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 (Amendment No. )
Filed by the Registrant |_|
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 ss.240.14a-11(c) or ss.240.14a-12
Hungry Minds, Inc.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value transaction:
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5. Total fee paid:
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|_| 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 number, or
the Form or Schedule and the date of its filing.
1. Amount previously paid:
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2. Form, Schedule or Registration Statement No.:
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<PAGE>
[NEW LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On February 9, 2001
To the Stockholders:
Notice is hereby given that the 2000 Annual Meeting of Stockholders (the
"Annual Meeting") of Hungry Minds, Inc., a Delaware corporation, formerly IDG
Books Worldwide, Inc. (the "Company"), will be held on Friday, February 9, 2001
at 9:00 a.m., Eastern Standard Time, at the Company's headquarters located at
909 Third Avenue, New York City 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 ratify the appointment of Deloitte & Touche LLP as independent
accountants of the Company for the fiscal year ending September 29,
2001; and
3. 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 28, 2000 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
[Insert John Ball's electronic signature]
John P. Ball
Executive Vice President and Secretary
New York City
January 8, 2001
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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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<PAGE>
HUNGRY MINDS, INC.
------------------------
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
------------------------
PROCEDURAL MATTERS
General
The enclosed Proxy is solicited on behalf of the Board of Directors
of Hungry Minds, Inc., a Delaware corporation, formally IDG Books Worldwide,
Inc. (the "Company"), for use at the 2000 Annual Meeting of Stockholders (the
"Annual Meeting") to be held on Friday, February 9, 2001 at 9:00 a.m., Eastern
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 Company's headquarters located at 909 Third Avenue,
New York, NY 10022. The Company's telephone number at that location is (212)
884-5000.
This Proxy Statement and the enclosed proxy card were mailed on or
about January 8, 2001, together with the Company's 2000 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 28, 2000
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, 14,752,656 shares of the Company's Class A Common Stock,
$0.001 par value (the "Class A Common Stock"), and no 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 $5.56 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.
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, in person or by telephone, telegram, letter or facsimile.
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.
1
<PAGE>
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 2001 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 11, 2001.
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 Nominee's
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
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.
The names of the nominees for members of the Company's Board of
Directors, their ages as of December 28, 2000, and certain other related
information are set forth below. There are no family relationships between any
of the nominees.
2
<PAGE>
Name Age Position with the Company
---- --- -------------------------
John J. Kilcullen................. 41 Chairman of the Board of Directors
and Chief Executive Officer
Patrick J. McGovern............... 64 Director
Kelly P. Conlin................... 40 Director
Julius A. Hoeft................... 54 Director
Axel J. Leblois................... 53 Director
Gregoire Sentilhes ............... 40 Director
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, a Massachusetts
corporation and the parent corporation of the Company ("IDG"). Mr. McGovern has
served as the Chairman of IDG and its predecessor since February 1964. Mr.
McGovern also serves on the boards of directors of the Massachusetts Institute
of Technology, the Magazine Publishers Association and a number of IDG's
subsidiaries.
Kelly P. Conlin. Mr. Conlin has been a director of the Company since
January 1999. Mr. Conlin has served as CEO of IDG since March 1999, and has been
the President since 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.
Julius A. Hoeft. Mr. Hoeft has been a director of the Company since
October 1998. Mr. Hoeft is the former Chairman and Chief Executive Officer of
Bantam/Doubleday, Dell, Inc. from January 1996 to July 1998 and served as
President and Chief Executive Officer from June 1991 to January 1996. Mr. Hoeft
is a director of Bushnell Inc. and member of the Board of Trustees of the
University of Dayton and Keeler Tavern Preservation Society.
Axel J. Leblois. Mr. Leblois has been a director of the Company
since July 1999. Mr. Leblois is the Chairman of WorldTimes Inc., an
international affairs publication and content provider to major news databases,
since 1995. Prior to that from 1997 to 2000, Mr. Leblois served as the Chief
Executive Officer of ExecuTrain, a world leader in business technology training.
