................. 8,000(8) *
Leonard E. Grossman ................................................. 221,282(9) 2.0%
James E. Ksansnak ................................................... 7,200(10) *
Michael L. Sanyour .................................................. 6,077(11) *
William C. Warren ................................................... 40,000(12) *
James G. Baxter ..................................................... 200,784(13) 1.8%
Stephen V. Dubin .................................................... 305,749(14) 2.8%
John A. Pinti ....................................................... 5,000(15) *
All current directors and executive officers of the Company as a
group (14 persons, including the individuals named above) .......... 4,543,910(7)(16) 41.3%
</TABLE>
- ------
(1) In accordance with Securities and Exchange Commission regulations, the
table lists all shares as to which such persons have or share the power
to vote or to direct disposition. The number of shares indicated
includes shares issuable upon the exercise of outstanding stock options
held by each individual or group to the extent exercisable at March 7,
1995 or within 60 days thereafter. Unless otherwise indicated, each
person has the sole power to vote and to direct disposition of the
shares listed as beneficially owned by such person.
(2) Percentage calculated with reference to an aggregate of 10,994,773
shares of Common Stock outstanding at March 7, 1995. Percentages of less
than 1% have not been indicated.
(3) This information is as of December 31, 1994 and is based upon Amendment
2 to Schedule 13G, dated February 14, 1995, filed with the Securities
and Exchange Commission by T. Rowe Price Associates, Inc. ("Price
Associates") which is located at 100 E. Pratt Street, Baltimore, MD
21202. These securities are owned by various individual and
institutional investors which Price Associates serves as investment
advisor with power to direct investments and/or sole power to vote the
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securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Price Associates is
deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(4) The shares shown in the table include options to purchase 4,000 shares
of Common Stock granted under the CSS 1991 Stock Option Plan for
Non-Employee Directors (the "1991 Plan").
(5) The shares shown in the table include options to purchase 17,000 shares
of Common Stock granted under the CSS 1985 Incentive Stock Option Plan,
as amended (the "1985 Plan"). At March 7, 1995, Mr. Bromley also owned
35,000 shares of Class B common stock of Rapidforms, Inc.
("Rapidforms"), a subsidiary of the Company, which shares represent 50%
of such class of stock, 4% of the overall capital stock and 1% of the
aggregate voting rights in the election of directors of such subsidiary.
(6) The shares shown in the table include options to purchase 5,000 shares
of Common Stock granted under the 1991 Plan. Mr. Bunting shares the
power to vote and to direct disposition of 400 shares included in this
table.
(7) The shares shown in the table do not include 74,028 shares held by Mr.
Farber's wife, as to which Mr. Farber disclaims beneficial ownership. In
addition to the shares of the Company's capital stock directly owned by
Mr. Farber and his wife, the Farber Foundation, Inc., a charitable
foundation in which Mr. Farber and certain officers of the Company are
officers and directors (the "Farber Foundation") and the Farber Family
Foundation, Inc., a charitable foundation in which Mr. Farber is an
officer and director (the "Farber Family Foundation") own 142,784 and
254,000 shares of Common Stock, respectively. The beneficial ownership
of shares by Mr. Farber shown in the table does not include shares of
Common Stock held by the Farber Foundation or Farber Family Foundation,
as to which Mr. Farber and the directors and officers of the Company who
are members, directors or officers of the foundations disclaim
beneficial ownership.
(8) The shares shown in the table include options to purchase 6,000 shares
of Common Stock granted under the 1991 Plan.
(9) The table does not include 6,000 shares of Common Stock held by Mr.
Grossman's wife, as to which Mr. Grossman disclaims beneficial
ownership. The shares shown in the table include options to purchase
6,000 shares of Common Stock granted under the 1991 Plan.
(10) The shares shown in the table include options to purchase 6,000 shares
of Common Stock granted under the 1991 Plan.
(11) The shares shown in the table include options to purchase 6,000 shares
of Common Stock granted under the 1991 Plan.
(12) The shares shown in the table include options to purchase 6,000 shares
of Common Stock granted under the 1991 Plan.
(13) The shares shown in the table include options to purchase 87,500 shares
of Common Stock granted under the 1985 Plan.
(14) The shares shown in the table include options to purchase 67,500 shares
of Common Stock granted under the 1985 Plan.
(15) The shares shown in the table include options to purchase 5,000 shares
of Common Stock granted under the 1985 Plan.
(16) The table reflects beneficial ownership of a total of 239,750 shares of
Common Stock pursuant to stock options granted under the 1985 Plan and
the 1991 Plan.
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ELECTION OF DIRECTORS
The Company's board of directors currently has nine members. Directors are
to be elected by a plurality of the votes cast to hold office for a term of
one year and until the election and qualification of their respective
successors. The board of directors has nominated for election as directors
the persons whose names are listed below, all of whom are presently directors
of the Company with terms expiring in 1995. All nominees have consented to be
named and to serve if elected. Except as indicated below, the board of
directors believes all nominees will be able to serve as directors; if this
should not be the case, however, the proxies may be voted for one or more
substitute nominees to be designated by the board of directors or the board
of directors may decide to reduce the number of directors.
The board of directors recommends a vote FOR the election of all nominees.
The following paragraphs set forth certain information regarding each of
the nine nominees for directors, the positions and offices with the Company
or its subsidiaries held by each, the year he was first elected a director of
the Company, a brief account of his principal occupations during the past
five years, certain directorships held by him, and his age.
<TABLE>
<CAPTION>
<S> <C>
Willard M. Bright ....... Mr. Bright has been Chairman of ZOLL Medical Corporation, a health care product
company, since 1983. He is also a director of Macrochem Corporation. He has
been a director of the Company since 1975. Age: 81.
James H. Bromley ........ Mr. Bromley has been President of Rapidforms, a subsidiary of the Company,
since 1979 and its Chief Executive Officer since 1987. He has been a director
of the Company since 1989. Age: 56.
John R. Bunting, Jr. .... Mr. Bunting has been Chairman of Bunting-Rubinsohn Associates, Inc./John R.
Bunting, Inc., financial management consultants, since 1980. He has also been
Chairman of B.R. Parking Corp. since 1982. He has been a director of the
Company since 1966. Age: 69.
Jack Farber ............. Mr. Farber has been Chairman, President and Chief Executive Officer of the
Company since 1979. He is also a director of Hunt Manufacturing Company and
Pennsylvania Real Estate Investment Trust. Mr. Farber has been a director of
the Company since 1978. Age: 61.
Richard G. Gilmore ...... Mr. Gilmore has been an independent consultant since 1991. He was Senior Vice
President and Chief Financial Officer of Philadelphia Electric Company from
1986 to 1991. He is also a director of Philadelphia Electric Company and
various mutual funds sponsored by Legg Mason Wood Walker, Inc. Mr. Gilmore has
been a director of the Company since 1984. Age: 67.
Leonard E. Grossman ..... Mr. Grossman has been a private investor since 1989. He was Chairman and Chief
Executive Officer of TAB Electric Supply Co., Inc., an electrical equipment and
supplies distributer from 1984 to 1989. Mr. Grossman has been a director of the
Company since 1982. Age: 60.
James E. Ksansnak ....... Mr. Ksansnak has been Chief Financial Officer of ARAMARK Corporation, a service
management company, since 1987. He has been an Executive Vice President of
ARAMARK Corporation since 1991 and was a Senior Vice President of ARAMARK
Corporation from 1986 to 1991. Mr. Ksansnak has been a director of the Company
since 1988. Age: 55.
Michael L. Sanyour ...... Mr. Sanyour has been a Principal of CMS Companies, a financial services and
insurance concern, since 1987. He has been a director of the Company since
1980. Age: 64.
William C. Warren ....... Mr. Warren is Dean Emeritus and Kent Professor of Law Emeritus of Columbia
University Law School. He is Counsel to Roberts & Holland, a law firm. He is
also a director of Barnwell Industries, Inc. and Sterling Bancorp. Mr. Warren
has been a director of the Company since 1973. Age: 86.
</TABLE>
4
<PAGE> 6
GENERAL INFORMATION REGARDING THE CSS BOARD OF DIRECTORS AND ITS COMMITTEES.
The board of directors of the Company held six meetings in 1994 and acted
once by unanimous consent in 1994. The by-laws of the Company provide that
the board of directors, by resolution adopted by a majority of the entire
board, may designate an Executive Committee and other committees, each of
which shall consist of three or more directors. The board of directors
annually elects from its members the Executive, Audit and Human Resources
Committees. The Company has no nominating committee. Each director attended
at least 75% of the total number of meetings of the board of directors and
committees of the board of directors on which he served.
The Executive Committee is composed of Messrs. Farber, Bunting and
Sanyour. The Executive Committee may exercise all of the authority of the
board of directors in the business and affairs of the Company with certain
exceptions. The Executive Committee is intended to serve in the event that
action must be taken by the board of directors at a time when convening a
meeting of the entire board is not feasible. The Executive Committee held two
meetings in 1994.
The Audit Committee of the board of directors, which consists of Messrs.
Bunting, Gilmore, Grossman and Ksansnak, held two meetings during 1994. It
meets with the Company's independent accountants to review the scope of audit
procedures, the Company's accounting procedures and controls, and any
non-audit engagement.
The Human Resources Committee (the "H.R. Committee"), which performs
functions that include those normally performed by a compensation committee,
and which consists of Messrs. Bright, Ksansnak and Warren, held one meeting
in 1994 and acted eight times by unanimous consent in 1994. No member of the
H.R. Committee is a former or current officer or employee of the Company or
any of its subsidiaries. The H.R. Committee is responsible for developing and
administering the Company's executive compensation policies, plans and
programs. In addition, the H.R. Committee (1) determines on an annual basis
the compensation to be paid to the Chairman, President and Chief Executive
Officer of the Company, (2) determines the appropriate level of compensation
for the Company's corporate level executive officers and certain other senior
corporate level management personnel following receipt of the recommendations
of the Chairman, President and Chief Executive Officer of the Company, (3)
reviews decisions by the executive committee or executive compensation
committee of the boards of directors of the Company's principal operating
subsidiaries as to the compensation of the chief executive officers of such
subsidiaries, and (4) makes grants and has general administrative authority
under the Company's 1985 Plan and, subject to stockholder approval, will make
grants and have general administrative authority under the Company's 1994
Equity Compensation Plan.
