<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 (S)240.14a-11(c) or (S)240.14a-12
DM Management Company
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
[DM MANAGEMENT COMPANY LOGO APPEARS HERE]
DM MANAGEMENT COMPANY
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON MAY 28, 1998
AND
PROXY STATEMENT
IMPORTANT
PLEASE MARK, SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
[DM MANAGEMENT LOGO APPEARS HERE]
April 9, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of DM
Management Company. The meeting will be held at the Boston Harbor Hotel, 70
Rowes Wharf, Boston, Massachusetts on Thursday, May 28, 1998, beginning at 9:00
A.M., local time.
As a stockholder, your vote is important. We encourage you to execute and
return your proxy promptly whether you plan to attend the meeting or not so
that we may have as many shares as possible represented at the meeting.
Returning your completed proxy will not prevent you from voting in person at
the meeting prior to the proxy's exercise if you wish to do so.
Thank you for your cooperation, continued support and interest in DM
Management Company.
Sincerely,
/s/ Gordon R. Cooke
Gordon R. Cooke
President and Chief Executive Officer
<PAGE>
DM MANAGEMENT COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
Notice is hereby given that the Annual Meeting of Stockholders of DM
Management Company (the "Company") will be held at the Boston Harbor Hotel, 70
Rowes Wharf, Boston, Massachusetts on Thursday, May 28, 1998, beginning at
9:00 A.M., local time for the following purposes:
1. To fix the number of directors that shall constitute the whole Board
of Directors of the Company at six;
2. To consider and vote upon the election of two Class B Directors;
3. To act upon a proposal to amend the 1993 Incentive and Nonqualified
Stock Option Plan to increase the number of shares of Common Stock that may
be issued pursuant to options granted thereunder from 1,200,000 to
1,600,000;
4. To approve the 1998 Employee Stock Purchase Plan; and
5. To transact such further business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 30, 1998 as
the record date for the determination of the stockholders of the Company
entitled to notice of, and to vote at, the Annual Meeting and any adjournment
thereof. Only stockholders of record on such date are entitled to notice of,
and to vote at, the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ David R. Pierson
David R. Pierson
Secretary
Boston, Massachusetts
April 9, 1998
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY, WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE>
DM MANAGEMENT COMPANY
25 RECREATION PARK DRIVE
HINGHAM, MASSACHUSETTS 02043
(781) 740-2718
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 1998
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about April 9, 1998 in connection with the solicitation by
the Board of Directors of DM Management Company (the "Company") of proxies to
be used at the Annual Meeting of Stockholders of the Company, to be held on
Thursday, May 28, 1998, and at any and all adjournments thereof (the "Annual
Meeting"). When proxies are returned properly executed, the shares represented
will be voted in accordance with the stockholders' directions. Stockholders
are encouraged to vote on the matters to be considered. However, if no choice
has been specified by a stockholder, the shares will be voted as recommended
by management. Any stockholder may revoke his proxy at any time before it has
been exercised by providing the Company with a later dated proxy, by notifying
the Company's Secretary in writing or by orally notifying the Company in
person.
The Board of Directors of the Company (the "Board") has fixed the close of
business on March 30, 1998, as the record date for the determination of the
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting and any adjournment thereof. Only stockholders of record on such date
are entitled to notice of, and to vote at, the Annual Meeting or any
adjournment thereof. At the close of business on the record date, there were
issued and outstanding 6,298,007 shares of the Company's Common Stock, $.01
par value (the "Common Stock"), entitled to cast 6,298,007 votes.
The By-Laws of the Company provide that the holders of a majority of the
shares of Common Stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at the
Annual Meeting. Shares of Common Stock represented by a properly signed and
returned proxy will be treated as present at the Annual Meeting for purposes
of determining a quorum. Abstentions and broker non-votes with respect to
particular proposals will not affect the determination of a quorum. Thus,
shares voted to abstain as to a particular matter, or as to which a nominee
(such as a broker holding shares in street name for a beneficial owner) has no
voting authority in respect of a particular matter, shall be deemed present
for purposes of determining a quorum. Any stockholder who attends the Annual
Meeting may not withhold his shares from the quorum count by declaring such
shares absent from the Annual Meeting.
Passage of the proposal to fix the number of directors constituting the
whole Board requires the approval of a majority of the votes properly cast.
Abstentions and broker non-votes as to this proposal do not count as votes for
or against the proposal. The Class B Directors will be elected by a plurality
of the votes properly cast. Abstentions and broker non-votes as to this
election do not count as votes for or against such election. The affirmative
vote of a majority of the shares of Common Stock properly cast at the Annual
Meeting will be necessary to approve the proposals to amend the Company's 1993
Incentive and Nonqualified Stock Option Plan (the "1993 Stock Option Plan")
and to approve the Company's 1998 Employee Stock Purchase Plan (the "1998
Stock Purchase Plan"). Abstentions as to each of these proposals will count as
being present and represented at the Annual Meeting and entitled to vote, and
will be included in calculating the number of votes cast on these proposals
(and thus will have the effect of "no" votes). Broker non-votes will not be
included in calculating the number of votes cast on these proposals.
Votes will be tabulated by the Company's transfer agent, State Street Bank
and Trust Company.
1
<PAGE>
PROPOSALS ONE AND TWO--
FIXING NUMBER OF DIRECTORS AND ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors consisting of from
two to seven members. Within such limits, the number of directors constituting
the whole Board is determined by the stockholders at the annual meeting of
stockholders, and may be increased or decreased by the stockholders or the
directors from time to time. The Board is divided into three classes, labeled
Class A, Class B and Class C, each containing, insofar as possible, an equal
number of directors. Directors are elected to serve for three-year terms, and
until their respective successors are duly elected and qualified, with the
term of one of the three classes expiring each year at the Company's annual
meeting or special meeting in lieu thereof.
The number of directors constituting the whole Board is currently fixed at
six, and the Board currently consists of two Class A Directors, two Class B
Directors and two Class C Directors.
The terms of the Company's two Class B Directors, Walter J. Levison and Ruth
M. Owades, will expire at the Annual Meeting. The Company's current Class C
directors are Gordon R. Cooke and Thomas J. Litle. Their terms as directors
will expire at the Company's 1999 annual meeting of stockholders or special
meeting in lieu thereof. The Company's current Class A Directors are William
E. Engbers and Samuel L. Shanaman. Their terms as directors will expire at the
Company's 2000 annual meeting of stockholders or special meeting in lieu
thereof.
The Board has recommended that the number of directors constituting the
whole Board be fixed at six and has nominated Mr. Levison and Ms. Owades for
election as Class B Directors, to serve until the Company's 2001 annual
meeting of stockholders or special meeting in lieu thereof, and until their
successors are duly elected and qualified.
The nominees have agreed to serve as Directors if elected, and the Company
has no reason to believe that they will be unable to serve. In the event that
any of them is unable or declines to serve as director at the time of the
Annual Meeting, proxies may be voted for such other nominee as is then
designated by the Board.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO FIX THE NUMBER OF
DIRECTORS AT SIX AND FOR THE ELECTION OF MR. LEVISON AND MS. OWADES AS CLASS B
DIRECTORS.
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each director
and nominee for election as a director and each executive officer of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gordon R. Cooke......... 52 President, Chief Executive Officer and Chairman of
the Board of Directors; Director
David E. Brown.......... 49 Vice President--Creative Director
Kevin E. Burns.......... 46 Senior Vice President/General Manager
Olga L. Conley.......... 40 Chief Financial Officer, Vice President of Finance
and Treasurer
Randy A. Dow............ 44 Vice President of Information Services
John J. Hayes........... 42 Executive Vice President of Marketing
Patricia C. Lee......... 34 Vice President--J. Jill
Stephen W. Lord......... 57 Vice President of Operations
Carol A. Maher.......... 57 Vice President of Human Resources
Stephanie B. Noble...... 43 Senior Vice President--Nicole Summers
Patricia C. Selander.... 40 Vice President of Inventory Management
William E. Engbers 55
(1)(2)................. Director
Walter J. 79
Levison*(1)(2)......... Director
Thomas J. Litle(2)...... 57 Director
Ruth M. Owades*(1)...... 49 Director
Samuel L. Shanaman...... 56 Director
</TABLE>
- --------
* Nominee for re-election as a Director.
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Gordon R. Cooke has been President and Chief Executive Officer of the
Company and a director since joining the Company in December 1995 and Chairman
of the Board of Directors since August 1997. Mr. Cooke served as President of
Time-Warner Interactive Merchandising, a division of Time Warner Inc., from
November 1993 until December 1995, and as President of Bloomingdale's By Mail,
a division of Federated Department Stores, Inc., from April 1991 until October
1993. Mr. Cooke is a director of Geerlings & Wade, Inc.
David E. Brown joined the Company in March 1997 as Vice President--Creative
Director. From April 1996 to March 1997 Mr. Brown was a freelance art director
for Farrar & Farrar, a retail advertising agency. From September 1992 until
April 1996 he was employed by Structure, a men's apparel division of The
Limited, Inc., first as Art Director and later as Creative Director.
Kevin E. Burns has been Senior Vice President/General Manager since joining
the Company in November 1997. From December 1994 until October 1997 he served
as Director of Customer Logistics for Ryder Integrated Logistics, Inc., a
provider of third party integrated transportation and distribution/logistics
services and a subsidiary of Ryder Systems, Inc. From November 1993 until
December 1994 he was General Manager of DSC Logistics, Inc., a private company
providing third party warehousing and distribution services. From August 1986
until October 1993 he was Director, Service and Logistics, for Frito Lay
Company, a subsidiary of Pepsico, Inc.
Olga L. Conley has been Chief Financial Officer since August 1997, Vice
President of Finance since June 1996 and Treasurer since August 1993. She
joined the Company in October 1991 as Director of Financial Services, a
position she held until August 1993.
3
<PAGE>
Randy A. Dow has been Vice President of Information Services since November
1997. He joined the Company in October 1994 as Manager of Information Systems
Development, and served as Management Information Systems Director from
January 1996 until November 1997. From November 1991 until October 1994, Mr.
Dow served as Management Information Systems Director for The Vantage Group,
Inc., a direct marketing travel company.
John J. Hayes has served as Executive Vice President of Marketing since
joining the Company in May 1996. From September 1990 until May 1996, Mr. Hayes
served as Vice President, Marketing and Catalog Production, of Bloomingdale's
By Mail, a division of Federated Department Stores, Inc.
Patricia C. Lee has been Vice President--J. Jill since December 1996. She
joined the Company in December 1991 as a buyer, and served as Director of
Merchandising from November 1994 until December 1996.
Stephen W. Lord has been Vice President of Operations since October 1997. He
joined the Company in December 1987 as Warehouse Manager, and served as
Director of the Company's Distribution Center from September 1995 until
October 1997.
Carol A. Maher has been Vice President of Human Resources since June 1996.
She joined the Company in December 1992 and served as Director of Human
Resources until June 1996.
Stephanie B. Noble has been Senior Vice President--Nicole Summers since
December 1996. She joined the Company in April 1988 as Director of
Merchandising and served as Vice President of Merchandising from April 1989
until December 1996.
Patricia C. Selander joined the Company in January 1993 as Director of
Inventory Control and became Vice President of Inventory Management in October
1995.
William E. Engbers has been a director of the Company since July 1990. Mr.
Engbers currently serves as Director, Venture Capital of Allstate Insurance
Company, which he joined in June 1989. Mr. Engbers is a director of La Jolla
Pharmaceutical Company.
Walter J. Levison has been a director of the Company since March 1992. Since
October 1982, Mr. Levison has been a general partner of the Aegis Venture
Funds, a group of venture capital funds based in the Boston, Massachusetts
area. He is also a director of Davox Corporation.
Thomas J. Litle has been a director of the Company since May 1997. Since
1995 Mr. Litle has been the Chairman of LitleNet LLC, a company which he
founded and which provides direct commerce connection and information sharing
services to the direct marketing industry. From 1985 to 1995, he was Chairman
and Chief Executive Officer of Litle & Company, which provided information
sharing, payment processing and electronic network services for the direct
marketing industry. Mr. Litle is a director of SkyMall, Inc. and the Direct
Marketing Association.
Ruth M. Owades has been a director of the Company since May 1997. Since
1988, Ms. Owades has been President and Chief Executive Officer of Calyx &
Corolla, Inc., a catalog business which she founded and which offers consumers
fresh-cut flowers and plants.
