<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
DAY RUNNER, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid: ________________________________________________
(2) Form, Schedule or Registration Statement No.: __________________________
(3) Filing party: __________________________________________________________
(4) Date filed: ____________________________________________________________
<PAGE> 2
DAY RUNNER, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 25, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders (the
"Annual Meeting") of Day Runner, Inc., a Delaware corporation (the "Company"),
will be held Tuesday, November 25, 1997, at 9:00 a.m., California time, at The
Sutton Place Hotel located at 4500 MacArthur Boulevard, Newport Beach,
California 92660, for the following purposes, each as more fully described in
the attached Proxy Statement:
1. To elect eight directors. The names of the nominees intended
to be presented for election are: James E. Freeman, Jr., James P. Higgins, Jill
Tate Higgins, Charles Miller, Alan R. Rachlin, Mark A. Vidovich, Boyd I. Willat
and Felice Willat.
2. To approve an amendment to the Company's 1995 Stock Option
Plan to increase the aggregate number of shares authorized for issuance
thereunder from 500,000 to 775,000 shares.
3. To approve an amendment to the Company's Employee Stock
Purchase Plan to increase the aggregate number of shares authorized for issuance
thereunder from 100,000 to 175,000 shares.
4. To ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending June 30, 1998.
5. To transact such other business as may properly come before
the Annual Meeting and any adjournment(s) thereof.
Only record holders of Common Stock at the close of business on October
3, 1997 are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person, in
order to ensure your representation at the Annual Meeting, please mark, sign and
date the enclosed proxy card and return it as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if such stockholder has returned a
proxy.
By Order of the Board of Directors
Dennis K. Marquardt
Secretary
Irvine, California
October 20, 1997
<PAGE> 3
DAY RUNNER, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Day Runner, Inc. ("Day Runner" or the "Company") for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held Tuesday,
November 25, 1997, at 9:00 a.m., California time, and at any adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at The Sutton
Place Hotel located at 4500 MacArthur Boulevard, Newport Beach, California
92660.
These proxy solicitation materials were first mailed on or about October
20, 1997 to stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on October 3, 1997
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 5,598,084 shares of Common Stock were issued and
outstanding.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
On all matters, each share of Common Stock has one vote. Except as
otherwise required by law or the Company's Certificate of Incorporation or
Bylaws, the affirmative vote of a majority of shares present, in person or by
proxy, and entitled to vote at the Annual Meeting is required for the approval
of matters submitted to the stockholders for a vote. Abstentions are counted as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. Abstentions, however, do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of a
plurality or of "votes cast." Broker non-votes are counted as shares that are
present and entitled to vote for purposes of determining a quorum. If a broker
indicates on the proxy that it does not have discretionary authority to vote on
a particular matter as to certain shares, those shares will be counted for
purposes of determining the presence of a quorum but will not be treated as
present and entitled to vote with respect to that matter (even though such
shares are considered present and entitled to vote for quorum purposes and may
be entitled to vote on other matters).
The costs of this solicitation will be borne by the Company. The Company
has retained the services of Corporate Investor Communications, Inc. to assist
in distributing proxy materials to brokerage houses, banks, custodians and other
nominee holders. The estimated cost of such services is $1,000 plus
out-of-pocket expenses. Although there are no formal agreements to do so, the
Company may reimburse brokerage houses and other persons representing beneficial
owners of shares for their expenses in forwarding proxy materials to such
beneficial owners. Proxies may be solicited personally or by telephone or
telegram by certain of the Company's directors, officers and regular employees,
without additional compensation.
<PAGE> 4
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's annual meeting of stockholders
to be held in 1998 must be received by the Company no later than June 17, 1998
in order that they may be included in the proxy statement and form of proxy
relating to that annual meeting. It is recommended that stockholders submitting
proposals direct them to the Secretary of the Company via certified mail, return
receipt requested, in order to ensure timely delivery. No such proposals were
received with respect to the Annual Meeting scheduled for November 25, 1997.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
A board of eight directors will be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the Company's eight nominees named below, all of whom are currently directors of
the Company. It is not expected that any nominee will be unable or will decline
to serve as a director. The term of office of each person elected as a director
will continue until the next annual meeting of stockholders and such time as his
or her successor is duly elected and qualified or until his or her earlier
resignation, removal or death.
The names of the nominees, and certain information about them, are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- -----------------------------------------------------------
<S> <C> <C>
Mark A. Vidovich 47 Chairman of the Board, Chief Executive Officer and Director
James E. Freeman, Jr. 50 President, Chief Operating Officer and Director
James P. Higgins 48 Director
Jill Tate Higgins 41 Director
Charles Miller 55 Director
Alan R. Rachlin 46 Director
Boyd I. Willat 54 Director
Felice Willat 53 Director
</TABLE>
Mr. Vidovich joined the Company as Chief Executive Officer and a
director in April 1986 and assumed the additional position of Chairman of the
Board in March 1990.
Mr. Freeman joined the Company as Chief Operating Officer in March 1993
and assumed the additional position of President in May 1995. He became a
director in April 1997. From August 1992 until March 1993, Mr. Freeman was
employed as a consultant by New Product Insights, an Overland Park, Kansas-based
marketing consulting firm.
Mr. Higgins has been a director since February 1987. Since 1984, Mr.
Higgins has been President and Chairman of the Board of Higgins Management
Company, a financial consulting firm. Mr. Higgins is the husband of Ms. Higgins.
Ms. Higgins has been a director since June 1986. Ms. Higgins is a
private investor and is the wife of Mr. Higgins.
-2-
<PAGE> 5
Mr. Miller has been a director since August 1986. Mr. Miller is a
private investor.
Mr. Rachlin has been a director since August 1987. In November 1994, Mr.
Rachlin became Chief Executive Officer of Pate's Realm, Inc., a software
developer. Since November 1992, Mr. Rachlin has also been a business consultant.
From time to time, Mr. Rachlin serves as a consultant to the Company. See
"Compensation of Directors" below.
Mr. Willat is a co-founder of the Company, has been a director since its
incorporation and served as Chairman of the Board from May 1981 until August
1988. Mr. Willat has served as Chief Executive Officer and President of Willat
Writing Instruments, a new technology development company, since June 1988, as
President of Isola Bella, Inc., a real estate development company, since June
1987, and as Chief Executive Officer of New York Food Company, an investment
company, since June 1996. Mr. Willat is the husband of Ms. Willat.
Ms. Willat is a co-founder of the Company and has been a director since
October 1980. She served as President from 1981 until June 1990 and as Vice
President, Consumer Affairs from June 1990 until July 1993 when she became
Director, Consumer Affairs.
Ms. Willat is the wife of Mr. Willat.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of five meetings during the fiscal
year ended June 30, 1997 and acted once by unanimous written consent. During the
1997 fiscal year, each director of the Company attended at least 80% of the
aggregate number of (i) all meetings of the Board of Directors and (ii) all
meetings held by all committees of the Board on which he or she served.
The Audit Committee, which is comprised of Messrs. Higgins, Miller and
Rachlin (Chairman), met six times during the fiscal year ended June 30, 1997 and
acted once by unanimous written consent. The Audit Committee recommends the
engagement of independent auditors, reviews accounting policies, internal
accounting controls, the independence of auditors and the scope and results of
audit engagements and generally performs functions related to the financial
condition and policies of the Company. The Compensation Committee, which is
comprised of Ms. Higgins (Chairperson) and Messrs. Miller and Rachlin, met three
times during the fiscal year ended June 30, 1997. The Compensation Committee is
responsible for administering the Company's Amended and Restated 1986 Stock
Option Plan and 1995 Stock Option Plan, including determining the persons to
whom options are granted and the terms of such options, and the Company's
Employee Stock Purchase Plan, determining the annual compensation to be paid to
the Company's executive officers, approving the annual officer bonus plan and
performing such other duties regarding compensation matters as may be delegated
to it by the Board of Directors from time to time.
The Company does not have a nominating committee or any committee
performing the function thereof.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director an annual fee of $10,000,
payable quarterly, plus $750 and expenses for each Board of Directors meeting
attended. The Company pays each member of
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<PAGE> 6
the Compensation and Audit Committees an annual fee of $8,000 ($12,000 for the
Chairperson of each such Committee), payable quarterly, plus $750 and expenses
for each Committee meeting attended.
In April 1997, Mr. Rachlin entered into a two-year consulting agreement
with the Company pursuant to which he agreed to perform consulting services for
the Company in exchange for ten-year warrants to purchase 25,000 shares of the
Company's Common Stock at $25.625 per share (i.e., the closing sales price of
the Company's Common Stock on the date of issuance). The consulting agreement
was approved unanimously by the Board of Directors of the Company.
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
them, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Mark A. Vidovich 47 Chairman of the Board, Chief Executive Officer and Director
James E. Freeman, Jr. 50 President, Chief Operating Officer and Director
Dennis K. Marquardt 54 Executive Vice President, Finance & Administration,
Chief Financial Officer and Corporate Secretary
Dennis G. Baglama 45 Vice President, Sales
Ronald M. Bianco 50 Vice President, Product Development
Donald E. Bottinelli 38 Vice President, Marketing
John P. Kirkland 53 Vice President, Operations, North America
Stan Littley 39 Vice President, International Sales
Judy Tucker 52 Vice President, Corporate Development
Richard J. Whatley 53 Vice President, Chief Information Officer
</TABLE>
Officers are appointed by and serve at the discretion of the Board of
Directors. The Company has no employment agreements with any of its officers.
For information concerning Messrs. Vidovich and Freeman, see "Election of
Directors - Nominees" above.
Mr. Marquardt joined the Company in April 1986 and has served as its
Chief Financial Officer since that time. He also served as Vice President,
Finance of the Company from April 1986 until March 1990 and as Executive Vice
President, Finance & Operations from March 1990 until April 1993 when he was
appointed Executive Vice President, Finance & Administration.
Mr. Baglama joined the Company as National Sales Manager in January
1985, became National Sales Director in June 1987 and was appointed Vice
President, Sales in December 1990.
Mr. Bianco joined the Company in June 1985 and held various non-officer
positions until his appointment as Vice President, Product Development in
December 1990.
Mr. Bottinelli joined the Company as Marketing Merchandising Manager in
August 1994, became Director of Marketing in January 1996 and was appointed Vice
President, Marketing in August
-4-
<PAGE> 7
1997. Mr. Bottinelli served as National Sales Manager of Stuart Hall Company,
Inc., a Kansas City, Missouri-based manufacturer of office and school supplies,
from June 1992 until August 1994.
Mr. Kirkland joined the Company as Director, Customer Service &
Distribution in February 1991 and became Senior Director, Customer Service &
Distribution in February 1992. He became Vice President, Customer Service &
Distribution in April 1993 and was appointed Vice President, Operations, North
America in March 1996.
Mr. Littley joined the Company in January 1986 and held various
non-officer sales positions until his appointment as Vice President,
International Sales in March 1996.
Ms. Tucker joined the Company in September 1990 and held various
non-officer positions until her appointment as Vice President, Corporate
Development in March 1994.
Mr. Whatley joined the Company as Senior Director, Information Services
in December 1993 and became Vice President, Chief Information Officer in
February 1995. He served as Vice President, Information Services of Authentic
Fitness Corporation, an apparel manufacturer, from October 1993 until joining
the Company, and of Taren Holdings, Inc., an apparel manufacturer, from December
1991 until its acquisition by Authentic Fitness Corporation in October 1993.
-5-
<PAGE> 8
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 1, 1997 by (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the executive officers named in the Summary Compensation Table
on page 8 and (iv) all current directors and officers of the Company as a group:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1) SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- --------------------------- ------------------------- ----------------
<S> <C> <C>
Jill Tate Higgins(2) 994,323 17.8%
10153 1/2 Riverside Drive, #598
Toluca Lake, CA 91602
KAIM Non-Traditional, L.P.(3) 695,271 12.4
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
William Blair & Company(4) 598,770 10.7
35 South LaSalle Street
Chicago, IL 60603
Mark A. Vidovich(5)(6) 409,756 6.9
15295 Alton Parkway
Irvine, CA 92718
Felice Willat(7) 303,042 5.4
15295 Alton Parkway
Irvine, CA 92718
Alan R. Rachlin(5) (8) 277,015 4.8
Boyd I. Willat(9) 209,639 3.7
Dennis K. Marquardt(5)(10) 164,790 2.9
James E. Freeman, Jr.(5)(11) 104,971 1.8
Ronald M. Bianco(5) 58,216 1.0
Dennis G. Baglama(5) 34,820 *
James P. Higgins(12) 11,716 *
Charles Miller(5) 8,899 *
All current directors and officers as a
group (16 persons)(2)(5)(6)(7)(8)(9)(10)(11)(12) 2,625,639 40.3
</TABLE>
- ----------
* Less than one percent.
(footnotes continue on next page)
-6-
<PAGE> 9
(1) Such persons have sole voting and investment power with respect to all
shares of Common Stock shown as being beneficially owned by them, subject
to community property laws, where applicable, and the information contained
in the footnotes to this table.
(2) Includes (i) 4,166 shares for which warrants held by Ms. Higgins are
exercisable or become exercisable within 60 days after September 1, 1997;
(ii) 930,043 shares held by O.S. II, Inc., a California corporation of
which Ms. Higgins, along with one of her minor children, is the sole owner;
and (iii) 60,114 shares held by Lakeside Enterprises, L.P., a California
limited partnership of which Ms. Higgins is the general partner and a
limited partner and of which O.S. II, Inc. is a limited partner. Does not
include 10,466 shares beneficially owned by James P. Higgins, Ms. Higgins'
husband, and 1,250 shares held by James P. Higgins as custodian for his two
minor children, as to which shares Ms. Higgins disclaims beneficial
ownership (see footnote 12 below).
(3) Based on a Form 13F dated June 13, 1997, wherein KAIM Non-Traditional, L.P.
reported that, as of June 30, 1997 and as an institutional investment
manager, it had sole investment discretion and voting authority as to such
shares.
(4) Based on a Form 13F dated July 14, 1997, wherein William Blair & Company
reported that, as of June 30, 1997 and as an institutional investment
manager, it had sole investment discretion as to such shares and sole
voting authority as to 301,400 of such shares.
(5) Includes 312,018, 210,415, 72,600, 96,921, 47,500, 34,820, 8,899 and
922,198 shares for which options or warrants beneficially owned by Messrs.
Vidovich, Rachlin, Marquardt, Freeman, Bianco, Baglama and Miller and all
current directors and officers as a group, respectively, are exercisable or
become exercisable within 60 days after September 1, 1997.
(6) Does not include 4,403 and 3,800 shares held by Mr. Vidovich's children and
by a trustee for the benefit of one of Mr. Vidovich's children,
respectively, as to which shares Mr. Vidovich disclaims beneficial
ownership.
(7) Includes (i) 20,000 shares for which options held by Ms. Willat are
exercisable or become exercisable within 60 days after September 1, 1997;
and (ii) 34,000 shares held by Mr. and Ms. Willat as trustees of trusts for
the benefit of their children and as to which shares Mr. and Ms. Willat
share voting and investment power. Does not include 175,639 shares
beneficially owned by Boyd I. Willat, Ms. Willat's husband, as to which
shares Ms. Willat disclaims beneficial ownership (see footnote 9 below).
(8) Does not include 2,060 shares held by a custodian for the benefit of
Mr. Rachlin's minor children.
(9) Includes (i) 29,166 shares for which warrants held by Mr. Willat are
exercisable or become exercisable within 60 days after September 1, 1997;
and (ii) 34,000 shares held by Mr. and Ms. Willat as trustees of trusts for
the benefit of their minor children and as to which shares Mr. and Ms.
Willat share voting and investment power. Does not include 269,042 shares
beneficially owned by Felice Willat, Mr. Willat's wife, as to which shares
Mr. Willat disclaims beneficial ownership (see footnote 7 above).
