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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
IDG BOOKS WORLDWIDE, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
[ ] 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.
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[IDG LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 9, 1999
To the Stockholders:
Notice is hereby given that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of IDG Books Worldwide, Inc., a Delaware corporation (the
"Company"), will be held on Tuesday, February 9, 1999 at 10:00 a.m., Pacific
Standard Time, at the Sheraton Palace Hotel, 2 New Montgomery Street, San
Francisco, CA 94105, for the following purposes:
1. To elect directors to serve for a term of one year and until each of
their respective successors is duly elected.
2. To approve an amendment to the Company's 1998 Stock Plan to permit the
granting of options to purchase Common Stock of the Company to employees
and consultants of "Affiliates" of the Company.
3. To ratify the appointment of Deloitte & Touche LLP as independent
accountants of the Company for the fiscal year ending September 25,
1999.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting of Stockholders. Only
stockholders of record at the close of business on December 15, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if he or she
has returned a proxy card.
By Order of the Board of Directors
[BALL SIG]
John P. Ball
Executive Vice President, Operations
and Administration, and Secretary
Foster City, California
January 13, 1999
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED ENVELOPE.
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IDG BOOKS WORLDWIDE, INC.
------------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
------------------------
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of IDG
Books Worldwide, Inc., a Delaware corporation (the "Company"), for use at the
1998 Annual Meeting of Stockholders (the "Annual Meeting") to be held on
Tuesday, February 9, 1999 at 10:00 a.m., Pacific Standard Time, and at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the
Sheraton Palace Hotel, 2 New Montgomery Street, San Francisco, CA 94105. The
Company's principal executive offices are located at 919 E. Hillsdale Blvd.,
Suite 400, Foster City, CA 94404, and its telephone number at that location is
(650) 655-3000.
This Proxy Statement and the enclosed proxy card were mailed on or about
January 13, 1999, together with the Company's 1998 Annual Report to
Stockholders, to all stockholders entitled to vote at the Annual Meeting.
RECORD DATE
Stockholders of record at the close of business on December 15, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. As
of the Record Date, 14,080,000 shares of the Company's Class A Common Stock,
$0.001 par value (the "Class A Common Stock"), and 200,000 shares of the
Company's Class B Common Stock, $0.001 par value (the "Class B Common Stock"),
were issued and outstanding and entitled to be voted at the Annual Meeting. For
information regarding security ownership by management and by the beneficial
owners of more than 5% of the Company's Common Stock, see "Security Ownership of
Certain Beneficial Owners and Management." The closing price of the Company's
Class A Common Stock on the Nasdaq National Market on the Record Date was
$16.875 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a date
later than that of the previously submitted proxy, or by attending the Annual
Meeting and voting in person.
VOTING AND SOLICITATION
Each holder of Class A Common Stock is entitled to one vote for each share
of Class A Common Stock on all matters presented at the Annual Meeting, and each
holder of Class B Common Stock is entitled to ten votes for each share of Class
B Common Stock on all matters presented at the Annual Meeting. Stockholders do
not have the right to cumulate their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
may reimburse brokerage firms and other persons representing beneficial owners
of Common Stock for their reasonable expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone, telegram, letter or facsimile.
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QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the voting power of the Common Stock entitled to vote
shall constitute a quorum for the transaction of business. The Company intends
to include abstentions and broker non-votes as present for purposes of
establishing a quorum for the transaction of business, to include abstentions
and to exclude broker non-votes from the calculation of shares entitled to vote
with respect to any proposal for which authorization to vote was withheld.
PROCEDURE FOR SUBMITTING STOCKHOLDER PROPOSALS
Any proposal of a stockholder of the Company which is intended to be
presented by such stockholder at the Company's Year 1999 Annual Meeting of
Stockholders, either pursuant to inclusion in the proxy statement and form of
proxy relating to such meeting or otherwise, must be received by the Secretary
of the Company no later than September 16, 1999.
The Company's Bylaws provide that a stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the corporation which are beneficially owned by the stockholder, (iv)
any material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in his capacity as a proponent to a stockholder proposal. In
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the Exchange Act
and the proposal must otherwise be eligible for inclusion pursuant to such
regulations. In addition, such stockholder's notice shall set forth as to each
person, if any, whom the stockholder proposes to nominate for election or
re-election as a director: (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person, (iv) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (v) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected).
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES
The Company's Board of Directors currently consists of six members, each of
whom will be elected at the Annual Meeting for a term of one year.
The Board of Directors has selected the nominees listed below to be
re-elected at the Annual Meeting as the members of the Company's Board of
Directors. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for these nominees. In the event that any such 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 shall be designated by the present
Board of Directors to fill the vacancy; however, the Company has no reason to
believe that the listed nominees will be unable or will decline to serve as
directors. The directors elected at this Annual Meeting will serve for a term of
one year or until the respective director's successor has been elected and
qualified.
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The names of the nominees for members of the Company's Board of Directors,
their ages as of December 15, 1998, and certain other related information are
set forth below. There are no family relationships between any of the nominees.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
John J. Kilcullen...................... 39 Chairman of the Board of Directors and
Chief Executive Officer
Patrick J. McGovern.................... 61 Director
James A. Casella....................... 50 Director
Kelly P. Conlin........................ 38 Director
Jack A. Hoeft.......................... 52 Director
Lawrence B. Levy....................... 39 Director
</TABLE>
John J. Kilcullen. Mr. Kilcullen has served as Chief Executive Officer of
the Company since July 1991 and has been a director of the Company and Chairman
of the Board since March 1998. Prior to that, Mr. Kilcullen served as Vice
President, Sales and Marketing and Publisher of the Company from April 1990 to
July 1991. For the nine years prior to joining the Company, Mr. Kilcullen worked
in various sales and marketing capacities for two publishing industry leaders,
Bantam/Doubleday, Dell, Inc. and Prentice-Hall, and computer book publisher Que
Corporation.
Patrick J. McGovern. Mr. McGovern has been a director of the Company since
its inception in February 1990. Mr. McGovern is the founder and chairman of the
board of directors of International Data Group ("IDG"), a Massachusetts
corporation and the parent corporation of the Company. Mr. McGovern has served
as the Chairman and Chief Executive Officer of IDG and its predecessor since
February 1964. Mr. McGovern also serves on the Board of Directors of the
Magazine Publishers Association, a number of IDG subsidiaries, and on the Board
of Trustees of the Massachusetts Institute of Technology, and the Whitehead
Institute for Biomedical Research.
James A. Casella. Mr. Casella has been a director of the Company since May
1998. Mr. Casella has served as the Chief Operating Officer of IDG, since March
1995. From March 1992 to March 1995, Mr. Casella served as the President of
Infoworld Media Group, Inc., a subsidiary of IDG. Mr. Casella also serves on the
Board of Directors of BPA International, a privately-held company, and a number
of IDG's subsidiaries.