Samuel L. Shanaman has been a director of the Company since July 1990. From
June 1990 until March 1998 he held a number of positions with the Company,
including President and Chief Executive Officer, Chief Financial Officer,
Treasurer, Chief Operating Officer, Executive Vice President and Vice
President--Finance.
The Company's executive officers are elected by the directors and hold
office until the first directors' meeting after the next annual meeting of
stockholders or special meeting in lieu thereof, and thereafter until their
successors are chosen and qualified, unless a shorter term is specified in the
vote appointing them.
4
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD
During the fiscal year ended December 27, 1997 ("fiscal 1997"), the Board
met five times and acted six times by unanimous written consent. No incumbent
director attended fewer than 75% of the aggregate of the total number of
meetings held by the Board and Committees of the Board on which he or she
served.
The Board currently has two committees. The Audit Committee (currently
composed of Mr. Engbers, Mr. Levison and Mr. Litle) reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent auditors. The Audit Committee
met twice during fiscal 1997. The Compensation Committee (currently composed
of Mr. Engbers, Mr. Levison and Ms. Owades) makes general policy decisions
relating to compensation and benefits for the Company's employees, including
decisions with respect to compensation for the Company's executive officers,
and administers the Company's stock option and employee stock purchase plans.
The Compensation Committee met five times during fiscal 1997 and acted once by
unanimous written consent.
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
DIRECTORS' COMPENSATION
Each member of the Board of Directors who is not an employee of the Company
or any parent or subsidiary of the Company (an "Outside Director") receives an
annual retainer of $10,000 and in addition, receives a fee of $1,000 for each
meeting of the Board of Directors attended. Directors who are employees of the
Company are not paid any separate fees for serving as directors.
Under the 1993 Stock Option Plan, Outside Directors receive automatic
formula stock option grants. See "Proposal Three--Amendment of the 1993 Stock
Option Plan to Increase the Number of Shares of Common Stock that may be
Issued Pursuant to Options Granted Thereunder" for a description of the
material terms of such formula stock option grants. Mr. Engbers and Mr.
Levison each has previously received automatic stock option grants under the
1993 Stock Option Plan to purchase an aggregate of 41,000 shares of Common
Stock at exercise prices ranging from $3.25 to $9.00 per share. Such options
are now fully vested. Mr. Litle and Ms. Owades each has previously received
automatic stock option grants under the 1993 Stock Option Plan to purchase
24,000 shares of Common Stock at an exercise price of $7.50 per share. Such
options vested as to one-third of the shares which may be purchased thereunder
on May 8, 1997, and will vest as to the remainder of such shares in two equal
installments on May 8 of 1998 and 1999, assuming they continue to be a Board
member on such vesting date.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation for services rendered in all capacities to the Company for fiscal
1997, the twelve months ended December 28, 1996 (the "Twelve Month Period")
and the fiscal years ended June 29, 1996 ("fiscal 1996") and June 24, 1995
("fiscal 1995") of the Chief Executive Officer of the Company and the four
other most highly paid executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(5)
---------------
ANNUAL COMPENSATION AWARDS
------------------------------ ---------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION PERIOD(1) ($)(2) ($)(3) ($)(4) (#) ($)(6)
------------------ ------------------- -------- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gordon R. Cooke......... Fiscal 1997 $338,952 $397,506 $ 80,800 100,000 $2,020
President, Chief Twelve Month Period 300,020 225,006 144,908 75,000 585
Executive Officer and Fiscal 1996 150,010 135,000 49,500 175,000 120
Chairman of the Board Fiscal 1995 -- -- -- -- --
of Directors
John J. Hayes........... Fiscal 1997 187,017 74,998 0 35,000 2,020
Executive Vice
President Twelve Month Period 127,591 26,249 0 70,000 60
of Marketing Fiscal 1996 18,172 0 0 70,000 0
Fiscal 1995 -- -- -- -- --
Samuel L. Shanaman(7)... Fiscal 1997 155,002 93,002 0 0 2,020
Former Executive Vice Twelve Month Period 155,002 46,501 0 30,000 358
President, Chief Fiscal 1996 155,002 0 0 30,000 120
Operating Officer and Fiscal 1995 150,749 0 0 25,000 582
Chief Financial Officer
Stephanie B. Noble...... Fiscal 1997 150,010 60,002 0 0 2,020
Senior Vice President-- Twelve Month Period 138,372 22,502 0 30,000 293
Nicole Summers Fiscal 1996 127,493 0 0 30,000 120
Fiscal 1995 115,268 0 0 0 217
Patricia C. Lee......... Fiscal 1997 119,239 58,001 0 40,000 2,020
Vice President-- Twelve Month Period 83,677 4,000 0 26,000 355
J. Jill Fiscal 1996 78,036 0 0 0 120
Fiscal 1995 66,961 0 0 9,000 469
</TABLE>
- --------
(1) Amounts reported for the Twelve Month Period include amounts for the last
six months of fiscal 1996, which are also included in amounts reported for
fiscal 1996.
(2) Amounts reported for each period include amounts deferred by the named
individuals pursuant to the Company's 401(k) Plan and Trust. Amounts shown
do not include amounts expended by the Company pursuant to plans
(including group disability, life and health) that do not discriminate in
scope, terms or operation in favor of officers and directors and are
generally available to all salaried employees.
(3) Amounts reported for each period include amounts earned with respect to
that period but paid in the subsequent period.
(4) Amounts reported include $80,700 for fiscal 1997 and $72,000 for the
Twelve Month Period for living expenses and $72,808 for the Twelve Month
Period and $49,500 for fiscal 1996 for relocation expenses.
(5) The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts to any of
the executive officers during any of the reported periods.
(6) The amounts reported include the following insurance premiums paid by the
Company with respect to term life insurance for the benefit of the named
individuals during fiscal 1997, the Twelve Month Period, fiscal 1996 and
fiscal 1995, respectively: Mr. Cooke, $120, $110, $120 and $0; Mr. Hayes,
$120, $60, $0 and $0; Mr. Shanaman, $120, $120, $120 and $120; Ms. Noble,
$120, $120, $120 and $120; Ms. Lee, $120, $120, $120 and $120. The amounts
reported also include the following Company matching contributions
pursuant to the Company's 401(k) Plan and Trust for fiscal 1997, the
Twelve Month Period, fiscal 1996 and fiscal 1995, respectively, for the
benefit of the named individuals: Mr. Cooke, $1,900, $475, $0 and $0; Mr.
Hayes, $1,900, $0, $0 and $0; Mr. Shanaman, $1,900, $238, $0 and $462; Ms.
Noble, $1,900, $173, $0 and $97; and Ms. Lee $1,900, $235, $0 and $349.
(7) Mr. Shanaman resigned from his employment by the Company in March 1998. He
remains a Director of the Company.
6
<PAGE>
OPTION GRANTS
The following table sets forth certain information regarding stock options
granted during fiscal 1997 by the Company to the individuals named in the
Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
---------------------------------------------------- ---------------------
NUMBER OF PERCENT OF
SHARES UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE PER
GRANTED EMPLOYEES IN SHARE EXPIRATION 5% 10%
NAME (#)(1) FISCAL 1997 ($/SH) DATE ($) ($)
- ---- ----------------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gordon R. Cooke......... 100,000(3) 23.1% $3.625 01/02/04 $ 147,574 $ 343,910
John J. Hayes........... 35,000(4) 8.1% 10.50 06/25/04 149,609 348,654
Samuel L. Shanaman...... 0 -- -- -- -- --
Stephanie B. Noble...... 0 -- -- -- -- --
Patricia C. Lee......... 40,000(4) 9.2% 10.50 06/25/04 170,982 398,461
OPTION GRANTS IN LAST FISCAL YEAR
</TABLE>
- --------
(1) All of these options were granted under the 1993 Stock Option Plan. These
options are exercisable during the holder's lifetime only by the holder,
and by the holder only while the holder is an employee of the Company, and
for certain limited periods of time thereafter in the event of retirement,
death or termination of employment other than for cause. In addition, in
the event of death of the option holder while an employee of the Company
and before expiration of the option, these options vest in full. These
options also are subject to accelerated vesting in the event that a
"Qualified Sale" occurs and immediately prior to the closing of such
Qualified Sale the holder is an employee of the Company. Immediately prior
to such closing each such option shall become exercisable as to the number
of shares subject to the option, up to 100%, equal to two times the number
of shares as to which the option otherwise would have been exercisable
immediately prior to such closing. "Qualified Sale" means the sale of all
or substantially all of the assets or issued and outstanding capital stock
of the Company or a merger or consolidation involving the Company in which
stockholders of the Company immediately before such merger or
consolidation do not own immediately after such merger of consolidation
capital stock or other equity interests of the surviving corporation or
entity representing more than 50% in voting power of the capital stock or
other equity interests of such surviving corporation or entity outstanding
immediately after such merger or consolidation.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of five percent and ten percent
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, are dependent on the
performance of the Common Stock and the date on which the option is
exercised. There can be no assurance that the amounts reflected will be
achieved.
(3) This option vested as to 25% of the shares which may be purchased
thereunder on January 2, 1998 and as to an additional one forty-eighth
(1/48) of the shares on the 2nd day of each month thereafter through
January, 2001.
(4) This option vests as to 20% of the shares which may be purchased
thereunder on June 25, 1998 and as to an additional one sixtieth (1/60) of
the shares on the 25th day of each month thereafter through June, 2002.
7
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information concerning the number and
value of stock options exercised by each of the individuals named in the
Summary Compensation Table during fiscal 1997 and of unexercised stock options
held by each of such individuals on December 27, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS HELD AT HELD AT
DECEMBER 27, 1997(#) DECEMBER 27, 1997($)(2)
------------------------- -------------------------
SHARES
ACQUIRED VALUE
ON EXERCISE REALIZED
(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon R. Cooke......... 7,000 $99,750 80,500 187,500 $1,164,219 $2,564,844
John J. Hayes........... 0 0 22,166 82,834 274,304 806,321
Samuel L. Shanaman...... 81,807 783,711 89,022 27,334 1,102,786 286,668
Stephanie B. Noble...... 0 0 35,543 19,000 525,166 273,125
Patricia C. Lee......... 5,965 64,627 3,767 63,450 50,505 561,400
</TABLE>
- --------
(1) Value is based on the last sales price of the Common Stock on the exercise
date, as reported by The Nasdaq Stock Market, less the applicable option
exercise price.
(2) Value is based on the last sales price of the Common Stock before the end
of fiscal 1997 ($16.625 per share on December 26, 1997), as reported by
The Nasdaq Stock Market, less the applicable option exercise price.
CERTAIN EMPLOYMENT AND SEVERANCE ARRANGEMENTS
In connection with the hiring of Gordon R. Cooke as President and Chief
Executive Officer of the Company in December 1995, Mr. Cooke and the Company
entered into an employment agreement which, among other things, provides that
if Mr. Cooke's employment is terminated by the Company other than for just
cause (as defined in the agreement), the Company will make severance payments
to Mr. Cooke in an aggregate amount equal to Mr. Cooke's annual base salary at
the time of termination, payable at the same time and in the same amounts as
such base salary would have been paid.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is composed of
independent, non-employee directors. The Committee currently consists of Mr.
Engbers, Mr. Levison and Ms. Owades, who were the only members of the
Committee during fiscal 1997. Ms. Owades joined the Committee in August 1997.
Mr. Engbers and Mr. Levison served on the Committee for all of fiscal 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Policy
During fiscal 1997 the Company's compensation package for its executive
officers had three principal components: (1) base salary; (2) bonus; and (3)
stock options. The Company's executive officers were also eligible to
participate in other employee benefit plans on substantially the same terms as
other employees who met applicable eligibility criteria, subject to any legal
limitations on the amounts that may be contributed or the benefits that may be
payable under these Company plans.
Base salary levels for the Company's executive officers are intended to be
fair and competitive in the Company's industry. Base salaries for executive
officers are reviewed annually, and any adjustments are based on such factors
as individual performance, change in responsibilities and market-based
comparisons with other comparable companies.