From 1996 to 2000 Mr. Leblois served as a Director for ExecuTrain. From 1991 to
1996, Mr. Leblois was Chief Executive Officer of the North American division of
Paris-based Bull HN Information Systems Inc., formerly Honeywell Information
Systems. Mr. Leblois is also a member of the board of directors of World Times,
Inc., and Peritas Software and has been on the board of Wang Global, and is
currently a trustee of the Atlanta International School.
Gregoire Sentilhes. Mr. Sentilhes was nominated to serve as a
director of the Company in 2000. Mr. Sentilhes is the co-founding General
Partner of Next Stage Ventures, a $300 million investment fund focusing on early
stage wireless and broadband companies. Prior to this, he served as the Chief
Operating Officer and President, International, of Screaming Media, a Nasdaq
listed digital content network company. Prior to his tenure at Screaming Media,
Mr. Sentilhes served as the Vice President of Global Marketing at Bertelsmann On
Line, the e-commerce division of the Bertelsmann Group. From 1993 to 1996 he
served as the Chief Executive Officer of Mantra Hachette Multimedia On Line, a
division he founded as part of the Lagardere Group in France. Mr. Sentilhes is
also a director of Multimania, a French publicly listed online concern,
Gorp.com, a leading outdoor travel site and Telecom, at the International
Telecommunication Union in Geneva, Switzerland.
3
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings
during fiscal 2000. 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 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: the Audit Committee and
the Compensation Committee.
The Board of Directors adopted a written charter for the Audit
Committee which is appended to the proxy. The Audit Committee consists of
Messrs. Hoeft and Sentilhes, Mr. Hoeft and Mr. Sentilhes are "independent"
directors as that term is defined by the National Association of Securities
Dealers. The Audit Committee is responsible for, among other things, (i)
reviewing and discussing the audited financial statements with management, (ii)
discussing with the Company's auditors information relating to the auditors'
judgments about the quality of the Company's accounting principles, (iii)
recommending to the Board of Directors that the Company include the audited
financials in its Annual Report on Form 10K, and (iv) overseeing compliance with
SEC requirements for disclosure of auditors' services and activities. The Audit
Committee, which was established in October 1998, acted by unanimous written
consent once during fiscal 2000.
The Compensation Committee, which currently consists of Messrs.
Hoeft, Leblois and Sentilhes, 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 one meeting
during fiscal 2000.
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 of
Directors. The Company's 1998 Stock Plan provides for automatic grants of
options to non-employee directors to purchase 10,000 shares of the Class A
Common Stock upon the director's election and options to purchase 5,000 shares
of the Class A Common Stock on March 1 of each year, provided he has served on
the board for six months. 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. During fiscal 2000, in accordance with the 1998 Stock Plan,
the Company granted 5,000 options on March 1, 2000 at $15.00 to each of Messrs.
Hoeft and Leblois, 10,000 options on March 1, 2000 at $15.00 to IDG (in
connection with the services of IDG officers Messrs. Conlin and McGovern as
non-employee directors) and 10,000 options to Mr. Sentilhes on March 15, 2000 at
$12.88. During fiscal 2000, no other non-employee 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.
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RECOMMENDATION: THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF MESSRS. KILCULLEN, MCGOVERN, CONLIN, HOEFT, LEBLOIS AND
SENTILHES.
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4
<PAGE>
PROPOSAL NO. 2
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 29, 2001. 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.
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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.
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5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a majority-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, who have a business address at
the Company's headquarters.
