<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 Section 240.14a-11(c) or Section 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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:
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[ ] 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:
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(4) Date Filed:
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<PAGE>
DAY RUNNER, INC.
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 14, 2000
------------
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 Thursday, December 14, 2000, at 9:00 a.m., California time, at The
Holiday Inn and Convention Center, 7000 Beach Blvd., Buena Park, CA for the
following purposes, each as more fully described in the attached Proxy
Statement:
1. To elect three directors. The names of the nominees intended to be
presented for election are: John F. Ausura, Charles Miller and Boyd
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 480,000 to 555,000 shares.
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending June 30, 2001; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment(s) or postponements thereof.
Only record holders of the Company's Common Stock at the close of business
on October 24, 2000 are entitled to notice of, and to vote at, the Annual
Meeting and at any adjournment(s) or postponements 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
/s/ CATHERINE F. RATCLIFFE
----------------------------------------
Catherine F. Ratcliffe
Secretary
Fullerton, California
November 13, 2000
<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 Thursday, December 14,
2000, at 9:00 a.m., California time, and at any adjournment(s) or postponements
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 Holiday
Inn and Convention Center, 7000 Beach Blvd., Buena Park, CA 90620.
These proxy solicitation materials were first mailed on or about November
13, 2000 to stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on October 24, 2000
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 2,392,860 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. 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>
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 2001 must be received by the Company no later than July 16, 2001 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 December 14, 2000.
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 2750 W. Moore
Ave., Fullerton, CA 92833, 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 three directors will be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the Company's three 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>
John F. Ausura 47 Chief Executive Officer and Director
Charles Miller 58 Director
Boyd Willat 57 Director
</TABLE>
Mr. Ausura was elected as the Company's interim Chief Executive Officer in
May 2000 and as a director in June 2000. Since December 1999, Mr. Ausura has
been a principal in Crossroads LLC, a financial advisory/interim management firm
that was retained by the Company in March 2000. From March 1998 through March
1999 Mr. Ausura was the Chief Executive Officer of the credit card subsidiary of
PNC Bank and from February 1997 to March 1998 he was the Chief Financial Officer
of Consumer Banking for the same bank. From February 1995 through August 1996,
he was the Chief Financial Officer of Sunshine Biscuits, Inc., a cookie and
cracker company. Mr. Ausura holds a M.B.A. from The Wharton School of the
University of Pennsylvania and a B.A. from the University of Scranton. Mr.
Ausura was also awarded a Fullbright-Hays graduate stipend to the University of
Bonn Germany.
Mr. Miller has been a director since August 1986. Mr. Miller is a private
investor. Mr. Miller holds a B.A. from UCLA and is a Certified Public
Accountant.
Mr. Willat is a co-founder of the Company and was a director from its
inception until his resignation in July 2000. Mr. Willat was re-elected to the
Board in November 2000. He 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 pen development and manufacturing 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 holds a B.A. from California
State University San Jose and an executive M.B.A. from UCLA.
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 twenty meetings during the fiscal
year ended June 30, 2000 and acted four times by unanimous written consent.
During the 2000 fiscal year, each director of the Company attended all meetings
of the Board of Directors and all of the committees of the Board on which he or
she served, except one director who missed two meetings of the Board of
Directors and one director who missed one committee meeting.
-3-
<PAGE>
The Audit Committee, which was comprised of James Higgins, Charles Miller
and Alan Rachlin (Chairman), met five times during the fiscal year ended June
30, 2000. 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 was comprised of Messrs. Miller and Rachlin and
Jill Tate Higgins (Chairperson) met four times during the fiscal year ended June
30, 2000 and acted twice 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.
In December 1999, Felice Willat resigned as a director of the Company. In
June 2000, James E. Freeman, Jr. also resigned from the Board of Directors and
Mr. Ausura was elected to the Board of Directors at that time. In July 2000,
Messrs. Higgins, Willat, Mark Vidovich and Ms. Higgins resigned from the Board
of Directors. Following these resignations, the Audit Committee and Compensation
Committee were comprised of Messrs. Miller and Rachlin with Mr. Rachlin serving
as Chairman of the Audit Committee and Mr. Miller serving as Chairman of the
Compensation Committee. In November 2000, Boyd Willat was re-elected to the
Board of Directors and Mr. Rachlin advised the Board of Directors that he had
decided not to stand for re-election as a director.