Kelly P. Conlin. Mr. Conlin has been a director of the Company since
January 7, 1999. Mr. Conlin has served as President of IDG since October 1995.
Mr. Conlin served as President of IDG Marketing Services from 1991 to October
1995. Mr. Conlin also serves as a director of American Business Press, a
privately-held company, and a number of IDG's subsidiaries.
Jack A. Hoeft. Mr. Hoeft has been a director of the Company since October
1998. Mr. Hoeft is currently a member of the Supervisory Board of Random House,
Inc., an international book publisher. Prior to that, Mr. Hoeft served as
Chairman and Chief Executive Officer of Bantam/Doubleday, Dell, Inc. from
January 1996 to July 1998 and as President and Chief Executive Officer from June
1991 to January 1996. Mr. Hoeft is also a member of the board of directors of
the Keeler Tavern Preservation Society and a trustee of the University of
Dayton.
Lawrence B. Levy. Mr. Levy has been a director of the Company since October
1998. Since February 1995, Mr. Levy has served as Executive Vice President and
Chief Financial Officer of Pixar, a digital animation movie studio. From April
1991 to February 1995, Mr. Levy held various positions at Electronics For
Imaging, Inc., a digital color imaging product company, most recently as
Executive Vice President and Chief Financial Officer. Prior to that, Mr. Levy
was an attorney with Wilson Sonsini Goodrich & Rosati, a private law firm, where
he was elected to membership in February 1990.
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BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of one meeting during
fiscal 1998. Each incumbent director attended at least 75% of the aggregate of
the total number of meetings of the Board of Directors during each director's
service on the Board and the total number of meetings of the committees upon
which he or she served. Certain matters were approved by the Board of Directors
and its committees by unanimous written consent. The Board of Directors of the
Company has two standing committees: an Audit Committee and a Compensation
Committee.
The Audit Committee, which currently consists of Mr. Hoeft and Mr. Levy, is
responsible for, among other things, (i) reviewing and recommending the
selection and retention of the Company's independent accountants, (ii) approving
the services performed by such accountants, (iii) consulting with such
accountants and reviewing with them the results of their examinations, (iv)
overseeing compliance with SEC requirements for disclosure of auditors' services
and audit committee members and activities, (v) reviewing the Company's
accounting and financial resources and (vi) reviewing and evaluating the
Company's system of internal accounting controls, policies and procedures. The
Audit Committee, which was established in October 1998, held no meetings during
fiscal 1998.
The Compensation Committee, which currently consists of Mr. Hoeft and Mr.
Levy, is responsible for (i) reviewing and making recommendations to the Board
regarding the compensation policy for the Company's officers and directors, (ii)
administering the Company's current stock plans and reviewing and making
recommendations regarding other proposed or adopted compensatory plans, (iii)
reviewing and making recommendations to the Board regarding all forms of
compensation to be provided to the Company's executive officers, (iv) reviewing
and making recommendations to the Board regarding general compensation goals and
guidelines for the Company's employees, (v) preparing the Report of the
Compensation Committee and (vi) authorizing the repurchase of shares from
terminated employees pursuant to applicable law. The Compensation Committee,
which was established in October 1998, held no meetings during fiscal 1998.
DIRECTOR COMPENSATION
The Company's directors who are not officers or employees of the Company
are paid an annual retainer of $10,000 and a fee of $1,000 for each meeting
attended of the Board of Directors or of a committee of the Board. The Company's
1998 Stock Plan provides for automatic grants to non-employee directors of
options to purchase 10,000 shares of the Class A Common Stock upon the election
of the director and options to purchase 5,000 shares of the Class A Common Stock
annually. The 1998 Stock Plan provides that options issuable to directors of the
Company who are also officers or directors of IDG will, at the election of IDG,
be issued to IDG or an officer, director or employee of IDG designated by IDG.
IDG designated that the options to purchase 10,000 shares of the Class A Common
Stock issuable to each of Mr. McGovern and Mr. Casella be issued instead to IDG.
During fiscal 1998 the Company granted Mr. Kilcullen, in connection with his
employment with the Company, options to purchase 250,000 shares of the Class A
Common Stock at an exercise price of $11.88 per share. During fiscal 1998, no
other directors received options to purchase capital stock of the Company.
REQUIRED VOTE
The six nominees receiving the highest number of affirmative votes of the
shares entitled to be voted shall be elected to the Board of Directors. Votes
withheld are counted for purposes of determining the presence or absence of a
quorum for the transaction of business, but they otherwise have no legal effect
under Delaware law.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF MESSRS. KILCULLEN, MCGOVERN, CASELLA, CONLIN, HOEFT AND
LEVY.
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PROPOSAL NO. 2
AMENDMENT TO 1998 STOCK PLAN
GENERAL
The Board of Directors adopted the Company's 1998 Stock Plan (the "Stock
Plan") in May 1998. The Stock Plan provides for the granting to employees
(including officers and employee directors) of incentive stock options and for
the granting to employees, directors and consultants of nonstatutory stock
options. The number of shares of Class A Common Stock reserved for issuance
under the Stock Plan is 2,850,000. As of the Record Date, options to purchase a
total of 1,853,750 shares of Class A Common Stock were issued and outstanding
under the Stock Plan and a total of 996,250 shares remained available for future
grant.
PROPOSAL
In November 1998, the Board of Directors adopted, subject to stockholder
approval, an amendment to the Stock Plan to permit the granting of options to
purchase shares of Class A Common Stock of the Company to employees and
consultants of "Affiliates" of the Company. "Affiliate" means any corporation or
other organization that directly, or indirectly through one or more
intermediaries, is at least ten percent owned by the Company.
The Board of Directors believes that the approval of the amendment to the
Stock Plan is in the best interests of the Company and its stockholders, as the
ability to grant stock options are important factors in attracting, motivating
and retaining qualified personnel essential to the success of the Company and
any "Affiliates" of the Company.
REQUIRED VOTE
The affirmative vote by the holders of a majority of the Common Stock
present in person or represented by proxy and entitled to vote on the subject
matter is required to approve the amendment to the Stock Plan.
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE AMENDMENT TO THE STOCK PLAN.
SUMMARY OF THE STOCK PLAN
The following summary of the Stock Plan is qualified in its entirety by the
specific language of the Stock Plan, a copy of which is available to any
stockholder upon written request to the Secretary of the Company.
Purpose. The purposes of the Stock Plan are to attract and retain the best
available directors and personnel for positions of substantial responsibility,
to provide additional incentive to employees and consultants of the Company and
to promote the success of the Company's business.
Administration. The Stock Plan may be administered by the Board of
Directors or a committee of the Board of Directors (the "Administrator").
Subject to the provisions of the Stock Plan, the Administrator has the power to
determine the terms of the options or stock purchase rights ("SPRs") granted,
including the exercise price of each option or SPR, the number of shares subject
to each option or SPR, the exercisability thereof, and the form of consideration
payable upon such exercise. In addition, the Board of Directors has the
authority to amend, suspend or terminate the Stock Plan, provided that no such
action may affect any share of Class A Common Stock previously issued and sold
or any option or SPR previously granted under the Stock Plan.