<TABLE>
<CAPTION>
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Name Class A Common Stock
-------------------------------------------------------------------------------------------
Percent
Number of Shares of Percent of Total
Beneficially Owned Ownership Voting Power
--------------------------------------------------
<S> <C> <C> <C>
IDG Enterprises, Inc. (2) ......... 11,188,615 75.7% 75.7%
John J. Kilcullen (3) ............. 244,555 1.6% 1.6%
John P. Ball (4) .................. 97,648 * *
William G. Barry (5) .............. 10,000 * *
John M. Harris .................... 0 * *
Patrick J. McGovern (6) ........... 11,193,615 75.7% 75.7%
Kelly P. Conlin ................... 1,000 * *
Julius A. Hoeft (7) ............... 15,167 * *
Axel J. Leblois (8) ............... 8,334 * *
Gregoire Sentilhes (8) ............ 3,333 * *
Marathon Capital Partners, L.P. (9) 743,100 5.0% 5.0%
-------------------------------------------------------------------------------------------
All executive officers and
Directors as a group (9 persons) 11,573,652 76.7% 76.7%
-------------------------------------------------------------------------------------------
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</TABLE>
----------
* Represents beneficial ownership of less than one percent.
(1) The number and percentage of shares beneficially owned are based on
14,752,656 shares of Class A Common Stock and no 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 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 directly held by IDG
Enterprises, Inc. shares issuable upon exercise of vested options held by
IDG. IDG Enterprises, Inc., is an indirect, wholly-owned subsidiary of
IDG.
(3) Represents vested shares in the Company's Employee Stock Ownership Plan,
shares issuable upon exercise of vested options and shares purchased by
the individual under the Company's Employee Stock Purchase Plan.
(4) Represents vested shares in the Company's Employee Stock Ownership Plan,
shares issuable upon exercise of vested options, shares purchased by the
individual under the Company's Employee Stock Purchase Plan, and shares
held by Mr. Ball's wife.
(5) Represents shares held directly by Mr. Barry.
(6) Includes the shares of Class A Common Stock beneficially owned by IDG
Enterprises, Inc. and IDG as set forth in footnote (2) above, as well as
5,000 shares held by Mr. McGovern's wife. IDG Enterprises, Inc. is an
indirect, wholly-owned subsidiary of IDG. Mr. McGovern is chairman of the
board of directors and owns a majority of the issued and outstanding
capital stock of IDG.
(7) Represents shares issuable upon exercise of vested options and shares
directly held by Mr. Hoeft.
(8) Represents shares issuable upon exercise of vested options.
(9) The amount and nature of beneficial ownership of Class A Common Stock is
based on information set forth in a Schedule 13D filed December 27, 2000
by the beneficial owner. The schedule 13D states that (i) Marathon Capital
6
<PAGE>
Management Group, L.L.C. ("MCM") and Marathon Capital Partners,
L.P.("MCP") has shared voting power with respect to 740,000 shares, (ii)
Peter R. Gardiner has sole voting and dispositive power with respect to
11,100 shares and shared voting power with respect to 743,100 shares and
(iii) Peter A. B. Gardiner has shared voting and is positive power with
respect to 3,100 shares. The Schedule 13D states that MCM is the
investment advisor to and general partner of MCP and that Peter R.
Gardiner is a managing member of MCM. Peter A. B. Gardiner is Peter R.
Gardiner's father. The Schedule 13D states that MCP filed the Schedule 13D
jointly with MCM, MCP and Messrs. Gardiners', but not as a member of a
group. The business address of such beneficial owner is 9595 Wilshire
Blvd., Suite 700, Los Angeles, California 90212.
