<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
EDUCATIONAL INSIGHTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
(310) 884-2000
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 25, 1999
------------------------
To the Shareholders of EDUCATIONAL INSIGHTS, INC.
You are cordially invited to attend the Annual Meeting of Shareholders of
Educational Insights, Inc., a California corporation (the "Company"), which will
be held at the Company's Corporate Offices, 16941 Keegan Avenue, Carson,
California, at 10:00 A.M., California time, on Friday, June 25, 1999, to
consider and act upon the following matters, all as more fully described in the
accompanying Proxy Statement which is incorporated herein by this reference:
1. To elect a board of five directors to serve until the next annual
meeting of the Company's shareholders and until their successors have
been elected and qualify;
2. To consider and take action concerning approval of an amendment of the
Company's Stock Awards Plan (a copy of which, as amended, is included as
Appendix A to the accompanying Proxy Statement) which increases the
number of shares covered by such plan by 300,000 shares;
3. To ratify the selection of Deloitte & Touche LLP as the Company's
independent public accountants for fiscal year 1999; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record of the Company's common stock at the close of
business on May 7, 1999, the record date fixed by the Board of Directors, are
entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY SHAREHOLDER
GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
Stephen E. Billis
SECRETARY
Carson, California
May 18, 1999
1
<PAGE>
EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
(310) 884-2000
------------------------
PROXY STATEMENT
---------------------
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO SHAREHOLDERS:
MAY 18, 1999
------------------------
The following information is in connection with the solicitation of proxies
for the Annual Meeting of Shareholders of Educational Insights, Inc., a
California corporation (the "Company"), to be held at the Company's Corporate
Offices, 16941 Keegan Avenue, Carson, California, at 10:00 A.M., California
time, on Friday, June 25, 1999, and any adjournments thereof (the "Meeting"),
for the purposes stated in the Notice of Annual Meeting of Shareholders
preceding this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
shareholder, and, in each case, is solicited on behalf of the Board of Directors
of the Company for use at the Meeting. The entire cost of soliciting these
proxies will be borne by the Company. The Company may pay persons holding shares
in their names or the names of their nominees for the benefit of others, such as
brokerage firms, banks, depositaries, and other fiduciaries, for costs incurred
in forwarding soliciting materials to their principals. Members of the
Management of the Company may also solicit some shareholders in person, or by
telephone, telegraph or telecopy, following solicitation by this Proxy
Statement, but will not be separately compensated for such solicitation
services.
Proxies duly executed and returned by shareholders and received by the
Company before the Meeting will be voted "FOR" the election of all five of the
nominee-directors specified herein, "FOR" approval of the amendment of the
Company's Stock Awards Plan, and "FOR" the ratification of the selection of
Deloitte & Touche LLP as the Company's independent public accountants for fiscal
year 1999, unless a contrary choice is specified in the proxy. Where a
specification is indicated as provided in the proxy, the shares represented by
the proxy will be voted and cast in accordance with the specification made. As
to other matters, if any, to be voted upon, the persons designated as proxies
will take such actions as they, in their discretion, may deem advisable. The
persons named as proxies were selected by the Board of Directors of the Company
and each of them is a director of the Company.
Under the Company's bylaws and California law, shares represented by proxies
that reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Any shares not voted (whether by
abstention, broker non-vote or otherwise) will have no impact in the election of
directors, except to the extent that the failure to vote for an individual
results in another individual receiving a larger proportion of votes. Any shares
represented at the Meeting but not voted (whether by abstention, broker non-vote
or otherwise) with respect to the proposal to approve the amendment of the
Company's Stock Awards Plan or to ratify the selection of Deloitte & Touche LLP
will have no effect on the vote for such proposal except to the extent the
number of
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<PAGE>
abstentions causes the number of shares voted in favor of the proposal not to
equal or exceed a majority of the quorum required for the Meeting (in which case
the proposal would not be approved).
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Meeting and to vote in person. Any shareholder giving
a proxy has a right to revoke it at any time by either (a) a later-dated proxy,
(b) a written revocation sent to and received by the Secretary of the Company
prior to the Meeting, or (c) attendance at the Meeting and voting in person.
VOTING SECURITIES AND CERTAIN SHAREHOLDERS
The Company has outstanding only common stock, of which 7,040,000 shares
were outstanding as of the close of business on May 7, 1999 (the "Record Date").
Only shareholders of record on the books of the Company at the close of business
on the Record Date will be entitled to vote at the Meeting. Each share of common
stock is entitled to one vote.
Representation at the Meeting by the holders of a majority of the
outstanding common stock of the Company, either by personal attendance or by
proxy, will constitute a quorum.
The following table sets forth information as to the beneficial ownership of
the Company's common stock by all directors and the persons identified in the
Summary Compensation Table contained elsewhere herein, as well as by directors
and executive officers of the Company as a group and, to the best of the
Company's knowledge, beneficial owners of 5% or more of the Company's common
stock. Except as indicated below, the information in the following table is
based on ownership of the Company's common stock as of the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE OF BENEFICIAL PERCENT OF
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS (2)
- ---------------------------------------------------- --------------- ----------
<S> <C> <C> <C>
DIRECTORS:
Common Stock Burton Cutler .......................... 2,539,700(3) 36.08%
Common Stock Theodore J. Eischeid ................... 60,000 *
Common Stock G. Reid Calcott ........................ 113,270(5) 1.60%
Common Stock Jay Cutler ............................. 1,192,870(4) 16.94%
Common Stock Gerald Bronstein ....................... 92,500(6) 1.31%
Common Stock Courtney V. Moe ........................ 52,500(7) *
NON-DIRECTOR EXECUTIVE OFFICERS:
Common Stock James B. Whitney ....................... 42,377(8) *
Common Stock Dennis J. Graham ....................... 200 *
Common Stock All directors and executive officers as 4,093,417 57.50%
a group (8 persons) .
5% SHAREHOLDERS:
Common Stock Burton Cutler .......................... 2,539,700(3) 36.08%
Diana P. Cutler
16941 Keegan Avenue
Carson, CA 90746
Common Stock Jay Cutler ............................. 1,192,870(4) 16.94%
Karen Duncan Cutler
16941 Keegan Avenue
Carson, CA 90746
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE OF BENEFICIAL PERCENT OF
CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS (2)
- ---------------------------------------------------- --------------- ----------
<S> <C> <C> <C>
Common Stock Carol Joan Csapo ....................... 600,000 8.52%
438 N. Hidalgo
Alhambra, CA 90801
Common Stock Peter A. Moncado ....................... 600,000(9) 8.52%
Corey Cutler Moncado
207 Sunspring Court
Pleasant Hill, CA 94523
</TABLE>
- ------------------------
(1) Except as otherwise indicated and subject to applicable community property
and similar laws, the Company assumes that each named person has the sole
voting and investment power with respect to such person's shares (other than
shares subject to options). The amount of beneficially owned shares
includes, with respect to each named person or group, the number of shares
of common stock, if any, which the shareholder has the right to acquire
within 60 days of the Record Date.
(2) Percent of class is based on the number of shares outstanding on the Record
Date plus, with respect to each named person or group, the number of shares
of common stock, if any, which the shareholder has the right to acquire
within 60 days of such date. Ownership of less than one percent is indicated
by an asterisk.
(3) Shares are held by Burton Cutler and Diana P. Cutler as Trustees of the
Cutler Family Living Trust, which Trustees have the power to own, hold,
vote, sell, transfer, encumber and receive distributions with respect to
such shares.
(4) Shares are held by Jay Cutler and Karen Duncan Cutler as Trustees of the
Cutler Family Trust, which Trustees have the power to own, hold, vote, sell,
transfer, encumber and receive distributions with respect to such shares.
(5) Includes 35,270 shares which are issuable upon exercise of outstanding
options.
(6) Includes 2,500 shares which are issuable upon exercise of outstanding
options.
(7) Includes 2,500 shares which are issuable upon exercise of outstanding
options. The remaining are held by Courtney V. Moe and Audrey S. Moe
Trustees of the C&A Moe Revocable Trust dated March 27, 1992, which Trustees
have the power to own, hold, vote, sell, transfer, encumber and receive
distributions with respect to such shares.
(8) Includes 38,877 shares which are issuable upon exercise of outstanding
options.
(9) Shares are held by Peter A. Moncado and Corey Cutler Moncado as Trustees of
the Peter Anthony Moncado and Corey Cutler Moncado Family Trust dated
December 2, 1994, which Trustees have the power to own, hold, vote, sell,
transfer, encumber and receive distributions with respect to such shares.
The Company knows of no contractual arrangements which may at a subsequent
date result in a change of control of the Company.
NOMINATION AND ELECTION OF DIRECTORS
The Company's directors are to be elected at each annual meeting of
shareholders. At this Meeting, five directors are to be elected to serve until
the next annual meeting of shareholders and until their successors are elected
and qualify. The nominees for election as directors at this Meeting set forth in
the table below are all recommended by the Board of Directors of the Company.
Four of the nominated directors were elected by the shareholders. The fifth
nominated director is Theodore J. Eischeid who was
4
<PAGE>
appointed to serve as a director on October 13, 1998 by unanimous approval of
the then existing Board of Directors shortly after his employment as the
Company's President and Chief Executive Officer.
In the event that any of the nominees for director should become unable to
serve if elected, it is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee(s) as may be
recommended by the Company's existing Board of Directors.
The five nominee-directors receiving the highest number of votes cast at the
Meeting will be elected as the Company's directors to serve until the next
annual meeting of shareholders and until their successors are elected and
qualify.
The following table sets forth certain information concerning the nominees
for election as directors (all of such nominees being continuing members of the
Company's present Board of Directors):
<TABLE>
<CAPTION>
NOMINEE(1) PRINCIPAL OCCUPATION AGE
- -------------------------------------------- ------------------------------------------ ---
<S> <C> <C>
Burton Cutler(2)............................ Chairman of the Board 72
Theodore J. Eischeid(3)..................... President and Chief Executive Officer 48
Jay Cutler.................................. President of Scherer Cutler, Inc. 47
Gerald Bronstein(2)(3)...................... Chairman of the Board of Bomaine 71
Corporation
Courtney V. Moe(2)(3)....................... Private Investor 65
</TABLE>
- ------------------------
(1) The Company does not have a nominating committee of the Board of Directors.
The nominees for election as directors at the Meeting were selected by the
Board of Directors of the Company.
(2) Member of the compensation committee of the Board of Directors of the
Company, currently consisting of three directors. During 1998, no separate
meetings of the Compensation Committee were held. Any compensation committee
matters were discussed as part of the Board of Directors meetings. The
compensation committee was created in July 1994 and reviews the performance
of the Chief Executive Officer of the Company and reviews the compensation
programs for other key employees, including salary and cash bonus levels and
option grants under the Educational Insights, Inc. Stock Awards Plan.
(3) Member of the audit committee of the Board of Directors of the Company,
currently consisting of three directors, one of whom is an employee of the
Company, which held two meetings during 1998. The audit committee was
created in July 1994 and reviews, acts on, and reports to the Board of
Directors with respect to various auditing and accounting matters, including
the selection of the Company's independent public accountants, the scope of
the annual audits, the nature of nonaudit services, and fees to be paid to
the independent public accountants, the performance of the Company's
independent public accountants, and the accounting practices of the Company.
Burton Cutler is one of the founders of the Company and has been Chairman of
the Board of Directors since the Company's inception in 1962. Mr. Cutler also
served as the Company's principal executive officer from its formation until
1992. From 1992 to 1996, Mr. Cutler served as an executive officer of the
Company in his capacity as Chairman of the Board of Directors. In 1996, Mr.
Cutler resigned as an employee.
Jay Cutler had been employed by the Company since 1975 and became a director
in 1982. He had served as President and Chief Executive Officer of the Company
from 1992 to September 1998. In 1998, Mr. Cutler founded and is the President of
Scherer Cutler, Inc. which develops and sells business management hardware.
5
<PAGE>
Theodore J. Eischeid joined the Company in September 1998 as President and
Chief Executive Officer and was appointed as a director of the Company on
October 13, 1998. From 1991 to 1998, Mr. Eischeid served as President and, from
1994, as CEO of Revell-Monogram of Morton Grove, Illinois, a subsidiary of
Binney and Smith and Hallmark Cards, Inc. He currently serves as Vice Chairman
of the Toy Manufacturers of America.
Gerald Bronstein was elected as a director of the Company on July 15, 1994.
For more than the last five years, Mr. Bronstein has been a major shareholder
and served as Chairman of the Board of Bomaine Corporation, a manufacturer of
home furnishings.
Courtney V. Moe was elected as a director of the Company on July 15, 1994.
For more than the last five years, Mr. Moe has served on boards of various
private companies including companies in which he has been an investor. Prior to
that, he founded and subsequently sold Mobex Corporation, a manufacturing
company.
There were five meetings of the Board of Directors of the Company during the
last fiscal year of the Company. Each of the directors of the Company attended
75% or more of the aggregate of the total number of meetings of the Board of
Directors held during the period in which he was a director and the total number
of meetings held by all committees of the Board of Directors on which he served
during such period.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $1,000 for each
formal meeting of the Board of Directors. Directors who are employees of the
Company receive no additional compensation for serving on the Board of
Directors. Directors are entitled to reimbursement for out-of-pocket expenses in
connection with attendance at Board and committee meetings. See "Compensation
Committee Interlocks and Insider Participation" for information regarding
certain transactions between the Company and members of the Board of Directors.