COMPENSATION OF DIRECTORS
In fiscal year 2000, the Company paid each non-employee director an annual
fee of $12,000, 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 $12,000 ($18,000 for the Chairperson of each such
Committee), payable quarterly, plus $750 and expenses for each Committee meeting
attended.
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 Stock Option Plan (the "Director
Plan"), which was approved at the Annual Meeting of Stockholders held on
November 23, 1998 (the "1998 Meeting"), each non-employee director elected at
the 1998 Meeting was automatically granted a non-statutory stock option to
purchase 2,000 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 1,000 shares
of the Company's Common Stock (the dates of such 1998 and subsequent option
grants are hereinafter referred to as "Regular Grant Dates"). Each non-employee
director of the Company was granted a non-statutory stock option to purchase
1,000 shares on December 9, 1999, the most recent Regular Grant Date. 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
-4-
<PAGE>
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 "Compensation Committee Interlocks and Insider Participation."
EXECUTIVE OFFICERS
The executive officers of the Company as of November 1, 2000, and certain
information about them, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
John F. Ausura 47 Chief Executive Officer and Director
Donald E. Bottinelli 41 Chief Operating Officer
John P. Kirkland 56 Vice President, Operations, North America
Stan Littley 42 Vice President, Product Development and International
Catherine F. Ratcliffe 42 Vice President, General Counsel and Human Resources and Corporate Secretary
David A. Werner 48 Executive Vice President, Finance and Chief Financial 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 Mr. Ausura, see "Election of Directors - Nominees"
above.
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., manufacturer of office and school supplies, from June 1992 until
August 1994. Mr. Bottinelli holds a B.A. from Lamar University.
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. His
title was changed to Vice President, Operations, North America, in August 1999.
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 and to Vice President, Product Development and International in May 2000.
Ms. Ratcliffe joined the Company in October 1997 as General Counsel and
Corporate Secretary and was appointed Vice President, General Counsel in August
1998. Her title was changed to Vice President, General Counsel and Human
Resources in August 1999. Ms. Ratcliffe was a partner in the law firm of Bryan
Cave LLP from January 1993 until July 1997. Ms. Ratcliffe holds a J.D. from the
University of California, Berkeley and a B.A. from UCLA.
Mr. Werner joined the Company as Executive Vice President, Finance and
Chief Financial Officer in December 1999. From January 1994 through May 1999,
Mr. Werner was Executive Vice President and a director of Kaynar Technologies,
Inc., an international provider of components, component systems and related
services. Mr. Werner holds a M.B.A. and a B.S. from the University of Southern
California. Mr. Werner is also a Certified Public Accountant.
-5-
<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 October 1, 2000 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 9
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).................................. 344,416 14.4
10153 1/2 Riverside Drive, #598
Toluca Lake, CA 91602
Kayne Anderson Capital Advisors, L.P.(3).............. 196,321 8.2
1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
Alan R. Rachlin(4).................................... 107,533 4.5
Mark A. Vidovich(5)................................... 82,885 3.5
Boyd Willat(6)........................................ 37,505 1.6
Judy Tucker(7)........................................ 16,903 *
Donald E. Bottinelli(8)............................... 11,385 *
James E. Freeman, Jr.(9).............................. 10,170 *
Catherine F. Ratcliffe(10) ........................... 9,882 *
Charles Miller(11) ................................... 9,433 *
John F. Ausura(12) ................................... 500 *
All current Directors and Officers as a group 207,544 8.7
(9 persons) (4)(6)(9)(10)(11)(12)(13).......... ......
</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 10,916 shares for which warrants or options held by Ms. Higgins
are exercisable or become exercisable within 60 days after October 1, 2000;
(ii) 323,954 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) 9,546 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 10,916 shares beneficially owned by James P. Higgins, Ms. Higgins'
husband, and 500 shares held by James P. Higgins as custodian for his two
minor children, as to which shares Ms. Higgins disclaims beneficial
ownership.