As a result of its ownership of the Company's Common Stock, IDG will
be able to significantly influence matters affecting the Company, will be in a
position to direct the election of all members of the Board of Directors, and
will be able 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
three other most highly compensated executive officers (collectively, the "Named
Executive Officers") during the Company's fiscal years ended September 30, 2000,
September 30, 1999 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...................................... 2000 $336,549 $310,000 -- $8,000(3)
Chairman and Chief Executive Officer 1999 289,000 289,000 $4,800 3,972(3)
1998 270,000 422,600 14,400 233,402(4)
William G. Barry...................................... 2000 $176,544(5) $338,921(6) -- $6,000(7)
President and Chief Operating Officer 1999 -- -- -- --
1998 -- -- -- --
John P. Ball......................................... 2000 $229,423 $329,415(8) -- $8,000(3)
Executive Vice President and Secretary 1999 200,000 145,000 $4,800 4,615(3)
1998 190,000 161,755 14,400 --
John M. Harris........................................ 2000 $84,615(9) $133,019 -- $116,088(10)
Senior Vice President and Chief Financial Officer 1999 -- -- -- --
1998 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------
(1) The Company's fiscal year ends on last Saturday in September. Fiscal years
2000, 1999, and 1998 ended on September 30, 2000, September 25, 1999 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.
(3) All Other Compensation during fiscal 2000 consists of matching and other
contributions made under the Company's 1999 and 401(k) and Profit Sharing
Plan.
(4) Consists of deferred compensation. The deferred compensation programs
pursuant to which Mr. Kilcullen received such amount were terminated at
the end of fiscal 1998.
(5) Represents compensation from March through September 2000 based on a
$300,000 annual salary
(6) Includes a one-time sign on bonus of $165,705.
(7) Includes car allowance earned from April through September 2000.
(8) Includes $100,000 bonus granted to Mr. Ball in connection with services he
provided as acting Chief Operating Officer during fiscal 2000.
(9) Represents compensation from May through September 2000 based on a
$200,000 annual salary.
(10) Represents relocation expenses.
7
<PAGE>
Employment Agreements
John J. Kilcullen, the Company's Chairman and Chief Executive Officer is
employed under an employment agreement that expires on July 1, 2002, unless
earlier terminated by either party. The employment agreement provides for a
compensation package consisting of base salary, subject to increases at the
discretion of the Board Directors plus participation in the Company's Bonus Plan
based on certain targets defined by the Board of Directors. In addition, Mr.
Kilcullen was granted options to purchase up to 250,000 shares of the Company's
Class A Common Stock subject to certain vesting requirements upon commencement
of his employment. In addition, Mr. Kilcullen was granted options to purchase up
to an additional 100,000 shares on October 26, 1999. Mr. Kilcullen is also
eligible to participate in all of the Company's fringe benefit programs.
In the event that the Company terminates Mr. Kilcullen's employment with
the Company without cause or Mr. Kilcullen terminates his employment with the
Company for good reason (as those terms are defined in the employment
agreement), the Company shall pay to Mr. Kilcullen severance in an amount equal
to his then current base salary for one year, an amount equal to his maximum
target bonus and any options under his initial grant of 250,000 shall
immediately vest and become exercisable to the extent of twenty-four additional
months of vesting and shall remain exercisable for 180 days following
termination of employment. If Mr. Kilcullen is terminated as a result of a
Change of Control in the Company (as defined in the agreement), the Company
shall pay to Mr. Kilcullen and amount equal to 200% of his then base salary in
addition to the full amount of any target bonus and any options that he holds to
purchase shares of the Company's Class A Common Stock will become immediately
exercisable. The agreement also contains a non-solicitation covenant which
restricts Mr. Kilcullen from soliciting any Company employees or customers for a
period of one year after termination.
William G. Barry, the Company's President and Chief Operating Officer is
employed under a compensation agreement that expires on March 1, 2004, unless
earlier terminated by either party. The compensation agreement provides for a
compensation package consisting of base salary plus participation in the
Company's Bonus Plan based on certain targets defined by the Board of Directors.
In addition, Mr. Barry was granted options to purchase up to 300,000 shares of
the Company's Class A Common Stock subject to certain vesting requirements. Mr.
Barry was also provided with a sign-on bonus of $165,705 upon his commencing
employment with the Company and given a $1,000 monthly car allowance. Mr. Barry
is also eligible to participate in all of the Company's fringe benefit programs.
