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SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[ ] Soliciting Material Pursuant to sec. 240.14a-11(c)Rule 14a-11(c) or sec. 240.14a-12Rule 14a-12
NETWORK SOLUTIONS, INC.
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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NETWORK SOLUTIONS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 199818, 1999
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To the Stockholders of Network Solutions, Inc.:
The Annual Meeting of Stockholders of Network Solutions, Inc. (the
"Company") will be held on May 19, 199818, 1999 at the Hyatt Regency Reston, 1800
Presidents Street, Reston, Virginia 20190, at 9:30 a.m. for the purpose of
considering and acting upon the following proposals:
(1) To elect nine (9)eight (8) directors to hold office until the next annual
meeting of stockholders or until their respective successors have been
elected and qualified;
(2) To approve an amendment to the Company's 1997 Employee Stock Purchase Plan;
(3) To approveSecond Amended and
Restated Certificate of Incorporation to reclassify the Company's
1996 Stock Incentive Plan,Class A common stock, par value $0.001 per share, and Class B common
stock, par value $0.001 per share, as amended;
(4) To ratify the appointment of Price Waterhouse LLP as independent
accountantsshares of the Company forCompany's common
stock, par value $0.001 per share (the "Common Stock"), and to
increase the period ending December 31, 1998;number of authorized shares of the Company's capital
stock from 140,000,000 to 220,000,000, of which 210,000,000 shares
shall be shares of Common Stock and (5)10,000,000 shares shall be shares
of the Company's preferred stock, par value $0.001 per share;
(3) To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
These items are discussed in the following pages, which are made part of
this Notice. Only stockholders of record as of the close of business on March
20, 199819, 1999 will be entitled to vote at the Annual Meeting. A list of stockholders
entitled to vote will be available at 505 Huntmar Park Drive, Herndon, Virginia
20170 for 10ten days prior to the Annual Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD AS PROMPTLY AS POSSIBLE. THE GIVING OF SUCH PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON, SHOULD YOU DECIDE TO ATTEND THE ANNUAL MEETING.
The Company's Annual Report to Stockholders for the year ended December 31,
19971998 accompanies this Notice of Annual Meeting and Proxy Statement.
By Order of the Board of Directors
GABRIELMICHAEL A. BATTISTADANIELS
Chairman of the Board and
Acting Chief Executive Officer
Herndon, Virginia
April 15, 199816, 1999
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NETWORK SOLUTIONS, INC.
505 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 742-0400
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 199818, 1999
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Network Solutions, Inc. (the "Company") of proxies in
the accompanying form to be used at the Annual Meeting of Stockholders of the
Company to be held on May 19, 199818, 1999 at the Hyatt Regency Reston, 1800 Presidents
Street, Reston, Virginia 20190 at 9:30 a.m., and at any postponement or
adjournment thereof, for the purposes set forth in the attached Notice. This
Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about April 15, 1998.1999.
On December 31, 1998, the Company's Board of Directors approved a
two-for-one stock split of the shares of its Class A common stock, par value
$0.001 per share (the "Class A Common Stock") and Class B common stock, par
value $0.001 per share (the "Class B Common Stock"), that was effected in the
form of a 100% stock dividend distributed on March 23, 1999 on shares of the
Company's Class A Common Stock and Class B Common Stock outstanding on February
26, 1999. Except as noted otherwise, all share information in this Proxy
Statement has been adjusted to reflect the two-for-one stock split.
VOTING RIGHTS
Only stockholders of record on the books of the Company at the close of
business on March 20, 199819, 1999 will be entitled to vote at the Annual Meeting. As of
the close of business on March 20, 1998,19, 1999, there were 3,813,06318,384,634 outstanding
shares of Class A Common Stock held by 47105 stockholders of record and 11,925,00014,850,000
outstanding shares of Class B Common Stock held by one stockholder of record.
The holders of Class A Common Stock and Class B Common Stock (in the
aggregate, the "Common Stock") generally have
identical rights except that holders of Class A Common Stock are entitled to one
vote per share while holders of Class B Common Stock are entitled to 10ten votes
per share on all matters to be voted on by stockholders. The holders of Class A
Common Stock and Class B Common Stock are not entitled to cumulative voting
rights. For action to be taken at the Annual Meeting, a majority of the shares
entitled to vote must be represented at the meeting in person or by proxy.
