DAY RUNNER INC, DEF 14A, 1998-10-16

DAY RUNNER INC
DEF 14A, 1998-10-16
BLANKBOOKS, LOOSELEAF BINDERS & BOOKBINDG & RELATD WORK

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<PAGE>
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / 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 Section240.14a-11(c) or
Section240.14a-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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
DAY RUNNER, INC.

----------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 23, 1998

------------------------

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 Monday, November 23, 1998, 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 adopt an amendment to the Company's 1995 Stock Option Plan to
increase the aggregate number of shares authorized for issuance
thereunder from 1,550,000 to 1,925,000 shares.

3. To approve the Company's Non-Employee Director Stock Option Plan.

4. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending June 30, 1999.

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 2,
1998 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

Catherine F. Ratcliffe
SECRETARY

Irvine, California
October 19, 1998
<PAGE>
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 Monday, November 23,
1998, 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 19,
1998 to stockholders entitled to vote at the Annual Meeting.

Only stockholders of record at the close of business on October 2, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 11,880,098 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.

In March 1998, the Company effected a two-for-one stock split pursuant to
which each stockholder of the Company received one additional share for each
share of the Company's Common Stock held of record on March 18, 1998. All
references to numbers of shares and per share prices set forth herein, in the
Notice of Annual Meeting and in the enclosed proxy card have been adjusted to
reflect the stock split.

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
<PAGE>
or telegram by certain of the Company's directors, officers and regular
employees, without additional compensation.

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 1999 must be received by the Company no later than June 21, 1999 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 23, 1998.

Upon receipt of any such proposal, the Company will determine whether or not
to include such proposal in the proxy statement and form of proxy in accordance
with regulations governing the soliciting of proxies.

In order for a stockholder to nominate a candidate for director or to bring
other business before a stockholder meeting, the Company's Bylaws require that
timely notice be given to the Company in advance of the meeting. Such notice
must be given to the Secretary of the Company, whose address is 15295 Alton
Parkway, Irvine, California 92618, not less than 90 days before the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by more than 30 days
from the anniversary date, the stockholder must give such notice not later than
the close of business on the 10th day following the day on which public
announcement of the meeting is first made. The stockholder filing the notice of
nomination or other proposal must describe therein various matters as specified
in the Company's Bylaws, including the stockholder's name and address and, with
respect to a proposal other than a director nomination, a description of the
proposed business and the reasons therefor. The chairman of the meeting may
reject any stockholder proposals that are not made in accordance with the
foregoing procedures or that are not a proper subject for stockholder action
under applicable law. The foregoing requirements of the Company's Bylaws are
separate from and in addition to the requirements a stockholder must meet to
have a proposal included in the Company's proxy statement.

Any stockholder desiring a copy of the Company's Certificate of
Incorporation, as amended, or Bylaws will be furnished a copy without charge
upon written request to the Secretary of the Company.

2
<PAGE>
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................... 48 Chairman of the Board and Director
James E. Freeman, Jr............... 51 Chief Executive Officer and
Director
James P. Higgins................... 49 Director
Jill Tate Higgins.................. 42 Director
Charles Miller..................... 56 Director
Alan R. Rachlin.................... 47 Director
Boyd I. Willat..................... 55 Director
Felice Willat...................... 54 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. He served as Chief Executive Officer until August 1998 and, as Chairman of
the Board, continues to serve as an officer of the Company.

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 and Chief Executive Officer in August 1998.

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.

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 former 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 former wife of Mr. Willat.

3
<PAGE>
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 six meetings during the fiscal year
ended June 30, 1998 and acted three times by unanimous written consent. During
the 1998 fiscal year, each director of the Company attended all meetings of the
Board of Directors and of the committees of the Board on which he or she served.

The Audit Committee, which is comprised of Messrs. Higgins, Miller and
Rachlin (Chairman), met four times during the fiscal year ended June 30, 1998
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 eight
times during the fiscal year ended June 30, 1998 and acted four times by
unanimous written consent. 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

In fiscal year 1998 the Company paid each non-employee director an annual
fee of $10,000, payable quarterly, plus $750 and expenses for each Board of
Directors meeting attended and paid each member of 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. Effective July 1998, the Company pays each non-employee director a
quarterly fee of $3,000, plus $750 and expenses for each meeting attended. The
Company also pays each non-employee director member of the Compensation and
Audit Committees a quarterly fee of $3,000 ($4,500 for the Chairperson of each
such Committee), 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 the consulting agreement). The
consulting agreement was approved unanimously by the Board of Directors of the
Company.

