<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
ISS Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
ISS GROUP, INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2000
---------------------
TO THE STOCKHOLDERS OF ISS GROUP, INC.:
The Annual Meeting of Stockholders of ISS Group, Inc., a Delaware
corporation (the "Company"), will be held on Wednesday May 24, 2000, at 11:00
A.M. Eastern Daylight Savings Time. The location is the LaQuinta Inn, 6260
Peachtree-Dunwoody Road, Atlanta, Georgia 30328. The Annual Meeting is held for
the following purposes, as more fully described in the Proxy Statement
accompanying this Notice:
1. To elect three directors to serve a three-year term ending in the
year 2003 or until a successor is duly elected and qualified;
2. To approve an amendment to the Company's certificate of
incorporation changing the Company's name to "Internet Security Systems,
Inc."
3. To approve an amendment to the Company's Restated 1995 Stock
Incentive Plan (the "1995 Plan"), reducing the number of shares included in
future options granted to non-employee directors under the 1995 Plan's
Automatic Option Grant Program and increasing the vesting period for annual
grants;
4. To approve an amendment to the 1995 Plan limiting the number of
shares by which the share reserve will automatically increase each calendar
year under the 1995 Plan; and
5. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 3, 2000, are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting will
be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. If you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned so that all your
shares will be voted. You may revoke your proxy at any time prior to the Annual
Meeting. If you attend the Annual Meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the Annual Meeting will be counted.
Sincerely,
/s/ THOMAS E. NOONAN
Thomas E. Noonan
Chief Executive Officer and
Chairman of the Board of Directors
Atlanta, Georgia
April 12, 2000
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE> 3
ISS GROUP, INC.
6600 PEACHTREE-DUNWOODY ROAD
300 EMBASSY ROW, SUITE 500
ATLANTA, GEORGIA 30328
---------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 2000
---------------------
GENERAL
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of ISS Group, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 24, 2000 (the "Annual
Meeting"). The Annual Meeting will be held at 11:00 A.M. at the LaQuinta Inn,
6260 Peachtree-Dunwoody Road, Atlanta, Georgia 30328. These proxy solicitation
materials were mailed on or about April 12, 2000 to all stockholders entitled to
vote at the Annual Meeting.
VOTING
The specific proposals for consideration and action at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On April 3, 2000, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting, 41,782,017
shares of the Company's Common Stock, par value $0.001 per share ("Common
Stock"), were issued and outstanding. No shares of the Company's preferred
stock, par value $0.001 per share, were outstanding. Each stockholder is
entitled to one vote for each share of Common Stock held on April 3, 2000.
Stockholders may not cumulate votes in the election of directors.
The inspector of election appointed for the meeting will tabulate all
votes. Affirmative and negative votes, abstentions and broker non-votes will be
separately tabulated. Abstentions and broker non-votes are counted as present
for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions will be counted towards the tabulations of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes will not be counted for purposes of
determining whether a proposal has been approved.
PROXIES
Shares represented by properly signed and returned proxy forms will be
voted at the Annual Meeting in accordance with the instructions specified. If
the proxy does not specify how to vote the shares represented, the proxy will be
voted FOR the election of each director proposed by the Company's Board of
Directors (the "Board") unless the authority to vote for the election of a
director is withheld and, if no contrary instructions are given, the proxy will
be voted FOR the approval of Proposals 2, 3 and 4 described in the accompanying
Notice and this Proxy Statement. You may revoke or change your Proxy at any time
before the Annual Meeting by filing with the Company's General Counsel at the
Company's principal executive offices at 6600 Peachtree-Dunwoody Road, 300
Embassy Row, Suite 500, Atlanta, Georgia 30328, a notice of revocation or
another signed Proxy with a later date. You may also revoke your Proxy by
attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. Copies
of solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians
<PAGE> 4
holding shares in their names that are beneficially owned by others so that they
may forward this solicitation material to beneficial owners. In addition, the
Company may reimburse such persons for their costs in forwarding the
solicitation materials to beneficial owners. The original solicitation of
proxies by mail may be supplemented by solicitation by telephone, telegram or
other means by directors, officers or employees of the Company. No additional
compensation will be paid to Company directors, officers or employees for such
services. Except as described above, the Company does not presently intend to
solicit proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by stockholders at the Company's 2001 annual meeting must be received no later
than December 13, 2000, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. Proper notice of a
stockholder proposal must be received by the Company no later than December 13,
2000 for the proposal to be timely under the Company's By-Laws. In addition, any
stockholder proposal must comply with the rules and regulations of the
Securities and Exchange Commission and all the requirements in the Company's
By-Laws.
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<PAGE> 5
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF THREE DIRECTORS FOR TERM ENDING IN 2003
GENERAL
Stockholders will elect three members of the Board at the Annual Meeting.
Thomas E. Noonan, Sam Nunn and David N. Strohm, who are currently directors,
were nominated by the Board to stand for election.
The Board currently consists of seven directors. The Company's Certificate
of Incorporation provides for a classified Board consisting of three classes of
directors with staggered three-year terms. Each class consists, as nearly as
possible, of one-third of the total number of directors. The class whose term of
office expires at the 2000 Annual Meeting consists of three directors. Each
director elected to this class will serve for a term of three years, expiring at
the 2003 annual meeting or when a successor has been elected and qualified. If
this proposal is approved, the composition of the Board will remain seven
directors, with one class of three directors and two classes of two directors
each.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that the nominees will be unavailable to serve. If a
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who may be designated by the
Board of Directors to fill the vacancy. Unless otherwise instructed, proxies
will be voted FOR the nominees named below.
NOMINEES FOR TERM ENDING AT THE 2003 ANNUAL MEETING OF STOCKHOLDERS
Thomas E. Noonan, 39, has served as President and a director since August
1995 and as Chief Executive Officer and Chairman of the Board of Directors since
November 1996. Prior to joining the Company, Mr. Noonan served as Vice
President, Sales and Business Development with TSI International, an electronic
commerce company then owned by Warburg Pincus and Dun & Bradstreet, from October
1994 until August 1995. From November 1989 until October 1994, Mr. Noonan held
high-level sales and marketing positions at Dun & Bradstreet Software, a
developer of enterprise business software. Prior to 1989, Mr. Noonan co-founded
Actuation Electronics, a motion control company for precision applications, and
founded Leapfrog Technologies, an object-oriented software development tools
company for networked applications. Mr. Noonan is also a director of Manhattan
Associates, Inc., a provider of technology-based solutions to improve supply
chain effectiveness and efficiencies. Mr. Noonan holds a B.S. in mechanical
engineering from the Georgia Institute of Technology and a C.S.S. in business
administration and management from Harvard University.
Sam Nunn, 61, has served as an advisor to the Company since February 1998
and as a director since October 1999. Mr. Nunn has been a senior partner in the
Atlanta law firm of King & Spalding since January 1997. Previously, he served in
the United States Senate for four terms starting in 1972. During his tenure in
the Senate, he served as chairman of the Senate Armed Services Committee and the
Permanent Subcommittee on Investigations. Mr. Nunn is a director of The
Coca-Cola Company, Dell Computer Corporation, General Electric Company, National
Service Industries, Inc., Scientific-Atlanta, Inc., Texaco, Inc. and Total
System Services, Inc., and several privately held companies. He also serves as
Chairman of the Board of the Center for Strategic and International Studies
(CSIS), a Washington, D.C. think tank. Mr. Nunn attended Georgia Tech and Emory
University and received a L.L.B. from Emory Law School.