Each director of the Company who is not a full time employee of the
Company or its subsidiaries receives a fee of $10,000 per annum, plus $750
for attendance at each meeting of the board or its committees or for each
consultation with management, and is entitled to participate in the 1991
Plan. The 1991 Plan provides for the automatic annual grant of nonqualified
stock options to purchase 4,000 shares of Common Stock to each of the
non-employee directors of the Company as of the last business day of November
in each year, covering 1991 through 1995. The purchase price upon exercise of
an option granted under the 1991 Plan is equal to the fair market value of
the stock subject to the option on the date of grant. Each option expires
five years after the date the option is granted. Options may not be exercised
at all during the first year after their grant; thereafter, options may be
exercised in installments to the extent of 25% of the number of shares
covered by the option during the second year and to the extent of an
additional 25% of the number of shares covered by the option during each of
the next three subsequent years. In accordance with the terms of the 1991
Plan, each of the non-employee directors of CSS received an automatic grant
of additional options to purchase 4,000 shares of Common Stock on November
30, 1994 at an exercise price of $16.25 per share.
APPROVAL OF 1994 EQUITY COMPENSATION PLAN
THE PROPOSAL
At the Meeting, there will be presented to the stockholders a proposal to
approve the adoption of the Company's 1994 Equity Compensation Plan (the
"1994 Plan"). The 1994 Plan was adopted by the board of directors on November
15, 1994, as amended on March 9, 1995, subject to stockholder approval, and
will terminate on November 4, 2004.
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<PAGE> 7
The 1994 Plan provides for the grant of stock options, stock appreciation
rights ("SARs") and restricted stock grants to officers and other employees
of the Company and its subsidiaries at the discretion of the H.R. Committee.
Employees will be designated from time to time by the H.R. Committee for
grants under the 1994 Plan based upon their position and value to the Company
and its subsidiaries. The 1994 Plan was created to promote the interests of
the Company by providing incentives to officers and employees of the Company
and its subsidiaries, to encourage them to acquire a proprietary interest, or
to increase their proprietary interest, in the Company, and thus, more
closely link the interests of such officers and employees to the interests of
the Company's stockholders.
The board of directors adopted the 1994 Plan as a replacement for the
Company's existing 1985 Incentive Stock Option Plan. The 1985 Plan, which was
adopted in 1985, will expire on July 23, 1995.
VOTE REQUIRED FOR APPROVAL
Approval of the proposal to adopt the 1994 Plan requires the affirmative
vote of the holders of a majority of shares present in person or represented
by proxy at the Meeting. Abstentions may be specified on the proposal and
will be considered present at the Meeting, but will not be counted as
affirmative votes. Abstentions, therefore, will have the practical effect of
voting against the proposal because the affirmative vote of a majority of the
shares present at the Meeting with respect to this matter is required to
approve the proposal. Broker non-votes are considered not present at the
Meeting with respect to this matter and, therefore, will not be voted or have
any effect on the proposal.
The board of directors unanimously recommends a vote FOR the proposal.
DESCRIPTION OF THE 1994 PLAN
General. Subject to adjustment in certain circumstances as discussed
below, the 1994 Plan authorizes up to 1,000,000 shares of Common Stock for
issuance pursuant to the terms of the 1994 Plan. If and to the extent options
granted under the 1994 Plan terminate, expire or are canceled without being
exercised, or if any shares of restricted stock are forfeited, the shares
subject to such option or award again will be available for purposes of the
1994 Plan.
Administration of the 1994 Plan. The 1994 Plan is administered and
interpreted by the H.R. Committee, which consists of not less than three
persons appointed by the board of directors from among its members, all of
whom are "disinterested persons" as defined by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). After
receiving recommendations from management of the Company, the H.R. Committee
has the sole authority to determine (i) the employees to whom stock options
and/or SARs and/or restricted stock grants (collectively, "Grants") are to be
granted under the 1994 Plan, (ii) the type, size and other terms and
conditions of each Grant, (iii) the time when the Grants are to be made and
the duration of the exercise or restriction period, (iv) any restriction on
resale applicable to the shares to be issued or transferred pursuant to the
Grant and (v) any other matters arising under the 1994 Plan.
Grants. Grants under the 1994 Plan consist of incentive stock options,
non-qualified stock options, restricted stock grants, stock appreciation
rights or any combination thereof. All Grants are subject to the terms and
conditions set forth in the 1994 Plan and to those other terms and conditions
consistent with the 1994 Plan as the H.R. Committee deems appropriate and as
are specified in writing (the "Grant Instrument") by the H.R. Committee to
the designated individual. The H.R. Committee must approve the form and
provisions of each Grant Instrument to an individual. Grants under any
section of the 1994 Plan need not be uniform as among the designated
individuals receiving the same type of Grant.
Eligibility for Participation. Officers and other employees of the Company
and its subsidiaries are eligible to participate in the 1994 Plan ("Eligible
Participants"). The H.R. Committee may, in its discretion, select the persons
to receive Grants (the "Grantees") from among the Eligible Participants and
determine the number of shares of Common Stock subject to a particular Grant.
The H.R. Committee may base its decision on the recommendations from the
management of the Company or on such other factors as it shall deem
appropriate. The number of Grantees may vary from year to year. It is not
possible to state in advance the exact number or identity of the Grantees or
the amounts of the Grants.
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<PAGE> 8
Stock Options. The H.R. Committee may grant options intended to qualify as
incentive stock options ("ISOs") within the meaning of section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or so-called
"non-qualified stock options" that are not intended to so qualify ("NQSOs"),
in accordance with the terms and conditions set forth in the 1994 Plan, or
any combination of ISOs or NQSOs (collectively, "Stock Options").
The option price per share of an ISO is the fair market value of a share
of Common Stock on the date of Grant. However, if the Grantee of an ISO is a
person who holds more than 10% of the combined voting power of all classes of
outstanding stock of the Company, the option price per share of an ISO must
be at least 110% of the fair market value of a share of Common Stock on the
date of Grant. To the extent that the aggregate fair market value of shares
of Common Stock, determined on the date of Grant, with respect to which ISOs
are exercisable for the first time by a Grantee during any calendar year
exceeds $100,000, such ISOs shall be treated as NQSOs. The option price per
share of an NQSO is determined by the H.R. Committee, at its discretion, but
unless approved by the board of directors of the Company, such option price
cannot be less than the book value of a share of Common Stock on the date of
Grant. The measure for fair market value is the closing price of the Common
Stock on the New York Stock Exchange on the date immediately preceding the
date of Grant. The fair market value of the Common Stock on March 7, 1995 was
$16.625 per share.
The H.R. Committee determines the term of each Stock Option; provided,
however, that the term may not exceed ten years from the date of Grant, and,
if the Grantee of an ISO is a person who holds more than 10% of the combined
voting power of all classes of outstanding stock of the Company, the term may
not exceed five years from the date of Grant. The vesting period for Stock
Options commences on the date of Grant and ends on such date as is determined
by the H.R. Committee, in its sole discretion, which is specified in the
Grant Instrument. A Grantee may exercise a Stock Option by delivering notice
of exercise to the Secretary of the Company with accompanying payment of the
option price. The Grantee may pay the option price in cash, or with the
consent of the H.R. Committee in its sole discretion, by delivering shares of
Common Stock already owned by the Grantee and having a fair market value on
the date of exercise equal to the option price or with a combination of cash
and shares of Common Stock. The Grantee must pay, at the time of exercise,
the option price and the amount of any federal, state or local withholding
tax due in connection with such Stock Option exercise. Withholding
obligations may be satisfied through shares of Common Stock purchased in
connection with the exercise of a Stock Option. Shares of Common Stock are
not to be issued or transferred upon any purported exercise of the Stock
Option until the option price and the withholding obligation are fully paid.
Restricted Stock Grants. The H.R. Committee may issue or transfer shares
of Common Stock under a Grant (a "Restricted Stock Grant") pursuant to the
1994 Plan. Shares of Common Stock issued pursuant to a Restricted Stock Grant
are issued for or in consideration of cash or services rendered having a
value, as determined by the H.R. Committee, at least equal to the par value
thereof. The Grant Instrument may provide for a period during which the Grant
will remain subject to certain restrictions including restrictions on
transferability (the "Restriction Period"). During the Restriction Period, a
Grantee may not sell, assign, transfer, pledge or otherwise dispose of the
shares of Common Stock to which such Restriction Period applies, except to a
successor grantee in the event of the Grantee's death. If a Grantee's
employment terminates during the Restriction Period, the Restricted Stock
Grant terminates with respect to all shares covered by the Grant as to which
the restrictions have not lapsed, and those shares of Common Stock must be
immediately returned to the Company. All restrictions imposed under the
Restricted Stock Grant lapse upon the expiration of the applicable
Restriction Period. In addition, the H.R. Committee may determine as to any
or all Restricted Grants that all restrictions will lapse under such other
circumstances as it deems appropriate.
Stock Appreciation Rights. The H.R. Committee may grant SARs to any
Grantee in tandem with any Stock Option, for all or a portion of the
applicable Stock Option. In the case of a NQSO, such rights may be granted
either at or after the time the Stock Option is granted. In the case of an
ISO, such rights may be granted only at the time the Stock Option is granted.
The SARs granted to a Grantee which are exercisable during any given period
of time may not exceed the number of shares of Common Stock which the Grantee
may purchase upon the exercise of the related Stock Option during such period
of time. Upon a Grantee's exercise of some or all of his SARs, the Grantee
receives in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Common Stock
7
<PAGE> 9
or a combination thereof, as determined by the H.R. Committee. The stock
appreciation for an SAR is the difference between the option price specified for
the related Stock Option and the fair market value of the underlying Common
Stock on the date of exercise of the SAR. The 1994 Plan provides that the
exercise price of an SAR is (i) the option price of the related Stock Option or
(ii) the fair market value of a share of Common Stock as of the date of grant of
such SAR, if the SAR is granted after the Stock Option and the option price
under (i) would result in the disallowance of the Company's expense deduction
upon exercise of the SAR under Section 162(m) of the Code. An SAR is exercisable
only during the period when the Stock Option to which it relates is also
exercisable. No SAR may be exercised, in whole or in part, by any person who is
subject to Section 16 of the Exchange Act except in accordance with Rule
16b-3(e) under the Exchange Act. Upon the exercise of a Stock Option, the SARs
relating to the Common Stock covered by such Stock Option terminate. Upon the
exercise of SARs, the related Stock Option terminates to the extent of an equal
number of shares of Common Stock.
