<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
MessageMedia, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(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> 2
MESSAGEMEDIA, INC.
6685 GUNPARK DRIVE EAST, SUITE 240
BOULDER, COLORADO 80301
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1999
TO THE STOCKHOLDERS OF MESSAGEMEDIA, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of
MESSAGEMEDIA, INC., a Delaware corporation (the "Company"), will be held on May
28, 1999 at 10:00 a.m. local time at The Hotel Boulderado, 2115 13th Street,
Boulder, Colorado for the following purpose:
1. To elect nine directors to serve for the ensuing year and until their
successors are elected.
2. To approve an amendment to the Company's 1995 Stock Plan to increase the
aggregate number of shares of Common Stock authorized for issuance under
such plan from 6,000,000 to 7,000,000.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 20, 1999,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Lewis H. Silverberg
Lewis H. Silverberg
Secretary
Boulder, Colorado
April 28, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
MESSAGEMEDIA, INC.
6685 GUNPARK DRIVE EAST, SUITE 240
BOULDER, COLORADO 80301
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
MessageMedia, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Friday, May 28, 1999, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at The Hotel Boulderado, 2115
13th Street, Boulder, Colorado. The Company intends to mail this Proxy Statement
and accompanying proxy card on or about April 28, 1999, to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of the Company's Common Stock at the close of
business on April 20, 1999, the record date, will be entitled to notice of and
to vote at the Annual Meeting. The required quorum for the transaction of
business at the Annual Meeting is a majority of the shares of Common Stock
issued and outstanding on the record date. At the close of business on April 20,
1999, 43,796,108 shares of the Company's Common Stock were issued and
outstanding.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive
<PAGE> 4
office, 6685 Gunpark Drive East, Suite 240, Boulder, Colorado 80301, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 30, 1999.
PROPOSAL 1
ELECTION OF DIRECTORS
There are nine nominees for the nine Board positions presently authorized
in the Company's Bylaws. Each director to be elected will hold office until the
next Annual Meeting of Stockholders and until his or her successor is elected
and has qualified, or until such director's earlier death, resignation or
removal. Each nominee listed below is currently a director of the Company, five
directors having been elected by the stockholders and four directors, Dennis J.
Cagan, R. Terry Duryea, A. Laurence Jones and Gerald A. Poch, having been
elected by the Board.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the nine nominees named below, subject to
the discretionary power to cumulate votes. In the event that any nominee should
be unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
The nine candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
A. Laurence Jones................... 46 President and Chief Executive Officer
Bradley A. Feld..................... 33 Co-Chairman of the Board of the Company
Gerald A. Poch...................... 52 Co-Chairman of the Board of the Company
Dennis J. Cagan..................... 54 Director
R. Terry Duryea..................... 52 Director
Ronald D. Fisher.................... 51 Director
Pamela H. Patsley................... 42 Director
Gary E. Rieschel.................... 42 Director
Lee H. Stein........................ 45 Director
</TABLE>
Mr. Jones became President of the Company in March 1999 and Chief Executive
Officer and a director in April 1999. Prior to joining the Company, Mr. Jones
served as an Operating Affiliate of McCown De Leeuw & Co., a private equity
firm, from January 1998 to February 1999. From 1993 to January 1998, Mr. Jones
served as President and Chief Executive Officer of Neodata Services, Inc., a
publicly traded direct marketing company. Mr. Jones serves as a director of
Exabyte and CCI/Triad.
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<PAGE> 5
Mr. Feld became Co-Chairman of the Board in June 1998. Mr. Feld is a
Managing Director of SOFTBANK Technology Ventures, a venture capital company.
Prior to joining SOFTBANK Technology Ventures in June 1996, he founded Intensity
Ventures in 1995, a privately held company that helps launch and operate
software companies and which was a venture affiliate of SOFTBANK Technology
Ventures. From November 1993 to July 1995, Mr. Feld served as Chief Technology
Officer of AmeriData Technologies, Inc., a Delaware corporation, after it
acquired Feld Technologies, which Mr. Feld founded in 1988 and had developed
into a software consulting firm. Mr. Feld serves as Chairman of the Board of
Channelware, Intensity Ventures and Intensity Channels and Co-Chairman of the
Board of Sage Networks.
Mr. Poch became a director of the Company in March 1999 and Co-Chairman of
the Board in April 1999. Mr. Poch is Principal of Pequot Capital Management and
joined the Pequot family of funds in 1998. Mr. Poch served as the Chairman,
President and Chief Executive Officer of GE Capital Information Technology
Solutions from August 1996 through June 1998. Mr. Poch co-founded AmeriData
Technologies, Inc., a Delaware corporation, and served as Co-Chairman of the
Board and Co-President of AmeriData Technologies from 1991 until its acquisition
by GE Capital in August 1996.
Mr. Cagan served as interim Chief Executive Officer of the Company from
January 1999 to April 1999 and became a director in February 1999. Mr. Cagan has
served as a strategic management consultant since 1981 in the software and
Internet industries. Mr. Cagan also served as Chief Executive Officer and
Chairman of the Board of Human Race, Inc., a privately held company, from
February 1998 through October 1998. From January 1996 through January 1997, Mr.
Cagan served as Senior Vice President of Sales and Marketing and a director of
Software.com, Inc., a privately held e-mail software company, and from September
1996 through December 1996 as Senior Vice President of Sales and Marketing and a
director of Intervista Software, Inc., a computer software company, now a part
of Computer Associates. Mr. Cagan serves as Chairman of the Board of Acorn
Technologies, Inc. and as a director of ISOCOR and Sanctuary Woods Multimedia
Corp.
Mr. Duryea became a director of the Company in February 1999. Mr. Duryea is
currently a consultant to several emerging technology-based companies. Between
April 1995 and August 1997 Mr. Duryea served as Vice President Finance and
Administration and Vice President Corporate Development and Professional
Services at Network Associates (formerly McAfee Associates), a publicly traded
network security and management company. From November 1992 to April 1995 Mr.
Duryea served as Senior Vice President of Finance and Administration for Unify
Corporation, a privately held client server application development software
tool company. Mr. Duryea serves as a director of several privately held
companies, including eCircles and Service Metrics.
Mr. Fisher became a director in June 1998 and served as Co-Chairman of the
Board until April 1999. Since October 1995, Mr. Fisher has served as the Vice
Chairman of SOFTBANK Holdings Inc., the holding and management company for
operations in the United States for SOFTBANK Corporation, a publicly traded
media and marketing provider for the digital information industry. Mr. Fisher
also serves as Vice Chairman of SOFTBANK Technology Advisors Fund, a venture
capital fund which he joined in October 1995. From 1990 through October 1995,
Mr. Fisher served as Chief Executive Officer of Phoenix Technologies Ltd., a
publicly traded developer of system software products for personal computers.
Mr. Fisher serves as a director for SOFTBANK Corporation, Phoenix Technologies,
Ziff-Davis, Inc. and Segue Software Inc.