Eligibility; Limitations. The Stock Plan provides that nonstatutory stock
options may be granted to employees, directors and consultants. Incentive stock
options may be granted only to employees. An optionee who has been granted an
option or SPR may, if he or she is otherwise eligible, be granted additional
options or SPRs.
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Section 162(m) of the Code limits the deductibility of compensation paid to
certain executive officers of the Company. To maximize the Company's deduction
attributable to options granted to such persons, the Stock Plan provides that no
employee may be granted, in any fiscal year, excluding options to purchase up to
500,000 shares of Common Stock granted in connection with his or her initial
service, options to purchase more than 500,000 shares of Common Stock.
Terms and Conditions of Options. Each option granted under the Stock Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of SPRs
and options to purchase shares of Common Stock at the time of grant. However,
the exercise price of an incentive stock option must not be less than 100% (110%
if issued to any person possessing more than 10% of the voting power of all
classes of stock of the Company (a "10% Stockholder")) of the fair market value
of the Common Stock on the date the option is granted. For so long as the
Company's Class A Common Stock is traded on the Nasdaq National Market, the fair
market value of a share of Class A Common Stock will be the closing sales price
for such stock (or the closing bid if no sales were reported) on the last
trading day prior to the date of grant, as reported in The Wall Street Journal
or such source as the Administrator deems reliable.
(b) Exercise of the Option. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable. The
terms of such vesting are to be determined by the Administrator. Options granted
under the Stock Plan to date generally become exercisable over four years at a
rate of one-fourth of the shares subject to the options at the end of one year
from the date of grant and 1/48 at the end of each month thereafter and have a
ten-year term. The maximum term of an incentive stock option granted to a 10%
Stockholder is five years. An option is exercised by giving written notice of
exercise to the Company, specifying the number of full shares of Common Stock to
be purchased and by tendering full payment of the purchase price to the Company.
(c) Form of Consideration. The consideration to be paid for the shares of
Common Stock issued upon exercise of an option shall be determined by the
Administrator and is set forth in the stock option agreement. Such form of
consideration may vary for each option, and may consist entirely of cash, check,
promissory note, other shares of the Company's Common Stock, any combination
thereof, or any form of consideration as may be provided in the stock option
agreement.
(d) Termination of Employment. In the event an optionee's continuous status
as an employee, consultant or director terminates for any reason (other than
upon the optionee's death or disability), the optionee may exercise his or her
option for three months following termination, unless otherwise provided in the
stock option agreement, but only to the extent that the optionee was entitled to
exercise the option at the date of such termination (but in no event later than
the expiration of the term of such option as set forth in the stock option
agreement). Options granted under the Stock Plan to date have generally provided
that optionees may exercise their options within thirty days from the date of
termination of employment (other than for death or disability).
(e) Disability. In the event an optionee's continuous status as an
employee, consultant or director terminates as a result of permanent and total
disability (as defined in Section 22(e)(3) of the Code), the optionee may
exercise his or her option, but only within twelve months from the date of such
termination, unless otherwise provided in the stock option agreement, and only
to the extent that the optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
option as set forth in the stock option agreement).
(f) Death. In the event of an optionee's death, the optionee's estate or a
person who acquired the right to exercise the deceased optionee's option by
bequest or inheritance may exercise the option, but only within twelve months
following the date of death, unless otherwise provided in the stock option
agreement, and only
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to the extent that the optionee was entitled to exercise it at the date of death
(but in no event later than the expiration of the term of such option as set
forth in the stock option agreement).
(g) Term of Options. The term of each option is the term stated in the
stock option agreement; provided, however, that, if not stated in the stock
option agreement, the term of an incentive stock option shall be ten years. In
the case of an incentive stock option granted to a 10% Stockholder, the term may
not exceed five years from the date of grant. No option may be exercised by any
person after the expiration of its term.
(h) Nontransferability. An option or SPR is nontransferable by the optionee
unless determined otherwise by the Administrator, other than by will or the laws
of descent and distribution, and is exercisable during the optionee's lifetime
only by the optionee. In the event of the optionee's death, options may be
exercised by a person who acquires the right to exercise the option by bequest
or inheritance.
(i) Value Limitation. If the aggregate fair market value (as determined on
date of grant) of all shares of Common Stock subject to an optionee's incentive
stock option which are exercisable for the first time during any calendar year
exceeds $100,000, the excess options shall be treated as nonstatutory options.
(j) Other Provisions. The stock option agreement may contain such other
terms, provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Administrator.
Stock Purchase Rights. In the case of SPRs, unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement pursuant to which
the SPRs are issued shall grant the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment with the
Company for any reason (including death or disability). The purchase price for
shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator.
Automatic Grants. The Stock Plan also provides that each director who is
not also an officer or employee of the Company (a "non-employee director") shall
be automatically granted an option to purchase 10,000 shares of Class A Common
Stock on the date on which such person first becomes a non-employee director.
Each non-employee director shall also be automatically granted an option to
purchase 5,000 shares on March 1 of each year, provided he or she is then a
non-employee director and, as of such date, he or she shall have served on the
Board of Directors for at least the preceding six months. Options granted to
non-employee directors vest in three annual installments commencing on the first
anniversary of the date of grant and have a term of ten years. The exercise
price of options granted to non-employee directors shall be at least 100% of the
fair market value per share of the Class A Common Stock on the date of grant.
The Stock Plan provides that options issuable to directors of the Company who
are also officers or directors of IDG will, at the election of IDG, be issued to
IDG or an officer, director or employee of IDG designated by IDG.
Adjustment Upon Changes in Capitalization; Corporate Transactions. In the
event of changes in the outstanding Common Stock of the Company by reason of any
stock splits, reverse stock splits, stock dividends, combinations,
reclassifications or any other increase or decrease in the number of issued
shares of Common Stock issued without receipt of consideration by the Company,
an appropriate adjustment shall be made by the Administrator in the following:
(i) the number of shares of Common Stock subject to the Stock Plan, (ii) the
number and class of shares of stock subject to any option outstanding under the
Stock Plan, and (iii) the exercise price of any such outstanding option. The
determination of the Board as to which adjustments made shall be conclusive. In
the event of a proposed dissolution or liquidation of the Company, the
Administrator will notify the holders of options as soon as practicable prior to
the effective date of such action, and all outstanding options will terminate
immediately prior to the consummation of such proposed action. Notwithstanding
the above, 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, the
Stock Plan requires that each outstanding option and SPR be assumed or an
equivalent option or SPR be substituted by the successor corporation; provided,
however, if such successor or purchaser refuses to assume or substitute the then
outstanding options and SPRs, the Administrator may fully accelerate the
exercisability of all outstanding options and SPRs.
