<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>h88993def14a.txt
<DESCRIPTION>I-SECTOR CORPORATION
<TEXT>
<PAGE> 1
PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Section 240.14a-11(c) or
Section 240.14a-12
I-SECTOR CORPORATION
(Name of Registrant as specified in its Charter)
I-SECTOR CORPORATION
(Name of Person(s) Filing Proxy Statement)
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 the
transaction applies:
---------------------------------------------
(2) Aggregate number of securities to which the
transaction applies:
---------------------------------------------
(3) Per unit price or other underlying value of
the 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 the
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:
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<PAGE> 2
I-SECTOR CORPORATION
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 8, 2001
----------------
Notice is hereby given that the annual meeting of the holders of common
stock of I-Sector Corporation, a Delaware corporation (the "Company"), will be
held at the offices of the Company located at 6401 Southwest Freeway, Houston,
Texas 77074 on Wednesday August 8, 2001, at 10:00 a.m., Houston time, and any
adjournment or postponement thereof, for the following purposes:
1. To elect a board of Six (6) directors to serve until the next
annual meeting of stockholders or until their successors are
elected and qualified; and
2. To consider and act upon such other business as may properly
be presented at the annual meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on July 10, 2001
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the annual meeting and any adjournments or postponements
thereof. A stockholders' list will be available commencing ten days prior to the
annual meeting, and may be inspected during normal business hours prior to the
annual meeting at the offices of the Company, 6401 Southwest Freeway, Houston,
Texas 77074.
Your vote is important. Whether or not you plan to attend the annual
meeting in person, we request that you sign, date and return the enclosed proxy
card promptly in the enclosed postage-paid envelope. The prompt return of
proxies will ensure a quorum and save the Company the expense of further
solicitation.
By Order of the Board of Directors,
/s/ Donald R. Chadwick
-----------------------------------
Donald R. Chadwick
Secretary
July 10, 2001
i
<PAGE> 3
I-SECTOR CORPORATION
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
PROXY STATEMENT
This proxy statement and the enclosed proxy card are first being mailed
to the stockholders of I-Sector Corporation, a Delaware corporation (the
"Company"), commencing on or about July 16, 2001, in connection with the
solicitation by the board of directors of the Company (the "Board of Directors,"
or the "Board") of proxies to be voted at the annual meeting of stockholders to
be held at the offices of the Company located at 6401 Southwest Freeway,
Houston, Texas 77074 on Wednesday, August 8, 2001, at 10:00 a.m., Houston time
and at any adjournments or postponements thereof (the "Meeting"), for the
purposes set forth in the accompanying notice.
A stockholder may revoke a proxy by:
(1) delivering to the Company written notice of revocation,
(2) delivering to the Company a signed proxy of a later date, or
(3) appearing at the Meeting and voting in person.
Votes will be tabulated and the results will be certified by election
inspectors who are required to resolve impartially any interpretive questions as
to the conduct of the vote.
As of July 10, 2001, the record date for the determination of
stockholders entitled to vote at the Meeting, there were outstanding and
entitled to vote 3,951,025 shares (the "Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"). The Company's Common Stock is the
only class of voting securities outstanding. Each Share entitles the holder to
one vote, on all matters presented at the Meeting. Holders of a majority of the
outstanding Shares must be present, in person or by proxy, to constitute a
quorum for the transaction of business. Stockholders who are present at the
Meeting in person or by proxy and who abstain and proxies relating to shares
held in "street name" that are marked as "not voted" ("broker non-votes") will
be treated as present for purposes of determining whether a quorum is present.
If a quorum is not obtained the Meeting may be adjourned for the
purpose of obtaining additional proxies or votes or for any other purpose, and,
at any subsequent reconvening of the Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Meeting (except for any proxies which have theretofore been revoked).
Proxies will be voted in accordance with the directions specified
thereon and otherwise in accordance with the judgment of the persons designated
as proxies. Any proxy on which no direction is specified will be voted for the
election of the nominees named herein to the Board of Directors. Abstentions
will be treated as present for purposes of determining whether a quorum is
present, but will have the same legal effect as votes against election of the
nominees. As to any other matter, which may properly be presented at the
meeting, the persons named on the proxy card will vote according to their best
judgment.
<PAGE> 4
ELECTION OF DIRECTORS
GENERAL INFORMATION
At the Meeting, six (6) nominees are to be elected. If elected, each
director will hold office until the next annual meeting of stockholders or until
his successor is elected and qualifies.