(3) Based on a Form 13F dated August 11, 2000, wherein Kayne Anderson Capital
Advisors, L.P. reported that, as of June 30, 2000 and as an institutional
investment manager, it had sole investment discretion and voting authority
as to such shares.
(4) Includes 61,833 shares for which options or warrants beneficially owned by
Mr. Rachlin are exercisable or become exercisable within 60 days after
October 1, 2000, but does not include 1,652 shares held by a custodian for
the benefit of Mr. Rachlin's minor children.
(5) Includes 58,000 shares for which options or warrants beneficially owned by
Mr. Vidovich are exercisable or become exercisable within 60 days after
October 1, 2000. Mr. Vidovich was among the five most highly compensated
executive officers during the Company's fiscal year ended June 30, 2000. He
resigned in July 2000.
-6-
<PAGE>
(6) Includes 10,916 shares for which options or warrants beneficially owned by
Mr. Willat are exercisable or become exercisable within 60 days after
October 1, 2000. Mr. Willat resigned from the Company's Board of Directors
in July 2000 and was re-elected to the Board in November 2000.
(7) Includes 16,700 shares for which options or warrants beneficially owned by
Ms. Tucker are exercisable or become exercisable within 60 days after
October 1, 2000. Ms. Tucker was among the five most highly compensated
executive officers during the Company's fiscal year ended June 30, 2000.
She resigned in July 2000.
(8) Includes 11,385 shares for which options beneficially owned by Mr.
Bottinelli are exercisable or become exercisable within 60 days after
October 1, 2000.
(9) Includes 6,950 shares for which options beneficially owned by Mr. Freeman
are exercisable or become exercisable within 60 days after October 1, 2000
and 800 shares held by Mr. Freeman's wife for the benefit of their
children. Mr. Freeman was among the five most highly compensated executive
officers during the Company's fiscal year ended June 30, 2000. He resigned
in May 2000.
(10) Includes 9,750 shares for which options beneficially owned by Ms. Ratcliffe
are exercisable or become exercisable within 60 days after October 1, 2000.
(11) Includes 9,433 shares for which options or warrants beneficially owned by
Mr. Miller are exercisable or become exercisable within 60 days after
October 1, 2000.
(12) Includes 500 shares for which options beneficially owned by Mr. Ausura are
exercisable or become exercisable within 60 days after October 1, 2000.
(13) Includes 135,067 shares for which options beneficially owned by all the
current directors and officers as a group are exercisable or become
exercisable within 60 days after October 1, 2000.
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, 2000. To the knowledge of the Company and based
solely on a review of the Section 16(a) reports furnished to the Company and
written representation of the directors, officers and ten percent stockholders
of the Company, during the fiscal year ended June 30, 2000, John F. Ausura filed
one report late relating to one transaction.
-7-
<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 each of the individuals who served as the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
AWARDS
NAME AND ------ ALL OTHER
PRINCIPAL POSITION(S) YEAR(1) SALARY($)(2) BONUS($) OPTIONS (#) COMPENSATION($)(3)
-------------------- ------ ----------- ------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Mark A. Vidovich(4) 2000 $330,000 -0- 25,000 $2,578
Chairman of the Board 1999 330,000 -0- 15,000 2,010
1998 330,000 $145,671 36,000 2,806
James E. Freeman, Jr. (5) 2000 $300,000 -0- 20,000 $2,573
Chief Executive Officer 1999 300,000 -0- 11,000 2,341
1998 275,000 $121,393 21,000 2,611
John F. Ausura(6) 2000 -0- -0- 500 -0-
Chief Executive Officer
Donald E. Bottinelli(7) 2000 $225,000 -0- 15,000 $2,750
Chief Operating Officer 1999 165,000 -0- 5,500 2,688
1998 125,000 $44,061 4,000 1,258
Catherine F. Ratcliffe(8) 2000 $155,000 -0- 11,000 $2,367
Vice President, General Counsel 1999 125,000 -0- 4,000 2,980
and Human Resources
Judy Tucker(9) 2000 $140,000 -0- 10,000 $1,426
Vice President, Business Development 1999 125,000 -0- 3,000 1,395
1998 125,000 $38,036 14,000 1,410
</TABLE>
(1) The years 2000, 1999 and 1998 refer to the twelve months ended June 30,
2000, 1999 and 1998, 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 and as Chairman of the Board in July 2000.
