<PAGE>
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Hello Direct
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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:
Notes:
<PAGE>
HELLO DIRECT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on September 2, 1999
To the Stockholders of Hello Direct, Inc.:
Notice Is Hereby Given that a Special Meeting of Stockholders of Hello
Direct, Inc., a Delaware corporation (the "Company"), will be held on September
2, 1999 at 9:00 a.m., local time, at the Company's principal executive offices
located at 5893 Rue Ferrari, San Jose, CA 95138-1857, for the following purpose:
To approve an amendment to the Company's 1995 Stock Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 225,000 shares for issuance to the Company's employees
and consultants.
The foregoing item of business is more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on July 30, 1999
as the record date for the determination of stockholders entitled to vote at
this meeting. Only stockholders of record at the close of business on July 30,
1999 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the 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. Any stockholder attending
the meeting may vote in person even if the stockholder has previously returned a
proxy.
By Order of the Board of Directors
/s/ Dean Witter III
Dean Witter III
Chief Financial Officer
and Secretary
San Jose, California
August 13, 1999
<PAGE>
HELLO DIRECT, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
September 2, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of Hello Direct, Inc., a Delaware
corporation (the "Company"), for use at the Special Meeting of Stockholders (the
"Special Meeting") to be held on September 2, 1999 at 9:00 a.m., local time, and
at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Special Meeting of Stockholders. The Special Meeting
will be held at the Company's principal executive offices located at 5893 Rue
Ferrari, San Jose, CA 95138-1857. The Company's telephone number at that
location is (408) 972-1990.
These proxy solicitation materials were mailed on or about August 13, 1999
to all stockholders entitled to vote at the Special Meeting.
Record Date and Principal Share Ownership
Only stockholders of record at the close of business on July 30, 1999 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting.
The Company has one class of Common Stock, $.001 par value. As of the Record
Date, 5,197,489 shares of the Company's Common Stock were issued and outstanding
and held of record by 81 stockholders. See "Security Ownership of Certain
Beneficial Owners and Management" below for information regarding beneficial
owners of more than five percent of the Company's Common Stock.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to its use by delivering to the Secretary of the
Company a written instrument revoking the proxy or a duly executed proxy bearing
a later date or by attending the Special Meeting and voting in person.
Voting Rights
Each share has one vote for the proposal to be acted on at the Special
Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services. The Company has retained Morrow & Co., Inc. to aid
in the solicitation of proxies from brokers, banks and other institutional
nominees. The fees and expenses of such firm are not expected to exceed $3,500.
1
<PAGE>
Vote Required and Method of Counting Votes
The presence in person or by proxy of holders of a majority of the
outstanding shares of common stock entitled to vote will constitute a quorum for
the transaction of business at the Special Meeting. The affirmative vote of the
holders of the majority of the shares present or represented by proxy at the
Special Meeting is required for the approval of the matter to be voted upon.
Abstentions for this matter will be treated as votes cast on a particular matter
as well as shares present and represented for purposes of establishing a quorum.
Broker nonvotes (i.e., when a broker does not have authority to vote on a
specific issue) will not be treated as votes cast on a particular matter but
will be treated as shares present or represented for purposes of establishing a
quorum.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the Record Date as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and each nominee for
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table in "Compensation of Executive Officers" below and
(iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------
Number of Percent of
Beneficial Owner Shares Total
- ---------------- ------ -----
<S> <C> <C>
Pequot Capital Management, Inc. (2) 500,000 9.6
500 Nyala Farm Road
Westport, CT 06880
Wellington Management Company, LLP (3) 438,000 8.4
75 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc. (4) 344,400 6.6
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Wynnefield Partners (5) 291,000 5.6
One Penn Plaza, Suite 4720
New York, NY 10119
John B. Mumford (6) 210,830 4.0
E. Alexander Glover (7) 175,416 3.3
Charles E. Volwiler (8) 135,003 2.6
Ronald J. Becht, Jr. (9) 73,659 1.4
Dennis P. Waldera (10) 62,892 1.2
William P. Sousa (11) 54,338 1.0
John W. Combs (12) 17,500 *
Gerald L. Beckwith 0 *
Steven J. Gomo 0 *
Raymond E. Nystrom (13) 10,000 *
All executive officers and directors as a group (12 persons) (14) 739,695 13.5
</TABLE>
- ----------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934 and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of the Record Date are
deemed outstanding for computing the percentage of the person holding such
options, but are not outstanding for computing the percentage of any other
person. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
3
<PAGE>
(2) As reported to the registrant in a private communication by the beneficial
owner, as of June 30, 1999.
