<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
ISOCOR
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ISOCOR LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999
TO THE SHAREHOLDERS OF ISOCOR:
Notice is hereby given that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of ISOCOR (the "Company"), a California corporation, will be
held at the Miramar Sheraton Hotel, 101 Wilshire Boulevard, Santa Monica,
California 90401 on Thursday, May 13, 1999 at 10:00 a.m. local time, for the
following purposes:
1. To elect the following directors, each to serve for a one year
term: Janine M. Bushman, Dennis Cagan, Andre deFusco, Andrew De Mari, Paul
Gigg, G. Bradford Jones and Bill Yundt.
2. To adopt a 1999 Stock Option Plan and to authorize 350,000 shares
of Common Stock reserved for issuance thereunder, together with an
automatic annual increase of 300,000 shares at the beginning of each fiscal
year during the term of such plan.
3. To authorize amendments to the Company's 1996 Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 250,000 shares to an aggregate of 500,000.
4. To authorize amendments to the Company's 1996 Directors' Stock
Option Plan (i) to increase the number of shares subject to the First
Option (as hereinafter defined) to 25,000 shares of Common Stock, (ii) to
increase the number of shares subject to the Subsequent Options (as
hereinafter defined) to 6,250 shares of Common Stock, and (iii) to provide
for an additional option grant of 15,000 shares for any director elected to
the Company's Board of Directors during 1999, but prior to the
effectiveness of the increase in the size of the First Option described
above.
5. To ratify the appointment of PricewaterhouseCoopers L.L.P. as the
independent auditors for the Company for the fiscal year ending December
31, 1999.
6. 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.
Only shareholders of record at the close of business on April 2, 1999 will
be entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the 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. If you decide to attend
the meeting you may vote in person even if you have returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
ELIAS J. BLAWIE, Secretary
Santa Monica, California
April 8, 1999
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENVELOPE PROVIDED.
<PAGE> 3
LOGO
------------------------
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
ISOCOR (the "Company"), a California corporation, for use at its 1999 Annual
Meeting of Shareholders (the "Annual Meeting") to be held on May 13, 1999 at
10:00 a.m., local time, or at any adjournment or postponement thereof, for the
purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the Miramar
Sheraton Hotel, 101 Wilshire Boulevard, Santa Monica, California 90401.
These proxy solicitation materials were mailed on or about April 8, 1999 to
all shareholders entitled to vote at the meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Janine M. Bushman, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. Except in certain specific circumstances, the affirmative vote of a
majority of shares represented and voting on a particular proposal at a duly
held meeting at which a quorum is present is required under California law for
approval of proposals presented to shareholders. In general, California law also
provides that a quorum consists of a majority of the shares entitled to vote,
represented either in person or by proxy. The Inspector of Elections will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted (i) for the election of the persons
nominated by management as directors, (ii) for the adoption of the Company's
1999 Stock Option Plan, (iii) for approval of the amendments to the Company's
1996 Employee Stock Purchase Plan, (iv) for approval of the amendments to the
Company's 1996 Directors' Stock Option Plan, (v) for ratification of the
appointment of the designated independent auditors and (vi) as the proxy holders
deem advisable on other matters that may come before the meeting, as the case
may be with respect to the item not marked. If a broker indicates on the
enclosed proxy or its substitute that it does not have discretionary authority
as to certain shares to vote on a particular matter ("broker non-votes"), those
shares will not be considered as voting with respect to that matter. While there
is no definitive specific statutory or case law authority in California
concerning the proper treatment of abstentions and broker non-votes, the Company
believes that the tabulation procedures to be followed by the Inspector of
Elections are consistent with the general statutory requirements in California
concerning voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's
<PAGE> 4
directors, officers and regular employees, without additional compensation,
personally or by electronic mail, facsimile, telephone or telegram.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on April 2, 1999 are
entitled to notice of and to vote at the meeting. As of April 2, 1999,
10,181,270 shares of the Company's Common Stock were issued and outstanding.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for management's seven nominees named below, all of whom are currently directors
of the Company. Director Alexandra Giurgiu has indicated that she does not
intend to seek re-election to the Company's Board of Directors at the Annual
Meeting for reasons unrelated to the Company and will resign immediately prior
to the Annual Meeting. Therefore, the Board of Directors has amended the
Company's Bylaws, in accordance with the terms thereof, to reduce the number of
directors of the Company to seven, effective as of the Annual Meeting.
Accordingly, at the Annual Meeting, seven directors will be elected.
In the event that any nominee of the Company 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. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner as will assure the election of as many of the nominees listed below as
possible and, in such event, the specific nominees to be voted for will be
determined by the proxy holders. It is expected that all nominees will be able
and willing to serve as directors. The term of office of each person elected as
a director will continue until the next Annual Meeting of Shareholders, until
such director's successor has been elected and qualified or until such director
resigns as a director of the Company. The names of the nominees, and certain
information about them as of December 31, 1998, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Janine M. Bushman................ 44 Vice President, Finance and 1995
Administration and Chief
Financial Officer of the Company
Dennis Cagan..................... 54 Chief Executive Officer, 1997
MessageMedia, Inc.
Andre deFusco.................... 40 President and Chief Executive 1999
Officer, ACT Networks,
Inc.
Andrew De Mari................... 59 Chairman of the Board of 1991
Directors of the Company
Paul Gigg........................ 45 President and Chief Executive 1997
Officer of the Company
G. Bradford Jones................ 44 General Partner, Brentwood 1991
Venture Capital, a venture
capital investment firm
Bill Yundt....................... 58 Vice President, Networking, WebTV 1998
Networks, Inc.
</TABLE>
Except as set forth below, each of the nominees has been engaged in his or
her principal occupation described above during the past five years. There is no
family relationship between any of the directors or executive officers of the
Company.
2
<PAGE> 5
Janine M. Bushman joined the Company in April 1993. She became the Vice
President of Operations of the Company in October 1994, was elected to the Board
of Directors in July 1995 and was elected Vice President, Finance and
Administration and Chief Financial Officer in November 1995. For almost six
years prior to joining the Company, Ms. Bushman was Controller and Corporate
Secretary for Interactive Systems Corporation, a developer and supplier of UNIX
operating systems software. Ms. Bushman holds an M.B.A. from Loyola Marymount
University and a B.S. in Accounting from the California State University at
Northridge.
Dennis Cagan was elected to the Board of Directors of the Company in August
1997 and has also served as a consultant to the Company since that time.
Commencing in January, 1999 he became CEO of MessageMedia, Inc. a services
company providing customer relationship management and direct marketing via
internet e-mail. Mr. Cagan has been President of Cagan Co., Inc., a management
consulting firm, since 1981 and also serves as Chairman of the Board of Acorn
Technologies, Inc. He also currently serves on the Board of Directors of
Sanctuary Woods Multimedia Corp. and MessageMedia, Inc.
Andre deFusco was elected to the Board of Directors in March 1999. Mr. de
Fusco has been President and Chief Executive Officer of ACT Networks, Inc. since
July 1998. Previously Mr. de Fusco held several positions with ACT Networks,
including the position of Vice President and General Manager of the Broadband
Network Services subsidiary from July 1997 to June 1998, Vice President,
Strategic Planning and Business Development from December 1995 to July 1997 and
Vice President of Marketing from December 1994 to December 1995. Mr. de Fusco
was employed as Director of International Accounts and Director of Business
Development for Northern Telecom from 1990 to 1994 and as Vice President of
Marketing and President of MaxCom, a developer of electronic mailsystems, from
1984 to 1990.
Andrew De Mari is a founder of the Company, was elected Chairman of the
Board of Directors in November 1997 and has been a member of the Board of
Directors since the Company's inception in 1991. Prior to becoming Chairman, Dr.
De Mari served as the Company's President and Chief Executive Officer since its
founding in 1991. Prior to founding the Company, Dr. De Mari was the founder of
Retix, a networking equipment company and a vice president of Compucorp, an
office automation product manufacturer. Dr. De Mari holds M.S.E.E. and Ph.D.
degrees in Electrical Engineering from the California Institute of Technology
and Dott. Ing. Electrical Engineering from the Politecnico di Torino, Italy.