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Under the Company's bonus plan for fiscal 1997, bonuses for the Company's
executive officers generally were based on a percentage of base salary and
conditioned on the Company's ability to achieve its financial plan. Assigned
bonus percentages varied depending on the Compensation Committee's view of the
importance of the executive officer's contribution to the Company's ability to
achieve its financial plan. The Compensation Committee was also authorized
under the fiscal 1997 bonus plan to award additional bonuses in its discretion
based upon such performance factors as it determined to be appropriate.
Stock option awards are intended to provide the Company's executive officers
with longer term incentives that align their interests with those of the
Company's stockholders more generally. The Compensation Committee granted
additional stock options to most of the Company's current executive officers
during fiscal 1997.
Chief Executive Officer Compensation
Mr. Cooke's base salary during fiscal 1997 was at the rate of $300,000 per
annum until June 30, 1997 and $375,000 per annum thereafter. Mr. Cooke
received bonuses totaling $397,506 for fiscal 1997 as follows: (a) bonuses of
$202,506 as a result of the Company's having achieved its financial plan for
fiscal 1997; (b) bonuses of $165,000 based on the amounts by which the
Company's operating income for the twelve months ended June 28, 1997 and for
the Fall 1997 season exceeded the Company's financial plan for those periods;
and (c) an additional bonus of $30,000 in recognition of the Company's
outstanding performance during 1997. The Company also paid or reimbursed Mr.
Cooke for certain living expenses. During fiscal 1997 Mr. Cooke was granted an
option to purchase 100,000 shares of Common Stock at $3.625 per share, the
closing price per share on The Nasdaq Stock Market on January 2, 1997, the
date of option grant. The option vests as to 25% of the shares on January 2,
1998 and an additional one forty-eighth ( 1/48) of the shares on the 2nd day
of each month thereafter through January 2, 2001, and vests in full upon death
of Mr. Cooke while employed by the Company. The option is also is subject to
accelerated vesting in event that a "Qualified Sale" occurs and immediately
prior to the closing of such Qualified Sale Mr. Cooke is an employee of the
Company. In such event, immediately prior to such closing the option becomes
exercisable as to a number of shares subject to the option, up to 100%, equal
to two times the number of shares as to which the option otherwise would have
been exercisable immediately prior to such closing. For such purpose a
"Qualified Sale" means a sale of all or substantially all of assets or issued
and outstanding capital stock of the Company, or a merger or consolidation
involving the Company in which the stockholders of the Company immediately
before such merger or consolidation do not own immediately after such merger
or consolidation capital stock or other equity interests of the surviving
corporation or entity representing more than 50% in voting power of the
capital stock or other equity interests of such surviving corporation or
entity outstanding immediately after such merger or consolidation. The option
expires on January 2, 2004. Under the terms of an employment agreement
executed in connection with the initial hiring of Mr. Cooke in December 1995,
in the event that Mr. Cooke's employment is terminated by the Company without
just cause, as defined in the employment agreement, Mr. Cooke is entitled to
severance payments equal to one times his annual base salary at the time of
termination, payable at the same time and in the same amounts as such base
salary would have been paid.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
William E. Engbers
Walter J. Levison (Chairman)
Ruth M. Owades
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PROPOSAL THREE--
AMENDMENT TO THE 1993 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ISSUED
PURSUANT TO OPTIONS GRANTED THEREUNDER
The 1993 Stock Option Plan currently provides that the total number of
shares of Common Stock that may be issued pursuant to options granted
thereunder may not exceed 1,200,000 (subject to adjustment upon certain
changes in capitalization of the Company). The Company is proposing that the
1993 Stock Option Plan be amended to increase the number of shares of Common
Stock that may be issued pursuant to options granted thereunder from 1,200,000
to 1,600,000. Currently, only 131,300 shares remain available for issuance
pursuant to new options to be granted under the 1993 Stock Option Plan. The
Company also believes that it is desirable to have additional shares available
to cover future option grants to employees and automatic formula stock option
grants to Outside Directors and that increasing the number of shares available
under the 1993 Stock Option Plan will further align the interests of
shareholders and management and will assist the Company in attracting and
retaining key executives. The Board has authorized the amendment of the 1993
Stock Option Plan to increase the number of shares available for issuance
thereunder, but this amendment will be effective only if this Proposal Three
is approved by the stockholders of the Company.
The full text of the 1993 Stock Option Plan as proposed to be amended is
printed as Appendix A, beginning on page A-1.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO AMEND
THE 1993 STOCK OPTION PLAN.
Description of the 1993 Stock Option Plan
In August 1993, the Company's Board of Directors adopted and the Company's
stockholders approved the 1993 Stock Option Plan. From time to time thereafter
the Company's Board of Directors and stockholders have approved amendments to
the 1993 Stock Option Plan, including for the purpose of increasing the number
of shares of Common Stock that may be issued pursuant to options granted
thereunder. Most recently the Board of Directors of the Company has adopted an
additional amendment to the 1993 Stock Option Plan to increase the number of
shares of Common Stock that may be issued pursuant to options granted
thereunder from 1,200,000 to 1,600,000, effective only if the amendment is
approved by the stockholders of the Company.
The 1993 Stock Option Plan authorizes (i) the grant of options to purchase
Common Stock intended to qualify as incentive stock options ("Incentive
Options"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) the grant of options that do not so qualify
("Nonqualified Options"). The exercise price of Incentive Options granted
under the 1993 Stock Option Plan must be at least equal to the fair market
value of the Common Stock on the date of grant. The exercise price of
Incentive Options granted to an optionee who owns stock possessing more than
10% of the voting power of the Company's outstanding capital stock must equal
at least 110% of the fair market value of the Common Stock on the date of
grant. The exercise price of Nonqualified Options granted under the 1993 Stock
Option Plan must not be less than 85% of the fair market value of the Common
Stock on the grant date.
The 1993 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors. Except for certain non-discretionary option grants to
Outside Directors described below, the Compensation Committee selects the
individuals to whom options are granted and determines the option exercise
price and other terms of each award, subject to the provisions of the 1993
Stock Option Plan. Incentive Options may be granted under the 1993 Stock
Option Plan to employees, including officers and directors who are also
employees. As of March 30, 1998, approximately 500 employees were eligible to
participate in the 1993 Stock Option Plan. Nonqualified Options may be granted
under the 1993 Stock Option Plan to employees, officers, individuals providing
services to the Company and directors, whether or not they are employees of
the Company.
10
<PAGE>
No options may extend for more than ten years from the date of grant (five
years in the case of an optionee who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
parent or subsidiary ("greater-than-ten-percent-stockholders")). The aggregate
fair market value (determined at the time of grant) of shares issuable
pursuant to Incentive Options which first become exercisable by an employee or
officer in any calendar year may not exceed $100,000. In no event may any
person be granted options under the 1993 Stock Option Plan in any calendar
year to purchase more than 100,000 shares of Common Stock.
Options are non-transferable except by will or by the laws of descent or
distribution and are exercisable, during the optionee's lifetime, only by the
optionee. Options generally may not be exercised after (i) termination of the
optionee's employment by the Company for cause, (ii) thirty days after
termination of the optionee's employment by the Company without cause or by
the optionee voluntarily, (iii) ninety days following the optionee's
retirement from the Company in good standing by reason of age or disability
under the then established rules of the Company, and (iv) one year following
an optionee's death if the optionee's death occurs prior to termination of the
optionee's employment with the Company.
Payment of the exercise price of the shares subject to the option may be
made with (i) cash or check for an amount equal to the option price for such
shares, (ii) with the consent of the Compensation Committee, shares of Common
Stock having a fair market value equal to the option price of such shares,
(iii) with the consent of the Compensation Committee, delivery of such
documentation as the Compensation Committee and the broker, if applicable,
shall require to effect an exercise of the option and delivery to the Company
of the sale or loan proceeds required to pay the option price, (iv) with the
consent of the Compensation Committee, such other consideration which is
acceptable to the Compensation Committee and has a fair market value equal to
the option price of such shares, or (v) with the consent of the Compensation
Committee, a combination of the foregoing.
Under the 1993 Stock Option Plan, Outside Directors of the Company receive
automatic formula stock option grants. Each Outside Director joining the Board
on or after May 8, 1997 automatically is granted, on the date such person
first becomes a member of the Board, a Nonqualified Option to purchase 24,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on such date. Such Nonqualified Option is immediately vested
and exercisable as to one-third of such shares and vests and becomes
exercisable as to the remaining two-thirds of such shares cumulatively in two
equal annual installments on the first and second anniversaries of the date
the option was granted, provided that the option holder continues to be a
member of the Board on such anniversary. Any such Nonqualified Option granted
to an Outside Director has a seven-year term. In the event that a "Qualified
Sale" (as defined below) occurs before the expiration date of any such option,
and immediately prior to the closing of such Qualified Sale the holder of the
option is a member of the Board of Directors of the Company, then immediately
prior to such closing the option will become exercisable as to a number of
shares subject to the option, up to 100%, equal to two times the number of
shares as to which the option otherwise would have been exercisable
immediately prior to such closing. For such purposes, a "Qualified Sale" means
the sale of all or substantially all of the assets or issued and outstanding
capital stock of the Company, or a merger or consolidation involving the
Company in which the stockholders of the Company immediately before such
merger or consolidation do not own immediately after such merger or
consolidation capital stock or other equity interests of the surviving
corporation or entity representing more than fifty percent in voting power of
the capital stock or other equity interests of such surviving corporation or
entity outstanding immediately after such merger or consolidation.
Additionally, on the date of each annual meeting of the Company's
stockholders or special meeting in lieu thereof, each Outside Director who has
served for at least six months and who continues to serve at the meeting is
automatically granted, on the date of such meeting, a Nonqualified Option to
purchase 5,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on such date. Each Nonqualified Option
granted to an Outside Director as described in this paragraph is immediately
vested in full and expires seven years from the date of grant.
Mr. Engbers, Mr. Levison, Mr. Litle and Ms. Owades have previously received
automatic formula stock option grants under the 1993 Stock Option Plan to
purchase an aggregate of 41,000, 41,000, 24,000 and 24,000
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<PAGE>
shares, respectively, of Common Stock at exercise prices ranging from $3.25 to
$9.00 per share. The options granted to Mr. Engbers and Mr. Levison have
vested in full, and those granted to Mr. Litle and Ms. Owades have vested as
to one-third of the shares which may be purchased thereunder and vest as to
the remaining shares cumulatively in two equal installments on May 8, 1998 and
May 8, 1999, provided they continue to be a Board member on such vesting date.
At March 30, 1998 947,900 shares were issuable upon exercise of outstanding
options granted under the 1993 Stock Option Plan and 120,800 shares had been
purchased upon exercises of options granted thereunder. The Company has filed
registration statements on Form S-8 under the Securities Act of 1933, as
amended (the "Securities Act") to register 1,200,000 shares of the Company's
Common Stock that may be issued pursuant to options granted under the 1993
Stock Option Plan. The Company intends to file, as soon as practicable, a
registration statement covering the additional 400,000 shares of Common Stock
that will be issuable under the 1993 Stock Option Plan if Proposal Three is
approved by the stockholders of the Company. Except in the case of shares
issued to affiliates of the Company, as defined in the Securities Act, the
shares of Common Stock issued upon exercise of options granted under the 1993
Stock Option Plan will be freely eligible for resale in the public market if
they are issued while a registration statement is effective.
New Plan Benefits
Except as set forth below, the proposed amendments to the 1993 Stock Option
Plan will not affect the manner in which the number of options to be received
by or allocated to participants in the 1993 Stock Option Plan are determined
nor would the proposed amendment, if it had been effective during fiscal 1997,
have affected the determination of such amounts in fiscal 1997. Except as set
forth below, the Company is unable to determine the dollar value and number of
options which will be received by or allocated to (i) any of the Company's
executive officers, (ii) the Company's current executive officers, as a group,
(iii) the Company's current directors who are not executive officers, as a
group, and (iv) the Company's employees who are not executive officers, as a
group, as a result of the proposed amendment because, except for the automatic
non-discretionary formula stock option grants to Outside Directors described
above, options are granted by the Compensation Committee of the Board of
Directors on a discretionary basis.