(3) As reported by www.nasdaq-online.com as of the Record Date.
(4) As reported by www.nasdaq-online.com as of the Record Date.
(5) As reported by www.nasdaq-online.com as of the Record Date.
(6) Includes 148,469 shares by the Mumford Family Trust, 19,261 shares held by
the Crosspoint Retirement Plan for the benefit of Mr. Mumford (the
"Retirement Plan"), 29,600 shares held in an individual retirement account
(the "IRA") for the benefit of Mr. Mumford and 13,500 shares issuable upon
exercise of stock options exercisable within 60 days of the Record Date.
Mr. Mumford is also a trustee of the Mumford Family Trust. Mr. Mumford
retains the right to direct the voting and disposition of the shares held
by the Mumford Family Trust. Accordingly, Mr. Mumford may be deemed to be a
beneficial owner of these shares. Mr. Mumford disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein. This number does not include 66,572 shares held by various trusts
for the benefit of children of Mr. Mumford. Mr. Mumford disclaims
beneficial ownership of such shares.
(7) Includes 122,291 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(8) Includes 21,828 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(9) Includes 51,042 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(10) Includes 27,300 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(11) Consists of 20,565 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(12) Includes 13,500 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(13) Mr. Nystrom resigned as on Officer of the Company in February 1999.
(14) Includes 273,083 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
4
<PAGE>
PROPOSAL
AMENDMENT TO
THE 1995 STOCK PLAN
Proposed Amendment
In July 1999, the Board approved a proposal to amend the 1995 Stock Plan
(the "Stock Plan") to add 225,000 shares for issuance to the Company's employees
and consultants.
Reasons for the Amendment
The Company relies upon the Stock Plan as one of the benefits necessary to
attract and retain skilled personnel. The Company competes for high caliber,
high quality personnel with many other technology companies which as part of
their incentive packages offer option grants to their employees. The Board has
determined it is essential to offer an appropriate level of option grants to
attract and retain employees to remain competitive with other hiring companies
in the area. Accordingly, the Board of Directors believes it is in the
Company's best interests to increase the shares reserved for issuance under the
Stock Plan so that the Company may continue to attract and retain the services
of qualified employees by providing employees an opportunity to purchase the
Company's Common Stock through option grants.
Activity Under the Stock Plan
From time to time, the Company reviews the number of shares available for
issuance under the Stock Plan and, based on the Company's estimates of the
number of shares expected to be issued under the Stock Plan, management presents
to the Board of Directors a recommendation for the reservation of additional
shares for issuance. The Board reviews such recommendation and if the Board
approves it, the Board presents a proposal for the stockholders' approval.
Vote Required for Approval of Amendment
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE STOCK PLAN.
Summary of the Stock Plan
As of July 30, 1999, 135,077 shares of Common Stock had been issued upon
the exercise of stock options; options to purchase an aggregate of 810,746
shares were outstanding (including 75,000 of the PhoneZone restricted options
discussed below), at a weighted average exercise price of $8.24 per share; and
29,177 shares remained available without restrictions for future issuance under
the Stock Plan. At the Company's Annual Meeting of stockholders, on April 28,
1999, the Stockholders of the Company approved an amendment to the Stock Plan to
add 225,000 shares available for grants restricted to former employees of
PhoneZone.com, an Internet buyer's guide publisher that the Company acquired in
January, 1999. As of July 30, 1999, 75,000 options had been granted to former
PhoneZone employees (included in the 810,746 options outstanding total above),
and 150,000 shares remained available for future grants restricted to former
PhoneZone employees.
5
<PAGE>
The essential features of the Stock Plan are outlined below.
Purpose. The purposes of the Stock Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and consultants of the Company, and to
promote the success of the Company's business.
Administration. The Stock Plan may be administered by the Board, a
committee of the Board or, with respect to grants to certain persons, by
different bodies as permitted by law (the "Administrator"). Subject to the
other provisions of the Stock Plan, the Administrator has the power to determine
the terms and conditions of any options and stock purchase rights granted,
including, but not limited to, the persons to whom an option or stock purchase
right may be granted, the exercise price, the number of shares subject to the
option or stock purchase right and the exercisability thereof. The Stock Plan
is currently administered by the Compensation Committee of the Board of
Directors.