David N. Strohm, 51, has served as a director of the Company since February
1996. Since 1980, Mr. Strohm has been an employee of Greylock Management
Corporation, a venture capital group, and has been a general partner of several
venture capital funds affiliated with Greylock. Mr. Strohm currently serves as a
director of DoubleClick, Inc., a provider of Internet advertising services,
Switchboard, Inc., an Internet-based local merchant networking company, and
Legato Systems, Inc., a data storage management software company, and several
privately held companies. Mr. Strohm received his B.A. from Dartmouth College
and his M.B.A. from Harvard Business School.
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<PAGE> 6
CONTINUING DIRECTORS FOR TERM ENDING AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
Robert E. Davoli, 51, has served as a director of the Company since
February 1996. Mr. Davoli has been a general partner of or an advisor to Sigma
Partners, a venture capital firm, since January 1995. Mr. Davoli was President
and Chief Executive Officer of Epoch Systems, Inc., a client/server storage
management provider, from February 1993 to September 1994. From May 1986 through
June 1992, Mr. Davoli was the President and Chief Executive Officer of SQL
Solutions, a relational database management systems consulting and tools company
that he founded and sold to Sybase, Inc. in January 1990. Mr. Davoli serves as a
director of Vignette Corporation, an Internet relationship management software
company, Versata, Inc., an e-business software applications and services
company, and several privately held companies. Mr. Davoli received a B.A. in
history from Ricker College.
Christopher W. Klaus, 26, founded the Company in April 1994 and served as
President until August 1995 and as Chief Executive Officer until November 1996.
Mr. Klaus continues to serve as Chief Technology Officer and as a director.
Prior to founding the Company, Mr. Klaus developed a shareware version of
Internet Scanner while attending the Georgia Institute of Technology.
CONTINUING DIRECTORS FOR TERM ENDING AT THE 2002 ANNUAL MEETING OF STOCKHOLDERS
Richard S. Bodman, 61, has served as a director of the Company since July
1997. Since May 1996, Mr. Bodman has served as President of Venture Management
Services, Inc., an independent company that manages equity funds and
investments, including those of AT&T Ventures. From August 1990 to May 1996, Mr.
Bodman served AT&T as Senior Vice President for Strategy and Development, as a
member of the AT&T's Management Executive Committee, and as Lead Director of
Sandia National Laboratories. From March 1985 to July 1990, he served as
President of Washington National Investment Corp. From June 1978 to December
1984, he served Communications Satellite Corp. respectively as Senior Vice
President and CFO, President and CEO of Comsat General Corporation and as
President of Satellite Television Corp. From June 1973 to May 1978, he held
several management positions at E.I. duPont de Nemours, Inc. From April, 1971 to
May 1973, served in the U.S. Government as Assistant Director of the Office of
Management and Budget in the Executive Office of the President and earlier as
Assistant Secretary of the U.S. Department of the Interior. From 1967 to 1971 he
was a partner of the international public accounting firm of Touche Ross & Co.
Mr. Bodman is also a director of TYCO International, Inc., Young & Rubicam Inc.
and several privately held companies. Mr. Bodman holds a B.S. in engineering
from Princeton University and an M.S. in industrial management from the
Massachusetts Institute of Technology and is a CPA.
Kevin J. O'Connor, 39, has served as a director of the Company since
October 1995. Mr. O'Connor has been the Chief Executive Officer and Chairman of
DoubleClick Inc., a provider of Internet advertising services, since January
1996. Mr. O'Connor is also a director of 1-800-FLOWERS.com, an e-commerce
provider of floral products and gifts, gourmet foods and home and garden
merchandise. From September 1994 to December 1995, Mr. O'Connor served as
Director of Research for Digital Communications Associates, a data
communications company (now Attachmate Corporation), and from April 1992 to
September 1994, as its Chief Technical Officer and Vice President, Research.
From its inception in May 1983 until its sale in April 1992, Mr. O'Connor served
as Vice President, Research of Intercomputer Communications Corp., a software
development company. Mr. O'Connor received his B.S. in electrical engineering
from the University of Michigan.
BOARD COMMITTEES AND MEETINGS
The Board held seven meetings during the fiscal year ended December 31,
1999 (the "1999 Fiscal Year"). The Board has an Audit Committee and a
Compensation Committee. Each director attended or participated in 75% or more of
the total number of meetings of the Board and the total number of meetings held
by all committees of the Board on which the director served during the 1999
Fiscal Year.
The Compensation Committee of the Board currently consists of three
directors, Messrs. Davoli, O'Connor and Strohm, and is primarily responsible for
reviewing and approving the Company's general compensation policies and setting
compensation levels for the Company's executive officers. The Compensa-
4
<PAGE> 7
tion Committee also has authority to administer the Company's Restated 1995
Stock Incentive Plan (the "1995 Plan") and to make option grants thereunder. The
Compensation Committee held four meetings and acted by unanimous written consent
twice during the 1999 Fiscal Year.
The Audit Committee of the Board currently consists of three directors,
Messrs. Bodman, Davoli and Nunn. The Audit Committee is primarily responsible
for approving the services performed by the Company's independent auditors and
reviewing their reports regarding the Company's accounting practices and systems
of internal accounting controls. The Audit Committee held two meetings during
the 1999 Fiscal Year. In December 1999, the Securities and Exchange Commission,
the National Association of Securities Dealers and the Auditing Standards Board
adopted new rules regarding audit committees. The Securities and Exchange
Commission rules include requirements that:
- independent auditors review interim financial statements before companies
file their Form 10-Q;
- proxy statements include a report from the audit committee;
- companies disclose in their proxy statements whether the audit committee
has a written charter, and file a copy of their charter every three
years; and
- companies disclose in their proxy statement information relating to the
independence of audit committee members.
The Rules of the National Association of Securities Dealers:
- define "independence;"
- require audit committees to include at least three members who are
independent and financially literate and at least one member having
accounting or financial management expertise; and
- require audit committees to adopt formal written charters that specify
the committee's responsibilities.
The Board and Audit Committee of the Board intend to conform to these rules
as soon as practicable, but in any event by the dates required by the rules. Mr.
Nunn replaced Mr. Noonan on the Company's Audit Committee at the April 10, 2000
Board meeting in anticipation of the independence requirement.
DIRECTOR COMPENSATION
Directors who are not employees of the Company do not receive annual
retainers or meeting fees but are reimbursed for their reasonable expenses in
connection with attending Board meetings.
Under the Automatic Option Grant Program as currently in effect under the
1995 Plan, each individual who first joins the Board as a non-employee director
will receive an option to purchase 40,000 shares of Common Stock on the date he
or she is first elected or appointed to the Board, provided he or she has not
otherwise been in the Company's prior employ. In addition, at each annual
stockholders meeting, each individual who continues to serve as a non-employee
Board member after the meeting will receive an additional option to purchase
5,000 shares of Common Stock. Proposal Three, beginning on page 8, describes a
proposed reduction to the number of shares automatically granted to non-employee
directors.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable, however, and any shares purchased upon
exercise of the option will be subject to repurchase by the Company if the
optionee's service as a non-employee Board member ceases prior to vesting in the
shares. An initial 40,000-share grant will vest in four equal successive annual
installments over an optionee's period of Board service. However, the shares
subject to each initial automatic grant will immediately vest upon certain
changes in the ownership or control of the Company or upon the death of the
optionee while serving as a Board member. Each additional annual 5,000-share
grant will vest immediately. Proposal Three describes a proposed increase in the
vesting period for the annual grants.