Further, directors who are not employees of the Company are eligible to
receive options for shares of the Company's common stock pursuant to the
Director's Stock Option Plan No. 1 ("the Plan"). The Plan, which is a
non-qualified stock option plan, was approved by unanimous written consent of
the Board of Directors of the Company on February 14, 1997. The Plan is
administered by the Directors Award Committee, a committee of the Board of
Directors, consisting of two members, Jay Cutler and G. Reid Calcott, who served
as Plan Administrator in 1998. As of the record date, the committee consisted of
the following two members, Burton Cutler and Theodore J. Eischeid. Options
granted under the Plan have an exercise price equal to 100% of the fair market
value of the shares of the common stock on the date of grant and have a term
ending five years after the date of grant or three months after the date the
Director ceases to be a Director of the Company, whichever is earlier. Pursuant
to the Plan, 2,500 shares of the Company's common stock covered by stock options
were granted to each of Gerald Bronstein and Courtney V. Moe in 1997. Said
shares were granted with an exercise price of $2.00 per share which was deemed
to be the fair market value on the grant date. All stock options granted under
the Plan are immediately exercisable.
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth information concerning compensation of the
principal executive officer of the Company and the three other executive
officers of the Company during the year ended December 31, 1998 for each of the
last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------
-------------------------- STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTS(2) COMPENSATION(3)
- ---------------------------------------- ----- ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Theodore J. Eischeid ................... 1998 $ 123,154(4) -- 300,000 $17,500
President and Chief Executive Officer
Jay Cutler(5) .......................... 1998 145,334(5) -- -- 1,460
President and Chief Executive Officer 1997 150,000 -- -- 2,879
1996 150,000 1,479
James B. Whitney ....................... 1998 152,919 -- -- 1,460
Vice President, Marketing 1997 150,648 2,880
1996 151,239 -- 5,000 1,397
Dennis J. Graham(6) .................... 1998 124,218 -- 1,457
Vice President, Business Development 1997 124,750 $ 6,000 -- 2,678
1996 129,548 -- 5,000 1,266
G. Reid Calcott(7) ..................... 1998 137,160 -- -- 1,460
Chief Operating & Financial Officer 1997 130,000 12,000 -- 2,542
1996 116,000 -- 15,000 827
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits did not in the aggregate equal or
exceed the lesser of $50,000 for any named individual or 10 percent of the
total of annual salary and bonus reported in this table for such person.
(2) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the
Educational Insights, Inc. Stock Awards Plan.
(3) The amounts shown in this column represent (i) the Company's matching
contributions to the Educational Insights, Inc. Savings and Retirement Plan
for Jay Cutler, James Whitney, Dennis Graham, and G. Reid Calcott in the
amounts of $1,250, $1,250, $1,247 and $1,250, respectively, in 1998, $1,187,
$1,188, $1,188 and $1,187, respectively, in 1997, and $1,269, $1,187, $1,056
and $634, respectively, in 1996, (ii) group term life insurance premiums
paid for Jay Cutler, James Whitney, Dennis Graham and G. Reid Calcott in the
amount of $210, $206, and $210 per person, in 1998, 1997 and 1996,
respectively, (iii) Company contributions to the Educational Insights, Inc.
Profit Sharing Plan and Trust, a qualified defined contribution/deferred
compensation plan covering substantially all of its employees, who are
eligible to participate after one year of service. Company contributions for
Jay Cutler, James Whitney, Dennis Graham and G. Reid Calcott amounted to
$1,486, $1,486, $1,284, and $1,149, respectively, in 1997. There were no
Company contributions in 1998 or 1996. The exact amounts of the Company's
contribution to the defined contribution/deferred compensation plan for the
named employees do not include any reallocation of forfeitures under such
plan for 1997 as such amounts would not be significant and (iv) moving
allowance paid to Theodore J. Eischeid amounting to $17,500 during 1998 of a
total of $50,000 to be paid prior to August 1999 in accordance with Mr.
Eischeid's employment agreement.
7
<PAGE>
(4) Mr. Eischeid became an employee and executive officer of the Company in
September 1998. As such, the amount shown represents salary paid after such
date as well as an incentive payment of $63,000.
(5) Mr. Cutler resigned in September 1998. As such, the salary amount shown
represents payments made until his resignation as well as $34,615
representing fees paid under a consulting arrangement that expired in March
1999.
(6) Mr. Graham resigned in January 1999.
(7) Mr. Calcott resigned as Vice Chairman, Chief Operating and Financial Officer
effective February 1999 but continues to serve as a part-time employee of
the Company.
KEY EMPLOYEE EMPLOYMENT AND SEVERANCE AGREEMENTS
Pursuant to the terms of an Employment Agreement dated September 4, 1998
(the "Employment Agreement"), the Company retained Theodore J. Eischeid as its
President and Chief Executive Officer and agreed to appoint Mr. Eischeid as a
member of the Company's Board of Directors. Pursuant to the terms of the
Employment Agreement, Mr. Eischeid is entitled to receive an initial base salary
of $230,000 per year which will be reviewed annually by the Compensation
Committee of the Board of Directors. Mr. Eischeid received an additional
incentive payment of $63,000 in 1998 and an incentive stock option grant of
300,000 shares of Common Stock (the "Initial Option"). In addition, beginning
with calendar year 1999, Mr. Eischeid shall be entitled to receive an annual
discretionary bonus which shall be tied to specific performance criteria
established by the Board of Directors which bonus shall be at least 50% of the
then current base year salary if such criteria are met or exceeded.
Pursuant to the terms of the Employment Agreement, in the event of a
termination of Mr. Eischeid other than for "cause" (as defined in the Employment
Agreement) or the resignation of Mr. Eischeid as a result of a decrease in his
base salary, or a termination as a result of "change of control" (as defined in
the Employment Agreement) Mr. Eischeid shall be entitled to receive a severance
payment equal to (i) one year's then base salary, plus (ii) the earned portion
of any discretionary bonus. In addition, in the event of a termination of Mr.
Eischeid other than for "cause" or the resignation of Mr. Eischeid as a result
of a decrease in his base salary, Mr. Eischeid shall also be entitled to receive
a cash payment equal to the excess of the closing price of the Company's Common
Stock on the date of termination over the exercise price of the Initial Option
multiplied by the number of unvested option shares, if any, under the Initial
Option. The Company has previously entered into severance agreements with
Messrs. Whitney, Graham and Calcott, and with six other key employees of the
Company. These key employee severance agreements, which expire in December 1999,
provide for severance payments equal to one times the then base annual salary
for key employees with ten or more years of service and for other key employees
a payment equivalent to nine months of the employee's then base annual salary.
8
<PAGE>
OPTION GRANTS DURING 1998
The following table sets forth information on grants of stock options
pursuant to the Educational Insights, Inc. Stock Awards Plan during the year
ended December 31, 1998, to the officers identified in the Summary Compensation
Table:
OPTION GRANTS IN YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
% OF TOTAL OPTIONS PRICE APPRECIATION FOR
GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ----------------------
NAME GRANTED IN 1998(2) PRICE(3) DATE 5% 10%
- ---------------------------------- --------- --------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore J. Eischeid.............. 300,000 95.2% $ 1.50 9/4/08 $ 283,000 $ 717,200
Jay Cutler........................ -- -- -- -- -- --
James B. Whitney.................. -- -- -- -- -- --
Dennis J. Graham.................. -- -- -- -- -- --
G. Reid Calcott................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the
Educational Insights, Inc. Employee Stock Awards Plan. Each option becomes
exercisable on a cumulative basis as to one-third of the option shares two
years after the date of grant and as to an additional one-third of the
option shares each one year interval thereafter.
(2) The percentages represent the number of shares of Company common stock
covered by the options granted to the named individual during the last
completed fiscal year of the Company compared to the total number of shares
of the Company common stock covered by all options granted by the Company to
employees of the Company during such year.
(3) The exercise price of each option is the market price of the common stock of
the Company on the date of grant.
(4) These columns present hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price, assuming
that the market price of the Company's common stock appreciates at a five
and ten percent compound annual rate over the ten year term of the options.
The five and ten percent rates of stock price appreciation are presented as
examples pursuant to the Proxy Rules and do not necessarily reflect
management's assessment of the Company's future stock price performance. The
potential realizable values presented are not intended to indicate the value
of the options.
9
<PAGE>
OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options which
were exercised during, or held at the end of, the year ended December 31, 1998
by the officers named in the Summary Compensation Table:
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END(1) AT FISCAL YEAR END(2)
ACQUIRED VALUE -------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- --------------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Theodore J. Eischeid................. -- -- -- 300,000 $ 0 $ 56,250
Jay Cutler........................... -- -- -- -- -- --
James B. Whitney..................... -- -- 38,877 3,333 0 0
Dennis J. Graham..................... -- -- 31,937 3,333 0 0
G. Reid Calcott...................... -- -- 35,270 10,000 0 0
</TABLE>
- ------------------------
(1) Shares of common stock.
(2) Valued based on the closing price of the Company's Common Stock of $1.6875
per share on December 31, 1998 and the applicable exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Company are Burton
Cutler, Gerald Bronstein, and Courtney V. Moe. Each of the members of the
Compensation Committee has served in such capacity since the date of creation of
the Compensation Committee in July 1994. No member of the Compensation Committee
is now, or was at any time during the last completed fiscal year of the Company,
an officer or employee of the Company. During 1998, no executive officer of the
Company served as a member of the compensation committee (or its equivalent) or
as a director of any entity whose executive officers served on either the
Compensation Committee or the Board of Directors of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Tennessee distribution facility (the "Tennessee Facility") is
owned by Karen Duncan Cutler and Jay Cutler, a director of the Company, and
leased to the Company pursuant to the terms of an Industrial Real Estate Lease
dated April 21, 1992 (the "Tennessee Lease"). The Tennessee Lease is for an
initial term of ten years and terminates on April 20, 2002. Base rental payments
for the Tennessee Facility are $20,000 per month until April 1995, $17,500 per
month until April 1999 and $14,000 per month for the remainder of the Tennessee
Lease term. In addition to the base rent, the Company is responsible for paying
property taxes, insurance and maintenance expenses for the leased premises. The
Tennessee Facility was expanded by approximately 42,000 square feet in 1995.
This expansion was financed by Jay and Karen Cutler, as owners of the property.
Upon completion of the expansion of the Tennessee Facility in mid-1995, payments
under the Tennessee Lease were increased by $7,820 per month to amortize the
costs of the expansion over the term of the Tennessee Lease. Total rent payments
with respect to the Tennessee Lease were $304,000, $304,000 and $304,000 in
1998, 1997 and 1996, respectively. The Company believes that the terms of the
Tennessee Lease are at least as favorable as those that would have been
available to the Company in a third-party transaction.
Pursuant to the terms of an Agreement of Unconditional Guaranty, dated April
21, 1992, the Company has guaranteed the obligations of Jay Cutler and Karen
Duncan Cutler incurred in connection with the acquisition of the Tennessee
Facility. These obligations bear interest at a rate of 8% per annum.
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The initial aggregate principal amount of such obligations was $1,000,000 and
the principal balance as of December 31, 1998 was approximately $400,000.
Stanley Cutler, an electronic engineer and the brother of Burton Cutler,
assisted in the design and development of certain of the Company's electronic
learning aids, most significantly the Company's GeoSafari line of products. In
order to compensate Mr. Cutler for his electronic engineering and designing
services and in exchange for his assignment of any and all of his patent rights
to the Company products developed by him (including the patents to the GeoSafari
game board and teaching apparatus), Mr. Cutler and the Company entered into a
Royalty Agreement, dated May 12, 1993, and expiring December 31, 2010. Under the
terms of the Royalty Agreement, the Company is required to pay a royalty equal
to 1% of the Company's net sales of certain products. Effective January 1, 1994,
royalty payments are capped at $150,000 annually. Total royalty payments for the
years ended December 31, 1998, 1997 and 1996 totaled $53,000, $79,000, and
$99,120, respectively. The May 12, 1993 Royalty Agreement superseded a number of
prior agreements between the Company and Stanley Cutler as to royalties for
products developed with his assistance. The Company believes that the terms of
the Royalty Agreement with Stanley Cutler are at least as favorable as those
that would have been available to the Company in a third-party transaction.
Stanley Cutler also provides certain consulting services relating to the
Company's new product development activities. Payments for said services
commenced in 1997 and amounted to $17,000 and $87,500 in 1998 and 1997,
respectively.
Subsequent to his resignation in September 1998, Jay Cutler was retained to
provide consulting services for which he was paid $34,615 in 1998.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of Regulation S-K. Notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that might incorporate future filings,
including this Proxy Statement, in whole or in part, this report and the graph
which follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
The Compensation Committee reviews the performance of the Chief Executive
Officer of the Company, makes recommendations to the Board of Directors as to
the compensation of the Chief Executive Officer and the executive officers of
the Company and reviews the compensation programs for other key employees,
including salary and cash bonus levels, and stock option awards under the Stock
Awards Plan.
COMPENSATION POLICIES AND PHILOSOPHY. The Company's executive compensation
policies are designed to attract, retain and reward executive officers who
contribute to the Company's success, to provide economic incentives for
executive officers to achieve the Company's business objectives by linking the
executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and shareholder value, to
reward individual performance and to be cost effective from the standpoint of
the Company's shareholders. The Company uses a combination of base salary, cash
bonuses and stock option awards to achieve the aforementioned objectives.