Director nominees receiving the highest number of affirmative votes will be
elected. For approval of the amendment of the Company's Second Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") to
reclassify the Company's Class A Common Stock and Class B Common Stock as shares
of the Company's common stock, par value $0.001 per share (the "Common Stock")
and to increase the number of authorized shares of the Company's capital stock,
the affirmative vote of the holders of a majority of the outstanding Class A
Common Stock and Class B Common Stock, voting together as a single class, and
the affirmative vote of the holders of the outstanding Class B Common Stock,
voting separately as a class, is the minimum approval necessary. For approval of
all other matters, the affirmative vote of the majority of the votes of the
shares present or represented and voting is the minimum approval necessary.
Because abstentions with respect to any matter are treated as shares present or
represented and entitled to vote for the purposes of determining whether that
matter has been approved by stockholders, abstentions have the same effect as
negative votes. If the number of abstentions is such that the affirmative votes
do not constitute the requisite vote, the proposal will be defeated. Broker
non-votes and shares as to
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which proxy authority has been withheld with respect to any matter are not
deemed to be present or represented for purposes of determining whether
stockholder approval of that matter has been obtained.
PROXIES
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Annual Meeting in accordance with the
instructions of the stockholders. If no specific instructions are given, the
shares will be voted "FOR" the election of the nominees for director set forth
herein and "FOR" approval of the amendment to the Company's 1997 EmployeeCertificate of
Incorporation to reclassify the Company's Class A Common Stock Purchase Plan, "FOR"
approvaland Class B
Common Stock as shares of the Company's 1996Common Stock Incentive Plan, as amended, and "FOR"to increase the ratificationnumber
of the appointmentauthorized shares of the Company's independent accountants forcapital stock from 140,000,000 to
220,000,000, of which 210,000,000 shares shall be shares of Common Stock and
10,000,000 shares shall be shares of the period ending December 31, 1998.Company's preferred stock, par value
$0.001 per share (the "Preferred Stock").
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise by (i) filing with the
Secretary of the Company a signed written statement 4 revoking his or her proxy,
or (ii) submitting an executed proxy bearing a date later than that of the proxy
being revoked. A proxy may also be revoked by attendance at the Annual Meeting
and election to vote in person. Attendance at the Annual Meeting will not by
itself constitute the revocation of a proxy.
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PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide for a variable board consisting of one or
more members. TheOn April 7, 1999 the Board of Directors by resolution changed the
exact number of directors is currently set atfrom nine (9),to eight, until changed by resolution of the
Board of Directors.
At the Annual Meeting, a Board of nine (9)eight (8) directors will be elected. The
term of office of each such person elected as a director will continue until the
next Annual Meeting of Stockholders, until such director shall resign, be
removed or die, or until a successor has been elected and qualified.
All of the nominees are presently directors of the Company.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the nominees named below. In the event that any such
nominee is unable or unwilling to serve as a nominee for the office of director,
proxies may be voted for the election of the balance of the nominees named and
for a substitute nominee designated by the proxy holders or by the present Board
of Directors to fill such vacancy, or the size of the Board of Directors may be
reduced in accordance with the Bylaws of the Company. The Board of Directors has
no reason to believe that any nominee will be unavailable or unwilling to serve
as a director of the Company.
It is the intention of the proxy holders named in the enclosed form of
proxy to vote such proxies (except those containing contrary instructions) for
the nominees named below.
INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS
Set forth below are the names and ages as of March 13, 199812, 1999 of the nominees
for director, their principal occupations at present and for at least the past
five years, certain directorships held by each and the year in which each became
a director of the Company.
NAME AND PRINCIPAL OCCUPATION AT PRESENT AND FOR AT LEAST THE PAST FIVE YEARS;
DIRECTORSHIPS:
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND PRIOR BUSINESS EXPERIENCE
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Gabriel A. Battista 53 Mr. Battista has served as a director and as Chief Executive
Officer of the Company since 1996. From 1995 to 1996, Mr.
Battista served as President and Chief Executive Officer of
Cable & Wireless, Inc., a telecommunications company and
privately held U.S. subsidiary of Cable & Wireless, P.L.C.