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<PAGE> 8
STOCKHOLDER APPROVAL
The three nominees receiving the most affirmative votes of the outstanding
voting shares of the Company present or represented and entitled to vote at the
Annual Meeting will be elected directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES LISTED ABOVE.
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PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION CHANGING THE COMPANY'S
NAME TO INTERNET SECURITY SYSTEMS, INC.
On April 10, 2000, the Board approved and declared advisable an amendment
to and restatement of the Company's certificate of incorporation, changing the
Company's name to "Internet Security Systems, Inc." The Company's stockholders
are asked to approve the amendment, which is intended to adopt as the Company's
corporate name the name used in the marketplace for its products and services.
No other changes will be made to the Company's certificate of incorporation, as
currently in effect, as a result of the proposed amendment. The Company's ticker
symbol for trading of its shares on the National Market of the Nasdaq Stock
Market will remain "ISSX".
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the Company's outstanding voting
shares is required for approval of the amendment to the certificate of
incorporation. The Board has adopted an amended and restated certificate of
incorporation containing the amendment contemplated by this proposal. If this
proposal is approved at the Annual Meeting, the proposed amendment would become
effective upon filing the amended and restated certificate of incorporation with
the Secretary of State of Delaware. The filing is expected to take place shortly
after stockholder approval. If stockholder approval is not obtained, then the
name of the Company will remain ISS Group, Inc. and will not become Internet
Security Systems, Inc.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION CHANGING THE
COMPANY'S NAME TO INTERNET SECURITY SYSTEMS, INC.
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<PAGE> 10
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE RESTATED 1995 STOCK INCENTIVE PLAN TO REDUCE THE
NUMBER OF SHARES INCLUDED IN OPTIONS AUTOMATICALLY GRANTED TO DIRECTORS AND
INCREASING THE VESTING PERIOD FOR ANNUAL GRANTS
The Company's stockholders are being asked to approve an amendment to the
Company's Restated 1995 Stock Incentive Plan (the "1995 Plan") that will change
the Automatic Option Grant Program for non-employee directors. This proposed
amendment is designed to bring the option grants to non-employee directors in
line with industry norms.
On April 10, 2000, the Board approved the amendment that reduces the number
of shares included in options granted to non-employee directors under the 1995
Plan's Automatic Option Grant Program, subject to stockholder approval at the
Annual Meeting. Approval of the proposed amendment will reduce the number of
shares included in future grants under the Automatic Option Grant Program.
Initial option grants will be reduced from 40,000 to 25,000 shares of Common
Stock, granted on the date the individual first becomes a non-employee member of
the Board. Annual option grants will be reduced from 5,000 to 2,500 shares of
Common Stock granted at each annual stockholders meeting, beginning with this
Annual Meeting, if the non-employee director continues to serve on the Board.
The amendment also increases the vesting period for the annual option
grants. At the 1999 annual meeting, the stockholders of the Company approved an
amendment providing for immediate vesting of options granted annually to
non-employee directors. This was done to minimize the effect of proposed
accounting rules on the Company's reported earnings arising from the grant of
options. However, the proposed rules did not take effect. Under the amendment,
each annual grant will vest upon the optionee's completion of one year of Board
service measured from the grant date.
A summary of the principal features of the 1995 Plan, as most recently
amended, and other relevant information appears after Proposal Four, beginning
on page 9.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Automatic Option Grant Program of
the 1995 Plan. If stockholder approval is not obtained, then the number of
shares subject to each automatic option grant to non-employee directors will not
be reduced, and the automatic annual grants will continue to vest immediately
upon grant. The 1995 Plan will, however, continue to remain in effect, and
option grants and direct stock issuances may continue to be made pursuant to the
provisions of the 1995 Plan, until the available reserve of Common Stock as last
approved by the stockholders has been issued pursuant to option grants and
direct stock issuances made under the 1995 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE AMENDMENTS TO THE AUTOMATIC OPTION GRANT PROGRAM.
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<PAGE> 11
PROPOSAL FOUR
APPROVAL OF AMENDMENT TO THE 1995 PLAN LIMITING THE NUMBER OF SHARES BY WHICH
THE SHARE RESERVE WILL AUTOMATICALLY INCREASE EACH CALENDAR YEAR UNDER THE 1995
PLAN
The Company's stockholders are being asked to approve an amendment to the
1995 Plan that will limit the number of shares of Common Stock by which the
share reserve will automatically increase each calendar year to the lesser of
(i) 2,000,000 shares or (ii) 3% of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
The number of shares reserved for issuance under the 1995 Plan
automatically increases on the first trading day of each calendar year by an
amount equal to 3% of the total number of shares of Common Stock outstanding on
the last trading day of the immediately preceding calendar year. On April 10,
2000, the Board approved an amendment to the 1995 Plan, limiting to 2,000,000
the number of shares added each year to the share reserve. The limit is not
expected to constrain the annual 3% automatic increase but permits the grant of
incentive options qualified under federal tax laws using the shares added to the
reserve under the automatic annual increase. The 2,000,000-share limit would be
adjusted for changes in the Common Stock due to stock splits, stock dividends,
recapitalizations, combinations of shares, share exchanges or other changes
affecting the Common Stock as a class without the Company's receipt of
consideration.
The Company relies significantly on equity incentives in the form of stock
option grants to attract and retain employees. The Board believes that stock
incentives, including incentive stock options qualified under federal tax laws,
are necessary for the Company to remain competitive in the marketplace for
employees.
A summary of the principal features of the 1995 Plan, as most recently
amended, and other relevant information appears after this Proposal Four,
beginning on page 9.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Annual Meeting is
required for approval of the amendments to the 1995 Plan. If stockholder
approval is not obtained, then the automatic annual increase in shares of Common
Stock reserved for granting options may not be used for granting qualified
incentive options. The 1995 Plan will, however, continue to remain in effect,
and option grants and direct stock issuances may continue to be made pursuant to
the provisions of the 1995 Plan, until the available reserve of Common Stock as
last approved by the stockholders has been issued pursuant to option grants and
direct stock issuances made under the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENTS TO THE 1995 PLAN.
1995 PLAN SUMMARY OF PRINCIPAL FEATURES
The following is a summary of the principal features of the 1995 Plan, as
most recently amended. This summary does not, however, purport to be a complete
description of all the provisions of the 1995 Plan. Any stockholder of the
Company who wishes to obtain a copy of the plan document may do so upon written
request to the Company at 6600 Peachtree-Dunwoody Road, Embassy Row, Building
300, Suite 500, Atlanta, Georgia 30328.
Equity Incentive Programs
The 1995 Plan consists of three separate equity incentive programs: (i) the
Discretionary Option Grant Program, (ii) the Stock Issuance Program and (iii)
the Automatic Option Grant Program for non-employee Board members. The principal
features of each program are described below. The Compensation Committee of the
Board has exclusive authority to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to option grants and stock issuances made
to the Company's executive officers and non-employee Board members. The Board
and Compensation Committee have concurrent authority to make option grants and
stock issuances under those programs to all other eligible individuals. The
Board may at any
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time appoint a secondary committee of one or more Board members to have separate
but concurrent authority with the Compensation Committee to make option grants
and stock issuances under those two programs to individuals other than the
Company's executive officers and non-employee Board members.