Paul R. Gigg joined ISOCOR in January 1993. He became General Manager,
Europe in October 1995, was elected Vice President, European Marketing and Sales
in October 1996, was appointed Chief Operating Officer in April 1997 and was
elected to the Board of Directors and as President and Chief Executive Officer
in November 1997. For more than 5 years prior to joining ISOCOR, Mr. Gigg was
Director of Marketing and Engineering at Dowty Communications (formerly Case
Communications) a developer and supplier of networking products. Mr. Gigg holds
a B.S.E.E. degree from the University of Wales, United Kingdom.
G. Bradford Jones is a general partner in the venture capital firm of
Brentwood Venture Capital, which he joined in 1981. He became a member of the
Company's Board of Directors in July 1991. Mr. Jones also serves on the Board of
Directors of Interpore International and Onyx Acceptance Corporation.
Bill Yundt is Vice President, Networking at WebTV Networks, Inc. ("WebTV"),
a subsidiary of Microsoft Corporation where he has been employed since June
1996. Prior to joining WebTV Mr. Yundt served as Vice President of BBN Planet
Corp., a computer hardware hosting service provider, from September 1994 to May
1996. Mr. Yundt was employed as Director of Networking and Distributed Computing
for Stanford University from November 1969 through August 1994 and was founder
and CEO of BARNet (Bay Area Regional Network), an internet service provider, in
1993 where he was active through 1996. Mr. Yundt joined the Company's Board of
Directors in May 1998.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
the fiscal year ended December 31, 1998. The Board of Directors had an Audit
Committee and a Compensation Committee. There is no committee performing the
functions of a nominating committee.
3
<PAGE> 6
The Audit Committee of the Board of Directors reviews the results and scope
of the audit and other services provided by the Company's independent auditors,
approves fee arrangements with auditors and reports the results of its review to
the full Board of Directors and to management. This Committee, which consists of
directors Jones and Giurgiu, held one formal meeting during fiscal 1997.
Following the Annual Meeting, Mr. de Fusco is expected to replace Ms. Giurgiu as
a member of the Audit Committee.
The Compensation Committee of the Board of Directors makes recommendations
regarding salaries and incentive compensation for employees of the Company,
makes recommendations with respect to purchase and option arrangements for
individuals subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and makes recommendations regarding other
compensation matters to the full Board of Directors. This Committee, which
consists of directors Giurgiu and Jones, held three formal meetings during
fiscal 1998. Following the Annual Meeting, Mr. Yundt is expected to replace Ms.
Giurgiu as a member of the Compensation Committee.
No incumbent director attended fewer than 75 percent of the aggregate
number of meetings of the Board of Directors or of the committees, if any, upon
which such director served during fiscal 1998.
COMPENSATION OF DIRECTORS
All directors are reimbursed for out-of-pocket travel expenses associated
with their attendance at Board meetings. Nonemployee directors of the Company
are automatically granted options to purchase shares of the Company's Common
Stock pursuant to the terms of the Company's 1996 Directors' Stock Option Plan
(the "Directors' Plan"). The Directors' Plan provides that each person who is or
becomes a nonemployee director of the Company and who has not previously been
granted an option under the 1992 Stock Option Plan shall be granted a
nonstatutory stock option to purchase 10,000 shares of the Common Stock of the
Company (the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. Thereafter, on the first calendar day of
the Company's fiscal year commencing in 1998, each nonemployee director shall be
granted an additional option to purchase 2,500 shares of Common Stock of the
company (the "Subsequent Option") if, on such date, he or she shall have served
on the Company's Board of Directors for at least six months. Under the
amendments to the Directors' Plan described in Proposal No. 4, the number of
shares subject to the First Option would be increased to 25,000 shares, the
number of shares subject to the Subsequent Option would be increased to 6,250
shares and any non-employee who became a director of the Company during 1999,
but prior to the effectiveness of the foregoing increases, would be entitled to
receive an option to purchase 15,000 shares of the Company's Common Stock upon
the effectiveness of such amendments.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES
LISTED ABOVE.
PROPOSAL NO. 2
ADOPTION OF THE 1999 STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve the adoption
of the Company's 1999 Stock Option Plan (the "Option Plan") and to authorize
350,000 shares of Common Stock reserved for the Company's issuance thereunder,
together with an automatic annual increase of 300,000 shares at the beginning of
each fiscal year during the ten-year term of such plan. The following is a
summary of principal features of the Option Plan. The summary, however, does not
purport to be a complete description of all the provisions of the Option Plan.
Any shareholder of the Company who wishes to obtain a copy of the actual plan
document may do so upon written request to the Company's Chief Financial Officer
at the Company's principal offices at 3420 Ocean Park Boulevard, Santa Monica,
CA 90405.
4
<PAGE> 7
GENERAL
The Option Plan was adopted by the Board of Directors in March 1999 to
replace the Company's 1992 Stock Option Plan, under which there remained only
135,864 shares available for issuance as of February 28, 1999 and which is due
to expire in three years. The Board of Directors believes that, in order to
attract qualified employees, officers, consultants and directors to the Company
and to provide incentives to its current employees, officers, consultants and
directors, it is necessary to grant options to purchase Common Stock to such
persons pursuant to the Option Plan. Accordingly, the shareholders are being
asked to approve the Option Plan. The Company expects to continue to grant
options under its 1992 Stock Option Plan as and if shares become available
thereunder, until such plan expires.
The Option Plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the granting of nonstatutory stock options to
employees, consultants and directors. See "United States Federal Income Tax
Information" below for information concerning the tax treatment of both
incentive stock options and nonstatutory stock options.
As of the date of this statement no shares had been issued upon exercise of
options granted under the Option Plan, no options were outstanding and 350,000
shares will become available for future grants upon approval of the Option Plan
by the shareholders of the Company.
The Option Plan is not a qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
RESERVATION OF SHARES UNDER THE OPTION PLAN
The Board of Directors believes that in order to attract and retain highly
qualified employees, consultants and directors and to provide such employees,
consultants and directors with adequate incentive through their proprietary
interest in the Company, it is necessary to reserve 350,000 shares of Common
Stock for issuance thereunder and to make available an additional 300,000 shares
of Common Stock for issuance thereunder at the beginning of each fiscal year
during the ten-year term of the Option Plan. At the Annual Meeting, the
shareholders are being asked to approve the Plan and the reservation of 350,000
shares of Common Stock for issuance thereunder, together with an additional
300,000 shares to be reserved at the beginning of each fiscal year during the
term of the Option Plan.
PURPOSE
The purposes of the Option Plan are to attract and retain the best
available personnel for the Company, to provide additional incentive to the
employees, officers, consultants and directors of the Company, and to promote
the success of the Company's business.
ADMINISTRATION
If permitted by Rule 16b-3 of the Exchange Act and by the legal
requirements relating to the administration of incentive stock option plans, if
any, of applicable securities laws and the Code (collectively, the "Applicable
Laws"), grants under the Option Plan may (but need not) be made by different
administrative bodies with respect to employees or consultants who are also
officers or directors and employees who are neither directors nor officers.
With respect to grants of options to employees or consultants who are also
officers or directors of the Company, grants under the Option Plan shall be made
by (A) the Board of Directors, if the Board of Directors may make grants under
the Option Plan in compliance with Rule 16b-3 of the Exchange Act and Section
162(m) of the Code as the latter applies so as to qualify grants of options to
"covered employees" as performance-based compensation, or (B) a committee
designated by the Board of Directors to make grants under the Option Plan, which
committee shall be constituted in such a manner as to permit grants under the
Option Plan to comply with Rule 16b-3, to qualify grants of options to "covered
employees" as performance-based compensation under Section 162(m) of the Code
and otherwise so as to satisfy the Applicable Laws.