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Amendment and Termination of the Stock Plan. The Board may at any time
amend, alter, suspend or terminate the Stock Plan. The Company shall obtain
stockholder approval of any amendment to the Stock Plan in such a manner and to
such a degree as is necessary and desirable to comply with applicable laws. Any
amendment or termination of the Stock Plan shall not affect options already
granted and such options shall remain in full force and effect as if the Stock
Plan had not been amended or terminated, unless mutually agreed otherwise
between the optionee and the Company, which agreement must be in writing and
signed by the optionee and the Company. In any event, the Stock Plan shall
terminate in May 2008. Any options outstanding under the Stock Plan at the time
of its termination shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. Long-term capital gains are grouped and netted by holding
periods. Net capital gains on assets held for more than twelve months are
currently taxed at a maximum federal rate of 20%. Capital losses are allowed in
full against capital gains and up to $3,000 against other income. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% Stockholder of the Company.
The Company is entitled to a deduction in the same amount as the ordinary income
recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period. Net capital
gains on assets held for more than twelve months are currently taxed at a
maximum federal rate of 20%. Capital losses are allowed in full against capital
gains and up to $3,000 against other income.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and the beginning of any capital gain holding period
by timely filing an election pursuant to Section 83(b) of the Code. In such
event, the ordinary income recognized, if any, is measured as the difference
between the purchase price and the fair market value of the stock on the date of
purchase, and the capital gain holding period commences on such date. The
ordinary income recognized by a purchaser who is an employee will be subject to
tax withholding by the Company. Different rules may apply if the purchaser is
also an officer, director, or 10% Stockholder of the Company.
Stock Purchase Rights. SPRs will generally be taxed in the same manner as
nonstatutory stock options. However, restricted stock is generally purchased
upon the exercise of a SPR. At the time of purchase, restricted stock is subject
to a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code. As a result, the purchaser will not recognize ordinary income at the time
of purchase. Instead, the purchaser will recognize ordinary income on the dates
when a stock ceases to be subject to a substantial risk of forfeiture. The stock
will generally cease to be subject to a substantial risk of forfeiture when it
is no longer subject to the Company's right to repurchase the stock upon the
purchaser's termination of employment with the Company.
8
<PAGE> 11
At such times, the purchaser will recognize ordinary income measured as the
difference between the purchase price and the fair market value of the stock on
the date the stock is no longer subject to a substantial risk of forfeiture.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF SPRS
AND OPTIONS UNDER THE STOCK PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES
NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE
PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY
IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
PARTICIPATION IN THE STOCK PLAN
The grant of options under the Stock Plan to employees, including the Named
Executive Officers (as defined under "Executive Officer Compensation"), is
subject to the discretion of the Administrator. As of the date of this proxy
statement, there has been no determination by the Administrator with respect to
future awards under the Stock Plan. Accordingly, future awards, other than
automatic grants to non-employee directors as discussed earlier, are not
determinable. Non-employee directors are eligible to participate in the Stock
Plan. The following table sets forth information with respect to the grant of
options pursuant to the Stock Plan to the Named Executive Officers, to all
current executive officers as a group, to all current directors who are not
Named Executive Officers as a group and to all employees other than Named
Executive Officers as a group during the last fiscal year.(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING OPTIONS EXERCISE PRICE
NAME OF INDIVIDUAL AND POSITION GRANTED ($ PER SHARE)
------------------------------- ------------------ --------------
<S> <C> <C>
John J. Kilcullen........................................... 250,000 $11.88
Chairman of the Board and Chief Executive Officer
Steven H. Berkowitz......................................... 250,000 11.88
President and Publisher
John P. Ball................................................ 100,000 11.88
Executive Vice President, Operations and Administration,
and Secretary
Brenda L. McLaughlin........................................ 75,000 11.88
Senior Vice President and Group Publisher
James A. Doehrman........................................... 50,000 11.88
Vice President and Chief Financial Officer
All Named Executive Officers as a group (5 persons)......... 725,000 11.88
All current directors who are not Named Executive Officers
as a group (4 persons).................................... 0(3) 15.50
All employees, including all current officers who are not
Named Executive Officers, as a group...................... 805,400 12.01(2)
</TABLE>
- ---------------
(1) Excludes options to purchase 400,500 shares of Class A Common Stock granted
on November 5, 1998 of the current fiscal year.
(2) Represents a weighted average per share exercise price.
(3) During fiscal 1998, pursuant to its right under the Company's 1998 Stock
Plan, IDG designated that the Company issue to IDG the options to purchase
10,000 shares of the Company's Class A Common Stock issuable to each of Mr.
McGovern and Mr. Casella upon his election as a director.
9
<PAGE> 12
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending September 25, 1999. Deloitte & Touche LLP has been the Company's
auditors since its founding in 1990. Representatives of Deloitte & Touche LLP
are expected to attend the Annual Meeting to make a statement and respond to
appropriate questions.
REQUIRED VOTE
The Board of Directors has conditioned its appointment of the Company's
independent accountants upon the receipt of the affirmative vote by the holders
of a majority of the Common Stock present in person or represented by proxy and
voting at the Annual Meeting. In the event that the stockholders do not approve
the selection of Deloitte & Touche LLP, the appointment of the independent
accountants will be reconsidered by the Board of Directors.
- --------------------------------------------------------------------------------
RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
THE COMPANY'S INDEPENDENT ACCOUNTANTS.
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly-owned subsidiary of IDG Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of IDG Holdings, Inc., a
Delaware corporation. IDG Holdings, Inc. is a wholly-owned subsidiary of IDG, a
majority of the capital stock of which is owned by Patrick J. McGovern, its
founder and chairman of the board of directors and a director of the Company.
IDG's address is One Exeter Plaza, Boston, Massachusetts 02116. The following
table sets forth, as of the Record Date, the beneficial ownership of the
Company's Common Stock by the Company's principal stockholder, each of the Named
Executive Officers, each of the Company's directors and by all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK ALL COMMON STOCK
------------------------ ------------------------ ------------------
SHARES PERCENT SHARES PERCENT
BENEFICIALLY OF BENEFICIALLY OF PERCENT OF
NAME OWNED(1) OWNERSHIP OWNED(1) OWNERSHIP TOTAL VOTING POWER
---- ------------ --------- ------------ --------- ------------------
<S> <C> <C> <C> <C> <C>
IDG Enterprises, Inc.(2)............. 10,512,416 74.63% 200,000 100% 77.78%
John J. Kilcullen(3)................. 33,635 * -- -- *
Steven H. Berkowitz(3)............... 4,101 * -- -- *
John P. Ball(4)...................... 2,500 * -- -- *
Brenda L. McLaughlin(3).............. 3,184 * -- -- *
James A. Doehrman.................... -- -- -- -- --
Patrick J. McGovern(5)............... 10,513,416 74.63 200,000 100 77.78
James A. Casella..................... 500 * -- -- *
Kelly P. Conlin...................... 1,000 * -- -- *
Jack A. Hoeft(6)..................... 6,833 * -- -- *
Lawrence B. Levy(6).................. 3,333 * -- -- *
All executive officers and directors
as a group (10 persons)............ 10,568,502 74.73 200,000 100 77.86
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent.