On July 10, 2000 five directors were elected by the stockholders. Mark
T. Hilz resigned as a director on June 8, 2001. The Board of Directors has
adopted a resolution increasing the size of the Board from five to six. The
persons named as proxies in the accompanying proxy have been designated by the
Board of Directors and, unless authority is withheld, proxies will be voted for
the election of the nominees named below to the Board of Directors. All of the
nominees previously have been elected directors by the stockholders with the
exception of Mr. Klausmeyer and Mr. Cartwright. If any nominee should become
unavailable for election, the proxy may be voted for a substitute nominee
selected by the persons named in the proxy or the board may be reduced
accordingly; however, the Board of Directors is not aware of any circumstances
that would prevent any nominee from serving.
APPROVAL
If a quorum is present, the six nominees for election as directors at
the Meeting who receive the greatest number of votes cast for election by the
holders of Shares present, in person or by proxy, at the Meeting will be the
duly elected directors of the Company. Broker non-votes will not have any effect
on the outcome of the election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL SIX NOMINEES TO THE COMPANY'S
BOARD OF DIRECTORS.
NOMINEES FOR DIRECTOR
Set forth below is certain information regarding the nominees for
election to the Board of Directors:
JAMES H. LONG - Director since April 1983.
Mr. Long, age 42, is the founder of the Company and has served as Chairman of
the Board, Chief Executive Officer and President since the Company's inception
in 1983. Prior to founding the Company, Mr. Long served with the United States
Navy in a technical position and was then employed by IBM in a technical
position.
DONALD R. CHADWICK, - Director since September 1996.
Mr. Chadwick, age 57, has served as Secretary since February 1992 and served as
Chief Financial Officer from February 1992 until December 1999. As Chief
Financial Officer, his duties included supervision of finance, accounting and
controller functions within the Company.
RICHARD D. DARRELL - Director since July 1997.
Mr. Darrell, age 45, has been Director of U.S. Sales for M-Tech, Inc., a
software company based in Calgary, Alberta, Canada since May 2001. Mr. Darrell
was President of American Technology Acquisition Corporation, a company
specializing in mergers, acquisitions, and divestitures of technology related
companies, for the last five years and until May 2001. Prior to that, Mr.
Darrell served as President and Chief Executive Officer of Direct Computer
Corporation, a computer reseller and distribution company based in Dallas,
Texas.
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<PAGE> 5
JACK M. JOHNSON, JR. - Director since July 1997.
Mr. Johnson, age 61, has been Managing General Partner of Winterman & Company, a
general partnership that owns approximately 25,000 acres of real estate in
Texas, which is used in farming, ranching, and oil and gas exploration
activities, since 1996. Mr. Johnson is also President of Winco Agriproducts, an
agricultural products company that primarily processes rice for seed and
commercial sale. Mr. Johnson was previously the Chairman of the Board of the
Lower Colorado River Authority, the sixth largest electrical utility in Texas,
with approximately 1,700 employees and an annual budget of over $400 million.
Mr. Johnson was previously Chairman of North Houston Bank, a commercial bank
with assets of approximately $75 million. Mr. Johnson currently serves on the
board of directors of Houston National Bank, a commercial bank located in
Houston, Texas with assets of approximately $100 million; Security State Bank, a
commercial bank in Anahuac, Texas with assets of approximately $60 million and
Team, Inc. a publicly traded company which provides environmental services for
industrial operations.
KEVIN M. KLAUSMEYER - Nominee for Director
Mr. Klausmeyer, age 42, has been Chief Financial Officer of PentaSafe Security
Technologies, Inc., a security software company and provider of complete
security policy and infrastructure solutions, since December 1, 1999. From 1993
to November 1999, Mr. Klausmeyer was Vice President and Chief Accounting Officer
of BMC Software, Inc., a publicly-held distributor of computer software. Mr.
Klausmeyer is one of three software finance executives, who, together with
representatives from the Big Five accounting firms, serve on the AICPA's
Software Revenue Recognition Task Force, which interprets and provides guidance
to the software industry on the U.S. authoritative software revenue accounting
rules. In addition, Mr. Klausmeyer is the current Chairman of SOFTEC (Software
Finance and Tax Executives Council), the primary software financial organization
in the U.S. Mr. Klausmeyer spent 13 years at Arthur Andersen LLP in the audit
and business consulting practice, with a primary focus in assisting high
technology companies.
JOHN B. CARTWRIGHT - Nominee for Director
Mr. Cartwright, age 54, has been the owner of John B. Cartwright & Associates, a
Certified Public Accounting Firm, since 1990. From 1973 to 1990, Mr. Cartwright
was the managing partner or managing shareholder of Cartwright, Matthews,
Gonsoulin & Bradley, PC, Cartwright, Matthews & Gonsoulin, a Partnership and
Cartwright & Mathews, a Partnership. From 1969 to 1973 Mr. Cartwright was an
Audit Supervisor of Touche Ross & Co., (now Deloitte & Touche LLP) in Houston.