5
<PAGE> 8
With respect to grants of options to employees or consultants who are
neither directors nor officers of the Company, the Option Plan will be
administered by (A) the Board of Directors or (B) a committee designated by the
Board of Directors, which committee will be constituted in such a manner so as
to satisfy the Applicable Laws. The Board of Directors or the committee
designated by the Board of Directors to administer the Option Plan is referred
to in this Proxy Statement as the "Administrator." The Administrator receives no
additional compensation for its services in connection with the administration
of the Option Plan.
ELIGIBILITY
The Option Plan provides that options may be granted to employees
(including officers and directors who are also employees) and consultants of the
Company (including non-employee directors). Incentive stock options may be
granted only to employees. The Administrator selects the optionees and
determines the number of shares and the exercise price to be associated with
each option. In making such determination, the Administrator takes into account
the duties and responsibilities of the optionee, the value of the optionee's
services, the optionee's present and potential contribution to the success of
the Company, and other relevant factors. As of February 28, 1999, there were
approximately 250 employees, officers, consultants and directors eligible to
participate in the Option Plan.
The Option Plan provides that the maximum number of shares of Common Stock
which may be granted under options to any one employee under the Option Plan
during any fiscal year is 750,000, subject to adjustment as provided in the
Option Plan. There is also a limit on the aggregate market value of shares
subject to all incentive stock options that may be granted to an optionee during
any calendar year.
TERMS OF OPTIONS
The terms of options granted under the Option Plan are determined by the
Administrator. Each option is evidenced by a stock option agreement between the
Company and the optionee and is subject to the following additional terms and
conditions:
(a) Exercise of the Option. The optionee must earn the right to exercise
the option by continuing to work for the Company. The Administrator determines
when options are exercisable. 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 payment of the purchase price to the Company. The
method of payment of the exercise price of the shares purchased upon exercise of
an option is determined by the Administrator.
(b) Exercise Price. The exercise price of options granted under the Option
Plan is determined by the Administrator, and must be at least equal to the fair
market value of the shares on the date of grant, in the case of incentive stock
options, and 85% of the fair market value of the shares on the date of grant, in
the case of nonstatutory stock options, as determined by the Administrator,
based on the most recent available closing price of the Company's Common Stock
on the Nasdaq Stock Market. Incentive stock options granted to shareholders
owning more than 10% of the total combined voting power of all classes of the
Company's stock (such holders are referred to as "10% Shareholders") are subject
to the additional restriction that the exercise price on such options must be at
least 110% of the fair market value on the date of the grant. Nonstatutory stock
options granted to a "covered employee" under Section 162(m) of the Code are
subject to the additional restriction that the exercise price on such options
must be at least 100% of the fair market value on the date of grant.
(c) Termination of Employment. If the optionee's employment or consulting
relationship with the Company is terminated for any reason other than death or
total and permanent disability, options under the Option Plan may be exercised
not later than forty-five days (or such other period after, not exceeding three
months in the case of incentive stock options or six months in the case of
nonstatutory stock options, as is determined by the Administrator) after the
date of such termination to the extent the option was exercisable on the date of
such termination. In no event may an option be exercised by any person after the
expiration of its term.
6
<PAGE> 9
(d) Disability. If an optionee is unable to continue his or her employment
or consulting relationship with the Company as a result of or her total and
permanent disability, options may be exercised within twelve months (or such
other period of time not exceeding twelve months in the case of incentive stock
options as is determined by the Administrator) after the date of termination and
may be exercised only to the extent the option was exercisable on the date of
termination, but in no event may the option be exercised after its termination
date.
(e) Death. If an optionee should die while employed or retained by the
Company, and such optionee has been continuously employed or retained by the
Company since the date of grant of the option, the option may be exercised
within six months after the date of death (or such other period of time, not
exceeding six months, as is determined by the Administrator) by the optionee's
estate or by a person who acquired the right to exercise the option by bequest
or inheritance to the extent the optionee would have been entitled to exercise
the option had the optionee continued living and remained employed or retained
by the Company for three months after the date of death, but in no event may the
option be exercised after its termination date.
If an optionee should die within 30 days (or such other period of time not
exceeding three months as is determined by the Administrator) after the optionee
has ceased to be continuously employed or retained by the Company, the option
may be exercised within six months after the date of death by the optionee's
estate or by a person who acquired the right to exercise the option by bequest
or inheritance to the extent that the optionee was entitled to exercise the
option at the date of termination, but in no event may the option be exercised
after its termination date.
(f) Option Termination Date. Incentive stock options granted under the
Option Plan expire ten years from the date of grant unless a shorter period is
provided in the option agreement. Incentive stock options granted to 10%
Shareholders may not have a term of more than five years.
(g) Nontransferability of Options. Incentive stock options are not
transferable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable only by the optionee during his or her
lifetime or, in the event of death, by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the death of the
optionee. In the case of nonstatutory stock options, the Administrator may at
its discretion in certain circumstances allow the transferability of such
options.
(h) Merger or Acquisition. In the event of a merger of the Company with or
into another corporation or sale of substantially all of the Company's assets,
the Administrator may either accomplish a substitution or assumption of options
by the successor corporation or give written notice to the optionee at least
fifteen days prior to the consummation of such a transaction, during which
period the optionee may exercise his or her then-vested options in part or in
full. The Administrator has the authority to grant options with acceleration of
vesting or to accelerate the vesting of options in the event of a merger of the
Company with or into another corporation or sale of substantially all of the
Company's assets.
(i) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Option Plan as may be
determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split, reverse stock split, stock
dividend, combination or reclassification, is made in the Company's
capitalization that results in an increase or decrease in the number of
outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, and the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Administrator.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Option Plan at any time or from time
to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval will be obtained if required
7
<PAGE> 10
by applicable law. However, no action by the Board of Directors or the
shareholders may alter or impair any option previously granted under the Option
Plan, unless mutually agreed otherwise between the optionee and the Board of
Directors. The Option Plan shall terminate in May 2009, provided that any
options then outstanding under the Option Plan shall remain outstanding until
they expire by their terms.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the Option Plan based on federal income tax
laws in effect on the date of this Proxy Statement. This summary is not intended
to be exhaustive and does not address all matters which may be relevant to a
particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax laws of any state, municipality, non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all optionees to consult their own tax advisor
concerning the tax implications of option grants and exercises and the
disposition of stock acquired upon such exercises, under the Option Plan.
Options granted under the Option Plan may be either incentive stock
options, which are intended to qualify for the special tax treatment provided by
Section 422 of the Code, or nonstatutory stock options, which will not qualify.
If an option granted under the Option Plan is an incentive stock option, the
optionee will recognize no income upon grant of the incentive stock option and
will incur no tax liability due to the exercise, except to the extent that such
exercise causes the optionee to incur alternative minimum tax. (See discussion
below) The Company will not be allowed a deduction for federal income tax
purposes as a result of the exercise of an incentive stock option regardless of
the applicability of the alternative minimum tax. Upon the sale or exchange of
the shares more than two years after grant of the option and one year after
exercise of the option by the optionee, any gain will be treated as a long-term
capital gain. If both of these holding periods are not satisfied, the optionee
will recognize ordinary income equal to the difference between the exercise
price and the lower of the fair market value of the Common Stock on the date of
the option exercise or the sale price of the Common Stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain or loss recognized on a disposition of the shares prior
to completion of both of the above holding periods in excess of the amount
treated as ordinary income will be characterized as long-term capital gain if
the sale occurs more than one year after exercise of the option or as short-term
capital gain if the sale is made earlier. For individual taxpayers, the maximum
tax rate on long-term capital gains is 20%, whereas the maximum rate on other
income is 39.6%. Capital losses for individual taxpayers are allowed in full
against capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory stock option.