(1) The number and percentage of shares beneficially owned are based on
14,080,000 shares of Class A Common Stock and 200,000 shares of Class B
Common Stock outstanding as of the Record Date. Beneficial ownership is
determined in accordance with the rules and regulations of the Securities
and Exchange Commission. Shares of Class A Common Stock subject to options
that are currently
10
<PAGE> 13
exercisable or exercisable within 60 days of the Record Date are deemed to
be outstanding and beneficially owned by the person holding such options for
the purpose of computing the number of shares beneficially owned and the
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, and subject to
applicable community property laws, such persons have sole voting and
investment power with respect to all shares of the Company's Common Stock
shown as beneficially owned by them.
(2) Represents shares of Class A Common Stock, including 6,667 shares issuable
upon exercise of vested options, and Class B Common Stock owned by IDG
Enterprises, Inc., an indirect, wholly-owned subsidiary of IDG of which Mr.
McGovern is chairman of the board of directors and of which Mr. McGovern
owns a majority of the issued and outstanding capital stock.
(3) Represents vested shares in the Company's Employee Stock Ownership Plan.
(4) Represents shares held by Mr. Ball's wife.
(5) Represents shares of Class A Common Stock, including 6,667 shares issuable
upon exercise of vested options and 1,000 shares held by Mr. McGovern's
wife, and Class B Common Stock owned by IDG Enterprises, Inc., an indirect,
wholly-owned subsidiary of IDG of which Mr. McGovern is chairman of the
board of directors and of which Mr. McGovern owns a majority of the issued
and outstanding capital stock.
(6) Includes 3,333 shares issuable upon exercise of vested options.
As a result of its ownership of the Company's Common Stock, IDG will be
able to influence significantly matters affecting the Company and will be in a
position to direct the election of all members of the Board of Directors and to
control all actions that require the approval of a majority of the voting share
capital of the Company.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation paid
to the Company's Chief Executive Officer and the Company's four other most
highly compensated executive officers (collectively, the "Named Executive
Officers") during the Company's fiscal years ended September 30, 1997 and
September 30, 1998.(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS(2) COMPENSATION($)
--------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John J. Kilcullen...................... 1998 $270,000 $422,600 $14,400 $233,402(3)
Chief Executive Officer 1997 260,000 336,975 21,000 559,012(4)
Steven H. Berkowitz.................... 1998 210,000 336,060 14,400 175,053(3)
President and Publisher 1997 200,000 281,358 21,000 88,783(3)
John P. Ball........................... 1998 190,000 161,755 14,400 --
Executive Vice President, Operations
and 1997 175,000 114,775 21,000 --
Administration, and Secretary
Brenda L. McLaughlin................... 1998 165,000 101,979 14,400 --
Senior Vice President and Group
Publisher 1997 144,769 66,675 21,000
James A. Doehrman...................... 1998 165,000 79,737 14,400 --
Vice President and Chief Financial
Officer 1997 28,558(5) -- 16,773 50,000(6)
</TABLE>
- ---------------
(1) The Company's fiscal year ends on last Saturday in September. Fiscal years
1997 and 1998 ended on September 27, 1997 and September 26, 1998,
respectively. For convenience, fiscal year-ends are denoted occasionally
herein as September 30.
(2) Represents contribution by the Company to its Employee Stock Ownership Plan.
11
<PAGE> 14
(3) Consists of deferred compensation. The deferred compensation programs
pursuant to which Mr. Kilcullen and Mr. Berkowitz received such amount were
terminated at the end of fiscal 1998.
(4) Consists of $468,378 of deferred compensation and $90,634 of relocation
expense reimbursement. The deferred compensation programs pursuant to which
Mr. Kilcullen received such amounts were terminated at the end of fiscal
1998.
(5) Represents compensation from July through September 1997 based on an annual
salary of $165,000.
(6) Represents Mr. Doehrman's relocation expense allowance.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during the fiscal year ended September 30, 1998 to each of the Named Executive
Officers.
OPTION GRANTS IN YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NO. OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
GRANTED 1998(1) ($)/SHARE(2) DATE 5%($) 10%($)
---------- ---------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Kilcullen........... 250,000 16.3% $11.88 5/06/2008 $1,422,004 $3,896,933
Steven H. Berkowitz......... 250,000 16.3 11.88 5/06/2008 1,422,004 3,896,933
John P. Ball................ 100,000 6.5 11.88 5/06/2008 568,802 1,558,773
Brenda L. McLaughlin........ 75,000 4.9 11.88 5/06/2008 426,601 1,169,080
James A. Doehrman........... 50,000 3.3 11.88 5/06/2008 284,401 779,387
</TABLE>
- ---------------
(1) Based on a total of 1,530,400 options granted to all employees, consultants
and directors during fiscal 1998.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value at 5% and 10% appreciation is calculated by
assuming that the last reported sales price of $11.00 per share on September
30, 1998 appreciates at the indicated rate for the remaining portion of the
term of the option and that the option is exercised at the exercise price
and sold on the last day of its term at the appreciated price. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by the
Securities and Exchange Commission and does not represent the Company's
prediction of its stock price performance.
12
<PAGE> 15
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Executive Officers, certain
information concerning stock options exercised during fiscal 1998 and the number
of shares subject to exercisable and unexercisable stock options as of September
30, 1998. The table also sets forth certain information with respect to the
value of stock options held by such individuals as of September 30, 1998.
FISCAL YEAR AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Kilcullen........... -- -- -- 250,000 -- --
Steven H. Berkowitz......... -- -- -- 250,000 -- --
John P. Ball................ -- -- -- 100,000 -- --
Brenda L. McLaughlin........ -- -- -- 75,000 -- --
James A. Doehrman........... -- -- -- 50,000 -- --
</TABLE>
RELATIONSHIP WITH IDG AND CERTAIN TRANSACTIONS
PRINCIPAL STOCKHOLDER; CONTROL OF THE COMPANY
The Company is a wholly-owned subsidiary of IDG Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of IDG Holdings, Inc., a
Delaware corporation. IDG Holdings, Inc. is a wholly-owned subsidiary of IDG,
the majority of the capital stock of which is owned by Patrick J. McGovern, its
founder and chairman of the board of directors and a director of the Company.
Through its subsidiaries, IDG currently owns 10,512,416 shares of the Class A
Common Stock and all of the 200,000 shares of Class B Common Stock, together
representing 77.78% of the voting power of the Company.
As a result of its ownership of Class A Common Stock and Class B Common
Stock, IDG is able to influence significantly matters affecting the Company and
is in a position to control all actions that require the approval of a majority
of the voting share capital of the Company, including amendments to the
Company's Certificate of Incorporation and any business combinations, and to
direct the election of all members of the Board of Directors. Nonetheless,
Delaware law requires that the members of the Board of Directors and officers
owe a fiduciary duty to the Company regardless of conflicting interests of any
other entity with which they may be affiliated.