Mr. Cartwright is a member of the American Institute of Certified Public
Accountants, Texas Society of Certified Public Accountants, Houston Chapter of
the Texas Society of Certified Public Accountants, and is currently the
President of the Houston Chapter of the Community Associations Institute.
BOARD AND COMMITTEE ACTIVITY, STRUCTURE AND COMPENSATION
During 2000, the Board of Directors convened one special meeting and
five regularly scheduled meetings, the Audit Committee held four meetings; and
the Compensation Committee held one meeting. Each director attended at least 75%
of the aggregate of all meetings of the Board of Directors and committees of the
Board to which he belonged.
Each director who is not an employee of the Company is paid $1,000 for
each Board meeting attended and $500 for each committee meeting attended plus
reasonable out-of-pocket expenses incurred to attend Board or committee
meetings. In addition, each non-employee director is entitled to receive stock
options pursuant to the Company's Non-Employee Director Stock Option Plan (the
"Director Plan"). Historically, upon his first election to the Board each such
director received options to purchase 5,000 shares and upon each time a director
was reelected such director received options to purchase 2,000 shares. On August
15, 2000 the Board resolved to increase the number of options each director
receives on reelection from 2,000 to 5,000, and to make a one time grant of
5,000 options to each outside director for prior service. All options granted
vest immediately. All options granted under the Director Plan will have an
exercise price equal to the fair market value of a share of Common Stock on the
date of grant and will
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<PAGE> 6
expire ten years after the date of grant (subject to earlier termination under
the Director Plan). Options granted under the Director Plan are subject to early
termination on the occurrence of certain events, including ceasing to be a
member of the Company's Board (other than by death). During 2000, options to
acquire 35,000 shares of Common Stock were granted under the Director Plan.
The Board of Directors has two standing committees, an Audit Committee
and a Compensation Committee.
AUDIT COMMITTEE. The Audit Committee is currently composed of Messrs.
Darrell and Johnson. Mark T. Hilz was a member of the Audit Committee until his
resignation from the Board on June 8, 2001. The functions of the Audit Committee
include:
1. reviewing the accounting principles and practices employed by
the Company;
2. meeting with the Company's independent auditors to review
their report on their annual examination of the Company's
accounts, their comments on the internal controls of the
Company and the actions taken by management in response to
such comments; and
3. meeting with the Company's independent auditors to discuss
their review of each Form 10-Q prior to filing the document
with the Securities and Exchange Commission.
4. recommending annually to the Board of Directors the
appointment of the Company's independent auditors.
Messrs. Darrell and Hilz do not meet the definition of "independent"
set forth in the Nasdaq listing standards. However, the Audit Committee will be
reformed after the Meeting to be composed solely of three directors who the
Board has determined are "independent."
A copy of the Audit Committee Charter is included as Appendix A to this
proxy statement.
COMPENSATION COMMITTEE. The Compensation Committee is currently
composed of Messrs. Johnson and Darrell. Mark T. Hilz was a member of the
Compensation Committee until his resignation from the Board on June 8, 2001. The
functions of the Compensation Committee include:
1. reviewing and making recommendations regarding the
compensation of the Company's officers, and
2. administrating and making awards under the Company's
compensation plans.
COMPENSATION COMMITTEE REPORT
The compensation committee of the Board of Directors (the "Committee")
has furnished the following report on executive compensation for fiscal year
2000:
The Committee met on November 20, 2000. The compensation of executive
officers during 2001 was continued under compensation arrangements
existing prior to the formation of the Committee except that equity
based compensation would be enhanced to further align the interests of
the officers of the Company with those of the stockholders. Those
compensation arrangements are described below:
Base compensation for the executive officers of the company is intended
to afford a reasonable payment for the services rendered to the Company and the
responsibilities assumed by the executive officer relative to the expected
performance of the areas managed by the officers. With the exception of the
Chief Executive Officer and, bonuses, which are generally paid quarterly,
stock-based awards are contingent upon attaining or exceeding predetermined
financial performance goals established at the beginning of each fiscal year.
The Chief Executive Officer may receive bonuses or stock rewards based on the
overall performance of the Company as well as the Committee's subjective
evaluation of his performance. Mr. Long, the Company's Chief Executive Officer,
received his base salary for the fiscal year ended December 31, 2000.