Eligibility and Terms of Options. The Stock Plan provides that incentive
stock options may be granted only to employees. Nonstatutory stock options and
stock purchase rights may be granted to employees and consultants. An optionee
who has been granted an option may, if otherwise eligible, be granted additional
options or stock purchase rights. With respect to any optionee who owns stock
with more than 10% of the voting power of all classes of stock of the Company (a
"10% Stockholder"), the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value of the stock on the grant
date, and the maximum term of the option cannot exceed five years. The term
of all other options under the Stock Plan may not exceed ten years. The
Administrator selects the optionees and determines the number of shares subject
to each option, but in no case may an employee be granted options to purchase
more than 100,000 shares in any fiscal year. In making such determination, the
Administrator takes into account the duties and responsibilities of the
employee, director or consultant, the value of his or her services, his or her
present and potential contribution to the success of the Company, the
anticipated number of years of future service and other relevant factors.
Conditions of Options. Each option granted under the Stock Plan is
evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following conditions:
(a) Exercise Price. The Administrator determines the exercise price
--------------
of options to purchase shares of Common Stock. However, the exercise price of
an incentive stock option must not be less than 100% (110%, if issued to a 10%
Stockholder) of the fair market value of the Common Stock on the date the option
is granted. For so long as the Company's Common Stock is traded on the Nasdaq
National Market, the fair market value of a share of Common Stock shall be the
closing sale price for such stock (or the closing bid if no sales were reported)
as quoted on the Nasdaq National Market for the last market trading day prior to
the date of grant or, if the market is closed on such date, the immediately
preceding trading date.
(b) Value Limitation. If the aggregate fair market value of all
----------------
shares of Common Stock subject to an optionee's incentive stock option(s)
exercisable for the first time during any calendar year exceeds $100,000, the
excess options shall be treated as nonstatutory options.
(c) Form of Consideration. The consideration to be paid for the
---------------------
shares of Common Stock issued upon exercise of an option shall be determined by
the Administrator. In the case of incentive stock options, the form of
consideration to be paid shall be determined at the time of grant. Such form of
consideration may vary for each option and may consist entirely of cash, check,
promissory note, shares of the Company's Common Stock meeting certain criteria,
any combination thereof, or any other legally permissible form of consideration
as may be provided in the Stock Plan or the option agreement.
(d) Exercise of the Option. Each stock option agreement will specify
----------------------
the term of the option and the date when the option is to become exercisable.
The term of such vesting is determined by the Administrator. Options granted
under the Stock Plan have a ten-year term (five years, if issued to a 10%
Stockholder) and generally become exercisable over four years at a rate of one-
fourth of the shares subject to the options at the end of twelve months from
6
<PAGE>
the date of grant and one forty-eighth of the shares every month for thirty-six
months thereafter, subject to continuation of employment or service, as the case
may be. An option is exercised by giving written notice of exercise to the
Company and tendering full payment of the purchase price to the Company.
(e) Termination of Employment. In the event an optionee ceases to be
-------------------------
an employee, director or consultant, other than upon the optionee's death or
disability, the optionee may exercise his or her options within such period of
time as determined by the Administrator (not to exceed three months in the case
of an incentive stock option) from the date of such termination (and in no event
later than the expiration of the term of such options as set forth in the option
agreement) to the extent that the optionee was entitled to exercise them at the
date of such termination. In the absence of a specified time in the option
agreement, the optionee may exercise his or her options within ninety days
following the date of such termination. Options granted under the Stock Plan to
date have generally provided that optionees may exercise their options within
ninety days from the date of termination of employment for reasons other than
the optionee's death or disability.
(f) Disability. In the event an optionee ceases to be an employee,
----------
director or consultant as a result of permanent and total disability (as defined
in Section 22(e)(3) of the Code), the optionee may exercise his or her options
at any time within twelve months from the date of such termination, but only to
the extent that the optionee was entitled to exercise them at the date of such
termination, (and in no event later than the expiration of the term of such
options as set forth in the option agreement).
(g) Death. In the event an optionee dies while he or she is an
-----
employee, director or consultant, within twelve months following the date of
death (but in no event later than the expiration of the term of such options as
set forth in the notice of grant), the optionee's estate or the person who
acquires the right to exercise the options by bequest or inheritance may
exercise said options, but only to the extent that the optionee was entitled to
exercise them at the date of death.
(h) Termination of Options. Excluding incentive stock options issued
----------------------
to 10% Stockholders, options granted under the Stock Plan expire on the date set
forth in the option agreement (not to exceed ten years from the date of grant).
Incentive stock options granted to 10% Stockholders expire five years from the
date of grant (or such shorter period set forth in the option agreement). No
option may be exercised by any person after the expiration of its term.
(i) Nontransferability of Options and Stock Purchase Rights. Unless
-------------------------------------------------------
determined otherwise by the Administrator, an option or stock purchase right may
not be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner, other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by the optionee.