Ms. Patsley became a director of the Company in December 1995. Ms. Patsley
has been President, Chief Executive Officer and a director of Paymentech, Inc.,
a publicly traded payment processing company, since December 1995. She has also
served as President and Chief Executive Officer of Paymentech Merchant Services,
Inc., a wholly owned subsidiary of Paymentech, since December 1991. Ms. Patsley
has served as Executive Vice President and Manager of First USA Financial
Services, Inc., a wholly owned subsidiary of Paymentech, since July 1990 and as
Chairman of the Board of First USA Financial Services, Inc., since August 1994.
Ms. Patsley served as Executive Vice President and Secretary of First USA, Inc.
from July 1989 until June 1997 and as Chief Financial Officer from January 1987
to April 1994. Ms. Patsley also serves as a director of Adolf Coors Company and
Coors Brewing Company, its wholly owned subsidiary.
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<PAGE> 6
Mr. Rieschel became a director of the Company in June 1998. Mr. Rieschel is
the Executive Managing Director of SOFTBANK Technology Ventures, which he joined
in January 1996. Mr. Rieschel served as General Manager of Asian operations for
Sequent Computer Systems, a publicly traded computer systems company, from
January 1989 to July 1993. He serves as a director for Concentric Networks,
USWEB Corporation and SOFTBANK Corporation.
Mr. Stein, a founder of the Company and director since March 1994, served
as Chairman of the Board of the Company from January 1996 until June 1998 and as
Chief Executive Officer of the Company from March 1994 until June 1998. Since
1980, Mr. Stein has also been Chairman of Stein & Stein Incorporated, a
management services firm which is the general partner of The Stein Company,
Ltd., an investment partnership and is now Chairman of Virtual Capital, LLC a
multi-media technology company. Mr. Stein is a director of Scripps Foundation
for Medicine and Science.
BOARD COMMITTEES AND MEETINGS
During 1998, the Board of Directors held 16 meetings. The Board has an
Audit Committee and a Compensation Committee.
The Audit Committee held one meeting in 1998. The functions of the Audit
Committee include recommending appointment of the Company's independent auditors
to the Board and reviewing (i) the scope of the independent auditors' annual
audit and their compensation, (ii) the general policies and procedures of the
Company with respect to internal auditing, accounting and financial controls and
(iii) any change in accounting principles, significant audit adjustments
proposed by the auditors and recommendations that the auditors may have with
respect to policies and procedures. The Audit Committee is composed of three
directors: Mr. Fisher, Mr. Stein and Ms. Patsley.
The Compensation Committee held two meetings in 1998. The Compensation
Committee monitors the nature and levels of compensation paid by the Company to
its executive personnel. The Compensation Committee is composed of three
directors: Mr. Feld, Mr. Rieschel and Ms. Patsley.
During 1998, all directors except Ronald D. Fisher attended at least 75% of
the aggregate of the meetings of the Board, and of the committees on which such
director served, held during the period for which he or she was a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF THE AMENDMENT TO THE 1995 STOCK PLAN
In September 1995, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1995 Stock Plan (the "Option Plan") and
reserved an aggregate of 2,000,000 shares of Common Stock for issuance to the
Company's employees, directors and consultants. As a result of a series of
amendments, as of March 15, 1999, there were 6,000,000 shares approved by the
Board of Directors and the stockholders for issuance under the Option Plan.
On April 15, 1999, the Board of Directors amended the Option Plan to
increase the number of shares reserved for issuance thereunder to 7,000,000
shares.
As of March 15, 1999, the Company has granted options under the Option Plan
to purchase an aggregate of 4,835,025 shares of Common Stock (net of
cancellations) at exercise prices ranging between $0.01 and $10.50 per share.
Options to purchase an aggregate of 632,678 shares have been exercised through
March 15, 1999.
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<PAGE> 7
Stockholders are requested in this Proposal 2 to approve the amendment to
the Option Plan. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the amendment to the Option Plan. Abstentions will
be counted toward the tabulation of votes cast and will have the same effect as
negative votes. Broker non-votes are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL NUMBER 2
The essential features of the Option Plan are outlined below:
GENERAL
The Option Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the Option Plan are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory
stock options granted under the Option Plan are not intended to qualify as
incentive stock options under the Code. See "Federal Income Tax Information" for
a discussion of the tax treatment of options.
PURPOSE
The Board adopted the Option Plan to provide a means by which employees,
directors and consultants of the Company and its affiliates may be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of such persons, to secure and retain the services of persons capable
of filling such positions and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its affiliates. All of the
employees, directors and consultants of the Company and its affiliates are
eligible to participate in the Option Plan.
ADMINISTRATION
The Board administers the Option Plan. Subject to the provisions of the
Option Plan, the Board has the power to construe and interpret the Option Plan
and to determine the persons to whom and the dates on which options will be
granted, the number of shares of Common Stock to be subject to each option, the
time or times during the term of each option within which all or a portion of
such option may be exercised, the exercise price, the type of consideration and
other terms of the option. The Board has the power to delegate administration of
the Option Plan to a committee composed of members of the Board. As used herein
with respect to the Option Plan, the "Board" refers to any committee the Board
appoints as well as to the Board itself. The regulations under Section 162(m) of
the Code require that the directors who serve as members of the committee must
be "outside directors."
ELIGIBILITY
Incentive stock options may be granted under the Option Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors, and consultants of both the Company and its
affiliates are eligible to receive nonstatutory stock options under the Option
Plan.
No incentive stock option may be granted under the Option Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the exercise price is at least 110% of the
fair market value of the stock subject to the option on the date of grant and
the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionholder during any calendar year
(under the Option Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
No employee may be granted options under the Option Plan exercisable for
more than 500,000 shares of Common Stock during any fiscal year ("Section 162(m)
Limitation").
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<PAGE> 8
STOCK SUBJECT TO THE OPTION PLAN
Subject to stockholder approval of this proposal, an aggregate of 7,000,000
shares of Common Stock is reserved for issuance under the Option Plan. If
options granted under the Option Plan expire or otherwise terminate without
being exercised, the shares of Common Stock not acquired pursuant to such
options again become available for issuance under the Option Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options may
not be less than 100% of the fair market value of the stock subject to the
option on the date of the grant and, in some cases (see "Eligibility" above),
may not be less than 110% of such fair market value. If options were granted
with exercise prices below market value, deductions for compensation
attributable to the exercise of such options could be limited by Section 162(m)
of the Code. See "Federal Income Tax Information." On March 15, 1999, the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market was $5.5625 per share.
The exercise price of options granted under the Option Plan must be paid
either in cash at the time the option is exercised or (i) by delivery of other
Common Stock of the Company, (ii) pursuant to a deferred payment arrangement or
(iii) any combination of the above.
Option Exercise. Options granted under the Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Option Plan typically vest at
the rate of 25% at the end of the first year from the date of grant and then
ratably each month over the next three years during the optionholder's
employment by, or service as a director or consultant to, the Company or an
affiliate (collectively, "service"). Shares covered by options granted in the
future under the Option Plan may be subject to different vesting terms.