In April 1998, the Company granted to each of James P. Higgins, Jill Tate
Higgins, Charles Miller, Alan R. Rachlin and Boyd Willat, all of whom are
non-employee directors of the Company, warrants to purchase 5,000 shares of the
Company's Common Stock at an exercise price of $20.625 per share (I.E., the
closing sales price of the Company's Common Stock on the date of grant). Such
warrants vest in four equal quarterly installments with the first of such
installments vesting on July 1, 1998 and one additional installment vesting on
the first day of each calendar quarter thereafter as long as the holder remains
a director of the Company.

Directors who are not employees of the Company are ineligible to participate
in the Company's 1995 Stock Option Plan and Employee Stock Purchase Plan. Under
the Company's Non-Employee Director

4
<PAGE>
Stock Option Plan (the "Director Plan"), and subject to stockholder approval of
the Director Plan at the Annual Meeting, each non-employee director elected at
the Annual Meeting will automatically be granted on the date of the Annual
Meeting a non-statutory stock option to purchase 10,000 shares of the Company's
Common Stock and, subject to the availability of shares under the Director Plan,
each non-employee director elected at subsequent annual meetings of the
Company's stockholders during the ten-year term of the Director Plan will, on
the dates of such meetings, automatically be granted a non-statutory stock
option to purchase 5,000 shares of the Company's Common Stock (the dates of such
1998 and subsequent option grants are hereinafter referred to as "Regular Grant
Dates"). A non-employee director elected or appointed to the Board other than on
a Regular Grant Date will automatically receive a non-statutory stock option
covering a pro rata number of shares. All options granted under the Director
Plan will have an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant and a term of ten years. Options granted on a
Regular Grant Date will vest in four equal quarterly installments as long as the
holder remains a non-employee director of the Company; options granted on dates
other than Regular Grant Dates will vest in the same number of quarterly
installments as would be remaining with respect to the unvested portion of
options granted under the Director Plan on the last Regular Grant Date. See
"Proposal 3--Approval of the Company's Non-Employee Director Stock Option Plan."

See "Compensation Committee Interlocks and Insider Participation."

EXECUTIVE OFFICERS

The executive officers of the Company as of October 1, 1998, and certain
information about them, are as follows:

<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------- --- -----------------------------------
<S> <C> <C>

Mark A. Vidovich................... 48 Chairman of the Board and Director

James E. Freeman, Jr............... 51 Chief Executive Officer and
Director

Dennis K. Marquardt................ 55 Executive Vice President, Finance &
Administration and Chief
Financial Officer

Donald E. Bottinelli............... 39 Chief Operating Officer

Ronald M. Bianco................... 51 Executive Vice President, Product
Development and Procurement

Dennis G. Baglama.................. 46 Vice President, Sales

John P. Kirkland................... 54 Vice President, Strategic
Operational Projects

Stan Littley....................... 40 Vice President, International

Harold Pierce...................... 48 Vice President, Human Resources

Catherine Ratcliffe................ 40 Vice President, General Counsel and
Corporate Secretary

Judy Tucker........................ 53 Vice President, Business
Development

Richard J. Whatley................. 54 Vice President, Chief Information
Officer
</TABLE>

5
<PAGE>
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. Marquardt served as
Corporate Secretary until October 1997.

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 1997. He was appointed Chief Operating Officer in
August 1998. 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. Bianco joined the Company in June 1985 and held various non-officer
positions until his appointment as Vice President, Product Development in
December 1990. In August 1998 he was appointed Executive Vice President, Product
Development and Procurement.

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. 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 and served in that capacity until August 1997. He was appointed Vice
President, Strategic Operational Projects in August 1998.

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. His title was changed to Vice President, International in August
1998.

Mr. Pierce joined the Company in July 1997 as Director, Human Resources and
was appointed Vice President, Human Resources in August 1998. Mr. Pierce served
as Vice President, Human Resources of Ingram Micro from July 1994 through
September 1996 and was a doctoral candidate at Boston University from September
1992 through June 1994.