However, upon its exercise, the optionee will recognize ordinary income for tax
purposes measured by the excess of the fair market value of the shares over the
exercise price. The Company will be entitled to a deduction in the same amount
as the ordinary income recognized by the optionee. The income recognized by an
optionee who is also an employee of the Company will be subject to income and
employment tax withholding by the Company by payment in cash by the optionee or
out of the optionee's current earnings. Upon the sale of such shares by the
optionee, any difference between the sale price and the fair market value of the
shares as of the date of exercise of the option will be treated as capital gain
or loss, and will qualify for long-term capital gain or loss treatment if the
shares have been held for more than one year from date of exercise.
ALTERNATIVE MINIMUM TAX
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exemption amount
of $45,000 for joint returns, $33,750 for unmarried individual returns and
$22,500 in the case of
8
<PAGE> 11
married taxpayers filing separately (which exemption amounts are phased out for
upper income taxpayers). Alternative minimum tax will be due if the tax
determined under the foregoing formula exceeds the regular tax of the taxpayer
for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the Common Stock on the date of exercise over
the option exercise price. Because the alternative minimum tax calculation may
be complex, optionees should consult their own tax advisors prior to exercising
incentive stock options.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
REQUIRED VOTE
The approval of the adoption of the Option Plan and the reservation of
350,000 shares for issuance thereunder, together with an automatic annual
increase of 300,000 shares at the beginning of each fiscal year during the
ten-year term of the Option Plan requires the affirmative vote of the holders of
a majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE ADOPTION OF THE 1999
STOCK OPTION PLAN.
PROPOSAL NO. 3
AMENDMENTS OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders are being asked to approve amendments
to the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") that
would increase the shares reserved for issuance thereunder by 250,000 shares of
Common Stock to an aggregate of 500,000 shares.
The following is a summary of principal features of the Purchase Plan. This
summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Chief Financial Officer at the Company's principal offices at 3420 Ocean Park
Boulevard, Santa Monica, CA 90405.
GENERAL
The Purchase Plan was adopted by the Board of Directors on January 19,
1996, at which time 250,000 shares of Common Stock were reserved for issuance
thereunder. In connection with the amendment of the Purchase Plan, the Board of
Directors has reserved 250,000 additional shares of Common Stock for issuance
thereunder. As of February 28, 1999, there were 8,153 shares available for
future issuance under the Purchase Plan. The Board of Directors believes that,
in order to attract qualified employees to the Company and to provide incentives
to its current employees, it is necessary to continue to grant its employees the
right to purchase Common Stock of the Company pursuant to the Purchase Plan.
Accordingly, the shareholders are being asked to approve the amendments to the
Purchase Plan.
The Purchase Plan has two six-month offering periods each year commencing
on January 1 and July 1 of each year, or at such other time or times as may be
determined by the Board of Directors. The Purchase Plan is intended to qualify
under Section 423 of the Code. The Purchase Plan is further deemed to contain,
and options granted thereunder shall contain, and the shares issued upon
exercise thereof shall be subject to, any additional conditions and restrictions
as may be required by Rule 16b-3 of the Exchange Act to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Purchase Plan
transactions.
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<PAGE> 12
PURPOSE
The purpose of the Purchase Plan is to provide employees (including
officers and employee directors) of the Company with an opportunity to purchase
Common Stock of the Company through payroll deductions.
ADMINISTRATION
The Purchase Plan is to be administered by the Board of Directors of the
Company or a committee appointed by the Board of Directors (the
"Administrator"). At the present time, the Purchase Plan is administered by the
Board of Directors. All questions of interpretation or application of the
Purchase Plan are determined by the Administrator.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are employed for
at least 20 hours per week and more than five months in any calendar year and
who are employed by the Company as of the first business day of each offering
period of the plan (the "Offering Date") are eligible to participate in an
offering under the Purchase Plan, subject to certain limitations imposed by
Section 423(b) of the Code and limitations on stock ownership as set forth in
the Purchase Plan. No employee shall be granted an option under the Purchase
Plan if (i) immediately after the grant such employee would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total voting power or value of all classes of stock of the Company or its
subsidiaries, or (ii) such option would permit such employee to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries to
accrue at a rate which exceeds $25,000 of fair market value of such stock for
each calendar year in which such option is outstanding at any time.
Eligible employees become participants in the Purchase Plan by filing with
the payroll office of the Company a subscription agreement authorizing payroll
deductions prior to the applicable Offering Date, unless a later time for filing
the subscription agreement has been set by the Administrator. Payroll deductions
shall commence on the first payroll following the Offering Date and shall end on
the last payroll paid on or prior to the last day (the "Purchase Date") of the
offering period to which the subscription agreement is applicable, unless sooner
terminated by the participant.
GRANT AND EXERCISE OF OPTION
At the beginning of an offering period, each participant is granted an
option to purchase up to that number of shares determined by dividing such
employee's payroll deductions accumulated prior to the end of the offering
period and retained in the participant's account as of the end of the offering
period by the lower of (i) eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock at the beginning of the offering period or
(ii) eighty-five percent (85%) of the fair market value of a share of the
Company's Common Stock on the last day of the offering period; provided that in
no event shall a participant be permitted to purchase during each offering
period more than a number of shares determined by dividing $12,500 by the fair
market value of a share of the Company's Common Stock at the beginning of the
offering period, and provided further that such purchases shall be subject to
the limitations set forth above. The Company may make a pro rata reduction in
the number of shares subject to options if the total number of shares which
would otherwise be subject to options granted at the beginning of an offering
period exceeds the number of remaining available shares in the Purchase Plan.
Subject to the approval of the Company's shareholders of the foregoing
amendments, the additional shares to be approved will be made available for
purchase by the Company's employees during offering periods commencing on
January 1, 1999 and afterwards, provided however, that with respect to the
offering period commencing on January 1, 1999 only, the purchase price will be
equal to the lower of (i) eighty-five percent (85%) of, the greater of, the fair
market value of a share of the Company's Common Stock at January 1, 1999 and the
date on which the Company's shareholders approve the reservation of additional
shares under the Purchase Plan as proposed hereby, and (ii) eighty-five percent
(85%) of the fair market value of a shares of the Company's Common Stock on June
30, 1999.
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<PAGE> 13
Unless an employee withdraws his or her participation in the Purchase Plan
by giving written notice to the Company of his or her election to withdraw all
accumulated payroll deductions prior to the end of an offering period, the
employee's option for the purchase of shares will be exercised automatically at
the end of the offering period, and the maximum number of full shares subject to
option which are purchasable with the accumulated payroll deductions in his or
her account will be purchased at the applicable purchase price determined as
provided below. During the year ended December 31, 1998, (i) 21,731 shares were
purchased under the Purchase Plan by the Company's executive officers (4
persons), (ii) no shares were purchased under the Purchase Plan by the Company's
current directors were are not executive officers (5 persons) and (ii) 144,946
shares were purchased under the Purchase Plan by all eligible employees,
including current officers who are not executive officers (53 persons).
During his or her lifetime, a participant's option to purchase shares under
the Purchase Plan is exercisable only by him or her. However, a participant may
file a written designation of a beneficiary who is (i) to receive any shares and
cash, if any, from the participant's account under the Purchase Plan in the
event of such participant's death subsequent to the end of an offering period
but prior to delivery to him or her of such shares and cash, and (ii) to receive
any cash from the participant's account under the Purchase Plan in the event of
such participant's death prior to the Purchase Date of the offering period. If a
participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating
employees under the Purchase Plan is the lower of (i) 85% of the fair market
value per share of the Common Stock at the time the option is granted at the
commencement of the offering period, and (ii) 85% of the fair market value per
share of the Common Stock at the time the option is exercised on the applicable
Purchase Date. The fair market value of the Common Stock on a given date shall
be determined by the Board and will generally be based upon the last reported
sales price of the Common Stock on The Nasdaq Stock Market.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the Purchase Plan is
accumulated by payroll deductions during the offering period. The deductions may
not be less than 1% or more than 10% of a participant's aggregate compensation
during the offering period. A participant may discontinue his or her
participation in the Purchase Plan or, on one occasion only during an offering
period, may increase or decrease his or her rate of payroll deductions. Payroll
deductions for a participant shall commence on the first payroll following the
Offering Date and shall continue until his or her participation is terminated as
provided in the Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during the
applicable offering period, cancels his or her option and his or her
participation in the Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization in the
middle of an offering period, such as a stock split, stock dividend, combination
or reclassification, that results in an increase or decrease in the number of
shares of Common Stock outstanding without receipt of consideration by the
Company, appropriate adjustment shall be made in the purchase price and in the
number of shares subject to options and available for issuance under the
Purchase Plan.