INTERCOMPANY AGREEMENTS
The Company and IDG have entered into certain agreements for the purpose of
defining their ongoing relationship. These agreements were developed in the
context of a parent/subsidiary relationship and therefore are not the result of
arms-length negotiations between independent parties. Although there can be no
assurance that these agreements or the transactions contemplated by these
agreements have been effected on terms at least as favorable to the Company as
could have been obtained from unaffiliated third parties, the Company believes
that such agreements taken as a whole are fair to both parties and that the
amount of the expenses contemplated by the agreements would not be materially
different if the Company operated on a stand-alone basis.
Corporate Services Agreement. The Company and IDG have entered into a
Corporate Services Agreement (the "Corporate Services Agreement") pursuant to
which IDG provides the following administra-
13
<PAGE> 16
tive services to the Company: tax services, accounting, insurance, employee
benefits, corporate record keeping, payroll and trademark maintenance services.
The monthly fee under the Corporate Services Agreement is $44,000. After an
initial period of service, the Company will be entitled to have these services
provided on a monthly basis at the same monthly fee. In addition, the Company
may request certain additional services, including legal, corporate development
and public relations services, to be provided from time-to-time in the future.
The Corporate Services Agreement may be terminated by the Company on 90 days
notice or by IDG when it ceases to own a majority of the outstanding voting
stock of the Company.
Registration Rights Agreement. The Company and IDG Enterprises, Inc., an
indirect wholly-owned subsidiary of IDG, have entered into a Registration Rights
Agreement (the "Registration Rights Agreement"). The Registration Rights
Agreement entitles IDG Enterprises, Inc. to include its shares of Common Stock
of the Company in any future registration of common stock made by the Company.
The Company has agreed pursuant to the terms of the Registration Rights
Agreement to pay all costs and expenses, other than underwriting discounts and
commissions related to shares to be sold by IDG Enterprises, Inc. and expenses
of legal counsel for IDG Enterprises, Inc., in connection with any such
registration.
Trademark License Agreement. In connection with the initial public offering
of the Company, IDG transferred to the Company certain trademarks owned by IDG
that relate to publications and products of the Company. In addition, the
Company and IDG have entered into a Trademark License Agreement (the "Trademark
License Agreement") pursuant to which IDG has granted to the Company a
royalty-free license to use certain trademarks in conjunction with publications
and products currently produced and held by the Company. Currently all of the
Company's publications use trademarks covered by the Trademark License
Agreement. These trademarks generally include references to "IDG," but do not
include the ". . . For Dummies" trademark or the names of the Company's other
publications, which are owned by the Company. The Trademark License Agreement
provides that if IDG's voting interest in the Company is reduced to less than
30%, the parties will negotiate in good faith to reach an agreement providing
for the continued use of the trademarks, including the IDG Books mark. If the
parties were unable to reach such an agreement, the Company would be required to
cease using marks covered by the Trademark License Agreement. The license also
may be terminated by IDG upon a breach of the Trademark License Agreement or the
insolvency of the Company.
Noncompetition Agreement. IDG has agreed that, until the earlier of five
years after the initial public offering of the Company or such time as IDG
ceases to own at least a majority of the voting power of the Company, it will
not, directly or indirectly, as a partner, stockholder, investor or otherwise,
own a majority share or be responsible for the management of any corporation or
other entity the business objectives or activities of which are carried on
anywhere in the world and consist primarily of book publishing.
Tax Allocation Agreement. IDG and the Company have entered into a Tax
Allocation Agreement that provides for the allocation between IDG and the
Company of all responsibilities, liabilities and benefits relating to taxes paid
or payable by either IDG or the Company for all taxable periods, whether
beginning before, on, or after the initial public offering of the Company. The
Company currently files its own federal and most state income tax returns.
SHARE EXCHANGE AGREEMENT
Employees of the Company were historically covered by the IDG Employee
Stock Ownership Plan (the "IDG Plan"), pursuant to which their accounts were
invested primarily in common stock of IDG. The IDG Books Employee Stock
Ownership Plan (the "IDG Books Plan") was adopted effective May 6, 1998 with
respect to the eligible employees of the Company as of October 1, 1997.
Participants in the IDG Plan who were then employees of the Company then became
participants in the IDG Books Plan.
As of May 21, 1998, the accounts of the employees of the Company and the
shares of common stock of IDG attributable to such accounts were transferred
from the IDG Plan to the IDG Books Plan. As of that date, all of the common
stock of IDG held by the IDG Books Plan was exchanged for an aggregate of
394,251 shares of Class B Common Stock of the Company on behalf of employees of
the Company pursuant to the terms of a Share Exchange Agreement among the
Company, IDG and a subsidiary of IDG. In
14
<PAGE> 17
connection with the exchange of the shares of common stock of IDG for shares of
Class B Common Stock of the Company, the trustee of the IDG Books Plan received
an opinion of an independent valuation firm to the effect that the consideration
to be received by the IDG Books Plan in exchange for the IDG shares was no less
than the fair market value, within the meaning of ERISA, of such IDG shares, and
that the exchange was fair to the IDG Books Plan from a financial point of view.
Upon consummation of the initial public offering of the Company, 194,251 shares
of the Company's Class B Common Stock held by the IDG Books Plan were
transferred to IDG Enterprises, Inc. in exchange for an equal number of shares
of the Company's Class A Common Stock held by IDG Enterprises, Inc. and were
immediately converted into 194,251 shares of Class A Common Stock. Subsequently,
the remaining 200,000 shares of Class B Common Stock held by the IDG Books Plan
were transferred to IDG Enterprises, Inc. in exchange for an equal number of the
Company's Class A Common Stock held by IDG Enterprises, Inc. The Company may be
obligated in certain circumstances to repurchase shares from the IDG Books Plan
or register shares for resale under the federal securities laws.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than 10% stockholders are required by SEC rules
to furnish the Company with copies of all forms they file. Based solely on its
review of the copies of such forms received by the Company and written
representations from certain reporting persons, the Company believes that,
during fiscal 1998, all Section 16(a) filing requirements applicable to its
executive officers, directors and 10% stockholders were satisfied, except that
the Form 4 for John Ball for July 1998 was filed late.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in October 1998 and is currently
composed of Messrs. Jack A. Hoeft and Lawrence B. Levy. No interlocking
relationship exists between any member of the Company's Compensation Committee
and any member of any other company's board of directors or compensation
committee.
REPORT OF COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee") was
established in October 1998 and is responsible for reviewing and making
recommendations to the Board regarding the compensation and benefits for the
Company's officers, other employees and directors, as well as compensation
matters generally. The Committee also administers the Company's stock plans.