Term. The maximum term of options under the Option Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Option Plan generally terminate three months after termination
of the optionholder's service unless (i) such termination is due to the
optionholder's permanent disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised (to the extent the
option was exercisable at the time of the termination of service) at any time
within 12 months of such termination; (ii) the optionholder dies before the
optionholder's service has terminated, in which case the option may, but need
not, provide that it may be exercised (to the extent the option was exercisable
at the time of the optionholder's death) within 12 months of the optionholder's
death by the person or persons to whom the rights to such option pass by will or
by the laws of descent and distribution; or (iii) the option by its terms
specifically provides otherwise.
RESTRICTIONS ON TRANSFER
The optionholder may not transfer an option other than by will or by the
laws of descent and distribution. During the lifetime of the optionholder, only
the optionholder may exercise an option.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company, such as
a reorganization, stock dividend or stock split, may change the class and number
of shares of Common Stock subject to the Option Plan and outstanding options. In
that event, the Option Plan will be appropriately adjusted as to the class and
the maximum number of shares of Common Stock subject to the Option Plan, and
outstanding options will be adjusted as to the class, number of shares and price
per share of Common Stock subject to such options.
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<PAGE> 9
EFFECT OF CERTAIN CORPORATE EVENTS
The Option Plan provides that, in the event of a merger, acquisition,
consolidation or sale of substantially all of the assets of the Company,
specified types of merger, or other corporate reorganization ("change in
control"), any surviving corporation will be required to either assume options
outstanding under the Option Plan or substitute similar options for those
outstanding under the Option Plan. If any surviving corporation declines to
assume options outstanding under the Option Plan, or to substitute similar
options, then the vesting and the time during which such options may be
exercised will be accelerated. If an option is exercisable in lieu of assumption
or substitution, the Board will notify the optionee that the option shall be
fully exercisable for 15 days from the date of such notice, and the option will
terminate upon expiration of such period. The acceleration of an option in the
event of an acquisition or similar corporate event may be viewed as an anti-
takeover provision, which may have the effect of discouraging a proposal to
acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Option Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Option Plan will terminate in September 2005.
The Board may also amend the Option Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after its adoption by the Board if the
amendment would (i) modify the requirements as to eligibility for participation
(to the extent such modification requires stockholder approval in order for the
Option Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 of
the Securities Exchange Act of 1934 (the "Exchange Act"); (ii) increase the
number of shares reserved for issuance upon exercise of options; or (iii) change
any other provision of the Option Plan in any other way if such modification
requires stockholder approval in order to comply with Rule 16b-3 of the Exchange
Act or satisfy the requirements of Section 422 of the Code or any securities
exchange listing requirements. The Board may submit any other amendment to the
Option Plan for stockholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to optionholders who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Incentive Stock Options. Incentive stock options under the Option Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionholder
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the
optionholder's alternative minimum tax liability, if any.
If an optionholder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionholder upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss.
Generally, if the optionholder disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the optionholder will realize taxable ordinary income equal
to the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (ii) the optionholder's actual gain, if
any, on the purchase and sale. The optionholder's
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<PAGE> 10
additional gain or any loss upon the disqualifying disposition will be a capital
gain or loss, which will be long-term or short-term depending on whether the
stock was held for more than one year.
To the extent the optionholder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionholder normally will recognize taxable ordinary income
equal to the excess, if any, of the stock's fair market value on the date of
exercise over the option exercise price. However, to the extent the stock is
subject to certain types of vesting restrictions, the taxable event will be
delayed until the vesting restrictions lapse unless the participant elects to be
taxed on receipt of the stock. With respect to employees, the Company is
generally required to withhold from regular wages or supplemental wage payments
an amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionholder.
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon exercise of the option (or vesting of the stock). Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to optionholders who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that compensation to
such covered employee exceeds $1 million. It is possible that compensation
attributable to stock options, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation if
the option is granted by a compensation committee composed solely of "outside
directors" and either (i) the plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified period, the
per-employee limitation is approved by the stockholders, and the exercise price
of the option is no less than the fair market value of the stock on the date of
grant, or (ii) the option is granted (or exercisable) only upon the achievement
(as certified in writing by the compensation committee) of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, and the option is approved by stockholders.
8
<PAGE> 11
NEW PLAN BENEFITS
The following table presents certain information with respect to shares
granted as of December 31, 1998 under the Option Plan to (i) the executive
officers named in the Summary Compensation Table, (ii) all executive officers as
a group; (iii) all non-employee directors as a group; and (iv) all non-executive
officer employees as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION DOLLAR VALUE($)(1) UNDERLYING OPTIONS GRANTED
----------------- ------------------ --------------------------
<S> <C> <C>
Keith S. Kendrick(2).......................... 1,356,792 538,000(3)
President
Lee H. Stein.................................. 614,123 621,064
Former Chief Executive Officer
David B. Ehrenthal 476,900 250,000(4)
Vice President, Sales and Marketing
Marshall T. Rose, Ph.D........................ 950,550 300,000(5)
Chief Technical Officer
John M. Stachowiak............................ 1,659,175 350,000(6)
Former Vice President, Finance and
Administration and Chief Financial
Officer
All executive officers as a group(7).......... 3,066,550 1,025,000(8)
All non-employee directors as a group(7)...... 801,873 698,064
All non-executive officer employees as a 3,503,310 1,576,274(9)
group(7)....................................
</TABLE>
- ---------------
(1) Exercise price multiplied by the number of shares granted.
(2) Mr. Kendrick's employment with the Company terminated in January 1999.
(3) Includes options to purchase 155,000 shares which have been cancelled in
connection with the Company's repricing of options.
(4) Includes options to purchase 100,000 shares which have been cancelled in
connection with the Company's repricing of options.
(5) Includes options to purchase 100,000 shares which have been cancelled in
connection with the Company's repricing of options.
(6) Includes options to purchase 220,729 shares which have been cancelled in
connection with the Company's repricing of options and Mr. Stachowiak's
termination of employment.
(7) Represents executive officers as a group, non-executive officer employees as
a group and non-employee directors as a group as of March 15, 1999.
(8) Includes options to purchase 200,000 shares which have been cancelled in
connection with the Company's repricing of options.
(9) Includes options to purchase 328,073 shares which have been cancelled in
connection with the Company's repricing of options.
OTHER STOCK PLANS OF THE COMPANY
1994 Stock Plan. The 1994 Incentive and Non-Statutory Stock Option Plan
(the "1994 Stock Plan") provides for the grant of stock options to employees,
officers, directors of and certain other persons providing services to the
Company. Under the 1994 Stock Plan, the Company may grant options that are
intended to qualify as incentive stock options within the meaning of Section 422
of the Code and options not intended to qualify as incentive stock options.