(10) Includes 3,800 shares held by Mr. Marquardt as trustee for one of Mr.
Vidovich's children.
(11) Includes 2,000 shares held by Mr. Freeman's wife for the benefit of their
minor children.
(12) Includes (i) 4,166 shares for which warrants held by Mr. Higgins are
exercisable or become exercisable within 60 days after September 1, 1997;
and (ii) 1,250 shares held by Mr. Higgins as custodian for his two minor
children. Does not include 994,323 shares beneficially owned by Ms. Higgins
as to which shares Mr. Higgins disclaims beneficial ownership (see footnote
2 above).
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<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning
compensation paid or accrued for the fiscal years indicated below by the Company
and its subsidiaries to or on behalf of the Company's Chief Executive Officer
and each of the four other most highly compensated executive officers for the
fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- AWARDS
NAME AND ------------ ALL OTHER
PRINCIPAL POSITION(S) YEAR(1) SALARY($)(2) BONUS($)(3) OPTIONS(#) COMPENSATION($)(4)
--------------------- ------- ------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Mark A. Vidovich 1997 $300,000 $ 0 75,000 $2,250
Chief Executive Officer 1996 300,000 285,480 75,875 2,966
and Chairman of the Board 1995 200,000 122,000 50,000 3,000
James E. Freeman, Jr. 1997 250,000 0 50,000 2,250
President and 1996 250,000 230,100 50,000 2,570
Chief Operating Officer 1995 175,000 103,250 25,000 2,625
Dennis K. Marquardt 1997 150,000 0 10,000 2,250
Executive Vice President, 1996 150,000 131,040 10,000 2,310
Finance & Administration 1995 150,000 84,000 10,000 2,250
and Chief Financial Officer
Dennis G. Baglama 1997 132,000 0 10,000 1,980
Vice President, Sales 1996 132,000 111,197 10,000 1,569
1995 132,000 71,200 5,000 1,980
Ronald M. Bianco 1997 132,000 0 10,000 1,980
Vice President, 1996 132,000 111,197 10,000 2,358
Product Development 1995 125,000 52,188 5,000 1,875
</TABLE>
- ----------
(1) The years 1997, 1996 and 1995 refer to the twelve months ended June 30,
1997, 1996 and 1995, respectively.
(2) Includes amounts, if any, deferred by the named officer under the Company's
401(k) Plan.
(3) No bonuses were earned by the named officers for the fiscal year ended
June 30, 1997.
(4) All amounts shown represent Company matching contributions allocated under
the Company's 401(k) Plan to the accounts of the named officers.
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<PAGE> 11
OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth certain information concerning stock
option grants in the fiscal year ended June 30, 1997 to the executive officers
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
--------------------------------------------------- ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED(#)(1) IN FY 1997(2) ($/SHARE) DATE 5%($) 10%($)
---- ------------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich 75,000 32.3% $26.00 7/9/06 $1,226,345 $3,107,798
James E. Freeman, Jr. 50,000 21.5 26.00 7/9/06 817,563 2,071,865
Dennis K. Marquardt 10,000 4.3 26.00 7/9/06 163,513 414,373
Dennis G. Baglama 10,000 4.3 26.00 7/9/06 163,513 414,373
Ronald M. Bianco 10,000 4.3 26.00 7/9/06 163,513 414,373
</TABLE>
- ----------
(1) Such options were granted under the Company's 1995 Stock Option Plan (the
"1995 Plan"), vest and become exercisable in 20 equal quarterly
installments over five years and were granted for terms of ten years
subject to earlier termination under certain circumstances relating to
termination of employment. The exercise prices of such options represent
the reported closing sales price of the Company's Common Stock on The
Nasdaq Stock Market on the grant date.
(2) The Company granted options to purchase an aggregate of 232,500 shares of
Common Stock under the 1995 Plan to employees in the fiscal year ended June
30, 1997.
(3) Potential values are net of exercise price and before taxes payable in
connection with the exercise of such options or the subsequent sale of
shares acquired upon the exercise of such options. These values represent
certain assumed rates of appreciation of the Company's Common Stock (i.e.,
5% and 10% compounded annually over the term of such options) based on the
SEC's rules. The actual values will depend upon, among other factors, the
future performance of the Company's Common Stock, overall market conditions
and the named officer's continued employment with the Company. Therefore,
the potential values reflected in this table may vary from those actually
achieved.
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<PAGE> 12
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND OPTION VALUES AT JUNE 30,
1997
The following table sets forth certain information concerning
unexercised options held as of June 30, 1997 by the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT 6/30/97 OPTIONS AT 6/30/97(2)
ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich 0 $ -- 250,237 199,513 $5,014,344 $2,929,194
James E. Freeman, Jr. 0 -- 96,750 121,250 1,767,188 1,715,313
Dennis K. Marquardt 0 -- 50,695 27,405 1,036,665 394,035
Dennis G. Baglama 0 -- 20,750 24,250 397,563 347,313
Ronald M. Bianco 0 -- 36,000 24,000 731,938 341,813
</TABLE>
- ----------
(1) Such value represents the difference between the market value of the shares
acquired upon exercise of such options (calculated using the closing sales
price of the Company's Common Stock on the date of exercise as reported on
The Nasdaq Stock Market) and the exercise price of such options.
(2) Such value represents the difference between the market value of the shares
underlying such "in-the-money" options (calculated using the closing sales
price (i.e., $33.25) of the Company's Common Stock on June 30, 1997 as
reported on The Nasdaq Stock Market) and the exercise price of such
options.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
OFFICER SEVERANCE PLAN
In 1993, the Company implemented an officer severance plan (the
"Severance Plan") under which officers of the Company are entitled to receive
certain severance benefits following termination of employment, if such
termination is non-temporary, involuntary and without cause. In addition, if
there is a "change in control" of the Company, an officer will receive benefits
under the Severance Plan if such officer terminates his or her employment with
the Company either for any reason within one year following the change in
control or for "good reason" (which includes the assignment to the officer of
duties significantly inconsistent with his or her prior position or a reduction
in his or her compensation or benefits) within two years following such change
in control.
Each eligible officer is entitled to severance pay based on his or her
highest annual compensation (i.e., base salary plus automobile allowance), the
number of years employed by the Company and the highest office attained prior to
termination. The amounts that would be payable under the Severance Plan to
Messrs. Vidovich, Freeman, Marquardt, Baglama and Bianco if their employment
were terminated as of September 1, 1997 and they were eligible for severance
benefits under the Severance Plan would be $384,000, $214,333, $183,400,
$115,000, and $115,000, respectively.
-10-
<PAGE> 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Jill Tate Higgins
(Chairperson), Charles Miller and Alan R. Rachlin, all of whom are outside
directors. No member of the Compensation Committee is a current or former
officer or employee of the Company or any of its subsidiaries.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are certain transactions entered into between the Company
and its officers, directors and principal stockholders and their affiliates
since July 1, 1996:
In December 1996, the Company granted to each of James Higgins, Jill
Tate Higgins, Charles Miller, Alan Rachlin, Boyd Willat and Felice Willat, all
of whom are non-employee directors of the Company, warrants to purchase 25,000
shares of the Company's Common Stock at an exercise price of $23.5625 per share
(i.e., the closing sales price of the Company's Common Stock on the date of
grant). Such warrants vest in 60 equal monthly installments with the first of
such installments vesting on January 1, 1997 and one additional installment
vesting on the first day of each calendar month thereafter as long as the holder
remains a director of the Company.
In August 1997, the Company granted to each of Mark Vidovich, Dennis
Marquardt, Dennis Baglama, Ronald Bianco, Stan Littley and Judy Tucker warrants
to purchase 15,000 shares of the Company's Common Stock and to John Kirkland
warrants to purchase 5,000 shares of the Company's Common Stock. All of such
warrants were granted to such officers of the Company in recognition of their
contributions to and tenure with the Company. The exercise price of all of such
warrants is $33.75 per share (i.e., the closing sales price of the Company's
Common Stock on the date of grant), and the warrants vested and became
exercisable immediately.
In August 1997, the Company repurchased from certain directors and
officers of the Company an aggregate of 347,794 shares of the Company's Common
Stock at a repurchase price of $33.25 per share (i.e., the closing sales price
of the Company's Common Stock on the date of the repurchase). The officers and
directors from whom such shares were repurchased and the number of shares
repurchased from them are set forth below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
OF OFFICER REPURCHASED AGGREGATE
OR DIRECTOR BY THE COMPANY PURCHASE PRICE
----------- ------------------ --------------
<S> <C> <C>
Mark A. Vidovich 70,000 $ 2,327,500
James E. Freeman, Jr. 27,329 908,689
James P. Higgins 3,500 116,375
Jill Tate Higgins 101,174* 3,364,035
Charles Miller 3,267 108,628
Alan R. Rachlin 34,500 1,147,125
</TABLE>
- --------
* Of such shares, (i) 91,174 shares were repurchased from O.S. II, Inc., a
California corporation of which Ms. Higgins, along with one of her minor
children, is the sole owner, and (ii) 10,000 shares were repurchased from
Lakeside Enterprises, L.P., a California limited partnership of which Ms.
Higgins is the general partner.
-11-
<PAGE> 14
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
OF OFFICER REPURCHASED AGGREGATE
OR DIRECTOR BY THE COMPANY PURCHASE PRICE
----------- ------------------ --------------
<S> <C> <C>
Boyd I. Willat 23,236 $ 772,597
Felice Willat 31,210 1,037,732
Dennis K. Marquardt 21,000 698,250
Dennis G. Baglama 6,930 230,422
Ronald M. Bianco 10,000 332,500
Donald W. Bottinelli 2,163 71,920
Stan Littley 4,158 138,254
Judy Tucker 7,827 260,248
Richard J. Whatley 1,500 49,876
------- -----------
Total 347,794 $11,564,151
======= ===========
</TABLE>
See "Election of Directors - Compensation of Directors."
The following Compensation Committee Report on Executive Compensation
and the Performance Graph on page 15 shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such information by reference, and shall not otherwise
be deemed filed under such Acts.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for determining and approving
the annual compensation to be paid and the benefits to be provided to the
Company's executive officers and for administering the Company's stock option
plans. The Company's compensation program is designed to attract, retain and
motivate qualified executive officers who the Company believes will contribute
to its long-term success. The Company's compensation program is comprised
primarily of annual base salaries, stock option grants and cash bonuses based on
the Company's fiscal year financial performance. In addition, executive officers
are eligible to participate in the Company's employee stock purchase plan and
receive automobile allowances, group life insurance and health benefits as part
of their overall compensation. The Committee considers each component of
compensation within the context of the entire officer compensation program in
making its determinations.
The Compensation Committee of the Board of Directors during fiscal 1997
consisted of Jill Tate Higgins (Chairperson), Charles Miller and Alan R.
Rachlin, all of whom are outside directors. Although Mr. Vidovich, the Company's
Chief Executive Officer, is invited from time to time to attend meetings of the
Compensation Committee and periodically consults with and makes recommendations
to the Committee regarding officer compensation, he is not entitled to vote on
any matters under consideration by the Committee and does not participate in
discussions during Committee meetings regarding the setting of his annual base
salary, the award of any bonus to him or the grant of stock options to him.
-12-
<PAGE> 15
Annual Base Salaries. The Compensation Committee reviews and approves
the annual base salaries of all executive officers (including the Chief
Executive Officer). In determining annual base salaries, the Committee considers
both subjective and objective factors, including, among others, an officer's
responsibilities, experience and qualifications, job performance, contributions
and length of service to the Company, general information concerning competitive
salaries and the Company's financial results and condition. For fiscal 1997, the
Compensation Committee did not increase annual base salaries of the Company's
executive officers over fiscal 1996 levels principally because of the
Committee's belief that (i) such officers' base salaries were adequate and
appropriate in light of the foregoing factors and (ii) the principal opportunity
for increased compensation should be incentive-based and depend on appreciation
in the value of the Company's Common Stock subject to or acquired upon the
exercise of stock options granted to such officers and bonuses based on the
Company's financial performance.
Bonuses. The Compensation Committee believes that a significant portion
of an officer's overall compensation should be incentive-based and directly
linked to the financial performance of the Company and to the Company's goal of
increasing stockholder value. Under the terms of the officer bonus plan adopted
for fiscal year 1997 (the "Fiscal 1997 Officer Bonus Plan") and administered by
the Compensation Committee, executive officers were entitled to receive cash
bonuses only if fiscal year 1997 after bonuses net income increased by at least
20% over the prior fiscal year's after bonuses net income. If such 20% net
income growth had been achieved, each officer would have been entitled to
receive a cash bonus based on a percentage of his or her annual base salary, and
such percentage increased as the rate of such net income growth achieved
exceeded 20%. Such bonuses are calculated and paid after completion of the
Company's annual audit. The minimum after bonuses net income at which officers
were eligible to receive bonuses under the Fiscal 1997 Officer Bonus Plan was
$14,182,000 (i.e., 120% of the Company's after bonuses net income for fiscal
year 1996). Based on fiscal 1997 after bonuses net income of $12,548,000, no
bonuses were earned by the Company's executive officers under the Fiscal 1997
Officer Bonus Plan.
Stock Options. Options to purchase the Company's Common Stock have
historically been and continue to be a key component of the Company's
compensation program. The Compensation Committee views the grant of stock
options as a valuable incentive that serves to attract, retain and motivate
executive officers and other key employees as well as to align their interests
more closely with the Company's goal of enhancing stockholder value. The
Committee reviews and considers recommendations by the Company's Chief Executive
Officer with regard to the grant of stock options to executive officers (other
than himself) and certain key employees. In determining the size, frequency and
other terms of an option grant to an executive officer, the Committee considers
a number of factors, including, among others, such officer's position,
responsibilities, job performance, prior option grants, contributions and length
of service to the Company and the value of his or her vested and unvested
previously granted stock options, if any.
The exercise price of options is not less than the market price on the
date of grant and, therefore, options will only have value if the stock price
increases over the option exercise price. Options generally vest in equal
quarterly installments over five years as long as the optionee remains an
employee of the Company and, therefore, encourage an optionee to remain in the
employ of the Company. In fiscal 1997, options to purchase an aggregate of
197,500 shares of Common Stock were granted to all executive officers as a group
and represented 84.9% of all options granted to the Company's employees in
fiscal 1997.
-13-
<PAGE> 16
Compensation of Chief Executive Officer. The Compensation Committee
generally considers the same factors in determining the Chief Executive
Officer's compensation as it considers with respect to the Company's other
executive officers. Mr. Vidovich's fiscal 1997 compensation combined an annual
base salary with a stock option grant, and thus reflects the Compensation
Committee's philosophy that a significant portion of the Chief Executive
Officer's overall compensation should be incentive-based.
Deductibility of Executive Compensation. Under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), a publicly held
corporation such as the Company will generally not be allowed a federal income
tax deduction for otherwise deductible compensation paid to the executive
officers named in the Summary Compensation Table to the extent that compensation
(including stock-based compensation) paid to a particular officer exceeds $1
million in any fiscal year. Qualifying performance-based compensation (including
compensation attributable to the exercise of stock options) will not be subject
to the deductibility limitation if certain conditions are met. Based upon the
Company's current compensation plans and policies and the regulations under
Section 162(m), it appears unlikely that the compensation to be paid to the
Company's executive officers for fiscal 1998 would exceed the $1 million
limitation per officer.
COMPENSATION COMMITTEE
Jill Tate Higgins, Chairperson
Charles Miller
Alan R. Rachlin
-14-
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's Common Stock with the cumulative total return of the Nasdaq Market
Index and of a selected peer group of publicly traded companies (the "Selected
Peer Group") having the same four-digit standard industrial code (SIC) as the
Company (SIC Code 2782 -- Blankbooks, Looseleaf Binders and Devices) for the
period commencing July 1, 1992 and ended June 30, 1997. The Selected Peer Group
is currently comprised of Deluxe Corp., Franklin Covey Co., John H.