The term Plan Administrator, as used in this summary, will mean the
Compensation Committee, the Board and any secondary committee, to the extent
each such entity is acting within the scope of its administrative jurisdiction
under the 1995 Plan. However, none of the Compensation Committee, the Board or
any secondary committee exercise any administrative discretion under the
Automatic Option Grant Program. All grants under that program are made in strict
compliance with the express provisions of the program.
Share Reserve
An aggregate of 8,266,929 shares of Common Stock has been reserved to date
for issuance over the term of the 1995 Plan. Such share reserve includes the
1,229,405 shares added to the reserve on January 3, 2000 pursuant to the
automatic share increase provisions of the 1995 Plan. In addition, on the first
trading day of each calendar year during the term of the 1995 Plan, the number
of shares of Common Stock available for issuance under the 1995 Plan
automatically increases by an amount equal to 3% of the shares of the Company's
Common Stock outstanding on the last trading day of the immediately preceding
calendar year, subject to a maximum annual increase of 2,000,000 shares if
Proposal Four is approved.
No participant in the 1995 Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
600,000 shares of Common Stock in the aggregate per calendar year. Stockholder
approval of Proposal Four will also constitute a reapproval of the 600,000-share
limitation for purposes of Internal Revenue Code Section 162(m).
The shares of Common Stock issuable under the 1995 Plan may be drawn from
shares of the Company's authorized but unissued shares of Common Stock or from
shares of Common Stock reacquired by the Company, including shares repurchased
on the open market.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate, annually and per participant)
under the 1995 Plan and the securities and the exercise price per share in
effect under each outstanding option.
Eligibility
Officers, employees, non-employee Board members and independent consultants
in the service of the Company or its parent and subsidiaries (whether now
existing or subsequently established) are eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. Participation in the
Automatic Option Grant Program is limited to non-employee members of the Board.
As of February 29, 2000, eight executive officers, five non-employee Board
members and approximately 850 other employees and consultants were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
five non-employee Board members were also eligible to participate in the
Automatic Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 1995 Plan will be the closing selling price per share on that date on the
National Market of the Nasdaq Stock Market. On April 10, 2000 the fair market
value per share determined on such basis was $89.75.
Discretionary Option Grant Program
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants, the time or times when those grants are to be
10
<PAGE> 13
made, the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
Each granted option will have an exercise price per share equal to the fair
market value of the shares on the grant date unless otherwise determined by the
Plan Administrator. No granted option will have a term in excess of 10 years,
and the option will generally become exercisable in one or more installments
over a specified period of service measured from the grant date. However, one or
more options may be structured so that they will be immediately exercisable for
any or all of the option shares; the shares acquired under those options will be
subject to repurchase by the Company, at the exercise price paid per share, if
the optionee ceases service with the Company prior to vesting in those shares.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for vested
shares. The Plan Administrator will have complete discretion to extend the
period following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability or
vesting of such options in whole or in part. Such discretion may be exercised at
any time while the options remain outstanding, whether before or after the
optionee's actual cessation of service.
The Plan Administrator is authorized to issue tandem stock appreciation
rights under the Discretionary Option Grant Program, which provide the holders
with the right to surrender their options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such appreciation distribution may, at
the discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
The Plan Administrator also has the authority cancel any or all options
outstanding under the Discretionary Option Grant Program and to grant, in
substitution therefor, new options covering the same or a different number of
shares of Common Stock but with an exercise price per share based upon the fair
market value of the option shares on the new grant date.
Stock Issuance Program
Shares of Common Stock may be issued under the Stock Issuance Program at a
price per share equal to the fair market value of the shares unless otherwise
determined by the Plan Administrator and for such valid consideration under the
Delaware General Corporation Law as the Plan Administrator deems appropriate,
including cash and promissory notes. The shares may also be issued as a bonus
for past services without any cash outlay required of the recipient. The shares
issued may be fully vested upon issuance or may vest upon the completion of a
designated service period or the attainment of pre-established performance
goals. The Plan Administrator will, however, have the discretionary authority at
any time to accelerate the vesting of any and all unvested shares outstanding
under the Stock Issuance Program.
Non-Employee Director Automatic Option Grant Program
Under the Automatic Option Grant Program, non-employee Board members
receive option grants at specified intervals over their period of Board service.
All grants under the Automatic Option Grant Program will be made in strict
compliance with the express provisions of the program. Stockholder approval of
Proposal Three will also constitute approval of each option granted on or after
the date of the 2000 Annual Meeting pursuant to the provisions of the Automatic
Option Grant Program summarized below and the subsequent exercise of that option
in accordance with such provisions.
Prior to the amendment of the 1995 Plan set forth in Proposal Three, each
individual who was first elected or appointed as a non-employee Board member was
entitled to receive at the time of initial election or appointment a
non-statutory option to purchase 40,000 shares of the Company's Common Stock. In
addition, on the date of each annual stockholders meeting, each individual who
was to continue to serve as a non-employee Board member was entitled to receive
a non-statutory option on the date of the meeting to purchase
11
<PAGE> 14
5,000 shares of Common Stock. Each initial and annual option would be
immediately exercisable for all the option shares. However, shares purchased
under the 1995 Plan are subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of service prior to vesting
in those shares. Each initial grant vests in four equal annual installments upon
the optionee's completion of each successive year of Board service over the
four-year period measured from the grant date. The annual option grant vests
immediately on the grant date.
Under the Automatic Option Grant Program, as amended by the Board on April
10, 2000 and subject to stockholder approval as provided in Proposal Three, the
number of shares of Common Stock subject to the initial and annual grants in the
future is reduced, and the vesting period of the annual grants is increased, as
indicated in items 1, 2 and 3 below:
1. Each individual who first becomes a non-employee Board member on or
after the 2000 Annual Meeting, whether through election by the stockholders
or appointment by the Board, will automatically be granted, at the time of
initial election or appointment, a non-statutory option to purchase 25,000
shares of Common Stock, provided the individual has not previously been in
the Company's employ.
2. On the date of each annual meeting, beginning with the 2000 Annual
Meeting, each individual who is to continue to serve as a non-employee
Board member, whether or not standing for re-election at that particular
annual meeting, will automatically be granted a non-statutory option to
purchase 2,500 shares of Common Stock, provided the individual has served
as a non-employee Board member for at least six months. There will be no
limit on the number of 2,500-share option grants any one non-employee Board
member may receive over his or her period of Board service, and
non-employee Board members who have previously been in the Company's employ
will be eligible to receive annual grants.
3. Each initial and annual option will be immediately exercisable for
all of the option shares. However, any shares purchased under the option
will be subject to repurchase by the Company, at the exercise price paid
per share, upon the optionee's cessation of Board service prior to vesting
in those shares. The shares of Common Stock subject to the initial option
grant will vest in a series of four successive equal annual installments
upon the optionee's completion of each successive year of Board service
over the four-year period measured from the grant date. The shares of
Common Stock subject to each annual option grant will vest upon the
optionee's completion of one year of Board service measured from the grant
date.
Each automatic option grant will have an exercise price per share equal to
100% of the fair market value per share of Common Stock on the grant date. The
option will have a term of 10 years, subject to earlier termination at the end
of the 12-month period measured from the date of the optionee's cessation of
Board service.
Each automatic option will remain exercisable for a 12-month period
following the optionee's cessation of service as a Board member. In no event,
however, may the option be exercised after the expiration date of the option
term. During the applicable post-service exercise period, the option may not be
exercised for more than the number of option shares (if any) in which the Board
member is vested at the time of his or her cessation of Board service.