Incentive stock options may only be granted to employees of the Company. Under
the 1994 Stock Plan, 75,618 shares of Common Stock were subject to outstanding
options as of April 20, 1999. By resolution of the Board of Directors of the
Company, no additional options may be granted
9
<PAGE> 12
under the 1994 Stock Plan. The 1994 Stock Plan is administered by the Board of
Directors or a committee thereof. Generally, options vest over two years and
must be exercised within ten years. All options are non-transferable other than
by will or the laws of descent and distribution.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") provides for the purchase by eligible employees of shares
of the Company's Common Stock. The Purchase Plan was adopted by the Board of
Directors in July 1996 and approved at the Annual Meeting of Stockholders in
October 1996. A total of 100,000 shares of Common Stock have been reserved for
issuance under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, is administered by the Compensation
Committee of the Board of Directors. Employees (including officers and employee
directors) of the Company or any subsidiary of the Company designated by the
Board for participation in the Purchase Plan are eligible to participate in the
Purchase Plan if they are customarily employed for more than 20 hours per week
and more than five months per calendar year. The Purchase Plan will be
implemented during concurrent 24 month offering periods each of which will
initially be divided into four consecutive six-month purchase periods, subject
to change by the Board of Directors. Offering periods generally begin in January
and July of each year.
The Purchase Plan terminates on the earliest of (i) the last business day
of December 2006; (ii) the date on which all shares available for issuance have
been sold or (iii) the date on which all purchase rights are exercised in
connection with an acquisition or change in control of the Company. As of April
20, 1999 the Company has sold 40,067 shares under the Purchase Plan. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 20% of an employee's compensation
during a purchase period. Shares are purchased on the last day of each purchase
period. The price at which stock may be purchased under the Purchase Plan is
equal to 85% of the lower of the fair market value of the Company's Common Stock
on the first day of the offering period or the last day of the purchase period.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. In addition, participants generally may not
purchase stock having a value greater than $25,000 in any calendar year.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Ernst & Young LLP. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
10
<PAGE> 13
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 15, 1999 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- ---------- ----------
<S> <C> <C>
Ronald D. Fisher(2)......................................... 11,654,088 28.7%
10 Langley Road, #403
Newton Center, MA 02159
SOFTBANK Holdings Incorporated(3)........................... 11,455,263 28.2%
10 Langley Road, #403
Newton Center, MA 02159
Bradley A. Feld(4).......................................... 11,072,083 27.3%
P.O. Box E
El Dorado, CO 80025
SOFTBANK Technology Ventures IV(5).......................... 10,575,775 26.0%
333 West San Carlos St., #1225
San Jose, CA 95110
Gary Rieschel(6)............................................ 10,575,775 26.0%
333 West San Carlos St., #1225
San Jose, CA 95110
Bank One Corporation(7)..................................... 2,576,951 6.3%
One First National Plaza
Chicago, IL 60670
Lee H. Stein(8)............................................. 2,290,514 5.5%
Stein & Stein Inc.
17435 Los Morris
P.O. Box 2771
Rancho Santa Fe, CA 92067
Dennis J. Cagan(9).......................................... 47,500 *
R. Terry Duryea............................................. 0 *
A. Laurence Jones(10)....................................... 57,229 *
Pamela H. Patsley(11)....................................... 1,645,217 4.1%
Marshall T. Rose(12)........................................ 391,008 *
Keith S. Kendrick(13)....................................... 183,313 *
John Stachowiak............................................. 79,271 *
David B. Ehrenthal(14)...................................... 31,251 *
All directors and executive officers as a group (13
persons)(15).............................................. 29,797,576 71.0%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
40,600,468 shares outstanding on March 15, 1999, adjusted as required by
rules promulgated by the SEC.
(2) Includes 10,575,775 shares held of record by SOFTBANK Holdings
Incorporated, 198,825 shares held of record by SOFTBANK Technology Advisors
Fund and 879,488 shares held of record by Softven
11
<PAGE> 14
No. 2 Investment Enterprise Partnership, an affiliate of SOFTBANK Holdings
Incorporated. Mr. Fisher is the Vice Chairman of SOFTBANK Holdings
Incorporated and SOFTBANK Technology Advisors Fund and disclaims beneficial
ownership of the shares held by SOFTBANK Holdings Incorporated and SOFTBANK
Technology Advisors Fund.
(3) Includes 879,488 shares held of record by Softven No. 2 Investment
Enterprise Partnership, an affiliate of SOFTBANK Holdings Incorporated.
(4) Includes 10,376,950 shares held of record by SOFTBANK Technology Ventures
IV, 198,825 shares held of record by SOFTBANK Technology Advisors Fund and
496,308 shares held of record by Mr. Feld. Mr. Feld is the Managing
Director of SOFTBANK Technology Ventures IV and SOFTBANK Technology
Advisors Fund and disclaims beneficial ownership of the shares held by
SOFTBANK Technology Ventures IV and SOFTBANK Technology Advisors Fund.
(5) Includes 198,825 shares held of record by SOFTBANK Technology Advisors
Fund.
(6) Includes 10,376,950 shares held of record by SOFTBANK Technology Ventures
IV and 198,825 shares held of record by SOFTBANK Technology Advisors Fund.
Mr. Rieschel is the Executive Managing Director of SOFTBANK Technology
Ventures IV and SOFTBANK Technology Advisors Fund and disclaims beneficial
ownership of the shares held by SOFTBANK Technology Ventures IV and
SOFTBANK Technology Advisors Fund.
(7) Includes 465,000 shares and warrants to purchase 475,734 shares held by
First USA Financial, Inc., a wholly-owned subsidiary of Bank One
Corporation. Also includes 1,636,217 shares held by Paymentech Merchant
Services, Inc., a wholly-owned subsidiary of Paymentech, Inc., which is
controlled by Bank One Corporation. Pamela H. Patsley, a director of the
Company, is Chief Executive Officer and a director of Paymentech, Inc.
(8) Includes 1,076,064 shares subject to options exercisable within 60 days of
March 15, 1999, 577,600 shares held by Mr. Stein and 572,600 shares held by
June L. Stein, Mr. Stein's spouse, for her own account. Also includes 550
shares held in trust for the benefit of Mr. Stein and 63,700 shares held in
trusts for the benefit of Mr. Stein's children. Mr. Stein disclaims
beneficial ownership of the shares held by his children.
(9) All 47,500 shares are subject to options exercisable within 60 days of
March 15, 1999.
(10) Includes 55,729 shares subject to options exercisable within 60 days of
March 15, 1999.
(11) Includes 7,000 shares subject to options exercisable within 60 days of
March 15, 1999 and 2,000 shares held by Ms. Patsley. Also includes
1,636,217 shares held by Paymentech Merchant Services, Inc., a wholly owned
subsidiary of Paymentech, of which Ms. Patsley is President and Chief
Executive Officer. Ms. Patsley disclaims beneficial ownership of the shares
held by Paymentech Merchant Services.
(12) Includes 144,133 shares subject to options exercisable within 60 days of
March 15, 1999 and 246,875 shares held by Dr. Rose.
(13) All 183,313 shares are subject to options exercisable within 60 days of
March 15, 1999. Mr. Kendrick's employment with MessageMedia ended in
January 1999.
(14) All 31,251 shares are subject to options exercisable within 60 days of
March 15, 1999.
(15) Includes 1,361,677 shares subject to options exercisable within 60 days of
March 15, 1999.
12
<PAGE> 15
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board of Directors are eligible for reimbursement for
their expenses incurred in connection with attendance at Board meetings. Each
director of the Company also receives an option to purchase 10,000 shares of the
Company's Common Stock immediately following each of the Company's Annual
Meetings of Stockholders under the Option Plan. In addition, each new
non-employee director of the Company receives an option to purchase 20,000
shares of Common Stock under the Option Plan upon becoming non-employee
directors. These options vest as to 25% of the shares covered by the option on
the one year anniversary of the date of grant, and the remaining shares vest
ratably each month over the next three years and have a term of ten years.