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<PAGE> 7
The amount of such compensation was determined by the terms of his employment
contract with the Company. A bonus in the amount of $80,200 was granted to Mr.
Long in 1999 as compensation for the year ended December 31, 1998.
The Committee will be reformed after the annual meeting of stockholders
with all non-employee directors as members of the Committee. The Committee
intends to meet during 2001 and review established policies with respect to
executive officer compensation.
THE COMPENSATION COMMITTEE
Richard D. Darrell
Mark T. Hilz
Jack M. Johnson, Jr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Darrell and Johnson, each of whom are or were outside directors
during 2000 served on the Compensation Committee in 2000. Mr. Hilz served on the
Compensation Committee during 2000, but became an employee of the Company in
July 2000 and therefore was no longer serving as an outside director. Mr. Hilz
resigned as director on June 8, 2001 and is no longer serving on the
Compensation Committee. During 2000, no director or executive officer of the
Company served on the compensation committee or the board of directors of any
company for which Messrs. Darrell and Johnson served as executive officers or
directors. Mr. Hilz became the President of the Company's subsidiary
Internetwork Experts, Inc. in July of 2000 and James H. Long (the Company's
Chairman of the Board, Chief Executive Officer and President) served as a
director of such subsidiary during 2000.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit
Committee") has furnished the following report on its activities for the year
2000:
The Audit Committee met quarterly in 2000 and again on March 29, 2001
and has discussed the audited financial statements of the Company for
the fiscal year ended December 31, 2000 with both senior management and
with Deloitte & Touche LLP, the independent auditors of the company.
The Audit Committee has also discussed with Deloitte & Touche LLP the
matters required to be discussed by the Statement of Auditing Standards
No. 61 (Communication with Audit Committees). The Audit Committee has
received the written disclosure and the letter from Deloitte & Touche,
LLP required in Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees) and the Audit Committee
has discussed with Deloitte & Touche LLP the independence of Deloitte &
Touche LLP as auditor of the Company. Based on the foregoing, the Audit
Committee of the Company has recommended to the Board of Directors that
the audited financial statements of the Company be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 for filing with the United States Securities and Exchange
Commissions. Additionally, the Audit Committee prepared an Audit
Committee Charter and presented it to the Board of Directors for
approval. Such approval was obtained and a copy of the Audit Committee
Charter was filed with The Nasdaq Stock Market.
THE AUDIT COMMITTEE
Jack M. Johnson, Jr., Chairman
Richard D. Darrell
Mark T. Hilz
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<PAGE> 8
PRINCIPAL ACCOUNTING FIRM FEES
Audit Fees
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte") for professional services rendered for the audit of the Company's
annual financial statements for the fiscal year ended December 31, 2000 and for
the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q for that fiscal year were $134,466.
Financial Information Systems Design and Implementation Fees
No fees were billed by Deloitte for professional services rendered for
information technology services relating to financial information systems design
and implementation, nor were such services rendered, during the fiscal year
ended December 31, 2000.
All Other Fees
The aggregate fees billed by Deloitte for services rendered to the
Company, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees", for the year
ended December 31, 2000 were $11,350.
The audit committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
EXECUTIVE OFFICERS
The executive officers of the Company serve until resignation or
removal by the Board of Directors. The Company's executive officers are as
follows:
JAMES H. LONG - See Nominees for Director.
THOMAS N. MCCULLEY - Vice President, Information Systems, September 1996 to
present.
Thomas N. McCulley, age 54, has been the Vice President, Information
Systems for the Company since July 1996. From January 1992 to June 1996, Mr.
McCulley served as the Information Services Director for the Company. He has
responsibility for management and supervision of the Company's Management
Information Systems.
STANLEY E. OTTO - Chief Operating Officer, February 2001 to present.
Stanley E. Otto, age 39, has been the Chief Operating Officer for the
Company since February 2001. He has responsibility for management and
supervision of the Company's operations. Prior to February 2001 he served as
Divisional Controller since April 1999. Previous to his employment with the
Company, Mr. Otto was employed as the Manager of Finance and Inventory with
Amerada Hess Corporation from April 1995 to March 1999 and as the Supervisor of
Financial Systems and Analysis for Service Corporation International from
November 1991 to April 1995.
WILLIAM R. HENNESSY - President, Stratasoft, Inc., September 1996 to present.
William R. Hennessy, age 42, has served as the President of Stratasoft,
Inc., the Company's wholly owned subsidiary that was formed in 1995 to develop
and market CTI Software, since joining the Company in January 1996. Mr.
Hennessy's responsibilities include the general management of Stratasoft, Inc.