In carrying out these objectives, the Compensation Committee considers a
number of factors which include the types of compensation paid to executive
officers in similar positions by comparable companies. In addition, the
Compensation Committee evaluates corporate performance by looking at factors
such as performance relative to business conditions, and the success of the
Company in meeting its financial objectives. The Compensation Committee also
reviews the individual performance of the Chief Executive Officer and, as
appropriate, approves the recommendations of the Chief Executive Officer
relating to the
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performance of other executive officers and their ability to perform their given
tasks, knowledge of their jobs, and their ability to work with others toward the
achievement of the Company's goals.
COMPONENTS OF COMPENSATION. Executive officer salaries are established in
relation to a range of salaries for comparable positions among other companies
of comparable size and complexity based on information generated in the process
of the Company's recruiting and human resources activities, with the exception
of the Chief Executive Officer's salary which is set in relationship to the top
three executive officers reporting to the Chief Executive Officer. The Company
seeks to pay its executive officers salaries that are commensurate with the
qualifications, duties and responsibilities and that are competitive in the
marketplace. In making its annual salary recommendations, the Compensation
Committee looks at the Company's financial position and performance and the
overall contribution of the executive officers as a group during the prior
fiscal year in helping to meet the Company's financial and business objectives.
The Compensation Committee recommends and approves the Chief Executive Officer's
annual salary and makes recommendations on a range of salary changes for other
executive officers as a group.
Executive officer annual cash bonuses are used to provide executive officers
with financial incentives to meet annual performance targets of the Company or
its operating divisions. Performance targets and bonus recommendations for
executives other than principal executive officers are proposed by the
management of the Company's principal operating departments, reviewed and, when
appropriate, revised by the Compensation Committee and approved by the Board of
Directors.
The Compensation Committee believes that equity ownership by executive
officers provides incentives to build shareholder value and align the interests
of executive offers with the shareholders. The Compensation Committee typically
recommends stock option grants on an annual basis to the executive officers and
other key employees under the Awards Plan, subject to applicable vesting
periods. The Compensation Committee believes that these grants provide
incentives for executive officers to remain with the Company. Stock options
generally have value only if the price of the Company's common stock increases
over the exercise or grant price. The size of the option grants is usually based
upon factors such as comparable equity compensation offered by other companies,
the seniority of the executive officer and the contribution that the executive
officer is expected to make to the Company. In determining the size of the
periodic grants, the Compensation Committee also considers prior grants to the
executive officer and his or her expected contributions during the succeeding
fiscal year.
COMPENSATION OF THE PRINCIPAL EXECUTIVE OFFICER. The Compensation Committee
reviews the performance of the principal executive officer of the Company, as
well as other executive officers of the Company and its subsidiaries, annually.
As the principal executive officer of the Company, both Jay Cutler's and
Theodore J. Eischeid's compensation was determined on a consideration of the
various factors discussed above, including the performance of the Company and
the individual performance of Mr. Cutler.
Respectfully submitted,
Compensation Committee:
Burton Cutler
Courtney V. Moe
Gerald Bronstein
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SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total shareholder return on the
Company's common stock with the cumulative total return on the Nasdaq U.S. Stock
Market Index and a peer group of seven corporations in the same or similar
line-of-business as the Company for the period from the date of effectiveness of
the Company's initial public offering (April 15, 1994) and ended December 31,
1998.
COMPARISON OF CUMULATIVE TOTAL RETURN*
EDUCATIONAL INSIGHTS, INC. COMMON STOCK, NASDAQ U.S. STOCK MARKET INDEX AND
EDUCATIONAL INSIGHTS, INC. PEER GROUP**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EDUCATIONAL INS PEER GROUP NASDAQ US
<S> <C> <C> <C>
April 15, 1994 $100.00 $100.00 $100.00
1994 $53.75 $108.65 $102.04
1995 $27.50 $104.51 $144.32
1996 $22.50 $131.89 $177.46
1997 $21.54 $203.60 $217.71
1998 $16.88 $256.38 $306.04
</TABLE>
- ------------------------
* Assumes that the value of the investment in the Company's common stock and
each index was $100 on April 15, 1994.
** Peer group consists of the following corporations selected by the Company in
good faith: American Educational Products, Houghton Mifflin Co., 4 Kids
Entertainment, Inc. (formerly known as Leisure Concepts, Inc.), Lewis Galoob
Toys, Inc., Ohio Art Co., SLM International, Inc., and Golden Books Family
Entertainment, Inc. (formerly known as Western Publishing Group, Inc.). Each
of the component corporations of the peer group was weighted according to
the respective corporation's stock market capitalization at the beginning of
the period for which a return is indicated.
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AMENDMENT OF THE STOCK AWARDS PLAN
In 1993, the Board of Directors of the Company adopted the Educational
Insights, Inc. Stock Awards Plan (the "Stock Awards Plan"). Under the Stock
Awards Plan, as currently in effect, a maximum of 600,000 shares of common stock
of the Company may be issued pursuant to exercise of options granted under the
Plan. As of May 7, 1999, no shares had been issued under the Stock Awards Plan
as a result of exercise of previously granted options; options were outstanding
in respect of an aggregate of 531,790 shares; and an aggregate of 68,210 shares
were available for future grants of options under the Stock Awards Plan.
In April 1999, the Board of Directors amended the Stock Awards Plan, subject
to approval of the shareholders, to increase the number of shares covered by the
plan by 300,000 shares. The Stock Awards Plan is intended to provide additional
compensation and incentives to eligible individuals whose present and potential
contributions are important to the continued success of the Company, to afford
such persons an opportunity to acquire a proprietary interest in the Company and
to enable the Company to continue to enlist and retain the best available talent
for the successful conduct of its business. The amendment was adopted and is
recommended for approval by the Company's stockholders because the Board
believes that option grants and the stock issuances under the Employee Plan play
an important role in the Company's efforts to attract and retain employees of
outstanding ability and to reward employees for outstanding performance. In the
event the amendments to the Stock Awards Plan are not approved by the
shareholders, the Board believes that the Company's inability to grant
additional options under the Stock Awards Plan will adversely impact the
Company's future hiring, promotion and operating plans.
A copy of the Stock Awards Plan, as amended by the Board subject to
shareholder approval, is set forth in full as Appendix A to this Proxy
Statement. Following is a summary of the principal provisions of the Stock
Awards Plan, as so amended:
1. PURPOSE. The purpose of the Stock Awards Plan is to further the growth
and development of the Company by providing an incentive to officers and other
key employees who are in a position to contribute materially to the prosperity
of the Company to participate in the long-term growth of the Company by
receiving the opportunity to acquire shares of the Company's common stock, to
provide additional compensation for such persons, and to increase such persons'
interests in the Company's welfare, to encourage them to continue their services
to the Company or its subsidiaries, and to attract individuals of outstanding
ability to enter the employment of the Company or its subsidiaries.
2. TYPES OF AWARDS The Stock Awards Plan authorizes the grant to employees
of two types of options: "incentive stock options" ("ISOs") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options ("Nonqualified Options") not specifically authorized or qualified
for favorable federal income tax consequences. In addition the Stock Awards Plan
authorizes the grant of "Stock Appreciation Rights" ("SARs"), stock of the
Company subject to certain restrictions ("Restricted Stock"), stock of the
Company not subject to such restrictions ("Unrestricted Stock"), "Deferred Stock
Awards", "Performance Unit Awards" and other Company stock-based awards. As of
April 30, 1999, the Company had not granted any awards under the Stock Awards
Plan other than ISOs and Nonqualified Options.
3. ELIGIBILITY. Any employee (including any officer who is an employee) of
the Company or any of its subsidiaries is eligible to receive an award under the
Stock Awards Plan; provided that no person who owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
shall be eligible to receive an ISO under the Stock Awards Plan unless at the
time such ISO is granted the option price is at least 110% of the fair market
value of the shares subject to the option and the option by its terms is not
exercisable after the expiration of five years from the date the option is
granted. An employee may receive more than one award under the Stock Awards
Plan.
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4. NUMBER OF SHARES. A maximum of 900,000 shares of Common Stock of the
Company may be issued pursuant to any grants of awards under the Stock Awards
Plan, or the exercise of any rights under such awards, subject to adjustment
pursuant to the "anti-dilution" provisions of the Stock Awards Plan. This
represents an increase of 300,000 shares in the aggregate number of shares
covered by the Stock Awards Plan prior to amendment.
5. ADMINISTRATION. The Stock Awards Plan is an administered by a Plan
Administrator (the "Plan Administrator"). Subject to the provisions of the Stock
Awards Plan, the Plan Administrator has authority to construe and interpret the
Stock Awards Plan, to promulgate, amend and rescind rules and regulations
relating to its administration, from time to time to select from among eligible
employees those to whom awards under the Stock Awards Plan will be granted, to
determine the terms and conditions on which awards under the Stock Awards Plan
will be granted, and to make all determinations necessary or advisable for
administration of the Stock Awards Plan. The interpretation and construction by
the Plan Administrator of any provision of the Stock Awards Plan or any
agreement executed under the Stock Awards Plan shall be final and binding upon
all parties. The Board may, in its discretion, delegate any or all of its duties
as Plan Administrator, and, at any time the Board includes any person who is not
an outside director, the Board shall delegate all of its duties as Plan
Administrator during such period of time, to a committee (the "Compensation
Committee") of not fewer than two members of the Board, all of the members of
which committee shall be non-employee directors. As of the date of this
Prospectus, the Board serves as the Plan Administrator. Within certain
limitations, the Plan Administrator has the power to modify, extend, or renew
outstanding options granted under the Stock Awards Plan, accept the surrender of
outstanding options, and authorize the granting of new options in substitution
therefor.
6. OPTION EXERCISE PRICE. The purchase, or "exercise", price per share of
the shares subject to any ISO or Nonqualified Option (each, an "option") shall
be as determined by the Plan Administrator. The purchase price per share for
shares subject to an ISO shall not be less than 100% of the fair market value
per share of the shares of Common Stock on the date the ISO is granted. The Plan
Administrator shall have the power to set the time or times within which each
option shall be exercisable and to accelerate the time or times of exercise.
Unless otherwise provided by the Plan Administrator, each option granted under
the Stock Awards Plan shall become exercisable on a cumulative basis as to
one-third of the total number of shares covered by the option at any time after
two years from the date the option is granted and an additional one-third of
such total number of shares at any time after the end of each consecutive
one-year period thereafter until the option has become exercisable as to all of
the shares subject thereto.
7. METHOD OF EXERCISE. Any exercisable portion of an option may be
exercised only by the following: (a) delivery of a written notice to the
Company, prior to the time when such option becomes unexercisable under the
terms of the Stock Awards Plan stating the number of shares being purchased and
complying with all applicable rules established by the Plan Administrator; (b)
payment in full of the exercise price of such option by, as applicable, (i) cash
or check for an amount equal to the aggregate option exercise price for the
number of shares being purchased, or (ii) in the discretion of the Plan
Administrator, upon such terms as the Plan Administrator shall approve,
tendering shares of the Common Stock owned by the optionee, duly endorsed for
transfer to the Company, with a fair market value on the date of delivery equal
to the aggregate purchase price of the shares with respect to which such option
or portion is thereby exercised; and (c) payment of the amount of tax required
to be withheld (if any) by the Company or any parent or subsidiary corporation
as a result of the exercise of an option. Notwithstanding the foregoing, the
Company at its discretion may extend and maintain, or arrange for the extension
and maintenance of, credit to any optionee to finance the optionee's purchase of
shares pursuant to the exercise of any option, on such terms as may be approved
by the Plan Administrator, subject to applicable regulations of the Federal
Reserve Board and any other laws or regulations in effect at the time such
credit is extended.
8. EXPIRATION OF OPTIONS. No option granted under the Stock Awards Plan
shall be exercisable after the expiration of the earliest of (a) ten years after
the date the option is granted, (b) three months after the date the optionee's
employment with the Company and its subsidiaries terminates if such termination
is for
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<PAGE>
any reason other than permanent disability, death or cause, (c) the date the
optionee's employment with the Company and its subsidiaries terminates if such
termination is for cause, as determined by the Plan Administrator, in its sole
discretion, or (d) one year after the date the optionee's employment with the
Company and its subsidiaries terminates if such termination is a result of death
or permanent disability; provided, however, that the option agreement for any
option granted under the Stock Awards Plan may provide for shorter periods in
each of the foregoing instances.
9. STOCK APPRECIATION RIGHTS. The Stock Awards Plan authorizes the grant
of Stock Appreciation Rights, awards that entitle the recipient to receive an
amount in cash or shares of Common Stock, or a combination of the two, as
determined by the Plan Administrator in its sole discretion, having a value
equal to (or, as determined by the Plan Administrator at the time of grant,
otherwise based on but less than) the excess of the fair market value of a share
of Common Stock on the date of exercise over the fair market value of a share of
Common Stock on the date of grant (or over the option exercise price if the
Stock Appreciation Right is granted in tandem with an option), multiplied by the
number of shares with respect to which the Stock Appreciation Right shall have
been exercised.