Amendment and Termination of the 1994 Plan. The board of directors of the
Company may amend or terminate the 1994 Plan at any time; provided, however,
that any amendment that materially increases the benefits accruing to
Eligible Participants under the 1994 Plan, increases the aggregate number of
shares of Common Stock that may be issued or transferred under the 1994 Plan,
increases the maximum number of shares of Common Stock for which any Grantee
may be granted options under the 1994 Plan, materially modifies the
requirements as to eligibility for participation or modifies the provisions
for determining fair market value of a share of Common Stock will be subject
to approval by the stockholders of the Company and approval by the H.R.
Committee. The 1994 Plan will terminate on November 15, 2004 unless
terminated earlier by the board of directors of the Company although options
granted under the 1994 Plan prior to its termination will remain outstanding
until exercised or the end of the term of such options.
Amendment and Termination of Outstanding Grants. A termination or
amendment of the 1994 Plan that occurs after a Grant is made will not result
in the termination or amendment of the Grant unless the Grantee consents;
provided, however, that the H.R. Committee may (i) revoke any Grant if it is
contrary to applicable law or (ii) modify any Grant to bring it into
compliance with any then applicable government regulation. The termination of
the 1994 Plan will not impair the power and authority of the H.R. Committee
with respect to outstanding Grants.
Certain Corporate Changes. If the Company sells all or substantially all
its assets, is dissolved or liquidated or is not the surviving corporation in
a merger or consolidation, then, at least ten days prior to such event, the
Company must give each Grantee with outstanding Grants notice of such event
and must indicate in such notice one of the following determinations made in
the exercise of the sole and absolute discretion of the H.R. Committee, which
determination is binding on the Grantee: (i) the Grantee will have the right
within ten days after such notice is sent by the Company to exercise in full
any installments of Grants not previously exercised (whether or not the right
to exercise such installments has become vested), and any such installments
not so exercised will thereafter lapse and be of no further force or effect;
(ii) the Grantee will receive new Grants in substitution for any outstanding
Grants under the terms set forth in such notice; or (iii) any successor to
the Company will assume any then unexpired Grants in accordance with their
terms. The H.R. Committee, in its sole discretion, will determine the nature
of the notice to such Grantees. If the Company is to be the surviving
corporation in a merger or consolidation, then, the H.R. Committee may, in
its sole discretion, give each Grantee with outstanding Grants written notice
of such event. If such notice is given, each such Grantee will have the right
to exercise in full any installments such of Grants not previously exercised
(whether or not the right to exercise such installments has become vested),
within ten days after such notice is sent by the Company. Any installments of
such Grants not so exercised will thereafter lapse and be of no further force
or effect.
Federal Income Tax Consequences. Set forth below is a general description
of the federal income tax consequences relating to Grants under the 1994
Plan. Grantees are urged to consult with their personal tax advisors
concerning the application of the principles discussed below to their own
situations and the application of state and local tax laws.
There are no federal income tax consequences to Grantees or to the Company
upon the grant of an NQSO under the 1994 Plan. Upon the exercise of NQSOs,
Grantees will recognize ordinary compensation income in an amount equal to
the excess of the fair market value of the shares at the time of exercise
over the exercise price of the NQSO, and the Company generally will be
8
<PAGE> 10
entitled to a corresponding federal income tax deduction. Upon the sale of
shares of Common Stock acquired by exercise of an NQSO, a Grantee will have a
capital gain or loss (long-term or short-term depending upon the length of time
the shares were held) in an amount equal to the difference between the amount
realized upon the sale and the Grantee's adjusted tax basis in the shares of
Common Stock (the exercise price plus the amount of ordinary income recognized
by the Grantee at the time of exercise of the NQSO).
A Grantee of an ISO will not recognize taxable income for purposes of the
regular income tax, upon either the grant or exercise of the ISO. However,
for purposes of the alternative minimum tax imposed under the Code, in the
year in which an ISO is exercised, the amount by which the fair market value
of the shares of Common Stock acquired upon exercise exceeds the Stock Option
price will be treated as an item of adjustment and included in the
computation of the recipient's alternative minimum taxable income in the year
of exercise. A Grantee will recognize long-term capital gain or loss on a
disposition of the shares acquired upon exercise of an ISO provided that the
Grantee does not dispose of such shares within two years from the date the
ISO was granted and within one year after such shares were transferred to
him. If the Grantee satisfies the foregoing holding periods, then the Company
will not be allowed a deduction by reason of the grant or exercise of the
ISO. As a general rule, if a Grantee disposes of the shares acquired upon
exercise of an ISO before satisfying both holding period requirements (a
"disqualifying disposition"), the gain recognized on such a disposition will
be taxed as ordinary income to the extent of the difference between the fair
market value of such shares on the date of exercise and the option price, and
the Company will be entitled to a deduction in that amount. The gain, if any,
in excess of the amount recognized as ordinary income on such a disqualifying
disposition will be long-term or short-term capital gain, depending upon the
length of time the Grantee held the shares prior to the disposition.
A Grantee normally will not recognize taxable income upon the award of a
Restricted Stock Grant, and the Company will not be entitled to a deduction,
until such stock is transferable by the Grantee or no longer subject to a
"substantial risk of forfeiture" for federal tax purposes, whichever occurs
earlier. When the Common Stock is either transferrable or is no longer
subject to a substantial risk of forfeiture, the Grantee will recognize
ordinary compensation income in an amount equal to the fair market value of
the Common Stock at that time and the Company will be entitled to a deduction
in the same amount. A Grantee may, however, elect to recognize ordinary
compensation income in the year the Restricted Stock Grant is awarded in an
amount equal to the fair market value of the Common Stock at that time,
determined without regard to the restrictions. In such event, the Company
will be entitled to a deduction in the same year, provided the Company
complies with the applicable withholding requirements for federal tax
purposes.
The Grantee will not recognize any income upon the grant of an SAR. Upon
the exercise of an SAR, the Grantee will recognize ordinary compensation
income in the amount of both the cash and the fair market value of the shares
of Common Stock received upon such exercise, and the Company is entitled to a
corresponding deduction, provided the Company complies with the applicable
withholding requirements for federal tax purposes.
Tax Withholding. The acceptance, exercise or surrender of a Grant will
constitute a Grantee's full consent to whatever action the H.R. Committee
deems necessary to satisfy any federal, state and local income and employment
withholding tax obligations arising under the 1994 Plan. The Company may
require Grantees who exercise NQSOs or who possess shares of Common Stock as
to which the restrictions on transfer have lapsed to remit an amount
sufficient to cover the Grantee's federal, state and local withholding tax
obligations associated with the exercise of such Grants or lapse of
restrictions on transfer. If acceptable to the H.R. Committee, Grantees may
deliver Common Stock or cash in order to satisfy any such withholding
obligations.
Section 162(m) of the Code. Under Section 162(m) of the Code, enacted in
August 1993, the Company may be precluded from claiming a federal income tax
deduction for total remuneration in excess of $1,000,000 paid to the chief
executive officer or to any of the other four most highly compensated
officers in any one year beginning in 1994. An exception does exist, however,
for "performance-based compensation," including amounts received upon the
exercise of stock options pursuant to a plan approved by stockholders that
meets certain requirements. The 1994 Plan does not satisfy these
requirements; therefore, Grants thereunder would not qualify as
"performance-based compensation."
Accounting Consequences. There is no charge to the income of the Company
in connection with the grant or exercise of an option under the 1994 Plan as
9
<PAGE> 11
long as the exercise price is not below the market price on the date of grant.
Any tax benefit received by the Company upon exercise of an NQSO or as a result
of a disqualifying disposition of option shares obtained upon exercise of an ISO
is reflected as a credit to capital in excess of par value and not as income.
Earnings per share may be affected by the 1994 Plan by the effect on the
calculation, as prescribed under generally accepted accounting principles, of
the number of outstanding shares of Common Stock. The earnings per share
calculation reflects the potential dilutive effect, using the treasury stock
method, assuming the exercise of outstanding stock options. At the time shares
are actually issued as a result of the exercise of stock options, additional
dilution of earnings per share could result.
The fair market value on the date of a Restricted Stock Grant of the
Common Stock issued pursuant to the Restricted Stock Grant will be charged to
the income of the Company as a compensation expense. The compensation expense
will be recognized for accounting purposes ratably over the vesting period,
if any, set forth in the Restricted Stock Grant.
The assumed value of an SAR (generally, the excess of the market value of
the underlying shares over the option price at the end of each accounting
period) is treated as compensation expense that is accrued over the period
that the SAR is outstanding. Deferred tax expense may also be created if the
related tax deduction occurs in a period later than the one in which the
compensation expense is recognized for accounting purposes.
On November 15, 1994, the H.R. Committee granted ISOs to purchase 45,000
shares of Common Stock at an exercise price of $16.00 per share, on January
23, 1995, the H.R. Committee granted ISOs to purchase 95,000 shares of Common
Stock at an exercise price of $16.00 per share, and on February 21, 1995, the
H.R. Committee granted ISOs to purchase 32,000 shares of Common Stock at an
exercise price of $15.375 per share, each subject to stockholder approval of
the 1994 Plan. The following table sets forth the grants that have been made
pursuant to the 1994 Plan to the chief executive officer and four other most
highly compensated executive officers of the Company, the executive officers
as a group, the non-executive officer directors as a group and the
non-executive officer employees as a group.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Number of Shares Exercise
Underlying Price Expiration
Name and Position Options Granted # ($/Sh) Date
- -------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Jack Farber
Chairman, President and Chief
Executive Officer of the Company 0 -- --
John A. Pinti
President and Chief Executive
Officer of Berwick 20,000 $16.00 11/15/99
James G. Baxter
Vice President -- Finance of the
Company 35,000 $16.00 1/23/00
James H. Bromley
President and Chief Executive
Officer of Rapidforms 15,000 $15.375 2/21/00
Stephen V. Dubin
Vice President, Secretary and
General Counsel of the Company 25,000 $16.00 1/23/00
Executive Group (7 persons including 5
named above) 107,000 $15.375 - $16.00 11/15/99 - 2/21/00
Non-Executive Director Group -- -- --
Non-Executive Officer Employee Group 65,000 $15.375 - $16.00 11/15/99 - 2/21/00
</TABLE>
10
<PAGE> 12
EXECUTIVE OFFICERS OF CSS
Set forth below is certain information regarding each of the current
executive officers of CSS. See "ELECTION OF DIRECTORS" for further
information about Messrs. Farber and Bromley. Executive officers of CSS are
elected annually by the board of directors to serve in their respective
capacities until their successors are duly elected and qualified or until
their earlier resignation or removal.