The following table sets forth information concerning the benefit that will
be received by or allocated to the persons specified, assuming that Proposal
Three is approved:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
DOLLAR UNDERLYING
VALUE OPTIONS
NAME AND POSITION ($) GRANTED
----------------- ------- ----------
<S> <C> <C>
William E. Engbers, Director........................... (1) 5,000(2)
Walter J. Levison, Director............................ (1) 5,000(2)
Thomas J. Litle, Director.............................. (1) 5,000(2)
Ruth M. Owades, Director............................... (1) 5,000(2)
Samuel L. Shanaman, Director........................... (1) 5,000(2)
Executive Officers (as a group)........................ 0 0
Directors who are not executive officers (as a group).. (1) 25,000(2)
All employees who are not executive officers (as a
group)................................................ 0 0
</TABLE>
- --------
(1) The dollar value of the options to be granted is not determinable at this
time. Each such option will be granted at an exercise price equal to the
fair market value of the Common Stock on the date of option grant
(determined in accordance with the terms of the 1993 Stock Option Plan).
(2) Represents shares of Common Stock issuable pursuant to Nonqualified
Options to be granted to each Outside Director pursuant to automatic
formula stock option grants under the 1993 Stock Option Plan, as amended,
at the time of the Annual Meeting. Does not include shares of Common Stock
issuable pursuant to Nonqualified Options that would automatically be
granted to Outside Directors under the 1993 Stock Option Plan, as amended,
in connection with future annual meetings or special meetings in lieu
thereof.
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Amendment of 1993 Stock Option Plan
The Company's Board of Directors may modify, revise or terminate the 1993
Stock Option Plan at any time and from time to time, except that (i) the class
of persons eligible to receive options and the aggregate number of shares
issuable pursuant to the 1993 Stock Option Plan may not be changed or
increased (other than pursuant to certain changes in the Company's capital
structure) without the consent of the stockholders of the Company and (ii) the
provisions of the 1993 Stock Option Plan relating to formula stock option
grants to Outside Directors may not be amended more than once every six
months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
Federal Income Tax Information With Respect to the 1993 Stock Option Plan
The holder of a Nonqualified Option recognizes no income for federal income
tax purposes on the grant thereof. On the exercise of a Nonqualified Option,
the difference between the fair market value of the underlying shares of
Common Stock on the exercise date and the option exercise price is treated as
compensation to the holder of the option taxable as ordinary income in the
year of exercise, and such fair market value becomes the basis for the
underlying shares which will be used in computing any capital gain or loss
upon disposition of such shares.
The holder of an Incentive Option recognizes no income for federal income
tax purposes on the grant thereof. Except as provided below with respect to
the alternative minimum tax, there is no tax upon exercise of an Incentive
Option. If no disposition of shares acquired upon exercise of the Incentive
Option is made by the option holder within two years from the date of the
grant of the Incentive Option or within one year after exercise of the
Incentive Option, any gain realized by the option holder on the subsequent
sale of such shares is treated, for federal income tax purposes, as mid-term
capital gain if the shares were held for more than 12 months but not more than
18 months and as a long-term capital gain if the shares were held for more
than 18 months. If the shares are sold prior to the expiration of such two-
year and one-year periods (a "Disqualifying Disposition"), the difference
between the lesser of the value of the shares at the date of exercise or at
the date of sale and the exercise price of the Incentive Option is treated as
compensation to the option holder taxable as ordinary income and the excess
gain, if any, is treated as capital gain (which will be mid-term capital gain
if the shares are held for more than 12 months but not more than 18 months,
and long-term capital gain if the shares are held for more than 18 months).
The excess of the fair market value of the underlying shares over the option
price at the time of exercise of an Incentive Option will constitute an item
of tax preference for purposes of the alternative minimum tax. Taxpayers who
incur the alternative minimum tax are allowed a credit which may be carried
forward indefinitely to be used as a credit against the taxpayer's regular tax
liability in a later year; however, the alternative minimum tax credit can not
reduce the regular tax below the alternative minimum tax for that carryover
year.
Generally, subject to certain limitations, the Company may deduct on its
corporate income tax returns, in the year in which an option holder recognizes
ordinary income upon (1) the exercise of a Nonqualified Option or (2) a
Disqualifying Disposition of an Incentive Option, an amount equal to the
amount recognized by the option holder as ordinary income upon the occurrence
of such exercise or Disqualifying Disposition.
The 1993 Stock Option Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, nor is the plan qualified under
Section 401(a) of the Code.
PROPOSAL FOUR--
APPROVAL OF THE 1998 STOCK PURCHASE PLAN
The 1998 Stock Purchase Plan authorizes the issuance of up to 100,000 shares
of Common Stock to employees of the Company. The purpose of the 1998 Stock
Purchase Plan is to provide a method whereby such employees will have an
opportunity to acquire an ownership interest (or increase an existing
ownership interest) in the Company through the purchase of shares of Common
Stock of the Company. The Board of Directors anticipates that providing such
employees with a direct stake in the Company's welfare will assure a closer
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<PAGE>
identification of the interests of participants in the 1998 Stock Purchase
Plan with those of the stockholders of the Company, thereby stimulating the
participants' efforts on the Company's behalf and strengthening their desire
to remain with the Company. The Board has adopted the 1998 Stock Purchase
Plan, but this adoption must be approved by the stockholders of the Company.
The full text of the 1998 Stock Purchase Plan as proposed to be approved is
printed as Appendix B, beginning on page B-1.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL TO APPROVE
THE 1998 STOCK PURCHASE PLAN.
Description of the 1998 Stock Purchase Plan
In December 1997, the Company's Board of Directors adopted the 1998 Stock
Purchase Plan. The 1998 Stock Purchase Plan must be approved by the
stockholders of the Company within twelve months after its adoption by the
Board of Directors. Up to 100,000 shares of Common Stock are available for
issuance and purchase by employees under the 1998 Stock Purchase Plan (subject
to adjustment in the event of certain changes in the Company's capital
structure).
The 1998 Stock Purchase Plan is administered by the Compensation Committee
of the Board of Directors. The right to purchase stock under the 1998 Stock
Purchase Plan is made available by a series of one-year offerings (the
"Offering" or "Offerings") to eligible employees. The applicable date of
commencement ("Offering Commencement Date") and date of termination ("Offering
Termination Date") of each Offering under the 1998 Stock Purchase Plan is the
first and the last business day of each calendar year, respectively, unless
the Compensation Committee, in its discretion, determines otherwise.
All employees of the Company are eligible to participate in the 1998 Stock
Purchase Plan on the first Offering Commencement Date following the
commencement of employment if (a) the employee is customarily employed at
least twenty hours per week and more than five months in a calendar year by
the Company or any parent or subsidiary of the Company, (b) immediately after
the grant of an option to participate such employee would not own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any parent or subsidiary of the Company (as determined in
accordance with Section 424(d) of the Code), and (c) the grant of an option to
participate in the 1998 Stock Purchase Plan would not cause his rights to
purchase stock under all employee stock purchase plans of the Company and any
parent or subsidiary of the Company to exceed $25,000 of the fair market value
of the stock (determined at the time such option is granted) for each calendar
year in which the option is outstanding (determined in accordance with Section
423(b)(8) of the Code). Participation in the 1998 Stock Purchase Plan is
voluntary and participation in any one or more of the Offerings under the 1998
Stock Purchase Plan will neither limit nor require participation in any other
Offering.
At the time a participant files his authorization for a payroll deduction,
he may elect to have deductions made from his pay on each payday during the
time he is a participant in an Offering at any integral rate up to 10% of his
base pay on the Offering Commencement Date. Payroll deductions for a
participant will commence on the applicable Offering Commencement date and end
on the applicable Offering Termination Date unless terminated sooner by the
participant in accordance with the terms of the 1998 Stock Purchase Plan. All
payroll deductions made for a participant will be credited to his account
under the 1998 Stock Purchase Plan. No separate cash payments may be made into
such account by the employee. No interest will be paid or allowed on any money
paid into the 1998 Stock Purchase Plan or credited to the account of any
participant. An employee may terminate his participation in the 1998 Stock
Purchase Plan at any time by giving notice to the Company's Treasurer. During
the Offering, the participant may not change the percentage of compensation
which is to be deducted.
On the applicable Offering Commencement Date, a participating employee will
be deemed to have been granted an option to purchase a maximum number of
shares of the Company's Common Stock equal to an
14
<PAGE>
amount determined as follows: 85% of the per share market value of the
Company's Common Stock on such Offering Commencement Date shall be divided
into an amount equal to the percentage of the employee's compensation which he
has elected to have withheld (but no more than 10%) multiplied by the
employee's compensation over the Offering period. The per share market value
of the Common Stock purchased under the 1998 Stock Purchase Plan will be, with
respect to each Offering thereunder, the lower of (a) 85% of the closing price
per share (determined in accordance with the terms of the 1998 Stock Purchase
Plan) on the Offering Commencement Date and (b) 85% of the closing price per
share (determined in accordance with the terms of the 1998 Stock Option Plan)
on the Offering Termination Date.
Unless a participant first gives written notice of his withdrawal from
participation in the applicable Offering, his option for the purchase of
Common Stock with payroll deductions made during any Offering will be deemed
to have been exercised automatically on the applicable Offering Termination
Date. The number of full shares of Common Stock so purchased will be equal to
the accumulated payroll deductions in the participant's account at that time
divided by the applicable option price (but not in excess of the number of
shares for which options have been granted to the participant), and any excess
in his account at that time (other than amounts relating to fractional shares,
as discussed in the following sentence) will be automatically returned to the
participant. Fractional shares will not be issued under the 1998 Stock
Purchase Plan and any accumulated payroll deductions which would have been
used to purchase fractional shares will be automatically carried forward to
the next Offering unless the participant chooses to have the excess funds
returned to him by giving written notice to the Company's Treasurer to that
effect.
An employee's participation under the 1998 Stock Purchase Plan terminates
upon voluntary withdrawal from the 1998 Stock Purchase Plan at any time prior
to the Offering Termination Date for an Offering, or when such employee ceases
employment because of retirement, resignation, lay-off or discharge, except
that if an employee's employment terminates due to death, his beneficiary will
have the right to withdraw all of the payroll deductions or to exercise the
option.
The first Offering under the 1998 Stock Purchase Plan commenced on January
2, 1998, and 111 employees of the Company (representing approximately 20% of
those eligible to participate) have elected to participate in the current
Offering. As of January 2, 1998, no shares had been issued or sold pursuant to
the 1998 Stock Purchase Plan, and, subject to stockholder approval of Proposal
Four, 100,000 shares of Common Stock remained available for future issuance
under the 1998 Stock Purchase Plan.
The Company intends to file, as soon as practicable, a registration
statement covering the 100,000 shares of Common Stock that will be issuable
under the 1998 Stock Purchase Plan if Proposal Four is approved by the
stockholders of the Company. Except in the case of shares issued to affiliates
of the Company, as defined in the Securities Act, the shares of Common Stock
issued under the 1998 Stock Purchase Plan will be freely eligible for resale
in the public market if they are issued while a registration statement is
effective.
New Plan Benefits
The Company is unable to determine the dollar value and number of options or
other benefits or amounts that will be received by or allocated to (i) any of
the Company's executive officers, (ii) the Company's current executive
officers, as a group, (ii) the Company's current directors who are not
executive officers, as a group, or (iv) the Company's employees who are not
executive officers, as a group, as a result of the adoption of the 1998 Stock
Purchase Plan. Had the 1998 Stock Purchase Plan been in effect during fiscal
1997, the dollar value or number of options or other benefits or amounts
received by or allocated to such persons during the fiscal year would not have
been affected.
Amendment of 1998 Stock Purchase Plan
The Company's Board of Directors may, in its discretion, at any time,
terminate or amend the 1998 Stock Purchase Plan, except that no such
termination may affect options previously granted, nor may any amendment make
a change in any option previously granted which would adversely affect the
rights of an option holder under such Plan.
15
<PAGE>
Federal Income Tax Information With Respect to the 1998 Stock Purchase Plan.
If an employee acquires shares of Common Stock pursuant to the 1998 Stock
Purchase Plan and does not dispose of them within two years after the
commencement of the Offering period pursuant to which the shares were
acquired, nor within one year after the date on which the shares were
acquired, any gain realized upon subsequent disposition will be treated, for
federal income tax purposes, as mid-term capital gain if the shares were held
for more than 12 months but not more than 18 months and as long-term capital
gain if the shares were held for more than 18 months, except that the portion
of such gain equal to the lesser of (a) the excess of the fair market value of
the shares on the date of disposition over the amount paid to the Company upon
purchase of the shares, or (b) the excess of the fair market value of the
shares on the Offering Commencement Date over the amount paid upon purchase of
the shares, is taxable as ordinary income. There is no corresponding deduction
for the Company, however. If the employee disposes of the shares at a price
less than the price at which he acquired the shares, the employee realizes no
ordinary income and has a capital loss measured by the difference between the
purchase price and the selling price.