10. EXERCISE OF STOCK APPRECIATION RIGHTS. No Stock Appreciation Rights
shall be exercisable in whole or in part during the first six months following
the date of grant. No Stock Appreciation Rights shall be exercisable during the
recipient's lifetime other than by the recipient or the recipient's legal
representative or guardian. Stock Appreciation Rights granted in tandem with an
option shall be exercisable only at such time or times, and to the extent, that
the tandem option is exercisable and only when the fair market value of the
Common Stock subject to the tandem option exceeds the exercise price of such
option. Upon the exercise of tandem Stock Appreciation Rights, the applicable
portion of the tandem option shall be surrendered. Stock Appreciation Rights
granted independent of any option shall be exercisable in such manner and within
such period as shall be determined by the Plan Administrator pursuant to terms
established at the time of grant.
11. RESTRICTED STOCK AWARDS. Shares of Common Stock under a Restricted
Stock award will be subject to such conditions, which may include the right of
the Company during a specified period or periods to repurchase such shares at
their original price or to require forfeiture of such shares (if no cash
consideration was paid by the recipient) upon the recipient's termination of
employment, as the Plan Administrator may determine at the time of grant.
Restricted Stock may be granted at no cost to the recipient, or for a purchase
price determined by the Plan Administrator on the date of grant. Shares of
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of except as specifically provided in the terms of grant.
Except as otherwise provided pursuant to the terms of grant or as determined by
the Plan Administrator at any time after the date of grant, in the event of a
Restricted Stock recipient's termination of employment with the Company and its
subsidiaries for any reason (including death), the recipient or the recipient's
legal representative shall resell to the Company, at the cash consideration paid
therefor, all of his or her shares of Restricted Stock, and the Company shall
purchase such shares at that price. If no cash consideration was paid for such
shares, such shares shall automatically be forfeited.
12. UNRESTRICTED STOCK AWARDS. Shares of Common Stock granted pursuant to
an Unrestricted Stock award may be granted at no cost to the recipient or at a
purchase price determined by the Plan Administrator at the time of grant. Shares
granted pursuant to an Unrestricted Stock award are free of the restrictions
imposed on Restricted Stock awards.
13. DEFERRED STOCK AWARDS. Deferred Stock awards are awards entitling the
recipient to acquire shares of Common Stock without payment in one or more
installments at a future date or dates, all as determined by the Plan
Administrator. The Plan Administrator may condition the acquisition of such
shares on the attainment of specified performance goals or such other factors or
criteria as the Plan Administrator may determine. Except as may otherwise be
provided under the terms of grant, a recipient's rights in all Deferred Stock
awards shall automatically terminate upon the recipient's termination of
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<PAGE>
employment with the Company and its subsidiaries for any reason (including
death). At any time prior to the recipient's termination of employment with the
Company and its subsidiaries, the Plan Administrator may in its discretion
accelerate the date on which shares subject to the award may be acquired, or
waive or amend any or all of the restrictions or conditions imposed under any
Deferred Stock award.
14. PERFORMANCE UNIT AWARDS. Performance Unit awards are awards entitling
the recipient to acquire cash or shares of Common Stock, or a combination of
cash and Common Stock, upon the attainment of specified performance goals. The
Plan Administrator shall determine the performance goals applicable under each
such award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to such awards. No Performance Unit
award shall be exercisable in whole or in part until the expiration of six
months following the date of grant. Performance goals may vary from participant
to participant and between groups of participants and shall be based upon such
Company, business unit or individual performance factors or criteria as the Plan
Administrator may deem appropriate. The Plan Administrator may adjust the
performance goals and periods applicable to a Performance Unit award to take
into account legal, accounting or tax rule changes, or the impact of
extraordinary or unusual items, events or circumstances in order to avoid
windfalls or hardships. Except as may otherwise be provided under the terms of
grant, a recipient's rights in all Performance Unit awards shall automatically
terminate upon the recipient's termination of employment with the Company and
its subsidiaries for any reason (including death).
15. OTHER STOCK-BASED AWARDS. The Plan Administrator may grant other
stock-based awards, under which Common Stock is or may be acquired, subject to
such terms and conditions as the Plan Administrator may determine at the time of
grant, including conditions under which such awards may be forfeited, or
conditions under which the Company may or must repurchase any award or related
shares of Company Stock. No such award shall be exercisable in whole or in part
during the first six months following the date of grant, or if shares of Common
Stock are awarded on the date of grant, such shares shall be subject to
restrictions against transfer for at least six months following the date of
grant. At any time the Plan Administrator may in its sole discretion accelerate
entitlement to exercise rights under any of these other stock-based awards, or
waive or amend any or all of the limitations or conditions imposed under such an
award.
16. Unless sooner terminated by the Board in its sole discretion, the Stock
Awards Plan will expire on, and no awards will be made under the Stock Awards
Plan on or after, July 1, 2003.
FEDERAL INCOME TAX CONSEQUENCES
1. NONQUALIFIED OPTIONS. Under current federal income tax law, the grant
of a Nonqualified Option under the Stock Awards Plan will have no federal income
tax consequences to the Company or the optionee. Generally, upon exercise of a
Nonqualified Option granted under the Stock Awards Plan, the excess of the fair
market value of the stock at the date of exercise over the exercise price (the
"Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an optionee are deductible by the Company as compensation expense, if
appropriate income is reported on behalf of the optionee. The deduction will be
allowed for the taxable year of the Company in which the optionee includes the
amount in income.
Shares received for services that are subject to a substantial risk of
forfeiture generally are not included in the recipient's income until the risk
of forfeiture lapses. However, the optionee is entitled to elect to recognize
income on the date the shares are transferred (a "Section 83(b) Election"). Such
election must be made within 30 days of the transfer of the shares to the
optionee, in which case the optionee is taxed as if the shares were not subject
to a risk of forfeiture. Generally, the shares received on exercise of an option
under the Stock Awards Plan are not subject to restrictions on transfer or risks
of forfeiture and, therefore, the optionee will recognize income on the date of
exercise of a Nonqualified Option. However, if the optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934
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("Section 16(b)"), any Section 16(b) restrictions applicable to such shares will
be considered a substantial risk of forfeiture for tax purposes. Under current
law, employees who are either directors or officers of the Company will be
subject to restrictions under Section 16(b) during their term of service and for
up to six months after termination of such service. Rule 16b-3 promulgated by
the Securities and Exchange Commission ("Rule 16b-3") provides an exemption from
the restrictions of Section 16(b) with respect to certain grants, awards and
other acquisitions from an issuer, including stock options, provided certain
conditions set forth therein are met. Moreover, Rule 16b-3 and Rule 16b-6
promulgated by the Securities and Exchange Commission ("Rule 16b-6") provide an
exemption from the restrictions of Section 16(b) with respect to exercises or
conversions of derivative securities, including stock option exercises, provided
certain conditions set forth therein are met. Because the Stock Awards Plan
operates in a manner that satisfies the conditions set forth in Rule 16b-3 and
Rule 16b-6, the grant of options will not be considered a purchase and the
exercise of the options to acquire the underlying shares of Common Stock will
not be considered a purchase or a sale for purposes of Section 16(b). Thus, the
shares received on exercise of a Nonqualified Option will not be deemed subject
to a substantial risk of forfeiture, and ordinary income will be recognized and
the Spread will be measured on the date of exercise.
The taxable income resulting from the exercise of a Nonqualified Option will
constitute wages subject to withholding and the Company will be required to make
whatever arrangements are necessary to ensure that funds equaling the amount of
tax required to be withheld are available for payment. The tax basis for the
Common Stock acquired is the option price plus the taxable income recognized.
2. ISOs. There will be no federal income tax consequences to the Company
or the optionee as a result of the grant of an ISO. The optionee also will not
recognize income when the ISO is exercised (subject to the alternative minimum
tax rules discussed below). Generally, the Company receives no deduction at the
time of exercise.
In the event of a disposition of shares acquired upon exercise of an ISO,
the tax consequences depend on how long the optionee has held the shares. If the
optionee does not dispose of the shares within two years after the ISO was
granted, or within one year after the ISO was exercised and the ISO shares were
purchased, then the optionee must recognize only a long-term capital gain or
loss. The Company is not entitled to any deduction under these circumstances. If
the optionee fails to satisfy either of the foregoing holding periods, then he
or she must recognize ordinary income in the year of disposition of the shares
(referred to as a "disqualifying disposition"). The amount of such ordinary
income generally is determined under the rules applicable to Nonqualified
Options (see above). However, such ordinary income will in no event exceed the
amount of the gain realized on the sale, provided that the disposition involves
an arm's-length sale or exchange with an unrelated party. Any gain in excess of
the amount taxed as ordinary income will be treated as capital gain. The
Company, in the year of the disqualifying disposition, is entitled to a
deduction equal to the amount of ordinary income recognized by the optionee.
The Spread under an ISO is treated as an adjustment in computing alternative
minimum taxable income ("AMTI") to the optionee for the year of exercise. A
subsequent disqualifying disposition of shares acquired upon exercise of an ISO
will eliminate the AMTI adjustment if the disposition occurs in the same taxable
year as the exercise. A disqualifying disposition in a subsequent taxable year
will not affect the alternative minimum tax computation in the earlier year.
3. STOCK APPRECIATION RIGHTS. There will be no federal income tax
consequences to the Company or the recipient as a result of the grant of a Stock
Appreciation Right. Generally, upon the exercise of a Stock Appreciation Right
granted under the Stock Awards Plan, the Spread under the Stock Appreciation
Right to which the recipient becomes entitled is taxable to the recipient as
ordinary income. All such amounts taxable to the recipient are deductible by the
Company as compensation expense, if appropriate income is reported in behalf of
the recipient. The deduction will be allowed for the taxable year of the Company
in which the recipient includes the amount in income.
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As is the case with Nonqualified Options, property received pursuant to the
exercise of a Stock Appreciation Right that is subject to a substantial risk of
forfeiture generally is not included in the recipient's income until the risk of
forfeiture lapses, subject to the ability to make a Section 83(b) Election.
However, it is not expected that any substantial risk of forfeiture will be
present upon the exercise of a Stock Appreciation Right under the Stock Awards
Plan, because the Stock Awards Plan's compliance with Rule 16b-3 and Rule 16b-6
will provide the exemptions from Section 16(b) necessary to eliminate any risk
of forfeiture as described above with respect to Nonqualified Options.
The taxable income resulting from the exercise of a Stock Appreciation Right
will constitute wages subject to withholding and the Company will be required to
make whatever arrangements are necessary to ensure that funds equaling the
amount of tax required to be withheld are available for payment.
4. STOCK AWARDS, DEFERRED STOCK AWARDS, PERFORMANCE UNIT AWARDS AND OTHER
STOCK-BASED AWARDS. With respect to any other awards under the Stock Awards Plan
of shares of Common Stock, or under which a recipient may exercise rights to
acquire shares of Common Stock, the general rule is that the recipient
recognizes ordinary income in an amount equal to the excess of the fair market
value of the property transferred at the first time that the recipient's rights
to the property are not subject to a substantial risk of forfeiture, over the
amount, if any, paid for the property, in the first taxable year in which the
recipient's rights to the property are not subject to a substantial risk of
forfeiture. Thus, the recipient does not recognize taxable income with respect
to any such award until both of the following occur: (i) the property is
transferred to the recipient, and (ii) the property is no longer subject to any
substantial risk of forfeiture, including performance or service requirements,
or Company repurchase or forfeiture rights. Nevertheless, the recipient may be
entitled to elect to recognize income on the date the property is transferred by
making a Section 83(b) Election within 30 days after the transfer of the
property to the recipient, in which case the recipient will be taxed as if the
property were not subject to a substantial risk of forfeiture. However, the
Stock Awards Plan gives the Stock Awards Plan Administrator discretion to
provide, under the terms of an award, that the recipient may not make a Section
83(b) Election.
The Company is entitled to a deduction for compensation expense in the
amount of income taxable to the recipient with respect to a transfer of
property, if appropriate income is reported on behalf of the recipient. The
deduction will be allowed for the taxable year of the Company in which the
recipient includes the amount in income. The taxable income to a recipient with
respect to any such award will constitute wages subject to withholding and the
Company will be required to make whatever arrangements are necessary to ensure
that funds equaling the amount of tax required to be withheld are available for
payment.
OPTIONS OUTSTANDING UNDER THE STOCK AWARDS PLAN
As of May 7, 1999, no shares had been issued under the Stock Awards Plan as
a result of previously granted awards. As of that date, options were outstanding
under the Stock Awards Plan held by approximately ten persons to purchase an
aggregate of 531,790 shares of Company common stock at an average exercise price
of $1.63 per share, and 68,210 shares were available for future grants of
options under the Stock Awards Plan. Total options granted to date under the
Stock Awards Plan as of May 7, 1999 were as follows: Theodore J.
Eischeid--300,000; James B. Whitney--42,210; Dennis J. Graham--0; G. Reid
Calcott--45,270; all current employees as a group (excluding executive officers)
(approximately six persons)--144,310. Directors or nominees for director who are
not employees of the Company have not been granted any options under the Stock
Awards Plan. In addition, no associate of any director, nominee for director or
executive officer has been granted any options under the Stock Awards Plan.
The market value of the Company's common stock on April 27, 1999 was $1.94
per share.