During 1998, the Company granted an option to purchase 20,000 shares to
each of the new non-employee directors of the Company and an option to purchase
10,000 shares to the remaining non-employee director of the Company, each at an
exercise price per share of $1.75, the fair market value of such Common Stock on
the date of grant (based on the closing sales price reported on the Nasdaq
National Market for the date of grant).
On March 26, 1999, the Company granted an option to purchase 100,000 shares
of Common Stock to Mr. Poch at an exercise price per share of $6.875. The fair
market value of such Common Stock on the date of grant was $6.875 per share
(based on the closing sales price reported on the Nasdaq National Market for the
date of grant). This option vests annually over a four-year period and has a
term of ten years.
13
<PAGE> 16
EXECUTIVE COMPENSATION
The following table shows for 1998, 1997 and 1996, compensation earned by
persons serving in the capacity as the Company's Chief Executive Officer, the
two most highly compensated executive officers whose total compensation in 1998
exceeded $100,000 and one former executive officer who departed from the Company
during 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)
- --------------------------- ---- ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Keith S. Kendrick(2)........ 1998 215,000 -- -- 383,000 --
President 1997 148,686 83,000(3) 83,000(4) 155,000(5) --
Lee H. Stein(6)............. 1998 109,000(7) -- -- 371,064 --
Former Chief Executive 1997 240,000 -- -- --
Officer 1996 240,000 -- -- 725,000 --
David B. Ehrenthal(8)....... 1998 167,173(9) -- 30,000(10) 250,000(11) --
Vice President, Sales and
Marketing
Marshall T. Rose, Ph.D...... 1998 147,316 -- -- 200,000 52,500(12)
Chief Technical Officer 1997 200,000 -- -- 100,000(13) --
1996 188,750 -- -- 100,000 --
John Stachowiak(14)......... 1998 141,831 -- 82,478(15) 170,000(16) --
Former Vice President, 1997 200,000 -- 63,056(17) 55,000(18) --
Finance and Administration 1996 156,583(19) -- 7,864(20) 125,000(21) --
and Chief Financial
Officer
</TABLE>
- ---------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown for
1998, or with respect to certain "perquisites," where such amounts do not
exceed the lesser of 10% of salary plus bonus or $50,000.
(2) Mr. Kendrick served in the capacity as the Company's President (the
principal executive officer) from June 1998 until his employment with the
Company terminated in January 1999.
(3) Consists of payment in respect of tax liability for reimbursed relocation
and other expenses.
(4) Consists of reimbursements for relocation and other expenses.
(5) Includes options to purchase 155,000 shares which have been cancelled.
(6) Mr. Stein served as Chief Executive Officer of the Company until June 1998.
(7) Includes $39,000 paid to Mr. Stein for consulting services.
(8) Mr. Ehrenthal joined the Company as an employee in March 1998.
(9) Includes $12,000 paid by the Company to Mr. Ehrenthal for consulting
services provided to the Company before Mr. Ehrenthal became an employee.
(10) Consists of a payment made by the Company for relocation expenses.
(11) Includes options to purchase 100,000 shares which have been cancelled.
(12) Includes an amount paid to a corporation of which Dr. Rose is a stockholder
for consulting services rendered by Dr. Rose.
(13) Includes options to purchase 100,000 shares which have been cancelled.
(14) Mr. Stachowiak's employment with the Company terminated in May 1998.
(15) Consists of a $15,812 payment made by the Company for relocation expenses
and $66,666 in severance payments.
(16) Includes options to purchase 47,187 shares which have been cancelled.
14
<PAGE> 17
(17) Consists of $63,056 in reimbursable living expenses.
(18) Includes options to purchase 48,542 shares which have been cancelled.
(19) Includes $117,000 paid to Mr. Stachowiak for consulting services.
(20) Consists of $7,864 in living expenses.
(21) Includes options to purchase 125,000 shares which have been cancelled.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers both under the Option
Plan and outside the plan. As of March 15, 1999, options to purchase a total of
4,202,347 shares were outstanding under the Option Plan and options to purchase
1,164,975 shares remained available for grant thereunder.
The following tables show for 1998, certain information regarding options
granted to, exercised by, and held at year end by, the Named Executive Officers:
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZEABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM(4)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ---------- ----------- ----------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Keith S. Kendrick............ 100,000 2.4 0.937 4/29/08 59,063 149,063
55,000 1.3 0.937 4/23/07 32,484 81,984
100,000 2.4 3.688 8/5/08 232,344 586,392
128,000 3.1 0.937 4/29/08 75,600 190,800
Lee H. Stein................. 20,000 0.5 1.750 6/23/08 22,050 55,650
351,064 8.4 0.937 4/29/08 207,347 523,305
David B. Ehrenthal........... 50,000 1.2 3.688 8/5/08 116,172 293,196
100,000 2.4 0.937 2/2/08 59,063 149,063
75,000(5) 1.8 1.590 2/2/08 75,127 189,607
25,000(5) 0.6 3.180 2/2/08 50,085 126,405
Marshall T. Rose............. 100,000 2.4 3.688 8/5/08 232,344 586,392
100,000 2.4 0.937 4/29/08 59,063 149,063
John M. Stachowiak........... 100,000(6) 2.4 0.937 08/12/06 59,063 149,063
45,000(7) 1.1 0.937 10/14/06 26,578 67,078
25,000 0.6 0.937 10/16/06 14,766 37,266
</TABLE>
- ---------------
(1) Options have a maximum term of 10 years measured from the date of grant,
subject to earlier termination upon the optionee's cessation of service with
the Company. The options generally vest on a monthly basis over a four-year
period.
(2) Based on options to purchase 4,168,585 shares granted to employees in fiscal
1998. Excludes options to purchase 430,557 shares assumed in connection with
the Company's acquisitions of Email Publishing Inc. and Distributed Bits
L.L.C. in 1998.
(3) The exercise price is equal to the fair market value of the Common Stock on
the date of grant as determined by the Board of Directors on the date of
grant.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and the fair market value per share of the
Company's Common Stock as of December 31, 1998 of $5.375. It is calculated
on the assumption that the market value of the underlying stock increases at
the stated values, compounded annually. The total appreciation of the
options over their 10-year terms at 5% and 10% would be 63% and 159%,
respectively.
(5) Includes options to purchase 75,000 shares and 25,000 shares, respectively,
which have been cancelled.
(6) Includes options to purchase 31,250 shares which have been cancelled.
(7) Includes options to purchase 15,937 shares which have been cancelled.