Ms. Ratcliffe joined the Company in October 1997 as General Counsel and
Corporate Secretary and was appointed Vice President, General Counsel in August
1998. Ms. Ratcliffe was a partner in the law firm of Bryan Cave LLP from January
1993 until July 1997.

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. Her title was changed to Vice President, Business Development in
August 1998.

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.

6
<PAGE>
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, 1998 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>
SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED PERCENT OF CLASS
- --------------------------------------------------- ------------------------ -----------------
<S> <C> <C>
Jill Tate Higgins(2) .............................. 1,692,501 14.2%
10153 1/2 Riverside Drive, #598
Toluca Lake, CA 91602

KAIM Non-Traditional, L.P.(3) ..................... 1,333,042 11.2
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067

William Blair & Company(4) ........................ 1,332,280 11.2
35 South LaSalle Street
Chicago, IL 60603

Mark A. Vidovich(5)(6) ............................ 843,063 6.7
15295 Alton Parkway
Irvine, CA 92718

Felice Willat(7) .................................. 540,084 4.5
15295 Alton Parkway
Irvine, CA 92718

Alan R. Rachlin(5)(8).............................. 494,181 4.1

Boyd I. Willat(9).................................. 283,779 2.4

Dennis K. Marquardt(5)............................. 164,918 1.4

James E. Freeman, Jr.(5)(10)....................... 146,100 1.2

Ronald M. Bianco(5)................................ 102,432 *

Dennis G. Baglama(5)............................... 46,140 *

James P. Higgins(11)............................... 33,233 *

Charles Miller(5).................................. 8,833 *

All current directors and officers as a group (18
persons)(2)(5)(6)(7)(8)(9)(10)(11)............... 4,454,543 33.0
</TABLE>

- ------------------------

* Less than one percent.

(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) 20,833 shares for which warrants held by Ms. Higgins are
exercisable or become exercisable within 60 days after September 1, 1998;
(ii) 1,623,940 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) 47,728 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 30,733 shares beneficially owned by James P. Higgins, Ms. Higgins'
husband, and

7
<PAGE>
2,500 shares held by James P. Higgins as custodian for his two minor
children, as to which shares Ms. Higgins disclaims beneficial ownership (see
footnote 11 below).

(3) Based on a Form 13F dated August 11, 1998, wherein KAIM Non-Traditional,
L.P. reported that, as of June 30, 1998 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 August 13, 1998, wherein William Blair & Company
reported that, as of June 30, 1998 and as an institutional investment
manager, it had sole investment discretion as to such shares and sole voting
authority as to 801,500 of such shares.

(5) Includes 718,637, 258,333, 111,000, 130,000, 81,000, 46,140, 8,833 and
1,613,438 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, 1998.

(6) Does not include 14,666 shares held by Mr. Vidovich's adult children.

(7) Includes (i) 40,000 shares for which options held by Ms. Willat are
exercisable or become exercisable within 60 days after September 1, 1998;
and (ii) 60,000 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 223,779 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 5,920 shares held by a custodian for the benefit of Mr.
Rachlin's minor children.

(9) Includes (i) 20,833 shares for which warrants held by Mr. Willat are
exercisable or become exercisable within 60 days after September 1, 1998;
and (ii) 60,000 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 480,084 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 4,000 shares held by Mr. Freeman's wife for the benefit of their
minor children.

(11) Includes (i) 20,833 shares for which warrants held by Mr. Higgins are
exercisable or become exercisable within 60 days after September 1, 1998;
and (ii) 2,500 shares held by Mr. Higgins as custodian for his two minor
children. Does not include 1,692,501 shares beneficially owned by Ms.
Higgins as to which shares Mr. Higgins disclaims beneficial ownership (see
footnote 2 above).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors and officers and persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC"). The specific due dates for these reports have been
established by the SEC, and the Company is required to report in this Proxy
Statement any failure to file by the established dates during or with respect to
the fiscal year ended June 30, 1998. To the knowledge of the Company and based
solely on a review of the Section 16(a) reports furnished to the Company and
written representations of the directors, officers and ten percent stockholders
of the Company, during the fiscal year ended June 30, 1998, Felice Willat filed
two late reports relating to two transactions each and failed to file two
reports relating to one transaction each, Alan Rachlin filed one late report
relating to one transaction, John Kirkland failed to file one report relating to
one transaction, O.S. II, Inc., a ten percent stockholder of the Company, failed
to file one report relating to one transaction, and Boyd Willat failed to file
five reports, three of which each related to one transaction, one of which
related to two transactions and one of which related to five transactions.