The shares subject to each automatic option grant will immediately vest
upon (i) the optionee's death or permanent disability while a Board member, (ii)
an acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than 50% of the Company's outstanding
voting stock or (iv) a change in the majority of the Board effected through one
or more proxy contests for Board membership
Each option granted under the Automatic Option Grant Program will include a
limited stock appreciation right so that upon the successful completion of a
hostile tender offer for more than 50% of the Company's outstanding voting
securities or a change in a majority of the Board as a result of one or more
contested elections for Board membership, the option may be surrendered to the
Company in return for a cash distribution from the Company. The amount of the
distribution per surrendered option share will be equal to the excess of (i) the
fair market value per share at the time the option is surrendered or, if
greater, the tender
12
<PAGE> 15
offer price paid per share in the hostile take-over over (ii) the exercise price
payable per share under such option. In addition, the Plan Administrator may
grant such rights to officers of the Company as part of their option grants
under the Discretionary Option Grant Program. Stockholder approval of Proposal
Three will also constitute pre-approval of each limited stock appreciation right
granted under the Automatic Option Grant Program and the subsequent exercise of
those rights in accordance with the foregoing terms.
The remaining terms and conditions of each automatic option grant will in
general conform to the terms summarized for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
General Provisions
Acceleration. If Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program that is not to
be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares outstanding under the Discretionary
Option Grant and Stock Issuance Programs will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation. If an option is assumed or replaced in
connection with an acquisition and within 12 months following the acquisition
the optionee is offered a lesser position or the optionee's service is
terminated, whether involuntarily or through a resignation for good reason, then
the exercisability of the option will accelerate in part so that the option will
become exercisable with respect to the next annual installment of option shares
for which the option is otherwise to become exercisable.
The Plan Administrator has the authority under the Discretionary Option
Grant Program to provide that those options will automatically vest in full (i)
upon an acquisition of the Company, whether or not those options are assumed or
replaced, (ii) upon a hostile change in control of the Company effected through
a tender offer for more than 50% of the Company's outstanding voting stock or by
proxy contest for the election of Board members, or (iii) in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed 12
months) following an acquisition in which those options are assumed or replaced
or otherwise continued in effect upon a hostile change in control. The vesting
of outstanding shares under the Stock Issuance Program may be accelerated upon
similar terms and conditions. The options granted under the Automatic Option
Grant Program will automatically accelerate and become exercisable in full upon
any acquisition or change in control transaction.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Financial Assistance. The Plan Administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options under the Discretionary Option Grant Program or the purchase of shares
under the Stock Issuance Program through full-recourse interest-bearing
promissory notes. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued shares
plus all applicable taxes incurred in connection with the acquisition of those
shares.
Special Tax Election. The Plan Administrator may provide one or more
holders of non-statutory options or unvested share issuances under the 1995 Plan
with the right to have the Company withhold a portion of the shares otherwise
issuable to such individuals in satisfaction of the withholding taxes to which
such individuals become subject in connection with the exercise of those options
or the vesting of those shares. Alternatively, the Plan Administrator may allow
such individuals to deliver previously acquired shares of common stock in
payment of such withholding tax liability.
Amendment and Termination. The Board may amend or modify the 1995 Plan at
any time, subject to any required stockholder approval pursuant to applicable
laws and regulations. Unless sooner terminated by the Board, the 1995 Plan will
terminate on the earliest of (i) September 6, 2005, (ii) the date on which all
shares available for issuance under the 1995 Plan have been issued as
fully-vested shares or (iii) the
13
<PAGE> 16
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
Option Grants
The table below shows, as to Company's Chief Executive Officer, the four
other most highly compensated executive officers of the Company (with base
salary and bonus for the past fiscal year in excess of $100,000) and the other
individuals and groups indicated, the number of shares of Common Stock subject
to option grants made under the 1995 Plan from January 1, 1999 through March 31,
2000, together with the weighted average exercise price payable per share. The
Company has not made any direct stock issuances to date under the 1995 Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS
GRANTED WEIGHTED AVERAGE
(NUMBER OF EXERCISE PRICE
NAME SHARES) OF GRANTED OPTIONS
- ---- ---------- ------------------
<S> <C> <C>
Thomas E. Noonan, President, Chief Executive Officer and
Chairman of the Board..................................... -- $ --
Alex Bogaerts, Vice President (Europe)(1)................... 44,000 33.65
Lin Ja Hong, Vice President (Asia/Pacific)(1)............... 24,000 36.18
Richard Macchia, Vice President and Chief Financial
Officer(2)................................................ 75,000 63.94
M. Thomas McNeight, Vice President (Americas Sales)......... -- --
All current executive officers as a group (eight persons)... 618,000 50.71
All employees, including current officers who are not
executive officers, as a group............................ 1,899,780 39.63
</TABLE>
- ---------------
(1) The shares underlying these options vest at a rate of 25% per year over a
four-year period.
(2) The shares underlying these options vest at a rate of 50% three years after
the grant date and 50% four years after the grant date.
As of February 29, 2000, options covering 4,680,590 shares of Common Stock
were outstanding under the 1995 Plan, 1,451,096 shares remained available for
future option grant or direct issuance and 2,135,243 shares have been issued
pursuant to the exercise of outstanding options under the 1995 Plan.
Federal Income Tax Consequences
Option Grants. Options granted under the 1995 Plan may be either incentive
stock options, which satisfy the requirements of Section 422 of the Internal
Revenue Code, or non-statutory options, which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. The optionee recognizes no taxable income at the
time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or
otherwise disposed of. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two years after the option grant
date and more than one year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will
result.
If the optionee makes a disqualifying disposition of the purchased
shares, the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i)
the fair market value of such shares on the option exercise date over (ii)
the exercise price paid for the shares. If the optionee makes a qualifying
disposition, the Company will not be entitled to any income tax deduction.
14
<PAGE> 17
Non-Statutory Options. An optionee recognizes no taxable income upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such
income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then
the optionee will not recognize any taxable income at the time of exercise
but will have to report as ordinary income, as and when the Company's
repurchase right lapses, an amount equal to the excess of (i) the fair
market value of the shares on the date the repurchase right lapses over
(ii) the exercise price paid for the shares. The optionee may, however,
elect under Section 83(b) of the Internal Revenue Code to include as
ordinary income in the year of exercise of the option an amount equal to
the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any
additional income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed
for the taxable year of the Company in which such ordinary income is
recognized by the optionee.
Stock Appreciation Rights. No taxable income is recognized upon receipt of
a stock appreciation right. The holder will recognize ordinary income, in the
year in which the stock appreciation right is exercised, in an amount equal to
the appreciation distribution. The Company will be entitled to an income tax
deduction equal to the appreciation distribution in the taxable year in which
such ordinary income is recognized by the optionee.
Direct Stock Issuances. The tax principles applicable to direct stock
issuances under the 1995 Plan will be substantially the same as those summarized
above for the exercise of non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying dispositions of incentive stock option shares
or the exercise of non-statutory options with exercise prices equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Internal Revenue Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the Company
without limitation under Section 162(m).
Accounting Treatment
Option grants under the Discretionary Option Grant and Automatic Option
Grant Programs with exercise prices equal to the fair market value of the option
shares on the grant date will not result in any direct charge to the Company's
reported earnings. However, the Company must disclose in footnotes to the
Company's financial statements, the fair value of those options and the
pro-forma impact those options would have upon the Company's reported earnings
if the fair value of those options at the time of grant were treated as a
compensation expense. In addition, the number of outstanding options may be a
factor in determining the Company's earnings per share on a fully-diluted basis.