If the employee disposes of shares acquired pursuant to the 1998 Stock
Purchase Plan within two years after the Offering Commencement Date of the
Offering pursuant to which the shares were acquired, or within one year after
the date on which the shares were acquired, the difference between the
purchase price and the fair market value of the shares at the time of purchase
will be taxable to him as ordinary income in the year of disposition. In this
event, the Company may deduct from its gross income an amount equal to the
amount treated as ordinary income to such employee. Any excess of the selling
price over the fair market value at the time the employee purchased the shares
will be taxable as long-term, mid-term or, if the shares were held for 12
months or less, short-term capital gain, depending upon the period for which
the shares were held. If any shares are disposed of within either the two-year
or one-year period at a price less than the fair market value at the time of
purchase, the same amount of ordinary income (i.e., the difference between the
purchase price and the fair market value of the shares at the time of
purchase) is realized, and a capital loss is recognized equal to the
difference between the fair market value of the shares at the time of purchase
and the selling price.
If a participating employee should die while owning shares acquired under
the 1998 Stock Purchase Plan, ordinary income may be reportable on his final
income tax return.
The 1998 Stock Purchase Plan is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, nor is the plan qualified
under Section 401(a) of the Code.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
None of the directors or executive officers of the Company has any interest
in the adoption of Proposal Three or Proposal Four except as follows:
(1) Mr. Engbers, Mr. Levison, Mr. Litle, Ms. Owades and Mr. Shanaman, the
Company's five current Outside Directors, each will automatically be
granted a nonqualified stock option to purchase 5,000 shares of Common
Stock at the Annual Meeting (assuming they continue to serve at the time of
such meeting), and will receive a nonqualified option to purchase 5,000
shares of Common Stock in connection with future annual meetings or special
meetings in lieu thereof (assuming they have served for at least six months
before such meeting and continue to serve at the time of such meeting).
(2) In the future, the Company's directors (other than Outside Directors)
and executive officers might, in the discretion of the Compensation
Committee, be granted stock options under the 1993 Stock Option Plan which
are exercisable for some portion of the additional shares proposed to be
made available for option grants under Proposal Three.
(3) In the future, the Company's directors (other than Outside Directors)
and executive officers might choose to acquire some portion of the shares
proposed to be made available for purchase by employees of the Company
under Proposal Four through participation in the 1998 Stock Purchase Plan.
16
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of two broad market indexes, the
Nasdaq Stock Market Index for U.S. Companies and the Russell 2000 Index, and a
peer group composed of companies selected on a line-of-business basis and
consisting of Blair Corporation, Damark International Inc., Geerlings & Wade,
Inc., Hanover Direct, Inc., Lands' End, Inc., Lillian Vernon Corp., The Right
Start, Inc., Spiegel, Inc. and Williams-Sonoma Incorporated. The return for
each issuer in the peer group is weighted according to the issuer's stock
market capitalization.
The cumulative stockholder returns for shares of the Company's Common Stock
and the peer group are calculated assuming $100 was invested on November 2,
1993, the date on which the Company's Common Stock commenced trading on The
Nasdaq Stock Market. The cumulative stockholder returns for the market indexes
are calculated assuming $100 was invested on October 31, 1993. The Company
paid no cash dividends during the periods shown. The performance of the market
indexes and the peer group is shown on a total return (dividends reinvested)
basis.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------------------
11/02/93 6/94 6/95 6/96 12/96 12/97
<S> <C> <C> <C> <C> <C> <C>
DM MGMT CO 100 100 38 49 38 156
PEER GROUP 100 91 81 85 92 119
NASDAQ STOCK MARKET (U.S.) 100 100 97 138 170 208
RUSSELL 2000 100 100 98 126 147 180
</TABLE>
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on March 30, 1998, there were issued and
outstanding 6,298,007 shares of Common Stock entitled to cast 6,298,007 votes.
On March 30, 1998, the closing price of the Company's Common Stock as reported
by The Nasdaq Stock Market was $20.875 per share.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 30, 1998 by (i) each
person known by the Company to own beneficially more than five percent of the
Common Stock as of such date, (ii) each current director of the Company, (iii)
each nominee for director of the Company, (iv) each current executive officer
of the Company, (v) all current executive officers and directors of the
Company as a group and (vi) each person who served as an executive officer or
director of the Company during fiscal 1997:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
----------------------
NAME NUMBER PERCENT
---- ----------- ----------
<S> <C> <C>
B.A.T. Industries p.l.c. and affiliates(2) ............................ 349,672 5.6%
Windsor House
50 Victoria Street
London SW1H ONL England
V.G.H. Partners, L.L.C. and affiliates(3) ............................. 450,000 7.1%
260 Franklin Street
Boston, MA 02110
Westcliff Capital Management, LLC and affiliates(4))................... 403,175 6.4%
200 Seventh Avenue, Suite 105
Santa Cruz, CA 95062
David E. Brown(5)...................................................... 4,666 *
Kevin E. Burns......................................................... 0 N/A
Olga L. Conley(6)...................................................... 26,695 *
Gordon R. Cooke(7)..................................................... 144,163 2.2%
Randy A. Dow(8)........................................................ 6,363 *
William E. Engbers(9).................................................. 5,100 *
John J. Hayes(10)...................................................... 42,585 *
Patricia C. Lee(11).................................................... 14,600 *
Walter J. Levison(12).................................................. 53,204 *
Thomas J. Litle(13).................................................... 16,000 *
Stephen W. Lord........................................................ 11,201 *
Carol A. Maher(14)..................................................... 13,062 *
Stephanie B. Noble(15)................................................. 45,459 *
Ruth M. Owades(16)..................................................... 16,000 *
Patricia Selander(17).................................................. 23,095 *
Samuel L. Shanaman(18)................................................. 186,271 3.0%
All current directors and executive officers as group (16 persons)
(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16)(17)(18)................... 608,464 9.3%
</TABLE>
- --------
* Less than one percent.
(1) The persons named in this table have sole voting and investment power
with respect to the shares listed, except as otherwise indicated. The
inclusion herein of shares listed as beneficially owned does not
constitute an admission of beneficial ownership.
(2) The Company has received a copy of a report on Schedule 13G, with a
signature dated March 12, 1998, filed by B.A.T. Industries p.l.c. ("BAT")
and Threadneedle Investment Managers Ltd. ("TN"). The
18
<PAGE>
report stated that the shares being reported were acquired by insurance
exchanges for which TN acts as attorney-in-fact or by investment funds for
which TN acts as manager and investment adviser and exercised investment
discretion. The report also stated that as of March 12, 1998 each of BAT
and TN held shared voting and dispositive power with respect to the shares
listed in this table.
(3) The Company has received a copy of a report on Schedule 13D, with a
signature dated March 13, 1998, filed by VGH Partners, L.L.C. ("VGH"),
Vinik Partners, L.P. ("VP LP"), Vinik Asset Management, L.P. ("VAM LP"),
Jeffrey N. Vinik ("Vinik"), Michael S. Gordon ("Gordon"), Mark D.
Hostetter ("Hostetter") and Vinik Asset Management, L.L.C. ("VAM LLC").
The report stated that VGH is the general partner of VP LP, VAM LLC is the
general partner of VAM LP and Vinik is the senior managing member, and
Gordon and Hostetter are managing members, of VGH and VAM LLC. The report
also stated that on March 13, 1998, Vinik, Gordon and Hostetter held
shared voting and dispositive power with respect to the shares listed in
this table, VGH and VP LP held shared voting and dispositive power with
respect to 185,500 of the shares listed in this table and VAM LP and VAM
LLC held shared voting and dispositive power with respect to 264,500 of
the shares listed in this table.
(4) The Company has received a copy of a report on Schedule 13G, with a
signature dated March 20, 1998, filed by Westcliff Capital Management, LLC
("WCM"), Richard S. Spencer III ("Spencer") and David R. Korus ("Korus").
The report stated that Spencer and Korus are the sole owners and managers
of WCM. The report also stated that on March 20, 1998, WCM held sole
voting and dispositive power with respect to the shares listed in this
table and Spencer and Korus each held shared voting and dispositive power
with respect to the shares listed in this table.
(5) Represents shares issuable upon the exercise of an outstanding stock
option currently exercisable or exercisable within sixty days following
March 30, 1998.
(6) Includes 24,900 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998.
(7) Includes 132,061 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998. Also includes 400 shares held by Mr. Cooke's daughters.
(8) Includes 3,000 shares issuable upon the exercise of an outstanding stock
option currently exercisable or exercisable within sixty days following
March 30, 1998.
(9) Includes 100 shares held by Mr. Engbers' wife. Mr. Engbers disclaims
beneficial ownership of the shares held by his wife. Also includes 5,000
shares issuable upon the exercise of outstanding stock options held by Mr.
Engbers currently exercisable or exercisable within sixty days following
March 30, 1998.
(10) Includes 28,000 issuable upon the exercise of an outstanding stock option
currently exercisable or exercisable within sixty days following March 30,
1998.
(11) Includes 2,766 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998.
(12) Includes 41,000 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998
(13) Represents shares issuable upon the exercise of an outstanding stock
option currently exercisable or exercisable within sixty days of March 30,
1998.
(14) Includes 12,216 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998.
(15) Includes 38,043 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998.
(16) Represents shares issuable upon the exercise of an outstanding stock
option currently exercisable or exercisable within sixty days of March 30,
1998.
(17) Includes 22,500 shares issuable upon the exercise of outstanding stock
options currently exercisable or exercisable within sixty days following
March 30, 1998.
(18) Includes 2,000 shares held in trust for Mr. Shanaman's wife. Mr. Shanaman
disclaims beneficial ownership of the shares held in trust for his wife.
19
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater-than-10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished
to the Company during fiscal 1997 and Form 5 and amendments thereto furnished
to the Company with respect to fiscal 1997, or written representations that
Form 5 was not required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater-than-10%
stockholders were fulfilled in a timely manner except for a Form 4 filing for
Ms. Lee, which was made approximately four months late.
INFORMATION CONCERNING AUDITORS
The accounting firm of Coopers & Lybrand L.L.P., which has served as the
Company's principal independent accountants continuously since the Company's
formation, was selected by the Board to continue in that capacity for fiscal
1998. A representative of Coopers & Lybrand L.L.P. is expected to be present
at the Annual Meeting. This representative will have the opportunity to make a
statement if such representative desires to do so and will be available to
respond to appropriate questions presented at the Annual Meeting.
SOLICITATION
No compensation will be paid by any person in connection with the
solicitation of proxies. Brokers, banks and other nominees will be reimbursed
for their out-of-pocket expenses and other reasonable clerical expenses
incurred in obtaining instructions from beneficial owners of the Common Stock.
In addition to the solicitation by mail, special solicitation of proxies may,
in certain instances, be made personally or by telephone by directors,
officers and certain employees of the Company. It is expected that the expense
of such special solicitation will be nominal. All expenses incurred in
connection with this solicitation will be borne by the Company.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials related to the
1999 Annual Meeting of Stockholders or Special Meeting in lieu thereof must be
received by the Company at its Executive Offices no later than December 10,
1998.
MISCELLANEOUS
The Board does not intend to present to the Annual Meeting any business
other than the proposals listed herein, and the Board was not aware, a
reasonable time before mailing this Proxy Statement to stockholders, of any
other business which may be properly presented for action at the Annual
Meeting. If any other business should come before the Annual Meeting, the
persons present will have discretionary authority to vote the shares they own
or represent by proxy in accordance with their judgment.
AVAILABLE INFORMATION
Stockholders of record on March 30, 1998 will receive a Proxy Statement and
the Company's 1997 Annual Report, which contains detailed financial
information concerning the Company. The Company will mail, without charge, a
copy of the Company's Annual Report on Form 10-K (excluding exhibits) to any
stockholder entitled to receive this Proxy Statement who requests it in
writing. Please submit any such written request to Patti DeLuca, Investor
Relations Specialist, DM Management Company, 25 Recreation Park Drive,
Hingham, Massachusetts 02043.