(5) Mr. Freeman was elected Chief Executive Officer of the Company in August
1998 and resigned from that office in May 2000. He served as President and
Chief Operating Officer of the Company from May 1995 until August 1998. Mr.
Ausura was elected Chief Executive Officer at the time Mr. Freeman
resigned. (see footnote number 6 below)
(6) Mr. Ausura was elected Chief Executive Officer in May 2000 at the time Mr.
Freeman resigned. Mr. Ausura is a consultant to the Company, is not an
employee and does not receive a salary or any other compensation or
benefits from the Company. As a non-employee director, Mr. Ausura received
an option grant pursuant to the Company's Non-Employee Director Stock
Option Plan when he was elected to the Board of Directors in June 2000. Mr.
Ausura's services are provided to the Company pursuant to an agreement
between the Company and Crossroads LLC. The Company pays Crossroads a
monthly fee of $110,000 (plus expenses) for interim management services,
which includes Mr. Ausura's services as Chief Executive Officer and the
services of one other Crossroads employee. Other Crossroads employees
provide services to the Company on an hourly basis. The Company's agreement
with Crossroads expires June 30, 2001.
(7) Mr. Bottinelli was elected Vice President, Marketing of the Company in
August 1997 and Chief Operating Officer in August 1998.
-8-
<PAGE>
(8) Ms. Ratcliffe was elected Vice President, General Counsel of the Company in
August 1998 and her title was changed in August 1999 to Vice President,
General Counsel and Human Resources.
(9) Ms. Tucker served as Vice President, Corporate Development in fiscal year
1998. In August 1999 her title changed to Vice President, Business
Development. She resigned in July 2000.
OPTION GRANTS IN FISCAL YEAR 2000
The following table sets forth certain information concerning stock option
grants in the fiscal year ended June 30, 2000 to the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
---------------------------------------------------- ANNUAL RATES
% OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED(1) IN FY 2000(2) ($/SHARE)(3) DATE 5% ($) 10% ($)
---- --------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich 15,000 }10.9% $45.31 09/07/09 $427,505 $1,083,337
10,000 9.69 01/18/10 60,960 154,454
James E. Freeman, Jr. 11,000 } 8.7 45.31 09/07/09 313,504 794,447
9,000 9.69 01/18/10 54,864 139,008
Donald E. Bottinelli 7,000 } 6.5 45.31 09/07/09 199,503 505,557
8,000 9.69 01/18/10 48,768 123,563
Catherine F. Ratcliffe 5,000 } 4.8 45.31 09/07/09 142,502 361,112
6,000 9.69 01/18/10 36,576 92,672
Judy Tucker 5,000 } 4.4 45.31 09/07/09 142,502 361,112
5,000 9.69 01/18/10 30,480 77,227
</TABLE>
------------------------
(1) Represents options which 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.
(2) In the fiscal year ended June 30, 2000, the Company granted options to
purchase an aggregate of 229,000 shares of Common Stock under the 1995 Plan
to employees and certain officers.
(3) The exercise prices of such options represent the closing sales price of
the Company's Common Stock on the Nasdaq National Stock Market on the grant
date.
(4) 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>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000 AND OPTION AND WARRANT VALUES AT
JUNE 30, 2000
The following table sets forth certain information concerning unexercised
options and warrants held as of June 30, 2000 by the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/WARRANTS OPTIONS/WARRANTS
ACQUIRED AT 6/30/00 AT 6/30/00(2)
ON VALUE ---------- ------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Vidovich --- --- 185,832 54,518 $0 $0
James E. Freeman, Jr. --- --- 32,950 0 0 0
Donald E. Bottinelli --- --- 7,335 19,725 0 0
Catherine F. Ratcliffe --- --- 6,450 16,550 0 0
Judy Tucker --- --- 17,819 15,650 0 0
</TABLE>
------------------------
(1) Such value represents the difference between the fair 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 fair market value of the
shares underlying such options (calculated using the closing sales price
(I.E., $1.125) of the Company's Common Stock on June 30, 2000 as reported
on The Nasdaq National Stock Market) and the exercise price of such
options.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
On May 15, 2000, Mr. Freeman resigned as the Company's Chief Executive
Officer under circumstances which made him eligible for benefits under the
Officer Severance Plan (described below). Since May 16, 2000, Mr. Freeman has
been receiving a severance benefit of $25,600 per month. He will receive this
monthly benefit for an aggregate total period of 13 months.