From 1991 to 1995, Mr. Battista served as President and
Chief Operating Officer of Cable & Wireless, Inc. and from
1987 to 1991, he served as Chief Operating Officer of
National Telephone Services, a privately held long distance
operator service company. Mr. Battista also serves as a
director of Axent Technologies, Inc. and Systems & Computer
Technology Corporation.
Michael A. Daniels 5253 Mr. Daniels has served as Chairman of the Board of the
Company since 1995.1995 and as Acting Chief Executive Officer
since November 1998. Since 1986, Mr. Daniels has served in
various positions with Science Applications International
Corporation ("SAIC") and has served as a Sector Vice
President and Sector Manager for the Technology Applications
Sector of SAIC since 1993. Prior thereto, Mr. Daniels served
as a Sector Vice
President and Sector Manager for the Technology Applications
Sector of SAIC since 1993. Prior thereto, Mr. Daniels served
as a Group Senior Vice President of SAIC from 1991 to 1993.
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NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND PRIOR BUSINESS EXPERIENCE
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Donald N. Telage 5354 Dr. Telage has served as a director of the Company since
1995 and as Senior Vice President, Internet Relations and
Special Programs since February 1997. Dr. Telage served as
President and Chief Operating Officer of the Company from
May 1995 to February 1997. Since 1986, Dr. Telage has served
in various positions with SAIC and has served as a Group
Senior Vice President of SAIC since 1993. Prior thereto, Dr.
Telage served as a Corporate Vice President of SAIC from
1992 to 1993.
J. Robert Beyster 7374 Dr. Beyster has served as a director of the Company since
1996. Dr. Beyster is the Chief Executive Officer and
Chairman of the Board of SAIC, a company he founded in 1969.
Dr. Beyster is a Fellow of the American Nuclear Society and
a Fellow of the American Nuclear Society and
a Fellow of the American Physical Society. Dr. Beyster is
also the founder, President and a member of the Board of
Trustees of the Foundation for Enterprise Development, a
nonprofit organization that promotes employee ownership.
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NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND PRIOR BUSINESS EXPERIENCE
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Craig I. Fields 5152 Dr. Fields has served as a director of the Company since
1997. Dr. Fields has served as Chairman of the Defense
Science Board since 1994. Dr. Fields has served as a
consultant to several companies, including as a consultant
to SAIC since 1994. Prior thereto, Dr. Fields served as Vice
Chairman of Alliance Gaming Corporation, a diversified
entertainment company, from 1994 to 1997. From 1990 until
1994, Dr. Fields served as Chairman and Chief Executive
Officer of the Microelectronics and Computer Technology
Corporation, a privately held research and development
consortium. Dr. Fields serves as a director of ENSCO
International Incorporated, Projectavision, Inc., Muzak Incorporated Intertech Group, Inc. and Firearms
Training Systems, Inc.
John E. Glancy 5152 Dr. Glancy has served as a director of the Company since
1996. Dr. Glancy has held a number of senior positions with
SAIC since 1980. Dr. Glancy has served as a Corporate
Executive Vice President of SAIC since 1994 and as a
director of SAIC since 1994. From 1991 until 1994, Dr.
Glancy served as a Sector Vice President of SAIC.
J. Dennis Heipt 5556 Mr. Heipt has served as a director of the Company since
February
1998. Since 1984, Mr. Heipt has served as Senior Vice
President for Administration and Secretary of SAIC. Mr.
Heipt has held various positions with SAIC since 1979.
William A. Roper, Jr. 52 Mr. Roper has served as a director of the Company since
1996. Since 1990, Mr. Roper has served as Senior Vice
President and Chief Financial Officer of SAIC. Mr. Roper
also serves as a director of ODS Networks, Inc.
Stratton D. Sclavos 3637 Mr. Sclavos has served as a director of the Company since
1997. Mr. Sclavos has served as President, and Chief Executive
Officer and director of VeriSign, Inc., a provider of
digital certificate services, since 1995. From 19941993 until
1995, Mr. Sclavos served as Vice President of Worldwide
Marketing and Sales for Taligent, Inc., a joint venture of
Apple Computer, Inc., IBM Corporation and The
Hewlett-Packard Company, Inc. From 1992 until 1993, Mr.