20
<PAGE>
APPENDIX A
DM MANAGEMENT COMPANY
1993 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
SECTION 1. PURPOSE
This Amended and Restated 1993 Incentive and Nonqualified Stock Option Plan
(the "Plan") of DM Management Company (the "Company"), is designed to provide
additional incentive to executives and other key employees of the Company, and
any parent or subsidiary of the Company, and for certain other individuals
providing services to or acting as directors of the Company or any such parent
or subsidiary. The Company intends that this purpose will be effected by the
granting of incentive stock options ("Incentive Stock Options") as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonqualified stock options ("Nonqualified Options") under the Plan which
afford such executives, key employees or other individuals an opportunity to
acquire or increase their proprietary interest in the Company through the
acquisition of shares of its Common Stock. The Company intends that Incentive
Stock Options issued under the Plan will qualify as "incentive stock options"
as defined in Section 422 of the Code and the terms of the Plan shall be
interpreted in accordance with this intention. The terms "parent" and
"subsidiary" shall have the respective meanings set forth in Section 424 of
the Code.
SECTION 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Board") or another committee
consisting of at least two members of the Company's Board (in either case, the
"Committee"). None of the members of the Committee shall be an officer or
other employee of the Company. It is the intention of the Company that the
Plan shall be administered by "disinterested persons" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934 and by "outside
directors" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, but the authority and validity of any act
taken or not taken by the Committee shall not be affected if any person
administering the Plan is not a "disinterested person" or "outside director."
Except as specifically reserved to the Board under the terms of the Plan, the
Committee shall have full and final authority to operate, manage and
administer the Plan on behalf of the Company. Action by the Committee shall
require the affirmative vote of a majority of all members thereof.
2.2 Powers of the Committee. Subject to the terms and conditions of the
Plan, the Committee shall have the power:
(a) To determine from time to time the persons eligible to receive
options and the options to be granted to such persons under the Plan and to
prescribe the terms, conditions, restrictions, if any, and provisions
(which need not be identical) of each option granted under the Plan to such
persons;
(b) To construe and interpret the Plan and options granted thereunder and
to establish, amend, and revoke rules and regulations for administration of
the Plan. In this connection, the Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, or in any
option agreement, in the manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall be
final and binding upon the Company and optionees;
(c) To make, in its sole discretion, changes to any outstanding option
granted under the Plan, including:
(i) to reduce the exercise price, (ii) to accelerate the vesting
schedule or (iii) to extend the expiration date; and
(d) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
A-1
<PAGE>
SECTION 3. STOCK
3.1 Stock to be Issued. The stock subject to the options granted under the
Plan shall be shares of the Company's authorized but unissued common stock,
$.01 par value (the "Common Stock"), or shares of the Company's Common Stock
held in treasury. The total number of shares that may be issued pursuant to
options granted under the Plan shall not exceed an aggregate of 1,600,000
shares of Common Stock; provided, however, that the class and aggregate number
of shares which may be subject to options granted under the Plan shall be
subject to adjustment as provided in Section 8 hereof.
3.2 Expiration, Cancellation or Termination of Option. Whenever any
outstanding option under the Plan expires, is cancelled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to
the unexercised portion of such option may again be the subject of options
under the Plan.
3.3 Limitation on Grants. In no event may any person be granted options
under the Plan in any calendar year to purchase more than 100,000 shares of
Common Stock. The number of shares of Common Stock issuable pursuant to an
option granted under the Plan that is subsequently forfeited, cancelled or
otherwise terminated shall continue to count toward the foregoing limitation
in the calendar year of grant. In addition, for purposes of applying the
foregoing limitation, if the exercise price of an option granted under the
Plan is subsequently reduced, the transaction shall be deemed a cancellation
of the original option and the grant of a new one.
SECTION 4. ELIGIBILITY
4.1 Persons Eligible. Incentive Stock Options under the Plan may be granted
only to officers and other employees of the Company or any parent or
subsidiary of the Company. Nonqualified Options may be granted to officers or
other employees of the Company or any parent or subsidiary of the Company, and
to members of the Board and consultants or other persons who render services
to the Company or any such parent or subsidiary (regardless of whether they
are also employees), provided, however, that options may be granted to members
of the Board who are not employees of the Company or any such parent or
subsidiary ("Outside Directors") only as provided in Section 4.4.
4.2 Greater-Than-Ten-Percent Stockholders. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive
Stock Option shall be granted to an individual who, at the time the option is
granted, owns (including ownership attributed pursuant to Section 425 of the
Code) more than ten percent of the total combined voting power of all classes
of stock of the Company or any parent or subsidiary (a "greater-than-ten-
percent stockholder"), unless such Incentive Stock Option provides that (i)
the purchase price per share shall not be less than one hundred ten percent of
the fair market value of the Common Stock at the time such option is granted,
and (ii) that such option shall not be exercisable to any extent after the
expiration of five years from the date it is granted.
4.3 Maximum Aggregate Fair Market Value. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any optionee during any calendar year (under the Plan and any other plans of
the Company or any parent or subsidiary for the issuance of incentive stock
options) shall not exceed $100,000 (or such greater amount as may from time to
time be permitted with respect to incentive stock options by the Code or any
other applicable law or regulation).
4.4 Option Grants to Outside Directors.
(a) Grant of Options.
(i) Each Outside Director serving on the Board immediately before the
meeting of the Company's shareholders at which this Section 4.4 in this
form is approved (the "Approval Meeting") has previously been granted
Nonqualified Options to purchase an aggregate of 36,000 shares of Common
Stock automatically under this Section 4.4 in the form that was in effect
prior to the Approval Meeting.
A-2
<PAGE>
(ii) Each Outside Director first joining the Board at the Approval
Meeting or thereafter shall automatically be granted, on the date such
person first becomes a member of the Board, a Nonqualified Option to
purchase 24,000 shares of Common Stock. Such Nonqualified Option shall be
immediately vested and exercisable as to one-third of such shares and shall
vest and become exercisable as to the remaining two-thirds of such shares
cumulatively in two equal annual installments on the first and second
anniversaries of the date the option was granted, provided that the option
holder continues to be a member of the Board on such anniversary.
Notwithstanding the foregoing, in the event that a Qualified Sale (as
hereinafter defined) occurs before the expiration date of such Nonqualified
Option, and immediately prior to the closing of such Qualified Sale the
option holder is a director of the Company, then immediately prior to such
closing such Nonqualified Option shall become exercisable as to a number of
shares subject to such Nonqualified Option, up to 100%, equal to two times
the number of shares as to which such Nonqualified Option otherwise would
have been exercisable immediately prior to such closing. A Qualified Sale
shall mean the sale of all or substantially all of the assets or issued and
outstanding capital stock of the Company, or a merger or consolidation
involving the Company in which the stockholders of the Company immediately
before such merger or consolidation do not own immediately after such
merger or consolidation capital stock or other equity interests of the
surviving corporation or entity representing more than fifty percent in
voting power of the capital stock or other equity interests of such
surviving corporation or entity outstanding immediately after such merger
of consolidation.
(iii) On the date of each annual meeting of the Company's stockholders or
special meeting in lieu thereof beginning with the Approval Meeting, each
Outside Director who has served for at least six months and continues to
serve at that meeting shall automatically be granted a Nonqualified Option
to purchase 5,000 shares of Common Stock. Such Nonqualified Option shall be
immediately vested in full.
(b) Purchase Price. The purchase price per share of Common Stock under each
Nonqualified Option granted pursuant to this Section 4.4 shall be equal to the
fair market value of the Common Stock on the date the Nonqualified Option is
granted, such fair market value to be determined in accordance with the
provisions of Section 6.3.
(c) Expiration. Each Nonqualified Option that has been granted to an Outside
Director as described in Section 4.4(a)(i) expires on the fifth anniversary of
the date of grant. Each Nonqualified Option granted to an Outside Director
under Section 4.4(a)(ii) or (iii) shall expire on the seventh anniversary of
the date of grant.
SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
5.1 Termination of Employment. Except as may be otherwise expressly provided
herein, options shall terminate on the earlier of:
(a) the date of expiration thereof;
(b) immediately upon the termination of the optionee's employment with or
performance of services for the Company (or any parent or subsidiary of the
Company) by the Company (or any such parent or subsidiary) for cause (as
determined by the Company or such parent or subsidiary); or
(c) thirty days after the date of termination of the optionee's
employment with or performance of services for the Company (or any parent
or subsidiary of the Company) by the Company (or any such parent or
subsidiary) without cause or voluntarily by the optionee;
provided, that Nonqualified Options granted to persons who are not employees
of the Company (or any parent or subsidiary of the Company) need not, unless
the Committee determines otherwise, be subject to the provisions set forth in
clauses (b) and (c) above.
An employment relationship between the Company (or any parent or subsidiary
of the Company) and the optionee shall be deemed to exist during any period in
which the optionee is employed by the Company (or any such parent or
subsidiary). Whether authorized leave of absence, or absence on military or
government service, shall constitute termination of the employment
relationship between the Company (or any parent or subsidiary of the Company)
and the optionee shall be determined by the Committee at the time thereof.
A-3
<PAGE>
As used herein, "cause" shall mean (x) any material breach by the optionee
of any agreement to which the optionee and the Company (or any parent or
subsidiary of the Company) are both parties, (y) any act or omission to act by
the optionee which may have a material and adverse effect on the business of
the Company (or any such parent or subsidiary) or on the optionee's ability to
perform services for the Company (or any such parent or subsidiary),
including, without limitation, the commission of any crime (other than
ordinary traffic violations), or (z) any material misconduct or material
neglect of duties by the optionee in connection with the business or affairs
of the Company (or any such parent or subsidiary) or any affiliate of the
Company (or any such parent or subsidiary).
5.2 Death or Retirement of Optionee. In the event of the death of the holder
of an option that is subject to clause (b) or (c) of Section 5.1 above prior
to termination of the optionee's employment with or performance of services
for the Company (or any parent or subsidiary of the Company) and before the
date of expiration of such option, such option shall terminate on the earlier
of such date of expiration or one year following the date of such death. After
the death of the optionee, his executors, administrators or any person or
persons to whom his option may be transferred by will or by the laws of
descent and distribution, shall have the right, at any time prior to such
termination, to exercise the option to the extent the optionee was entitled to
exercise such option at the time of his death.
If, before the date of the expiration of an option that is subject to clause
(b) or (c) of Section 5.1 above, the optionee shall be retired in good
standing from the Company for reasons of age or disability under the then
established rules of the Company, the option shall terminate on the earlier of
such date of expiration or ninety (90) days after the date of such retirement.
In the event of such retirement, the optionee shall have the right prior to
the termination of such option to exercise the option to the extent to which
he was entitled to exercise such option immediately prior to such retirement.
SECTION 6. TERMS OF THE OPTION AGREEMENTS
Each option agreement shall be in writing and shall contain such terms,
conditions, restrictions, if any, and provisions as the Committee shall from
time to time deem appropriate. Such provisions or conditions may include
without limitation restrictions on transfer, repurchase rights, or such other
provisions as shall be determined by the Committee; provided that such
additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an
incentive option within the meaning of Section 422 of the Code. The shares of
stock issuable upon exercise of an option by any executive officer, director
or beneficial owner of more than ten percent of the Common Stock of the
Company may not be sold or transferred (except that such shares may be issued
upon exercise of such option) by such officer, director or beneficial owner
for a period of six months following the grant of such option.
Option agreements need not be identical, but each option agreement by
appropriate language shall include the substance of all of the following
provisions:
6.1 Expiration of Option. Notwithstanding any other provision of the Plan or
of any option agreement, each option shall expire on the date specified in the
option agreement, which date shall not, in the case of an Incentive Stock
Option, be later than the tenth anniversary (fifth anniversary in the case of
a greater-than-ten-percent stockholder) of the date on which the option was
granted, or as specified in Section 5 of this Plan.
6.2 Exercise. Each option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any
limitations with respect to the number of shares for which the option may be
exercised at a particular time and to such other conditions as the Committee
in its discretion may specify upon granting the option.