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REASONS FOR AMENDMENT OF THE STOCK AWARDS PLAN
The Board of Directors believes that amendment of the Stock Awards Plan is
necessary because option grants and the stock issuances under the Employee Plan
play an important role in the Company's efforts to attract and retain employees
of outstanding ability and to reward employees for outstanding performance.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT OF THE EMPLOYEE PLAN
Approval of the amendment of the Stock Awards Plan requires the affirmative
vote of the holders of a majority of the shares of common stock of the Company
present, or represented, and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF AMENDMENT OF THE
EMPLOYEE PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Deloitte & Touche LLP serves the Company as its
independent public accountants at the direction of the Board of Directors of the
Company. One or more representatives of Deloitte & Touche LLP are expected to be
present at the Meeting and will have an opportunity to make a statement, if they
desire to do so, and to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
selection of Deloitte & Touche LLP as the independent public accountants for the
Company for fiscal year 1999. This matter is not required to be submitted for
shareholder approval, but the Board of Directors has elected to seek
ratification of its selection of the independent public accountants by the
affirmative vote of a majority of the shares represented and voting at the
Meeting.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission and the National Association of Securities Dealers
concerning their holdings of, and transactions in, securities of the Company.
Copies of these filings must be furnished to the Company.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors, the
Company believes that during the 1998 fiscal year its officers, directors and
greater than 10% shareholders complied with all applicable Section 16(a) filing
requirements.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for action at next year's annual
meeting should submit their proposals in writing to the Secretary of the Company
at the address of the Company set forth on the first page of this Proxy
Statement. Proposals must be received by the Secretary no later than January 21,
2000, for inclusion in next year's proxy statement and proxy card.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1998, including audited consolidated financial statements, has been
mailed to the shareholders concurrently herewith, but such report is not
incorporated in this Proxy Statement and is not deemed to be a part of the proxy
solicitation material.
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OTHER MATTERS
The Management of the Company does not know of any other matters which are
to be presented for action at the Meeting. Should any other matters come before
the Meeting or any adjournment thereof, the persons named in the enclosed proxy
will have the discretionary authority to vote all proxies received with respect
to such matters in accordance with their collective judgment.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished
without charge to any person from whom the accompanying proxy is solicited upon
written request to Investor Relations, Educational Insights, Inc., 16941 Keegan
Avenue, Carson, California 90746. If Exhibit copies are requested, a copying
charge of $.30 per page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
Stephen E. Billis
SECRETARY
Carson, California
May 18, 1999
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.
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APPENDIX A
EDUCATIONAL INSIGHTS, INC.
STOCK AWARDS PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C> <C>
1. Purpose................................................................................................. 2
2. Definitions............................................................................................. 2
2.1 Award........................................................................................ 2
2.2 Board........................................................................................ 2
2.3 Code......................................................................................... 2
2.4 Company...................................................................................... 2
2.5 Common Stock................................................................................. 2
2.6 Deferred Stock Award......................................................................... 2
2.7 Disabled or Disability....................................................................... 2
2.8 Fair Market Value............................................................................ 2
2.9 Incentive Stock Option....................................................................... 3
2.10 Non-Qualified Stock Option................................................................... 3
2.11 Optionee..................................................................................... 3
2.12 Other Stock-Based Award...................................................................... 3
2.13 Performance Unit Award....................................................................... 3
2.14 Plan......................................................................................... 3
2.15 Plan Administrator........................................................................... 3
2.16 Restricted Stock Award....................................................................... 3
2.17 Stock Appreciation Right..................................................................... 3
2.18 Stock Option................................................................................. 3
2.19 Unrestricted Stock Award..................................................................... 3
3. Awards Under the Plan................................................................................... 4
4. Administration.......................................................................................... 4
4.1 Administration by Board...................................................................... 4
4.2 Administration by Compensation Committee..................................................... 4
5. Eligibility............................................................................................. 5
6. Shares Subject to the Plan.............................................................................. 5
6.1 Available Shares............................................................................. 5
6.2 Capital Structure Adjustments................................................................ 5
7. Terms and Conditions of Stock Options................................................................... 6
7.1 Number of Shares Subject to Stock Option..................................................... 6
7.2 Stock Option Price........................................................................... 6
7.3 Notice and Payment........................................................................... 6
7.4 Term of Stock Option......................................................................... 7
7.5 Exercise of Stock Option..................................................................... 7
7.6 No Transfer of Stock Option.................................................................. 8
7.7 Limit on Incentive Stock Options............................................................. 8
7.8 No Fractional Shares......................................................................... 8
7.9 No Exercisability in the Event of Death...................................................... 8
</TABLE>
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<TABLE>
<C> <S> <C> <C>
7.10 Modification, Extension, and Renewal of Stock Options........................................ 8
7.11 Other Provisions............................................................................. 9
8. Stock Option Rights..................................................................................... 9
8.1 General...................................................................................... 9
8.2 Grant and Exercise........................................................................... 9
8.3 Terms and Conditions of Stock Appreciation Rights............................................ 9
8.4 Rules Relating to Exercise................................................................... 10
9. Restricted Stock........................................................................................ 11
9.1 General...................................................................................... 11
9.2 Awards Agreement and Certificates............................................................ 11
9.3 Rights as a Shareholder...................................................................... 12
9.4 Restrictions................................................................................. 12
9.5 Section 83(b) Election....................................................................... 13
10. Unrestricted Stock...................................................................................... 13
11. Deferred Stock Awards................................................................................... 13
11.1 General...................................................................................... 13
11.2 Award Agreement.............................................................................. 13
11.3 Elective Deferral............................................................................ 14
11.4 Termination.................................................................................. 14
11.5 Payments in Respect of Deferred Stock........................................................ 14
12. Performance Unit Awards................................................................................. 14
12.1 General...................................................................................... 14
12.2 Award Agreement.............................................................................. 15
12.3 Termination.................................................................................. 15
12.4 Acceleration; Waiver......................................................................... 15
12.5 Exercise..................................................................................... 15
13. Other Stock-Based Awards................................................................................ 15
13.1 General...................................................................................... 15
13.2 Purchase Price; Form of Payment.............................................................. 16
13.3 Forfeiture of Awards; Repurchase of Stock; Acceleration of Waiver of Restrictions............ 16
13.4 Award Agreements............................................................................. 16
13.5 Deemed Dividend Payments; Deferrals.......................................................... 17
14. Supplemental Grants..................................................................................... 17
14.1 Loans........................................................................................ 17
14.2 Cash Payments................................................................................ 17
</TABLE>
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<TABLE>
<C> <S> <C> <C>
15. Termination or Amendment of the Plan.................................................................... 17
16. Indemnification......................................................................................... 18
17. Withholding............................................................................................. 18
17.1 Irrevocable Election......................................................................... 19
17.2 Approval by Plan Administrator............................................................... 19
17.3 Timing of Election........................................................................... 19
17.4 Window Period................................................................................ 19
17.5 Timing of Delivery........................................................................... 19
17.6 Terms in Agreement........................................................................... 19
18. Unfunded Status of Plan................................................................................. 20
19. Change of Control....................................................................................... 20
19.1 Acceleration of Vesting and Exercise......................................................... 20
19.2 Definition of Change of Control.............................................................. 21
19.3 Definition of Potential Change of Control.................................................... 21
19.4 Definition of Change of Control Price........................................................ 21
19.5 Exceptions................................................................................... 22
20. General Provisions...................................................................................... 22
20.1 Restrictions on Issuance of Shares........................................................... 22
20.2 Rights as a Shareholder or Employee.......................................................... 22
20.3 Governing Law................................................................................ 23
21. Effective Date of Plan.................................................................................. 23
22. Term of Plan............................................................................................ 23
</TABLE>
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EDUCATIONAL INSIGHTS, INC.
STOCK AWARDS PLAN
1. PURPOSE. The purpose of this Educational Insights, Inc. Stock Awards
Plan is to further the growth and development of Educational Insights, Inc. by
providing an incentive to officers and other key employees who are in a position
to contribute materially to the prosperity of the Company to participate in the
long-term growth of the Company by receiving the opportunity to acquire shares
of the Company's common stock and to provide for additional compensation based
on appreciation in the Company's shares. The Plan provides a means to increase
such persons' interests in the Company's welfare, to encourage them to continue
their services to the Company or its subsidiaries, and to attract individuals of
outstanding ability to enter the employment of the Company or its subsidiaries.
2. DEFINITIONS. The following definitions are applicable to the Plan:
2.1 AWARD. Except where referring to a particular category of grant
under the Plan, "Award" or "Awards" shall include Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Unrestricted Stock Awards, Deferred Stock Awards, Performance Unit
Awards and Other Stock-Based Awards.
2.2 BOARD. The Board of Directors of the Company.
2.3 CODE. The Internal Revenue Code of 1986, as amended from time to
time.
2.4 COMPANY. Educational Insights, Inc., a California corporation.
2.5 COMMON STOCK. The shares of the common stock, without par value,
of the Company.
2.6 DEFERRED STOCK AWARD. An Award made pursuant to Section 11 below
of the right to receive Common Stock at the end of a specified deferral
period.
2.7 DISABLED OR DISABILITY. Except as otherwise specifically provided
herein, the determination of whether an individual is disabled or has a
permanent and total disability is determined under procedures established by
the Plan Administrator for purposes of the Plan.
2.8 FAIR MARKET VALUE. For purposes of the Plan, the "fair market
value" of any share of Common Stock of the Company at any date shall be (a)
if the Common Stock is listed on an established stock exchange or exchanges,
the last reported sale price per share on such date on the principal
exchange on which it is traded, or if no sale was made on such day on such
principal exchange, at the closing reported bid price on such day on such
exchange, or (b) if the Common Stock is not then listed on an exchange, the
average of the closing bid and asked prices per share for the Common Stock
in the over-the-counter market as quoted on NASDAQ on the day prior to such
date, or (c) if the Common Stock is not then listed on an
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exchange or quoted on NASDAQ, an amount determined in good faith by the Plan
Administrator.
2.9 INCENTIVE STOCK OPTION. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
2.10 NON-QUALIFIED STOCK OPTION. Any Stock Option that is not an
Incentive Stock Option.
2.11 OPTIONEE. The recipient of a Stock Option Award.
2.12 OTHER STOCK-BASED AWARD. An Award made pursuant to Section 13
below of the right to receive debt or other securities convertible into or
exchangeable for Common Stock.
2.13 PERFORMANCE UNIT AWARD. An Award made pursuant to Section 12
below of the right to receive cash or Common Stock upon the attainment of
specified performance goals.
2.14 PLAN. The Educational Insights, Inc. Stock Awards Plan, as
amended from time to time.
2.15 PLAN ADMINISTRATOR. The Board or the Compensation Committee
designated pursuant to Section 4 to administer, construe and interpret the
terms of the Plan.
2.16 RESTRICTED STOCK AWARD. An Award of shares of Common Stock that
are subject to restrictions pursuant to Section 8.
2.17 STOCK APPRECIATION RIGHT. An Award made pursuant to Section 9.
2.18 STOCK OPTION. Any option to purchase shares of Common Stock
granted pursuant to Section 7.
2.19 UNRESTRICTED STOCK AWARD. An Award made pursuant to Section 10
below.
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3. AWARDS UNDER THE PLAN. Two types of Stock Options (referred to herein
as "Stock Options" without distinction between such two types) may be granted
under the Plan: Stock Options intended to qualify as Incentive Stock Options and
Non-Qualified Stock Options. The Plan also permits the Award of Stock
Appreciation Rights that provide additional compensation based on appreciation
in the Company's Common Stock, Restricted Stock Awards, Unrestricted Stock
Awards, Deferred Stock Awards, Performance Unit Awards and Other Stock-Based
Awards.
4. ADMINISTRATION.
4.1 ADMINISTRATION BY BOARD. Subject to Section 4.2, the Plan
Administrator shall be the Board of Directors of the Company (the "Board")
during such periods of time as all members of the Board are "disinterested
persons" as defined in Rule 16b-3(c)(2)(i) promulgated by the Securities and
Exchange Commission (a "disinterested person"). Subject to the provisions of
the Plan, the Plan Administrator shall have authority to construe and
interpret the Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, from time to time to select from among the
eligible employees (as determined pursuant to Section 5) of the Company and
its subsidiaries those employees to whom Awards will be granted, to
determine the timing and manner of the grant of the Awards, to determine the
exercise price, the number of shares covered by and all of the terms of the
Awards, to determine the duration and purpose of leaves of absence which may
be granted to Award holders without constituting termination of their
employment for purposes of the Plan, and to make all of the determinations
necessary or advisable for administration of the Plan. The interpretation
and construction by the Plan Administrator of any provision of the Plan, or
of any agreement issued and executed under the Plan, shall be final and
binding upon all parties. No member of the Board shall be liable for any
action or determination undertaken or made in good faith with respect to the
Plan or any agreement executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMPENSATION COMMITTEE. The Board may, in its
sole discretion, delegate any or all of its duties as Plan Administrator,
and at any time the Board includes any person who is not a disinterested
person, the Board shall delegate all of its duties as Plan Administrator
during such period of time, to a committee (the "Compensation Committee") of
not fewer than two (2) members of the Board, all of the members of which
Compensation Committee shall be persons who, in the opinion of counsel to
the Company, are disinterested persons, to be appointed by and serve at the
pleasure of the Board. From time to time, the Board may increase or decrease
(to not less than two members) the size of the Compensation Committee, and
add additional members to, or remove members from, the Compensation
Committee. The Compensation Committee shall act pursuant to a majority vote,
or
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<PAGE>
the written consent of a majority of its members, and minutes shall be kept
of all of its meetings and copies thereof shall be provided to the Board.