From July 1991 to January 1996, Mr. Hennessy was employed by Inter-Tel,
Incorporated, a telephone systems
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<PAGE> 9
manufacturer and sales and service company, where he served as the Director of
MIS and the Director of Voice and Data Integration for the central region.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of July 9, 2001, the number of
shares and percentage of Common Stock beneficially owned by each director, each
nominee for director, each Named Executive Officer, as defined in "Executive
Compensation," and all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
------------------------ ------------------------ ----------
<S> <C> <C>
James H. Long (2) 2,002,450 50.7%
Donald R. Chadwick (3) 110,503 2.8%
William R Hennessy (4) 15,800 *
Richard D. Darrell (5) 14,000 *
Jack M. Johnson, Jr. (5) 14,000 *
Kevin M. Klausmeyer -0- *
John B. Cartwright 200 *
All Directors and Executive Officers as a 2,062,850 55.3%
Group (8 persons) (2) (3) (4) (5) (6)
</TABLE>
-------------
* - less than 1%
(1) Beneficial owner of a security includes any person who shares voting or
investment power with respect to or has the right to acquire beneficial
ownership of such security within 60 days.
(2) Includes 960 shares that may be acquired upon exercise of currently
exercisable options.
(3) Includes 69,686 shares that may be acquired upon exercise of currently
exercisable options and 517 shares owned by his spouse for which Mr.
Chadwick disclaims beneficial ownership and 300 shares owned by his minor
children for which Mr. Chadwick disclaims beneficial ownership.
(4) Includes 10,800 shares that may be acquired upon exercise of currently
exercisable options.
(5) Includes 14,000 shares that may be acquired upon exercise of currently
exercisable options.
(6) Includes 1,000 shares of restricted stock and 800 shares that may be
acquired upon exercise of currently exercisable options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of July 10, 2001, the address
and number of shares and percentage of Common Stock owned by each stockholder
of the Company that owns 5% or more of the outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
James H. Long (1) 2,002,450 50.7%
6401 Southwest Freeway
Houston, Texas 77074
Peak6 Capital Management, LLC. (2) 341,400 8.6%
209 LaSalle Street, Suite 200
Chicago, Illinois 60604
Jack B. Corey 267,500 6.8%
37102 FM 149, P.O. Box 525
Pinehurst, Texas 77362
</TABLE>
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<PAGE> 10
---------
(1) Includes 960 shares that may be acquired upon exercise of currently
exercisable options.
(2) As reported on Schedule 13D/A filed May 7, 2001.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table reflects compensation for
services to the Company for the years ended December 31, 2000, 1999 and 1998 of
(i) the Chief Executive Officer of the Company and (ii) the only executive
officer of the Company who was serving as an executive officer at the end of
2000 and whose total annual salary and bonus exceeded $100,000 in 2000 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------------------- ------------------------
Awards
Number of
Other Restricted Securities
Name and Principal Annual Stock Underlying
Position Year Salary Bonus Compensation(1) Awards Options (2)
------------------ ---- ------ ----- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James H. Long (3) 2000 $150,000 -- -- -- --
Chief Executive 1999 150,000 -- -- -- --
Officer 1998 150,000 $80,200 -- -- 2,400
William R. Hennessy 2000 91,034 59,686 -- -- --
President, Stratasoft, 1999 85,000 55,856 -- -- 10,000
Inc. (4) 1998 84,637 3,000 -- 7,500 --
</TABLE>
----------
(1) Amounts exclude the value of perquisites and personal benefits because the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
Named Executive Officer's total annual salary and bonus.
(2) The number of securities underlying options shown for 1998 includes options
originally issued in 1997 and repriced during 1998 and options newly issued
in 1998.
(3) The Company has made personal loans to Mr. Long from time to time. See,
"Certain Relationships and Related Transactions."
(4) Includes compensation based on gross profit realized.
STOCK OPTIONS
Under the Company's 1996 Incentive Stock Option Plan (the "Incentive
Stock Option Plan"), options to purchase shares of the Common Stock may be
granted to executive officers and other employees. As of December 31, 2000,
409,012 shares were reserved for issuance upon exercise of outstanding options
and 33,488 were reserved and remained available for future grants pursuant to
the Incentive Stock Option Plan.
Options Granted in Last Fiscal Year. No stock options were granted
to the Named Executive Officers during the year ended December 31, 2000.
Aggregated Option Exercises and Year-End Option Values. The
following table shows the number of shares of Common Stock underlying options
owned by the Named Executive Officers at December 31, 2000. Neither of the Named
Executive Officers exercised any options during 2000 and none of the options
owned by the Named Executive Officers at December 31, 2000 were in-the-money.