Sclavos served as Vice President of Worldwide Sales and
Business Development for GO Corporation, a mobile computing
company. From 1988 until 1993, Mr. Sclavos served in various
executive positions with MIPS Computers Systems.
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BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Company's Board of Directors held sevennine meetings during fiscal year
1997.1998. Each director attended at least 75% of the aggregate number of meetings
ofof: (i) the Board and (ii) the committees of the Board on which he served.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Board has not appointed a Nominating Committee.
The Audit Committee held one meetingfour meetings in fiscal year 1997.1998. Its principal
functions are to: (i) meet periodically with the independent public accountants
and the Company's financial and accounting officers to discuss and evaluate
internal accounting methods and procedures; (ii) review circumstances which may
have a material impact on the Company's financial statements or future
profitability; (iii) review various financial and financial-related matters of
the Company; (iv) recommend to the Board of Directors the selection of a firm of
independent public accountants; (v) review with management and the independent
public accountants the audited financial statements of the Company and the
Company's internal audit controls; (vi) review with
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management the terms of engagement of the Company's independent public
accountants; and (vii) evaluate the independence of the Company's independent
public accountants. The members of the Audit Committee during fiscal year 19971998
were William A. Roper, Jr. (Chairman), Craig I. Fields and John E. Glancy.
The Compensation Committee held one meetingfive meetings in fiscal year 1997.1998. Its
principal functions are to: (i) determine the non-stock compensation of certain
senior executives, including the salaries, bonuses and benefits of such
executives; (ii) serve as the committee under the Company's 1996 Stock Incentive
Plan, as amended (the "1996 Plan"), for all purposes other than making grants to
individuals who are subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which grants shall be recommended by the
Compensation Committee subject to approval by the Board of Directors; and (iii)
administer the Company's compensation and benefit plans and arrangements,
including the 1997 Employee Stock Purchase Plan. The members of the Compensation
Committee during fiscal year 1997 were J. Robert Beyster (Chairman), Michael A.
Daniels, J. Dennis Heipt and Stratton D. Sclavos.
COMPENSATION OF DIRECTORS
The Company's non-employee directors ("Outside Directors") currently
receive no cash fees or annual retainer payments as part of their compensation.
All directors are reimbursed for expenses incurred in connection with attending
Board and committee meetings. The Company's 1996 Plan provides that the Board of
Directors may determine to allow an Outside Director to elect to receive his or
her annual retainer payments and meeting fees, if any, from the Company in the
form of cash, nonstatutory stock options ("NSOs"), Stock Units (as defined in
the 1996 Plan) or a combination thereof. The number of NSOs to be granted to
Outside Directors in lieu of annual retainers and meeting fees that would
otherwise be paid in cash will be calculated in a manner determined by the Board
of Directors. The number of Stock Units to be granted to Outside Directors will
be calculated by dividing the amount of the annual retainer or the meeting fee
that would otherwise be paid in cash by the arithmetic mean of the fair market
values of one share of Common Stock on the 10 consecutive trading days ending
with the date such retainer or fee is payable. In January 1997, Craig I. Fields
and Stratton D. Sclavos eachOctober 1998, Mr. Daniels
received NSOs to purchase 30,75010,000 shares of the Company's Class A Common Stock
with an exercise pricesprice of $14.00$23.50 per share (which was equal to 100% of the fair market
value as determined in the good faith judgment of the Board of Directors on the
date of grant). All such during the Company's fiscal year 1998. Such stock options vest as
to 30%, 30%, 20% and 20% on the first, second, third and fourth year
anniversaries of the date of grant, respectively. No other Outside Directors
received any grant of NSOs during the Company's fiscal year 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ABOVE DIRECTOR NOMINEES
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PROPOSAL NUMBER 2
APPROVALPROPOSAL TO AMEND THE COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF
1997 EMPLOYEEINCORPORATION TO RECLASSIFY THE COMPANY'S
CLASS A COMMON STOCK PURCHASE PLANAND CLASS B COMMON STOCK AS SHARES OF THE COMPANY'S COMMON
STOCK AND TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S CAPITAL
STOCK
The Company's 1997 Employee Stock Purchase Plan was adopted by the Board of Directors on November 11, 1997 subjecthas approved the amendment of the Certificate of
Incorporation to stockholder approvalreclassify the Company's Class A Common Stock and Class B
Common Stock as shares of the Company's Common Stock, and to increase the number
of authorized shares of the Company's capital stock from 140,000,000 to
220,000,000, of which 210,000,000 shares shall be effective
asshares of November 11, 1997 (the "1997 Plan").Common Stock and
10,000,000 shares shall be shares of Preferred Stock. The Board adopted the 1997 Plan for
the purpose of providingDirectors
recommends that the Company's employees with a meansstockholders approve this amendment.