Option grants or stock issuances made under the 1995 Plan with exercise or
issue prices less than the fair market value of the shares on the grant or issue
date will result in a direct compensation expense to the Company in an amount
equal to the excess of such fair market value over the exercise or issue price.
The expense must be amortized against the Company's earnings over the period
that the option shares or issued shares are to vest.
15
<PAGE> 18
Should one or more individuals be granted tandem stock appreciation rights
under the 1995 Plan, then such rights would result in a compensation expense to
be charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount (if any) by which the fair market value of the
shares of common stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end would be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for those rights.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
16
<PAGE> 19
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
March 31, 2000. The persons and groups included are (i) all persons who are
beneficial owners of five percent or more of the Company's Common Stock, (ii)
each director and nominee for director, (iii) the executive officers named in
the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and (iv) all current directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned, subject to community property laws, where applicable. Unless
otherwise indicated, the address for the following stockholders is c/o ISS
Group, Inc., 6600 Peachtree-Dunwoody Road, 300 Embassy Row, Suite 500, Atlanta,
Georgia 30328.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE(1)
- ---------------- --------- -------------
<S> <C> <C>
Christopher W. Klaus........................................ 5,702,585 13.6%
Ark Asset Management Co., Inc.(2)........................... 4,302,500 10.3
Thomas E. Noonan(3)......................................... 2,708,590 6.5
Alex Bogaerts(4)............................................ 71,250 *
Lin Ja Hong(5).............................................. 55,000 *
Richard Macchia(6).......................................... 206,200 *
M. Thomas McNeight(7)....................................... 121,400 *
Richard S. Bodman(8)........................................ 63,471 *
Robert E. Davoli(9)......................................... 168,551 *
Kevin J. O'Connor(10)....................................... 603,090 1.4
David N. Strohm(11)......................................... 135,000 *
Sam Nunn(12)................................................ 71,600 *
All directors and executive officers as a group (13
persons)(13).............................................. 9,908,973 23.7
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days following March
31, 2000, are deemed outstanding. However, shares subject to options are
not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Unless otherwise indicated in the footnotes
to this table, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Based solely on information provided by Ark Asset Management Co., Inc. on
its Schedule 13G filed January 6, 2000 with the Securities and Exchange
Commission. The address for Ark Asset Management Co., Inc., is 125 Broad
Street, New York, New York 10004.
(3) Includes 310,028 shares held in family trusts and options immediately
exercisable for 120,000 shares of Common Stock.
(4) Includes options immediately exercisable for 35,000 shares of Common Stock.
(5) Consists of options immediately exercisable for 55,000 shares of Common
Stock.
(6) Includes options immediately exercisable for 195,000 shares of Common
Stock.
(7) Consists of options immediately exercisable for 121,400 shares of Common
Stock.
(8) Includes options immediately exercisable for 45,000 shares of Common Stock.
Mr. Bodman's address is c/o AT&T Ventures, L.L.C., Two Wisconsin Circle,
Chevy Chase, Maryland 20815.
(9) Includes options immediately exercisable for 45,000 shares of Common Stock.
Mr. Davoli's address is c/o Sigma Partners, 20 Custom House Street, Suite
830, Boston, Massachusetts 02110.
(10) Includes options immediately exercisable for 45,000 shares of Common Stock.
Mr. O'Connor's address is c/o DoubleClick Inc., 41 Madison Avenue, New
York, New York 10010.
(11) Includes 110,000 shares held in a family trust and options immediately
exercisable for 5,000 shares of Common Stock. Mr. Strohm's address is c/o
Greylock Equity Limited Partnership, 755 Page Mill Road, Building A, Palo
Alto, California 94304.
(12) Includes options immediately exercisable for 70,000 shares of Common Stock.
Mr. Nunn's address is c/o King & Spalding, 191 Peachtree Street, Atlanta,
GA 30303.
(13) Includes options immediately exercisable for 766,400 shares of Common
Stock.
17
<PAGE> 20
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company
(collectively, the "Named Officers") whose salary and bonus for the 1999 Fiscal
Year was in excess of $100,000, for services rendered in all capacities to the
Company and its subsidiaries for the fiscal years ended December 31, 1997, 1998
and 1999. No other executive officers who would have otherwise been includable
in the table on the basis of salary and bonus earned for the 1999 fiscal year
has been excluded by reason of his or her termination of employment or change in
executive status during that year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
-------------------- OPTIONS
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS (# OF SHARES)
- ------------------------------ ---- -------- -------- -------------
<S> <C> <C> <C> <C>
Thomas E. Noonan.................................... 1999 $196,875 $ 18,500 --
President, Chief Executive Officer and 1998 185,486 95,000 240,000
Chairman of the Board 1997 130,000 60,000 --
Alex Bogaerts....................................... 1999 109,327 117,785 40,000
Vice President (Europe)(1) 1998 100,000 104,401 --
1997 89,000 76,000 50,000
Lin Ja Hong......................................... 1999 122,068 172,067 20,000
Vice President (Asia/Pacific) 1998 110,000 62,642 30,000
1997 110,000 43,890 55,000
Richard Macchia..................................... 1999 142,000 32,890 --
Vice President and Chief Financial Officer 1998 135,000 35,320 --
1997 1,688(2) -- 250,000
M. Thomas McNeight.................................. 1999 135,000 86,051 --
Vice President (Americas Sales) 1998 125,000 240,874 --
1997 125,000 91,300 --
</TABLE>
- ---------------
(1) Mr. Bogaerts' compensation, other than options, was paid to a consulting
company owned by Mr. Bogaerts.
(2) Mr. Macchia joined the Company in December 1997.
18
<PAGE> 21
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the stock options
granted to the Named Officers during the 1999 Fiscal Year. All the grants were
made under the 1995 Plan. No stock appreciation rights were granted to the Named
Officers during such fiscal year.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
NUMBER % OF TOTAL POTENTIAL REALIZABLE VALUE AT
OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE MARKET OPTION TERM(1)
OPTIONS IN PRICE PER PRICE PER EXPIRATION ------------------------------
NAME GRANTED 1999 SHARE SHARE DATE 5% 10%
- ---- ----------- ------------ --------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Noonan...... -- --% $ -- $ -- -- $ -- $ --
Alex Bogaerts......... 40,000(2) 2.3 30.625 30.625 10/17/09 770,396 1,952,335
Lin Ja Hong........... 20,000(2) 1.2 30.625 30.625 10/17/09 385,198 976,167
Richard Macchia....... -- -- -- -- -- -- --
M. Thomas McNeight.... -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Future value assumes appreciation in the market value of the Common Stock of
5% and 10% per year over the ten-year option period as mandated by the rules
and regulations of the Securities and Exchange Commission and does not
represent the Company's estimate or projection of the future value of the
Common Stock. The actual value realized may be greater than or less than the
potential realizable values set forth in the table.
(2) The shares underlying these options vest 25% per year over a four-year
period and are subject to repurchase by the Company at the exercise price
should the individual cease his employment with the Company prior to full
vesting. If the Company is acquired by merger, consolidation or asset sale,
the option shares will accelerate in full unless the successor assumes these
options. In the event that the successor assumes these options, if within 12
months following the acquisition, the individual's position is reduced to a
lesser position or the individual's employment is involuntarily terminated,
the option shares will accelerate in part so that the next annual
installment of option shares scheduled to vest will immediately vest in full
and, to the extent the individual continues in the Company's service, each
installment of option shares scheduled to vest thereafter will vest on each
subsequent anniversary of the acceleration date. Each option expires on the
earlier of ten years from the date of grant or termination of the
individual's employment with the Company. All options were granted at fair
market value as determined by the Board on the date of grant.