Harland Co. and Day Runner.
The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG DAY RUNNER, THE NASDAQ MARKET INDEX AND SELECTED PEER GROUP
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
<S> <C> <C> <C> <C> <C> <C>
Day Runner $100 $ 84.78 $160.87 $150.00 $225.00 $289.13
Nasdaq Market Index 100 122.76 134.61 157.88 198.73 239.40
Selected Peer Group 100 101.06 84.76 95.71 105.11 107.97
</TABLE>
- ----------
* Assumes (i) $100 invested on July 1, 1992 in each of the Company's Common
Stock, the Nasdaq Market Index and the Selected Peer Group and (ii)
immediate reinvestment of all dividends, if any.
-15-
<PAGE> 18
PROPOSAL 2 - APPROVAL OF AMENDMENT TO
THE COMPANY'S 1995 STOCK OPTION PLAN
In 1995, the Board of Directors of the Company adopted and the Company's
stockholders approved the 1995 Stock Option Plan (the "1995 Plan") under which
300,000 shares of Common Stock were initially reserved for issuance pursuant to
the exercise of stock options granted thereunder. The 1995 Plan was amended in
1996 to increase the number of shares authorized for issuance thereunder by
200,000 shares.
In September 1997, the Board of Directors adopted, subject to
stockholder approval, an amendment to the 1995 Plan to increase the number of
shares authorized for issuance thereunder by 275,000 shares. Such proposed
increase represents less than 5% of the number of issued and outstanding shares
of the Company's Common Stock as of October 1, 1997. If such amendment is
approved, a total of 775,000 shares will have been authorized for issuance under
the 1995 Plan since its inception. As of October 1, 1997, 4,513 shares had been
issued upon the exercise of options under the 1995 Plan, 472,987 shares were
subject to outstanding options, and 22,500 shares (not including the
275,000-share increase subject to stockholder approval at the Annual Meeting)
remained available for option grants under the 1995 Plan. To the extent options
are granted to purchase any of such additional 275,000 shares prior to obtaining
stockholder approval of such amendment, such options will be expressly
conditioned upon obtaining such approval.
AT THE ANNUAL MEETING, THE STOCKHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE AMENDMENT TO THE 1995 PLAN INCREASING THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER BY 275,000 SHARES. THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE SHARES OF THE COMPANY'S COMMON STOCK PRESENT OR REPRESENTED AND
ENTITLED TO VOTE AT THE ANNUAL MEETING WILL BE REQUIRED TO APPROVE THE AMENDMENT
TO THE 1995 PLAN. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE 1995 PLAN.
NEW PLAN BENEFITS
Grants under the 1995 Plan are made at the discretion of the
Compensation Committee to whom the Board of Directors has delegated the
administration of the 1995 Plan. Because future optionees, the number of shares
subject to option grants and exercise prices have not yet been determined,
future grants under the 1995 Plan are not yet determinable.
A summary of the principal provisions of the 1995 Plan is set forth
below and is qualified in its entirety by reference to the 1995 Plan. A copy of
the 1995 Plan is available from the Company's Secretary upon request.
PURPOSE
The purposes of the 1995 Plan are to (i) attract and retain the services
of selected key employees of the Company who are in a position to make a
material contribution to the successful operation of the Company's business;
(ii) motivate such persons, by means of performance-related incentives, to
achieve the Company's business goals; and (iii) enable such persons to
participate in the long-term growth and
-16-
<PAGE> 19
financial success of the Company by providing them with an opportunity to
purchase stock of the Company.
ADMINISTRATION
The 1995 Plan may be administered by the Board of Directors or, upon
appointment by the Board, by a committee composed of two or more Board members.
The 1995 Plan is currently administered by the Compensation Committee, comprised
of outside directors, which has been authorized to approve the grant and terms
of options. The interpretation and construction of any provision of the 1995
Plan is within the sole discretion of the members of the Board or its committee,
whose determination is final and binding.
ELIGIBILITY
The 1995 Plan provides that non-statutory stock options and incentive
stock options may be granted to employees (including officers and directors who
are also employees) of the Company and that non-statutory stock options may also
be granted to consultants to the Company. As administrator of the 1995 Plan, the
Compensation Committee selects the optionees and determines the type of option
(i.e., incentive or non-statutory) and the number of shares to be subject to
each option. In making such determination, there is taken into account a number
of factors, including an employee's position and responsibilities, individual
job performance, prior stock option grants (if any), contributions and length of
service to the Company, the value of his or her vested and unvested previously
granted options, if any, and other relevant factors. As of October 1, 1997,
approximately 1,186 persons were eligible to receive options and 18 optionees
were holding options under the 1995 Plan.
TERMS OF OPTIONS
Options granted under the 1995 Plan may be either "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-statutory stock options. Each option is evidenced
by a written stock option agreement between the Company and the optionee and is
subject to the following additional terms and conditions:
(a) Number of Shares: The aggregate fair market value (determined as
of the grant date) of the stock for which an employee may be
granted incentive stock options that first become exercisable
during any one calendar year under all the Company's plans may
not exceed $100,000. In addition, the maximum number of shares
which may be awarded as options under the 1995 Plan during any
calendar year to any one optionee may not exceed 100,000 shares.
(b) Exercise of the Option: The optionee must earn the right to
exercise the option by continuing to work for the Company.
Options granted under the 1995 Plan vest and become exercisable
at such times and in such cumulative installments as the Board of
Directors or its committee determines subject to earlier
termination of the option upon termination of the optionee's
employment for any reason. The form of payment for shares to be
issued upon the exercise of an option may, in the discretion of
the Board of Directors or its committee, consist of cash, check,
the delivery of shares of Common Stock, a combination thereof or
such other consideration as is determined by the Board of
Directors or its committee.
-17-
<PAGE> 20
(c) Exercise Price: The exercise price per share for the shares to be
issued pursuant to the exercise of an option is determined by the
Board of Directors or its committee and may not be less than 100%
of the fair market value of the Common Stock on the grant date
with respect to both non-statutory and incentive stock options.
The fair market value of the Common Stock on the date of an
option grant is equal to the closing sales price of the Common
Stock on the date of the option grant as reported on The Nasdaq
Stock Market. On October 13, 1997, the closing sales price of the
Company's Common Stock on The Nasdaq Stock Market was $40.50 per
share.
(d) Termination of Employment: If an optionee's employment with the
Company is terminated for any reason, other than death, total and
permanent disability or termination "for cause" (as defined in
the 1995 Plan), his or her options may be exercised at any time
within 90 days after such termination as to all or part of the
shares as to which the optionee was entitled to exercise the
options at the time of termination. If the optionee's employment
with the Company is terminated for cause, his or her options may
be exercised at any time within 30 days after such termination to
the extent such options are vested and not exercised as of such
date.
(e) Death or Disability: If an optionee should die or become
permanently and totally disabled while employed by the Company,
his or her options may be exercised at any time within 180 days
after such death or disability, but only to the extent the
optionee was entitled to exercise the options at the date of his
or her termination of employment due to such death or disability.
(f) Expiration of Options: Options may not have a term greater than
ten years from the grant date for an incentive stock option or
ten years plus one day from the grant date for a non-statutory
stock option. No option may be exercised after its expiration.
(g) Nontransferability of Options: An option is nontransferable by
the optionee, other than by will or by the laws of descent and
distribution or transfers between spouses incident to a divorce,
and is exercisable only by the optionee or his or her legal
guardian during the lifetime of the optionee or, in the event of
death of the optionee, by the estate of the optionee or by a
person who acquires the right to exercise the option by bequest
or inheritance.
(h) Other Provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1995
Plan as may be determined by the Board of Directors or its
committee.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event that a change, such as a stock split or stock dividend, is
made in the Company's capitalization which affects the stock for which options
are exercisable under the 1995 Plan, appropriate adjustment will be made in the
exercise price of and the number of shares covered by outstanding options and in
the number of shares available for issuance under the 1995 Plan. In the event of
a dissolution or liquidation of the Company, a sale of all or substantially all
of the assets of the Company, or the merger or consolidation of the Company with
or into another corporation as a result of which the Company is not the
surviving and controlling corporation, outstanding options will be assumed by
the successor corporation or the Board of Directors will declare that any option
will terminate as of a date
-18-
<PAGE> 21
fixed by the Board which is at least 30 days after notice thereof is given to
optionees and permit each optionee to exercise his or her options as to all or
any portion of the shares covered by such options, including shares as to which
the options would not otherwise be exercisable.
AMENDMENT AND TERMINATION
The Board of Directors or its committee may amend or terminate the 1995
Plan at any time or from time to time without the approval of the Company's
stockholders; provided, however, that approval of the holders of voting shares
represented or present and entitled to vote is required for any amendment to the
1995 Plan which would: (i) materially increase the number of shares which may be
issued thereunder other than in connection with an adjustment upon changes in
capitalization; (ii) materially change the designation of the class of persons
eligible to participate in the 1995 Plan; (iii) remove the administration of the
1995 Plan from the Board of Directors or its committee; (iv) extend the term of
the 1995 Plan beyond its initial ten-year term; (v) materially increase the
benefits to participants under the 1995 Plan; or (vi) materially modify the
requirements as to eligibility for participation in the 1995 Plan. In any event,
the 1995 Plan will terminate on the tenth anniversary of its approval by the
stockholders of the Company (i.e., December 5, 2005) provided that any options
then outstanding will remain outstanding until they expire by their terms.
TAX INFORMATION
The federal tax consequences of options are complex and subject to
change. The following discussion is only a brief summary of the general federal
income tax rules currently in effect which are applicable to stock options. A
taxpayer's particular situation may be such that some variation of the general
rules may apply. This summary does not cover the state, local or foreign tax
consequences of the grant or exercise of options under the 1995 Plan or the
disposition of shares acquired upon exercise of such options or federal estate
tax or state estate, inheritance or death taxes.
INCENTIVE STOCK OPTIONS
If an option granted under the 1995 Plan is treated as an "incentive
stock option" as defined in Section 422 of the Code, then the optionee will not
recognize any income for regular income tax purposes upon either the grant or
the exercise of the option and the Company will not be allowed a deduction for
federal tax purposes. Upon a sale of the shares, the tax treatment to the
optionee and the Company will depend primarily upon whether the optionee has met
certain holding period requirements at the time of sale. In addition, as
discussed below, the exercise of an incentive stock option may subject the
optionee to alternative minimum tax liability in the year of exercise.
If an optionee exercises an incentive stock option and does not dispose
of the shares received within two years of the date of the grant of such option
and within one year after the exercise of the option, whichever period ends
later, any gain realized upon disposition will be characterized as capital gain,
and any loss will be capital loss. In either such case, the Company will not be
entitled to a federal income tax deduction. If the optionee's holding period for
the shares (without "tacking on" any holding period for the option) exceeds 18
months, then the gain will be subject to a maximum federal tax rate of 20%;
otherwise, the maximum federal tax rate will be 28%.
If the optionee disposes of the shares either within two years after the
date the option is granted or within one year after the exercise of the option,
such disposition will be treated as a disqualifying disposition and an amount
equal to the lesser of (i) the fair market value of the shares on the date of
-19-
<PAGE> 22
exercise less the purchase price or (ii) the amount realized on the disposition
less the purchase price will be taxed as ordinary income in the taxable year in
which the disposition occurs. Any such ordinary income will increase the
optionee's tax basis for purposes of determining gain or loss on the sale or
exchange of such shares. The excess, if any, of the amount realized over the
fair market value of the shares at the time of the exercise of the option will
be treated as short-term or long-term capital gain, as the case may be, and any
loss realized upon the disposition will be treated as a capital loss. An
optionee will generally be considered to have disposed of shares if he or she
sells, exchanges, makes a gift of or transfers legal title to such shares
(except by pledge, in certain non-taxable exchanges, a transfer in insolvency
proceedings, incident to a divorce, or upon death). If the amount realized is
less than the purchase price, generally the optionee will not recognize income.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability in the year of exercise because the excess of
the fair market value of the shares at the time an incentive stock option is
exercised over the option price is an adjustment in determining an optionee's
alternative minimum taxable income for such year. Consequently, an optionee may
be obligated to pay alternative minimum tax in the year he or she exercises an
incentive stock option. If a disqualifying disposition occurs in the same year
as an option is exercised, the amount of ordinary income resulting from such
disposition may offset any adjustment to alternative minimum taxable income for
the year of exercise. In the case of a disqualifying disposition which occurs
after the year of exercise, an individual would be required to recognize an
adjustment to alternative minimum taxable income in the year of exercise and
ordinary income in the year of such disqualifying disposition in an amount
determined under the rules described above. An optionee's alternative minimum
tax liability is affected by the availability of a special credit, a basis
adjustment and other complex rules. Optionees are urged to consult their tax
advisors concerning the applicability of the alternative minimum tax to their
own circumstances.
In general, there will be no federal tax consequences to the Company
upon the grant, exercise or termination of an incentive stock option. However,
in the event an optionee sells or disposes of stock received upon the exercise
of an incentive stock option prior to satisfying the two-year and one-year
holding periods described above, the Company will be entitled to a deduction for
federal income tax purposes in an amount equal to the ordinary income, if any,
recognized by the optionee upon disposition of the shares.
NON-STATUTORY STOCK OPTIONS
Non-statutory stock options granted under the 1995 Plan do not qualify
as "incentive stock options" and, accordingly, do not qualify for any special
tax benefits to the optionee. An optionee will not recognize any income at the
time he or she is granted a non-statutory option. However, upon its exercise,
the optionee will generally recognize ordinary income for federal income tax
purposes measured by the excess of the then fair market value of the shares over
the option price. The income realized by the optionee will be subject to income
tax withholding by the Company out of the compensation paid to the optionee. If
such earnings are insufficient to pay the withholding tax, the optionee will be
required to make a direct payment to the Company to cover the withholding tax
liability.
Upon a sale of any shares acquired pursuant to the exercise of a
non-statutory stock option, the difference between the sale price and the
optionee's basis in the shares will be treated as a long-term, medium-term or
short-term capital gain or loss, as the case may be, depending on the optionee's
holding period for the shares without "tacking on" any holding period for the
option. The optionee's basis for determination of such gain or loss will
ordinarily be the sum of (i) the amount paid for such shares plus
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<PAGE> 23
(ii) any ordinary income recognized by the optionee as a result of the exercise
of such option. A capital gain will be eligible for a 20% maximum federal tax
rate if the holding period for the shares purchased upon exercise of the option
is at least 18 months plus one day. If the holding period for the shares is
shorter, the maximum federal tax rate will be 28%.
In general, there will be no federal tax consequences to the Company
upon the grant or termination of a non-statutory stock option or the sale or
disposition of the shares acquired upon exercise of a non-statutory stock
option. However, upon the exercise of a non-statutory stock option, the Company
will be entitled to a deduction to the extent and in the year that ordinary
income from the exercise of the option is recognized by the optionee, provided
the Company has satisfied its reporting obligations under the Code and relevant
regulations relating to the reporting of the transaction to the Internal Revenue
Service and the optionee.
PROPOSAL 3 - APPROVAL OF AMENDMENT TO THE
COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
In 1992, the Board of Directors of the Company adopted and the
stockholders of the Company approved the Company's Employee Stock Purchase Plan
(the "Purchase Plan") under which 100,000 shares of Common Stock have been
reserved for issuance.
In September 1997, the Board of Directors amended the Purchase Plan,
subject to stockholder approval, to increase the number of shares authorized for
issuance thereunder by an additional 75,000 shares. If the amendment is
approved, a total of 175,000 shares will have been authorized for issuance under
the Purchase Plan since its inception (of which 81,773 shares had been issued as
of October 1, 1997).