In the event that the Company terminates Mr. Barry's employment with the
Company without cause or Mr. Barry terminates his employment with the Company
for good reason (as those terms are defined in the employment agreement), the
Company shall pay to Mr. Barry severance in an amount equal to his then current
base salary for one year, an amount equal to his maximum target bonus and any
options under his initial grant of 300,000 shall immediately vest and become
exercisable to the extent of twenty-four additional months of vesting and shall
remain exercisable for 180 days following termination of employment. In
addition, if Mr. Barry is terminated without cause within the first 12 months
following the commencement of his employment with the Company, Mr. Barry will
receive an amount equal to his base salary and maximum target bonus for the
balance of the first three years of his employment period as defined in the
employment agreement. If Mr. Barry is terminated as a result of a Change of
Control in the Company (as defined in the agreement), the Company shall pay to
Mr. Barry and amount equal to 200% of his then base salary in addition to the
full amount of any target bonus and any options that he holds to purchase shares
of the Company's Class A Common Stock will become immediately exercisable. The
agreement also contains a non-solicitation covenant which restricts Mr. Barry
from soliciting any Company employees or customers for a period of one year
after termination.
John P. Ball, the Company's Executive Vice President and Secretary, is
employed under a compensation agreement that expires on July 1, 2002, unless
earlier terminated by either party. The compensation agreement provides for a
compensation package consisting of base salary plus participation in the
Company's Bonus Plan based on certain targets defined by the Board of Directors.
In addition, Mr. Ball was granted options to purchase up to 100,000 shares of
the Company's Class A Common Stock subject to certain vesting requirements. In
addition, Mr. Ball was subsequently granted options to purchase up to 50,000
shares on October 26, 1999 in connection with his services as acting Chief
Operating Officer during the 2000 fiscal year. Mr. Ball is also eligible to
participate in all of the Company's fringe benefit programs.
8
<PAGE>
In the event that the Company terminates Mr. Ball's employment with the
Company without cause or Mr. Ball terminates his employment with the Company for
good reason (as those terms are defined in the employment agreement), the
Company shall pay to Mr. Ball severance in an amount equal to his then current
base salary for one year, an amount equal to his maximum target bonus and any
options under his initial grant of 100,000 shall immediately vest and become
exercisable to the extent of twenty-four additional months of vesting and shall
remain exercisable for 180 days following termination of employment. If Mr. Ball
is terminated as a result of a Change of Control in the Company (as defined in
the agreement), the Company shall pay to Mr. Ball and amount equal to 200% of
his then base salary in addition to the full amount of any target bonus and any
options that he holds to purchase shares of the Company's Class A Common Stock
will become immediately exercisable. The agreement also contains a
non-solicitation covenant which restricts Mr. Ball from soliciting any Company
employees or customers for a period of one year after termination.
John M. Harris, the Company's Senior Vice President and Chief Financial
Officer, is employed under a compensation agreement that expires on May 1, 2004
unless earlier terminated by either party. The compensation agreement provides
for a compensation package consisting of base salary, subject to potential
increases at the discretion of the Company and an annual performance bonus in an
amount based upon an annual Company earnings target, as determined by the Board
of Directors. Mr. Harris was guaranteed an $83,000 bonus based on fiscal year
2000. In addition, Mr. Harris was granted options to purchase up to 100,000
shares of the Company's Class A Common, subject to certain vesting requirements.
Mr. Harris was also provided with up to $75,000, net of taxes, in relocation
expenses in connection with his employment with the Company. In addition, Mr.
Harris is eligible to participate in all of the Company's fringe benefit
programs.
In the event that the Company terminates Mr. Harris' employment with the
Company without cause or Mr. Harris terminates his employment with the Company
for good reason (as those terms are defined in the employment agreement), the
Company shall pay to Mr. Harris severance in an amount equal to his then current
base salary for one year, an amount equal to his maximum target bonus and any
options under his initial grant of 100,000 shall immediately vest and become
exercisable to the extent of twenty-four additional months of vesting and shall
remain exercisable for 180 days following termination of employment. If Mr.