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<PAGE> 14
In the event of a proposed dissolution or liquidation of the Company, the
offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Administrator. In the event of
a proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Purchase Plan shall be assumed or an equivalent substitute option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Administrator elects to shorten the offering
period then in progress by setting a new Purchase Date and notifying the
optionees of the change in their Purchase Date.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the Purchase Plan
without the approval of the shareholders, except that such termination cannot
affect options previously granted nor may an amendment make any change in an
option granted prior thereto which adversely affects the rights of any
participant unless prevailing accounting rules change in such a way that would
have an adverse effect on the Company if it did not terminate the Purchase Plan
or such offering period. No amendment may be made to the Purchase Plan without
approval of the shareholders of the Company to the extent required by applicable
law. The Purchase Plan shall expire in 2016 unless sooner terminated by the
Administrator.
UNITED STATES FEDERAL INCOME TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon how long the shares
have been held by the participant. If the shares are sold or otherwise disposed
of more than two years from the first day of the offering period and more than
one year after the Purchase Date, the participant will recognize ordinary income
measured as the lesser of (a) the excess of the fair market value of the shares
at the time of such sale or disposition over the purchase price, or (b) an
amount equal to 15% of the fair market value of the shares as of the first day
of the offering period. Any additional gain will be treated as long-term capital
gain, taxed at a maximum rate of 20%. If the shares are sold or otherwise
disposed of before the expiration of these holding periods, the participant will
recognize ordinary income generally measured as the excess of the fair market
value of the shares on the date the shares are purchased over the purchase
price. Any additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on the holding period. The Company
is not entitled to a deduction for amounts taxed as ordinary income or capital
gain to a participant except to the extent of ordinary income recognized by
participants upon a sale or disposition of shares prior to the expiration of the
holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Purchase Plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
REQUIRED VOTE
The approval of the amendments to the Purchase Plan and the reservation of
250,000 additional shares of Common Stock for issuance thereunder requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled to
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS
TO THE PURCHASE PLAN AND THE RESERVATION OF 250,000 ADDITIONAL SHARES OF
COMMON STOCK FOR ISSUANCE THEREUNDER.
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<PAGE> 15
PROPOSAL NO. 4
AMENDMENT OF 1996 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's shareholders are being asked to
approve amendments to the Company's 1996 Directors' Stock Option Plan (the
"Directors' Plan") in order to (i) increase the number of shares subject to the
First Option to 25,000 shares of Common Stock, (ii) increase the number of
shares subject to the Subsequent Option to 6,250 shares of Common Stock, and
(iii) provide for the grant of an option to purchase 15,000 shares of Common
Stock to any non-employee director elected to the Company's Board of Directors
during 1999 but prior to the effectiveness of the above amendments. The
following is a summary of principal features of the Directors' Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the Directors' Plan. Any shareholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Chief Financial Officer at the Company's principal offices at 3420 Ocean Park
Boulevard, Santa Monica, CA 90405.
GENERAL AND PURPOSE
The Directors' Plan was adopted by the Board of Directors in January 1996
and the Board has reserved a total of 150,000 shares of Common Stock for
issuance thereunder.
The Directors' Plan provides for the grant of nonstatutory stock options to
nonemployee directors of the Company. It is designed to work automatically and
not to require administration; however, to the extent administration is
necessary, it will be provided by the Board of Directors.
The purpose of the Directors' Plan is to provide an incentive for directors
to continue to serve the Company as directors and to assist the Company in
recruiting highly qualified individuals when vacancies occur on the Board of
Directors.
GRANT AND EXERCISE OF OPTION
The Directors' Plan provides that each person who becomes a nonemployee
director after the effective date of the Directors' Plan shall be automatically
granted a "First Option" to purchase 25,000 shares of Common Stock (an increase
from 10,000 shares of Common Stock) on the date on which such person first
becomes a nonemployee director, whether through election by the shareholders of
the Company or appointment by the Board of Directors to fill a vacancy, unless
such person has previously been granted an option by the Company to purchase
shares under any stock option plan of the Company. A "Subsequent Option" to
purchase 6,250 shares of Common Stock (an increase from 2,500 shares of Common
Stock) is automatically granted to each nonemployee director on the first day of
each fiscal year, provided that on that date the nonemployee director has served
on the Board of Directors for at six months. A "1999 Option" is granted to any
nonemployee director who became a director of the Company during 1999, but prior
to the date of the Company's 1999 Annual Meeting of Shareholders.
The Directors' Plan provides for neither a maximum nor a minimum number of
shares subject to options that may be granted to any one nonemployee director,
but does provide for the number of shares that may be included in any grant and
the method of making a grant. No option granted under the Directors' Plan is
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to the terms of a qualified domestic relations order
(as defined by the Code), and each option is exercisable, during the lifetime of
the optionee, only by such optionee.
The Directors' Plan provides that each First Option and 1999 Option granted
thereunder becomes exercisable in installments cumulatively as to 25% of the
shares subject to the such option on each of the first, second, third and fourth
anniversaries of the date of grant of such option, and as to 100% of the shares
subject to a Subsequent Option on the fourth anniversary of the date of grant of
the Subsequent Option. The options remain exercisable for up to ninety days
following the optionee's termination of service as a director of the Company,
unless such termination is a result of death, in which case the options remain
exercisable for up to a six-month period, or disability, in which case the
options remain exercisable for up to a six-month period.
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<PAGE> 16
During the fiscal year ended December 31, 1998 four nonemployee directors
received options to purchase an aggregate of 10,000 shares of the Company's
Common Stock.
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the Directors' Plan
shall be equal to the fair market value of a share of the Company's Common Stock
on the date of grant of the option, which is defined to be the closing sale
price of the Company's Common Stock on The Nasdaq Stock Market on the
immediately preceding trading date. Options granted under the Directors' Plan
have a term of ten years.
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company, a sale of
all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation or any other capital reorganization in
which more than 50% of the shares of the Company entitled to vote are exchanged,
each nonemployee director shall have a reasonable time within which to exercise
the option, including any part of the option that would not otherwise be
exercisable, prior to the effectiveness of such dissolution, liquidation, sale,
merger or reorganization, at the end of which time the option shall terminate,
or shall receive a substitute option with comparable terms, as to an equivalent
number of shares of stock of the corporation succeeding the Company or acquiring
its business by reason of such dissolution, liquidation, sale, merger,
consolidation or reorganization.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the Directors'
Plan, except that such termination cannot affect options previously granted
without the agreement of any optionee so affected. Notwithstanding the
foregoing, the provisions regarding the grant of options under the Directors'
Plan may be amended only once in any six-month period, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder.
If not terminated earlier, the Directors' Plan will expire in 2006.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside. The Company advises all eligible directors to
consult their own tax advisors concerning tax implications of option grants and
exercises and the disposition of stock acquired upon such exercises under the
Directors' Plan.
Options granted under the Directors' Plan are nonstatutory stock options.
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However upon its exercise, the optionee
will generally recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the option price. Upon resale
of such shares by the optionee, any difference between the sale price and the
exercise price, to the extent not recognized as ordinary income as provided
above will be treated as capital gain (or loss), and will be long-term capital
gain if the optionee has held the shares more than one year. For individual
taxpayers, the maximum U.S. federal income tax rate on long-term capital gains
is 20%, whereas the maximum rate on other income is 39.6%. Capital losses for
individual taxpayers are allowed under U.S. tax laws in full against capital
gains plus $3,000 of other income. The Company will be entitled to a tax
deduction in the amount and at the time that the optionee recognizes ordinary
income with respect to shares acquired upon exercise of a nonstatutory stock
option.