Terms and Conditions of Stock Purchase Rights. Each stock purchase right
granted under the Stock Plan shall be evidenced by a written offer which sets
forth the terms, conditions and restrictions related to the offer, including the
number of shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer, which in no
case shall exceed six months. The offer shall be accepted by execution of a
restricted stock purchase agreement in such form as determined by the
Administrator. Once the stock purchase right is exercised, the purchaser shall
have the rights equivalent to those of a stockholder. Unless the Administrator
determines otherwise, the restricted stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's service with the Company for any reason
(including death or disability). The purchase price for shares repurchased
pursuant to such repurchase right shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The Administrator shall determine the rate at which the
repurchase option lapses.
Adjustment Upon Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding option or stock purchase right, and the number of shares of
Common Stock (a) authorized for issuance under the Stock Plan but as to which
no options or stock purchase rights have yet been granted or (b) which have been
returned to the Stock Plan upon cancellation or expiration
7
<PAGE>
of an option or stock purchase right, as well as the price per share of Common
Stock covered by each such outstanding option or stock purchase right shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without consideration. Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option or stock purchase
right.
Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent it has not been previously exercised,
an option or stock purchase right will terminate immediately prior to the
consummation of such proposed action. The Board in its discretion may provide an
optionee the right to exercise his or her option as to all of the stock covered
thereby, including shares as to which the option would not otherwise be
exercisable. In addition, the Board may provide that a Company repurchase
option applicable to shares purchased upon exercise of an option or stock
purchase right shall lapse as to all such shares.
Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the
Company, each outstanding option or stock purchase right may be assumed, or an
equivalent option or right substituted, by the successor corporation or a parent
or subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option or stock purchase
right, the optionee shall fully vest in and have the right to exercise the
option or stock purchase right as to all or a portion of the optioned stock,
including shares that would not otherwise be exercisable. If an option or stock
purchase right becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the administrator shall
notify the optionee that the option or stock purchase right has become fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the option or stock purchase right will terminate upon the expiration of such
period.
Amendment and Termination of the Stock Plan. The Board may at any time
amend, alter, suspend or terminate the Stock Plan. The Company shall obtain
stockholder approval of any Stock Plan amendment to the extent necessary and
desirable to comply with applicable laws. No amendment, alteration, suspension
or termination of the Stock Plan shall impair the rights of any optionee, unless
mutually agreed otherwise between the optionee and the Administrator, which
agreement must be in writing and signed by the optionee and the Company.
Federal Tax Information
Options granted under the Stock Plan may be either incentive stock options,
as defined in Section 422 of the Code, or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the disposition of shares purchased pursuant to the terms of an incentive
stock option more than two years after grant of the option and more than one
year after exercising the option, any gain or loss will be treated as long-term
capital gain or loss. If these holding periods are not satisfied, the optionee
will recognize ordinary income at the time of disposition equal to the
difference between the exercise price and the lower of (i) the fair market value
of the shares at the date of the option exercise or (ii) the sale price of the
shares. A different rule for measuring ordinary income upon such a premature
disposition may apply if the optionee is an officer, director, or 10%
Stockholder of the Company. The Company is entitled to a tax deduction in the
same amount as any ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term, or short-term
capital gain or loss, depending on the holding period.
All of the Options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time a nonstatutory option is granted. However, upon its
exercise,
8
<PAGE>
the optionee will recognize taxable income generally measured as the excess of
the then fair market value of the shares purchased over the exercise price. Any
taxable income recognized in connection with an option exercise by an optionee
who is also an employee of the Company will be subject to tax withholding by the
Company. Upon disposition of such shares by the optionee, any difference between
the sales price and the optionee's purchase price, to the extent not recognized
as taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in an amount equal to any
ordinary income recognized by the optionee with respect to shares acquired upon
exercise of a nonstatutory option.
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 Stock Plan, does not purport to be complete, and reference should be made to
the applicable provisions of the tax code. In addition, this summary does not
discuss the tax consequences of a participant's death or the income tax laws of
any municipality, state or foreign country in which the participant may reside.