Harris is terminated as a result of a Change of Control in the Company (as
defined in the agreement), the Company shall pay to Mr. Harris and amount equal
to 200% of his then base salary in addition to the full amount of any target
bonus and any options that he holds to purchase shares of the Company's Class A
Common Stock will become immediately exercisable. The agreement also contains a
non-solicitation covenant which restricts Mr. Harris from soliciting any Company
employees or customers for a period of one year after termination.
Option Grants in Last Fiscal Year
Mr. Barry was granted an option to purchase up to 300,000 of the Company's
Class A Common Stock at an exercise price of $10.94 per share on April 13, 2000
in connection with the commencement of his employment with the Company. The
options granted vest as follows: 25% on April 13, 2001 and 1/36 of the balance
vests monthly thereafter.
Mr. Harris was granted on option to purchase up to 100,000 shares of the
Company's Class A Common Stock at an exercise price of $10.06 per share on May
1, 2000 pursuant to a stock option agreement made in connection with the
commencement of his employment with the Company. The options granted pursuant to
such agreement vest as follows: 25% on May 1, 2001 and 1/36 of the balance vests
monthly thereafter.
Option Exercises and Holdings
The following table sets forth, as to the Named Executive Officers,
certain information concerning stock options exercised during fiscal 2000 and
the number of shares subject to exercisable and unexercisable stock options as
of September 30, 2000. The table also sets forth certain information with
respect to the value of stock options held by such individuals as of September
30, 2000.
9
<PAGE>
Fiscal Year Aggregated Option Exercises
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-the-Money Options at Fiscal
Shares Year-End Year-End(1)
Acquired on Value ------------------------------------------------------------------
Name Exercise Realized ($) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John J. Kilcullen .. -- -- 205,208 144,792 $0 $0
William G. Barry.... -- -- -- 300,000 0 0
John P. Ball ....... -- -- 85,416 64,584 0 0
John M. Harris ..... -- -- -- 100,000 0 0
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Because the market price of the Company's common stock was less than the
applicable exercise prices on the options, no value is reportable.
RELATIONSHIP WITH IDG AND CERTAIN TRANSACTIONS
Principal Stockholder; Control of the Company
The Company is a 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 11,188,616 shares of the Class A
Common Stock, including options exercisable within 60 days, representing 75.7%
of the voting power of the Company.
As a result of its ownership of Class A Common Stock and the voting
power that IDG is able to significantly influence 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 administrative tax services to the Company. The monthly fee
under the Corporate Services Agreement has been reduced from $38,500 to $10,000.
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.
10
<PAGE>
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.
Loan to Officer. The Company entered into a bridge loan agreement
with Mr. Harris, the Company's Senior Vice President and Chief Financial Officer
for $97,500 on April 10, 2000 for which Mr. Harris executed a promissory note to
the Company for the same amount payable on or about May 15, 2000. This loan was
made to Mr. Harris in connection with certain relocation expenses incurred by
Mr. Harris due to his employment with the Company. The promissory note did not
provide for any interest payment to the Company and was paid in full by Mr.
Harris on or about December 11, 2000.
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 2000, all Section 16(a) filing requirements applicable to its
executive officers, directors and 10% stockholders were satisfied except that a
purchase by IDG of 8,000 shares of Class A Common Stock on March 30, 2000 was
reported late.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in October 1998 and is
currently composed of Messrs. Hoeft Leblois and Sentilhes. 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.
11
<PAGE>
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:
o ensure that an appropriate relationship exists between executive
compensation and the creation of stockholder value;
o ensure that the total compensation program will motivate, retain and
attract executives of outstanding abilities; and
o ensure that current cash and equity incentive opportunities are
competitive with comparable companies.
The Company has taken the necessary steps to conform its
compensation practices 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) additional cash
bonuses based upon surpassing planned operating income.