6.3 Purchase Price. The purchase price per share under each option shall be
determined by the Committee at the time the option is granted; provided,
however, that the option price of any Incentive Stock
A-4
<PAGE>
Option shall not, unless otherwise permitted by the Code or other applicable
law or regulation, be less than the fair market value of the Common Stock on
the date the option is granted (110% of the fair market value in the case of a
greater-than-ten-percent stockholder) and the option price of any Nonqualified
Option shall not be less than 85% of the fair market value of the Common Stock
on the date the option is granted. For the purpose of the Plan the fair market
value of the Common Stock shall be (i) in the case of the Non-Qualified
Options granted to Outside Directors in connection with the Company's initial
public offering, the initial public offering price and (ii) in all other
cases, the closing price per share on the date of grant of the option as
reported by a nationally recognized stock exchange, or, if the Common Stock is
not listed on such an exchange, as reported by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market
System or, if the Common Stock is not listed on the Nasdaq National Market
System, the mean of the bid and asked prices per share on the date of grant of
the option or, if the Common Stock is not traded over the counter, the fair
market value as determined by the Committee.
6.4 Transferability of Options. Options shall not be transferable by the
optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during his lifetime, only by him/her.
6.5 Rights of Optionees. No optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any option unless and until
the option shall have been exercised pursuant to the terms thereof, and the
Company shall have issued and delivered the shares to the optionee.
6.6 Repurchase Right. The Committee may in its discretion provide upon the
grant of any option hereunder that the Company shall have an option to
repurchase upon such terms and conditions as determined by the Committee all
or any number of shares purchased upon exercise of such option. The repurchase
price per share payable by the Company shall be such amount or be determined
by such formula as is fixed by the Committee at the time the option for the
shares subject to repurchase is granted. In the event the Committee shall
grant options subject to the Company's repurchase option, the certificates
representing the shares purchased pursuant to such option shall carry a legend
satisfactory to counsel for the Company referring to the Company's repurchase
option.
6.7 "Lockup" Agreement. The Committee may in its discretion specify upon
granting an option that the optionee shall agree for a period of time (not to
exceed 180 days) from the effective date of any registration of securities of
the Company (upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities), not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any shares issued pursuant to the exercise of such option, without
the prior written consent of the Company or such underwriters, as the case may
be.
SECTION 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
7.1 Method of Exercise. Any option granted under the Plan may be exercised
by the optionee by delivering to the Company on any business day a written
notice specifying the number of shares of Common Stock the optionee then
desires to purchase and specifying the address to which the certificates for
such shares are to be mailed (the "Notice"), accompanied by payment for such
shares.
7.2 Payment of Purchase Price. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made either by (i)
cash or check equal to the option price for the number of shares specified in
the Notice, or (ii) with the consent of the Committee, other shares of Common
Stock which (a) either have been owned by the optionee for more than six (6)
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (b) have a fair market value on the date of surrender
not greater than the aggregate option price of the shares as to which such
option shall be exercised, (iii) with the consent of the Committee, delivery
of such documentation as the Committee and the broker, if applicable, shall
require to effect an exercise of the option and delivery to the Company of the
sale or loan proceeds required to pay the option price, (iv) with the consent
of the Committee, such other consideration which is acceptable to the
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Committee and which has a fair market value equal to the option price of such
shares, or (v) with the consent of the Committee, a combination of (i), (ii),
(iii), (iv) and/or (v). For the purpose of the preceding sentence, the fair
market value per share of Common Stock so delivered to the Company shall be
determined in the manner specified in Section 6.3. As promptly as practicable
after receipt of the Notice and accompanying payment, the Company shall
deliver to the optionee certificates for the number of shares with respect to
which such option has been so exercised, issued in the optionee's name;
provided, however, that such delivery shall be deemed effected for all
purposes when the Company or a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the
optionee, at the address specified in the Notice.
SECTION 8. CHANGES IN COMPANY'S CAPITAL STRUCTURE
8.1 Rights of Company. The existence of outstanding options shall not affect
in any way the right or power of the Company or its stockholders to make or
authorize, without limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
Common Stock, or any issue of bonds, debentures, preferred or prior preference
stock or other capital stock ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
8.2 Recapitalization, Stock Splits and Dividends. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number
of shares of the Common Stock outstanding, in any such case without receiving
compensation therefor in money, services or property, then (i) the number,
class, and price per share of shares of stock subject to outstanding options
hereunder shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised
his option in full immediately prior to such event; and (ii) the number and
class of shares set forth in Sections 3.1, 3.3 and 4.4 shall be adjusted by
substituting therefor that number and class of shares of stock that the owner
of an equal number of outstanding shares of Common Stock would own as the
result of the event requiring the adjustment.
8.3 Merger without Change of Control. After a merger of one or more
corporations into the Company, or after a consolidation of the Company and one
or more corporations in which (i) the Company shall be the surviving
corporation, and (ii) the stockholders of the Company immediately prior to
such merger or consolidation own after such merger or consolidation shares
representing at least fifty percent of the voting power of the Company, each
holder of an outstanding option shall, at no additional cost, be entitled upon
exercise of such option to receive in lieu of the number of shares as to which
such option shall then be so exercisable, the number and class of shares of
stock or other securities to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which such option was exercisable.
8.4 Sale or Merger with Change of Control. If the Company is merged into or
consolidated with another corporation under circumstances where the Company is
not the surviving corporation, or if there is a merger or consolidation where
the Company is the surviving corporation but the stockholders of the Company
immediately prior to such merger or consolidation do not own after such merger
or consolidation shares representing at least fifty percent of the voting
power of the Company, or if the Company is liquidated, or sells or otherwise
disposes of substantially all of its assets to another corporation while
unexercised options remain outstanding under the Plan, (i) subject to the
provisions of clause (iii) below, after the effective date of such merger,
consolidation, liquidation, sale or disposition, as the case may be, each
holder of an outstanding option shall be entitled, upon exercise of such
option, to receive, in lieu of shares of Common Stock, shares of such stock or
other securities, cash or property as the holders of shares of Common Stock
received pursuant to the terms of the merger, consolidation, liquidation, sale
or disposition; (ii) the Committee may accelerate the time for exercise of all
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unexercised and unexpired options to and after a date prior to the effective
date of such merger, consolidation, liquidation, sale or disposition, as the
case may be, specified by the Committee; or (iii) all outstanding options may
be cancelled by the Committee as of the effective date of any such merger,
consolidation, liquidation, sale or disposition provided that (x) notice of
such cancellation shall be given to each holder of an option and (y) each
holder of an option shall have the right to exercise such option to the extent
that the same is then exercisable or, if the Committee shall have accelerated
the time for exercise of all unexercised and unexpired options, in full during
the 30-day period preceding the effective date of such merger, consolidation,
liquidation, sale or disposition.
8.5 Adjustments to Common Stock Subject to Options. Except as hereinbefore
expressly provided, the issue by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, for cash or
property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock then
subject to outstanding options.
8.6 Miscellaneous. Adjustments under this Section 8 shall be determined by
the Committee, and such determinations shall be conclusive. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment specified above.
SECTION 9. GENERAL RESTRICTIONS
9.1 Investment Representations. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option
for his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
9.2 Compliance with Securities Laws. The Company shall not be required to
sell or issue any shares under any option if the issuance of such shares shall
constitute a violation by the optionee or by the Company of any provisions of
any law or regulation of any governmental authority. In addition, in
connection with the Securities Act of 1933, as now in effect or hereafter
amended (the "Act"), upon exercise of any option, the Company shall not be
required to issue such shares unless the Committee has received evidence
satisfactory to it to the effect that the holder of such option will not
transfer such shares except pursuant to a registration statement in effect
under such Act or unless an opinion of counsel satisfactory to the Company has
been received by the Company to the effect that such registration is not
required. Any determination in this connection by the Committee shall be
final, binding and conclusive. In the event the shares issuable on exercise of
an option are not registered under the Act, the Company may imprint upon any
certificate representing shares so issued the following legend or any other
legend which counsel for the Company considers necessary or advisable to
comply with the Act and with applicable state securities laws:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required for
such sale or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority.
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9.3 Employment Obligation. The granting of any option shall not impose upon
the Company (or any parent or subsidiary of the Company) any obligation to
employ or continue to employ any optionee; and the right of the Company (or
any such parent or subsidiary) to terminate the employment of any officer or
other employee shall not be diminished or affected by reason of the fact that
an option has been granted to him/her.
9.4 Withholding Tax. Whenever under the Plan shares of Common Stock are to
be delivered upon exercise of an option, the Company shall be entitled to
require as a condition of delivery that the optionee remit an amount
sufficient to satisfy all federal, state and other governmental withholding
tax requirements related thereto.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may modify, revise or terminate this Plan at any time
and from time to time, except that (i) the class of persons eligible to
receive options and the aggregate number of shares issuable pursuant to this
Plan shall not be changed or increased, other than by operation of Section 8
hereof, without the consent of the stockholders of the Company and (ii) the
provisions of Section 4.4 shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder.
SECTION 11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board of
Directors to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon its adoption by the Board of Directors
provided that the stockholders of the Company shall have approved the Plan
within twelve months prior to or following the adoption of the Plan by the
Board. No option may be granted under the Plan after the tenth anniversary of
the effective date. The Plan shall terminate (i) when the total amount of
Common Stock with respect to which options may be granted shall have been
issued upon the exercise of options or (ii) by action of the Board of
Directors pursuant to Section 10 hereof, whichever shall first occur.
* * * * * * * *
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APPENDIX B
DM MANAGEMENT COMPANY
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The DM Management Company Employee Stock Purchase Plan (the "Plan") is
intended to provide a method whereby employees of DM Management Company (the
"Company") will have an opportunity to acquire an ownership interest (or
increase an existing ownership interest) in the Company through the purchase
of shares of the Common Stock of the Company. It is the intention of the
Company that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that
section of the Code.
2. DEFINITIONS.
(a) "Compensation" means, for the purpose of any Offering pursuant to this
Plan, base pay in effect as of the Offering Commencement Date (as hereinafter
defined). Compensation shall not include any deferred compensation other than
contributions by an individual through a salary reduction agreement to a cash
or deferred plan pursuant to Section 401(k) of the Code or to a cafeteria plan
pursuant to Section 125 of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Common Stock" means the common stock, $.01 par value per share, of the
Company.
(e) "Company" shall also include any Parent or Subsidiary of DM Management
Company designated by the Board, unless the context otherwise requires.
(f) "Employee" means any person who is customarily employed at least 20
hours per week and more than five months in a calendar year by the Company.
(g) "Parent" shall mean any present or future corporation which is or would
constitute a "parent corporation" as that term is defined in Section 424 of
the Code.
(h) "Subsidiary" shall mean any present or future corporation which is or
would constitute a "subsidiary corporation" as that term is defined in Section
424 of the Code.
3. ELIGIBILITY.
(a) Participation in the Plan is completely voluntary. Participation in any
one or more of the offerings under the Plan shall neither limit, nor require,
participation in any other offering.
(b) Each employee shall be eligible to participate in the Plan on the first
Offering Commencement Date, as hereafter defined, following the commencement
of employment with the Company. Notwithstanding the foregoing, no employee
shall be granted an option under the Plan:
(i) if, immediately after the grant, such employee would own stock,
and/or hold outstanding options to purchase stock, possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any Parent or Subsidiary; for purposes of this Paragraph the
rules of Section 424(d) of the Code shall apply in determining stock
ownership of any employee; or
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(ii) which permits his rights to purchase stock under all Section 423
employee stock purchase plans of the Company and any Parent or Subsidiary
to exceed $25,000 of the fair market value of the stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8)
of the Code shall apply.
4. OFFERING DATES.
The right to purchase stock hereunder shall be made available by a series of
one-year offerings (the "Offering" or "Offerings") to employees eligible in
accordance with Paragraph 3 hereof. The applicable date of commencement
("Offering Commencement Date") and date of termination ("Offering Termination
Date") for each Offering shall be the first and the last business day of each
calendar year, respectively, unless the Committee, in its discretion,
determines otherwise. Participation in any one or more of the Offerings under
the Plan shall neither limit, nor require, participation in any other
Offering.
5. PARTICIPATION.
Any eligible employee may become a participant by completing a payroll
deduction authorization form provided by the Company and filing it with the
office of the Company's Treasurer 20 days prior to each applicable Offering
Commencement Date, as determined by the Committee pursuant to Paragraph 4, or
such other period as may be permitted by the Company in its sole discretion
and which shall be applicable in a uniform and nondiscriminatory manner.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his authorization for a payroll
deduction, he shall elect to have deductions made from his pay on each payday
during any Offering in which he is a participant at a specified percentage of
his Compensation as determined on the applicable Offering Commencement Date;
said percentage shall be in increments of one percent up to a maximum
percentage of ten percent.