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<PAGE> 17
REQUIRED VOTE
The approval of the amendments to the Directors' Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present at the Annual Meeting in person or by proxy and entitled to
vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS
TO THE DIRECTORS' PLAN.
PROPOSAL NO. 5:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers L.L.P.,
independent auditors, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1999, and recommends that
shareholders vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection.
PricewaterhouseCoopers L.L.P. has audited the Company's financial
statements annually since its inception. Representatives of
PricewaterhouseCoopers L.L.P. are expected to be present at the meeting, with
the opportunity to make a statement if they desire to do so, and to respond to
appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS L.L.P. AS INDEPENDENT AUDITORS FOR THE COMPANY.
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<PAGE> 18
COMMON STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of February 28, 1999 as to (i) each person who is known by the
Company to beneficially own more than five percent of the Company's Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 20, and (iv)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
5% SHAREHOLDERS, DIRECTORS, NAMED OFFICERS AND NUMBER OF SHARES PERCENT
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP BENEFICIALLY OWNED BENEFICIALLY OWNED
---------------------------------------------- ------------------ ------------------
<S> <C> <C>
Brentwood Associates V, L.P......................... 607,618 6.0%
11150 Santa Monica Boulevard, Suite 1200
Los Angeles, CA 90025
CFJPE............................................... 568,964 5.6%
12, rue Chauchat
75009 Paris, France
Janine M. Bushman(1)................................ 60,458 *
Dennis Cagan........................................ 18,125 *
Andrew De Mari(1)(2)................................ 341,474 3.4%
Andre deFusco(3).................................... -- *
Paul Gigg(1)........................................ 137,633 1.4%
Alexandra Giurgiu(4)................................ 432,982 4.3%
G. Bradford Jones(5)................................ 617,982 6.1%
Alex Lazar(1)....................................... 29,083 *
Raomal Perera(1).................................... 93,344 *
Robert Lewin(1)(6).................................. 42,500 *
Bill Yundt.......................................... 1,000 *
All executive officers and directors as a group (14 1,774,581
persons)(2)(4)(5)................................. 17.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares subject to options issued pursuant to the Company's 1992
Stock Option Plan which are exercisable on or before May 1, 1999 (60 days
from the date of this table). Such shares include: Janine M. Bushman:
60,458; Andrew De Mari: 43,333; Paul Gigg: 137,633; Alex Lazar: 25,083;
Robert Lewin: 37,500; Raomal Perera: 19,833; others: 53,457.
(2) Excludes 6,471 shares owned by Antonella De Mari, 471 shares owned by Luigi
De Mari, 6,471 shares owned by Alessandra De Mari and 6,471 shares owned by
Susanna De Mari, all of whom are members of Dr. De Mari's immediate family.
Dr. De Mari disclaims beneficial ownership of such shares.
(3) Mr. deFusco joined the Company's Board of Directors after the date of this
table, at which time he was granted an option to purchase 10,000 shares of
the Company's Common Stock pursuant to the terms of the Directors' Plan.
None of such shares are exercisable on or before May 1, 1999.
(4) Includes 422,618 shares held by 4CV Management Company, Inc. Ms. Giurgiu, a
director of the Company, is a Partner of 4CV Management Company, Inc.
Because of her position with 4CV Management Company, Inc., Ms. Giurgiu may
be deemed to be a beneficial owner of such shares, but disclaims beneficial
ownership of such shares except to the extent of her individual interest
therein.
(5) Includes 607,618 shares held by Brentwood Associates V, L.P. Mr. Jones, a
director of the Company is a general partner of Brentwood V Ventures, L.P.,
the General Partner of Brentwood Associates V, L.P. Because of his position
with Brentwood V Ventures, L.P., Mr. Jones may be deemed to be a beneficial
owner of such shares, but disclaims beneficial ownership of such shares
except to the extent of his individual interest in the partnership.
(6) Robert Lewin resigned as an officer of the Company effective December 9,
1998.
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<PAGE> 19
COMPENSATION OF EXECUTIVE OFFICERS
Notwithstanding anything to the contrary set forth in any of the Company
previous filings under the Securities Act of 1933, as amended or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement in whole or in part, the following report and the
Performance Graph on page 23 shall not be incorporated by reference into any
such filings.
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION POLICIES
The Board of Directors establishes and periodically reviews the
compensation of the Chief Executive Officer and the management employees who
report to the Chief Executive Officer. Compensation for executives is based
generally on the concept that compensation must be competitive with that of
other quality companies in order to help motivate and retain the talent,
leadership skills and experience needed to help successfully guide the Company;
and must provide a strong incentive for key personnel to achieve the Company's
financial, product development and market penetration goals.
It is the Company's policy that executive compensation include base salary,
stock options and, for certain employees, bonuses and/or commissions. The
Company's salary levels are determined by comparisons with companies with
similar characteristics in the software industry. Salary increases are
determined based on the individual performance of the executive, the performance
of the Company, any change in the responsibilities of the executive and
comparisons to industry compensation data.
The Company relies upon incentive stock options as an important element of
the compensation packages of executive employees. By using incentive stock
options, the Company has been able to keep salaries and bonuses at relatively
modest levels. All employee stock options have historically been granted
pursuant to the Company's 1992 Stock Option Plan and upon approval of the
Company's 1999 Stock Option Plan, may be granted thereunder as well. The Company
makes stock option grants periodically at no less than 100% of the market price
of the Company's Common Stock on the day prior to the date of the grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In order to attract Paul Gigg to become the Company's Chief Executive
Officer during 1998, the Company entered into a one year employment agreement
with Mr. Gigg pursuant to which he was entitled to an annual salary of $216,000
per year with a target bonus for the year of $54,000. In addition, the Company
committed to loan Mr. Gigg up to $500,000 in order to purchase a home in the
Santa Monica, California area, which was to be secured by the home purchased.
Mr. Gigg was also entitled under this agreement to receive certain severance
payments if he was terminated without cause. In addition he was granted options
to purchase 50,000 shares of the Company's Common Stock, which vest over 26
months, upon his election to the position of President and CEO. Based on Mr.
Gigg's achievement of milestones during 1998, including expanding the Company's
markets with the addition of Internet Service Providers, expanding the Company's
professional services capabilities, and the expansion and continued enhancement
of the Company's messaging and directory products, the Compensation Committee
approved a bonus for Mr. Gigg of $16,094, or 30% of his target, for his services
during 1998.
In evaluating Mr. Gigg's compensation for 1999, the Compensation Committee
considered the amount of his current stock ownership, including the portion that
was unvested, changes in the compensation for similarly situated Chief
Executives and the relative difficulty of his bonus related objectives. Based on
these, as well as other factors, the Board increased Mr. Gigg's salary to
$257,800 annually and increased his target bonus to $64,450. Mr. Gigg's option
to obtain the $500,000 home loan remained intact. During January 1999, Mr. Gigg
actually borrowed the full amount available to him, which debt is secured by
real property currently owned by him.
17
<PAGE> 20
OPTION REPRICING
In December 1998, the Board of Directors (including the Compensation
Committee) determined that it was in the best interest of the Company to offer
to reprice the then-existing stock options of the Company with exercise prices
in excess of the then-current fair market value of the Company's Common Stock.
Given the substantial decline in fair market value of the Company's Common Stock
in the four months prior to December 1998, and the fact that a large number of
the Company's employees held stock option grants, before the repricing, with
exercise prices substantially in excess of the fair market value of the
Company's Common Stock in December 1998. Included in the repricing actions were
options then held by certain of the Company's executive officers. See "-- Ten
Year Option/SAR Repricing."