AT THE ANNUAL MEETING, THE STOCKHOLDERS WILL BE REQUESTED TO CONSIDER
AND APPROVE THE AMENDMENT TO THE PURCHASE PLAN INCREASING THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE THEREUNDER BY 75,000 SHARES. THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE SHARES OF THE COMPANY'S COMMON STOCK PRESENT OR REPRESENTED AND
ENTITLED TO VOTE AT THE ANNUAL MEETING WILL BE REQUIRED TO APPROVE SUCH
AMENDMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT.
NEW PLAN BENEFITS
Purchases of the Company's Common Stock under the Purchase Plan are made
at the discretion of the participants therein. Accordingly, future purchases
under the Purchase Plan are not yet determinable.
A summary of the principal provisions of the Purchase Plan is set forth
below and is qualified in its entirety by reference to the Purchase Plan.
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company
with an opportunity to purchase Common Stock of the Company from the Company
through payroll deductions.
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<PAGE> 24
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or by a
committee appointed by the Board of Directors and is currently administered by
the Compensation Committee of the Board of Directors. Members of the Board of
Directors or its committee who are eligible employees are, subject to certain
limitations, permitted to participate in the Purchase Plan. The interpretation
and construction of any provision of the Purchase Plan is within the sole
discretion of the Board of Directors or its committee, whose determination is
final, conclusive and binding upon all participants. No charges for
administrative or other costs may be made against the payroll deductions of a
participant in the Purchase Plan. Members of the Board of Directors receive no
additional compensation for their services in connection with the administration
of the Purchase Plan.
ELIGIBILITY
All employees, including officers and directors, who have been employed
by the Company or its subsidiaries for six months or more, who are customarily
employed by the Company or its subsidiaries for more than 20 hours per week and
five months or more per calendar year and who are employed by the Company or its
subsidiaries at the beginning of an applicable offering period are eligible to
participate in an offering under the Purchase Plan, subject to certain
limitations imposed by Section 423(b) of the Code and limitations on stock
ownership set forth in the Purchase Plan.
PARTICIPATION IN THE PLAN
The Purchase Plan is implemented by one offering during each six-month
period. Offering periods commence on January 1 and July 1 of each year. The
first offering period began on July 1, 1992. The Board of Directors has the
power to alter the duration of the offering periods without stockholder
approval. Eligible employees become participants in the Purchase Plan by
completing a subscription agreement authorizing payroll deductions and
delivering it to the Company's payroll office not less than 15 days prior to the
first offering date with respect to which it is to be effective. An employee's
participation continues from offering period to offering period at the deduction
rate authorized in the subscription agreement unless the participant makes a
timely election of a different rate or withdraws from the Purchase Plan. An
employee who becomes eligible to participate in the Purchase Plan after the
commencement of an offering may not participate until the next offering period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering
under the Purchase Plan is the lower of 85% of the fair market value of a share
of Common Stock on the first day of the offering period or 85% of the fair
market value of a share of Common Stock on the last day of the offering period.
The fair market value of the Common Stock on a given date is equal to the
closing sales price of the Common Stock on such date as reported in The Wall
Street Journal. On October 13, 1997, the closing sales price of the Company's
Common Stock on The Nasdaq Stock Market was $40.50 per share.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The rate of deductions may not exceed 15%, or such
other rate as may be determined from time to time by the Board of Directors, of
a participant's compensation and a participant may not increase or decrease the
rate of deduction for an offering period after it commences. Payroll deductions
for a participant
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commence on the first payday following the date of commencement of the offering
period and continue thereafter from offering period to offering period at the
same rate unless such rate is changed or the employee's participation is
terminated as provided in the Purchase Plan. A participant may elect to change
his or her percentage rate of payroll deduction only by completing and filing a
new subscription agreement with the Company not less than 15 days prior to the
first day of the offering period with respect to which it is to become
effective.
All payroll deductions are credited to the participant's account under
the Purchase Plan and are deposited with the general funds of the Company. Any
cash remaining to the credit of a participant's account after the purchase of
shares at the end of an offering period, other than an amount representing a
fractional share, will be returned to the participant without interest. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase
Plan, an employee is entitled to have shares placed under option to him or her.
The maximum number of shares which may be placed under an option is that number
of full shares of Common Stock determined by dividing an amount equal to 5% of a
participant's aggregate compensation for the 12 calendar months preceding the
offering period by 85% of the fair market value of a share of the Common Stock
at the beginning of such offering period. In other words, although the actual
purchase price per share upon the exercise of an option under the Purchase Plan
will be the lesser of 85% of the fair market value of the Common Stock on the
first day of the offering period or on the last day of the offering period, the
maximum number of shares which may be purchased upon the exercise of an option
at the end of an offering period will not exceed that number calculated in
accordance with the formula in the preceding sentence.
Unless an employee's participation in the Purchase Plan is terminated,
his or her option for the purchase of shares is exercised automatically on the
last day of the offering period at the applicable price. The shares purchased
for an employee are delivered to him or her as promptly as practicable after the
end of the applicable offering period, together with any cash remaining to the
credit of his or her account under the Purchase Plan after the purchase of
shares, other than any amount representing a fractional share. Any amount
representing a fractional share will be credited to a participant's account for
the next offering.
Notwithstanding the foregoing, no employee is permitted to subscribe for
shares under the Purchase Plan if, immediately after the grant of an option
thereunder, the employee would own 5% or more of the voting stock or value of
all classes of stock of the Company or any of its subsidiaries (including stock
which may be purchased through subscriptions under the Purchase Plan or pursuant
to any other options), nor may any employee be granted an option under an
employee stock purchase plan (within the meaning of Section 423 of the Code and
any successor provision) which would permit the employee to buy more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time the option is granted) in any calendar year. Furthermore, if the number of
shares which would otherwise be placed under option at the beginning of an
offering period exceeds the number of shares then available under the Purchase
Plan, a pro rata allocation of the shares remaining will be made in as equitable
a manner as is practicable.
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WITHDRAWAL
Although each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, a participant can
discontinue his or her participation in a given offering in whole, but not in
part, by signing and delivering to the Company a notice of option cancellation
and withdrawal from the Purchase Plan at any time prior to the end of an
offering period. Promptly after such withdrawal, all payroll deductions credited
to the employee's account will be returned to him or her without interest and no
further payroll deductions will be made during the offering period.
Any withdrawal by an employee of accumulated payroll deductions for a
given offering automatically terminates the employee's interest in that
offering. In effect, the employee is given an option which may or may not be
exercised upon termination of the applicable offering period. By executing the
subscription agreement to participate in the Purchase Plan, an employee does not
become obligated to make the stock purchase; rather the subscription agreement
is merely an election by the employee to place shares under option to him or
her. Unless an employee's participation is terminated, his or her option for the
purchase of shares will be exercised automatically at the end of the offering
period, and the maximum number of full shares purchasable with the employee's
accumulated payroll deductions will be purchased for the employee at the
applicable price.
A participant's withdrawal from an offering or an employee's decision
not to participate in an offering does not have any effect upon such
participant's eligibility to participate in subsequent offerings under the
Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement, death or the failure of a participant to remain in the continuous
employ of the Company for more than 20 hours per week during the offering
period, terminates his or her participation in the Purchase Plan. In such event,
the payroll deductions credited to the participant's account will be returned
without interest to such participant, or, in the case of death, to the person or
persons entitled thereto as specified by the participant in the subscription
agreement.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by an option under the Purchase Plan
and the number of shares which are available for issuance, as well as the option
price per share of an unexercised option, will be proportionately adjusted for
any change in the number of shares of Common Stock resulting from a stock split,
stock dividend, spin-off, reorganization, recapitalization, merger,
consolidation, exchange of shares or the like. In the event of a dissolution or
liquidation of the Company, a sale of all or substantially all of the assets of
the Company, or the merger or consolidation of the Company with or into another
corporation, outstanding options will be assumed by the successor corporation or
the Board will declare that any option will terminate as of a date fixed by the
Board of Directors or its committee which is at least 30 days after notice
thereof is given to participants. Unless a participant terminates his or her
participation in the Purchase Plan prior to such date, his or her option to
purchase shares will be automatically exercised on such date and the accumulated
payroll deductions credited to a participant's account on such date will be
applied to purchase whole shares of the Company's Common Stock (up to the
maximum number of shares subject to his or her option).
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NONASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Plan may be pledged, assigned or transferred for any reason (other than
upon the death of an employee or pursuant to a qualified domestic relations
order or ERISA as provided in the Purchase Plan), and any such attempt may be
treated by the Company as an election by the participant to withdraw from the
Purchase Plan.
DESIGNATION OF BENEFICIARY
A participant may file a written designation of a beneficiary who is to
receive any shares and/or cash from the participant's account under the Purchase
Plan in the event of such participant's death. Such designation of beneficiary
may be changed by the participant at any time by written notice to the Company.
In the event of the death of a participant and in the absence of a validly
designated beneficiary who is living at the time of the participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the participant's estate, or if no such person has been appointed, then to
such person as the Company determines in its discretion.
REPORTS
Individual accounts are maintained for each Purchase Plan participant.
Each participant receives as promptly as practicable after the end of each
offering period a report of his or her account setting forth the total amount of
accumulated payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any, in his or her account.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board of Directors may at any time amend or terminate the Purchase
Plan, except that any termination may not affect options previously granted
thereunder nor may any amendment make any change in an option granted prior
thereto which adversely affects the rights of any participant without his or her
prior written consent. No amendment may be made to the Purchase Plan without
prior approval of the Company's stockholders if such amendment would increase
the number of shares reserved under the Purchase Plan, modify the eligibility
requirements or materially increase the benefits which may accrue to
participants under the Purchase Plan. In any event, the Purchase Plan will
terminate on the tenth anniversary of its adoption by the Board of Directors
(i.e., January 29, 2002), provided that such termination shall not affect
options previously granted and then outstanding.
TAX INFORMATION
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of an option or purchase of shares. As summarized below, a
participant will become liable for tax upon disposition of the shares acquired
under the Purchase Plan.
If shares are disposed of at a gain by a participant at least two years
after the date of the beginning of the offering period in which such shares were
acquired, then the lesser of (a) the excess of the fair market value of the
shares at the time of such disposition over the purchase price of the shares or
(b) the excess of the fair market value of the shares at the beginning of the
offering period in which such shares were acquired over the purchase price of
the shares (computed as of the commencement of such offering period) will be
treated as ordinary income to the participant. Any further gain upon such
disposition will be treated as capital gain. The maximum federal tax rate on any
such capital gain will be
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20%, so long as the participant's holding period for the shares sold exceeds 18
months. If the shares are sold and the sales price is less than the purchase
price, the participant will not recognize any ordinary income and will have a
long-term capital loss equal to the difference. The Company will not be allowed
an income tax deduction in connection with any disposition described in this
paragraph.
If shares are disposed of by a participant (including by way of gift)
before the expiration of the two-year holding period described above, the excess
of the fair market value of the shares on the date the option is exercised over
the purchase price of the shares will be treated as ordinary income to the
participant. This excess will constitute ordinary income in the year of sale or
other disposition even if no gain is realized on the sale or a gratuitous
transfer of the shares is made. In the event of such a disposition, the Company
is entitled to a deduction for the amount treated as ordinary income to a
participant. The balance of any gain realized on any such disposition will be
short-term, medium-term or long-term, depending on whether the shares were held
for less than one year, more than one year but not more than 18 months, or more
than 18 months. Short-term gains are taxed much like ordinary income;
medium-term gains are subject to a maximum federal tax rate of 28%; and
long-term gains are subject to a maximum federal tax rate of 20%. Even if the
shares are sold for less than their fair market value on the date the option was
exercised, the same amount of ordinary income will be attributed to a
participant and a capital loss will be recognized equal to the difference
between the sales price and the value of the shares on the option exercise date.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of the
shares.
PROPOSAL 4 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, independent
auditors, to audit the Company's consolidated financial statements for the
fiscal year ending June 30, 1998, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. A
representative of Deloitte & Touche LLP is expected to be present at the Annual
Meeting, will have an opportunity to make a statement if he or she desires to do
so and is expected to be available to respond to appropriate questions.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Annual
Meeting other than those described herein. If any other matters properly come
before the Annual Meeting, it is the intention of the persons named on the
enclosed proxy card to vote the shares they represent as the Board of Directors
may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
Dennis K. Marquardt
Secretary
Irvine, California
October 20, 1997
26
<PAGE> 29
APPENDIX A
DAY RUNNER, INC.
1995 STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSE OF THE PLAN.
Day Runner, Inc. hereby establishes this 1995 Stock Option Plan to
promote the interests of the Company and its stockholders by (i) helping to
attract and retain the services of selected key employees of the Company who
are in a position to make a material contribution to the successful operation
of the Company's business, (ii) motivating such persons, by means of
performance-related incentives, to achieve the Company's business goals and
(iii) enabling such persons to participate in the long-term growth and
financial success of the Company by providing them with an opportunity to
purchase stock of the Company.
2. DEFINITIONS.
The following definitions shall apply throughout the Plan:
a. "AFFILIATE" shall mean any entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Company.
b. "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
c. "CODE" shall mean the Internal Revenue Code of 1986, as
amended. References in the Plan to any section of the Code shall be deemed to
include any amendment or successor provisions to such section and any
regulations issued under such section.
d. "COMMITTEE" shall mean the committee of the Board of Directors
appointed in accordance with Section 4(a) of the Plan or, if no such committee
shall be appointed or in office, the Board of Directors.
e. "COMPANY" shall mean Day Runner, Inc., a Delaware corporation
(or any successor corporation), and any "subsidiary" corporation, whether now
or hereafter existing, as defined in Sections 424(f) and (g) of the Code.
f. "CONTINUOUS EMPLOYMENT" shall mean the absence of any
interruption or termination of employment by the Company. Continuous
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the Committee or in
the case of transfers between locations of the Company.
g. "DISABILITY" shall mean the inability of the Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or has lasted or can be expected to last for a continuous period of not
less than 12 months. In determining the Disability of an Optionee, the
<PAGE> 30
Committee may require the Optionee to furnish proof of the existence of
Disability and may select a physician to examine the Optionee. The final
determination as to the Disability of the Optionee shall be made by the
Committee.
h. "DISINTERESTED PERSON" shall mean an administrator of the Plan
who, during the one year prior to service as an administrator of the Plan, has
not been granted or awarded and, during such service, is not granted or awarded
stock, stock options or stock appreciation rights pursuant to the Plan or any
other plan of the Company or any of its Affiliates entitling the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or any Affiliates, except for any plan under which the award of stock,
stock options or stock appreciation rights is not subject to the discretion of
any person or persons. The term "Disinterested Person" shall be interpreted in
a manner consistent with the meaning of such term under Rule 16-3 promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended.
i. "EMPLOYEE" shall mean any employee of the Company, including
officers and directors who are also employees.
j. "FAIR MARKET VALUE" shall mean, with respect to Shares, the
fair market value per Share on the date an option is granted and, so long as
the Shares are quoted on the National Association of Securities Dealers
Automated Quotations ("NASDAQ") System, the Fair Market Value per Share shall
be the closing price on The Nasdaq Stock Market as of the date of grant of the
Option, as reported in The Wall Street Journal or, if there are no sales on
such date, on the immediately preceding day on which there were reported sales.
k. "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
l. "NON-STATUTORY STOCK OPTION" shall mean an Option which is not
an Incentive Stock Option.
m. "OPTION" shall mean the grant of the right to an Employee or
consultant pursuant to the Plan to purchase a specified number of Shares at a
specified exercise price.
n. "OPTION AGREEMENT" means a written agreement substantially in
one of the forms attached hereto as Exhibit A, or such other form or forms as
the Committee (subject to the terms and conditions of the Plan) may from time
to time approve, evidencing and reflecting the terms of an Option.
o. "OPTIONED STOCK" shall mean the Shares subject to an Option
granted pursuant to the Plan.
p. "OPTIONEE" shall mean an Employee or consultant of the Company
who is granted an Option under the Plan.