9
<PAGE>
ADDITIONAL INFORMATION RELATING TO
DIRECTORS AND OFFICERS OF THE COMPANY
Compensation of Executive Officers
The following table sets forth the compensation earned by (i) the Company's
Chief Executive Officer, (ii) each of the Company's three other most highly
compensated executive officers in 1998 who were serving as executive officers at
the end of 1998 and whose salary and bonus for 1998 exceeded $100,000
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company during the years ended December 31, 1996, 1997 and
1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long- Term
Compensation Compensation
---------------------------------------- ------------
Other Securities
Fiscal Annual Underlying
Name and Principal Position Year Salary($) Bonus ($)(1) Compensation(2) Options
- --------------------------- ------ --------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
E. Alexander Glover....................................... 1998 300,000 150,000 $8,739 50,000
President, Chief Executive 1997 300,000 130,000 8,180 30,000
Officer and Director 1996 250,000 30,000 7,980 7,980
Ronald J. Becht, Jr. ..................................... 1998 175,000 87,500 3,626 20,000
Vice President of Product Marketing 1997 150,000 72,813 2,711 20,000
1996 140,000 -- 1,995 --
Raymond E. Nystrom(3)..................................... 1998 175,000 87,500 6,590 20,000
Vice President of Operations and Chief Financial Officer 1997 167,500 72,813 5,527 --
1996 26,667 45,000 -- --
Dennis P. Waldera (4)..................................... 1998 175,000 87,500 4,930 20,000
Vice President of Direct Marketing 1997 162,500 70,938 4,008 20,000
1996 106,800 -- 3,788 50,000
</TABLE>
(1) The Company establishes each year a Management Bonus Plan for which senior
management is eligible. The amount of a particular employee's bonus varies
depending on salary level, position with the Company and the operating
results of the Company.
(2) Represents premiums for long-term disability benefits.
(3) Mr. Nystrom was hired in November 1996 and resigned in February 1999.
(4) Mr. Waldera was hired in April 1996.
10
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
Option/SAR Grants in Fiscal Year 1998. The following table summarizes the
stock options granted by the Company to the Company's Named Executive Officers
during the last fiscal year. No SARs were granted during the last fiscal year.
(1)
<TABLE>
<CAPTION>
% of Total
Number of Securities Options/SARs Potential Realizable Value
Underlying Op- Granted to Exercise or at Assumed Annual Rates of
tions/SARs Employees in Last Base Price Expiration Stock Price Appreciation
Name Granted (#) Fiscal Year ($/sh)(2) Date (3) for Option Terms($)(4)
---- ----------- ----------- --------- -------- ----------------------
5% 10%
---- -----
<S> <C> <C> <C> <C> <C> <C>
E. Alexander Glover 50,000 16.9% $6.25 01/28/08 $196,530 $498,045
Ronald J. Becht, Jr 20,000 6.8% $6.25 01/28/08 78,612 199,218
Raymond E. Nystrom 20,000 6.8% $6.25 01/28/08 78,612 199,218
Dennis P. Waldera 20,000 6.8% $6.25 01/28/08 78,612 199,218
</TABLE>
_____________________
(1) The Company granted options to purchase 295,000 shares of Company Stock to
employees during 1998.
(2) The exercise price may be paid in cash, check, promissory note, shares of
the Company's Common Stock (subject to approval of the Board of Directors)
or any combination of such methods.
(3) Options may terminate before their expiration date if the optionee's status
as an employee is terminated or upon the optionee's death or disability.
(4) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future prices of its
Common Stock.
11
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options held on
December 31, 1998 with respect to each Named Executive Officer. No options were
exercised by such persons during 1998.
<TABLE>
<CAPTION>
Name Number of Securities Underlying Unexer- Value of Unexercised in-the-Money
- ---- cised Options at FY-End Options at FY-End (1)
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
E. Alexander Glover 126,875 83,125 $318,306 $318,674
Ronald J. Becht, Jr 46,201 34,166 188,252 137,774
Raymond E. Nystrom 22,500 42,500 133,493 209,753
Dennis P. Waldera 41,666 48,334 126,581 176,589
</TABLE>
- -------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option and the exercise price of the option.
12
<PAGE>
Benefit Plans
The following is a brief summary of plans in effect during the fiscal year
ended December 31, 1998 under which executive officers and directors of the
Company received benefits:
1992 Stock Option Plan. As of July 30, 1999, options to purchase an
aggregate of 8,329 shares of the Company's Common Stock were outstanding
pursuant to the 1992 Stock Option Plan (the "Old Plan"). No new stock option
grants can be issued under the Old Plan. Stock options outstanding pursuant to
the Old Plan vest over two to four years from the grant date and expire ten
years from the grant date.
1995 Stock Plan. The Company relies upon the Stock Plan to attract and
retain skilled employees, consultants and quality management. As of July 30,
1999, 135,077 shares of Common Stock had been issued upon exercise of stock
options, options to purchase an aggregate of 810,746 shares were outstanding at
a weighted average exercise price of $8.24 per share; 29,177 shares were
available without restriction for future issuance under the Stock Plan; and
150,000 shares remained available with restrictions for future issuance under
the Stock Plan. The Proposal seeks to increase the number of shares reserved
for issuance under the Stock Plan by 225,000 shares to a total of 1,350,000
shares.