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 1998 Stock Plan (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), Profit Sharing, and Employee
Stock Ownership retirement savings plan (the "KSOP Plan"). The KSOP 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 $10,500 in
2000).
Fiscal 2000 Executive Compensation
Executive compensation for fiscal 2000 included base salary and cash
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.
12
<PAGE>
Chief Executive Officer Compensation for Fiscal 1999
In fiscal 2000, Mr. Kilcullen received a salary of $336,549 and a
bonus of $310,000. Mr. Kilcullen's salary and bonuses for fiscal 2000 were based
on the same factors considered for each executive officer, as previously
described. In fiscal 2000, the Company also contributed, on behalf of Mr.
Kilcullen, $8,000 to the Company's Employee Stock Ownership Plan.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Julius A. Hoeft
Axel J. Leblois
Gregoire Sentilhes
REPORT OF AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors (the "Committee") was
established in October 1998 and is responsible for, among other things,
reviewing and discussing the audited financial statements with management,
discussing with the Company's auditors information relating to the auditors'
judgments about the quality of the Company's accounting principles, recommending
to the Board of Directors that the Company include the audited financials in its
Annual Report on Form 10K and overseeing compliance with the SEC requirements
for disclosure of auditors' services and activities.
Review of Audited Financial Statements
The Audit Committee has reviewed the Company's audited financial
statements for the fiscal year ending September 30, 2000 as prepared by Deloitte
& Touche LLP, the Company's independent auditors, and has discussed these
financial statements with management. In addition, the Audit Committee has
discussed with Deloitte & Touche the matters required to be discussed by SAS 61
regarding the codification of statements on auditing standards. Furthermore, the
Audit Committee has received the written disclosures and the letter from Deloite
& Touche required by the Independence Standards Board Standard No. 1 and has
discussed with Deloite & Touche its independence.
Recommendation
Based on the above review, the Audit Committee recommended to the
Board of Directors that the audited financial statements for the fiscal year
ended September 30, 2000 be filed with the Company's annual report on Form 10K.
Membership
The Audit Committee consists of Messrs. Hoeft and Senthiles.
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Julius A. Hoeft
Gregoire Sentilhes
13
<PAGE>
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 Book 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 Book 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 26 Month Cumulative Total Return*
Among Hungry Minds, Inc.
The NASDAQ Stock Market (U.S.) Index
And the Book Publishing Index
[LINE CHART]
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Return
------------------------------------------------------------------------------------------------------------------------------------
7/28/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 9/29/00
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hungry Minds, Inc. $100 $71 $111 $161 $118 $103 $72 $72 $57 $58
-------------------------------------------------------------------------------------------------
NASDAQ Stock Market (U.S.) Index $100 $90 $117 $131 $143 $147 $215 $241 $209 $194
-------------------------------------------------------------------------------------------------
Book Publishing Index $100 $85 $100 $125 $129 $111 $132 $115 $139 $149
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Assumes $100 invested on 7/28/98 in Class A Common Stock, at the opening
share price, or 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 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
New York City
January 8, 2001
14
<PAGE>
HUNGRY MINDS, INC.
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints John J. Kilcullen and John P. Ball, 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 Hungry Minds, Inc. (the "Company") held of record by
the undersigned on December 28, 2000, at the Annual Meeting of the Stockholders
of the Company to be held on February 9, 2001 and any adjournment or
postponement thereof.
THE 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, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE, NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
--------------------------------------------------------------------------------
Please sign exactly as 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 duly authorized officer.
--------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
-------------------------------------- ------------------------------------
-------------------------------------- ------------------------------------
-------------------------------------- ------------------------------------
|X| Please mark votes as in example.
--------------------------------------------------------------------------------
HUNGRY MINDS, INC.