July 14, 2000, Mr. Vidovich and Ms. Tucker also resigned from their
executive officer positions, Chairman of the Board and Vice President Business
Development, respectively, under circumstances which made them eligible for
severance benefits under to the Officer Severance Plan. Mr. Vidovich is
receiving a monthly benefit of $28,100, for an aggregate total period of 15
months and Ms. Tucker is receiving a monthly benefit of $12,167 for an aggregate
total period of 10 months.
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.
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<PAGE>
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 as an officer (up to a maximum of 10
years) and the highest office attained prior to termination. The amounts that
would be payable under the Severance Plan to the Company's current officers,
Messrs. Werner, Bottinelli, Littley and Kirkland and Ms. Ratcliffe, if their
employment were terminated as of October 1, 2000 and they were eligible for
severance benefits under the Severance Plan would be $96,750, $154,000,
$104,000, $109,167 and $98,600, respectively. Mr. Ausura, the Company's Chief
Executive, is a consultant to the Company and not an employee. He is not
eligible for severance benefits under the Severance Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during fiscal year 2000 consisted of Ms. Higgins
(Chairperson) and Messrs. Miller and Rachlin, all of whom were outside
directors. The Compensation Committee currently consists of Mr. Miller
(Chairman) and Mr. Rachlin. No member of the Compensation Committee is a current
or former officer or employee of the Company or any of its subsidiaries.
In May 1999, Mr. Rachlin entered into a six-month consulting agreement with
the Company pursuant to which he agreed to perform consulting services for the
Company at the rate of $2,500 per day. The consulting agreement was approved
unanimously by the Board of Directors of the Company. In November 1999, Mr.
Rachlin and the Company entered into one-year consulting on the same terms. This
consulting agreement was unanimously approved by the Board of Directors. This
consulting agreement was terminated in September 2000. Pursuant to these
consulting agreements, the Company paid Mr. Rachlin $87,000 in fiscal year 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain transactions entered into between the Company and its officers,
directors and principal stockholders and their affiliates since July 1, 1999 are
described under "Election of Directors - Compensation of "Directors" and
"Executive Compensation and Other Information - Summary Compensation Table" and
- Compensation Committee Interlocks and Insider Participation."
In September 2000, the Compensation Committee approved retention bonuses
for executive officers which shall be paid if such officers are serving in their
respective officer positions on December 31, 2000. If this condition is met, Mr.
Werner, the Company's Executive Vice President, Finance and Chief Financial
Officer, will receive an aggregate total of $100,000 and Mr. Bottinelli and Ms.
Ratcliffe, the Company's Chief Operating Officer and Vice President, General
Counsel and Human Resources, respectively, will receive an aggregate total of
$75,000 each.
THE FOLLOWING COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND
THE PERFORMANCE GRAPH ON PAGE 14 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
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<PAGE>
attract, retain and motivate qualified executive officers that 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
2000 consisted of Jill Tate Higgins (Chairperson), Charles Miller and Alan R.
Rachlin, all of whom were outside directors. Although Mr. Vidovich, who was the
Company's Chairman of the Board during fiscal 2000, was invited from time to
time to attend meetings of the Compensation Committee and periodically consulted
with and made recommendations to the Committee regarding officer compensation,
he was not entitled to vote on any matters under consideration by the Committee
and did 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
2000, the Compensation Committee increased annual base salaries of certain of
the Company's executive officers by 12% to 36% over fiscal year 1999 levels
because of the Committee's belief that such increases were appropriate in light
of the foregoing factors.
