<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
[X] Definitive Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Hello Direct, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] 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>
HELLO DIRECT, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 27, 2000
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of Hello
Direct, Inc., a Delaware corporation (the "Company"), will be held on April
27, 2000 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 purposes:
1. To elect seven (7) directors for the ensuing year and until their
successors are elected.
2. 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
250,000 shares for issuance to the Company's employees and consultants.
3. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000.
4. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 17, 2000 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 March 17,
2000 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
April 6, 2000
<PAGE>
HELLO DIRECT, INC.
----------------
PROXY STATEMENT FOR 2000
ANNUAL MEETING OF STOCKHOLDERS
----------------
PROCEDURAL MATTERS
General
The enclosed Proxy is solicited on behalf of Hello Direct, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on April 27, 2000 at 9:00 a.m., local time,
and at any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will
be held at the Company's 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 April 6, 2000 to
all stockholders entitled to vote at the Annual Meeting.
Record Date and Principal Share Ownership
Only stockholders of record at the close of business on March 17, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company has one class of Common Stock, $.001 par value. As of the Record
Date, 5,262,461 shares of the Company's Common Stock were issued and
outstanding and held of record by 72 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 Annual Meeting and voting in person.
Voting and Solicitation
Each stockholder voting for the election of directors may cumulate his or
her votes, by giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the
stockholder is entitled to vote, or by distributing the stockholder's votes
under the same principle among as many candidates as the stockholder chooses,
provided that votes may not be cast for more than seven (7) candidates.
However, no stockholder shall be entitled to cumulate votes for any candidate
unless the candidate's name has been placed in nomination prior to the voting
and the stockholder, or any other stockholder, has given notice at the meeting
prior to the voting of the intention to cumulate votes. On all other matters,
each share has one vote.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone.
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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 Annual Meeting. The affirmative vote of
the holders of the majority of the shares present or represented by proxy at
the Annual 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.
Deadline for Receipt of Stockholder Proposals
Stockholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission. Proposals of stockholders of the
Company intended to be presented for consideration at the Company's 2001
Annual Meeting of Stockholders must be received by the Company no later than
December 29, 2000 in order to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
In addition, the Company's Bylaws establish an advance notice procedure with
regard to certain matters, including nominations for director and stockholder
proposals not included in the Company's proxy statement, to be brought before
a meeting of stockholders. In general, nominations for the election of
directors or proposals of business to be brought before a meeting of
stockholders may be made by: (i) the Board of Directors or (ii) any
stockholder entitled to vote who has delivered written notice to the Secretary
of the Company not fewer than 90 days in advance of the stockholders meeting,
which notice must contain specified information concerning the nominees or
proposals and concerning the stockholder proposing such nominations or
proposals. In the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholders must be received not later than the close of business on
the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure thereof was made. A copy of the
full text of the Bylaw provisions discussed above may be obtained by writing
to the Secretary of the Company.
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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>
Wellington Management Company, LLP (2)........ 503,400 9.6
75 State Street
Boston, MA 02109
Pequot Capital Management, Inc. (3)........... 500,000 9.5
500 Nyala Farm Road
Westport, CT 06880
Dimensional Fund Advisors, Inc. (4)........... 372,000 7.1
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
John B. Mumford (5)........................... 213,080 4.0
E. Alexander Glover (6)....................... 204,047 3.8
Charles E. Volwiler (7)....................... 138,108 2.6
Ronald J. Becht, Jr. (8)...................... 86,157 1.6
Dennis P. Waldera (9)......................... 80,476 1.5
William P. Sousa (10)......................... 56,588 1.1
Michael S. Young (11)......................... 39,145 *
John W. Combs (12)............................ 19,750 *
Ruth A. Grouell (13).......................... 10,645 *
Dean Witter III (14).......................... 10,000 *
Gerald L. Beckwith (15)....................... 3,750 *
Steven J. Gomo (16)........................... 3,750 *
All executive officers and directors as a
group (12 persons) (17)...................... 865,496 15.4
</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.
(2) As reported by www.nasdaq-amex-online.com as of the Record Date.
(3) As reported by www.nasdaq-amex-online.com as of the Record Date.
(4) As reported by www.nasdaq-amex-online.com as of the Record Date.
(5) 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 15,750 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
3
<PAGE>
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.
(6) Includes 148,751 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(7) Includes 24,933 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(8) Includes 63,540 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(9) Includes 44,884 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(10) Consists of 22,815 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(11) Includes 18,371 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(12) Includes 15,750 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(13) Includes 10,312 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(14) Includes 9,000 shares issuable upon the exercise of warrants.