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<PAGE> 11
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT
DECEMBER 31, 2000
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
James H. Long 960 1,440
William R. Hennessy 10,800 7,200
</TABLE>
EMPLOYMENT AGREEMENTS
Most of the executive officers of the Company have entered into
employment agreements (collectively, the "Executive Employment Agreements") with
the Company. Under the terms of the respective agreements, Messrs. Long,
McCully, and Hennessy are entitled to an annual base salary of $150,000,
$75,000, and $85,000, respectively, plus other bonuses, the amounts and payment
of which are within the discretion of the Compensation Committee. The Executive
Employment Agreements may be terminated by the Company or by the executive
officer's resignation at any time by giving proper notice. The Executive
Employment Agreements generally provide that the executive officer will not, for
the term of his employment and for a period of either twelve or eighteen months,
whichever the case may be, following the end of such executive officer's
employment with the Company, compete with the Company, disclose any confidential
information of the Company, solicit any of the Company's employees or customers
or otherwise interfere with the relations of the Company.
STOCK PERFORMANCE GRAPH
The following graph compares the performance of the Common Stock with
the Nasdaq Stock Market (U.S. Companies) Index and with Russell 2000 Index. The
graph assumes that $100 was invested on July 7, 1997, the first trading day for
the Company, in the Common Stock and in each index on the last trading day for
each year end thereafter, and that any cash dividends were reinvested. The
Company has not declared any dividends during the period covered by this graph.
[GRAPH]
<TABLE>
<CAPTION>
ASSUMED INVESTMENT WITH REINVESTMENT OF DIVIDENDS
7/7/97 12/97 12/98 12/99 12/00
<S> <C> <C> <C> <C> <C>
I-SECTOR CORPORATION $100.00 $ 67.71 $ 31.25 $ 21.88 $ 16.67
NASDAQ STOCK MARKET (U.S.) 100.00 107.37 151.39 281.34 169.19
RUSSELL 2000 100.00 111.12 108.29 131.31 127.34
</TABLE>
This graph depicts the past performance of the Common Stock and in no
way should be used to predict future performance. The Company does not make or
endorse any predictions as to future share performance.
The foregoing price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the
extent
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that the Company specifically incorporates this graph by reference, and shall
not otherwise be deemed filed under such acts.
Certain Relationships and Related Transactions
The Company has from time to time made payments on behalf of Allstar
Equities, Inc. a Texas corporation ("Equities"), which is wholly-owned by James
H. Long, the Company's President and Chief Executive Officer, and on behalf of
Mr. Long, personally for taxes, property and equipment. Effective on December 1,
1999 a note payable by Equities was signed for $335,551 for 60 monthly
installments of $6,965. The note bears interest at 9% per year. At June 30,
2001, the Company's receivables from Equities amounted to approximately
$163,000. Additionally, from time to time the Company has made payments to
unrelated parties for transactions that should either wholly or partially
benefit Mr. Long and which should therefore be accounted for as indebtedness by
Mr. Long to the Company. The Company records these transactions as a receivable
to be repaid by him. The balance of approximately $100,000 was included in the
Company's balance sheet at December 31, 2000.
The Company leases office space from Equities. On December 1, 1999
Equities purchased the Company's building and executed a direct lease with the
Company with an expiration date of December 31, 2004. The lease has rental rates
of $37,692 per month.
In August 1996, the Company retained an independent real estate
consulting firm to conduct a survey of rental rates for facilities in Houston,
Texas that are compatible to its Houston headquarters facility. Based upon this
survey, and additional consultations with representatives of the real estate
consulting firm, the Company believes that the rental rate and other terms of
the Company's sublease from Equities are at least as favorable as those that
could be obtained in an arms-length transaction with an unaffiliated third
party.
Mr. Richard D. Darrell, who has served as a director since 1997
provided consulting services in 2000 related to the disposal of the Company's
Telecom Division and Computer Products Division. In connection with these
consulting services, Mr. Darrell received payments totaling $362,000. Mr.
Darrell's consulting contract terminated in May 2000 upon completion of the sale
of the Telecom Division and the Computer Products Division.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, the Company's directors, executive officers, and stockholders who own
more than 10% the Common Stock, are required to file reports of stock ownership
and changes in ownership of common stock with the Securities and Exchange
Commission and to furnish the Company with copies of all such reports they file.
The Company believes that during 2000 the Directors and officers did comply with
the 16(a) filing requirements.
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DISTRIBUTION OF ANNUAL REPORTS
The annual report (Form 10-K) to stockholders covering the year ended
December 31, 2000 was mailed concurrently with this proxy statement to each
stockholder entitled to vote at the Meeting.
STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for action to be
included in the proxy statement and form of proxy relating to the Company's 2002
annual meeting of stockholders is required to submit such proposal to the
Company on or before April 10, 2002. If we do not receive notice of any matter
that a stockholder wishes to raise at the annual meeting in 2002 by May 28, 2002
and a matter is raised at that meeting, the proxy holders for next year's
meeting will have discretionary authority to vote on the matter. Stockholder
proposals and notices should be sent to Secretary, I-Sector Corporation, 6401
Southwest Freeway, Houston, Texas 77074.
OTHER MATTERS
The cost of soliciting proxies, including the cost of reimbursing banks
and brokers for forwarding proxies and proxy statements to their principals, in
the accompanying form, will be borne by the Company. In addition to
solicitations by mail, a number of regular employees of the Company may, if
necessary to assure the presence of a quorum, solicit proxies in person or by
telephone, for which they will receive no additional compensation. Brokerage
houses, banks and other custodians, nominees and fiduciaries will be reimbursed
for their customary out-of-pocket and reasonable expenses incurred in forwarding
proxy materials to beneficial owners.
The persons designated as proxies intend to exercise their judgment in
voting such shares on other matters that may properly come before the Meeting.
Management does not know of any matters other than those referred to in this
proxy statement that will be presented for action at the Meeting.
By Order of the Board of Directors,
/s/ Donald R. Chadwick
------------------------------------
Donald R. Chadwick, Secretary
July 10, 2001
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Appendix A
I-SECTOR CORPORATION
CHARTER OF THE
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
(AS ADOPTED ON AUGUST 15, 2000)
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing:
1. the financial reports and other financial and related information
provided by the Corporation to any governmental body or the public;
2. the Corporation's systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board
have established;
3. the Corporation's auditing, accounting and financial reporting
processes generally.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV of this Charter. In doing so, it is
the responsibility of the Audit Committee to maintain free and open means of
communication between the Board, the independent accountants and the financial
management of the Corporation. The Audit Committee will encourage continuous
improvement of, and foster adherence to, the Corporation's policies, procedures
and practices at all levels.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors, and free from any
relationship that would interfere with the exercise of his or her independent
judgement. A director with any of the following relationships will not be
considered independent:
1. Employees: a director who has been employed by the Corporation or any
of its affiliates for the current year or any of the past three years.
(An affiliate includes a subsidiary, sibling company, predecessor,
parent company or former parent company of the Corporation);
2. Business Relationship: (a) a director accepting any compensation from
the Corporation or any of its affiliates in excess of $60,000 during
the previous fiscal year, other than compensation for Board service,
benefits under a tax-qualified retirement plan or non-discretionary
compensation or (b) a director being a partner in, or a controlling
shareholder or an executive officer of, any for-profit business
organization to which the Corporation made, or from which the
Corporation received, payments (other than those arising solely from
investments in the
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<PAGE> 15
Corporation's securities) that exceed 5% of the Corporation's or the
business organization's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years;
3. Cross Compensation Committee Link; a director who is employed as an
executive of another company where any of the Corporation's executives
serve on that entity's compensation committee; or
4. Immediate Family; a director who is a member of the immediate family
of an individual who is, or has been in any of the past three years,
employed by the Corporation or any of its affiliates as an executive
officer. Immediate family includes a person's spouse, parents,
children, siblings, mother-in-law, father-in-law, brother-in-law,
sister-in-law, son-in-law, daughter-in-law, and anyone who resides in
such person's home.
The Board may appoint one director to the Audit Committee who is not considered
independent and who is not a current employee of the Corporation or an immediate
family member of a current employee of the Corporation, if:
(a) the Board determines that is in the best interests of the Corporation
and the Stockholders to appoint the 'non-independent' director to the
Audit Committee; and
(b) the Board discloses the following information in the Corporation's
first proxy statement filed with the Securities & Exchange Commission
after the appointment of the 'non-independent' director:
o the nature of the director's relationship with the corporation;
and
o the reasons for determining that the appointment of the director
was in the best interests of the corporation and stockholders.
Each member of the Audit Committee shall be able to read and understand
fundamental financial statements or will become able to do so within a
reasonable period of time after his or her appointment to the Audit Committee.
Audit Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the Corporation
or an outside consultant. At least one member of the Audit Committee shall have
either:
o Past employment experience in finance or accounting;
o Professional certification in accounting; or
o Other comparable experience or background which results in the
individual's financial sophistication.