15
<PAGE> 18
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-
UNDERLYING THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
SHARES ACQUIRED AT FISCAL YEAR-END YEAR-END ($)(2)
ON EXERCISE VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
---- --------------- --------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Keith S. Kendrick.............. -- -- 165,860/217,140 736,004/688,509
Lee H. Stein................... -- -- 1,076,064/20,000 2,651,597/72,500
David B. Ehrenthal............. -- -- 0/150,000 0/528,100
Marshall T. Rose............... -- -- 133,717/170,833 129,429/483,021
John M. Stachowiak............. 129,271 611,728 0/0 0/0
</TABLE>
- ---------------
(1) Based on the fair market value per share of Common Stock (as determined by
the Board of Directors) at the date of exercise, less the exercise price.
(2) Based on the fair market value per share of Common Stock ($5.375) at
December 31, 1998, less the exercise price, multiplied by the number of
shares underlying the option.
EMPLOYMENT AGREEMENTS
In April 1997, the Company entered into an employment agreement with Keith
Kendrick, President of the Company. The employment agreement, as amended,
provided that (i) Mr. Kendrick receive: (A) an annual salary of $215,000, (B) a
payment of $83,000 for expenses incurred in 1997, and (C) a signing bonus of
$15,000 and certain relocation expenses and (ii) if upon a Change of Control (as
defined in the agreement) Mr. Kendrick's duties with the Company are
significantly changed, he may terminate his employment with the Company. Upon a
termination under such circumstances, all options previously granted to Mr.
Kendrick would fully vest and become exercisable. In addition, the employment
agreement provided that if the Company's cash or cash equivalents fell below
$1,500,000, the Company would pay Mr. Kendrick $100,000 within ten days of Mr.
Kendrick's request for payment under the employment agreement. Mr. Kendrick left
the Company in January 1999.
In January 1996, the Company entered into an employment agreement with Lee
H. Stein pursuant to which he served as Chairman of the Board and Chief
Executive Officer of the Company. The agreement set Mr. Stein's annual salary at
$240,000, subject to future adjustment due to possible merit increases, and he
was granted stock options to purchase 475,000 shares of the Company's Common
Stock, at an exercise price of $6.30 per share and 250,000 shares of Common
Stock of the Company at an exercise price of $1.00 per share. The agreement
further provided that upon termination of his services, Mr. Stein would receive
a severance payment. In April 1998, Mr. Stein and the Company amended the
employment agreement to terminate Mr. Stein's employment as of July 1, 1998 and
to accelerate the vesting of his option to purchase 250,000 shares of Common
Stock, which was granted to Mr. Stein in January 1996, as consideration for Mr.
Stein's waiver of his right to the severance payment. The Company and Mr. Stein
also entered into a consulting agreement pursuant to which Mr. Stein is paid at
the rate of $6,500 per month. The consulting agreement may be terminated at any
time by either party. In April 1998, Mr. Stein was granted a third option to
purchase 351,064 shares of the Company's Common Stock at an exercise price of
$0.9375 per share.
In January 1998, the Company entered into an employment agreement with
David Ehrenthal, Vice President, Sales and Marketing of the Company. The
employment agreement, provides that (i) Mr. Ehrenthal receive: (A) an annual
salary of $150,000, (B) a payment of $30,000 within ten days of his first day of
employment, (C) a bonus of up to 50% of his annual salary upon reaching certain
target goals, (D) a stock option to purchase 75,000 shares of the Company's
stock with an exercise price of $1.59 (the fair market value on the date of
grant), and (E) a stock option to purchase 25,000 shares of the Company's stock
with an exercise price of $3.18 (double the fair market value on the date of
grant), and (ii) if upon a Change of Control (as defined in the agreement) Mr.
Ehrenthal's duties with the Company are significantly changed, he
16
<PAGE> 19
may terminate his employment with the Company. Upon a termination under such
circumstances, Mr. Ehrenthal would receive four months salary as a severance
package. In addition, the employment agreement provides that if Mr. Ehrenthal's
employment with the Company terminates, he shall be available to perform
consulting services not to exceed 15 hours per week for a period of two months.
In July 1996, the Company entered into a two-year employment agreement with
Marshall T. Rose, Technical Advisor to the Chairman, with the Company holding an
option for one additional year of service on the same terms, and setting Dr.
Rose's annual salary at $200,000. That agreement was amended in July 1998 to
provide that Dr. Rose serve as Chief Technical Officer with a salary of $1,000
per month. In August 1998, the Company entered into a Consulting Agreement with
Dover Beach Consulting, Inc., a Delaware Corporation, of which Dr. Rose is a
stockholder. Under the consulting agreement, the Company will pay Dover Beach
Consulting, Inc. a fee of $15,000 per month for consulting services provided to
the Company by Dr. Rose. The agreement terminates in August 1999.
In October 1996, the Company entered into an employment agreement with John
M. Stachowiak pursuant to which he served as Vice President, Finance and
Administration and Chief Financial Officer. The agreement set Mr. Stachowiak's
annual salary at $200,000, and he was granted options to purchase an aggregate
of 125,000 shares of the Company's Common Stock, at an exercise price of $11.00
per share. In May 1998, the Company and Mr. Stachowiak entered into a severance
agreement whereby Mr. Stachowiak resigned and the Company paid Mr. Stachowiak a
severance payment in the amount of $66,666, representing four months salary. The
severance agreement also provided for the accelerated vesting of 25% of the
total options of the Company held by Mr. Stachowiak. In May 1998, the Company
and Mr. Stachowiak entered into a consulting agreement whereby the Company will
pay Mr. Stachowiak at the rate of $96.15 per hour for consulting services on
certain projects as requested by the Company. The consulting agreement may be
terminated by either party at any time.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, that might incorporate future filings, including
this Proxy Statement, in whole or in part, the following report shall not be
incorporated by reference into any such filings.
The following report is submitted by the Compensation Committee. Each
member of the Compensation Committee is a non-employee director. The
Compensation Committee is responsible for establishing the direction for the
Company's executive compensation strategy. Underlying the Compensation
Committee's decisions is the firm belief that the actions of the Company's
executive officers directly impact the short-term and long-term performance of
the Company, and such officers should be rewarded in a manner consistent with
the Company's financial and non-financial results.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program has been designed to provide
competitive levels of compensation that are linked to the performance of the
Company, recognize achievement of annual and long-term goals, reward
above-target performance and help attract and retain qualified executives.
Consistent with this philosophy, the executive compensation program provides
annual cash compensation through base salary and in some cases an annual bonus,
and a long-term component through stock options. The program supports a
performance-oriented environment by providing incentive compensation that
changes in a consistent and measurable way with both the financial performance
of the Company and management performance in support of strategic objectives.
The Compensation Committee determines annual salaries, bonuses and
long-term incentives for senior executive officers. Salaries are based primarily
on experience, responsibility and individual performance.
17
<PAGE> 20
Equity-based compensation is oriented toward the achievement of increasing
stockholder value over the long term and is implemented pursuant to the Option
Plan.