Subject to the provisions of the Plan and the directions of the Board, the
Compensation Committee may establish and follow such rules and regulations
for the conduct of its business as it may deem advisable. No member of the
Compensation Committee shall be liable for any action or determination
undertaken or made in good faith with respect to the Plan or any agreement
executed pursuant to the Plan.
5. ELIGIBILITY. Specifically excluding Burton Cutler, Diana P. Culter, Jay
A. Cutler and Karen M.D. Cutler, any employee (including any non-excluded
officer or director who is an employee) of the Company or any of its
subsidiaries shall be eligible to receive an Award under the Plan; provided,
however, that no person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
parent or subsidiary corporations shall be eligible to receive an Incentive
Stock Option under the Plan unless at the time such Stock Option is granted the
Stock Option price (determined in the manner provided in Section 7.2) is at
least 110% of the Fair Market Value of the shares subject to the Stock Option
and such Stock Option by its terms is not exercisable after the expiration of
five years from the date such Stock Option is granted. An employee may receive
more than one Award under the Plan.
6. SHARES SUBJECT TO THE PLAN.
6.1 AVAILABLE SHARES. The shares available for grant of Awards under
the Plan shall be shares of the Company's authorized but unissued, or
reacquired, Common Stock. The aggregate number of shares which may be issued
pursuant to exercise of Awards granted under the Plan shall not exceed
900,000 shares of Common Stock (subject to adjustment as provided in Section
6.2). In the event that the grant of any Award under the Plan for any reason
expires, is terminated or surrendered without being exercised in full or is
exercised or surrendered without the distribution of shares, the shares of
Common Stock allocable to the unexercised portion of the Award shall again
be available for grant and distribution under the Plan as if no Award had
been granted with respect to such shares.
6.2 CAPITAL STRUCTURE ADJUSTMENTS. Except as otherwise provided
herein, appropriate and proportionate capital structure adjustments shall be
made in the number and class of shares subject to the Plan, to the Award
rights granted under the Plan, and the exercise price of such Award rights,
in the event of a stock dividend (but only on Common Stock), stock split,
reverse stock split, recapitalization, reorganization, merger,
consolidation, separation, or like change in the corporate or capital
structure of the Company. To the extent that the foregoing adjustments
relate to stock or securities of the company, such adjustments shall be made
by the Plan Administrator, the
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<PAGE>
determination of which in that respect shall be final, binding, and
conclusive, provided that each Incentive stock Option granted pursuant to
the Plan shall not be adjusted in a manner that causes it to fail to
continue to qualify as an incentive stock option within the meaning of
Section 422 of the Code.
7. TERMS AND CONDITIONS OF STOCK OPTIONS. Stock Options granted under the
Plan shall be evidenced by agreements (which need not be identical) in such form
and containing such provisions which are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may incorporate
all or any of the terms hereof by reference and shall comply with and be subject
to the following terms and conditions:
7.1 NUMBER OF SHARES SUBJECT TO STOCK OPTION. Each Stock Option
agreement shall specify the number of shares subject to the Stock Option.
7.2 STOCK OPTION PRICE. The purchase price for the shares subject to
any Stock Option shall be such amount as is determined by the Plan
Administrator, but not less than par value per share. Anything to the
contrary notwithstanding, the purchase price for the shares subject to any
Incentive Stock Option shall not be less than 100% of the Fair Market Value
of the shares of Common Stock of the Company on the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an employee who
owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its parent or subsidiary
corporations, the Stock Option price shall not be less than 110% of the Fair
Market Value of the shares of Common Stock of the Company on the date the
Stock Option is granted.
7.3 NOTICE AND PAYMENT. Any exercisable portion of a Stock Option may
be exercised only by delivery of a written notice to the Company, prior to
the time when the portion of such Stock Option becomes unexercisable under
Section 7.4, stating the number of shares being purchased and complying with
all applicable rules established by the Plan Administrator. Such notice
shall be accompanied by full payment in cash or by check for an amount equal
to the total Stock Option price for the number of shares being purchased,
plus the amount of tax required to be withheld (if any) by the Company or
any parent,or subsidiary corporation as a result of the exercise of a Stock
Option. At the discretion of the Plan Administrator, upon such terms as the
Plan Administrator shall approve, the Optionee may pay all or a portion of
the purchase price for the number of shares being purchased by tendering
shares of the Company's Common Stock owned by the Optionee, duly endorsed
for transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate purchase price of the shares with respect to
which such Stock Option corporation is thereby exercised. Notwithstanding
the foregoing, the Company may extend
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<PAGE>
and maintain, or arrange for the extension and maintenance of, credit to any
Optionee to finance the Optionee's purchase of shares pursuant to exercise
of any Stock Option, on such terms as may be approved by the Plan
Administrator, subject to applicable regulations of the Federal Reserve
Board and any other laws or regulations in effect at the time such credit is
extended. The Plan Administrator may, at any time and in its discretion,
authorize a cash payment, determined in accordance with Section 8.3(f),
which shall not exceed the amount required to pay in full the federal, state
and local tax consequences of an exercise of any Stock Option granted under
the Plan.
7.4 TERM OF STOCK OPTION. No Stock Option shall be exercisable after
the expiration of the earliest of (a) ten years after the date the Stock
Option is granted, (b) three months after the date the Optionee's employment
with the Company and its subsidiaries terminates if such termination is for
any reason other than permanent disability, death, or cause, (c) the date
the Optionee's employment with the Company and its subsidiaries terminates
if such termination is for cause, as determined by the Plan Administrator,
in its sole discretion, or (d) one year after the date the Optionee's
employment with the Company and its subsidiaries terminates if such
termination is a result of death or permanent disability; provided, however,
that the Stock Option agreement for any Stock Option may provide for shorter
periods in each of the foregoing instances. In the case of an Incentive
Stock Option granted to an employee who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or
any of its parent or subsidiary corporations, the term set forth in (a),
above, shall not be more than five years after the date the Stock Option is
granted. For the purposes of this Section 7.4, "permanent disability" shall
mean a disability of the type defined in section 22(e)(3) of the Code.
7.5 EXERCISE OF STOCK OPTION. No Stock Option shall be exercisable
during the lifetime of an Optionee by any person other than the Optionee or
at any time prior to six months from the date the Stock Option is granted.
Subject to the foregoing, the Plan Administrator shall have the power to set
the time or times within which each Stock Option shall be exercisable and to
accelerate the time or times of exercise; provided, however, that if any
Stock Option is exercised prior to six months from the date of grant, the
shares of Common Stock received upon such exercise may not be sold prior to
six months from the date of grant. Unless otherwise provided by the Plan
Administrator, each Stock Option granted under the Plan shall become
exercisable on a cumulative basis as to one-third (1/3) of the total number
of shares covered thereby at any time after two years from the date the
Stock Option is granted and an additional one-third (1/3) of such total
number of shares at any time after the end of each consecutive one-year
period thereafter until the stock Option has become exercisable as to all of
such total number of shares. To the
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extent that an Optionee has the right to exercise a Stock Option and
purchase shares pursuant thereto, the Stock Option may be exercised from
time to time by written notice to the Company, stating the number of shares
being purchased and accompanied by payment full of the purchase price for
such shares.
7.6 NO TRANSFER OF STOCK OPTION. No Stock Option shall be transferable
by an Optionee otherwise than by will or the laws of descent and
distribution.
7.7 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market Value
(determined at the time the Stock Option is granted) of the stock with
respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year (under all Incentive Stock Option
plans of the Company and any parent or subsidiary corporations) shall not
exceed $100,000. To the extent that the aggregate Fair Market Value
(determined at the time the Stock Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the first
time by an Optionee during any calendar year (under all Incentive Stock
Option plans of the Company and any parent or subsidiary corporations)
exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock
Options. The determination of which Stock Options shall be treated as
Non-Qualified Stock Options shall be made by taking Stock Options into
account in the order in which they were granted."
7.8 NO FRACTIONAL SHARES. In no event shall the Company be required to
issue fractional shares upon the exercise of a Stock Option.
7.9 EXERCISABILITY IN THE EVENT OF DEATH. In the event of the death of
the Optionee, any Stock Option or unexercised portion thereof granted to the
Optionee, to the extent exercisable by him or her on the date of death, may
be exercised by the Optionee's personal representatives, heirs, or legatees
subject to the provisions of Section 7.4 hereof.
7.10 MODIFICATION, EXTENSION, AND RENEWAL OF STOCK OPTIONS. Subject to
the terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Stock Options granted
under the Plan, accept the surrender of outstanding Stock Options (to the
extent not theretofore exercised) and authorize the granting of new Stock
Options in substitution therefor (to the extent not theretofore exercised).
The Plan Administrator may modify any outstanding Stock Options so as to
specify a lower exercise price or accept the surrender of outstanding Stock
Options and authorize the grant of new Stock Options in substitution
therefor specifying a lower price. The Plan Administrator shall not,
however, without the consent of the Optionee, modify any outstanding
Incentive Stock Option in any manner which would cause the Stock Option not
to
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qualify as an Incentive Stock Option within the meaning of Section 422 of
the Code. Notwithstanding the foregoing, no modification of a Stock Option
shall, without the consent of the Optionee, alter or impair any rights of
the Optionee under the Stock Option.
7.11 OTHER PROVISIONS. Each Stock Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be
determined by the Plan Administrator.
8. STOCK APPRECIATION RIGHTS.
8.1 GENERAL. A Stock Appreciation Right is a grant entitling the
recipient to receive an amount in cash or shares of the Common Stock of the
Company or a combination thereof having a value equal to (or if the Plan
Administrator shall so determine at time of grant, less than) the excess of
the Fair Market Value of a share on the date of exercise over the Fair
Market Value of a share on the date of grant (or over the Stock Option
exercise price, if the Stock Appreciation Rights are granted in tandem with
a Stock Option) multiplied by the number of shares with respect to which the
Stock Appreciation Rights shall have been exercised, with the Plan
Administrator having the sole discretion to determine the form of payment.
In any event, cash shall be paid in lieu of fractional shares.
8.2 GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
tandem with the grant of any Stock Option or independent of any Stock Option
granted under the Plan. In the case of a tandem grant with a Non-Qualified
Stock Option, such Stock Appreciation Rights may be granted either at or
after the grant of such Non-Qualified Stock Option. In the case of a tandem
grant with an Incentive Stock Option, Stock Appreciation Rights may be
granted only at the time of the grant of such Incentive Stock Option. Stock
Appreciation Rights or any applicable portion thereof granted in tandem with
a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Plan Administrator at the time of grant, a right
granted with respect to less than the full number of shares covered by a
related tandem Stock Option shall be reduced only if and to the extent that
the number of shares covered by the exercise or termination of the related
tandem Stock Option exceeds the number of shares not covered by the Stock
Appreciation Rights.
8.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be subject to the following terms and conditions
and to such other terms and conditions not inconsistent with the Plan as the
Plan Administrator may from time to time determine:
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(a) No Stock Appreciation Rights shall be exercisable in whole or in
part during the first six months of the grant term.
(b) Stock Appreciation Rights granted in tandem with a Stock Option
shall be exercisable by the Optionee (or such other person entitled under
the Plan to exercise the Stock Option contained in the tandem grant) only
at such time or times, and to the extent, that the related tandem Stock
Option is exercisable and only when the Fair Market Value of the stock
subject to the tandem Stock Option exceeds the exercise price of such
Stock Option. Upon the exercise of Stock Appreciation Rights, the
applicable portion of any related tandem Stock Option shall be
surrendered. Stock Appreciation Rights granted independent of any Stock
Option shall be exercisable by the holder in such manner and within such
period or periods as shall be determined by the Plan Administrator
pursuant to the terms of the Stock Appreciation Rights agreement
evidencing the grant.
(c) Stock Appreciation Rights granted in tandem with a Stock Option
shall be transferable only with such Stock Option. Stock Appreciation
Rights shall not be transferable otherwise than by will or the laws of
descent and distribution. All Stock Appreciation Rights shall be
exercisable during the holder's lifetime only by the holder or the
holder's legal representative or guardian.
(d) In its sole discretion, the Plan Administrator may provide at the
time of grant, that Stock Appreciation Rights can be exercised only in
the event of a "Change of Control" or "Potential Change of Control" (as
defined in Section 19 below).
(e) The Plan Administrator, in its sole discretion, may also provide
that in event of a "Change of Control" or "Potential Change of Control"
(as defined in Section 19 below) the amount to be paid upon the exercise
of a stock appreciation right shall be based on the "Change of Control
Price" (as defined in Section 19 below).
(f) The Plan Administrator may, at any time and in its discretion,
authorize a cash payment in respect of a grant or exercise under the Plan
which shall not exceed the amount required to pay in full the federal,
state and local tax consequences of an exercise of any Award granted
under this Plan. The Plan Administrator shall have sole and complete
authority to decide whether to make such cash payments in any case, to
make provision for such payments either simultaneously with or after any
grant, and to determine the amount of any such payment.