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q. "PLAN" shall mean this Day Runner 1995 Stock Option Plan as
the same may be amended from time to time.
r. "SHARES" shall mean shares of the Common Stock of the Company,
par value per share of $0.001, or any shares into which such Shares may be
converted in accordance with Section 10 of the Plan.
s. "TERMINATION FOR CAUSE" shall mean termination of employment
as a result of (i) any act or acts by the Optionee constituting a felony under
any federal, state or local law; (ii) the Optionee's willful and continued
failure to perform the duties assigned to him or her as an Employee or
consultant; (iii) any material breach by the Optionee of any agreement with the
Company concerning his or her employment or other understanding concerning the
terms and conditions of employment by the Company; (iv) dishonesty, gross
negligence or malfeasance by the Optionee in the performance of his or her
duties as an Employee or consultant or any conduct by the Optionee which
involves a material conflict of interest with any business of the Company or
Affiliate; or (v) the Optionee's taking or knowingly omitting to take any other
action or actions in the performance of Optionee's duties as an Employee or
consultant without informing appropriate members of management to whom such
Optionee reports, which action or actions, in the determination of the
Committee, have caused or substantially contributed to the material
deterioration in the business of the Company or any Affiliate, taken as a
whole.
3. SHARES RESERVED.
The maximum aggregate number of Shares reserved for issuance pursuant
to the Plan shall be 300,000 Shares or the number of shares of stock to which
such Shares shall be adjusted as provided in Section 10 of the Plan. Such
number of Shares may be set aside out of authorized but unissued Shares not
reserved for any other purpose, or out of issued Shares acquired for and held
in the treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any Option
terminating, expiring or canceled for any reason prior to its exercise in full,
shall again become available for Options thereafter granted under the Plan, and
the same shall not be deemed an increase in the number of Shares reserved for
issuance under the Plan. Any Shares which may be tendered, actually or by
attestation, by an Optionee as full or partial payment in connection with the
exercise of any Option under the Plan shall again be available for Stock
Options thereafter granted during the remainder of the term of the Plan.
4. ADMINISTRATION OF THE PLAN.
a. The Plan shall be administered by a Committee designated by
the Board of Directors to administer the Plan and comprised of not less than
two directors, each of whom is a Disinterested Person and an "outside director"
as defined in the Treasury regulations issued pursuant to Section 162(m) of the
Code. Members of the Committee shall serve for such period of time as the
Board of Directors may determine or until their resignation, retirement,
removal or death, if sooner. From time to time the Board of Directors may
increase the size of the
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<PAGE> 32
Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor or fill
vacancies however caused.
b. Subject to the provisions of the Plan, the Committee shall
have the sole and complete discretionary authority: (i) to grant Incentive
Stock Options, in accordance with Section 422 of the Code, or Non-Statutory
Stock Options; (ii) to determine, upon review of relevant information, the Fair
Market Value per Share; (iii) to determine the exercise price of the Options to
be granted to Employees and consultants in accordance with Section 6(d) of the
Plan; (iv) to determine the Employees and consultants to whom, and the time or
times at which, Options shall be granted, and the number of Shares subject to
each Option; (v) to prescribe, amend and rescind rules and regulations relating
to the Plan subject to the limitations set forth in Section 12 of the Plan;
(vi) to determine the terms and provisions of each Option granted to Optionees
under the Plan and each Option Agreement (which need not be identical with the
terms of other Options and Option Agreements) and to modify or amend an
outstanding Option or Option Agreement; (vii) to accelerate the exercise date
of any Option; (viii) to determine whether any Optionee will be required to
execute a stock repurchase agreement or other agreement as a condition to the
exercise of an Option, and to determine the terms and provisions of any such
agreement (which need not be identical with the terms of any other such
agreement) and to amend any such agreement; (ix) to interpret the Plan or any
agreement entered into with respect to the grant or exercise of Options and to
determine the eligibility of an Employee or consultant for benefits hereunder
and the amount thereof; (x) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted or to take such other actions as may be necessary or appropriate with
respect to the Company's rights pursuant to Options or agreements relating to
the grant or exercise thereof; (xi) to cancel any outstanding Option and grant
to an Optionee in replacement thereof such number of Options on such terms and
conditions as the Committee shall determine; and (xii) to make such other
determinations and establish such other procedures as it deems necessary or
advisable for the administration of the Plan.
c. All decisions, determinations and interpretations of the
Committee shall be final and binding on all Optionees and any other holders of
any Options granted under the Plan.
d. The Committee shall keep minutes of its meetings and of the
actions taken by it without a meeting. A majority of the Committee shall
constitute a quorum, and the actions of a majority at a meeting, including a
telephone meeting, at which a quorum is present, or acts approved in writing by
a majority of the members of the Committee without a meeting, shall constitute
acts of the Committee.
e. The Company shall pay all original issue and transfer taxes
with respect to the grant of Options and/or the issue and transfer of Shares
pursuant to the exercise thereof, and all other fees and expenses necessarily
incurred by the Company in connection therewith; provided, however, that the
person exercising an Option shall be responsible for all payroll, withholding,
income and other taxes incurred by such person on the date of exercise of an
Option or transfer of Shares.
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<PAGE> 33
5. ELIGIBILITY.
Options may be granted under the Plan only to Employees and
consultants. An Employee or consultant who has been granted an Option may be
granted, if he or she is otherwise eligible, additional Options.
6. TERMS AND CONDITIONS OF OPTIONS.
Options granted pursuant to the Plan by the Committee shall be either
Incentive Stock Options or Non-Statutory Stock Options and shall be evidenced
by an Option Agreement providing, in addition to such other terms as the
Committee may deem advisable, the following terms and conditions:
a. Time of Granting Options. The date of grant of an Option
shall be, for all purposes, the date on which the Committee makes the
determination granting such Option; provided, however, that if the Committee
determines that such grant shall be effective as of some future date, the date
of grant shall be as of such future date. Notice of the determination shall be
given to each Optionee within a reasonable time after the date of such grant.
b. Number of Shares. Each Option Agreement shall state the
number of Shares to which it pertains and whether such Option is intended to
constitute an Incentive Stock Option or a Non-Statutory Stock Option. The
maximum number of Shares which may be awarded as Options under the Plan during
any calendar year to any Optionee is 100,000 Shares. If an Option held by an
Employee or consultant of the Company is canceled, the canceled Option shall
continue to be counted against the maximum number of Shares for which Options
may be granted to such Employee or consultant and any replacement Option
granted to such Employee or consultant shall also count against such limit.
c. Vesting. Options granted under the Plan shall vest as
determined by the Committee, in its sole and absolute discretion, from time to
time, which may include installment or performance vesting or other contingent
vesting provisions.
d. Exercise Price. The exercise price per Share for the Shares
to be issued pursuant to the exercise of an Option, whether an Incentive Stock
Option or a Non-Statutory Stock Option, shall be such price as is determined by
the Committee; provided, however, such price shall in no event be less than
100% of the Fair Market Value per Share on the date of grant.
Notwithstanding anything to the contrary herein, in the case
of an Incentive Stock Option granted to an Employee or consultant who, at the
time the Incentive Stock Option is granted, owns or is deemed to own (by reason
of the attribution rules applicable under Section 424(d) of the Code) stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, the exercise price per Share shall be no less
than 110% of the Fair Market Value per Share on the date of grant.
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<PAGE> 34
e. Medium and Time of Payment. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee on the date of grant and may
consist entirely of cash, check or Shares having a Fair Market Value on the
date of surrender (either actually or by attestation) equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment, or such other consideration and method
of payment permitted under any laws to which the Company is subject which is
approved by the Committee in its discretion; provided, however, that the
Optionee shall be required to pay in cash an amount necessary to satisfy the
Company's tax withholding obligations. Payment of the exercise price specified
in the Option may also be made in accordance with the procedures for a
"cashless exercise" (including the delivery of an irrevocable notice of
exercise) as the same may be established from time to time by the Company to
facilitate exercises of Options and sales of Shares under this Plan.
If the consideration for the exercise of an Option is the
actual surrender of previously acquired and owned Shares, the Optionee will be
required to make representations and warranties satisfactory to the Company
regarding his or her title to the Shares used to effect the purchase, including
without limitation representations and warranties that the Optionee has good
and marketable title to such Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options or
restrictions, and has full power to deliver such Shares without obtaining the
consent or approval of any person or governmental authority other than those
which have already given consent or approval in a manner satisfactory to the
Company. The value of the Shares used to effect the purchase shall be the Fair
Market Value of such Shares on the date of exercise as determined by the
Committee in its sole discretion, exercised in good faith.
f. Term of Options. The term of an Incentive Stock Option may be
up to ten years from the date of grant thereof; provided, however, that the
term of an Incentive Stock Option granted to an Employee or consultant who, at
the time the Incentive Stock Option is granted, owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Company, shall be five years from the date of grant thereof or
such shorter term as may be approved by the Committee.
The term of a Non-Statutory Stock Option may be up to ten
years and one day from the date of grant thereof.
The term of any Option may be less than the maximum term
provided for herein as specified by the Committee upon grant of the Option and
as set forth therein.
g. Maximum Amount of Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee during any calendar year
under all incentive stock option plans of the Company exceeds $100,000, the
Options in excess of such limit shall be treated as Non-Statutory Stock
Options.
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<PAGE> 35
7. EXERCISE OF OPTION.
a. In General. Any Option granted hereunder to an Employee or
consultant shall be exercisable at such times and under such conditions as may
be determined by the Committee and as shall be permissible under the terms of
the Plan, including any performance or other criteria with respect to the
Company and/or the Optionee as may be determined by the Committee.
An Option may be exercised in accordance with the provisions
of the Plan as to all or any portion of the Shares then exercisable under an
Option from time to time during the term of the Option. However, an Option may
not be exercised for a fraction of a Share.
b. Procedure. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company at its principal
business office in accordance with the terms of the Option Agreement by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by any other agreements required by the terms of the Plan and/or
Option Agreement or as required by the Committee and payment by the Optionee of
all payroll, withholding or income taxes incurred in connection with such
Option exercise (or arrangements for the collection or payment of such tax
satisfactory to the Committee are made). Full payment may consist of such
consideration and method of payment allowable under Section 6(e) of the Plan.
c. Decrease in Available Shares. Exercise of an Option in any
manner shall result in a decrease in the number of Shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised, except if the Option
is exercised by tendering Shares, either actually or by attestation.
d. Exercise of Stockholder Rights. Until the Option is properly
exercised in accordance with the terms of this section, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the Option is exercised,
except as provided in Section 10 of the Plan.
e. Termination of Continuous Employment. If an Optionee's
Continuous Employment with the Company terminates for any reason other than
death, Disability or Termination for Cause, he or she may exercise his or her
Option to the extent such Option was exercisable as of the date of such
termination, but only within 90 days following the date of such termination
(subject to any earlier termination of the Option as provided by its terms).
Notwithstanding the foregoing, an Option shall not be exercisable
after the expiration of the term of such Option, as set forth in the Option
Agreement, and, unless otherwise amended by the Committee, an Option may be
exercised only to the extent the Optionee was entitled to exercise it on the
date his or her Continuous Employment with the Company terminated. To the
extent the Optionee does not exercise his or her Option, to the extent
exercisable, within the time specified herein, the Option shall terminate.
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<PAGE> 36
f. Death or Disability Of Optionee. If an Optionee's Continuous
Employment with the Company terminates due to the death or Disability of the
Optionee, the Option may be exercised, in the case of death, by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, or, in the case of Disability, by the Optionee, within six
months following the date of such termination (subject to any earlier
termination of the Option as provided by its terms).
Notwithstanding the foregoing, an Option shall not be exercisable
after the expiration of the term of such Option, as set forth in the Option
Agreement, and, unless otherwise amended by the Committee, an Option may be
exercised only to the extent the Optionee was entitled to exercise it on the
date his or her Continuous Employment with the Company terminated. To the
extent the Optionee does not exercise his or her Option, to the extent
exercisable, within the time specified herein, the Option shall terminate.
g. Termination for Cause. If an Optionee's Continuous
Employment with the Company terminates due to his or her Termination for Cause,
he or she may exercise his or her Option to the extent such Option was
exercisable as of the date of such termination, but only within 30 days
following the date of such Termination for Cause (subject to any earlier
termination of the Option as provided by its terms).
Notwithstanding the foregoing, an Option shall not be exercisable
after the expiration of the term of such Option, as set forth in the Option
Agreement, and, unless otherwise amended by the Committee, an Option may be
exercised only to the extent the Optionee was entitled to exercise it on the
date his or her Continuous Employment with the Company terminated. To the
extent the Optionee does not exercise his or her Option, to the extent
exercisable, within the time specified herein, the Option shall terminate.
h. Expiration of Option. Notwithstanding any provision in the
Plan, including but not limited to the provisions set forth in Sections 7(e)
and 7(f), an Option may not be exercised, under any circumstances, after the
expiration of its term.
i. Conditions on Exercise and Issuance. As soon as practicable
after any proper exercise of an Option in accordance with the provisions of the
Plan, the Company shall deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates
representing the Shares for which the Option shall have been exercised. The
time of issuance and delivery of the certificate or certificates representing
the Shares for which the Option shall have been exercised may be postponed by
the Company for such period as may be required by the Company, with reasonable
diligence, to comply with any law or regulation applicable to the issuance or
delivery of such Shares.
Options granted under the Plan are conditioned upon the
Company obtaining any required permit or order from appropriate governmental
agencies, authorizing the Company to issue such Options and Shares issuable
upon exercise thereof. Shares shall not be issued
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<PAGE> 37
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended,
applicable state law, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
and may be further subject to the approval of counsel for the Company with
respect to such compliance.
j. Withholding or Deduction for Taxes. The grant of Options
hereunder and the issuance of Shares pursuant to the exercise thereof is
conditioned upon the Company's reservation of the right to withhold, in
accordance with any applicable law, from any compensation or other amounts
payable to the Optionee any taxes required to be withheld under Federal, state
or local law as a result of the grant or exercise of such Option or the sale of
the Shares issued upon exercise thereof. To the extent that compensation and
other amounts, if any, payable to the Optionee are insufficient to pay any
taxes required to be so withheld, the Company may, in its sole discretion,
require the Optionee, as a condition of the exercise of an Option, to pay in
cash to the Company an amount sufficient to cover such tax liability or
otherwise to make adequate provision for the delivery to the Company of cash
necessary to satisfy the Company's withholding obligations under Federal, state
and local law.
8. NONTRANSFERABILITY OF OPTIONS.
Options granted under the Plan may not be sold, pledged, assigned,
hypothecated, gifted, transferred or disposed of in any manner, either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution or transfers between spouses incident to a
divorce, and any such attempt may result, at the discretion of the Committee,
in the termination of such Options. During the lifetime of the Optionee, his
or her Option may be exercised only by the Optionee or his or her legal
guardian.
9. HOLDING PERIOD.
In the case of Options granted to officers and directors of the
Company, at least six months must elapse from the date of grant of the Option
to the date of disposition of the underlying Shares.