19
<PAGE> 22
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information, with respect to the Named
Officers, concerning the exercise of options during the 1999 Fiscal Year and
unexercised options held by them at the end of that fiscal year. None of the
Named Officers exercised any stock appreciation rights during the 1999 Fiscal
Year and no stock appreciation rights were held by the Named Officers at the end
of such year.
AGGREGATE 1999 OPTION EXERCISES AND 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Noonan....... -- -- 100,000(2) 100,000(2) $ 6,112,500 $6,112,500
Thomas E. Noonan....... -- -- 20,000(3) 20,000(3) 1,202,500 1,202,500
Alex Bogaerts.......... 22,500 607,063 35,000(4) 40,000 2,481,125 1,620,000
Lin Ja Hong............ 5,000 144,594 57,500(4) 42,500 3,951,000 2,185,313
Richard Macchia........ 35,000 872,188 215,000(4) -- 14,539,375 --
M. Thomas McNeight..... 38,600 1,189,850 213,400(4) -- 16,440,970 --
</TABLE>
- ---------------
(1) Value determined by subtracting the exercise price from the closing price
per share of the Common Stock on the Nasdaq National Market on December 31,
1999 ($71.125 per share).
(2) The option is exercisable in its entirety on March 12, 2004, subject to
acceleration based upon achievement of prescribed revenue levels. Based upon
the Company's 1999 revenues, the option became exercisable for 50,000
additional shares on December 31, 1999. As of December 31, 1999, options for
100,000 shares were vested and exercisable.
(3) The option is exercisable in its entirety on March 12, 2003, subject to
acceleration based upon achievement of prescribed revenue levels. Based upon
the Company's 1999 revenues, the option became exercisable for 10,000
additional shares on December 31, 1999. As of December 31, 1999, options for
20,000 shares were vested and exercisable.
(4) The shares purchasable upon exercise of the options are subject to
repurchase by the Company at the exercise price upon the optionee's
termination of employment prior to vesting in the shares. The Company's
repurchase right lapses with respect to, and the optionee vests in, 25% of
the option shares upon the optionee's completion of each year of service. As
of December 31, 1999, the number of exercisable vested option shares for
each named officer was as follows: Mr. Bogaerts -- no shares; Mr.
Lin -- 30,000 shares; Mr. Macchia -- 89,998 shares; Mr. McNeight -- 113,900
shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company does not have any existing employment agreements with any Named
Officer.
The Compensation Committee of the Board, as Plan Administrator of the 1995
Plan, has exclusive authority to provide for accelerated vesting of the shares
of Common Stock subject to any outstanding options held by the Chief Executive
Officer or any other executive officer or any unvested share issuances actually
held by the individual, in connection with certain changes in control of the
Company or the subsequent termination of the officer's employment following the
change in control event. The Company does have agreements with certain
management members regarding acceleration of option vesting in the event of the
consummation of a transaction that results in a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board established a Compensation Committee in February 1996. During
1997, 1998 and 1999, Messrs. Davoli, O'Connor and Strohm served as members of
the Compensation Committee. None of these individuals has served at any time as
one of the Company's officers or employees. Prior to the establishment of the
Compensation Committee, the Board made all decisions relating to executive
compensation. For a description of the transactions between the Company and
members of the Compensation Committee and
20
<PAGE> 23
entities affiliated with the members, see "Certain Transactions". None of the
Company's executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Board or Compensation Committee.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the Chief
Executive Officer, and to establish the general compensation policies for the
individuals. The Compensation Committee also has the exclusive authority to make
discretionary option grants to the Company's executive officers under the 1995
Plan.
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to the
individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities that
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance and which are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of three elements: (i) base salary
that is competitive with the market and reflects individual performance, (ii)
annual variable performance awards payable in cash and tied to the Company's
achievement of annual financial performance goals and (iii) long-term
stock-based incentive awards designed to strengthen the mutuality of interests
between the executive officers and the Company's stockholders. As an officer's
level of responsibility increases, a greater proportion of his or her total
compensation will be dependent upon the Company's financial performance and
stock price appreciation rather than base salary.
The Company retains the services of an independent compensation consulting
firm to advise the Committee as to how the Company's executive compensation
levels compare to those of companies within and outside of the industry.
Factors. The principal factors that were taken into account in
establishing each executive officer's compensation package for the 1999 Fiscal
Year are described below. However, the Compensation Committee may in its
discretion apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
Base Salary. In setting base salaries, the Compensation Committee reviewed
published compensation survey data for its industry. The base salary for each
officer reflects the salary levels for comparable positions in the published
surveys, as well as the individual's personal performance and internal alignment
considerations. The relative weight given to each factor varies with each
individual in the sole discretion of the Compensation Committee. Each executive
officer's base salary is adjusted each year on the basis of (i) the Compensation
Committee's evaluation of the officer's personal performance for the year and
(ii) the competitive marketplace for persons in comparable positions. The
Company's performance and profitability may also be a factor in determining the
base salaries of executive officers.
Annual Incentives. The Chief Executive Officer was eligible for annual
incentive bonuses based on a percentage of his base pay (approximately 50% for
the 1999 Fiscal Year) adjusted to reflect the actual financial performance of
the Company in comparison to the Company's business plan, and additional bonuses
based on the Company attaining certain sales targets. The other executive
officers of the Company were also awarded incentive compensation based on
achievement of sales quotas or bonuses equal to a percentage of base salary on
the basis of the Company's performance and attainment of individual goals. Based
on the Company's performance for the 1999 Fiscal Year, bonuses were awarded to
the Named Officers in the amounts indicated in the Summary Compensation Table.
21
<PAGE> 24
Long Term Incentives. Generally, stock option grants are made annually by
the Compensation Committee to each of the Company's executive officers. Each
grant is designed to align the interests of the executive officer with those of
the stockholders and provide each individual with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business. Each grant allows the officer to acquire shares of the Company's
Common Stock at a fixed price per share (the market price on the grant date)
over a specified period of time (up to 10 years). Options generally vest in
equal annual installments over a four-year period, contingent upon the officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he or she remains employed by the
Company during the vesting period, and then only if the market price of the
shares appreciates over the option term.
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future responsibility
and promotion over the option term. The Compensation Committee also takes into
account the number of unvested options held by the executive officer in order to
maintain an appropriate level of equity incentive for that individual. The
relevant weight given to each of these factors varies from individual to
individual. The Compensation Committee has established certain guidelines with
respect to the option grants made to the executive officers, but has the
flexibility to make adjustments to those guidelines at its discretion.
CEO Compensation. In setting the total compensation payable to the
Company's Chief Executive Officer for the 1999 Fiscal Year, the Compensation
Committee sought to make that compensation competitive with the compensation
paid to the chief executive officers of the companies in the surveyed group,
while at the same time assuring that a significant percentage of compensation
was tied to Company performance and stock price appreciation.
The Compensation Committee adjusted Mr. Noonan's base salary for the 1999
Fiscal Year in recognition of his personal performance and with the objective of
maintaining his base salary at a competitive level when compared with the base
salary levels in effect for similarly situated chief executive officers. With
respect to Mr. Noonan's base salary, it is the Compensation Committee's intent
to provide him with a level of stability and certainty each year and not have
this particular component of compensation affected to any significant degree by
Company performance factors.