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 2000 (the "Fiscal 2000 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
2000 after bonuses net income increased by at least 15% over the after bonuses
net income goal for fiscal year 2000 ($5,985,000). 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 2000 Officer Bonus Plan was $6,882,750 (I.E., 115% of the Company's after
bonuses net income goal for fiscal year 2000 of $5,985,000). No bonuses were
earned by the Company's executive officers under the Fiscal 2000 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. In fiscal
year 2000, the Committee reviewed and considered 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.
-12-
<PAGE>
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 year 2000, options to purchase an aggregate of
128,000 shares of Common Stock were granted to all executive officers as a group
and represented 56% of all options granted to the Company's employees in fiscal
year 2000.
COMPENSATION OF CHAIRMAN OF THE BOARD. Mr. Vidovich resigned from his
officer position as Chairman of the Board in July 2000 and he was not replaced.
The Compensation Committee has generally considered 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
2000 compensation combined an annual base salary with stock option grants, and
thus reflected the Compensation Committee's philosophy that a significant
portion of the Chairman of the Board'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 2001 would exceed the $1 million
limitation per officer.
COMPENSATION COMMITTEE
Charles Miller, Chairman
Alan R. Rachlin
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<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, 1995 and ended June 30, 2000. 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
<TABLE>
<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99 6/30/00
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Day Runner $100.00 $150.00 $192.75 $292.03 $143.48 $2.61
NASDAQ Market Index 100.00 109.82 112.81 114.69 115.90 75.13
Selected Peer Group 100.00 125.88 151.64 201.01 281.68 423.84
</TABLE>
--------------------
* Assumes (i) $100 invested on July 1, 1995 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.
-14-
<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
120,000 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, 1997, 1998 and 1999 to increase the number of shares authorized for
issuance thereunder by 80,000, 110,000, 75,000 and 95,000 shares, respectively.
In November 2000, 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 75,000 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, 2000. If such amendment is approved, a
total of 555,000 shares will have been authorized for issuance under the 1995
Plan since its inception. As of October 1, 2000, 5,700 shares had been issued
upon the exercise of options under the 1995 Plan, 433,450 shares were subject to
outstanding options, and 40,850 shares (not including the 75,000-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 75,000 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 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 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.
-15-
<PAGE>
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, a number of factors are taken into
account, 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, 2000,
approximately 840 persons were eligible to receive options and 81 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 40,000 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
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<PAGE>
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 OTC Bulletin Board, Nasdaq Stock Market or
any national securities exchange on which the Common Stock is listed.
On November 3, 2000, the closing sales price of the Company's Common
Stock on OTC Bulletin Board was $0.56 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 180
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 90 days (30 days for options granted prior to October 20, 1997)
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) NON-TRANSFERABILITY 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.
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<PAGE>
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. 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
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<PAGE>
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 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.
-19-
<PAGE>
PROPOSAL 3 - 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, 2001, and recommends that stockholders vote for
ratification of such appointment. In the event that the stockholders do not vote
to ratify the appointment of Deloitte & Touche LLP, 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 2001.
The affirmative vote of the holders of a majority of the shares of the
Company's common stock present at the Annual Meeting in person or by proxy and
entitled to vote is required for the approval of the ratification of the
appointment of Deloitte & Touche LLP as the Company's independent auditors.
OTHER MATTERS
The Company currently knows of no matters to be voted upon 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
/s/ CATHERINE F. RATCLIFFE
----------------------------------------
Catherine F. Ratcliffe
Secretary
Fullerton, California
November 13, 2000
-20-
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DAY RUNNER, INC.
2000 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 November 13, 2000, and hereby
appoints John F. Ausura and David A. Werner 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 Thursday, December 14, 2000, at
9:00 a.m., California time at the Holiday Inn and Convention Center located at
7000 Beach Blvd., Buena Park, California and at any adjournment(s) or
postponement(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> <C>
1. ELECTION OF DIRECTORS FOR ALL nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW) / / TO VOTE FOR ALL NOMINEES 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: / / John F. Ausura / / Charles Miller / / Boyd Willat
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
480,000 to 555,000 shares, as described in the Proxy Statement.
3. 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, 2001, as described in the
Proxy Statement.
(CONTINUED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
4. 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) or
postponement(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) or postponement(s) thereof shall
have and may exercise all powers of said attorney-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: ______________________, 2000
___________________________________
(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.)