8
<PAGE>
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, 1998:

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR(1) SALARY($)(2) BONUS($) WARRANTS (#) COMPENSATION($)(3)
- ------------------------------------------- ----------- ----------- ---------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Mark A. Vidovich(4) ....................... 1998 $ 330,000 $ 145,671 180,000 $ 2,806
Chief Executive Officer and Chairman of 1997 300,000 0 150,000 2,250
the Board 1996 300,000 285,480 151,750 2,966

James E. Freeman, Jr.(5) .................. 1998 275,000 121,393 105,000 2,611
President and Chief Operating Officer 1997 250,000 0 100,000 2,250
1996 250,000 230,100 100,000 2,570

Dennis K. Marquardt ....................... 1998 180,000 73,286 50,000 2,805
Executive Vice President, Finance & 1997 150,000 0 20,000 2,250
Administration and Chief Financial 1996 150,000 131,040 20,000 2,310
Officer

Dennis G. Baglama ......................... 1998 155,000 63,017 50,000 2,552
Vice President, Sales 1997 132,000 0 20,000 1,980
1996 132,000 111,197 20,000 1,569

Ronald M. Bianco .......................... 1998 155,000 63,017 80,000 2,761
Vice President, Product Development 1997 132,000 0 20,000 1,980
1996 132,000 111,197 20,000 2,358
</TABLE>

- ------------------------

(1) The years 1998, 1997 and 1996 refer to the twelve months ended June 30,
1998, 1997 and 1996, respectively.

(2) Includes amounts, if any, deferred by the named officer under the Company's
401(k) Plan.

(3) All amounts shown represent Company matching contributions allocated under
the Company's 401(k) Plan to the accounts of the named officers.

(4) Mr. Vidovich resigned as Chief Executive Officer of the Company in August
1998.

(5) Mr. Freeman was elected Chief Executive Officer of the Company in August
1998.

9
<PAGE>
OPTION AND WARRANT GRANTS IN FISCAL YEAR 1998

The following table sets forth certain information concerning stock option
and warrants grants in the fiscal year ended June 30, 1998 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
WARRANTS FOR OPTION/WARRANT
OPTIONS/ GRANTED TO EXERCISE TERM(3)
WARRANTS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN FY 1998(1) ($/SHARE)(2) DATE 5% ($) 10% ($)
- ---------------------------------------- ----------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich........................ 180,000(4)(5) 25.4% $16.875 8/19/07 $1,910,160 $4,840,920

James E. Freeman, Jr.................... 100,000(4)(5) 14.1 16.875 8/19/07 1,061,200 2,689,400
5,000(5) 0.7 20.625 4/20/08 64,855 164,355

Dennis K. Marquardt..................... 50,000(4)(5) 7.0 16.875 8/19/07 530,600 1,344,700

Dennis G. Baglama....................... 50,000(4)(5) 7.0 16.875 8/19/07 530,600 1,344,700

Ronald M. Bianco........................ 80,000(4)(5) 11.3 16.875 8/19/07 848,960 2,151,520
</TABLE>

- --------------------------

(1) In the fiscal year ended June 30, 1998, the Company granted (i) options to
purchase an aggregate of 565,000 shares of Common Stock under the Company's
1995 Stock Option Plan ("1995 Plan") to employees, and (ii) warrants to
purchase an aggregate of 190,000 shares of Common Stock to certain officers.
See "Certain Relationships and Related Transactions."

(2) The exercise prices of such options and warrants represent the closing sales
price of the Company's Common Stock on The Nasdaq Stock Market on the grant
date.

(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.

(4) Includes warrants which were granted for a term of ten years and vested and
became exercisable immediately. See "Certain Relationships and Related
Transactions."

(5) Includes options which were granted under 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.