--------------------------------------------------------------------------------
1. Election of Directors.
Nominees: (01) Kelly P. Conlin, (02), Axel J. Leblois, (03) Julius A. Hoeft,
(04) Patrick J. McGovern, (05) John J. Kilcullen, (06) Gregoire
Sentilhes
FOR |_| |_| WITHHELD
|_|_____________________________________________________________________________
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
above box and write the name(s) of the nominee(s) on the above line.
2. Ratify the appointment of Deloitte & Touche LLP as Independent Auditors.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
Mark box at right if an address change or comment has been noted
on the reverse side of this card. |_|
Signature: ________________ Date: ____ Signature: __________________ Date: ____
<PAGE>
Appendix
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER AS OF JUNE 2000
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Corporation to any governmental
body or the public; the Corporation's systems of internal controls regarding
finance, accounting, legal compliance and ethics that management and the Board
have established; and the Corporation's auditing, accounting and financial
reporting processes generally. Consistent with this function, the Audit
Committee should encourage continuous improvement of, and should foster
adherence to, the corporation's policies, procedures and practices at all
levels. The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
o Review and appraise the audit efforts of the Corporation's
independent accountants and internal auditing department.
o Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV. of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors as that
term is defined by Rule 4200(a)(15) of the National Association of Securities
Dealers' listing standards and free from any relationship that, in the opinion
of the Board, would interfere with the exercise of his or her independent
judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the director of the
internal auditing department and the independent accountants in separate
executive sessions to discuss any matters that the Committee or each of these
groups believe should be discussed privately. In addition, the Committee or at
least its Chair should meet with the independent accountants and management
quarterly to review the Corporations financials consistent with IV.4. below).
A-1
<PAGE>
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the organization's annual financial statements and any reports or
other financial information submitted to any governmental body, or the
public, including any certification, report, opinion, or review rendered
by the independent accountants.
3. Review the regular internal reports to management prepared by the internal
auditing department and management's response.
4. Review with financial management and the independent accountants the 10-Q
prior to its filing or prior to the release of earnings. The Chair of the
Committee may represent the entire Committee for purposes of this review.
5. Ensure receipt from the independent accountants of a formal written
statement delineating all relationships between the independent
accountants and the Corporation prepared in accordance with Independence
Standards Board Standard 1.
Independent Accountants
6. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve the
fees and other compensation to be paid to the independent accountants. On
an annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with the
Corporation to determine the accountant's independence.
7. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
8. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
organization's financial statements.
Financial Reporting Processes
9. In consultation with the independent accountants and the internal
auditors, review the integrity of the organization's financial reporting
processes, both internal and external.
10. Consider the independent accountants' judgements about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
11. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants, management, or the internal auditing department.
Process Improvement
12. Establish regular and separate systems of reporting to the Audit Committee
by each of management, the independent accountants and the internal
auditors regarding any significant judgements made in management's
preparation of the financial statements and the view of each as to
appropriateness of such judgements.
A-2
<PAGE>
13. Following completion of the annual audit, review separately with each
management, the independent accountants and the internal auditing
department any significant difficulties encountered during the course of
the audit, including any restrictions on the scope of work or access to
required information.
14. Review any significant disagreements among management and the independent
accountants or the internal auditing department in connection with the
preparation of the financial statements.
15. Review with the independent accountants, the internal auditing department
and management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented. (This review should be conducted at an appropriate of time
subsequent to implementation of changes or improvements, as decided by the
Committee.)
Ethical and Legal Compliance
16. Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
17. Review management's monitoring of the Corporation's compliance with the
organization's Ethical Code, and ensure that management has the proper
review system in place to ensure that Corporation's financial statements,
reports and other financial information disseminated to governmental
organizations, and the public satisfy legal requirements.
18. Review activities, organizational structure, and qualifications of the
internal audit department.
19. Review, with the organization's counsel, legal compliance matters
including corporate securities trading policies.
20. Review, with the organization's counsel, any legal matter that could have
a significant impact on the organization's financial statements.
21. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
A-3