(b) Payroll deductions for a participant shall commence on the applicable
Offering Commencement Date when his authorization for a payroll deduction
becomes effective and shall end on the Offering Termination Date of the
Offering to which such authorization is applicable unless sooner terminated by
the participant as provided in Paragraph 10.
(c) All payroll deductions made for a participant shall be credited to his
account under the Plan. A participant may not make any separate cash payment
into such account.
(d) A participant may withdraw from the Plan at any time during the
applicable Offering period.
7. GRANTING OF OPTION.
(a) On the Offering Commencement Date of each Offering, a participating
employee shall be deemed to have been granted an option to purchase a maximum
number of shares of the Common Stock equal to an amount determined as follows:
85% of the market value per share of the Common Stock on the applicable
Offering Commencement Date shall be divided into an amount equal to the
percentage of the employee's Compensation which he has elected to have
withheld (but no more than 10%) multiplied by the employee's Compensation over
the Offering period. Such market value per share of the Common Stock shall be
determined as provided in clause (i) of Paragraph 7(b).
(b) The option price of the Common Stock purchased with payroll deductions
made during each such Offering for a participant therein shall be the lower
of:
(i) 85% of the closing price per share on the Offering Commencement Date
as reported by a nationally recognized stock exchange, or, if the Common
Stock is not listed on such an exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq")
National Market
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System or, if the Common Stock is not listed on the Nasdaq National Market
System, 85% of the mean of the bid and asked prices per share on the
Offering Commencement Date or, if the Common Stock is not traded over the
counter, 85% of the fair market value on the Offering Commencement Date as
determined by the Committee; and
(ii) 85% of the closing price per share on the Offering Termination Date
as reported by a nationally recognized stock exchange, or, if the Common
Stock is not listed on such an exchange, as reported by the Nasdaq National
Market System or, if the Common Stock is not listed on the Nasdaq National
Market System, 85% of the mean of the bid and asked prices per share on the
Offering Termination Date or, if the Common Stock is not traded over the
counter, 85% of the fair market value on the Offering Termination Date as
determined by the Committee.
8. EXERCISE OF OPTION.
(a) Unless a participant gives written notice to the Treasurer of the
Company as hereinafter provided, his option for the purchase of Common Stock
with payroll deductions made during any Offering will be deemed to have been
exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of full shares of Common Stock which
the accumulated payroll deductions in his account at that time will purchase
at the applicable option price (but not in excess of the number of shares for
which options have been granted the employee pursuant to Paragraph 7(a)), and
any excess in his account at that time, other than as described in Paragraph
8(b), will be automatically returned to the participant.
(b) Fractional shares will not be issued under the Plan and any accumulated
payroll deductions which would have been used to purchase fractional shares
shall be automatically carried forward to the next Offering unless the
participant elects, by written notice to the Treasurer of the Company, to have
the excess cash returned to him.
9. DELIVERY.
The Company will deliver to each participant (as promptly as possible after
the appropriate Offering Termination Date), a certificate representing the
Common Stock purchased upon exercise of his option.
10. WITHDRAWAL AND TERMINATION.
(a) Prior to the Offering Termination Date for an Offering, any participant
may withdraw the payroll deductions credited to his account under the Plan for
such Offering by giving written notice to the Treasurer of the Company. All of
the participant's payroll deductions credited to such account will be paid to
him promptly after receipt of notice of withdrawal, without interest, and no
future payroll deductions will be made from his pay during such Offering. The
Company will treat any attempt to borrow by a participant on the security of
accumulated payroll deductions as an election to withdraw such deductions.
(b) A participant's election not to participate in, or withdrawal from, any
Offering will not have any effect upon his eligibility to participate in any
succeeding Offering or in any similar plan which may hereafter be adopted by
the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death, the payroll deductions credited to
his account will be returned to him, or, in the case of his death, to the
person or persons entitled thereto under Paragraph 14.
(d) Upon termination of the participant's employment because of death, his
beneficiary (as defined in Paragraph 14) shall have the right to elect, by
written notice given to the Company's Treasurer prior to the expiration of a
period of 90 days commencing with the date of the death of the participant,
either:
(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or
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(ii) to exercise the participant's option for the purchase of stock on
the Offering Termination Date next following the date of the participant's
death for the purchase of the number of full shares which the accumulated
payroll deductions in the participant's account at the date of the
participant's death will purchase at the applicable option price (subject
to the limitation contained in Paragraph 7(a)), and any excess in such
account will be returned to said beneficiary. In the event that no such
written notice of election shall be duly received by the office of the
Company's Treasurer, the beneficiary shall automatically be deemed to have
elected to withdraw the payroll deductions credited to the participant's
account at the date of the participant's death and the same will be paid
promptly to said beneficiary.
11. INTEREST.
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participating employee.
12. STOCK.
(a) The maximum number of shares of Common Stock available for issuance and
purchase by employees under the Plan, subject to adjustment upon changes in
capitalization of the Company as provided in Paragraph 17, shall be 100,000
shares of Common Stock, par value $.01 per share, of the Company. If the total
number of shares for which options are exercised on any Offering Termination
Date in accordance with Paragraph 8 exceeds the maximum number of shares for
the applicable Offering, the Company shall make a pro rata allocation of the
shares available for delivery and distribution in an equitable manner, and the
balances of payroll deductions credited to the account of each participant
under the Plan shall be automatically returned to the participant.
(b) The participant will have no interest in stock covered by his option
until such option has been exercised.
13. ADMINISTRATION.
The Plan shall be administered by the Committee. The interpretation and
construction of any provision of the Plan and adoption of rules and
regulations for administering the Plan shall be made by the Committee.
Determinations made by the Committee with respect to any matter or provision
contained in the Plan shall be final, conclusive and binding upon the Company
and upon all participants, their heirs or legal representatives. Any rule or
regulation adopted by the Committee shall remain in full force and effect
unless and until altered, amended, or repealed by the Committee.
14. DESIGNATION OF BENEFICIARY.
A participant shall file with the Treasurer of the Company a written
designation of a beneficiary who is to receive any Common Stock and/or cash
under the Plan. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by him under the Plan,
the Company shall deliver such Common Stock and/or cash to such beneficiary.
In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Common Stock and/or cash
to the executor or administrator of the estate of the participant. No
beneficiary shall prior to the death of the participant by whom he has been
designated, acquire any interest in the Common Stock and/or cash credited to
the participant under the Plan.
15. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive Common Stock
under the Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way by the participant other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such
act as an election to withdraw funds in accordance with Paragraph 8(b).
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16. USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
17. EFFECT OF CHANGES OF COMMON STOCK.
If the Company shall subdivide or reclassify the Common Stock which has been
or may be optioned under this Plan, or shall declare thereon any dividend
payable in shares of such Common Stock, or shall take any other action of a
similar nature affecting such Common Stock, then the number and class of
shares of Common Stock which may thereafter be optioned (in the aggregate and
to any participant) shall be adjusted accordingly and in the case of each
option outstanding at the time of any such action, the number and class of
shares which may thereafter be purchased pursuant to such option and the
option price per share shall be adjusted to such extent as may be determined
by the Committee, with the approval of independent public accountants and
counsel, to be necessary to preserve the rights of the holder of such option.
18. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. No such termination
shall affect options previously granted, nor may an amendment make any change
in any option theretofore granted which would adversely affect the rights of
any participant holding options under the Plan.
19. NOTICES.
All notices or other communications by a participant to the Company under or
in connection with the Plan shall be deemed to have been duly given when
received by the Treasurer of the Company.
20. MERGER OR CONSOLIDATION.
If the Company shall at any time merge into or consolidate with another
corporation, the holder of each option then outstanding will thereafter be
entitled to receive at the next Offering Termination Date upon the exercise of
such option, in lieu of the number of shares of Common Stock as to which such
option shall be exercisable, the number and class of shares of stock or other
securities to which such holder would have been entitled pursuant to the terms
of the agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of a number
of shares of Common Stock equal to the number of shares for which such option
was exercisable. In accordance with this Paragraph and Paragraph 17, the
Committee shall determine the kind and amount of such securities or property
which such holder of an option shall be entitled to receive. A sale of all or
substantially all of the assets of the Company shall be deemed a merger or
consolidation for the foregoing purposes.
21. APPROVAL OF STOCKHOLDERS.
The Plan is subject to the approval of the stockholders of the Company at
their next annual meeting or at any special meeting of the stockholders for
which one of the purposes shall be to act upon the Plan. If the Plan is not
approved by the stockholders of the Company, all payroll deductions credited
to a participant's account under the Plan shall be automatically returned to
the participant.
22. GOVERNMENTAL AND OTHER REGULATIONS.
The Plan, and the grant and exercise of the rights to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may, in the opinion of counsel for
the Company, be required. The Plan shall be governed
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by, and construed and enforced in accordance with, the provisions of Sections
421, 423 and 424 of the Code and the substantive laws of the Commonwealth of
Massachusetts. In the event of any inconsistency between such provisions of
the Code and any such laws, said provisions of the Code shall govern to the
extent necessary to preserve favorable federal income tax treatment afforded
employee stock purchase plans under Section 423 of the Code.
* * *
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[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- ---------------------------------
DM MANAGEMENT COMPANY
- ---------------------------------
Mark box at right if an address change [_]
or comment has been noted on the reverse
side of this card.
RECORD DATE SHARES:
---------------------------------
Please be sure to sign and date this Proxy. Date
- --------------------------------------------------------------------------------
- ---Stockholder sign here--------------------------Co-owner sign here------------
For Against Abstain
1. To fix the number of directors that [_] [_] [_]
shall constitute the whole Board of
Directors of the Company at six.
2. To elect the following nominees as
Class B Directors of the Company. With- For All
For Hold Except
WALTER J. LEVISON
RUTH M. OWADES [_] [_] [_]
NOTE: If you do not wish your shares voted "For" a particular nominee, mark
the "For All Except" box and strike a line through the name of the nominee.
Your shares will be voted for the remaining nominee.
For Against Abstain
3. To amend the 1993 Incentive and [_] [_] [_]
Nonqualified Stock Option Plan to
increase the number of shares of
Common Stock that may be issued
pursuant to options granted
thereunder from 1,200,000 to
1,600,000.
For Against Abstain
4. To approve the 1998 Employee Stock [_] [_] [_]
Purchase Plan.
Please promptly date and sign this proxy and mail it in the enclosed envelope
to ensure representation of your shares. No postage need be affixed if mailing
in the United States.
DETACH CARD DETACH CARD
DM MANAGEMENT COMPANY
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted, then sign the card, detach it and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to be
held May 28, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
DM Management Company
<PAGE>
DM MANAGEMENT COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DM MANAGEMENT
COMPANY
A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 28, 1998
The undersigned stockholder of DM Management Company (the "Company"), revoking
all prior proxies, hereby appoints Gordon R. Cooke and Olga L. Conley, or either
of them acting singly, proxies, with full power of substitution, to vote all
shares of capital stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders to be held at the Boston Harbor Hotel, 70
Rowes Wharf, Boston, Massachusetts on Thursday, May 28, 1998, beginning at 9:00
a.m., local time, and at any adjournments thereof, upon matters set forth in the
Notice of Annual Meeting dated April 9, 1998 and the related Proxy
Statement, copies of which have been received by the undersigned, and in their
discretion upon any other business that may properly come before the meeting or
any adjournments thereof. Attendance of the undersigned at the meeting or any
adjourned session thereof will not be deemed to revoke this proxy unless the
undersigned shall affirmatively indicate the intention to vote the shares
represented hereby in person prior to the exercise of this proxy.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN WITH RESPECT TO ONE OR MORE OF THE PROPOSALS SET FORTH ON THE
REVERSE SIDE OF THIS CARD, WILL BE VOTED FOR SUCH PROPOSAL OR PROPOSALS.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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Please sign exactly as your name(s) appear(s) on stock certificate. If
stockholder is a corporation, please sign in full corporate name by president or
other authorized officer and, if a partnership, please sign full partnership
name by an authorized person.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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