10
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND OPTION AND WARRANT VALUES AT
JUNE 30, 1998

The following table sets forth certain information concerning unexercised
options and warrants held as of June 30, 1998 by the executive officers named in
the Summary Compensation Table:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/WARRANTS AT IN-THE-MONEY OPTIONS/
ACQUIRED 6/30/98 WARRANTS AT 6/30/98(2)
ON VALUE -------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich........... 77,750 $ 1,278,016 643,462 358,288 $ 11,116,017 $ 4,504,655

James E. Freeman, Jr....... 226,000 3,045,182 82,500 232,500 1,052,969 2,832,344

Dennis K. Marquardt........ 56,200 924,325 101,000 49,000 1,468,438 615,938

Dennis G. Baglama.......... 57,360 760,253 37,140 45,500 325,801 561,906

Ronald M. Bianco........... 60,000 883,750 69,000 71,000 814,875 773,875
</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., $25.1875) of the Company's Common Stock on June 30, 1998 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 October 1, 1998 and they were eligible for severance
benefits under the Severance Plan would be $421,500, $258,683, $218,400,
$174,417, and $187,833, respectively.

11
<PAGE>
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.

In August 1997, the Company repurchased shares of the Company's Common Stock
at a repurchase price of $16.875 per share (I.E., the closing price of the
Company's Common Stock on the date of the repurchase). The Company repurchased
202,348 shares for $3,364,035 from Jill Tate Higgins, 6,534 shares for $108,628
from Charles Miller and 69,000 shares for $1,147,125 from Alan R. Rachlin. See
"Certain Relationships and Related Transactions."

In April 1998, the Company granted warrants to purchase 5,000 shares of
Common Stock to each of its non-employee directors, including Jill Tate Higgins,
Charles Miller and Alan R. Rachlin. The warrants have an exercise price of
$20.625 per share (I.E., the closing sales price of the Common Stock on the date
of grant) and vest in four quarterly installments beginning July 1, 1998. See
"Certain Relationships and Related Transactions."

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, 1997:

In August 1997, the Company granted to each of Mark A. Vidovich, Dennis
Marquardt, Dennis Baglama, Ronald Bianco, Stan Littley and Judy Tucker warrants
to purchase 30,000 shares of the Company's Common Stock and to John Kirkland
warrants to purchase 10,000 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 $16.875 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 695,588 shares of the Company's Common Stock at a
repurchase price of $16.625 per share (I.E., the closing sales price of the
Company's Common Stock on the date of the repurchase). The officers

12
<PAGE>
and directors from whom such shares were repurchased and the number of shares
repurchased from them are set forth below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
REPURCHASED BY AGGREGATE
NAME OF OFFICER OR DIRECTOR THE COMPANY PURCHASE PRICE
- ----------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Mark A. Vidovich........................................... 140,000 $ 2,327,500
James E. Freeman, Jr....................................... 54,658 908,689
James P. Higgins........................................... 7,000 $ 116,375
Jill Tate Higgins.......................................... 202,348* 3,364,035
Charles Miller............................................. 6,534 108,628
Alan R. Rachlin............................................ 69,000 1,147,125
Boyd I. Willat............................................. 46,472 772,597
Felice Willat.............................................. 62,420 1,037,732
Dennis K. Marquardt........................................ 42,000 698,250
Dennis G. Baglama.......................................... 13,860 230,423
Ronald M. Bianco........................................... 20,000 332,500
Donald W. Bottinelli....................................... 4,326 71,920
Stan Littley............................................... 8,316 138,254
Judy Tucker................................................ 15,654 260,248
Richard J. Whatley......................................... 3,000 49,875
------- --------------
Total.................................................... 695,588 $ 11,564,151
------- --------------
------- --------------
</TABLE>

- ------------------------

* Of such shares, (i) 182,348 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) 20,000 shares were repurchased from
Lakeside Enterprises, L.P., a California limited partnership of which Ms.
Higgins is the general partner.

See "Election of Directors--Compensation of Directors" and "Executive
Compensation and Other Information--Compensation Committee Interlocks and
Insider Participation."

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 year 1998
consisted of Jill Tate Higgins (Chairperson), Charles Miller and Alan R.
Rachlin, all of whom are outside directors. Although

13
<PAGE>
Mr. Vidovich, who was the Company's Chief Executive Officer during fiscal year
1998 and is currently the Company's Chairman of the Board, 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.