10. ADJUSTMENT UPON CHANGE IN CORPORATE STRUCTURE.
a. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each outstanding Option, and the
number of Shares which have been authorized for issuance under the Plan but as
to which no Options have yet been granted or which have been returned to the
Plan upon cancellation or expiration of an Option, as well as the exercise or
purchase price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split or combination, the payment of a stock
dividend, recapitalization, merger, consolidation, exchange, spin-off or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company (other than stock awards to
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<PAGE> 38
Employees and consultants), as may be necessary to prevent dilution or
enlargement of rights; provided, however, that the conversion of any
convertible securities of the Company shall not be deemed to have been effected
without the receipt of consideration. Any such adjustment shall be made by the
Committee, in its sole discretion, whose determination in that respect shall be
final, binding and conclusive. The existence of the Plan and outstanding
Options shall not limit or affect in any way the right or power of the Company
to engage in any such transactions.
b. In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets or stock of the Company (other than in the ordinary course of business),
or the merger or consolidation of the Company with or into another corporation,
as a result of which the Company is not the surviving and controlling
corporation, the Board of Directors shall (i) make provision for the assumption
of all outstanding options by the successor corporation or (ii) declare that
any Option shall terminate as of a date fixed by the Board of Directors which
is at least 30 days after the notice thereof to the Optionee and shall give
each Optionee the right to exercise his or her Option as to all or any part of
the Optioned Stock, including Shares covered by the Option as to which the
Option would not otherwise be exercisable, provided such exercise does not
violate Section 7(e) of the Plan.
c. No fractional Shares shall be issuable on account of any
action aforesaid, and the aggregate number of shares into which Shares then
covered by the Option, when changed as the result of such action, shall be
reduced to the largest number of whole shares resulting from such action,
unless the Board of Directors, in its sole discretion, shall determine to issue
scrip certificates in respect to any fractional shares, which scrip
certificates, in such event shall be in a form and have such terms and
conditions as the Board of Directors in its discretion shall prescribe.
11. STOCKHOLDER APPROVAL.
Effectiveness of the Plan shall be subject to approval by the
stockholders of the Company within 12 months before or after the date the Plan
is adopted; provided, however, that Options may be granted pursuant to the Plan
subject to subsequent approval of the Plan by such stockholders. Stockholder
approval shall be obtained by the affirmative votes of the holders of a
majority of voting Shares present or represented and entitled to vote at a
meeting of stockholders duly held in accordance with the laws of the state of
Delaware.
12. AMENDMENT AND TERMINATION OF THE PLAN.
a. Amendment and Termination. The Committee may amend or
terminate the Plan from time to time in such respects as the Committee may deem
advisable and may make any other amendments which may be required so that
Options intended to be Incentive Stock Options shall at all times continue to
be Incentive Stock Options for the purpose of Section 422 of the Code;
provided, however, that without approval of the holders of a majority of the
voting Shares represented or present and entitled to vote at a valid meeting of
stockholders, no such revision or amendment shall (i) materially increase the
benefits accruing to participants under the Plan; (ii) materially increase the
number of Shares which may be issued under the Plan, other than in
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<PAGE> 39
connection with an adjustment under Section 10 of the Plan; (iii) materially
modify the requirements as to eligibility for participation in the Plan; (iv)
materially change the designation of the class of persons eligible to be
granted Options; (v) remove the administration of the Plan from the Board of
Directors or its Committee; or (vi) extend the term of the Plan beyond the
maximum term set forth in Section 15 hereunder.
b. Effect of Amendment or Termination. Except as otherwise
provided in Section 10 of the Plan, any amendment or termination of the Plan
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Company, which agreement
must be in writing and signed by the Optionee and the Company. Notwithstanding
anything to the contrary herein, this 1995 Stock Option Plan shall not
adversely affect, unless mutually agreed in writing by the Company and an
Optionee, the terms and provisions of any Option granted prior to the date the
Plan was approved by stockholders as provided in Section 11 of the Plan.
13. INDEMNIFICATION.
No member of the Committee or of the Board shall be liable for any act
or action taken, whether of commission or omission, except in circumstances
involving actual bad faith, or for any act or action taken, whether of
commission or omission, by any other member or by any officer, agent, or
Employee. In addition to such other rights of indemnification they may have as
members of the Board of Directors, or as members of the Committee, the
Committee shall be indemnified by the Company against reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken, by commission or omission, in connection with the Plan or any Option
taken thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit
or proceeding, except in relation to matters as to which it shall be adjudged
in such action, suit or proceeding that such Committee or Board member is
liable for actual bad faith in the performance of his or her duties; provided
that within 60 days after institution of any such action, suit or proceeding, a
Committee or Board member shall in writing offer the Company the opportunity,
at its own expense, to handle and defend the same.
14. GENERAL PROVISIONS.
a. Other Plans. Nothing contained in the Plan shall prohibit the
Company from establishing additional incentive compensation arrangements.
b. No Enlargement of Rights. Neither the Plan, nor the granting
of Shares, nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that the
Company will retain an Employee or consultant in employment for any period of
time, or at any particular rate of compensation. Nothing in the
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<PAGE> 40
Plan shall be deemed to limit or affect the right of the Company or any
Affiliate to terminate the employment of any Employee or consultant thereof at
any time for any reason or no reason.
No Employee or consultant shall have any right to or interest
in Options authorized hereunder prior to the grant thereof to such eligible
person, and upon such grant he or she shall have only such rights and interests
as are expressly provided herein and in the related Option Agreement, subject,
however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
c. Notice. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal office, and any notice to be given to an Optionee whom an
Option is granted hereunder shall be delivered personally or addressed to him
or her at the address given beneath his or her signature on his or her Stock
Option Agreement, or at such other address as such Optionee or his or her
transferee (upon the transfer of the Optioned Stock) may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given when
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified, and deposited, postage and registry or certification
fee prepaid, in a post office or branch post office regularly maintained by the
United States Postal Service. It shall be the obligation of each Optionee
holding Shares purchased upon exercise of an Option to provide the Secretary of
the Company, by letter mailed as provided hereinabove, with written notice of
his or her direct mailing address.
d. Applicable Law. To the extent that Federal laws do not
otherwise control, the Plan shall be governed by and construed in accordance
with the laws of the state of Delaware, without regard to the conflict of laws
rules thereof.
e. Incentive Stock Options. The Company shall not be liable to
an Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Incentive Stock
Options are not incentive stock options as defined in Section 422 of the Code.
f. Information to Optionees. The Company shall provide, upon
request, without charge to each Optionee copies of such annual and periodic
reports as are provided by the Company to its stockholders generally.
g. Availability of Plan. A copy of the Plan shall be delivered
to the Secretary of the Company and shall be shown by him or her to any
eligible person making reasonable inquiry concerning it.
h. Severability. In the event that any provision of the Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though
the invalid or unenforceable provision was not contained herein.
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<PAGE> 41
15. EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall become effective upon stockholder approval as provided
in Section 11 of the Plan. The Plan shall continue in effect for a term of ten
years unless sooner terminated under Section 12 of the Plan.
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<PAGE> 42
EXHIBIT A
<PAGE> 43
EXHIBIT A-1
DAY RUNNER, INC.
1995 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
DAY RUNNER, INC., a Delaware corporation (the "Company"), hereby
grants to ______________________ (the "Optionee") an option (the "Option") to
purchase a total of __________ ( ) shares of common stock of the Company (the
"Shares"), at the price and on the terms set forth herein, and in all respects
subject to the terms and provisions of the Company's 1995 Stock Option Plan
(the "Plan") applicable to Incentive Stock Options, which terms and provisions
are hereby incorporated by reference herein. Unless the context herein
otherwise requires, capitalized terms used in this Agreement shall have the
same meanings ascribed to them in the Plan.
i. NATURE OF THE OPTION. The Option is intended by the Company
and the Optionee to qualify as an Incentive Stock Option, as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. The Option is granted as of
______________, and it may not be exercised later than _______________.
3. OPTION EXERCISE PRICE. The exercise price of the Option is
$________ per Share, which price is not less than the Fair Market Value per
Share on the date the Option was granted.
4. EXERCISE OF OPTION. The Option shall be exercisable during
its term only in accordance with the terms and provisions of the Plan and the
Option as follows:
(a) RIGHT TO EXERCISE. The Option shall vest and be
exercisable, cumulatively, [specify vesting schedule, e.g., in 20 equal
quarterly installments, commencing on January 1, 199_, and continuing to vest
as to one additional installment on the first day of each calendar quarter
thereafter]. An Optionee who has been in Continuous Employment with the
Company since the grant of the Option may exercise the exercisable portion of
his or her Option in whole or in part at any time during his or her employment.
However, an Option may not be exercised for a fraction of a Share. In the
event of the Optionee's termination of employment with the Company or
disability or death, the provisions of Section 5 below shall apply to the right
of the Optionee to exercise the Option.
(b) METHOD OF EXERCISE. The Option shall be exercisable
by written notice in the form of the Notice of Exercise of Incentive Stock
Option utilized by the Company from time to time, which notice shall state the
election to exercise the Option and the number of Shares in respect to which
the Option is being exercised. Such written notice shall be signed by the
<PAGE> 44
Optionee and shall be delivered in person or by certified mail to the Chief
Financial Officer of the Company or such other person as may be designated by
the Company. The written notice shall be accompanied by payment of the
exercise price. Payment of the exercise price shall be by cash or by check or
by such other method of payment as is authorized by the Committee pursuant to
the Plan. The certificate or certificates for the Shares as to which the
Option shall be exercised shall be registered in the name of the Optionee and
may bear a legend as required under the Plan and/or under applicable law.
(c) RESTRICTIONS ON EXERCISE. The Option may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Option, the Company may
require the Optionee to make any representation and warranty to the Company as
may be required by any applicable law or regulation.
(d) NO STOCKHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE.
No rights as a stockholder shall exist with respect to the Shares as a result
of the grant of the Option. Such rights shall exist only after issuance of a
stock certificate in accordance with Section 7 of the Plan following the
exercise of the Option as provided in this Agreement and the Plan.
5. TERMINATION OF CONTINUOUS EMPLOYMENT.
(a) If the Optionee's Continuous Employment with the
Company terminates for any reason other than death, Disability or Termination
for Cause, as such terms are defined in the Plan, then the Optionee shall have
the right to exercise the Option at any time within 90 days after the date of
such termination to the extent that the Optionee was entitled to exercise the
Option at the date of such termination (subject to any earlier termination of
the Option as provided by its terms).
(b) If the Optionee's Continuous Employment with the
Company terminates due to the death or Disability of the Optionee, then the
Option may be exercised at any time within six months after the date of such
termination, in the case of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, or, in the
case of Disability, by the Optionee (subject to any earlier termination of the
Option as provided by its terms).
(c) If the Optionee's Continuous Employment with the
Company terminates due to his or her Termination for Cause, then the Optionee
shall have the right to exercise the Option at any time within 30 days after
the date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination (subject to any earlier
termination of the Option as provided by its terms).
(d) Notwithstanding the foregoing regarding the exercise
of the Option after the termination of Continuous Employment, the Option shall
not be exercisable after the expiration of its term, as set forth in Section 2
herein, and, unless otherwise amended by the Committee, the Option may be
exercised only to the extent the Optionee was entitled to exercise
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<PAGE> 45
it on the date the Optionee's Continuous Employment with the Company
terminated. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or to the extent the Option is not exercised
within the time specified herein, the Option shall terminate.
6. NONTRANSFERABILITY OF OPTION. The Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined by the Code or the rules thereunder, and
may be exercised during the lifetime of the Optionee only by the Optionee.
Subject to the foregoing and the terms of the Plan, the terms of the Option
shall be binding upon the executors, administrators, heirs, successors and
assigns of the Optionee.
7. NO ENLARGEMENT OF RIGHTS. Neither the Plan nor the Option
granted hereunder shall confer upon the Optionee any right to continue as an
employee or consultant of the Company or limit in any respect the right of the
Company to discharge the Optionee as an employee or consultant at any time,
with or without cause and with or without notice. The Optionee shall have only
such rights and interests as are expressly provided in this Agreement and the
Plan.
8. WITHHOLDING TAX LIABILITY. In connection with the exercise of
the Option, the Company and the Optionee will incur liability for applicable
state and federal income withholding tax on the difference, if any, between the
aggregate purchase price and the then fair market value of the Shares acquired
upon such exercise. The Optionee understands and agrees that the Company may
be required to withhold part or all of the Optionee's regular compensation to
pay the withholding tax, and that if such regular compensation is insufficient
the Company may require the Optionee, as a condition of exercise of the Option,
to pay in cash the amount of such withholding tax liability.
9. EFFECT OF THE PLAN ON OPTION. The Option is subject to, and
the Company and the Optionee agree to be bound by, all of the terms and
conditions of the Plan, as such may be amended from time to time in accordance
with the terms thereof, provided that no such amendment shall deprive the
Optionee, without his or her consent, of the Option or any rights hereunder.
Pursuant to the Plan, the Committee appointed by the Board of Directors of the
Company is authorized to adopt rules and regulations, consistent with the Plan
and as it shall deem appropriate and proper, with regard to the Plan. A copy
of the Plan in its present form is available for inspection at the Company's
principal office during the Company's business hours by the Optionee or the
persons entitled to exercise the Option.
10. ENTIRE AGREEMENT. The terms of this Agreement and the
Plan constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
11. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstances, is held valid or
unenforceable, the remainder of this
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<PAGE> 46
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held valid or unenforceable, shall not be
affected thereby.
Date: _____________________ DAY RUNNER, INC.
By:_____________________________
Title: _________________________
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<PAGE> 47
The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he or she has read and is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board of Directors or the Committee with respect to any questions arising
with respect to the Option and the Plan.
Date: ________________
________________________________
Signature of Optionee
_________________________________
Address
__________________________________
City State Zip Code
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<PAGE> 48
EXHIBIT A-2
DAY RUNNER, INC.
1995 STOCK OPTION PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
DAY RUNNER, INC., a Delaware corporation (the "Company"), hereby
grants to ______________________ (the "Optionee") an option (the "Option") to
purchase a total of __________ ( ) shares of common stock of the Company (the
"Shares"), at the price and on the terms set forth herein, and in all respects
subject to the terms and provisions of the Company's 1995 Stock Option Plan
(the "Plan") applicable to Non- Statutory Stock Options, which terms and
provisions are incorporated by reference herein. Unless the context herein
otherwise requires, capitalized terms used in this Agreement shall have the
same meanings ascribed to them in the Plan.
1. NATURE OF THE OPTION. The Option is intended to be a
Non-Statutory Stock Option and is not intended to be an Incentive Stock Option
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. The Option is granted as of
______________, and it may not be exercised later than _______________.
3. OPTION EXERCISE PRICE. The exercise price of the Option is
$________ per Share, which price is not less than the Fair Market Value per
Share on the date the Option was granted.
4. EXERCISE OF OPTION. The Option shall be exercisable during
its term only in accordance with the terms and provisions of the Plan and the
Option as follows:
(a) RIGHT TO EXERCISE. The Option shall vest and be
exercisable, cumulatively, [specify vesting schedule, e.g., in 20 equal
quarterly installments, commencing on January 1, 199_, and continuing to vest
as to one additional installment on the first day of each calendar quarter
thereafter]. An Optionee who has been in Continuous Employment with the
Company since the grant of the Option may exercise the exercisable portion of
his or her Option in whole or in part at any time during his or her employment.
However, an Option may not be exercised for a fraction of a Share. In the
event of the Optionee's termination of employment with the Company or
disability or death, the provisions of Section 5 below shall apply to the right
of the Optionee to exercise the Option.
(b) METHOD OF EXERCISE. The Option shall be exercisable
by written notice in the form of the Notice of Exercise of Non- Statutory Stock
Option utilized by the Company from time to time, which notice shall state the
election to exercise the Option and the number of
<PAGE> 49
Shares in respect to which the Option is being exercised. Such written notice
shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Chief Financial Officer of the Company or such other
person as may be designated by the Company. The written notice shall be
accompanied by payment of the exercise price. Payment of the exercise price
shall be by cash or by check or by such other method of payment as is
authorized by the Committee pursuant to the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and may bear a legend as required under
the Plan and/or under applicable law.
(c) RESTRICTIONS ON EXERCISE. The Option may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Option, the Company may
require the Optionee to make any representation and warranty to the Company as
may be required by any applicable law or regulation.
(d) NO STOCKHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE.
No rights as a stockholder shall exist with respect to the Shares as a result
of the grant of the Option. Such rights shall exist only after issuance of a
stock certificate in accordance with Section 7 of the Plan following the
exercise of the Option as provided in this Agreement and the Plan.