(15) Consists of 3,750 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(16) Consists of 3,750 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date.
(17) Includes 372,606 shares issuable upon the exercise of stock options
exercisable within 60 days of the Record Date and 9,000 shares issuable
upon the exercise of warrants.
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PROPOSAL ONE
ELECTION OF DIRECTORS
A board of seven (7) directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's seven (7) nominees named below, all
of whom are presently directors of the Company. 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 of Stockholders, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. The
Company is not aware of any nominee who will be unable or will decline to
serve as a director. 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 and in accordance with cumulative voting 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. The term of office for each person elected as a director will
continue until the next Annual Meeting of Stockholders or until a successor
has been elected and qualified.
Vote Required; Election of Directors
If a quorum is present and voting, the seven (7) nominees receiving the
highest number of votes will be elected to the Board of Directors. Votes
withheld from any nominee, abstentions and broker non-votes will be counted
for purposes of determining the presence or absence of a quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES LISTED BELOW.
Nominees
The names of the nominees and certain information about them as of the
Record Date are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Positions with the Company Since
--------------- --- ----------------------------------------------- --------
<S> <C> <C> <C>
John B. Mumford (1)(2).. 56 Chairman of the Board 1987
Gerald L. Beckwith (1).. 51 Director 1998
John W. Combs (2)....... 52 Director 1996
E. Alexander Glover..... 56 President, Chief Executive Officer and Director 1997
Steven J. Gomo (2)...... 48 Director 1999
William P. Sousa (1).... 65 Director 1987
Charles E. Volwiler..... 44 Director 1997
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Mumford is a co-founder of the Company and has served as Chairman of the
Board since the Company's inception. Mr. Mumford has served as President of
Crosspoint Corporation since 1972 and as Managing General Partner of
Crosspoint Venture Partners since 1982. Mr. Mumford currently serves as a
director of a number of private companies primarily in the information
technology area. Mr. Mumford was a director of Office Depot, a public company,
from 1986 through April 1997. Mr. Mumford was a founding director of Inmac
Corp. and served in such capacity until its merger with Micro Warehouse in
1996. Mr. Mumford holds a B.S. from Arizona State University and an M.B.A.
from Stanford University.
Mr. Beckwith has been employed by QUALCOMM since 1987 and is currently a
senior vice president and the president of QUALCOMM's Wireless Systems
Division. He previously held managerial and engineering positions with M/A-COM
Linkabit, Mostek Corporation, National Micronetics and General Dynamics. He
holds both Masters and Bachelor degrees in Electrical Engineering from San
Diego State University.
5
<PAGE>
Mr. Combs has been employed by Internet Connect, an internet access company,
since September 1999 and is currently its Chief Executive Officer. From 1993
through September 1999, Mr. Combs was President of the Southwest Area for
Nextel Communications. From 1991 to 1993, he served as Executive Vice
President of Sales, Marketing and Customer Care of L.A. Cellular. Mr. Combs
was President of Mitel, Inc. from 1988 to 1991 and was Executive Vice
President and General Manager--Direct Sales Division for Fujitsu Business
Communications from 1977 to 1988. Mr. Combs is a director of Digital
Microwave, a public company. Mr. Combs earned a Bachelor of Science degree
from California Polytechnic State University.
Mr. Gomo has been employed by Asera, an internet software company, since
January 2000, and is currently its Chief Financial Officer. From 1998 to
January 2000, Mr. Gomo served as Senior Vice President and Chief Financial
Officer for Silicon Graphics, Inc. From 1974 to 1998, Mr. Gomo served in key
financial and general management positions at Hewlett-Packard. Mr. Gomo earned
a Bachelor of Science in Business Administration from Oregon State University
and an M.B.A. from Santa Clara University.
Mr. Glover was appointed President in June 1997 and Chief Executive Officer
of the Company in December 1997. Mr. Glover joined the Company in 1995 as
Executive Vice President. From 1983 to 1994, Mr. Glover was Senior Vice
President, Marketing and R&D for Kransco Group Companies ("Kransco"), a toy
and sporting goods company. Mr. Glover was also a member of the Corporate
Executive Committee at Kransco. From 1969 to 1983, Mr. Glover progressed
through various senior marketing management positions with Procter & Gamble
Co., in its Paper and Packaged Soap/Detergent Divisions. Mr. Glover holds a
Bachelors degree from Harvard College and an M.B.A. from Stanford University.