ANNUAL BASE SALARIES. The Compensation Committee reviews and approves the
annual base salaries of all executive officers (including the Chairman of the
Board). 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 year
1998, the Compensation Committee increased annual base salaries of the Company's
executive officers by 10% to 39% over fiscal year 1997 levels because of the
Committee's belief that such increases were appropriate in light of the
foregoing factors and in recognition of the achievement of certain corporate
objectives in fiscal year 1997.

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 1998 (the "Fiscal 1998 Officer Bonus Plan") and administered by
the Compensation Committee, executive officers were entitled to receive cash
bonuses based on a percentage of their respective base salaries if fiscal year
1998 after bonuses net income increased by at least 15% over the prior fiscal
year's after bonuses net income. 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 1998 Officer
Bonus Plan was $14,430,000 (I.E., 115% of the Company's after bonuses net income
for fiscal year 1997). Based on fiscal year 1998 after bonuses net income of
$15,908,000, bonuses in the aggregate amount of $627,776 were earned by the
Company's executive officers under the Fiscal 1998 Officer Bonus Plan.
Individual bonuses ranged from 30.4% to 44.1% of an officer's base salary.

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 Chairman of the
Board 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 closing 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 year 1998, options to purchase an aggregate of
460,000 shares of Common Stock were granted to all executive officers as a group
and represented 81% of all options granted to the Company's employees in fiscal
year 1998. In addition, in recognition of their contribution to, and tenure
with, the Company, the Board of Directors granted warrants to purchase an
aggregate of 190,000 shares of the Company's Common Stock to certain officers.
The exercise price of all such warrants is the closing price for the date of the
grant and the warrants vested and became immediately exercisable. In fiscal year
1998, of the total of 755,000 options

14
<PAGE>
and warrants granted by the Compensation Committee and the Board of Directors,
650,000 options and warrants, representing 86% of the total, were granted to
officers of the Company.

COMPENSATION OF CHAIRMAN OF THE BOARD. The Compensation Committee generally
considers the same factors in determining the Chairman of the Board's
compensation as it considers with respect to the Company's other executive
officers. Mr. Vidovich's fiscal year 1998 compensation combined an annual base
salary with a stock option, and thus reflects the Compensation Committee's
philosophy that a significant portion of the Chairman of the Board's overall
compensation should be incentive-based. Mr. Vidovich also received a warrant
grant from the Board of Directors in recognition of his contributions to, and
tenure with, the Company.

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 1999 would exceed the $1 million
limitation per officer.

COMPENSATION COMMITTEE
Jill Tate Higgins, Chairperson
Charles Miller
Alan R. Rachlin

15
<PAGE>
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, 1993 and ended June 30, 1998. 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

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
DOLLARS

<S> <C> <C> <C>
Day Nasdaq
Runner SIC Code Index Market Index
1993 $100.00 $100.00 $100.00
1994 189.74 83.87 109.66
1995 176.92 94.71 128.61
1996 265.38 104.01 161.89
1997 341.03 106.84 135.02
1998 516.67 108.62 258.52
</TABLE>

<TABLE>
<CAPTION>
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Day Runner........................................ $ 100 $ 189.74 $ 176.92 $ 265.38 $ 341.03 $ 516.67
Nasdaq Market Index............................... 100 109.66 128.61 161.89 195.02 258.52
Selected Peer Group............................... 100 83.87 94.71 104.01 106.84 108.62
</TABLE>

- ------------------------

* Assumes (i) $100 invested on July 1, 1993 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.

16
<PAGE>
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
600,000 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 and in 1997 to increase the number of shares authorized for issuance
thereunder by 400,000 shares and 550,000 shares, respectively.

In September 1998, 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 375,000 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, 1998. If such amendment is approved, a
total of 1,925,000 shares will have been authorized for issuance under the 1995
Plan since its inception. As of October 1, 1998, 27,000 shares had been issued
upon the exercise of options under the 1995 Plan, 1,300,500 shares were subject
to outstanding options, and 222,500 shares (not including the 375,000-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 375,000 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 375,000 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 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

17
<PAGE>
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, 1998,
approximately 1,300 persons were eligible to receive options and 20 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 200,000
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.

(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, 1998, the closing sales price of
the Company's Common Stock on The Nasdaq Stock Market was $17.00 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.

18
<PAGE>
(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 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

19
<PAGE>
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. Upon disposition of such shares, the
gain will be subject to a maximum federal tax rate of 20%.

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
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.