5. TERMINATION OF CONTINUOUS EMPLOYMENT.
(a) If the Optionee's Continuous Employment with the
Company terminates for any reason other than death, Disability or Termination
for Cause, as such terms are defined in the Plan, then the Optionee shall have
the right to exercise the Option at any time within 90 days after the date of
such termination to the extent that the Optionee was entitled to exercise the
Option at the date of such termination (subject to any earlier termination of
the Option as provided by its terms).
(b) If the Optionee's Continuous Employment with the
Company terminates due to the death or Disability of the Optionee, then the
Option may be exercised at any time within six months after the date of such
termination, in the case of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, or, in the
case of Disability, by the Optionee (subject to any earlier termination of the
Option as provided by its terms).
(c) If the Optionee's Continuous Employment with the
Company terminates due to his or her Termination for Cause, then the Optionee
shall have the right to exercise the Option at any time within 30 days after
the date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination (subject to any earlier
termination of the Option as provided by its terms).
(d) Notwithstanding the foregoing regarding the exercise
of the Option after the termination of Continuous Employment, the Option shall
not be exercisable after the expiration of its term, as set forth in Section 2
herein, and, unless otherwise amended by the
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<PAGE> 50
Committee, the Option may be exercised only to the extent the Optionee was
entitled to exercise it on the date the Optionee's Continuous Employment with
the Company terminated. To the extent that the Optionee was not entitled to
exercise the Option at the date of termination, or to the extent the Option is
not exercised within the time specified herein, the Option shall terminate.
6. NONTRANSFERABILITY OF OPTION. The Option may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined by the Code or the rules thereunder, and
may be exercised during the lifetime of the Optionee only by the Optionee.
Subject to the foregoing and the terms of the Plan, the terms of the Option
shall be binding upon the executors, administrators, heirs, successors and
assigns of the Optionee.
7. NO ENLARGEMENT OF RIGHTS. Neither the Plan nor the Option
granted hereunder shall confer upon the Optionee any right to continue as an
employee or consultant of the Company or limit in any respect the right of the
Company to discharge the Optionee as an employee or consultant at any time,
with or without cause and with or without notice. The Optionee shall have only
such rights and interests as are expressly provided in this Agreement and the
Plan.
8. WITHHOLDING TAX LIABILITY. In connection with the exercise of
the Option, the Company and the Optionee will incur liability for applicable
state and federal income withholding tax on the difference, if any, between the
aggregate purchase price and the then fair market value of the Shares acquired
upon such exercise. The Optionee understands and agrees that the Company may
be required to withhold part or all of the Optionee's regular compensation to
pay the withholding tax, and that if such regular compensation is insufficient
the Company may require the Optionee, as a condition of exercise of the Option,
to pay in cash the amount of such withholding tax liability.
9. EFFECT OF THE PLAN ON OPTION. The Option is subject to, and
the Company and the Optionee agree to be bound by, all of the terms and
conditions of the Plan, as such may be amended from time to time in accordance
with the terms thereof, provided that no such amendment shall deprive the
Optionee, without his or her consent, of the Option or any rights hereunder.
Pursuant to the Plan, the Committee appointed by the Board of Directors of the
Company is authorized to adopt rules and regulations, consistent with the Plan
and as it shall deem appropriate and proper, with regard to the Plan. A copy
of the Plan in its present form is available for inspection at the Company's
principal office during the Company's business hours by the Optionee or the
persons entitled to exercise the Option.
10. ENTIRE AGREEMENT. The terms of this Agreement and the
Plan constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
11. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstances, is held valid or
unenforceable, the remainder of this
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<PAGE> 51
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held valid or unenforceable, shall not be
affected thereby.
Date: _____________________ DAY RUNNER, INC.
By:________________________________
Title: ____________________________
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The Optionee acknowledges receipt of a copy of the Plan, a copy of
which is attached hereto, and represents that he or she has read and is
familiar with the terms and provisions thereof, and hereby accepts the Option
subject to all of the terms and provisions thereof. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board of Directors or the Committee with respect to any questions arising
with respect to the Option and the Plan.
Date: ________________
________________________________
Signature of Optionee
_________________________________
Address
__________________________________
City State Zip Code
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<PAGE> 53
AMENDMENT NO. 1 TO
DAY RUNNER, INC.
1995 STOCK OPTION PLAN
Section 3 of the Day Runner, Inc. 1995 Stock Option Plan is
hereby amended to read in its entirety as follows:
"3. SHARES RESERVED. The maximum aggregate
number of Shares reserved for issuance pursuant to the Plan
shall be 500,000 Shares or the number of shares of stock to
which such Shares shall be adjusted as provided in Section 10
of the Plan. Such number of Shares may be set aside out of
authorized but unissued Shares not reserved for any other
purpose, or out of issued Shares acquired for and held in the
treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior
to its exercise in full, shall again become available for
Options thereafter granted under the Plan, and the same shall
not be deemed an increase in the number of Shares reserved for
issuance under the Plan. Any Shares which may be tendered,
actually or by attestation, by an Optionee as full or partial
payment in connection with the exercise of any Option under
the Plan shall again be available for Options thereafter
granted during the remainder of the term of the Plan."
Dated: October 21, 1996
<PAGE> 54
AMENDMENT NO. 2 TO
DAY RUNNER, INC.
1995 STOCK OPTION PLAN*
Section 3 of the Day Runner, Inc. 1995 Stock Option Plan is
hereby amended to read in its entirety as follows:
"3. SHARES RESERVED. The maximum aggregate
number of Shares reserved for issuance pursuant to the Plan
shall be 775,000 Shares or the number of shares of stock to
which such Shares shall be adjusted as provided in Section 10
of the Plan. Such number of Shares may be set aside out of
authorized but unissued Shares not reserved for any other
purpose, or out of issued Shares acquired for and held in the
treasury of the Company from time to time.
Shares subject to, but not sold or issued under, any
Option terminating, expiring or canceled for any reason prior
to its exercise in full, shall again become available for
Options thereafter granted under the Plan, and the same shall
not be deemed an increase in the number of Shares reserved for
issuance under the Plan. Any Shares which may be tendered,
actually or by attestation, by an Optionee as full or partial
payment in connection with the exercise of any Option under
the Plan shall again be available for Options thereafter
granted during the remainder of the term of the Plan."
Dated: September 19, 1997
__________________________________
* This amendment is subject to approval by the Company's stockholders at
their next annual meeting scheduled to be held on November 25, 1997.
<PAGE> 55
APPENDIX B
DAY RUNNER, INC.
EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the Employee Stock
Purchase Plan (the "Plan") of Day Runner, Inc. (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its subsidiaries with an opportunity to purchase Common Stock of the
Company through payroll deductions. It is the intention of the Company that the
Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall, accordingly, be construed so as to extend and limit participation in
a manner consistent with the requirements of that section of the Code.
2. Definitions.
a) "Compensation," unless otherwise determined by the Board of
Directors, means total cash compensation from employment reportable on Form W-2
including, without limitation, regular straight-time gross earnings, overtime
pay, shift premium, incentive compensation, bonuses, commissions and automobile
allowances.
(b) "Employee" means any person, including an officer, who is
customarily employed for more than 20 hours per week and five months or more per
calendar year by the Company or its subsidiaries. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the person
is on military leave, sick leave or other leave of absence approved by the
Company; provided that where the period of leave exceeds 90 days and the
person's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(c) "Subsidiary" means any corporation described in Section 424
of the Code in which the Company owns, directly or indirectly, 50% or more of
the voting shares.
(d) "Offering date" means the first business day of an offering
period of the Plan.
(e) "Termination date" means the last business day of an
offering period of the Plan.
3. Eligibility.
(a) General Rule. Any Employee, as defined in Section 2, who has
been employed by the Company or its Subsidiaries for six months or more and who
is so employed on the date his or her participation in the Plan is effective
shall be eligible to participate in the Plan, subject to the limitations imposed
by Section 423(b) of the Code.
<PAGE> 56
(b) Exceptions. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan if:
(i) immediately after the grant such Employee (or
any other person whose stock ownership would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own shares and/or hold outstanding
options to purchase shares possessing five percent or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary; or
(ii) such option would permit the Employee's rights
to purchase stock under all employee stock purchase plans (within the meaning of
Section 423 of the Code and any successor provision) of the Company and its
Subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds
$25,000 of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offerings. The Plan shall be implemented by two offerings during
each twelve-month period during the term of the Plan commencing on July 1, 1992.
Each offering shall be of six months duration. Offering I shall commence on
January 1 and end on June 30 of each year of the Plan; Offering II shall
commence on July 1 and end on December 31 of each year of the Plan.
Participation in one offering under the Plan shall neither limit nor require
participation in any other offering.
5. Participation. An eligible Employee may become a participant in
one or more offerings under the Plan by completing and signing a subscription
agreement authorizing payroll deductions on a form provided by the Company (the
"Subscription Agreement") and by filing it with the Company's payroll office not
less than 15 days prior to the first offering date with respect to which it is
to be effective, unless a later time for filing the Subscription Agreement has
been set by the Company with respect to a given offering. An Employee's
authorization and participation in the Plan shall become effective on the first
offering date following the timely filing of his Subscription Agreement and
shall remain effective until revoked by the participant by the filing of a
notice of cancellation of option and withdrawal from the Plan as described in
Section 10(a) hereof or until changed by the filing of a Payroll Deduction
Authorization Change or Withdrawal form providing for a change in the
participant's payroll deduction rate. An Employee who becomes eligible to
participate in the Plan after the commencement of an offering period may not
become a participant in the Plan until the commencement of the next offering.
6. Payroll Deductions.
(a) At the time a participant files his or her Subscription
Agreement, he or she shall elect to have payroll deductions made on each payday
during the next offering period at a percentage rate equal to a whole number and
not exceeding 15%, or such other maximum rate as may be determined from time to
time by the Company's Board of Directors (herein sometimes referred to as the
"Board") subject to the provisions of Section 19 hereof, of the compensation
which he or she receives on each payday during the offering period, and the
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<PAGE> 57
aggregate of such payroll deductions during the offering period shall not exceed
a total of 15%, or such other percentage determined by the Board, of the
participant's compensation during such offering period.
(b) Payroll deductions for a participant shall commence on the
first payday following the date when a participant's payroll deduction
authorization becomes effective and shall automatically continue from offering
period to offering period until terminated by the participant in accordance with
the terms hereof.
(c) All payroll deductions authorized by a participant shall be
credited to the participant's individual account under the Plan. A participant
may not make any additional payments into such account.
(d) A participant may terminate his participation in the Plan at
any time prior to the termination of the offering period as provided in Section
10, but may not change the rate of his payroll deductions with respect to an
offering period during such offering period.
7. Grant of Option.
(a) On each offering date with respect to which a participant's
payroll authorization is effective, each participant in the Plan shall
automatically be granted an option to purchase (at the option price as provided
in Section 7(b) hereof) up to the number of whole shares of the Company's Common
Stock arrived at by dividing (i) an amount equal to 5% of such participant's
Compensation for the twelve calendar months prior to the offering date, by (ii)
85% of the fair market value of a share of the Company's Common Stock at the
offering date, subject to the limitations set forth in Sections 3(b) and 12
hereof. If a participant has been employed for less than 12 calendar months
immediately prior to the offering date, then for purposes of this Section 7(a)
such participant's Compensation for the 12 calendar months prior to the offering
date shall be deemed equal to the amount determined by annualizing the
Compensation paid to such participant prior to such offering date based on the
actual number of whole months that he or she has been an Employee during such
12-month period. The fair market value of a share of the Company's Common Stock
shall be determined as provided in Section 7(c) hereof.
(b) The option price per share of the shares to be sold during
each offering shall be the lower of (i) 85% of the fair market value of a share
of the Common Stock of the Company at the offering date or (ii) 85% of the fair
market value of a share of the Common Stock of the Company at the termination
date.
(c) The fair market value of the Company's Common Stock shall be
determined by the Company's Board of Directors, acting in its sole discretion,
and based upon such factors as the Board determines relevant; provided, however,
if there is a public market for the Common Stock, the fair market value of a
share of Common Stock on a given date shall be the mean of the closing bid and
asked prices for the Common Stock on such date, as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System), or, in
the event the Common Stock is listed on a national securities exchange or on the
NASDAQ National Market System,
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<PAGE> 58
the fair market value per share shall be the closing price on such exchange or
on the NASDAQ National Market System, as reported in The Wall Street Journal.
8. Exercise of Option. Unless a participant cancels his or her option
and withdraws from the Plan as provided in Section 10, his option for the
purchase of shares shall be exercised automatically at the termination date of
the offering period, and the accumulated payroll deductions credited to a
participant's account on the termination date will be applied to purchase whole
shares of the Company's Common Stock (up to the maximum number subject to option
as determined in Section 7(a) hereof) at the applicable option price. Any amount
credited to a participant's account and not applied to the purchase of Common
Stock by reason of the limitation on the number of shares subject to option
shall be refunded promptly to such participant after the termination date,
provided that any amount remaining in a participant's account and representing a
fractional share shall be carried over and applied to the purchase of shares in
the subsequent offering period if the participant participates in the subsequent
offering. During his or her lifetime, a participant's option to purchase shares
hereunder is exercisable only by such participant.
9. Delivery. As promptly as practicable after the end of each offering
period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may terminate his or her participation in the
Plan effective immediately and withdraw all, but not less than all, the payroll
deductions credited to his or her account under the Plan at any time prior to a
termination date by giving written notice of withdrawal to the Company on a
Payroll Deduction Authorization Change or Withdrawal form provided for such
purpose. In such case, all of the participant's payroll deductions credited to
his or her account shall be paid to him or her promptly after receipt of his or
her notice of withdrawal, and his or her option for the current period shall be
automatically cancelled, and no further payroll deductions for the purchase of
shares shall be made except pursuant to a new Subscription Agreement filed in
accordance with Section 5 hereof.
A participant may terminate his or her participation in the Plan
effective as of the first day of the next offering period by giving written
notice of withdrawal to the Company on a Payroll Deduction Authorization Change
or Withdrawal form provided for such purposes. In such case, the participant's
payroll deductions will continue through the end of the offering period in which
the notice of withdrawal is given, all amounts deducted from the participant's
pay during such offering period will be applied to the purchase of Common Stock
pursuant to the Plan, and following the completion of such offering period no
further payroll deductions for the purchase of shares shall be made except
pursuant to a new Subscription Agreement filed in accordance with Section 5
hereof.
(b) Upon termination of a participant's employment for any
reason, including retirement or death, as soon as practicable after such
termination, the payroll deductions credited to his or her account shall be
returned to him or her or, in the case of his or
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<PAGE> 59
her death, to the person or persons entitled thereto under Section 14, and his
or her option shall be automatically cancelled.
(c) In the event an Employee fails to remain in the continuous
employ of the Company or its Subsidiaries for more than 20 hours per week during
the offering period in which the Employee is a participant, he or she will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to his or her account will be returned to him or her and his or her
option will be cancelled. (d) A participant's withdrawal from an offering shall
not have any effect upon his or her eligibility to participate in a subsequent
offering or in any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the payroll deductions of
a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be Fifty Thousand
(50,000) shares, subject to adjustment upon changes in capitalization of the
Company as provided in Section 18. The shares to be sold to participants in the
Plan will be authorized but unissued shares. If the total number of shares which
would otherwise be subject to options granted pursuant to Section 7(a) hereof at
the offering date exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform and equitable a manner as is
practicable. In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each participant
affected thereby and shall reduce the rate of payroll deductions, if necessary.
(b) A participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall, as specified in the participant's Subscription Agreement, be registered
in the name of the participant or in the name of the participant and his or her
spouse.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board, as necessary to comply
with Rule 16b-3 under the Securities Exchange Act of 1934. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan; provided, however, that to
the extent necessary to comply with Rule 16b-3 no discretion concerning
decisions regarding the Plan shall be afforded to a person who is not a
"disinterested person" as that term is defined and interpreted under Rule 16b-3.