As of increasing
their equity interest and sharing in the success ofMarch 12, 1999, the Company thereby
increasing their incentive to continue in the Company's service.
The texthad 33,234,634 shares of the 1997 Plan is set forth in Annex A to this Proxy Statement.
The following is a summaryCommon Stock
outstanding of the principal features of the 1997 Plan and does
not purport to be complete. Stockholders are urged to read the 1997 Plan in its
entirety. This summary is subject to and qualified in its entirety by reference
to the 1997 Plan as set forth in Annex A. Any capitalized terms which are used
in this summary description but not defined here or elsewhere in this Proxy
Statement have the meanings assigned to them in the 1997 Plan.
SHARES SUBJECT TO THE 1997 PLAN
Upon approval of this Proposal by the stockholders, there will be a total
of 250,00018,384,634 shares were shares of Class A Common Stock authorized for purchase under the 1997
Plan. The authorizedand
14,850,000 shares issuable in connection with the 1997 Plan are
subject to adjustment in the eventwere shares of any increase or decrease in the number of
issuedClass B Common stock. An additional 5,156,474
shares of Class A Common Stock resulting from a subdivisionwere reserved for future issuance under the
Company's stock plans, of which 2,778,484 shares were covered by outstanding
options and 2,337,990 shares were available for future grant or consolidationpurchase. An
additional 14,850,000 shares were reserved for issuance on conversion of shares
or any other capital adjustment, the payment of a stock
dividend, or other increase or decrease in such shares effected without receipt
of consideration by the Company.Class B Common Stock. The rights of existing stockholders will be
affected only insofar as the total number of outstandingremaining 61,608,892 shares of Class A Common Stock
increases as a result of the approval of the 1997 Plan.
PARTICIPANTS
Any employee ofwere unreserved.
Currently, the Company who is not a five-percent (5%) stockholderhas two classes of the Company, its parent or any of its subsidiaries and (i) is in the employ of
the Company on the first day of a Participation Period, as defined below, and
(ii) is customarily employed for more than twenty (20) hours per week and for
more than five (5) months per calendar year during such employment is eligible
to participate in the 1997 Plan during such Participation Period. A
Participation Period means a period during which contributions may be made
toward the purchase ofcommon stock, under the 1997 Plan. The 1997 Plan is to be
implemented by one or more such Participation Periods, each with a duration of
not more than twenty-seven (27) months. Once enrolled in the 1997 Plan, a
participant will continue to participate for each succeeding Participation
Period until he or she terminates participation or ceases to be eligible under
the 1997 Plan. The Company estimates that the number of people eligible to
participate in the 1997 Plan as of March 13, 1998 was 289.
An eligible employee becomes a participant in the 1997 Plan by delivering
to the Company an agreement authorizing payroll deductions of the percentage of
that employee's compensation which he or she elects to have withheld for the
purchase of stock under the 1997 Plan, which may be any whole percentage of the
employee's compensation specified by the 1997 Plan administrator.
ADMINISTRATION
The 1997 Plan is administered by a plan administrator appointed by the
Board of Directors. The interpretation and construction by such plan
administrator of any provision of the 1997 Plan or any right to purchase stock
thereunder is conclusive and binding. All costs and expenses incurred in
administering the 1997 Plan are paid by the Company and the Company provides
limited indemnity to such plan administrator.