<TABLE>
<CAPTION>
<S> <C>
Jack Farber ............... Mr. Farber is Chairman, President and Chief Executive Officer of the Company.
Age: 61.
Stephen V. Dubin .......... Mr. Dubin has held his present position as Vice President, Secretary and General
Counsel of CSS since 1978. Age: 56.
James G. Baxter ........... Mr. Baxter has been Vice President -- Finance of CSS since 1986. Age: 47.
Clifford E. Pietrafitta ... Mr. Pietrafitta has been Treasurer and Assistant Secretary of CSS since 1991.
From 1989 to 1991 Mr. Pietrafitta was Director -- Operational and Financial
Controls with CSS. Age: 33.
James H. Bromley .......... Mr. Bromley is President and Chief Executive Officer of Rapidforms. Age: 56.
Richard D. Barton ......... Mr. Barton has been President of The Paper Magic Group, Inc. ("Paper Magic"), a
subsidiary of the Company, since 1993. Since 1994 he has also served as Chief
Executive Officer of Paper Magic. From 1991 to 1993 Mr. Barton was Senior Vice
President of Newsbank, Inc., a private publisher of newspaper reference
information on computer platforms. From 1990 to 1991 he was President of Hach
Associates, a private supplier of educational products. Age: 47.
John A. Pinti ............. Mr. Pinti has been President and Chief Executive Officer of Berwick Industries,
Inc. ("Berwick"), a subsidiary of the Company, since 1992. From 1990 to 1992 he
was a Director of Business Reorganization Services with Coopers & Lybrand. Age:
51.
</TABLE>
11
<PAGE> 13
EXECUTIVE COMPENSATION
The following table sets forth the total compensation of the chief
executive officer and the four other most highly compensated executive
officers of the Company for services rendered in all capacities to the
Company or its subsidiaries for the fiscal year ended December 31, 1994, as
well as the total compensation earned by each such individual for the
Company's two previous fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------
Securities
Underlying All Other
Name and Options(1) Compensation(2)
Principal Position Year Salary($) Bonus($) (#) ($)
- -------------------------- ------ --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Jack Farber 1994 327,000 222,726 0 62,063(3)
Chairman, President and 1993 320,000 283,000 0 67,268(3)
Chief Executive Officer 1992 310,000 260,000 0 23,613(3)
of the Company
John A. Pinti(4) 1994 280,771 150,000 40,000 7,090
President and Chief 1993 178,943 0 0 0
Executive Officer of 1992 -- -- -- --
Berwick
James G. Baxter(5) 1994 192,000 135,355 10,000 24,397
Vice President -- Finance 1993 183,000 148,000 30,000 24,310
of the Company 1992 173,000 124,000 40,000 23,613
James H. Bromley 1994 220,000 107,088 0 14,096
President and Chief 1993 213,000 109,649 10,000 24,310
Executive Officer of 1992 208,926 92,800 16,000 23,613
Rapidforms
Stephen V. Dubin(5) 1994 205,000 97,548 10,000 24,397
Vice President, Secretary 1993 200,000 116,000 30,000 24,310
and General Counsel of 1992 196,000 101,000 40,000 23,613
the Company
</TABLE>
- ------
(1) The securities indicated have been adjusted to reflect the effect of a
two-for-one stock split in August 1993.
(2) The operating subsidiaries have qualified profit sharing plans providing for
discretionary contributions by such companies related to their financial
performance. In addition, officers of the Company participate in the
Rapidforms, Inc. Profit Sharing Plan. In general, contributions to the
profit sharing plans are based upon a percentage, determined by the board of
directors of the applicable company, of the participant's compensation, not
exceeding the applicable Internal Revenue Code maximum contribution base.
Contributions vest under specified schedules requiring from six to seven
years of service, and are paid to participants, along with earnings thereon,
upon retirement or other separation from service or, in the case of one such
plan, certain other events. The Company has adopted a non-qualified
supplemental executive retirement plan ("SERP") to provide all corporate
level officers of the Company (except Mr. Farber who has entered into the
deferred compensation arrangements referred to below) additional retirement
benefits. In addition, the Company has entered into supplemental retirement
agreements with Messrs. Baxter and Dubin to provide them with certain
deferred benefits upon death or retirement in lieu of certain benefits in
the SERP. See "Supplemental Executive Retirement Benefits" below. The
amounts shown in this column represent, for all of the years indicated, the
contributions by the applicable company to a profit sharing plan and the
SERP in respect of the named person, and, in the case of Mr. Farber, to a
profit sharing plan plus the deferred compensation arrangement referred to
below.
(3) Mr. Farber, as a result of being ineligible to participate in the profit
sharing plan for employees of the Company, entered into a deferred
compensation agreement with Philadelphia Industries, Inc. ("PII"), which was
12
<PAGE> 14
merged with and into the Company on January 21, 1993. This agreement was
assumed by CSS and provides, upon retirement or other separation from
service, the same benefits as participation in the profit sharing plan and
the SERP for the Company's corporate level officers would have provided. In
1993, Mr. Farber became eligible to and did participate in the Rapidforms,
Inc. Profit Sharing Plan. Mr. Farber was also provided with additional
benefits under the deferred compensation agreement for earnings in excess of
the applicable maximum contribution base under the Rapidforms, Inc. Profit
Sharing Plan. The obligation to Mr. Farber under the deferred compensation
agreement has been accrued on the books of the Company and represents an
unsecured debt of the Company. The amounts shown in this column represent,
for all of the years indicated, the amount charged to CSS or PII in respect
of any profit sharing plan and the deferred compensation agreement.
(4) In connection with the acquisition of Berwick by the Company in May 1993,
the Company assumed an employment agreement between Mr. Pinti and Berwick,
as amended in May 1993. Under the provisions of the employment agreement,
Mr. Pinti serves as President and Chief Executive Officer of Berwick and
will receive $300,000 base salary per annum in 1995. The employment
agreement expires January 31, 1996, unless extended.
(5) Prior to the merger of PII into CSS, Mr. Baxter was also Vice-President --
Finance of PII and Mr. Dubin was also Vice President and Secretary of PII
and their annual compensation and profit sharing contributions for 1992 were
allocated between CSS and PII. The amounts set forth in the table reflects
total compensation paid to Mr. Baxter and Mr. Dubin from both CSS and PII in
1992.
No individual named above received perquisites or non-cash compensation
during the years indicated exceeding the lesser of $50,000 or an amount equal
to 10% of such person's salary and bonus.
The following table sets forth certain information regarding options
granted by the Company or its subsidiaries to the chief executive officer and
four other most highly compensated executive officers of the Company during
the fiscal year ended December 31, 1994.
OPTION GRANT TABLE
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates of
Stock
Price Appreciation for
Individual Grants Option Term(2)
------------------------------------------------------------- -----------------------
Number Percent of
of Total
Securities Options
Underlying Granted Exercise
Options to Employees or Base
Granted(1) in Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
- ----------------- ------------ -------------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jack Farber ..... 0 -- -- -- -- --
John A. Pinti ... 20,000 4.3% 20.00 1/24/99 110,512 244,204
20,000(3) 4.3% 16.00 11/15/99 88,410 195,363
James G. Baxter . 10,000 2.2% 20.00 1/24/99 55,256 122,102
James H. Bromley . 0 -- -- -- -- --
Stephen V. Dubin . 10,000 2.2% 20.00 1/24/99 55,256 122,102
</TABLE>
- ------
(1) Except as otherwise indicated, this column relates to options granted under
the 1985 Plan. Options granted under the 1985 Plan may not be exercised
during the first year after their grant and thereafter may be exercised in
installments to the extent of 25% of the number of shares covered during the
second year and to the extent of an additional 25% of the number of shares
covered during each of the next three subsequent years. However, the H.R.
Committee may accelerate the period over which the options become
exercisable. Options granted under the 1985 Plan are not exercisable under
any circumstances after the expiration of five years from the date of option
grant. In general, options terminate (a) at any time the optionee's
13
<PAGE> 15
employment is terminated by the Company or the applicable subsidiary, (b)
within 180 days after such employment terminates by reason of the optionee's
death, and (c) within three months after such employment terminates for any
other reason, including retirement or disability; however, in no event are
options exercisable beyond their stated terms. Options granted under the
1985 Plan are not assignable or otherwise transferable except by will or the
laws of descent and distribution. Shares subject to options granted under
the 1985 Plan which have lapsed or terminated may again be subject to
options granted under the 1985 Plan.
(2) The dollar amounts under these columns are the result of the 5% and 10%
rates set by the rules promulgated by the Securities and Exchange Commission
and are not intended to forecast possible future appreciation, if any, of
the stock price of the Company. The Company did not use an alternative
formula for a grant date valuation, as the Company is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. There can be no assurance that the
dollar amounts reflected in these columns will be achieved. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock and overall market conditions, as well as the executive
officer's continued employment through the vesting period.
(3) Options granted under the 1994 Plan, subject to stockholder approval of the
1994 Plan. See "Approval of 1994 Equity Compensation Plan."
The table below sets forth certain information regarding options exercised
during the fiscal year ended December 31, 1994 and the value of unexercised
options at December 31, 1994 held by the five most highly compensated
executive officers of the Company.
OPTION EXERCISE TABLE
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-Money
Acquired on Value Options at December 31, 1994 (#) Options at December 31, 1994 ($)
--------------------------------- ---------------------------------
Exercise
Name (#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ------------- ------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack Farber .... 0 -- -- -- -- --
John A. Pinti .. 0 -- 0 40,000(2) -- 25,000(2)
James G. Baxter . 40,000 262,500 67,500 52,500 374,531 76,094
James H. Bromley. 0 -- 10,500 15,500 21,094 28,281
Stephen V. Dubin. 40,000 264,741 47,500 52,500 214,531 76,094
</TABLE>
- ------
(1) Options exercised relate to options to acquire Common Stock granted under
the 1985 Plan, as adjusted to reflect the effect of the Stock Split in
August 1993.
(2) Includes options to purchase 20,000 shares of Common Stock granted under the
1994 Plan, subject to stockholder approval of the 1994 Plan. See "Approval
of 1994 Equity Compensation Plan."
SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS
Under applicable provisions of the Code, the Company is required to
disregard an employee's annual compensation in excess of a specified dollar
amount (subject to cost of living adjustments) in determining the profit-
sharing plan contribution the Company makes on behalf of such employee under
the Rapidforms, Inc. Profit Sharing Plan (the "Profit Sharing Plan"). The
Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") reduced this
compensation limit from $235,840 in 1993 to $150,000 in 1994. The Company
established an unfunded non-qualified Supplemental Executive Retirement Plan
effective January 25, 1994 (the "SERP") to provide additional retirement
benefits to corporate level officers without regard to the compensation limit
specified by the Internal Revenue Service.
Under the SERP, all corporate level officers of the Company (except Mr.
Farber) are entitled to have an amount credited for their benefit on the
books of the Company equal to the difference between the amount that would
have been contributed on the officer's behalf under the Profit Sharing Plan
14
<PAGE> 16
prior to OBRA '93 (calculated by using the percentage of compensation
contributed for the year and the compensation limit prior to OBRA '93) and the
amount that actually was contributed to the Profit Sharing Plan for the year on
behalf of such officer. These amounts are adjusted to reflect earnings and
losses based on the investment performance of the Profit Sharing Plan as if such
amounts had been contributed to the Profit Sharing Plan at the time they were
credited and were invested in the same manner as the employee's account under
the Profit Sharing Plan. All amounts payable by the Company to any officer for
whose benefit amounts have been credited represent an unsecured debt of the
Company.
Under agreements dated March 3, 1993, Messrs. Baxter and Dubin may become
eligible for certain unfunded non-qualified annual retirement benefits and
death benefits which are in addition to the benefits to which they may be
entitled under the Profit Sharing Plan and the SERP. Although the Company has
no obligation to fund the benefits provided by those agreements, the Company
has purchased life insurance policies to provide funding for such benefits.
These additional retirement benefits are intended to compensate Messrs.
Baxter and Dubin for the loss of benefits under the Profit Sharing Plan by
reason of the pre-OBRA '93 limitations on the amount of compensation that may
be considered in calculating contributions under the Profit Sharing Plan.
Benefits are payable upon termination of active employment and are reduced if
such termination occurs prior to age 65. A pre-retirement death benefit is
also available under these agreements. The annual retirement benefit is a
fixed annual payment for fifteen years. Assuming that Messrs. Baxter and
Dubin continue employment with the Company until age 65, their annual
benefits will be $130,987 and $58,123, respectively.
HUMAN RESOURCES COMMITTEE REPORT
The H.R. Committee is comprised of three non-employee directors. Under its
supervision, compensation policies, plans and programs have been developed
and implemented which seek to enhance the profitability of the Company, and
thus stockholder value, by aligning closely the financial interests of the
Company's senior management with those of its stockholders. The H.R.
Committee also administers and makes grants under the 1985 Plan and, subject
to stockholder approval, will make grants and have general administrative
authority under the Company's 1994 Equity Compensation Plan. In furtherance
of these goals, annual and longer term incentive compensation is provided to
attract and retain senior management of outstanding abilities and to motivate
them to perform to the full extent of their abilities.
The Company's compensation program for senior management is comprised of
base salary, annual performance bonuses, longer term incentive compensation
in the form of stock options, restricted stock grants and stock appreciation
rights, benefits available generally to the Company's employees (including
retirement benefits under profit sharing plans), and supplemental retirement
plans or deferred compensation agreements to provide benefits in excess of
those permitted to be paid under the profit sharing plans because of annual
Internal Revenue Code contribution limitations. The "at risk" portion of the
compensation program is significant relative to overall compensation.
Base salary levels for the Company's executive officers are set generally
to be competitive with other companies of comparable size and geographic
location, taking into consideration the position's complexity,
responsibility, need for special expertise and the division of the position's
responsibility among operating subsidiary responsibilities and corporate
level responsibilities. Individual salaries also take into account individual
experience and performance. The H.R. Committee establishes salary levels for
corporate level officers, while salary levels for the chief executive
officers of the Company's principal operating subsidiaries other than
Rapidforms are established by the executive committee of the boards of such
subsidiaries, which consist of the chief executive officer of the Company,
the chief financial officer of the Company and the chief executive officer of
the respective operating subsidiary. The salary level for the chief executive
officer of Rapidforms is set by the executive compensation committee of the
board of Rapidforms, which consists of the chief executive officer of the
Company and the chief executive officer of Rapidforms. The salary levels for
the chief executive officers of the principal operating subsidiaries are
subject to periodic review by the H.R. Committee.
Annual incentive compensation is based upon the achievement of certain
threshold and target levels of pre- tax income by the operating subsidiaries,
the achievement of a target level of fully diluted earnings per common share
by the Company for corporate level executive officers, and the attainment of
specifically defined individual goals and objectives. At the beginning of
15
<PAGE> 17
each year, performance goals are established for Rapidforms by the executive
compensation committee of the board of Rapidforms and for each of the other two
principal operating subsidiaries by the executive committee of the boards of
such subsidiaries (to be used in determining annual performance bonuses for the
officers of each such subsidiary) and for the Company as a whole by the H.R.
Committee (to be used in determining annual performance bonuses for corporate
level officers). The formulae permit the executive compensation committee of the
board of Rapidforms, the executive committee of the boards of the other two
principal operating subsidiaries or the H.R. Committee, as applicable,
discretion in determining the size of the bonus pool, subject to certain
parameters based upon the achievement of the performance goals, and discretion
in allocating the bonus pool among participants.
During each fiscal year, the H.R. Committee has considered the
desirability of granting executive officers and other members of senior
management stock options under the 1985 Plan. Subject to stockholder
approval, the H.R. Committee will consider the desirability of granting to
officers and other employees of the Company and the Company's principal
operating subsidiaries stock options, restricted stock grants and stock
appreciation rights under the 1994 Plan. The objective of the 1985 Plan and
the 1994 Plan is to align senior management and stockholder long-term
interests by creating a strong and direct link between the executive's
accumulation of wealth and stockholder return and to enable executives to
develop and maintain a significant, long-term stock ownership position in the
Company's Common Stock. In furtherance of this goal, the stock options
granted under the 1985 Plan and the stock options and restricted stock grants
to be made under the 1994 Plan are not registered with the Securities and
Exchange Commission, although shares of restricted stock may be used, upon
exercise of stock options, to pay the exercise price of the stock options.
Individual grants of stock options under the 1985 Plan and the 1994 Plan are
based upon individual performance. The H.R. Committee believes that its past
grants of stock options have successfully focused the Company's executive
officers and other members of senior management on building profitability and
shareholder value. Jack Farber, the Chairman, President and Chief Executive
Officer of the Company, was not eligible to be granted stock options under
the 1985 Plan because of his ownership of more than 10% of the outstanding
Common Stock; however, under the 1994 Plan, Mr. Farber will be eligible to
receive grants of incentive stock options at an option price per share of not
less than 110% of the fair market value per share of Common Stock on the date
of grant and to otherwise receive grants under the 1994 Plan.
Section 162(m) of the Code limits the deduction that may be claimed by a
"public company" for total compensation in excess of $1 million paid to the
chief executive officer or to any of the other four most highly compensated
officers except to the extent that any compensation in excess of $1 million
is paid pursuant to a performance-based plan. This provision became effective
January 1, 1994 with respect to the Company. After considering the
application of Section 162(m) to its compensation policies, the H.R.
Committee has determined that the provisions of that Section would not affect
the compensation of any executive officers of the Company. To the extent that
this might not continue to be the case, the H.R. Committee would consider any
changes necessary to conform to the provisions of Section 162(m).
In determining the compensation of Mr. Farber, the H.R. Committee has
taken into consideration pay levels of chief executive officers of other
companies of comparable size, his contributions to the profitable growth and
increased return on equity of the Company over the past several years and Mr.
Farber's overall management strengths and business acumen. The fully diluted
earnings per share of Common Stock has increased at a compound rate of 3%
over the last year, 17% over the last two years and 13% over the last five
years. The return to stockholders as measured by the December 31 closing
price of the Common Stock has decreased 16% in 1994, increased at a 7%
compound annual rate for the two years ended December 31, 1994 and increased
at a 9% compound annual rate for the five years ended December 31, 1994. Mr.
Farber's total annual compensation decreased 9% and 2% and increased 3%,
respectively, over the same periods.
HUMAN RESOURCES COMMITTEE
James E. Ksansnak, Chairman
Willard M. Bright
William C. Warren
16
<PAGE> 18
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholders' return on
Common Stock for the period from January 1, 1990 through December 31, 1994,
with (i) the cumulative total return on the Standard and Poors 500 ("S&P
500") Index and (ii) the Standard and Poors Conglomerate ("S&P Conglomerate")
Index over the same period (assuming the investment of $100 in Common Stock,
S&P 500 Index and S&P Conglomerate Index on January 1, 1990 and reinvestment
of all dividends).
250|------------------------------------------------------------------|
| |
| |
| |
| |
| |
200|------------------------------------------------------------------|
| * |
| |
| |
D | |
O | |
L 150|-------------------------------------------------&#----------&*---|
L | *& # |
A | |
R | & |
S | * |
| # |
100|---*&#---------&--------------------------------------------------|
| * # |
| # |
| |
| |
| |
50|------------------------------------------------------------------|
| |
| |
| |
| |
0|----|----------|---------|-----------|-----------|-----------|----|
1989 1990 1991 1992 1993 1994
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
CSS 100 92 117 135 184 154
S&P 500 100 97 126 136 150 152
S&P CONGLOMERATES 100 84 91 112 149 141
* = CSS & = S&P 500 # = S&P CONGLOMERATES
17
<PAGE> 19
CERTAIN TRANSACTIONS
SALE OF ELLISCO
On March 30, 1994, the Company sold all 520,000 of its outstanding shares
of common stock of Ellisco Inc. ("Ellisco") to United States Can Company
("U.S. Can") for net proceeds of $30,431,000. As part of that transaction,
Charles E. Foster, President and Chief Executive Officer of Ellisco and a
director of the Company, sold all 7,522 of his shares of common stock of
Ellisco to U.S. Can for $416,978. The Company and Mr. Foster jointly and
severally agreed to indemnify U.S. Can against certain losses incurred or
suffered by U.S. Can as a result of the operation of the business of Ellisco
prior to the closing, and the Company and Mr. Foster entered into a separate
agreement relating to the sharing of liability for any such losses. Mr.
Foster resigned as a director of the Company as of March 30, 1994.