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<PAGE>
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 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 (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 12 months plus
one day.

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 THE
COMPANY'S NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In September 1998, the Board of Directors of the Company adopted, subject to
the approval of the Company's stockholders, the Non-Employee Director Stock
Option Plan (the "Director Plan") under which 150,000 shares of Common Stock
have been reserved for issuance pursuant to the exercise of stock options to be
granted thereunder to non-employee directors of the Company. No options have
been granted under the Director Plan as of the date of this Proxy Statement.

AT THE ANNUAL MEETING, THE STOCKHOLDERS WILL BE REQUESTED TO CONSIDER AND
APPROVE THE DIRECTOR PLAN. 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 DIRECTOR PLAN. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE DIRECTOR
PLAN.

NEW PLAN BENEFITS

The following table sets forth the number of options which will be
automatically granted as of the date of the Annual Meeting under the Director
Plan if the Director Plan is approved by the stockholders at that time. If the
Director Plan is not approved at the Annual Meeting, no grants will be made.
Only non-employee directors of the Company are eligible to participate in the
Director Plan. Since the exercise price of the options listed below will be
equal to the market value of the Common Stock on the date of the grant, the
dollar value of such benefits is reflected as zero.

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<PAGE>
On the date of the Annual Meeting, each non-employee director will
automatically be granted an option to purchase 10,000 shares of Common Stock if
the Director Plan is approved by the stockholders. During the remainder of the
ten-year term of the Director Plan, each non-employee director will
automatically be granted an option to purchase 5,000 shares of Common Stock on
the date of each annual meeting of stockholders, subject to share availability.

NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION DOLLAR VALUE($)(1) UNDERLYING OPTIONS
- --------------------------------------------------------------------------- ----------------------- -------------------
<S> <C> <C>
Non-Executive Directors Group (five persons)............................... 0 50,000
</TABLE>

- ------------------------

(1) The exercise price of the options granted will be the closing price of the
Company's Common Stock on the grant date.

A summary of the principal provisions of the Director Plan is set forth
below and is qualified in its entirety by reference to the Director Plan.

PURPOSE

The purpose of the Director Plan is to promote the interests of the Company
and its stockholders by (i) helping to attract and retain the services of
persons of the highest caliber to serve as non-employee directors of the
Company, (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.

ADMINISTRATION

The Director Plan may be administered by the Board of Directors or, upon
appointment by the Board, by a committee composed of two or more members of the
Board of Directors. Members of the Board of Directors or its committee who are
eligible directors are permitted to participate in the Director Plan. The
interpretation and construction of any provision of the Director Plan is within
the sole discretion of the Board of Directors or its committee, whose
determination is final, conclusive and binding upon all participants in the
Director Plan. Members of the Board of Directors receive no additional
compensation for their services in connection with the administration of the
Director Plan.

ELIGIBILITY

Any person who is or becomes a director on or after the date on which the
Director Plan is approved by the Company's stockholders and is not an employee
of the Company is eligible to receive options under the Director Plan.

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 each outstanding option under the
Director Plan and the number of shares which are available for issuance, as well
as the option price per share of each outstanding 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 such options
will

22
<PAGE>
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.

TERMS OF OPTIONS

The Director Plan provides that, in consideration for serving on the
Company's Board of Directors and without payment of additional consideration,
each non-employee director elected at the Annual Meeting will, on the date of
the Annual Meeting, automatically be granted a non-statutory stock option to
purchase 10,000 shares of Common Stock. Thereafter, each non-employee director
elected at an annual meeting of the Company's stockholders during the ten-year
term of the Director Plan will, on the date of such annual meeting,
automatically be granted a non-statutory stock option to purchase 5,000 shares
of Common Stock, subject to share availability under the Director Plan. A
non-employee director who is elected or appointed to the Board other than at an
annual meeting of the Company's stockholders will automatically be granted an
option to purchase a pro-rata number of shares (I.E., a number of shares equal
to 5,000 minus the product of 1,250 and the number of installments that would
have vested under an option granted to an eligible director on the most recent
grant date preceding the date of such grant). Options granted under the Director
Plan will be evidenced by a written stock option agreement between the Company
and the optionee and will be subject to the following additional terms and
conditions:

(a) EXERCISE OF THE OPTION: Each option granted on the date of an annual
meeting of the Company's stockholders (the date of such option grants are
hereinafter referred to as 'Regular Grant Dates") will have a term of ten
years and will vest and become exercisable cumulatively in four equal
quarterly installments, with the first installment vesting on the first
day of the calendar quarter following the quarter in which the grant is
made and an additional installment vesting on the first day of each of
the three calendar quarters thereafter. Options granted other than on a
Regular Grant Date will vest in the same number of quarterly installments
and at the same dates as would be remaining with respect to the unvested
portion of the options granted under the Director Plan as of the last
Regular Grant Date. Options vest only so long as a director continues to
serve as a non-employee director of the Company. An option is exercised
by giving written notice of exercise to the Company, specifying the
number of shares of Common Stock to be purchased and tendering payment to
the Company of the purchase price. Payment for shares to be issued upon
exercise of an option may be made in the form of cash or check or such
other method of payment as is authorized by the Board of Directors
pursuant to the Director Plan.

(b) EXERCISE PRICE: The exercise price of an option granted under the
Director Plan will be equal to 100% of the fair market value of the
Common Stock on the date of grant. The fair market value is based upon
the closing sales price of the Common Stock on The Nasdaq Stock Market as
of such date. On October 13, 1998, the closing sales price of the
Company's Common Stock on The Nasdaq Stock Market was $17.00 per share.

(c) TERMINATION AS A DIRECTOR: If a director who receives an option ceases
to serve as a non-employee director for any reason, whether voluntarily
or involuntarily, or permanently or temporarily, then after the date of
such termination and through the end of the term of the option granted to
such director, the holder of the option may exercise the option to
purchase all or a portion of the shares that the holder of the option was
entitled to purchase at the date on which the director ceased serving as
a director.

(d) EXPIRATION OF OPTIONS: No option may be exercised after its ten-year
term has expired.

(e) TRANSFERABILITY OF OPTIONS: Options granted under the Director Plan are
transferable by the optionee subject to compliance with applicable
securities laws.

23
<PAGE>
AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN

The Board of Directors may at any time amend or terminate the Director 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 non-employee director without his or her
prior written consent. No amendment may be made to the Director Plan without
prior approval of the Company's stockholders if such amendment would increase
the number of shares reserved under the Director Plan, modify the eligibility
requirements or materially increase the benefits which may accrue to
non-employee directors under the Director Plan. In any event, the Director Plan
will terminate on the tenth anniversary of its approval by the stockholders
(I.E., November 23, 2008), provided that such termination shall not affect
options previously granted and then outstanding.

TAX INFORMATION

The federal tax consequences of options granted under the Director Plan are
complex and subject to change. Such consequences will be comparable to the tax
consequences arising from the grant and exercise of a non-statutory stock option
under the Company's 1995 Stock Option Plan. For a general discussion of the tax
consequences upon the grant and exercise of a non-statutory stock option and the
sale of shares acquired upon exercise of a non-statutory stock option, see
"PROPOSAL 2--APPROVAL OF AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN--TAX
INFORMATION--NON-STATUTORY STOCK OPTIONS" above.

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, 1999, 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

Catherine F. Ratcliffe
SECRETARY

Irvine, California
October 19, 1998

24
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DAY RUNNER, INC.

1998 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 19, 1998, and hereby
appoints James E. Freeman, Jr. 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 Monday, November 23,
1998, 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:

1. ELECTION OF DIRECTORS FOR ALL nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE TO VOTE FOR ALL
CONTRARY BELOW) / / NOMINEES LISTED
BELOW / /

(INSTRUCTION: TO WITHHOLD THE AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE BOX NEXT TO THE NOMINEE'S NAME BELOW.)

Name of Nominee:

/ / James E. Freeman, Jr. / / Charles Miller / / Boyd I. Willat
/ / James P. Higgins / / Alan R. Rachlin / / Felice Willat
/ / Jill Tate Higgins / / Mark A. Vidovich

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
1,550,000 to 1,925,000 shares, as described in the Proxy Statement.

3. APPROVAL OF NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

/ / FOR / / AGAINST / / ABSTAIN

To approve the Company's Non-Employee Director Stock Option Plan, as
described in the Proxy Statement.

(CONTINUED ON OTHER SIDE)
<PAGE>
(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, 1999, 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: _____________________, 1998
__________________________________

(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