Mr. Sousa currently serves as a consultant to technology companies. Mr.
Sousa served as the President and Chief Executive Officer of Air
Communications, Inc., a high-technology marketing development company
specializing in wireless data and general communications products, from 1993
to 1994. From 1991 to 1993, Mr. Sousa served as President and Chief Executive
Officer of Insite Peripherals, Inc. ("Insite"), a high-technology marketing
and development company specializing in high-capacity floptical disk drives.
Prior to working at Insite, he was Executive Vice President of Inmac Corp., a
direct marketer of computer hardware and software products.
Mr. Volwiler co-founded the Company in 1987. He served as Vice President
from 1987 through January 1999. Prior to co-founding Hello Direct, Mr.
Volwiler was Director of Marketing for Devoke. In 1977 Mr. Volwiler joined
Devoke, which was owned by New England Business Service ("NEBS") from 1983 to
1989. Mr. Volwiler remained with NEBS until 1987. Mr. Volwiler holds a
Bachelor of Science degree in Commerce from Santa Clara University.
Board Meetings and Committees
The Board of Directors of the Company held a total of seven (7) meetings
during fiscal 1999. The Board of Directors has a Compensation Committee and an
Audit Committee. The Board of Directors has no nominating committee or any
committee performing such functions.
The Compensation Committee, which consisted of directors John B. Mumford,
Gerald L. Beckwith and William P. Sousa during fiscal year 1999, met four (4)
times by written consent during the fiscal year. John B. Mumford, Gerald L.
Beckwith, and William P. Sousa have been appointed to the Compensation
Committee for fiscal 2000. This Committee is responsible for determining
salaries, incentives and other forms of compensation for directors and
officers of the Company and administers various incentive compensation and
benefit plans.
The Audit Committee, which consisted of directors John B. Mumford, John W.
Combs and Steven J. Gomo, met two (2) times during fiscal 1999. John B.
Mumford, John W. Combs and Steven J. Gomo have been appointed to the Audit
Committee for fiscal 2000. This Committee is responsible for overseeing
actions taken by the Company's independent auditors and reviews the Company's
internal financial controls.
6
<PAGE>
No director attended fewer than 75% of the aggregate of the meetings of the
Board of Directors and committees thereof, if any, upon which such director
served during the period for which he has been a director or committee member.
Compensation of Directors
In fiscal year 1999, the Company's outside directors received cash
compensation of $500 for each regular Board meeting attended and were
reimbursed for reasonable expenses incurred in connection with attendance at
Board and committee meetings. The Company plans to continue these payments in
fiscal year 2000.
In fiscal year 1999, each of the outside directors, having served on the
board for the six months prior to January 1999 (Messrs. Mumford, Combs and
Sousa), received on January 1, 1999, a nonstatutory option grant for the
purchase of 3,000 shares of the Company's Common Stock having an exercise
price of $9.25 per share and vesting 25% quarterly during the fiscal year. On
January 1, 2000, each of the outside directors (Messrs. Combs, Gomo, Beckwith,
Mumford, Sousa, and Volwiler) received a nonstatutory option grant for 3,000
shares of Common Stock at an exercise price of $14.375 and vesting 25%
quarterly during the fiscal year.
7
<PAGE>
PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE 1995 STOCK PLAN
Proposed Amendment
In January 2000, the Board approved a proposal to amend the 1995 Stock Plan
(the "Stock Plan") to add 250,000 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 and consultants 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 March 17, 2000, 147,276 shares of Common Stock had been issued upon
the exercise of stock options; options to purchase an aggregate of 1,115,066
shares were outstanding (including 150,000 of the PhoneZone restricted options
discussed below), at a weighted average exercise price of $9.826 per share;
and 12,658 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 March 17, 2000, 150,000 options had
been granted to former PhoneZone employees (included in the 1,115,066 options
outstanding total above), and 75,000 shares remained available for future
grants restricted to former PhoneZone employees.
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
8
<PAGE>
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 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
9
<PAGE>
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 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.
10
<PAGE>
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, 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.
11
<PAGE>
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.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP, independent auditors, to audit
the financial statements of the Company for the fiscal year ending December
31, 2000, and recommends that stockholders vote for ratification of such
appointment. In the event of a negative vote on ratification, the Board of
Directors will reconsider its selection.
KPMG LLP has audited the Company's financial statements annually since 1988.