REPURCHASE OF SHARES OF COMMON STOCK
On June 27, 1994, the Company agreed to repurchase 810,900 shares of
Common Stock at $16.00 per share (a price $.50 per share less than the
closing price of the Common Stock on the last day the Common Stock was traded
prior to the date of the agreement) from FMR Corp. and several affiliated
investment companies in a privately negotiated transaction. The repurchase
was effectuated on June 28, 1994. At the time of the repurchase, FMR Corp.
was the beneficial owner of approximately 6.8% of the outstanding Common
Stock of the Company.
On September 23, 1994, the Company agreed to repurchase an aggregate of
100,000 shares of Common Stock at $16.00 per share (a price $.50 per share
less than the closing price of the Common Stock on the last day the Common
Stock was traded prior to the date of the agreement) from David Farber and
his then wife, the son and former daughter-in-law of Jack Farber, Chairman,
President and Chief Executive Officer of the Company. The repurchase was
effectuated on September 30, 1994.
REPURCHASE OF SHARES OF RAPIDFORMS COMMON STOCK
At the request of James H. Bromley, the President and Chief Executive
Officer of Rapidforms and a director of the Company and Rapidforms, and as
required by a February 1985 agreement, as amended, among the shareholders of
Rapidforms, on April 5, 1994, Rapidforms repurchased from Mr. Bromley 5,000
shares of Class B common stock of Rapidforms for an aggregate purchase price
of $151,800. At the time of this repurchase, the Rapidforms board of
directors established the fair market value of such stock at $30.36 per
share. At March 7, 1995, Mr. Bromley owned 35,000 shares of Class B common
stock of Rapidforms.
CANCELLATION OF PAPER MAGIC INCENTIVE STOCK OPTIONS
On November 15, 1994, all incentive stock options issued under the Paper
Magic Incentive Stock Option Plan (the "Paper Magic Plan") were terminated
and an equal number of CSS incentive stock options were granted by the
Company under the 1985 Plan to the holders of the terminated Paper Magic Plan
options. In addition, the Company cancelled certain CSS incentive stock
options previously issued to certain Paper Magic and Berwick employees and
issued new CSS incentive stock options under the 1985 Plan. These new CSS
incentive stock options were issued to such employees with an exercise price
equal to $16.00 per share, the closing price of the Common Stock on November
14, 1994. As part of this transaction, Paper Magic terminated 35,000
incentive stock options that had been issued under the Paper Magic Plan to
Richard D. Barton, President and Chief Executive Officer of Paper Magic, and
the Company granted an equal number of CSS incentive stock options under the
1985 Plan. The Company also cancelled 10,000 CSS incentive stock options that
had previously been issued under the 1985 Plan to Mr. Barton and granted an
equal number of CSS incentive stock options with an exercise price of $16.00
per share under the 1985 Plan.
REPURCHASE OF SHARES OF PAPER MAGIC COMMON STOCK
Pursuant to the shareholders agreement dated August 31, 1988, as amended
(the "Paper Magic Shareholders Agreement"), on July 5, 1994, Paper Magic
repurchased 100,000 shares of Paper Magic Common Stock from Joseph R. Ellis,
then Chairman and Chief Executive Officer of Paper Magic and a director of
18
<PAGE> 20
the Company, for an aggregate purchase price of $1,946,800. The purchase price
was determined in accordance with a formula set forth in the Paper Magic
Shareholders Agreement. In connection with the retirement of Mr. Ellis as
Chairman and Chief Executive Officer of Paper Magic and as a director of the
Company effective November 15, 1994, on January 15, 1995 Paper Magic repurchased
from Mr. Ellis an additional 300,000 shares of Paper Magic common stock for an
aggregate purchase price of $5,840,400. The purchase price was determined in
accordance with a formula set forth in the Paper Magic Shareholders Agreement.
This transaction was the last in a series of repurchases by the Company of all
of the shares of Paper Magic common stock held by Paper Magic employees.
Following this repurchase, Paper Magic became a wholly-owned subsidiary of the
Company.
PROPOSALS FOR 1996 ANNUAL MEETING
Consideration of certain matters is required at the annual meeting of
stockholders, such as the election of directors. In addition, pursuant to
applicable regulations of the Securities and Exchange Commission,
stockholders may present resolutions that are proper subjects for inclusion
in the proxy statement and for consideration at the annual meeting by
submitting their proposals to the Company on a timely basis. In order to be
included for the 1996 annual meeting, resolutions must be received by
November 28, 1995 and addressed to the Company's Secretary at the address set
forth on the cover page of this proxy statement.
CSS INDUSTRIES, INC.
By: Stephen V. Dubin,
Secretary
Philadelphia, Pennsylvania
March 27, 1995
19
<PAGE> 21
- -------------------------------------------------------------------------------
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CSS INDUSTRIES, INC.
The undersigned hereby appoints Jack Farber, Leonard E. Grossman
and Michael L. Sanyour, and each of them acting singly, proxies of
the undersigned stockholder with full power of substitution to each
of them, to vote all shares of Common Stock of CSS Industries, Inc.
(the "Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the
Company to be held at The Locust Club of Philadelphia, 1614 Locust
Street, Philadelphia, PA 19103, on Tuesday, May 2, 1995, at 11:00
a.m. (local time) and any adjournments thereof.
This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder and in the
discretion of the holders of this Proxy upon such other matters
as may properly come before the annual meeting or any
adjournments thereof. With respect to the election of directors,
where a box is not completed, this Proxy will be voted "FOR ALL
NOMINEES."
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN AND
DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
* FOLD AND DETACH HERE *
ANNUAL MEETING OF STOCKHOLDERS
OF
CSS INDUSTRIES, INC.
TUESDAY, MAY 2, 1995; 11:00 A.M.
THE LOCUST CLUB OF PHILADELPHIA
1614 LOCUST STREET
PHILADELPHIA, PENNSYLVANIA
===============================================================================
AGENDA
1. Declaration of quorum.
2. Proof of Notice of Meeting.
3. Reading of the Minutes of the Annual Meeting of Stockholders held on
May 3, 1994 or waiver thereof.
4. Introduction of representative of independent public accountants --
Arthur Andersen LLP
5. Nomination and election of Directors.
6. Consideration of 1994 Equity Compensation Plan.
7. Presiding Officer's remarks.
8. Stockholders' questions and responses.
9. Adjournment.
===============================================================================
- -------------------------------------------------------------------------------
<PAGE> 22
Election of the following nominees as Directors:
Willard M. Bright, James H. Bromley, John R. Bunting, Jr.,
Jack Farber, Richard G. Gilmore, Leonard E. Grossman,
James E. Ksansnak, Michael L. Sanyour, William C. Warren.
The Board of Directors recommends a vote "FOR ALL NOMINEES"
FOR
ALL AUTHORITY WITHHELD
NOMINEES FOR ALL NOMINEES
/ / / /
Authority withheld for the following only:
(write the name(s) of the nominee(s) on the line below)
- ------------------------------------------------------
Approval of the 1994 Equity Compensation Plan
The Board of Directors recommends a vote FOR the proposal
FOR AGAINST ABSTAIN
/ / / / / /
Date: , 1995
---------------------------
---------------------------------------
Signature
---------------------------------------
Signature
(Please mark your vote, date and sign as
your name appears herein and return
this Proxy in the enclosed postpaid
envelope. If acting as executor,
administrator, trustee, guardian, etc.,
you should so indicate when signing.
If the signer is a corporation, please
sign the full corporate name, and
indicate title as duly authorized
officer.)
- --------------------------------------------
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES"
- --------------------------------------------
* FOLD AND DETACH HERE *
<PAGE> 23
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CSS INDUSTRIES, INC.
The undersigned hereby appoints Jack Farber, Leonard E. Grossman
and Michael L. Sanyour, and each of them acting singly, proxies of
the undersigned stockholder with full power of substitution to each
of them, to vote all shares of Common Stock of CSS Industries, Inc.
(the "Company") which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the
Company to be held at The Locust Club of Philadelphia, 1614 Locust
Street, Philadelphia, PA 19103, on Tuesday, May 2, 1995, at 11:00
a.m. (local time) and any adjournments thereof.
This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder and in the
discretion of the holders of this Proxy upon such other matters
as may properly come before the annual meeting or any
adjournments thereof. With respect to the election of directors,
where a box is not completed, this Proxy will be voted "FOR ALL
NOMINEES."
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN AND
DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
<PAGE> 24
Election of the following nominees as Directors: Willard M. Bright,
James H. Bromley, John R. Bunting, Jr., Jack Farber, Richard G.
Gilmore, Leonard E. Grossman, James E. Ksansnak, Michael L. Sanyour,
William C. Warren.
The Board of Directors recommends a vote "FOR ALL NOMINEES"
AUTHORITY WITHHELD
FOR ALL NOMINEES / / FOR ALL NOMINEES / /
Authority withheld for the following
only: (write the name(s) of the nominee(s)
on the line below)
- -----------------------------------------
Approval of the 1994 Equity Compensation Plan
The Board of Directors recommends a vote FOR the proposal.
FOR / / AGAINST / / ABSTAIN / /
Date: , 1995
-----------------------
----------------------------------
Signature
----------------------------------
Signature
(Please mark your vote, date and
sign as your name appears herein
and return this Proxy in the
enclosed postpaid envelope. If
acting as executor, administrator,
trustee, guardian, etc., you should
so indicate when signing. If the
signer is a corporation, please
sign the full corporate name, and
indicate title as duly authorized
officer.)
<PAGE>
APPENDIX
CSS INDUSTRIES, INC.
EQUITY COMPENSATION PLAN
The purpose of the Equity Compensation Plan (the "Plan") of CSS
Industries, Inc. (the "Company") is to promote the interests of the Company by
providing incentives to designated officers and other employees of the Company
or a Subsidiary Corporation (as defined herein), to encourage them to acquire a
proprietary interest, or to increase their proprietary interest, in the Company.
The Company believes that the Plan will cause participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
stockholders. For purposes of the Plan, the terms "Parent Corporation" and
"Subsidiary Corporation" shall have the meanings set forth in subsections (e)
and (f) of Section 424 of the Internal Revenue Code of 1986, as amended (the
"Code").