COMPENSATION PHILOSOPHY AND POLICY
The policy of the Committee is to attract and retain executive officers and
employees through the payment of competitive base salaries and to encourage and
reward performance through bonuses and stock ownership. The objectives of the
Committee are to:
- ensure that there is an appropriate relationship between executive
compensation and the creation of stockholder value;
- ensure that the total compensation program will motivate, retain and
attract executives of outstanding abilities; and
- ensure that current cash and equity incentive opportunities are
competitive with comparable companies.
15
<PAGE> 18
The 1998 Stock Plan (the "Stock Plan") has been designed to comply with the
$1 million compensation deduction cap under Section 162(m) of the Internal
Revenue Code, as amended.
ELEMENTS OF COMPENSATION
Compensation for executive officers includes both cash and equity elements.
Cash compensation consists of (i) base salary which is determined on the
basis of the level of responsibility, expertise and experience of the executive
officer, taking into account competitive conditions in the industry, (ii) cash
bonuses up to an established percentage of base salary, subject to meeting all
or a portion of targeted objectives and (iii) deferred cash bonuses.
Ownership of the Company's Common Stock is a key element of executive
compensation. Executive officers and other employees of the Company are eligible
to participate in the Stock Plan and the 1998 Employee Stock Purchase Plan (the
"Purchase Plan"). The Stock Plan permits the Board of Directors or the Committee
to grant stock options to employees on such terms as the Board or the Committee
may determine. The Committee has the sole authority to grant stock options to
executive officers of the Company and is currently administering stock option
grants to all employees. In determining the size of a stock option grant to a
new executive officer or other employee, the Committee takes into account equity
participation by comparable employees within the Company, external competitive
circumstances and other relevant factors. Additional options may be granted to
current executive officers and employees to reward exceptional performance or to
provide additional unvested equity incentives. These options typically vest over
a four-year period and thus require the employee's continuing service to the
Company. The Purchase Plan permits employees to acquire Common Stock of the
Company through payroll deductions and promotes broad-based equity participation
throughout the Company. The Committee believes that such stock plans align the
interests of the employees with the long-term interests of the stockholders.
The Company also maintains a 401(k) retirement savings plan (the "401(k)
Plan"). The 401(k) Plan provides that each participant may contribute up to 8%
of his or her pre-tax gross compensation (up to a statutory prescribed annual
limit of $10,000 in 1998).
FISCAL 1998 EXECUTIVE COMPENSATION
Executive compensation for fiscal 1998 included base salary, cash bonuses
and deferred bonuses based upon achievement of corporate goals and individual
performance goals. Executive officers, like other employees, were eligible for
option grants under the Stock Plan and to participate in the Purchase Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION FOR FISCAL 1998
In fiscal 1998, Mr. Kilcullen received a salary of $270,000, a bonus of
$422,600 and a deferred bonus of $233,402. Mr. Kilcullen's salary and bonuses
for fiscal 1998 were based on the same factors considered for each executive
officer, as previously described. In fiscal 1998, the Company also granted Mr.
Kilcullen options to purchase 250,000 shares of the Company's Class A Common
Stock and contributed on behalf of Mr. Kilcullen $14,400 to the Company's
Employee Stock Ownership Plan.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Jack A. Hoeft
Lawrence B. Levy
16
<PAGE> 19
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
the Company's Common Stock with the cumulative total return of the Nasdaq Stock
Market (U.S.) Index and the Dow Jones Publishing Index. The graph assumes that
$100 was invested on July 28, 1998 (the date of the Company's initial public
offering) in the Company's Class A Common Stock, the Nasdaq Stock Market (U.S.)
Index and the Dow Jones Publishing Index, assuming reinvestment of dividends, if
any. No dividends have been declared or paid on the Company's Class A Common
Stock. Note that historic stock price performance is not necessarily indicative
of future stock price performance.
COMPARISON OF 2 MONTH CUMULATIVE TOTAL RETURN* AMONG
IDG BOOKS WORLDWIDE, INC. THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE DOW JONES
PUBLISHING INDEX
<TABLE>
<CAPTION>
'IDG BOOKS NASDAQ STOCK DOW JONES
WORLDWIDE, INC.' MARKET (U.S.) INDEX PUBLISHING INDEX
---------------- ------------------- ----------------
<S> <C> <C> <C>
7/28/98 100.00 100.00 100.00
7/31/98 103.23 98.91 92.94
8/31/98 74.19 79.58 85.16
9/30/98 70.97 90.55 79.97
</TABLE>
* ASSUMES $100 INVESTED ON 7/28/98 IN CLASS A COMMON STOCK, AT THE
OPENING SALES PRICE, OR ON 6/30/98 IN INDEX, INCLUDING REINVESTMENT OF
DIVIDENDS THROUGH FISCAL YEAR ENDING SEPTEMBER 30.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute and
return, at your earliest convenience, the accompanying proxy card in the
enclosed envelope.
THE BOARD OF DIRECTORS
Foster City, California
January 13, 1999
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IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
(as amended)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Affiliate" means any corporation or other organization that
directly, or indirectly through one or more intermediaries, is at least ten
percent (10%) owned by the Company.
(c) "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.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means IDG Books Worldwide, Inc., a Delaware
corporation.
(i) "Consultant" means any person, including an advisor, (i) engaged
by the Company or an Affiliate, Parent or Subsidiary to render services to such
entity or (ii) who is an Employee of an Affiliate.
<PAGE> 21
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee 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.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st 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.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "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 or The Nasdaq SmallCap 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, the Fair Market Value of
a Share of Common Stock 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, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Inside Director" means a Director who is an Employee of the
Company or any Subsidiary of the Company.
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<PAGE> 22
(q) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(s) "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.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(v) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(x) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(y) "Outside Director" means a Director who is not an Employee of the
Company or a Subsidiary of the Company.
(z) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1998 Stock Plan, as amended from time to time.
(bb) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(cc) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "Section 16(b)" means Section 16(b) of the Exchange Act.
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<PAGE> 23
(ff) "Service Provider" means an Employee, Director or Consultant.
(gg) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(hh) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ii) "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 14 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,850,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange 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, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock 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 Service Providers.
(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, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(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.
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<PAGE> 24
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights 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 Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) 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 or Stock Purchase Right 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
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<PAGE> 25
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) 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 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) On the date grants of Options under the Plan are required to
comply with Section 162(m) of the Code, the following limitations shall apply to
grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 14.
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(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 14), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) 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.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, the term of each Option shall be no more than ten (10) years from
the date of grant.
9. 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 granted:
(A) prior to the date the Common Stock is listed on a
national securities exchange or a national market system which qualifies under
Section 25100(o) of the Corporations Code of California:
(1) to a Service Provider who, at the time the
Nonstatutory Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all
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<PAGE> 27
classes of stock of the Company or any Affiliate, 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.