1995 Employee Stock Purchase Plan. As of July 30, 1999, a total of 141,915
shares of Common Stock were reserved for future issuance, and a total of 163,085
shares has been issued pursuant to the 1995 Employee Stock Purchase Plan (the
"ESPP"). The ESPP is administered by the Compensation Committee of the Board of
Directors. The ESPP permits an eligible employee, as defined therein, to
purchase Common Stock through payroll deductions, which may not exceed 15% of
the employee's base compensation. No employee may purchase more than $25,000
worth of stock in any calendar year. The ESPP is implemented by offering
periods lasting for six (6) months, with a new offering period commencing every
six months. The price of shares purchased under the ESPP is 85% of the lower of
the fair market value of the Common Stock on (i) the first day of the offering
period; or (ii) the last day of the offering period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
1995 Director Option Plan. The Director Plan was adopted by the Company's
Board of Directors in February 1995, approved by the stockholders in March 1995
and amended at the Annual Meeting of stockholders on April 28, 1999 to increase
the number of shares available for grant by 75,000 shares. The Director Plan
provides for the grant of nonstatutory stock options to Outside Directors
pursuant to a non-discretionary grant mechanism. The exercise price of options
granted to Outside Directors must be 100% of the fair market value of the
Company's Common Stock on the date of grant. Options granted to the Outside
Directors have a 10-year term, or shorter upon termination of tenure as
director. A total of 147,000 shares of the Company's Common Stock is reserved
for issuance under the Director Plan. As of July 30, 1999, 3,000 shares have
been purchased upon exercise of options issued under the Director Plan; options
to purchase 63,000 shares were outstanding at a weighted average exercise price
of $8.88 per share; and 84,000 shares were available for future issuance under
the Director Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors and persons who own more
than ten percent of a registered class of the Company's equity securities to
file reports of ownership on Form 3 and changes in ownership on Form 4 and Form
5 with the Securities and Exchange Commission ("SEC"). Executive officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all section 16(a) forms they
file. Based solely in its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that, during fiscal 1998, all filing requirements applicable to its executive
officers, directors and 10% stockholders were complied with.
13
<PAGE>
Compensation Committee Report on Executive Compensation
The following is the Report of the Compensation Committee of the Company
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation paid to such executive
officers for the year ended December 31, 1998. The information contained in the
report shall not be deemed to be "soliciting material" or to be "filed" with the
SEC, and such information shall not be incorporated by reference into any future
filing under the Securities Act of 1933, as amended, or the Exchange Act except
to the extent that the Company specifically incorporates it by reference into
such filing.
During the fiscal year ended December 31, 1998, the Compensation Committee of
the Board of Directors was comprised of two non-employee directors. The
Compensation Committee is responsible for setting compensation levels for the
Company's executive officers and for overseeing the administration of certain of
the Company's stock option plans. All decisions by the Compensation Committee
are reviewed by the entire Board of Directors.
In making compensation decisions, it has been the practice of the
Compensation Committee to meet with the Company's chief executive officer, as
appropriate. For fiscal 1998, the Compensation Committee reviewed compensation
surveys prepared by outside compensation consultants. Such surveys were
utilized to establish compensation packages that are within the range of those
persons holding comparably responsible positions at companies similar to the
Company in age, number of employees, revenues and overall growth rate.
The Compensation Committee believes that executive officer compensation
should be closely aligned with the performance of the Company on both a short-
term and long-term basis and that such compensation should assist the Company in
attracting and retaining key executives critical to its long-term success. To
that end, the Compensation Committee's policy is that the compensation package
for executive officers should consist of three components: (i) an annual base
salary; (ii) the potential to earn incentive bonuses each fiscal year, the
amount of which is dependent on the Company's overall performance; and (iii)
stock option awards designed to align management interests with those of
stockholders by providing long-term incentives for the Company's key employees.
In fiscal 1998, the Compensation Committee reviewed and used comparable-company
data as the basis for setting executive compensation within the framework
described above.
Base salary is (i) based upon the responsibilities of the particular
executive officers, (ii) targeted at the median of comparable companies and
reviewed on an annual basis. Base salaries for fiscal year 1999 for Mr. Glover,
Mr. Becht, Mr. Waldera, Ms. Grouell and Mr. Young, $300,000, $175,000, $175,000,
$135,000 and $160,000, respectively, were determined by the Compensation
Committee and approved by the full Board.