1. Administration
The Plan shall be administered and interpreted by the Human Resources
Committee of the Board of Directors (the "Committee") consisting of not less
than three persons, all of whom shall be "disinterested persons" as defined
under Rule 16b- 3 under the Securities Exchange Act of 1934 (the "Exchange Act")
or any successor provisions. The Committee shall have the sole authority to
determine (i) who is eligible to receive Grants (as defined in Section 2 below)
under the Plan; (ii) the type, size and terms of each Grant under the Plan
(subject to Section 4 below); (iii) the time when each Grant will be made and
the duration of any exercise or restriction period; (iv) any restrictions on
resale applicable to the shares to be issued or transferred pursuant to the
Grant; and (v) any other matters arising under the Plan. The Committee may, if
it so desires, base any of the foregoing determination upon the recommendations
of management of the Company. The Committee shall have full power and authority
to administer and interpret the Plan and to adopt or amend such rules,
regulations, agreements and instruments as it may deem appropriate for the
proper administration of the Plan. The Committee's interpretations of the Plan
and all determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interests in
the Plan or in any Grants under the Plan. No person acting under this Section
shall be held liable for any action or determination made in good faith with
respect to the Plan or any Grant under the Plan.
2. Grants
Incentives under the Plan shall consist of Incentive Stock Options (as
defined in Section 5(b) below), Non-Qualified Stock Options (as defined in
Section 5(b) below), Restricted Stock Grants (as defined in Section 6 below) and
SARs (as defined in Section 7 below) (hereinafter collectively referred to as
"Grants"). All Grants shall be subject to the terms and conditions set forth
herein and to such other terms and conditions of any nature as long as they are
not inconsistent with the Plan as the Committee deems appropriate and specifies
in writing to the participant (the "Grant Letter"). The Committee shall approve
the form and provisions of each Grant Letter. Grants under any section of the
Plan need not be uniform as among the participants receiving the same type of
Grant, and Grants under two or more sections of the Plan may be combined in one
Grant Letter.
3. Shares Subject to the Plan
(a) The aggregate number of shares of the Common Stock, par value $.10
("Common Stock"), of the Company that may be issued or transferred under the
Plan is 1,000,000 shares, subject to adjustment pursuant to Section 3(b) below.
The maximum number of shares of Common Stock for which any Grantee may be
granted options under the Plan is limited to 400,000 shares of Common Stock
during the term of the Plan. The shares may be authorized but unissued shares or
reacquired shares. If and to the extent that options granted under the Plan
terminate, expire or are cancelled without having been exercised (including
shares cancelled as part of an exchange of Grants), or if any shares of
restricted stock are forfeited, the shares subject to such Grant shall again be
available for subsequent Grants under the Plan.
(b) If any change is made to the Common Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, or exchange of shares or any other change in
capital structure made without receipt of consideration), then unless such event
or change results in the termination of all outstanding Grants under the Plan,
the Committee shall preserve the value of the outstanding Grants by adjusting
the maximum number and class of shares issuable under the Plan to reflect the
effect of such event or change in the Company's capital structure, and by making
appropriate adjustments to the number and class of shares, the exercise price of
each outstanding option and
A-1
<PAGE>
otherwise, except that any fractional shares resulting from each adjustments
shall be eliminated by rounding any portion of a share equal to .500 or greater
up, and any portion of a share equal to less than .500 down, in each case to the
nearest whole number.
4. Eligibility for Participation
Officers and other employees of the Company or a Subsidiary Corporation
shall be eligible to participate in the Plan (referred to individually as an
"Eligible Participant" and collectively as "Eligible Participants"). The
Committee shall select from among the Eligible Participants those who will
receive Grants (referred to individually as "Grantee" and collectively as
Grantees") and shall determine the number of shares of Common Stock subject to
each Grant. The Committee may, if it so desires, base any such selections or
determinations upon the recommendations of management of the Company. Nothing
contained in the Plan shall be construed to limit in any manner whatsoever the
right of the Company to grant rights or options to acquire Common Stock or
awards of Common Stock otherwise than pursuant to the Plan.
5. Stock Options
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be subject to each
option.
(b) Type of Option and Option Price.
(1) The Committee may grant options qualifying as incentive
stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") and other stock options
("NonQualified Stock Options"), in accordance with the terms
and conditions set forth herein, or may grant any combination
of Incentive Stock Options and NonQualified Stock Options
(hereinafter referred to collectively as "Stock Options"). The
option price per share of an Incentive Stock Option shall be
the fair market value (as defined herein) of a share of Common
Stock on the date of grant. However, if the Grantee of an
Incentive Stock Option is the owner of Common Stock (as
determined under section 424(d) of the Code) who possesses more
than 10% of the total combined voting power of all classes of
stock of the Company or a Parent Corporation or Subsidiary
Corporation, the option price per share in the case of an
Incentive Stock Option shall not be less than 110% of the fair
market value of a share of Common Stock on the date of grant.
The option price per share of a Non-Qualified Stock Option
shall be an amount determined by the Committee in the exercise
of its discretion, but in no event shall such option price be
less than the book value of a share of Common Stock on the date
of grant unless an option price of less than such book value is
approved by the Board of Directors of the Company.
(2) For all valuation purposes under the Plan, the fair market
value of a share of Common Stock shall be determined in
accordance with the following provisions:
(A) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is
traded either on the over-the-counter market or listed
on Nasdaq National Market segment of the Nasdaq Stock
Market, the fair market value shall be the closing
selling price of one share of Common Stock on the date
immediately preceding the date in question as such
price is reported by the NASDAQ system or any
successor system. If there is no reported closing
selling price for the Common Stock on the date
immediately preceding the date in question, then the
closing selling price on the next preceding date for
which such quotation exists shall be determinative of
fair market value.
(B) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the
fair market value shall be the closing selling price
of one share of Common Stock on the date immediately
preceding the date in question on the stock exchange
determined by the Committee to be the primary market
for the Common Stock, as such prices are officially
quoted on such exchange. If there is no reported
closing selling price of Common Stock on such exchange
on the date immediately preceding the date in
question, then the fair market value shall be the
closing selling price on the next preceding date for
which such quotation exists.
A-2
<PAGE>
(C) If the Common Stock is at the time neither listed
or admitted to trading on any stock exchange nor
traded in the over-the-counter market (or, if the
Committee determines that the value as determined
pursuant to Section 5(b)(2)(A) or (B) above does not
reflect fair market value), then the Committee shall
determine fair market value after taking into account
such factors as it deems appropriate.
(c) Exercise Period. The Committee shall determine the option exercise
period of each Stock Option. The exercise period shall not exceed ten years from
the date of grant. However, if the Grantee of an Incentive Stock Option is the
owner of Common Stock (as determined under Section 424(d) of the Code) who then
possesses more than 10% of the total combined voting power of all classes of
stock of the Company or a Parent Corporation or Subsidiary Corporation, the
exercise period shall not exceed five years.
(d) Vesting of Options and Restrictions on Shares. The vesting period
for Stock Options shall commence on the date of grant and shall end on the date
or dates, determined by the Committee, that shall be specified in the Grant
Letter. The Committee may impose upon the shares of Common Stock issuable upon
the exercise of a Stock Option such restrictions as it deems appropriate and
specifies in the Grant Letter. During any period in which such restrictions
apply, the provisions of Section 6(d) below shall be applicable to such shares,
and the Committee, in such circumstances as it deems equitable, may determine
that all such restrictions shall lapse.
(e) Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Secretary of the Company,
together with payment of the option price.
(f) Termination of Employment, Disability or Death.
(1) If a Grantee ceases to be an Eligible Participant for any
reason other than either by reason of the death of such
Grantee, the termination for cause of the Grantee's employment
by the Company, or the Grantee's voluntary termination of his
or her employment with the Company, any Stock Option which is
otherwise exercisable by the Grantee shall terminate unless
exercised within ninety days following the date on which the
Grantee ceases to be an Eligible Participant (or within such
other period of time, which may be longer or shorter than
ninety days, as may be specified in the Grant Letter).
(2) In the event of a death of a Grantee while he or she is an
Eligible Participant or within not more than ninety days
following the date on which the Grantee ceases to be an
Eligible Participant (or within such other period of time,
which may be longer or shorter than ninety days, as may be
specified in the Grant Letter), any Stock Option which was
otherwise exercisable by the Grantee at the date of death may
be exercised by the Grantee's personal representative at any
time prior to the expiration of one hundred eighty days from
the date of death, but in any event no later than the date of
expiration of the option exercise period.
(3) If a Grantee ceases to be an Eligible Participant either by
reason of termination of the Grantee's employment by the
Company for cause or the Grantee's voluntary termination of
such employment, any Stock Option which is otherwise
exercisable by the Grantee shall terminate on the date of
termination of employment with the Company.
(g) Satisfaction of Option Price. The Grantee shall pay the option
price in good funds received by the Company, or with the consent of the
Committee in its sole discretion, by delivering shares of Common Stock already
owned by the Grantee and having a fair market value equal to the option price or
a combination of cash and shares of Common Stock. The Grantee shall pay the
option price and the amount of withholding tax due, if any, at the time of
exercise. Shares of Common Stock shall not be issued or transferred upon any
purported exercise of a Stock Option until the option price and the withholding
obligation are fully paid.
(h) Limits on Incentive Stock Options. Each Grant of an Incentive
Stock Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by
will or the laws of descent and distribution;
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<PAGE>
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant
Letter in the event of the death of an individual Grantee;
(3) the aggregate fair market value of the Common Stock on the
date of the Grant with respect to which Incentive Stock Options
are exercisable for the first time by a Grantee during any
calendar year under the Plan and under any other stock option
plan of the Company shall not exceed $100,000; and
(4) unless the Grantee could otherwise transfer Common Stock
issued pursuant to the Stock Option without incurring liability
under Section 16(b) of the Exchange Act, at least six months
must elapse from the date of acquisition of the Stock Option
until the date of disposition of the Common Stock issued upon
exercise thereof.
6. Restricted Stock Grants
The Committee may issue shares of Common Stock to an Eligible
Participant pursuant to an incentive or long range compensation plan, program or
contract approved by the Committee (a "Restricted Stock Grant"). The following
provisions are applicable to Restricted Stock Grants:
(a) General Requirements. Shares of Common Stock issued pursuant to a
Restricted Stock Grant will be issued for or in consideration for cash or
services rendered having a value, as determined by the Committee, at least equal
to the par value thereof. All conditions and restrictions imposed under each
Restricted Stock Grant, and the period of years during which the Restricted
Stock Grant will remain subject to such restrictions, shall be set forth in the
Grant Letter and designated therein as the "Restriction Period." All
restrictions imposed under any Restricted Stock Grant shall lapse on such date
or dates as the Committee may approve until the restrictions have lapsed as to
100% of the shares. In addition, the Committee, in circumstances that it deems
equitable, may determine as to any or all Restricted Stock Grants, that all the
restrictions shall lapse, notwithstanding any Restriction Period.
(b) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be granted in each
Restricted Stock Grant.