The objectives of the 1992 Stock Option Plan are to promote the interests
of the Company by providing employees and consultants an incentive to acquire a
proprietary interest in the Company and to continue to render services to the
Company. It was the view of the Board that stock options with exercise prices
substantially above the current market price of the Company's Common Stock were
viewed negatively by most optionees of the Company, and provided little, if any,
equity incentive to the optionees. The Board thus concluded that such option
grants seriously undermined the specific objectives of the 1992 Stock Option
Plan and should be repriced.
In this context, the Board of Directors decided that effective December 11,
1998 all unexercised stock options granted under the 1992 Stock Option Plan held
by then-current employees of and consultants to the Company with exercise prices
in excess of the fair market vale of the Company's Common Stock on December 10,
1998 would be repriced with a new exercise price of $1.8125 per share, the
closing sale price and fair market value of the Company's Common Stock on
December 10, 1998. The total number of stock option shares repriced was
1,857,900. The Company completed this repricing through a one-for-one stock
option exchange of "underwater" stock options for all optionees under the 1992
Stock Option Plan other than optionees who were no longer employees of or
consultants to the Company as of such date. Other than the change in the
exercise price, the affected options remain the same.
It is the opinion of the Board of Directors and the Compensation Committee
that this program helped build optionee morale and provided new incentives for
the Company's employees and management.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable upon
attainment of pre-established, objective performance goals under a plan approved
by the stockholders.
The compensation to be paid to the Company's executive officers for the
1998 fiscal year did not exceed the $1 million limit per officer, nor is it
expected that the compensation to be paid to the company's executive officers
for fiscal 1999 will exceed that limit. The Company's 1992 Stock Option Plan and
proposed 1999 Stock Option Plan are structured so that any compensation income
realized by an executive officer as a result of the exercise of an outstanding
option or the sale of option shares under the 1992 Stock Option Plan or 1999
Stock Option Plan would qualify as "performance-based" compensation which will
not be subject to the $1 million limitation. Because it is very unlikely that
the cash compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Compensation Committee will continue to monitor the compensation
levels potentially payable under the Company's cash compensation programs, but
intends to
18
<PAGE> 21
retain the flexibility necessary to provide total cash compensation in line with
competitive practice, the Company's compensation philosophy and the Company's
best interests.
COMPENSATION COMMITTEE
Alexandra Giurgiu
G. Bradford Jones
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are currently Alexandra Giurgiu and G. Bradford Jones. Following the
Annual Meeting, Mr. Yundt will replace Ms. Giurgiu as a member of the
Compensation Committee. Neither Ms. Giurgiu nor Messrs. Jones or Yundt has at
any time been an officer or employee of the Company.
19
<PAGE> 22
SUMMARY COMPENSATION TABLE
The following table shows the compensation received by the Company's Chief
Executive Officer during 1998 and the four other most highly compensated
executive officers of the Company on an annualized basis whose total annual
salary and bonus exceeded $100,000 for 1998 (the "Named Officers"), and the
compensation received by each such individual for the fiscal years ended
December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
SECURITIES
BONUS AND OTHER ANNUAL UNDERLYING ALL OTHER
SALARY(1) COMMISSION COMPENSATION OPTIONS COMPENSATION
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Paul Gigg...................... 1998 $227,631 $33,280 $42,000
President and Chief 1997 153,640 46,057 24,000 125,000 $31,862
Executive Officer 1996 79,698 76,913 -- 25,000 7,949
Alex Lazar..................... 1998 105,316 55,382 8,500
Vice President, 1997 98,254 62,113 -- 20,000
North American Sales 1996 79,250 65,535
Raomal Perera.................. 1998 102,278 11,720 36,000 13,709
Senior Vice President, 1997 110,957 12,680 32,400 9,235
Engineering 1996 87,295 -- 32,400 28,000 11,904
Janine Bushman................. 1998 146,135 23,123 2,009
Vice President, Finance & 1997 130,000 32,109
Administration, CFO 1996 110,000 25,000
Robert Lewin(1)................ 1998 193,480 11,754 30,500
Vice President, Marketing 1997 9,170 6,100 50,000
</TABLE>
- ---------------
(1) Robert Lewin resigned as an officer of the Company effective December 9,
1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the stock option
grants made during the year ended December 31, 1998 under the Company's 1992
Stock Option to the Named Officers. No stock appreciation rights were granted to
these individuals during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM($)(3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME (SHARES)(1) FISCAL YEAR (PER SHARE) DATE 5% 10%
---- ----------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Paul Gigg............ 6,000(2) 0.8 $1.8125 11-30-2005 $ 6,839 $ 17,332
25,000(2) 3.2 1.8125 8-14-2006 28,497 72,216
75,000(2) 9.6 1.8125 5-15-2007 85,490 216,649
50,000(2) 6.4 1.8125 11-5-2007 56,994 144,433
170,000(2) 22.0 1.8125 5-13-2008 193,778 491,072
Alex Lazar........... 20,000(2) 2.5 1.8125 8-14-2006 22,797 57,773
65,000(2) 8.4 1.8125 5-13-2008 74,092 187,763
Raomal Perera........ 8,000(2) 1.0 1.8125 1-18-2006 9,119 23,109
20,000(2) 2.5 1.8125 8-14-2006 22,797 57,773
20,000(2) 2.5 1.8125 5-13-2008 22,797 57,773
Janine Bushman....... 10,000(2) 1.3 1.8125 1-18-2006 11,399 28,887
15,000(2) 1.9 1.8125 8-14-2006 17,098 43,330
30,000(2) 3.9 1.8125 5-13-2008 34,196 86,660
Robert Lewin(4)...... 37,500(2) 4.9 1.8125 12-8-2007 42,745 108,325
</TABLE>
- ---------------
(1) The general terms of the options are substantially the same as the terms of
options described under "Proposal No. 3 Adoption of the 1999 Stock Option
Plan."
20
<PAGE> 23
(2) Reflects options granted in prior fiscal years for which the exercise price
was adjusted. See "Compensation of Executive Officers -- Report of
Compensation Committee" and "-- Ten-Year Option/SAR Repricings."
(3) Potential realizable values are reported net of the option exercise price
but before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only. Actual realized gains, if any, on stock
option exercises are dependent on future performance of the Company's Common
Stock, as well as the optionee's continued employment through the vesting
period.
(4) Robert Lewin resigned as an officer of the Company effective December 9,
1998.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain summary information concerning shares
of Common Stock acquired upon exercise of stock options and represented by
outstanding stock options, for each of the Named Officers as of December 31,
1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul Gigg................ -- -- 7,850 28,150 $ 32,876 $117,892
7,083 2,917 27,893 11,487
4,625 1,375 12,721 3,782
14,583 10,417 40,111 28,652
43,181 31,819 118,769 87,518
26,924 23,076 74,054 63,471
-- 170,000 -- 467,585
Raomal Perera............ -- -- 5,833 2,167 11,304 4,200
11,666 8,334 22,609 16,151
-- 20,000 -- 38,760
Alex Lazar............... -- -- 979 21 3,855 83
9,750 2,250 32,302 7,454
11,666 8,334 32,087 22,923
-- 65,000 -- 178,783
Janine Bushman........... -- -- 16,000 -- 67,008 --
4,000 -- 15,752 --
4,000 -- 15,752 --
3,916 84 15,421 331
13,000 3,000 43,069 9,939
7,291 2,709 20,054 7,451
8,750 6,250 24,067 17,191
-- 30,000 -- 82,515
Robert Lewin(3).......... -- -- 12,500 37,500 28,125 84,375
</TABLE>
- ---------------
(1) Determined based on the closing price of the Company's Common Stock as
reported on The Nasdaq Stock Market on December 31, 1998 ($4.5630 per
share).
(2) Excludes options with exercise prices in excess of the fair market value of
the underlying shares as of the date of this table.
(3) Robert Lewin resigned as an officer of the Company effective December 9,
1998.
21
<PAGE> 24
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information as of December 31, 1998
with respect to the repricing of certain stock options held by the Named
Officers during the previous ten years. No stock appreciation rights were
granted to any Named Officer during such period.