Incentive bonuses represent an opportunity for each executive officer to earn
additional annual cash compensation in an amount tied to a percentage of base
salary. These percentages are generally established by the Compensation
Committee at the end of each fiscal year for the following fiscal year. The
fiscal 1998 guidelines for the Company's executive officers ranged up to 75% of
base salary. Incentive bonus payments of $150,000 $87,500, $87,500 and $12,000
were made to Mr. Glover, Mr. Becht, Mr. Waldera and Mr. Volwiler, respectively,
for fiscal 1998. For fiscal 1999, bonus guidelines are up to 75% of base salary.
The long-term-performance-based compensation of executive officers takes the
form of option awards under the Company's 1995 Stock Plan. The Compensation
Committee believes that equity-based compensation ensures that the Company's
executive officers have a continuing stake in the long-term success of the
Company. All options granted by the Company have been granted with an exercise
price equal to the market price of the Company's Common Stock on the date of
grant and, accordingly, have value only if the Company's stock price increases
after such date. In granting options under the 1995 Stock Plan, the Committee
takes into account each executive's responsibilities, relative position in the
Company, and past grants. Individual grants may vary within the range to
reflect individual performance and potential. The option program also utilizes
vesting periods to encourage retention of key employees.
14
<PAGE>
Specific information regarding compensation of the executive officers is
contained in the Summary Compensation Table on page 10.
Tax Policy
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
deductions for certain executive compensation in excess of $1 million. The
Company endeavors to structure its compensation plans to achieve maximum
deductibility under Section 162(m) with minimal sacrifices in flexibility and
corporate objectives. With respect to non-equity compensation arrangements, the
Compensation Committee has reviewed the terms of those arrangements most likely
to be subject to Section 162(m).
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of John B. Mumford and William P. Sousa
during fiscal 1998. The Compensation Committee makes recommendations to the
Board of Directors concerning salaries and incentive compensation for directors
and officers of the Company. Mr. Glover, President and Chief Executive Officer
of the Company, although not a voting member of the Compensation Committee,
participates in all discussions and decisions regarding salaries and incentive
compensation for all employees of and consultants to the Company, except that
Mr. Glover is excluded from discussions and decisions regarding his own salary
and incentive compensation.
John B. Mumford
William P. Sousa
15
<PAGE>
Employment Contracts and Change of Control Arrangements
Mr. Glover, the Company's President and Chief Executive Officer, entered
into an employment agreement with the Company on March 24, 1995, subsequently
amended effective July 1, 1997. Under the terms of Mr. Glover's employment
agreement, his annual base salary is not to be less than $300,000; he is
eligible for a bonus of up to 50% of his base salary provided the Company meets
certain targeted financial criteria; and he is to receive an annual stock option
grant for a minimum of 50,000 shares of Common Stock at the fair market value on
the date of grant, provided however that the exercise price of the additional
options may be limited to $500,000. The agreement expires on March 24, 2001. In
the event Mr. Glover is terminated prior to the expiration of the agreement, he
will be entitled to severance equal to twelve months' base salary.
Mr. Glover, Mr. Becht and Mr. Waldera entered into employee severance
agreements with the Company during 1998. The severance agreements provide that,
in the event of a Change of Control, all of the executive officer's rights to
purchase stock shall be automatically vested in their entirety immediately
preceding the first of (i) a Change of Control in which the rights are not
assumed by the successor corporation or will be terminated or canceled, (ii) if
the executive officer will not receive identical securities received by other
stockholders upon exercise of such executive officer's rights or (iii) an
involuntary termination of the executive officer. In the event Mr. Glover, Mr.
Becht or Mr. Waldera are terminated within one year following a Change of
Control, they shall receive continued salary for up to 12 months, 9 months and 9
months, respectively, and continued employee benefits, any accrued management
bonus and several other immaterial benefits.
Mr. Waldera, the Company's Vice President of Direct Marketing has an
agreement with the Company providing that in the event he is terminated without
cause, he will be entitled to receive his base salary and benefits for nine
months following the termination, his accrued management bonus, his outstanding
stock options shall become fully vested and exercisable within three months from
the date of termination and he will have the option of continuing to be covered
by the Executive Disability Plan at his own expense.