(c) Requirement of Relationship with Company. If the Grantee's
relations with the Company as an employee terminates during the period
designated in the Grant Letter as the Restriction Period, the Restricted Stock
Grant shall terminate as to all shares covered by the Grant as to which
restrictions on transfer have not lapsed, and such shares shall be immediately
returned to the Company. The Committee may, in its sole discretion, provide for
complete or partial exceptions to the provisions of this Section 6(c).
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock to which such Restriction Period
applies except to a Successor Grantee pursuant to Section 8 below. Each
certificate representing a share of Common Stock issued or transferred under a
Restricted Stock Grant shall contain a legend giving appropriate notice of the
restrictions in the Grant. The Grantee shall be entitled to have the legend
removed from the stock certificate or certificates representing any such shares
as to which all restrictions have lapsed.
(e) Stockholder Rights. Except as provided in this Section 6, the
Grantee shall have, with respect to shares of Common Stock issued pursuant to a
Restricted Stock Grant, all of the rights of a stockholder, including the right
to vote the shares and the right to receive any dividends thereon.
7. Stock Appreciation Rights
(a) General Provisions. Stock Appreciation Rights ("SARs") may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a NonQualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. The exercise price of each SAR shall be equal to (i) the
exercise price or option price of the related Stock Option or (ii) the fair
market value of a share of Common Stock as of the date of grant of such SARs (as
determined in accordance with the valuation method set forth in Section 5(b)(2)
hereof), but only in such circumstances
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where the SAR is granted subsequent to the date of grant of the related Stock
Option and an exercise price established in accordance with clause (i) above
would result in the disallowance of the Company's expense deduction pursuant to
Section 162(m) of the Code.
(b) Number of SARs. The number of SARs granted to a Grantee which shall
be exercisable during any given period of time shall not exceed the number of
shares of Common Stock which the Grantee may purchase upon the exercise of the
related Stock Option during such period. Upon the exercise of a Stock Option,
the SARs relating to the Common Stock covered by the Stock Option shall
terminate. Upon the exercise of any SARs, the related Stock Option shall
terminate to the extent of an equal number of shares of Common Stock.
(c) Settlement Amount. Upon a Grantee's exercise of some or all of the
Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount
equal to the stock appreciation (as defined herein) for the number of SARs
exercised, payable in cash, Common Stock or a combination thereof. The "stock
appreciation" for an SAR is the difference between the option price specified
for the related Stock Option and the fair market value of the underlying Common
Stock (as determined in accordance with the valuation method set forth in
Section 5 (b)(2) hereof), on the date of exercise of the SAR.
(d) Settlement Election. Upon a Grantee's exercise of any SARs, the
Grantee shall have the right to elect the portions of the settlement amount that
the Grantee desires to receive in cash and shares of Common Stock, respectively.
For purposes of calculating the number of shares of Common Stock to be received
upon settlement, shares of Common Stock shall be valued at their fair market
value (as determined in accordance with the valuation method set forth in
Section 5 (b)(2) hereof), on the date of exercise of the SARs. Notwithstanding
the foregoing, the Committee shall have the right (i) to disapprove a Grantee's
election to receive such settlement in whole or in part in cash, and to require
that shares of Common Stock be delivered in lieu of cash or (ii) to require that
settlement be made in cash if the Company does not or may not in the future have
sufficient shares authorized for issuance. If shares of Common Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
(e) Exercise. An SAR is exercisable only during the period when the
Stock Option to which it is related is also exercisable. No SAR may be
exercised, in whole or in part, by any person who is subject to Section 16 of
the Exchange Act except in accordance with Rule 16b-3(e) under the Exchange Act.
8. Transferability of Options and Grants
Only a Grantee (or, in the case of an individual Grantee, his or her
authorized legal representative) may exercise rights under a Grant. No
individual Grantee may transfer those rights except by will or by the laws of
descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act
and by the Committee in its sole discretion, pursuant to a qualified domestic
relations order as defined under the Code or Title I of ERISA or the rules
thereunder. Upon the death of an individual Grantee, the personal representative
or other person entitled to succeed to the rights of the Grantee ("Successor
Grantee") may exercise such rights. A Successor Grantee shall furnish proof
satisfactory to the Company of such person's right to receive the Grant under
the Grantee's will or under the applicable laws of descent and distribution.
9. Certain Corporate Changes
(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger
or Consolidation Where the Company Does Not Survive. If all or substantially all
of the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, at least ten days prior to the effective date of such event,
the Company shall give each Grantee with any outstanding Grants written notice
of such event and shall indicate in such notice one of the following
determinations by the Committee (which determination shall be made in the
exercise of the sole and absolute discretion of the Committee and shall be
binding on the Grantee): (i) the Grantee shall have the right to exercise in
full any installments of such Grants not previously exercised (whether or not
the right to exercise such installments has accrued pursuant to such Grants),
within ten days after such written notice is sent by the Company, and any
installments of such Grants not so exercised shall thereafter lapse and be of no
further force or effect; or, (ii) the Grantee shall receive new Grants in
substitution for any then unexpired Grants under terms set forth in such notice;
or, (iii) any such successor to the Company shall assume any then unexpired
Grants in accordance with their terms.
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(b) Merger or Consolidation Where the Company Survives. If the Company
is a party to a merger or consolidation in which the Company will be the
surviving corporation, then the Committee may, in its sole and absolute
discretion, elect to give each Grantee with any outstanding Grants written
notice of such event. If such notice is given, each such Grantee shall thereupon
have the right to exercise in full any installments of such Grants not
previously exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants), within ten days after such written notice is
sent by the Company. Any installments of such Grants not so exercised shall
thereafter lapse and be of no further force or effect.
10. Stockholder Approval
The Plan is subject to and no Options shall be exercisable hereunder
until after approval of the Plan by holders of a majority of the shares of
Common Stock present or represented by a proxy in a separate vote at a duly held
meeting of the stockholders of the Company within twelve months after the date
of the adoption of the Plan by the Board of Directors.
11. Approval By The Committee
The Plan is subject to and no Options or SARs shall be exercisable
hereunder until after approval of the Plan and Grants by the Committee which is
comprised solely of the then directors who are (i) not presently employees of
the Company (or related entities); (ii) not former employees still receiving
compensation for prior services (other than benefits under a tax-qualified
pension plan); (iii) not officers of the Company (or related entities) at any
time; and (iv) not currently receiving compensation for personal services in any
capacity other than as a director.
12. Amendment and Termination of the Plan
(a) Amendment. The Board of Directors may amend or terminate the
Plan at any time, subject to the following limitations:
(1) the approval by the stockholders of the Company and
approval by the Committee shall be required in respect or any
amendment that (a) materially increases the benefits accruing
to Eligible Participants under the Plan, (b) increases the
aggregate number of shares of Common Stock that may be issued
or transferred under the Plan (other than by operation of
Section 3(b) above), (c) increases the maximum number of shares
of Common Stock for which any Grantee may be granted options
under the Plan, (d) materially modifies the requirements as to
eligibility for participation in the Plan, or (e) modifies the
provisions for determining the fair market value of a share of
Common Stock; and
(2) the Board of Directors shall not amend the Plan if such
amendment would cause the Plan, any Grant or the exercise of
any right under the Plan to fail to comply with the
requirements of Rule 16b-3 under the Exchange Act, or if such
amendment would cause the Plan or the Grant or exercise of an
Incentive Stock Option to fail to comply with the requirements
of Section 422 of the Code including, without limitation, a
reduction of the option price set forth in Section 5(b) above
or an extension of the periods during which an Incentive Stock
Option may be exercised as set forth in Section 5(c) above.
(b) Termination of the Plan. The Plan shall terminate on the tenth
anniversary of its effective date (as set forth in Section 19 below) unless
earlier terminated by the Board of Directors.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not result in the
termination or amendment of the Grant unless the Grantee consents or unless the
Committee acts under Section 20(b) below. The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
terminated or amended under Section 20(b) below or may be amended by agreement
of the Company and the Grantee which is consistent with the Plan.
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13. Funding of the Plan
The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under the Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
14. Rights of Eligible Participants
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any eligible Participant
or Grantee any rights to be retained by the Company in any capacity, whether as
an employee, non-employee member of the Board of Directors, independent
contractor, consultant or otherwise.
15. Withholding of Taxes
The Company shall have the right to deduct from all Grants paid in cash
any federal, state or local taxes required by law to be withheld with respect to
such Grants paid in cash. In the case of Grants paid in Common Stock, the
Company shall have the right to require the Grantee to pay to the Company the
amount of any taxes which the Company is required to withhold in respect of such
Grants or to take whatever action it deems necessary to protect the interest of
the Company in respect of such tax liabilities, including, without limitation,
withholding a portion of the shares of Common Stock otherwise deliverable
pursuant to the Plan. The Company's obligation to issue or transfer shares of
Common Stock upon the exercise of a Stock Option or SAR or the acceptance of a
Restricted Stock Grant shall be conditioned upon the Grantee's compliance with
the requirements of this Section to the satisfaction of the Committee.
16. Agreements with Grantees
Each Grant made under the Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee may from time to time
approve.
17. Requirements for Issuance of Shares
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option, Restricted Stock Grant or SAR on the Grantee's undertaking in
writing to comply with such restrictions on any subsequent dispositions of the
shares of Common Stock issued or transferred thereunder as is deemed necessary
or advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
18. Headings
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a Section of the
Plan, the content of the Section shall control.
19. Effective Date
The provisions of the Plan shall be effective as of the date the Plan
is adopted by the Board of Directors of the Company, subject to the approval of
the Company's stockholders within twelve months of the effective date.
20. Miscellaneous
(a) Substitute Grants. The Committee may make a Grant to an employee
who was an employee of another corporation and became an Eligible Participant by
reason of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or a Subsidiary Corporation
and such other corporation. Any such Grant shall be made in substitution for a
stock option or restricted stock grant granted by the other corporation
("Substituted Stock Incentives"), but the terms and conditions of the substitute
Grant may vary from the terms and conditions
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required by the Plan and from those of the Substituted Stock Incentives. The
Committee shall prescribe the provisions of the substitute Grants.
(b) Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and required approvals by
governmental or regulatory agencies. With respect to persons subject to Section
16 of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan shall comply with all applicable conditions of Rule
16b-3 or any successor provisions under the Exchange Act. The Committee may
revoke any Grant if it is contrary to law or modify any Grant to bring it into
compliance with any then applicable government regulations. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder with respect to any shares of Common Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
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