8.4 RULES RELATING TO EXERCISE. In the case of a holder subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended from time
to time, no Stock Appreciation Rights
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shall be exercised except in compliance with any applicable requirements of
Rule 16b-3(e) promulgated by the Securities and Exchange Commission or any
successor rule. The Plan Administrator may impose such conditions on the
exercise of Stock Appreciation Rights (including, without limitation, to
limit the time of exercise to specified window periods following the release
of quarterly and annual statements of sales and earnings or to fixed dates
that are outside the control of the Stock Appreciation Rights holder) as may
be required to satisfy the requirements of Rule 16b-3 or any successor rule.
9. RESTRICTED STOCK.
9.1 GENERAL. A Restricted Stock Award is an Award entitling the
recipient to acquire shares of Common Stock, subject to such conditions,
including the right of the Company during a specified period or periods to
repurchase such shares at their original price or to require forfeiture of
such shares (if no cash consideration was paid) upon the participant's
termination of employment, as the Plan Administrator may determine at the
time of grant. The Plan Administrator may award shares of Restricted Stock
(i) at no cost to the recipient (or for a purchase price not in excess of
the par value of the shares) or (ii) for a purchase price determined by the
Plan Administrator on the date of grant. Shares of Restricted Stock may be
granted or sold in respect of past services or other valid consideration.
9.2 AWARD AGREEMENT AND CERTIFICATES. A participant who is granted a
Restricted Stock Award shall have no rights with respect to such Award
unless the participant shall have accepted the Award within sixty days (or
such shorter period as the Plan Administrator may specify) following the
Award date by executing and delivering to the Company a Restricted Stock
Award agreement in such form as the Plan Administrator shall determine and
by making payment to the Company by certified or bank check or instrument
acceptable to the Plan Administrator any cash consideration required to be
paid in connection with such Restricted Stock Award. Each participant
receiving a Restricted Stock Award shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be registered in
the name of the participant and deposited with the Company or its designee,
and shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Award, substantially in the following form:
"This certificate and the shares of stock represented
hereby are subject to the terms and conditions (including
forfeiture and restrictions against transfer) contained in
the Educational Insights, Inc. Stock Awards Plan and an
agreement entered into between the registered owner and
Educational Insights,
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Inc. Release from such terms and conditions shall be
obtained only in accordance with the provisions of the
Plan and the agreement, copies of which are on file in the
office of the Secretary of Educational Insights, Inc."
The Plan Administrator may require that, as a condition of any Restricted
Stock Award, the participant shall have delivered to the Company a stock
power, endorsed in blank, relating to the Stock covered by such Award.
9.3 RIGHTS AS A SHAREHOLDER. Upon complying with Section 9.2 above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions, Company repurchase or forfeiture rights
and any other condition described in this Section 9 or contained in the
Restricted Stock Award agreement. The Restricted Stock Award agreement may
require or permit the immediate payment, waiver, deferral, or investment of
dividends paid on the Restricted Stock.
9.4 RESTRICTIONS. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged, or otherwise encumbered or disposed of
except as specifically provided herein and in the Restricted Stock Award
agreement. Unless the Plan Administrator in its discretion provides
otherwise, all shares of Restricted Stock shall be subject to the
restrictions against transfer and to the Company's right to repurchase or
require forfeiture set forth in this Section 9.4 for a period of six months
from the date of grant.
The Plan Administrator shall specify the date or dates (which may depend
upon or be related to the attainment of performance goals or such other
factors or criteria as the Plan Administrator shall determine) on which the
non-transferability of the Restricted Stock and the obligation to forfeit or
resell such shares to the Company shall lapse. The Plan Administrator may
provide for the lapse of such restrictions in installments and at any time
may accelerate such date or dates and otherwise waive or, subject to Section
15 below, amend any terms and conditions of the Award.
Except as otherwise may be provided in the Award agreement or determined
by the Plan Administrator at any time after the date of grant, in the event
of termination of employment of a participant with the Company and its
subsidiaries for any reason (including death), the participant or the
participant's legal representative shall resell to the Company, at the cash
consideration paid therefor, all Restricted Stock, and the Company shall
purchase such shares at that price, or if no cash consideration was paid,
all shares of Restricted Stock awarded to the participant shall
automatically be forfeited to the Company.
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Only shares of Stock or other securities of the Company or any other
entity which are issued as a distribution on, or in exchange for, Restricted
Stock or into which Restricted Stock is converted as a result of a
recapitalization, stock dividend, distribution of securities, stock split or
combination of shares or a merger, consolidation or sale of substantially
all of the assets of the Company shall be subject to the restrictions set
forth in the Restricted Stock Award agreement, which shall inure to the
benefit of any surviving or successor corporation which is the issuer of
such securities. Upon the lapse of the restrictions applicable to a
participant's Restricted Stock, certificates for shares of Stock free of any
restrictive legend shall bp delivered to the participant or his legal
representative or guardian.
9.5 SECTION 83(b) ELECTION. Any Restricted Stock Award agreement may
provide that the participant may not elect to be taxed with respect to such
Award in accordance with Section 83(b) of the Code.
10. UNRESTRICTED STOCK. The Plan Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Plan
Administrator at the time of sale) to any participant shares of Common Stock
free of restrictions under the Plan ("Unrestricted Stock"). Shares of
Unrestricted Stock may be granted or sold as described in the preceding sentence
in respect of past services or other valid consideration. Any purchase of
Unrestricted Stock by a recipient must take place within sixty days after the
time of grant of the right to purchase such shares. Notwithstanding the
foregoing, any shares of Unrestricted Stock granted to a participant subject to
Section 16(b) of the Act may not be sold or otherwise disposed of for value for
a period of six months from the date of grant.
11. DEFERRED STOCK AWARDS.
11.1 GENERAL. A Deferred Stock Award is an Award entitling the
recipient to acquire shares of Common Stock without payment in one or more
installments at a future date or dates, all as determined by the Plan
Administrator. The Plan Administrator may also condition such acquisition on
the attainment of specified performance goals or such other factors or
criteria as the Plan Administrator shall determine. Unless the Plan
Administrator in its discretion provides otherwise, the deferral with
respect to any Deferred Stock Award shall be no less than six months from
the date of grant.
11.2 AWARD AGREEMENT. A participant who is granted a Deferred Stock
Award shall have no rights with respect to such Award unless within sixty
days of the grant of such Award (or such shorter period as the Plan
Administrator may specify) the
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participant shall have accepted the Award by executing and delivering to the
Company a Deferred Stock Award agreement.
11.3 ELECTIVE DEFERRAL. A participant may elect to further defer
receipt of the Common Stock payable under a Deferred Stock Award (or an
installment of the Award) for a specified period or until a specified event,
subject in each case to the Plan Administrator's approval and under such
terms as determined by the Plan Administrator. Subject to any exceptions
adopted by the Plan Administrator, such election must generally be made at
least 12 months prior to completion of the deferral period for the Award (or
for such installment of the Award).
11.4 TERMINATION. Except as may otherwise be provided in the Deferred
Stock Award agreement, a participant's rights in all Deferred Stock Awards
shall automatically terminate upon the participant's termination of
employment with the Company and its Subsidiaries for any reason (including
death). At any time prior to the participant's termination of employment,
the Plan Administrator may in its discretion accelerate, waive, or, subject
to Section 15 below, amend any or all of the restrictions or conditions
imposed under any Deferred Stock Award.
11.5 PAYMENTS IN RESPECT OF DEFERRED STOCK. Without limiting the right
of the Plan Administrator to specify different terms, the Deferred Stock
Award agreement may either make no provisions for, or may require or permit
the immediate payment, deferral, or investment of amounts equal to, or less
than, any cash dividends which would have been payable on the Deferred Stock
had such Stock been outstanding, all as determined by the Plan Administrator
in its sole discretion.
12. PERFORMANCE UNIT AWARDS.
12.1 GENERAL. A Performance Unit Award is an Award entitling the
recipient to acquire cash or shares of Common stock, or a combination of
cash and Common Stock, upon the attainment of specified performance goals.
The Plan Administrator in its sole discretion shall determine whether and to
whom Performance Unit Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be
measured, and all other limitations and conditions applicable to the
Performance Unit Award. Notwithstanding the foregoing, no Performance Unit
Award shall be exercisable in whole or in part during the first six months
following the date of grant. Performance goals may vary from participant to
participant and between groups of participants and shall be based upon such
Company, business unit or individual performance factors or criteria as the
Plan Administrator may deed appropriate. Performance periods may overlap and
participants may participate simultaneously with respect to Performance Unit
Awards that are subject to different performance periods and different
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performance goals. The Plan Administrator may adjust the performance goals
and periods applicable to a performance Unit Award to take into account
changes in law and accounting and tax rules, and to make such adjustments as
the Plan Administrator deems necessary or appropriate to reflect the
inclusion or exclusion of the impact of extraordinary or unusual items,
events or circumstances in order to avoid windfalls or hardships.
Performance Units may be awarded independent of or in connection with the
grant of any other Award under the Plan.
12.2 AWARD AGREEMENT. A participant shall have no rights with respect
to a Performance Unit Award unless within sixty days of the grant of such
Award (or such shorter period as the Plan Administrator may specify) the
participant shall have accepted the Award by executing and delivering to the
Company a Performance Unit Award agreement.
12.3 TERMINATION. Except as may otherwise be provided by the Plan
Administrator at any time prior to the termination of employment, a
participant's rights and all Performance Unit Awards shall automatically
terminate upon the participant's termination of employment by the Company
and its Subsidiaries for any reason (including death).
12.4 ACCELERATION; WAIVER. At any time prior to the participant's
termination of employment with the Company and its Subsidiaries, the Plan
Administrator may in its sole discretion accelerate, waive, or, subject to
Section 15 below, amend any or all of the goals, restrictions or conditions
imposed under any Performance Unit Award.
12.5 EXERCISE. The Plan Administrator in its sole discretion shall
establish procedures to be followed in exercising any Performance Unit
Award, which procedure shall be set forth in the Performance Unit Award
agreement. The Plan Administrator may at any time provide that payment under
a Performance Unit Award shall be made, upon satisfaction of the applicable
performance goals, without any exercise by the participant. Except as
otherwise specified by the Plan Administrator, (i) a Performance Unit
granted in tandem with a Stock Option is exercisable, and (ii) the exercise
of a performance Unit granted in tandem with any Award shall reduce the
number of shares of Common Stock subject to the related Award on such basis
as is specified in the Performance Unit Award agreement.
13. OTHER STOCK-BASED AWARDS.
13.1 GENERAL. The plan Administrator may grant other Awards under
which Common Stock is or may in the future be acquired ("Other Stock-Based
Awards"). Such Awards may include, without limitation, debt securities
convertible into or exchangeable for shares of Common Stock upon such
conditions,
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including attainment of performance goals, as the Plan Administrator shall
determine. No Other Stock-Based Award shall be exercisable in whole or in
part during the first six months following the date of grant or, if shares
of Common Stock are awarded to a participant on the date of grant, such
Stock shall be subject to restrictions against transfer for a period of no
less than six months from the date of grant. Subject to the purchase price
limitations in Section 13.2 below, such convertible or exchangeable
securities may have such terms and conditions as the Plan Administrator may
determine at the time of grant. However, no convertible or exchangeable debt
shall be issued unless the Plan Administrator shall have provided (by the
Company's right of repurchase, right to require conversion or exchange, or
other means deemed appropriate by the Plan Administrator) a means of
avoiding any right of the holders of such debt to prevent a Company
transaction by reason of covenants in such debt.
13.2 PURCHASE PRICE; FORM OF PAYMENT. The Plan Administrator may
determine the consideration, if any, payable upon the issuance or exercise
of an Other Stock-Based Award. However, no shares of Common Stock (whether
acquired by purchase, conversion, or exchange or otherwise) shall be issued
unless (i) issued at no cost to the recipient (or for a purchase price not
in excess of the par value of the shares), or (ii) sold, exchanged, or
converted by the Company, and the Company shall have received payment for
such Stock or securities so sold, exchanged, or converted equal to at least
50% of Fair Market Value of the Stock on the grant or effective date, or the
exchange or conversion date, under the Award, as specified by the Plan
Administrator. The Plan Administrator may permit payment by certified check
or bank check or other instrument acceptable to the Plan Administrator or by
surrender of other shares of Common stock (excluding shares then subject to
restrictions under the Plan).
13.3 FORFEITURE OF AWARDS; REPURCHASE OF STOCK; ACCELERATION OF WAIVER
OF RESTRICTIONS. The plan Administrator may determine the conditions under
which an Other Stock-Based Award shall be forfeited or, in the case of an
Award involving a payment by the recipient, the conditions under which the
Company may or must repurchase such Award or related Stock. At any time the
Plan Administrator may in its sole discretion accelerate, waive, or, subject
to Section 15 below, amend any or all of the limitations or conditions
imposed under any Other Stock-Based Award.
13.4 AWARD AGREEMENTS. A participant shall have no rights with respect
to any Other Stock-Based Award unless within sixty days after the grant of
such Award (or such shorter period as the Plan Administrator may specify)
the participant shall have accepted the Award by executing and delivering to
the Company an Other Stock-Based Award agreement.
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13.5 DEEMED DIVIDEND PAYMENTS; DEFERRALS. Without limiting the right
of the Plan Administrator to specify different terms, an Other Stock-Based
Award agreement may require or permit the immediate payment, waiver,
deferral, or investment of dividends or deemed dividends payable or deemed
payable on Stock subject to the Award.