Representatives of KPMG LLP are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
Required Vote; Ratification of Appointment of Independent Auditors
The affirmative vote of the holders of a majority of the Votes Cast is
required to approve the appointment of the independent auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
12
<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 four other most highly
compensated executive officers in 1999 who were serving as executive officers
at the end of 1999 and whose salary and bonus for 1999 exceeded $100,000
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company during the years ended December 31, 1997, 1998 and
1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------- ------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary($) Bonus($)(1) Options(#) ($)(2)
--------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
E. Alexander Glover......... 1999 $300,000 $142,500 50,000 9,419
President, Chief Executive 1998 300,000 150,000 50,000 8,739
Officer and Director 1997 300,000 130,000 30,000 8,180
Ronald J. Becht, Jr......... 1999 181,250 86,100 20,000 3,712
Vice President of Product 1998 175,000 87,500 20,000 3,626
Marketing 1997 150,000 66,250 20,000 2,711
Ruth A. Grouell(3).......... 1999 135,000 64,125 10,000 5,524
Vice President of 1998 20,250 10,125 15,000 0
Organizational Development
Dennis P. Waldera........... 1999 181,250 86,100 20,000 5,228
Vice President of Direct 1998 175,000 87,500 20,000 4,930
Marketing 1997 162,500 70,938 20,000 4,008
Michael S. Young(4)......... 1999 160,000 76,000 20,000 5,369
Vice President, Chief
Information Officer and
Chief E-Commerce Officer
</TABLE>
- --------
(1) The Company establishes each year a Management Bonus Plan for which senior
management is eligible. The amount of a particular employee's bonus varies
depending on salary level, position with the Company and the operating
results of the Company.
(2) Represents premiums for long-term disability benefits.
(3) Ms. Grouell was hired by the Company in October 1998.
(4) Mr. Young was hired by the Company in January 1999.
13
<PAGE>
Option Grants in Fiscal 1999
The following table provides information with respect to stock option grants
in 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants(1)
-------------------------------------------------
Potential Realizable
Value at Assumed Annual
Number of Rates of
Securities % of Total Stock Price Appreciation
Underlying Options Granted for Option Terms($)(4)
Options to Employees in Exercise Expiration -------------------------
Name Granted Fiscal Year(1) Price($)(2) Date(3) 5% 10%
- ---- ---------- --------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
E. Alexander Glover..... 50,000 15.1% $ 8.94 4/27/09 $ 281,053 $ 712,244
Ronald J. Becht, Jr..... 15,000 4.5 8.94 4/27/09 84,316 213,673
Ronald J. Becht, Jr..... 5,000 1.5 12.00 1/20/09 37,734 95,625
Ruth A. Grouell......... 10,000 3.0 12.00 1/20/09 75,467 191,249
Dennis P. Waldera....... 20,000 6.0 8.94 4/27/09 112,421 284,897
Michael S. Young........ 20,000 6.0 12.00 1/20/09 150,935 382,498
</TABLE>
- --------
(1) The Company granted options to purchase 332,000 shares of Company Stock to
employees during 1999.
(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.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning options held on
December 31, 1999 with respect to each Named Executive Officer.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-Money Options at
Acquired Options at FY-End FY-End ($)(1)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Alexander Glover..... 48,125 $ 54,006 132,291 79,584 $1,024,861 $584,255
Ronald J. Becht, Jr..... 10,367 113,187 55,416 34,584 418,743 243,437
Ruth A. Grouell......... -- -- 4,375 20,625 42,927 133,002
Dennis P. Waldera....... 35,592 60,364 33,307 41,101 274,651 311,987
Michael S. Young........ 11,108 348 7,016 26,876 46,967 111,833
</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.
Benefit Plans
The following is a brief summary of plans in effect during the fiscal year
ended December 31, 1999 under which executive officers and directors of the
Company received benefits:
1992 Stock Option Plan. As of December 31, 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 are fully vested.
14
<PAGE>
1995 Stock Plan. The Company relies upon the Stock Plan to attract and
retain skilled employees, consultants and quality management. As of December
31, 1999, 141,212 shares of Common Stock had been issued upon exercise of
stock options, options to purchase an aggregate of 812,242 shares were
outstanding at a weighted average exercise price of $8.24 per share, and
396,546 shares were available for future issuance under the Stock Plan.
Proposal Two seeks to increase the number of shares reserved for issuance
under the Stock Plan by 250,000 shares to a total of 1,600,000 shares.