<TABLE>
<CAPTION>
NUMBER OF MARKET LENGTH OF
SECURITIES PRICE EXERCISE ORIGINAL OPTION
UNDERLYING OF STOCK AT PRICE TERM REMAINING
OPTION/SARS TIME OF AT TIME OF NEW AT DATE OF
REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT AMENDMENT PRICE($) AMENDMENT
---- -------- ----------- ------------ -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Janine Bushman............ 12-11-98 10,000 $1.8125 $2.625 $1.8125 7 yrs. 1 mos.
12-11-98 15,000 1.8125 2.625 1.8125 7 yrs. 8 mos.
4-1-97 10,000 2.625 8.00 2.625 8 yrs. 10 mos.
4-1-97 15,000 2.625 6.75 2.625 9 yrs. 4 mos.
Paul Gigg................. 12-11-98 6,000 1.8125 2.625 1.8125 6 yrs. 11 mos.
12-11-98 25,000 1.8125 2.625 1.8125 7 yrs. 8 mos.
12-11-98 75,000 1.8125 2.625 1.8125 8 yrs. 5 mos.
12-11-98 50,000 1.8125 2.625 1.8125 8 yrs. 11 mos.
4-1-97 6,000 2.625 7.50 2.625 8 yrs. 8 mos.
4-1-97 25,000 2.625 6.75 2.625 9 yrs. 4 mos.
Alex Lazar................ 12-11-98 20,000 1.8125 2.625 1.8125 7 yrs. 8 mos.
4-1-97 20,000 2.625 6.75 2.625 9 yrs. 4 mos.
Raomal Perera............. 12-11-98 8,000 1.8125 2.625 1.8125 7 yrs. 1 mos.
12-11-98 20,000 1.8125 2.625 1.8125 7 yrs. 8 mos.
4-1-97 8,000 2.625 8.00 2.625 8 yrs. 10 mos.
4-1-97 20,000 2.625 6.75 2.625 9 yrs. 4 mos.
Robert Lewin(1)........... 12-11-98 37,500 1.8125 2.625 1.8125 7 yrs. 8 mos.
</TABLE>
- ---------------
(1) Robert Lewin resigned as an officer of the Company effective December 9,
1998.
22
<PAGE> 25
PERFORMANCE GRAPH
The following graph compares, for the period of time that the Company's
Common Stock has been registered under Section 12 of the Securities Exchange Act
of 1934, the cumulative total shareholder return for the Company with the
cumulative total return of The Nasdaq Stock Market US Index, and the Hambrecht &
Quist Computer Software Index. The stock price performance on the following
graph is not necessarily indicative of future stock price performance.
COMPARISON OF 3 YEAR CUMULATIVE TOTAL RETURN*
AMONG ISOCOR, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST COMPUTER SOFTWARE INDEX
LOGO
* $100 invested on 3/14/96 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company is a party to an international reseller agreement with Syseca,
an affiliate of Thomson-CSF Ventures. Pursuant to such agreement, the Company
provides products to Syseca for resale on terms not substantially different from
terms with other international resellers. Pursuant to orders under such
agreement, the Company has included $345,000 in revenues for the year ended
December 31, 1998. Included in accounts receivable as of December 31, 1998 was
$82,000 relating to Syseca. The Company believes that this transaction was made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
Consistent with other employees of the Company's Irish operation, the
Company has entered into an employment agreement with C. Raomal Perera, the
Company's Senior Vice President, Engineering and the General Manager of the
Company's Irish operations. Such agreement contains customary provisions
including
23
<PAGE> 26
the rate of compensation, benefits, vacation and a car allowance consistent with
the terms offered to other ISOCOR managers in Ireland. In addition, his contract
provides for the payment of certain management fees related to his position as
General Manager of ISOCOR B.V. Mr. Perera is an "at-will" employee of the
Company.
The Company has entered into a Consultancy Agreement with Cagan Co, Inc., a
management consulting firm of which Dennis Cagan is the President and Chief
Executive Officer. Pursuant to the terms of such agreement the Company may
engage Cagan Co, Inc. for one or more projects, from time to time, as mutually
agreed by the parties. There are currently no outstanding work orders under the
Agreement. The terms and conditions of such Agreement and the related work order
are substantially the same as the terms of other agreements between Cagan Co,
Inc. and its clients.
See "Compensation of Executive Officers -- Report of the Compensation
Committee" for a discussion of agreements with Paul Gigg.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and any persons holding more than ten percent of the
Company's Common Stock ("Reporting Persons") to report their initial ownership
of the Company's Common Stock and any subsequent changes in that ownership to
the SEC. Reporting Persons are required by SEC regulation to provide the Company
with copies of all Section 16(a) forms they file. Specific filing deadlines of
these reports have been established and the Company is required to disclose in
this Proxy Statement any failure to file by these dates during 1998. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, the Company believes that during the fiscal year ended December 31,
1998, all Reporting Persons complied with the applicable filing requirements.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 2000 Annual Meeting must be received by
the Company no later than December 9, 1999 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
ELIAS J. BLAWIE, Secretary
Dated: April 8, 1999
24
<PAGE> 27
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF ISOCOR
1999 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ISOCOR, a California corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement, each dated April 8, 1999, and hereby appoints Paul Gigg and Janine M.
Bushman or either of them, proxies and attorneys-in-fact, with full power to
each of substitution, on behalf and in the name of the undersigned, to represent
the undersigned at the 1999 Annual Meeting of Shareholders of ISOCOR to be held
on May 13, 1999, at 10:00 a.m., local time, at the Miramar Sheraton Hotel, 101
Wilshire Boulevard, Santa Monica, California 90401 and at any adjournment or
postponement thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side, and, in their discretion, upon such
other matter or matters that may properly come before the meeting and any
adjournment(s) thereof.
-----------
SEE REVERSE
(TO BE SIGNED ON REVERSE SIDE) SIDE
-----------
<PAGE> 28
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
ISOCOR
MAY 13, 1999
Please Detach and Mail in the Envelope Provided
PLEASE MARK YOUR
A [X] VOTES AS IN THIS
EXAMPLE
FOR all WITHHOLD
nominees listed to AUTHORITY
the right (except to vote for all nominees
as indicated) listed to the right.
1. Election of Directors [ ] [ ]
IF YOU WISH TO WITHHOLD AUTHORITY Nominees: Janine M. Bushman
TO VOTE FOR ANY INDIVIDUAL NOMINEE, Dennis Cagan
STRIKE A LINE THROUGH THAT NOMINEE'S Andre de Fusco
NAME IN THE LIST TO THE RIGHT. Paul Gigg
G. Bradford Jones
Bill Yundt
FOR AGAINST ABSTAIN
2. To adopt a 1999 Stock Option Plan and to authorize [ ] [ ] [ ]
shares of Common Stock reserved for issuance
thereunder as set forth in the Proxy Statement.
FOR AGAINST ABSTAIN
3. To authorize amendments to the Company's 1996 [ ] [ ] [ ]
Employee Stock Purchase Plan as set forth in the
Proxy Statement.
FOR AGAINST ABSTAIN
4. To authorize amendments to the Company's 1996 [ ] [ ] [ ]
Directors' Stock Option Plan as set forth in the
Proxy Statement.
FOR AGAINST ABSTAIN
5. To ratify the appointment of PricewaterhouseCoopers [ ] [ ] [ ]
LLP as the independent auditors of the Company for
the year ending December 31, 1999.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF ALL DIRECTORS; (2) ADOPTION OF
THE 1999 STOCK OPTION PLAN; (3) FOR APPROVAL OF THE AMENDMENTS TO THE COMPANY'S
1996 EMPLOYEE STOCK PURCHASE PLAN; (4) AMENDMENTS TO THE COMPANY'S 1996
DIRECTORS' STOCK OPTION PLAN AND (5) FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS L.L.P. AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
SIGNATURE(S) DATE
----------------------------------------------- ----------------
NOTE: This Proxy should be marked, dated, signed by the shareholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are
held by joint tenants or as community property, both should sign.