14. SUPPLEMENTAL GRANTS.
14.1 LOANS. The Company may extend and maintain, or arrange for the
extension and maintenance of, credit to any Award recipient to finance the
participant's purchase of shares pursuant to the exercise of any Award, on
such terms as may be approved by the Plan Administrator, subject to
applicable regulations of the Federal Reserve Board and any other laws or
regulations in effect at the time such credit is extended, either on or
after the date of grant of such Award. Such loans may be either in
connection with the grant or exercise of any Award, or in connection with
the payment of any federal, state and local income taxes in respect of
income recognized under an Award. The Plan Administrator shall have full
authority to decide whether to make a loan hereunder and to determine the
amount, term, and provisions of any such loan, including the interest rate
(which may be zero) charged in respect of any such loan, whether the loan is
to be secured or unsecured, the terms on which the loan is to be repaid and
the conditions, if any, under which it may be forgiven. However, no loan
hereunder shall provide or reimburse to the borrower the amount used by him
for the payment of the par value of any shares of Stock issued, have a term
(including extensions) exceeding ten years in duration, or be an amount
exceeding the total exercise or purchase price paid by the borrower under an
Award or for related Stock under the Plan plus an amount equal to the cash
payment permitted in Section 14.2 below.
14.2 CASH PAYMENTS. The plan Administrator may, at any time and in its
discretion, authorize a cash payment, in respect of the grant or exercise of
an Award under the Plan or the lapse or waiver of restrictions under an
Award, which shall not exceed the amount which would be required in order to
pay in full the federal, state and local income taxes due as a result of
income recognized by the recipient as a consequence of (i) the receipt of an
Award or the exercise of rights thereunder and (ii) the receipt of such cash
payment. The Plan Administrator shall have complete authority to decide
whether to make such cash payments in any case, to make provisions for such
payments either simultaneously with or after the grant of the associated
Award, and to determine the amount of any such payment.
15. TERMINATION OR AMENDMENT OF THE PLAN. The Board may at any time
terminate or amend the Plan; provided that, without approval of the shareholders
of the Company, there shall be, except by operation of the provisions of Section
6.2, no increase in the
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total number of shares covered by the Plan, no change in the class of persons
eligible to receive Awards granted under the Plan or other material modification
of the requirements as to eligibility for participation in the Plan, no material
increase in the benefits accruing to participants under the Plan, no reduction
in the exercise price of Awards granted under the Plan, and no extension of the
latest date upon which Awards may be exercised; and provided further that,
without the consent of the Award recipient, no amendment may adversely affect
any then outstanding Awards or any unexercised portion thereof.
16. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or the Compensation Committee, the
members of the Plan Administrator connection with the defense of any action,
suit, or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any grant thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit, or
proceeding that such member is liable for negligence or misconduct in the
performance of his duties, provided that within 60 days after institution of any
such action, suit, or proceeding, the member shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same.
17. WITHHOLDING. Whenever the Company proposes or is required to issue or
transfer shares under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares of Common Stock. If a participant
surrenders shares acquired pursuant to the exercise of an Incentive Stock Option
in payment of the exercise price of an Award and such surrender constitutes a
disqualifying disposition for purposes of obtaining Incentive Stock Option
treatment under the Code, the Company shall have the right to require the
Optionee to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Whenever under the Plan payments
are to be made in cash, such payments shall be net of an amount sufficient to
satisfy any federal, state and local withholding tax requirements. A recipient
may elect with respect to any Award which is paid in whole or in part in shares
of Common Stock, to surrender previously acquired shares of Common Stock or
authorize the Company to withhold shares (valued at Fair Market Value on the
date of surrender or withholding of the shares) in satisfaction of all such
withholding
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requirements (the "Share Surrender Withholding Election") in accordance with the
following:
17.1 IRREVOCABLE ELECTION. Any Share Surrender Withholding Election
shall be made by written notice to the Company and thereafter shall be
irrevocable by the recipient.
17.2 APPROVAL BY PLAN ADMINISTRATOR. If a recipient is subject to
Section 16 of the Securities Exchange Act of 1934, as amended, or any
successor law, any Share Surrender Withholding Election shall be subject to
the consent or disapproval of the Plan Administrator in accordance with
rules established from time to time by the Plan Administrator.
17.3 TIMING OF ELECTION. Any Share Surrender Withholding Election must
be made prior to the date on which the recipient recognizes taxable income
with respect to the receipt of such shares (the "Tax Date").
17.4 WINDOW PERIOD. If a recipient is subject to Section 16 of the
Securities Exchange Act of 1934, as amended, or any successor law, such
person must make any Share Surrender Withholding Election:
(a) more than six months after the date of grant with respect to
which such election is made (except whenever such election is made by a
Disabled recipient or the estate or personal representative of a deceased
recipient); and
(b) either at least six months prior to the Tax Date or during the
period of ten business days beginning on the third business day following
the release for publication of the Company's summary statement of sales
and earnings for a quarter or fiscal year.
17.5 TIMING OF DELIVERY. When the Tax Date falls after the exercise of
an Award and the recipient makes a Share Surrender Withholding Election, the
full number of shares subject to the Award being exercised will be issued,
but the recipient will be unconditionally obligated to deliver to the
Company on the Tax Date the number of shares having a value on the Tax Date
equal to the recipient's federal, state and local withholding tax
requirements.
17.6 TERMS IN AGREEMENT. For purposes of this Section 15, the Plan
Administrator shall have the discretion to provide (by general rule or a
provision in the specific Award agreement) that, at the election of the
recipient, "federal, state and local withholding tax requirements" shall be
deemed to be any amount designated by the recipient which does not exceed
his estimated federal, state and local tax obligations associated with the
transaction, including FICA taxes to the extent applicable.
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18. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a participant by the Company, nothing set forth herein
shall give any such participant any rights that are greater than those of a
general unsecured creditor of the Company. In its sole discretion, the Plan
Administrator may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver shares or cash with respect to
the exercise of Awards hereunder, provided, however, that the existence of such
trusts or other arrangements is consistent with the unfunded status of the Plan.
19. CHANGE OF CONTROL. The following acceleration and valuation provisions
shall apply in the event of a "Change of Control" or "Potential Change of
Control", as defined in this Section 19:
19.1 ACCELERATION OF VESTING AND EXERCISE. In the event of a "Change
of Control," as defined in Section 19.2, unless otherwise determined by the
Plan Administrator in writing at or after grant, but prior to the occurrence
of such Change of Control, or, if and to the extent so determined by the
Plan Administrator in writing at or after grant (subject to any right of
approval expressly reserved by the Plan Administrator at the time of such
determination) in the event of a "Potential Change of Control," as defined
in Section 19.3:
(a) any Stock Appreciation Rights outstanding for at least 6 months
and any Stock Options or Other Stock-Based Awards under the Plan not
previously exercisable, vested or convertible shall become fully
exercisable, vested or convertible;
(b) the restrictions and deferral limitations applicable to any
Restricted Stock Awards or Deferred Stock Awards under the Plan shall
lapse and such Awards shall be deemed fully vested;
(c) the value of all outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Deferred Stock Awards and Other
Stock-Based Awards shall, to the extent determined by the Plan
Administrator at or after grant, be cashed out on the basis of the
"Change of Control Price" (as defined in Section 19.4) as of the date the
Change of Control occurs or Potential Change of Control is determined to
have occurred, or such other date as the Plan Administrator may determine
prior to the Change of Control or Potential Change of Control.
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19.2 DEFINITION OF CHANGE OF CONTROL. For purposes of Section 19.1, a
"Change of Control" means the happening of any of the following:
(a) when any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (other than the
Company or a Subsidiary or any Company employee benefit plan (including
its trustee)), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended), directly or
indirectly of securities of the Company representing 20 percent or more
of the combined voting power of the Company's then outstanding
securities;
(b) the occurrence of any transaction or event relating to the
Company required to be described pursuant to the requirements of Item
5(f) of Schedule 14A of Regulation 14A of the Commission under the
Securities Exchange Act of 1934, as amended;
(c) when, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such
period, constitute the Board cease, for any reason other than death, to
constitute at least a majority thereof, unless each director who was not
a director at the beginning of such period was elected by, or on the
recommendation of, at least two-thirds of the directors at the beginning
of such period; or
(d) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Company by an entity other than the Company or
a subsidiary through purchase of assets, or by merger, or otherwise.
19.3 DEFINITION OF POTENTIAL CHANGE OF CONTROL. For purposes of
Section 19.1 a "Potential Change of Control" means the happening of any of
the following:
(a) the entering into an agreement by the Company, the consummation
of which would result in a Change of Control of the Company as defined in
Section 19.2; or
(b) the acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group (other than the Company or a Subsidiary or
any Company employee benefit plan (including its trustee)) of securities
of the Company representing 5 percent or more of the combined voting
power of the Company's outstanding securities and the adoption of the
Board of Directors of a resolution to the effect that a Potential Change
of Control of the Company has occurred for purposes of this Plan.
19.4 DEFINITION OF CHANGE OF CONTROL PRICE. For purposes of this
Section 19, "Change of Control Price" means the highest price per share paid
in any transaction reported on any established stock exchange or reported
over the counter market, or paid or
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offered in any transaction related to a potential or actual Change of
Control of the Company at any time during the preceding sixty day period as
determined by the Plan Administrator, except that in the case of Incentive
Stock Options and Stock Appreciation Rights relating to Incentive Stock
Options, such price shall be based only on transactions reported for the
date on which the Plan Administrator decides to cash out such Stock Options.
19.5 EXCEPTIONS. Anything to the contrary notwithstanding, any
transaction involving the spin-off of the company and any public offering of
shares of the Company that results in raising capital for the Company shall
be excluded from the events and transactions specified in Sections 19.2 and
19.3.
20. GENERAL PROVISIONS.
20.1 RESTRICTIONS ON ISSUANCE OF SHARES. The issuance of Awards and
shares of Common Stock shall be subject to compliance with all of the
applicable requirements of law with respect to the issuance and sale of
securities, including, without limitation, any required qualification under
the California Corporate Securities Law of 1968, as amended. If a
participant acquires shares of Common Stock pursuant to the exercise of an
Award, the Plan Administrator, in its sole discretion, may require as a
condition of issuance of shares covered by his or her Award, to represent
that the shares to be acquired pursuant to exercise of the Award will be
acquired for investment and without a view to distribution thereof; and in
such case, the Company may place a legend on the certificate evidencing the
shares reflecting the fact that they were acquired for investment and cannot
be sold or transferred unless registered under the Securities Act of 1933,
as amended, or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such registration. The
Company may place a legend on the certificates evidencing the shares
reflecting the fact that they are subject to restrictions on transfer under
the terms of this Section 20.1. In addition, any participant may be required
to execute a buy-sell or right of first refusal agreement in favor of the
Company or its designee with respect to all or any of the shares so
acquired. In such event, the terms of such agreement shall apply to such
shares.
20.2 RIGHTS AS A SHAREHOLDER OR EMPLOYEE. A participant or transferee
of an Award shall have no right as a shareholder of the Company with respect
to any shares covered by any grant under this Plan until the date of the
issuance of a share certificate for such shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether cash, securities, or other
property) or distributions or other rights for which the record date is
prior to the date such share certificate is issued, except as provided in
Section 6.2. Nothing in the Plan or in any Award agreement shall confer upon
any participant any right to continue in the employ of the Company or
22
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any of its subsidiaries or interfere in any way with any right of the
Company or any subsidiary to terminate the participant's employment at any
time.
20.3 GOVERNING LAW. This plan shall be governed by, and construed in
accordance with, the laws of the state of California.
21. EFFECTIVE DATE OF PLAN. The plan shall be adopted and become effective
on the date of execution specified below subject, however, to the approval of
the Plan by the shareholders of the Company within twelve months of the
Effective Date. Unless shareholder approval is obtained within twelve months of
the Effective Date, this Plan and any Awards hereunder shall become void.
22. TERM OF PLAN. Unless sooner terminated by the Board in its sole
discretion, the Plan will expire and no Awards may be made hereunder on and
after the earlier of the tenth anniversary of the effective date determined in
Section 21 or July 1, 2003.
23
<PAGE>
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EDUCATIONAL INSIGHTS, INC.
16941 KEEGAN AVENUE
CARSON, CALIFORNIA 90746
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTOR'S
The undersigned hereby appoints Burton Cutler and Theodore J. Eischeid as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them or either of them to represent and to vote as designated below, all the
shares of common stock of Educational Insights, Inc. held of record by the
undersigned on May 7, 1999, at the Annual Meeting of Shareholders to be held
on June 25, 1999, or any adjournment thereof.
PLEASE READ, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
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<PAGE>
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/X/ PLEASE MARK YOUR
VOTES AS INDICATED
IN THIS EXAMPLE
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
1. ELECTION OF / / / /
DIRECTORS
(INSTRUCTION: TO WITHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE MARK THE BOX NEXT TO THE
NOMINEE'S NAME BELOW):
/ / Burton Cutler / / Gerald Bronstein
/ / Jay Cutler / / Courtney V. Moe
/ / Theodore J. Eischeid
FOR AGAINST ABSTAIN
/ / / / / /
2. AMENDMENT TO
STOCK AWARDS PLAN
FOR AGAINST ABSTAIN
/ / / / / /
3. RATIFICATION OF SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
4. In their discretion, the Proxies are
authorized to vote upon such other
business as may properly come before
the meeting.
Dated: , 1999
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Signature Signature, if held jointly
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
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