BASE SALARY
The Compensation Committee establishes base salaries each year at a level
intended to be competitive with comparable companies. In addition to the
competitive market range, many factors are considered in determining actual base
salaries, including the duties and responsibilities assumed by the executive,
the scope of the executive's position, length of service, individual
performance, internal equity considerations and special expertise beneficial to
the Company. The Compensation Committee also reviews relevant financial results
and the success of the management team in areas of performance that are not
easily captured through accounting measures, such as business strategies and
introductions of new products and services.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1998, the Company's Chairman and Chief Executive Officer, Lee
H. Stein, earned $70,000. Mr. Stein served as the Company's Chairman and Chief
Executive Officer through June 1998. As a participant in the Company's Cash
Compensation Reduction Plan, Mr. Stein on April 29, 1998 elected to reduce his
cash compensation by 50% and in consideration received options to purchase
Common Stock of the Company. The Compensation Committee's approach to
establishing Mr. Stein's compensation was to be competitive with comparable
companies and to have a significant portion of his compensation depend on the
achievement of financial and non-financial performance criteria. All
compensation actions relating to Mr. Stein, were subject to approval by the
Board of Directors. The Board of Directors approved the reduction of Mr. Stein's
cash compensation by 50% and the issuance of options to purchase 351,064 shares
of the Company's Common Stock, at an exercise price of $0.937 per share, in
consideration of the reduction in compensation. In connection with the
investment by SOFTBANK entities in the Company in September, 1998, the Board
also granted accelerated vesting of unvested options owned by Mr. Stein to
purchase 67,708 shares of the Company's Common Stock under the 1995 Plan and
255,319 shares of the Company's Common Stock under the Cash Compensation
Reduction Plan.
Keith S. Kendrick, the Company's President, earned $215,000 during 1998.
From June 1998 through January 1999, Mr. Kendrick served in the capacity of
principal executive officer after the resignation of Mr. Stein in June. On April
29, 1998, Mr. Kendrick elected to participate in the Company's Cash Compensation
Reduction Plan in lieu of a guaranteed bonus in the amount of $40,000. The Board
of Directors approved the reduction of Mr. Kendrick's guaranteed bonus
compensation of $40,000 by 100% and the issuance of options to purchase 128,000
shares of the Company's Common Stock, at an exercise price of $0.937 per share,
in consideration of the reduction in compensation.
REPORT ON REPRICING OF OPTIONS
In April 1998, the Compensation Committee approved, and the Board ratified,
an employee option exchange program (the "1998 Repricing Program") applicable to
all employees of the Company including executive officers. Under the 1998
Repricing, outstanding options held by qualifying employees with exercise prices
greater than the fair market value of the Common Stock on the date the employee
accepted participation in the 1998 Repricing Program (the "1998 Exchange
Price"), were exchanged for new options to purchase the same number of shares at
an exercise price equal to the 1998 Exchange Price. The employee must have
accepted participation in the 1998 Repricing within 10 days of April 28, 1998.
The new options were not exercisable until six months after the date of
issuance, at which time they continued to vest to the same extent and upon the
same terms as the old options surrendered therefor. At the time the program was
implemented, substantially all of the options then outstanding under the Option
Plan had exercise prices significantly above the 1998 Exchange Price, which was
approximately $0.937 per share. In light of the decline in the Company's Common
Stock price and because options are a key component of the Company's long-term
incentive program, the Committee determined that the 1998 Repricing Program was
necessary to retain such employees.
18
<PAGE> 21
CONCLUSION
The Compensation Committee believes the mix of market-based salaries and
the potential for equity-based rewards for long-term performance represents an
appropriate balance of total compensation. This balanced executive compensation
program provides a competitive and motivational compensation package to the
executive team required to produce the results the Company strives to achieve in
the future. The Compensation Committee further believes that the executive
compensation program strikes an appropriate balance between the interest of the
stockholders, the needs of the Company in operating its business and needs of
the executive team.
COMPENSATION COMMITTEE
Pamela H. Patsley
Bradley A. Feld
Gary E. Rieschel
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<PAGE> 22
OPTION REPRICING INFORMATION
In April 1998, the Company implemented the 1998 Repricing Program
applicable to all employees of the Company including executive officers. Under
the program, outstanding options held by qualifying employees, who chose to
participate, with an exercise price greater than the 1998 Exchange Price, were
exchanged for new options to purchase the same number of shares at an exercise
price equal to the 1998 Exchange Price. Subject to certain exceptions, the new
options were not exercisable until six months after the date of issuance, at
which time they continued to vest to the same extent as the old options
surrendered therefor.
The following table shows certain information concerning repricings of
options held by any executive officer since the Company's initial public
offering.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING
---- ------- ------------ ------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Keith S. Kendrick(1)......... 4/29/98 45,000 0.937 5.000 0.937 9 years
President 4/29/98 10,000 0.937 1.000 0.937 9 years
4/29/98 100,000 0.937 4.880 0.937 9.5 years
Lee H. Stein................. -- -- -- -- -- --
Former Chief Executive
Officer
David B. Ehrenthal........... 4/29/98 75,000 0.937 1.590 0.937 10 years
Vice President, Sales and 4/29/98 25,000 0.937 3.180 0.937 10 years
Marketing
Marshall T. Rose, Ph.D....... 4/29/98 100,000 0.937 4.880 0.937 9.5 years
Chief Technical Officer
John M. Stachowiak........... 4/29/98 125,000 0.937 10.500 0.937 8.5 years
Former Vice President, 4/29/98 45,000 0.937 3.940 0.937 9.5 years
Finance and Administration
and Chief Financial Officer
</TABLE>
- ---------------
(1) Mr. Kendrick's employment with the Company terminated in January 1999.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's Compensation Committee is currently composed
of Mr. Feld, Mr. Stein and Ms. Patsley. Ms. Patsley serves as President and
Chief Executive Officer of Paymentech. Pursuant to a Shareholder Rights
Agreement dated December 22, 1995 (the "Shareholder Rights Agreement") among the
Company and certain of its stockholders, including Paymentech, the Company
agreed, for a period of four years, not to enter into an agreement with, or
otherwise utilize, a payment card transaction acquirer other than Paymentech for
provision of payment processing services that Paymentech is willing and capable
of providing at a commercially reasonable price (the "Processing Right"). In
August 1996, in connection with the amendment and restatement of the Shareholder
Rights Agreement, the Company entered into an agreement with Paymentech for the
waiver of the Processing Right. In exchange for such waiver, the Company agreed
to pay Paymentech facility fees totaling $500,000 and transaction surcharges of
no less than $500,000 during the 40-month period beginning September 1, 1996,
depending upon the number of transactions processed through merchant acquirers
other than Paymentech.
The Company believes that the payments for services provided by Paymentech
were no less favorable to the Company than would be charged for similar services
by unrelated third parties.
20
<PAGE> 23
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on December 13, 1996 for (i) the Company's Common Stock, (ii) the
Standard & Poor's 500 Index (the "S&P 500") and (iii) the Hambrecht & Quist
Internet Index. All values assume reinvestment of the full amount of all
dividends and are calculated as of December 31 of each year:
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT(2)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------
12/13/96 12/96 12/97 12/98
-------- ----- ----- -----
<S> <C> <C> <C> <C>
MessageMedia Inc. 100 100 33 60
S & P 500 100 102 136 174
Hambrecht & Quist Internet 100 95 128 298
</TABLE>
(1) This Section is not "soliciting material," is not deemed "filed" with
the SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act whether made before or after the
date hereof and irrespective of any general incorporation language in any such
filing.