Indebtedness of Executive Officers
On July 29, 1999, the Company made, to three executive officers, including
two executive officers named in the Summary Compensation Table, full recourse
loans for the purchase of Common Stock upon the exercise by such officers of
options granted under the Stock Plan, such loans having a term of five years,
bearing interest at the rate of 5.25% per annum, and secured by a pledge of the
Common Stock purchased therewith. Pursuant to the Stock Plan, Mr. Glover
purchased 48,125 shares for $380,625, Mr. Waldera purchased 35,592 shares for
$261,079, and Mr. Young purchased 11,108 shares for $99,972. All of the options
exercised were vested and had been granted with exercise prices equal to the
fair market value on the date of grant. All shares purchased by the executive
officers under the Stock Plan are included in the Security Ownership of
Directors and Executive Officers table on page 3.
The table below shows as to each executive officer who was indebted to the
Company in an amount exceeding $60,000 at any time during the period January 1,
1998 through July 30, 1999, (i) the largest aggregate amount of indebtedness
outstanding during such period, and (ii) the amount of indebtedness outstanding
at July 30, 1999. For each individual listed in the table below, the
indebtedness shown resulted from the loans described in the preceding paragraph.
<TABLE>
<CAPTION>
Largest Aggregate Principal Principal Amount of Indebtedness at
Name of Officer Amount of Indebtedness July 30, 1999
- --------------- ---------------------- -------------
<S> <C> <C>
E. Alexander Glover $380,625.00 $380,625.00
Dennis P. Waldera $261,078.50 $261,078.50
Michael S. Young $ 99,972.00 $ 99,972.00
</TABLE>
16
<PAGE>
COMPARISON OF TOTAL RETURN
Among Hello Direct, Inc., the NASDAQ Stock Market - US Index and a Peer Group
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NASDAQ Peer Hello Direct
------ ---- ------------
<S> <C> <C> <C>
04/07/95 100.00 100.00 100.00
12/31/95 130.26 107.83 58.70
12/31/96 160.18 118.53 41.30
12/31/97 196.51 109.06 57.61
12/31/98 276.25 97.59 87.50
</TABLE>
Note (1). The Peer Group consists of the following companies: Blair
Corporation, Concepts Direct, Inc., CDW Computer Centers, Inc., Corporate
Express, Inc., DM Management Co., Damark International, Inc., Fingerhut, Co.,
Inc., Geerlings & Wade, Inc., Global DirectMail, Corp., Sport Supply Group,
Inc., Hanover Direct, Inc., Initio, Inc., Lands' End, Inc., Lillian Vernon
Corporation, Creative Computers, Inc., Micro Warehouse, Inc., New England
Business Service, Inc., Insight Enterprises, Inc., U.S. Office Products, Co.,
Right Start, Inc., Speigel, Inc. and Trend-Lines, Inc.
17
<PAGE>
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters to be
submitted at the meeting. If any other matters come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote the
shares they represent as the Board of Directors may recommend.
By Order of the Board of Directors
/s/ Dean Witter III
Dean Witter III
Chief Financial Officer and Secretary
San Jose, California
August 13, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1998 is available
without charge upon written request to: Corporate Secretary, Hello Direct, Inc.,
5893 Rue Ferrari, San Jose, CA 95138-1857.
18
<PAGE>
PROXY
HELLO DIRECT, INC.
5893 Rue Ferrari
San Jose, CA 94138-1857
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Revoking any such prior appointment, the undersigned hereby appoints E.
Alexander Glover and Dean Witter III and each of them attorneys and agents, with
power of substitution to vote as Proxy for the undersigned, as herein stated,
at the special meeting of stockholders of Hello Direct, Inc., to be held at the
Company's principal executive offices located at 5893 Rue Ferrari, San Jose,
California 95138, on Thursday, September 2, 1999 at 9:00 a.m., and at any
adjournments thereof, with respect to the number of shares the undersigned would
be entitled to vote if personally present.
This proxy, when properly executed, will be voted (1) for ratification
and approval of an amendment to the Company's 1995 Stock Plan increasing shares
thereunder by 225,000, if no instructions to the contrary are indicated in Item
(1) and in the discretion of the named attorneys and agents on such matters as
may properly come before the meeting.
The undersigned hereby acknowledges receipt of a copy of the Proxy
Statement relating to such special meeting.
- ------------ ------------
See Reverse See Reverse
Side CONTINUED AND TO SIGNED ON REVERSE SIDE Side
- ------------ ------------
1. Proposal to ratify and approve an amendment to the Company's 1995 Stock Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 225,000 shares for issuance to the Company's employees and
consultants.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
matter or matters which may properly come before the meeting or any
adjournment or adjournments thereof.
(Signatures should conform exactly to
name(s) shown on this proxy. Executors,
administrators, guardians, trustees,
attorneys, and officers signing for
corporations should give full title.)
Signature:
-------------------------------
Date:
------------------------------------
Signature:
-------------------------------
Date:
------------------------------------
SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