1995 Employee Stock Purchase Plan. As of December 31, 1999, a total of
116,579 shares of Common Stock were reserved for future issuance, and a total
of 188,421 shares have 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 eligible employees, as
defined, to purchase Common Stock through payroll deductions, which may not
exceed 15% of the employees 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 and approved by the stockholders in March
1995. The Director Plan provides for the grant of non-statutory 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 150,000 shares of Company's
Common Stock is reserved for issuance under the Director Plan. As of December
31, 1999, 3,000 shares have been issued upon exercise of options 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 1999, all filing requirements applicable to its
executive officers, directors and 10% stockholders were complied with.
15
<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, 1999. 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, 1999, the Compensation Committee
of the Board of Directors was comprised of three 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 1999, 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 1999, 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 2000 for
Mr. Glover, Mr. Becht, Mr. Waldera, Ms. Grouell and Mr. Young [$300,000,
$200,000, $200,000, $145,000 and $180,000, 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
the officer's 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 1999 guidelines for the Company's executive officers ranged
up to 75% of base salary. Incentive bonus payments of $142,500 $86,100,
$86,100, $64,125 and $76,000 were made to Mr. Glover, Mr. Becht, Mr. Waldera,
Ms. Grouell and Mr. Young, respectively, for fiscal 1999. For fiscal 2000,
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.
Specific information regarding compensation of the executive officers is
contained in the Summary Compensation Table.
16
<PAGE>
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, Gerald L. Beckwith
and William P. Sousa during fiscal 1999. 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
Gerald L. Beckwith
William P. Sousa
17
<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 and further amended October 13, 1999. 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 not less than 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. Mr. Young and Ms. Grouell entered
into employee severance agreements with the Company during 1999. 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, Mr Waldera, Mr. Young
or Ms. Grouell are terminated within one year following a Change of Control,
they shall receive continued salary for up to 12 months, 9 months, 9 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, all 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, 1999 through December 31, 1999, (i) the largest aggregate principal amount
of indebtedness outstanding during such period, and (ii) the principal amount
of indebtedness outstanding at December 31, 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 Amount Principal Amount of Indebtedness at
Name of Officer of Indebtedness December 31, 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>
18
<PAGE>
Performance Graph
Set forth below is a line graph comparing the cumulative return to the
stockholders of the Company's Common Stock with the cumulative return of (i)
the Nasdaq U.S. Index and (ii) a peer group consisting of the publicly traded
catalog sales companies identified in Note 1 below for the period commencing
April 7, 1995 (the date of the Company's initial public offering) and ending
on December 31, 1999. The information contained in the performance graph shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission, and such information shall not be incorporated by
reference into any future filing under the Securities Act or Exchange Act,
except to the extent that the Company specifically incorporates it by
reference into such filing.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
4/7/95 12/95 12/96 12/97 12/98 12/99
Hello Direct 100.00 58.70 41.30 57.61 87.50 129.35
Peer Group 100.00 100.72 114.18 110.27 110.74 112.32
Nasdaq Stock Market (U.S.) 100.00 130.26 160.27 196.38 276.73 499.94
</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 Company, The Right Start, Inc., Spiegel, Inc. and TrendLines, Inc.
19
<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
April 6, 1999
20
<PAGE>
PROXY
HELLO DIRECT, INC.
5893 Rue Ferrari
San Jose, CA 95138-1857
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 annual 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, April 27, 2000 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 the election of
Directors, (2) for ratification and approval of an amendment to the Company's
1995 Stock Plan increasing shares thereunder by 250,000, and (3) for the
ratification and appointment of independent public accountants, if no
instructions to the contrary are indicated in Items (1), (2) and (3), 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 annual meeting.
See Reverse CONTINUED AND TO BE SIGNED ON REVERSE SIDE See Reverse
Side Side
<PAGE>
[X] Please mark
votes as in
this example
1. Election of Directors:
Nominees: Gerald L. Beckwith, John W. Combs, E. Alexander Glover, Steven J.
Gomo, John B. Mumford, William P. Sousa and Charles E. Volwiler
[_] For [_] _________________________________________
[_] Withheld For all nominees except as noted above
2. 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 250,000 shares for issuance to the Company's employees and
consultants.
[_] For [_] Against [_] Abstain
3. Proposal to ratify the appointment of KPMG LLP as independent auditors of
the Company for the fiscal year ending December 31, 2000.
[_] For [_] Against [_] Abstain
4. 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.
[_] Mark here if you plan to attend the meeting
[_] Mark here for address change and note below
SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
(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: ____________________