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The members of the Audit Committee shall be elected by the Board at the annual
meeting of the Board or until their successors shall be duly elected and
qualified. Unless a Chair is elected by the Board, the members of the Audit
Committee may designate a Chair by majority vote.
III. MEETINGS
The Audit Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Audit Committee should meet at least annually with management and the
independent accountants in separate executive sessions to discuss any matters
that the Audit Committee or each of these groups believe should be discussed
privately. In addition, the Committee or at least its Chair should meet with the
independent accountants and management quarterly to review the Corporations
financials consistent with IV.3. below.
IV. RESPONSIBILITIES AND DUTIES
DOCUMENTS/REPORTS REVIEW
1. Review and assess the adequacy of this Charter annually, and update as
conditions dictate.
2. Review the corporation's annual audited financial statements and any
reports or other financial information submitted to any governmental body,
or the public, including any certification, report, opinion, or review
rendered by the independent accountants. The review should include
discussion with management and independent auditors of significant issues
regarding accounting principles, practices, estimates and judgements.
3. Review with financial management and the independent accountants each Form
10-Q prior to its filing and/or release of earnings. The Chair of the
Committee may represent the entire Committee for purposes of this review.
INDEPENDENT ACCOUNTANTS
4. Because the independent accountants for the Corporation are ultimately
accountable to the Board and the Audit Committee, the Audit Committee and
Board have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent accountants.
5. On an annual basis, the Audit Committee shall ensure its receipt from the
independent accountants of a formal written statement delineating all
relationships between the independent accountants and the Corporation
consistent with Independence Standards Board Standard 1 and review and
discuss with the independent accountants all significant relationships they
have with the corporation or services they provide that could impair the
accountants objectivity and independence.
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<PAGE> 17
6. Periodically consult with the independent accountants out of the presence
of management about the adequacy and effectiveness of the internal controls
and the fullness and accuracy of the Corporation's financial statements.
FINANCIAL REPORTING PROCESSES
7. In consultation with management and the independent accountants, consider
the integrity of the Corporation's financial reporting processes. Discuss
significant financial risk exposures and the steps management has taken to
monitor, control and report such exposures. The Audit Committee should also
review significant findings prepared by the independent accountants with
management's responses, the status of management's responses to previous
recommendations from the independent accountants and the status of any
previous instructions to management from the Audit Committee.
8. Establish regular and separate systems of reporting to the Audit Committee
by each of management and the independent accountants regarding any
significant judgments made in management's preparation of the financial
statements and the view of each as to appropriateness of such judgments.
9. Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, and other matters related to
the conduct of the audit which should be communicated to the Audit
Committee under generally accepted auditing standards.
10. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial statements.
ETHICAL AND LEGAL COMPLIANCE
11. Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
12. Review, with the Corporation's counsel, legal matters that may have a
material impact on the financial statements, the Corporation's compliance
policies, including the Code of Ethical Conduct, and any material reports
or inquiries received from regulators or governmental agencies.
A-4
<PAGE> 18
I-SECTOR CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of I-Sector Corporation (the "Company") hereby
appoints THOMAS N. MCCULLEY and STANLEY E. OTTO as proxies, or either of them,
each with power to appoint his substitute, to represent and to vote, as
designated below, all shares of common stock of I-Sector Corporation held of
record by the undersigned on July 10, 2001 at the Annual Meeting of Stockholders
to be held on August 8, 2001 and at any adjournments thereof.
1. To elect a board of six (6) directors to serve until the next
annual meeting of stockholders or until their successors are
elected and qualified
/ / FOR all nominees listed below (except as marked to the
contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees below
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY NOMINEE STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
NOMINEES:
James H. Long Donald R. Chadwick
Richard D. Darrell Jack M. Johnson, Jr.
Kevin M. Klausmeyer John B. Cartwright
2. In their discretion, the proxies are authorized to vote upon such
other matters as may properly be presented to the annual meeting
or any adjournments or postponements thereof.
UNLESS OTHERWISE SPECIFIED ON THIS PROXY, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR THE ELECTION OF ALL THE NOMINEES ABOVE.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
of Stockholders, the Proxy Statement furnished with the notice, and the
Company's 2000 Annual Report.
---------------------------------------------------------------
Signature of Stockholder
NUMBER OF SHARES:
--------------------------
Dated: , 2001
--------------------------
Please sign exactly as name(s) appears on this proxy card. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title. If a corporation,
please sign in full corporate name by president or other authorized officer. If
a partnership, please sign in the partnership name by an authorized person.
PLEASE MARK, SIGN AND DATE AND RETURN THE PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
</TEXT>
</DOCUMENT>