Every finding, decision and determination
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<PAGE> 60
made by the Board or its committee shall, to the full extent permitted by law,
be final and binding upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the termination date of an offering period but prior to delivery
to him of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
termination date of an offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a valid designation of a beneficiary who is
living at the time of such participant's death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
participant; or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant; or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company on behalf of a participant under the Plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Individual statements of account will be given to
participating Employees semi-annually as promptly as practicable following the
termination date of an offering period, which statements shall set forth the
amounts of payroll deductions, the per share option price, the number of shares
purchased and the remaining cash balance, if any, in a participant's account.
18. Adjustments Upon Changes in Capitalization.
(a) Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each option under the
Plan which has not yet been exercised and the number of shares of Common Stock
which have been authorized for issuance under the Plan but have not yet been
placed under option or which has been returned to
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<PAGE> 61
the Plan upon the cancellation of an option, as well as the option price per
share of Common Stock covered by each option under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
stock dividend, spin-off, reorganization, recapitalization, merger,
consolidation, exchange of shares or the like. Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to option.
(b) In the event of the proposed dissolution or liquidation of
the Company, or in the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger or consolidation of the Company with or
into another corporation, the Board shall (i) make provision for the assumption
of all outstanding options by the successor corporation or (ii) declare that any
option shall terminate as of a date fixed by the Board which is at least 30 days
after the notice thereof and unless a participant terminates his participation
in the Plan prior to such date, his option for the purchase of shares will be
exercised automatically on such date and the accumulated payroll deductions
credited to a participant's account on such date will be applied to purchase
whole shares of the Company's Common Stock (up to the maximum number subject to
option as determined in accordance with Section 7(a) hereof) at the applicable
option price.
(c) No fractional shares of Common Stock shall be issuable on
account of any adjustment described herein, and the aggregate number of shares
into which shares then covered by an option, when changed as the result of such
adjustment, shall be reduced to the largest number of whole shares resulting
from such adjustment, unless the Board, in its sole discretion, shall determine
to issue scrip certificates in respect to any fractional shares, which scrip
certificates, in such event, shall be in a form and have such terms and
conditions as the Board in its discretion shall prescribe.
19. Amendment or Termination. The Board of Directors of the Company
may at any time terminate or amend the Plan in such respects as the Board may
deem advisable. No such termination will affect options previously granted, nor
may an amendment make any change in any option theretofore granted which
adversely affects the rights of any participant without the prior written
consent of such participant, nor may an amendment be made without prior approval
of the shareholders of the Company if such amendment would:
(a) Increase the number of shares that may be issued under the
Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
(c) Materially increase the benefits which accrue to
participants under the Plan.
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20. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by vote of a majority of
the outstanding shares of the Company entitled to vote on the adoption of the
Plan. The Plan shall continue in effect for a term of ten years unless sooner
terminated under Sections 19 or 22 of the Plan.
21. Notices. All notices or other communications by a participant to
the Company in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
22. Shareholder Approval/Public Offering. Notwithstanding anything
to the contrary herein, the effectiveness of the Plan shall be expressly subject
(a) to approval by the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Company present or represented and entitled
to vote thereon at a shareholder meeting duly held prior to July 1, 1992 and (b)
to the closing on or before May 22, 1992 of a public offering by the Company of
the Company's Common Stock pursuant to a registration statement filed with, and
declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933.
23. No Enlargement of Employee Rights. The Plan is purely voluntary
on the part of the Company, and the continuance of the Plan shall not be deemed
to constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its parent, subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in options authorized hereunder
prior to the grant of an option to such Employee, and upon such grant he shall
have only such rights and interests as are expressly provided herein, subject,
however, to all applicable provisions of the Company's Articles of
Incorporation, as the same may be amended from time to time.
24. Information to Participants. The Company shall provide without
charge to each participant in the Plan copies of such annual and periodic
reports as are provided by the Company to its shareholders generally.
25. Governing Law. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made or actions taken pursuant hereto
shall be governed by the laws of the state of California, without regard to the
conflicts of laws rules thereof, and construed accordingly.
26. Tax Withholding. If, at any time, the Company or any Subsidiary
is required, under applicable laws and regulations, to withhold, or to make any
deduction of, any taxes or take any other action in connection with any exercise
of an option made hereunder or transfer of shares of Common Stock, the Company
or such Subsidiary shall have the right to deduct from all amounts paid in cash
any taxes required by law to be withheld therefrom, and in the case of shares of
Common Stock, the participant or his or her estate or beneficiary shall be
required to pay the Company or such Subsidiary the amount of taxes required to
be withheld, or,
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in lieu thereof, the Company or such Subsidiary shall have the right to retain,
or sell without notice, a sufficient number of shares of Common Stock to cover
the amount required to be withheld, or to make other arrangements with respect
to withholding as it shall deem appropriate.
27. Securities Law Compliance. No shares of Common Stock may be
issued upon the exercise of any option under the Plan until all requirements of
applicable Federal, state, foreign or other securities laws, with respect to the
purchase, sale and issuance of shares of Common Stock shall have been satisfied.
If any action must be taken because of such requirements, then the purchase,
sale and issuance of shares shall be postponed until such action can reasonably
be taken. Upon demand by the Company, an Employee shall deliver to the Company a
representation in writing that the purchase of shares pursuant to the exercise
of an option hereunder is being made for investment only and not for resale or
with a view to distribution, or such other information, representations or
undertakings as the Company may reasonably require in order to comply with any
registration requirements or exemptions therefrom of applicable securities laws.
The Company may require any securities so issued to bear a legend, may give its
transfer agent instructions, and may take such other steps as in its judgment
are reasonably required to prevent any such violation of applicable securities
laws.
-9-
<PAGE> 64
DAY RUNNER, INC.
EMPLOYEE STOCK PURCHASE PLAN
FORM OF
SUBSCRIPTION AGREEMENT
Instructions: Please print or type all information except your signature.
NAME:
---------------------------------------------------------------------------
First Middle Last
ADDRESS:
------------------------------------------------------------------------
SOCIAL SECURITY NO.: ___ ___ ___ - ___ ___ - ___ ___ ___ ___
EMPLOYEE NO.: EMPLOYMENT START DATE:
----------------------- ------------------
ORIGINAL APPLICATION
1. I hereby elect to participate in the Day Runner, Inc. ("Day Runner")
Employee Stock Purchase Plan (the "Plan") in accordance with this
Subscription Agreement and the terms of the Plan.
2. I hereby authorize Day Runner to make regular payroll deductions, at the
rate indicated below and in accordance with the terms of the Plan, from
the total compensation (including overtime, bonuses, commissions and
other earnings, if any) paid to me during each offering period during
which I remain a participant in the Plan:
(CIRCLE ONE) 1% 2% 3% 4% 5% 6% 7% 8% 9%
---
10% 11% 12% 13% 14% 15% OF COMPENSATION
3. I understand that payroll deductions at the indicated rate will continue
from offering period to offering period unless I become ineligible to
participate in the Plan or I file the Payroll Deduction Authorization
Change portion of this form below.
4. I understand that the deducted amounts will be applied automatically to
the purchase of shares of Day Runner Common Stock at the end of each
offering period unless I elect to cancel my option and withdraw from the
Plan by filing the Payroll Deduction Authorization Change or Withdrawal
portion of this form below.
5. I hereby acknowledge that I have received and read a copy of Day
Runner's most recent Prospectus describing the terms and provisions of
the Plan and understand the information therein and the risks of
participating in the Plan.
<PAGE> 65
6. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
7. I understand that the shares purchased for me under the Plan will be
issued in my name or, in the event of my death before the end of an
offering period, in the name(s) of the following person(s), whom I
hereby designate as my beneficiary(ies) to receive all payments and
shares due me under the Plan:
Name: (Please print)
-------------------------------------------------------
First Middle Last
- -------------------- -------------------------------------------------------
Relationship Address
-------------------------------------------------------
City State Zip Code
Name: (Please print) -------------------------------------------------------
First Middle Last
- -------------------- -------------------------------------------------------
Relationship Address
-------------------------------------------------------
City State Zip Code
DATE:
------------------------ -----------------------------------
SIGNATURE OF EMPLOYEE
================================================================================
ELECTION NOT TO PARTICIPATE
I hereby acknowledge receipt of a copy of Day Runner's most recent
Prospectus which describes the Day Runner Employee Stock Purchase Plan and elect
not to participate in the Plan. I understand that my decision not to participate
in the next offering under the Plan will not affect my eligibility to
participate in subsequent offerings under the Plan.
DATE:
------------------------------ -----------------------------------
SIGNATURE OF EMPLOYEE
================================================================================
(To be completed by Human Resources Department)
Date Received:
-----------------
Approved by:
-----------------
-2-
<PAGE> 66
DAY RUNNER, INC.
EMPLOYEE STOCK PURCHASE PLAN
FORM OF
PAYROLL AUTHORIZATION CHANGE OR WITHDRAWAL
I am now a participant in the Day Runner, Inc. ("Day Runner") Employee
Stock Purchase Plan (the "Plan") and I wish to make the change indicated below
(check one):
[ ] A. CHANGE IN PAYROLL DEDUCTION RATE: I hereby authorize the following
new rate of payroll deduction, effective as of the first payday of
the next offering period (such change must be filed with the Company
at least 15 days prior to the start of the offering period with
respect to which it is to be effective):
(CIRCLE ONE) 1% 2% 3% 4% 5% 6% 7% 8% 9%
10% 11% 12% 13% 14% 15% OF COMPENSATION
B. WITHDRAWAL FROM PLAN AND CANCELLATION OF OPTION: I hereby elect to
cancel my participation in the Plan effective immediately and to
cancel my option to purchase Day Runner Common Stock under the Plan
and request that all amounts withheld from me through payroll
deductions relating to the cancelled option be refunded to me. I
understand that cancellation of my option will be effective only if
this form is filed with the Company prior to the close of the
offering period. I understand that if I wish to participate in the
Plan following my cancellation and withdrawal from the Plan, I must
re-enroll by filing a new Subscription Agreement with the Company at
least 15 days prior to the start of the offering period with respect
to which it is to be effective.
C. WITHDRAWAL FROM PLAN WITHOUT CANCELLATION OF OPTION. I hereby elect
to cancel my participation in the Plan effective as of the first day
of the next offering period. However, I request that my previously
authorized payroll deductions continue through the end of the current
offering period and that all amounts deducted from my pay during the
current offering period be applied to the purchase of Day Runner
Common Stock pursuant to the Plan. I understand that if I wish to
participate in the Plan following my cancellation and withdrawal from
the Plan, I must re-enroll by filing a new Subscription Agreement
with the Company at least 15 days prior to the start of the offering
period with respect to which it is to be effective.
DATE:
-------------------------------- -----------------------------------
SIGNATURE OF EMPLOYEE
PRINT NAME:
------------------------------
================================================================================
(To be completed by Human Resources Department)
Date Received:
----------------------
Approved by:
------------------------
<PAGE> 67
AMENDMENT NO. 1 TO
DAY RUNNER, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Section 12(a) of the Day Runner, Inc. Employee Stock Purchase
Plan is hereby amended to read in its entirety as follows:
"(a) The maximum number of shares of the Company's
Common Stock which shall be made available for sale under the
Plan shall be One Hundred Thousand (100,000) shares, subject to
adjustment upon changes in capitalization of the Company as
provided in Section 18. The shares to be sold to participants in
the Plan will be authorized but unissued shares. If the total
number of shares which would otherwise be subject to options
granted pursuant to Section 7(a) hereof at the offering date
exceeds the number of shares then available under the Plan
(after deduction of all shares for which options have been
exercised or are then outstanding), the Company shall make a pro
rata allocation of the shares remaining available for option
grant in as uniform and equitable a manner as is practicable. In
such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each
participant affected thereby and shall reduce the rate of
payroll deductions, if necessary."
2. Section 22 of the Day Runner, Inc. Employee Stock Purchase Plan
is hereby amended to read in its entirety as follows:
"22. Shareholder Approval. Notwithstanding anything to
the contrary herein, the continuance of the Plan and the
effectiveness of any option granted hereunder shall be subject
to approval of the Plan by the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Company
present or represented and entitled to vote thereon at a
shareholder meeting duly held prior to September 1, 1992. No
options granted before such shareholder approval has been
obtained shall be exercisable unless such shareholder approval
is obtained. If the Plan is not approved by the shareholders of
the Company prior to September 1, 1992, the Plan and any options
granted thereunder shall terminate and all payroll deductions
credited to a participant's account shall be promptly returned
to him or her."
Dated: July 17, 1992
<PAGE> 68
AMENDMENT NO. 2 TO
DAY RUNNER, INC.
EMPLOYEE STOCK PURCHASE PLAN*
Section 12(a) of the Day Runner, Inc. Employee Stock Purchase
Plan is hereby amended to read in its entirety as follows:
"(b) The maximum number of shares of the Company's
Common Stock which shall be made available for sale under the
Plan shall be One Hundred Seventy-Five Thousand (175,000)
shares, subject to adjustment upon changes in capitalization of
the Company as provided in Section 18. The shares to be sold to
participants in the Plan will be authorized but unissued shares.
If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) hereof at the
offering date exceeds the number of shares then available under
the Plan (after deduction of all shares for which options have
been exercised or are then outstanding), the Company shall make
a pro rata allocation of the shares remaining available for
option grant in as uniform and equitable a manner as is
practicable. In such event, the Company shall give written
notice of such reduction of the number of shares subject to the
option to each participant affected thereby and shall reduce the
rate of payroll deductions, if necessary."
Dated: September 19, 1997
- ----------
* This amendment is subject to approval by the Company's stockholders at their
next annual meeting scheduled to be held on November 25, 1997.
<PAGE> 69
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DAY RUNNER, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Day Runner, Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated October 20, 1997, and hereby
appoints Mark A. Vidovich and Dennis K. Marquardt, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of the Company to be held Tuesday, November 25, 1997, at 9:00 a.m.,
California time, at The Sutton Place Hotel located at 4500 MacArthur Boulevard,
Newport Beach, California 92660, and at any adjournment(s) thereof, and to vote
all shares of Common Stock to which the undersigned would be entitled, if then
and there personally present, on the matters set forth below:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR ALL nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for ALL nominees
to the contrary below). listed below.
</TABLE>
(Instruction: To WITHHOLD the authority to vote for any individual nominee, mark
the box next to the nominee's name below.)
Name of Nominee:
<TABLE>
<S> <C> <C>
[ ] James E. Freeman, Jr. [ ] Charles Miller [ ] Boyd I. Willat
[ ] James P. Higgins [ ] Alan R. Rachlin [ ] Felice Willat
[ ] Jill Tate Higgins [ ] Mark A. Vidovich
</TABLE>
2. APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve an amendment to the Company's 1995 Stock Option Plan to increase
the aggregate number of shares authorized for issuance thereunder from
500,000 to 775,000 shares, as described in the Proxy Statement.
3. APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the aggregate number of shares authorized for issuance thereunder
from 100,000 to 175,000 shares, as described in the Proxy Statement.
(Continued on other side)
<PAGE> 70
(Continued from other side)
4. APPOINTMENT OF INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To ratify the appointment of Deloitte & Touche LLP as independent auditors of
the Company for the fiscal year ending June 30, 1998, as described in the Proxy
Statement.
5. OTHER BUSINESS
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and
shall act at said meeting or any adjournment(s) thereof shall have and may
exercise all powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated:____________, 1997
------------------------
(Signature)
------------------------
(Signature)
(This Proxy should be
marked, dated and signed
by the stockholder(s)
exactly as his or her
name appears hereon and
returned promptly in the
enclosed envelope.
Persons signing in a
fiduciary capacity should
so indicate. If shares
are held by joint tenants
or as community property,
both should sign.)
DO NOT FOLD, STAPLE OR MUTILATE