(2) Assumes $100 invested on December 13, 1996 and assumes reinvestment of
dividends. Fiscal year ends on December 31, 1996, 1997 and 1998.
CERTAIN TRANSACTIONS
EMAIL PUBLISHING ACQUISITION
On December 9, 1998, the Company acquired Email Publishing Inc. ("EPub"), a
provider of message delivery and e-mail subscription management services (the
"EPub Acquisition"). Mr. Feld, a Director of the Company, was an investor in
EPub prior to the EPub Acquisition, and, as a result, Mr. Feld received 496,308
shares of the Company's Common Stock. Softven No. 2 Investment Enterprise
Partnership ("Softven") was also an investor in EPub prior to the EPub
Acquisition. Softven received 879,488 shares of the Company's Common Stock as a
result of the EPub Acquisition. Softven is affiliated with SOFTBANK Holdings
Inc. and SOFTBANK Technology Ventures IV, L.P. (the "SOFTBANK Entities"). The
SOFTBANK Entities are affiliated with Mr. Feld, Mr. Rieschel and Mr. Fisher.
21
<PAGE> 24
SOFTBANK TRANSACTION
In September 1998, the Company sold 1,641,026 shares of its Common Stock to
the SOFTBANK Entities pursuant to a Securities Purchase Agreement dated April
30, 1998, at a price of $2.44 per share for an aggregate purchase price of $4.0
million.
SERVICES ARRANGEMENTS
Pursuant to the Shareholder Rights Agreement among the Company and certain
of its stockholders, including Paymentech, the Company agreed, for a period of
four years, not to enter into an agreement with, or otherwise utilize, a payment
card transaction acquirer other than Paymentech for provision of payment
processing services that Paymentech is willing and capable of providing at a
commercially reasonable price (the "Processing Right"). In August 1996, in
connection with the amendment and restatement of the Shareholder Rights
Agreement, the Company entered into an agreement with Paymentech for the waiver
of the Processing Right. In exchange for such waiver, the Company agreed to pay
Paymentech facility fees totaling $500,000 and transaction surcharges of no less
than $500,000 during the 40-month period beginning September 1, 1996, depending
upon the number of transactions processed through merchant acquirers other than
Paymentech. Paymentech is affiliated with Ms. Patsley.
The Company believes that the payments for services provided by Paymentech
were no less favorable to the Company than would be charged for similar services
by unrelated third parties.
ADDITIONAL AGREEMENTS
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by law.
In 1998, the Company entered into a consulting agreement with Dover Beach
Consulting, Inc., a corporation of which Dr. Marshall Rose is a stockholder.
Pursuant to the agreement, the Company will pay Dover Beach Consulting, Inc. a
fee of $15,000 a month for consulting services provided to the Company by Dr.
Rose. The agreement terminates in August 1999.
The Company has entered into certain agreements with certain of its current
and former executive officers, as described under the caption "Executive
Compensation -- Employment Agreements."
The Company has also entered into certain transactions with its directors,
as described under the caption "Executive Compensation -- Compensation of
Directors." Any future transaction between the Company and its executive
officers, directors and their affiliates will be on terms no less favorable to
the Company than can be obtained from unaffiliated third parties, and any
material transactions with such persons will be approved by a majority of the
disinterested members of the Board of Directors.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Lewis H. Silverberg
Lewis H. Silverberg
Secretary
April 28, 1999
22
<PAGE> 25
MESSAGEMEDIA, INC.
1995 STOCK PLAN
(AS AMENDED)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board of Directors
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means MessageMedia, Inc., a Delaware corporation.
(h) "Consultant" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other
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<PAGE> 26
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract,
including Company policies. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 91st day of such
leave any Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including Officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the Nasdaq Stock Market its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
(r) "Optioned Stock" means the Common Stock subject to an Option.
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<PAGE> 27
(s) "Optionee" means an Employee or Consultant who receives an
Option.
(t) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(u) "Plan" means this 1995 Stock Option Plan.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(w) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 7,000,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option exchange or Option
repricing Program, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of Employees, Directors
and Consultants.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3 of the Securities and Exchange Act of 1934,
as amended ("Rule 16b-3"), the transactions contemplated hereunder shall be
structured to satisfy the requirements for exemption under Rule 16b-3.
-3-
<PAGE> 28
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which Committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock or other securities of the Company are listed, the Administrator shall
have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees, Directors and Consultants to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(ix) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
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<PAGE> 29
(x) to provide for the early exercise of unvested Options,
subject to such terms and conditions as shall be determined by the
Administrator; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees, Directors
and Consultants. Incentive Stock Options may be granted only to Employees. An
Employee, Director or Consultant who has been granted an Option may, if
otherwise eligible, be granted additional Options.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they are granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to the continuation of the Optionee's service to the Company as an
Employee, Director or Consultant, nor shall it interfere in any way with the
Optionee's or the Company's right to terminate the Optionee's service to the
Company at any time, with or without cause.
(d) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in subsection (i) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
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<PAGE> 30
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) surrender of other Shares which (x) in the case of Shares acquired
upon exercise of an Option have been owned by the Optionee for more than six
months on the date of
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<PAGE> 31
surrender and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (4) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price, or (5) any
combination of the foregoing methods of payment. In making its determination as
to the type of consideration to accept, the Board shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the
ninety-first (91st) day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination, or to such other extent as may
be determined by the Administrator. If the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
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<PAGE> 32
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her "disability," as defined in Section 22(e)(3) of the Code, the Optionee may
exercise an Option within such period of time as is specified in the Option
Agreement to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to the entire Option, the Shares covered by the unvested portion of
the Option shall revert to the Plan. If, after termination, the Optionee does
not exercise an Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, an
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option on the
date of death. If, on the date of death, the Optionee was not entitled to
exercise the entire Option, the Shares covered by the unexercisable portion of
the Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise an Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the
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<PAGE> 33
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
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<PAGE> 34
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
15. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
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<PAGE> 35
MESSAGEMEDIA, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1999
The undersigned hereby appoints Larry Jones and Lewis H. Silverberg, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of MESSAGEMEDIA, INC. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
MESSAGEMEDIA, INC. to be held on May 28, 1999 at 10:00 a.m., local time, at The
Hotel Boulderado, 2115 13th Street, Boulder, Colorado, and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect nine directors to serve for the ensuing year and until
their successors are elected.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
NOMINEES: A. Laurence Jones, Bradley A. Feld, Gerald A. Poch, Dennis J. Cagan,
Ronald D. Fisher, Pamela H. Patsley, Gary E. Rieschel, Lee H. Stein
and R. Terry Duryea.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2 AND 3.
PROPOSAL 2: To approve an amendment to the Company's 1995 Stock Plan to increase
the aggregate number of shares of Common Stock authorized for
issuance under such plan from 6,000,000 to 7,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED ON OTHER SIDE)
<PAGE> 36
(CONTINUED FROM ON OTHER SIDE)
PROPOSAL 3: To ratify selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED
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SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators,
trustees, guardians and attorneys-in-fact
should add their titles. If signer is a
corporation, please give full corporate
name and have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in partnership
name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