(2) granted to any other Service Provider, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(B) to any Service Provider, on or after the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, 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) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised; provided, however, that prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
except in the case of Options granted to Officers, Directors, and Consultants,
Options shall vest and become exercisable at a rate of no less than 20% per year
over five (5) years from the date the Options are granted.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) 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 surrender, and (B) 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;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
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<PAGE> 28
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted to Officers and Directors hereunder shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), 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 Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter 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 Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that 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 three (3) months following the Optionee's termination. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, such Option must remain exercisable for a period of at least thirty
(30) days after the
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<PAGE> 29
Optionee ceases to be a Service Provider. If, on the date of termination, the
Optionee is not vested as to his or her 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 his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her 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. Prior to the date the Common Stock is listed on a national
securities exchange or a national market system which qualifies under Section
25100(o) of the Corporations Code of California, such Option must remain
exercisable for a period of at least six (6) months after the Optionee ceases to
be a Service Provider due to Optionee's disability. If, on the date of
termination, the Optionee is not vested as to his or her 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 his or her 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. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (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 acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. 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. Prior
to the date the Common Stock is listed on a national securities exchange or a
national market system which qualifies under Section 25100(o) of the
Corporations Code of California, such Option must remain exercisable for a
period of at least six (6) months after the Optionee ceases to be a Service
Provider. If, at the time of death, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised 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.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the
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<PAGE> 30
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, the terms of the offer of Stock Purchase Rights under the Plan shall
comply in all respects with Section 260.140.42 of Title 10 of the California
Code of Regulations.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator; provided, however, that prior to the date the Common Stock is
listed on a national securities exchange or a national market system which
qualifies under Section 25100(o) of the Corporations Code of California, except
with respect to Shares purchased by Officers, Directors, and Consultants, the
repurchase option shall in no case lapse at a rate of less than 20% per year
over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator (provided, however, that such
determination shall occur only on or after the date the Common Stock is listed
on a national securities exchange or a national market system which qualifies
under Section 25100(o) of the Corporations Code of California), an Option or
Stock Purchase Right 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 or Stock
Purchase Right transferable, such Option or Stock Purchase Right shall contain
such additional terms and conditions as the Administrator deems appropriate.
13. Automatic Option Grants to Outside Directors.
(a) First Option. Each Outside Director shall be automatically
granted an Option to purchase 10,000 Shares (the "First Option") on the date on
which the later of the following events
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occurs: (A) the consummation of the Company's initial public offering of Common
Stock, or (B) the date on which such person first becomes an Outside Director,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall not receive a
First Option.
(b) Subsequent Option. Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares (a "Subsequent Option") on March 1st
of each year provided he or she is then an Outside Director and if as of such
date, he or she shall have served on the Board for at least the preceding six
(6) months.
(c) Terms of Options. The term of First Options and Subsequent
Options granted hereunder shall be as follows:
(A) the term of the Option shall be ten (10) years.
(B) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant. In the event that the date of grant
is not a trading day, the exercise price per Share shall be the Fair Market
Value on the next trading day immediately following the date of grant.
(C) one-third of the Shares subject to the Option shall vest on
the date of grant, and 1/3 of the Shares subject to the Option shall vest on the
anniversary of the date of grant in each year thereafter so that 100% of the
Shares subject to the Option shall be vested two (2) years from the grant date,
subject to the Optionee remaining a Service Provider as of such vesting dates.
(d) Special Provisions Relating to Parent Officers and Directors. The
provisions of this Section 13(d) shall apply to Outside Directors who are
officers or directors of a Parent ("Outside Parent Directors"). First Options
and Subsequent Options that would otherwise be issuable to Outside Parent
Directors pursuant to Section 13(a) or (b) ("Parent Options") shall be issued to
the Parent or its designee on the following terms and subject to the following
conditions and limitations:
(A) Each Parent Option shall be issued in accordance with the
written notice of the Parent to the Company (the "Parent Option Notice"),
delivered prior to the date of issuance of such Parent Option, pursuant to
action taken by the Parent's board of directors or an appropriate committee
thereof.
(B) Each Parent Option Notice may designate, in lieu of the
Outside Parent Director with respect to whose services the Parent Option is
being issued, one or more recipients of such Parent Option, or portions thereof,
provided that each such designee must be the Parent or a Service Provider.
(C) No Outside Parent Director shall be entitled to receive any
Parent Option or portion thereof unless he or she has been designated in a
Parent Option Notice to receive same.
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<PAGE> 32
(D) In the absence of a Parent Option Notice with respect to a
Parent Option, such Option shall be issued to the Parent.
(E) No First Option shall be issued with respect to an Outside
Parent Director who replaces an Outside Parent Director with respect to whom a
First Option was issued.
(F) Notwithstanding the provisions of Section 13(c)(C), vesting
of a Parent Option held by the Parent shall be subject to the Outside Parent
Director with respect to whom the Option was issued, or a replacement Outside
Parent Director, remaining a Director as of the vesting dates of such Option.
(G) Notwithstanding the provisions of Section 12, each Parent
Option issued to the Parent shall be transferrable, but only to a Service
Provider. Further transfers of such Option shall be subject to Section 12.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(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 Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the 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 or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an
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<PAGE> 33
Option or Stock Purchase Right 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 and Stock Purchase Right shall be
assumed or an equivalent option or right 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 or
Stock Purchase Right, unless otherwise provided for in any employment,
compensation or other agreement with any Optionee, the Administrator shall
determine in its sole discretion, whether or not each Optionee shall fully vest
in and have the right to exercise, the Option or Stock Purchase Right as to all
of the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If the Administrator determines that the Options or Stock
Purchase Rights become 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 or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right 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 or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, 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.
15. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
16. 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.
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<PAGE> 34
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right 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.
18. Inability to Obtain Authority. 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.
19. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
21. Information to Optionees and Purchasers. Prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
the Company shall provide to each Optionee and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the period
such Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and, in the case of an individual who acquires Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
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<PAGE> 35
PROXY
IDG BOOKS WORLDWIDE, INC.
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints John J. Kilcullen and Steven H. Berkowitz, and
each of them, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side,
all shares of common stock of IDG Books Worldwide, Inc. (the "Company") held of
record by the undersigned on December 15, 1998 at the Annual Meeting of the
Stockholders of the Company to be held on February 9, 1999 and any adjournment
or postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH
PROPOSAL.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
DETACH HERE
- --------------------------------------------------------------------------------
[X] Please mark
votes as in
this example
1. Election of Directors
Nominees: John K. Kilcullen, Patrick J. McGovern, James A. Casella,
Kelly P. Conlin, Jack A. Hoeft, Lawrence B. Levy
FOR WITHHELD
[ ] [ ]
[ ]
-------------------------------------------
For all nominees except as noted above
2. Approve Amendment to the Company's 1998 Stock Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratify the Appointment of Deloitte & Touche LLP as Independent Accountants.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon. Joint owners should each sign.
Executors, administrators, trustees, guardians or other fiduciaries should give
full title as such. If signing for a corporation, please sign in full corporate
name by a duly authorized officer.
Signature: Date:
-------------------------------- -----------------------
Signature: Date:
-------------------------------- -----------------------