The remaining components of Mr. Noonan's 1999 Fiscal Year compensation,
however, were primarily dependent upon the Company's performance. Mr. Noonan was
paid $18,500 of cash bonuses for the 1999 Fiscal Year, although he was eligible
for larger bonuses based on financial performance of the Company in comparison
to the Company's business plan and upon the Company's attainment of certain
sales goals. Prior to the 1999 Fiscal Year, the Compensation Committee awarded a
stock option grant to Mr. Noonan in order to provide him with an equity
incentive to continue contributing to the financial success of the Company. The
option will have value for Mr. Noonan only if the market price of the underlying
option shares appreciates over the market price in effect on the date the grant
was made. Mr. Noonan's options vest as described in footnotes 2 and 3 to the
table above titled "Aggregate 1999 Option Exercises and 1999 Year-End Option
Values" on page 20.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code disallows a tax deduction to publicly held companies
for compensation paid to certain of their executive officers, to the extent that
compensation exceeds $1 million per covered officer in any fiscal year. The
limitation applies only to compensation that is not considered to be
performance-based. Non-performance based compensation paid to the Company's
executive officers for the 1999 Fiscal Year did not exceed the $1 million limit
per officer, and the Compensation Committee does not anticipate that the
non-performance based compensation to be paid to the Company's executive
officers for fiscal 2000 will exceed that limit. The Company's 1995 Plan has
been structured so that any compensation deemed paid in connection with the
22
<PAGE> 25
exercise of option grants made under that plan with an exercise price equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is unlikely that the cash compensation payable to any of
the Company's executive officers in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided at this time not to take
any action to limit or restructure the elements of cash compensation payable to
the Company's executive officers. The Compensation Committee will reconsider
this decision if the individual cash compensation of any executive officer ever
approaches the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short-term and long-term.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Robert E. Davoli
Kevin J. O'Connor
David N. Strohm
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company and the Nasdaq Computers and Data Processing Services
Index.
<TABLE>
<CAPTION>
ISSX NASDAQ
---- ------
<S> <C> <C>
3/24/98 100.00 100.00
12/31/98 136.22 140.43
12/31/99 352.31 308.43
</TABLE>
- ---------------
(1) The graph covers the period from March 24, 1998 (the first day of trading
after the Company's initial public offering of shares of its Common Stock)
to December 31, 1999.
(2) The graph assumes that $100 was invested in the Company's Common Stock on
March 24, 1998, and in the Nasdaq Computers and Data Processing Services
Index, and that all dividends were reinvested. No cash dividends have been
declared or paid on the Company's Common Stock.
23
<PAGE> 26
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall the graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
24
<PAGE> 27
CERTAIN TRANSACTIONS
In addition to the indemnification provisions contained in the Company's
Restated Certificate of Incorporation and Bylaws, the Company has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require the Company, among other things, to indemnify the
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by the individual in
connection with any action, suit or proceeding arising out of the individual's
status or service as a director or officer of the Company and to advance
expenses incurred by the individual in connection with any proceeding against
the individual with respect to which the individual may be entitled to
indemnification by the Company. Liabilities arising from willful misconduct or
conduct that is knowingly fraudulent or deliberately dishonest are excluded from
the indemnification obligation.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board, and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board, the executive officers of the Company and persons
who hold more than 10% of the Company's outstanding Common Stock are subject to
the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934, which require them to file reports with respect to their ownership of the
Common Stock and their transactions in Common Stock. Based upon (i) the copies
of Section 16(a) reports which the Company received from such persons for their
1999 Fiscal Year transactions in the Common Stock and their Common Stock
holdings, and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for the
1999 Fiscal Year, the Company believes that all reporting requirements under
Section 16(a) for the fiscal year were met in a timely manner by its directors,
executive officers and greater than 10% beneficial owners.
INDEPENDENT AUDITORS
The Board has appointed the firm of Ernst & Young LLP, independent public
auditors for the Company during the 1999 Fiscal Year, to serve in the same
capacity for the year ending December 31, 2000. The Board, in its discretion,
may direct the appointment of a different independent auditing firm at any time
during the year if the Board believes that a change would be in the best
interests of the Company and its stockholders.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
ANNUAL REPORT AND FORM 10-K
A copy of the Annual Report of the Company for the 1999 Fiscal Year has
been mailed concurrently with this Proxy Statement to all stockholders entitled
to notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy solicitation
material. In addition, the Company filed an Annual Report on Form 10-K with the
Securities and Exchange Commission on or about March 30, 2000. A copy of the
Company's Annual Report on Form 10-K is available without charge upon written
request to the Company at its principal executive offices, 6600
Peachtree-Dunwoody Road, 300 Embassy Row, Suite 500, Atlanta, Georgia 30328.
THE BOARD OF DIRECTORS OF ISS GROUP, INC.
Dated: April 12, 2000
25
<PAGE> 28
ISS GROUP, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS, MAY 24, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ISS GROUP, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of Annual Meeting of Stockholders to be held May 24, 2000 and the Proxy
Statement and appoints Richard Macchia and Jon Ver Steeg, and each of them, the
Proxy of the undersigned, with full power of substitution, to vote all shares of
Common Stock of ISS Group, Inc. (the "Company") which the undersigned is
entitled to vote, either on his or her own behalf or on behalf of any entity or
entities, at the Annual Meeting of Stockholders of the Company to be held at the
LaQuinta Inn, 6260 Peachtree-Dunwoody Road, Atlanta, Georgia 30328, on
Wednesday, May 24, 2000 at 11:00 A.M. (the "Annual Meeting"), and at any
adjournment or postponement thereof, with the same force and effect as the
undersigned might or could do if personally present. The shares represented by
this Proxy shall be voted in the manner set forth on the reverse side.
1. To elect directors to serve for a three-year term ending in the year 2003
or until a successor is duly elected and qualified:
<TABLE>
<S> <C> <C>
FOR WITHHOLD AUTHORITY TO VOTE
Thomas E. Noonan [ ] [ ]
Sam Nunn [ ] [ ]
David N. Strohm [ ] [ ]
</TABLE>
2. To approve an amendment to the Company's certificate of incorporation
changing the Company's name to "Internet Security Systems, Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve amendments to the Company's Restated 1995 Stock Incentive Plan
(the "1995 Plan"), reducing the number of shares included in future
options granted to non-employee directors under the 1995 Plan's Automatic
Option Grant Program and increasing the vesting period for annual
automatic grants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be dated and signed on reverse side)
4. To approve amendments to the 1995 Plan, limiting the number of shares of
Common Stock reserved under the automatic annual increase provisions of
the 1995 Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In accordance with the discretion of the proxy holders, to act upon all
matters incident to the conduct of the Annual Meeting and upon other
matters as may properly come before the Annual Meeting.
The Board of Directors recommends a vote FOR the directors listed above and a
vote FOR each of the listed proposals. This Proxy, when properly executed, will
be voted as specified above. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE DIRECTORS LISTED ABOVE AND FOR THE OTHER
PROPOSALS.
Please print the name(s)
appearing on each share
certificate(s) over which you
have voting authority:
------------------------------
(Print name(s) on certificate)
Please sign your name:
------------------------------
------------------------------
(Authorized Signature(s))
------------------------------
Dated: , 2000
-----------------------