TERMS OF STOCK PURCHASE
An employee who is enrolled in the 1997 Plan will be granted an option to
purchase shares of stock solely by means of payroll deductions. The purchase
price for each share of stock is the lesser of (i) eighty-five percent (85%) of
the fair market value of such share on the Nasdaq National Market on the first
day of the
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Participation Period or (ii) eighty-five percent (85%) of the fair market value
of such share on the Nasdaq National Market on the last trading day prior to the
date shares are purchased. As of the last day of each Participation Period, the
amount then in a participating employee's account under the 1997 Plan will be
divided by such purchase price, and the number of whole shares which results
shall be purchased from the Company, subject to certain limitations. All payroll
deductions received or held by the Company under the 1997 Plan may be used by
the Company for any corporate purpose. As of March 13, 1998, the last reported
sales price for the Company's Class A Common
Stock was $26.875and Class B Common Stock. The holders of Class A Common Stock and Class B
Common Stock generally have identical rights except that holders of Class A
Common Stock are entitled to one vote per share as
reportedwhile holders of Class B Common
Stock are entitled to 10 votes per share on the Nasdaq National Market.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the 1997 Plan if, immediately after such grant, the employee would
own stock possessing five percent or moreall matters to be voted on by
stockholders. All of the total combined voting power or
valueoutstanding shares of Class B Common Stock are held by
SAIC. SAIC intends to convert all classes of stockits Class B Common Stock to Class A Common
Stock by May 31, 1999. After such conversion, no shares of Class B Common Stock
will be outstanding. The Company has stated that it does not intend to issue
additional shares of Class B Common Stock. Accordingly, the Company or any parent or subsidiary ofBoard has determined
that it is in the Company, nor will any employee be granted rights that would permit him to buy
more than $25,000 worth of stock (determined at the fair market value at the
time of grant) under all qualified employee stock purchase plansbest interests of the Company and its subsidiariesstockholders to
eliminate the distinction between the Class A Common Stock and Class B Common
Stock and to create a single class of Common Stock, effective after SAIC's
conversion of the remaining shares of Class B Common Stock into Class A Common
Stock.
The Board of Directors believes that the authorized shares of Common Stock
remaining available is not sufficient to enable the Company to respond to
potential business opportunities and to pursue important objectives that may be
anticipated. Accordingly, the Board of Directors believes that it is in any calendar year.
If the
aggregate number of shares that all participants electCompany's best interests to purchase
during a Participation Period exceedsincrease the number of authorized shares remainingof Common
Stock as described above. The Board of Directors also believes that the
availability of such shares will provide the Company with the flexibility to
issue Common Stock for proper corporate purposes that may be identified by the
Board of Directors from time to time, such as stock dividends (including stock
splits in the form of stock dividends), financings, acquisitions, or strategic
business relationships. Further, the Board of Directors believes the
availability of additional shares of Common Stock will enable the Company to
attract and retain talented employees through the grant of stock options and
other stock-based incentives. The issuance of additional shares of Common Stock
may have a dilutive effect on earnings per share and, for a person who does not
purchase additional shares to maintain his or her pro rata interest, on a
stockholder's percentage voting power.
The authorized shares of Common Stock in excess of those issued will be
available underfor issuance at such times and for such corporate purposes as the
1997 Plan, then each participant shallBoard of Directors may deem advisable without further action by the Company's
stockholders, except as may be entitledrequired by applicable laws or the rules of any
stock exchange or national securities association trading system on which the
securities may be listed or traded. The Company's management has no
arrangements, agreements, understandings, or plans at the present time for the
issuance or use of the additional shares of Common Stock proposed to be
authorized. Upon issuance, such shares will have the same rights as the
outstanding shares of Common Stock. Holders of the currently outstanding Class A
Common Stock and Class B Common Stock do not have and holders of Common Stock
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will not have preemptive rights. The Board of Directors does not intend to issue
any Common Stock except on terms which the Board deems to be in the best
interests of the Company and its then-existing stockholders.
The Board of Directors does not recommend this proposed amendment with the
intent to use the ability to issue additional Common Stock to discourage tender
offers or takeover attempts. However, the availability of authorized Common
Stock for issuance could render more difficult or discourage a merger, tender
offer, proxy contest or other attempt to obtain control of the Company. The
proposed amendment is not in response to any effort on the part of any party to
accumulate material amounts of Common Stock or to acquire control of the Company
by means of merger, tender offer, proxy contest or otherwise, or to change the
Company's management. In addition, the proposal is not part of any plan by
management to recommend a series of similar amendments to the percentageBoard of shares remaining underDirectors
and the 1997 Plan correspondingstockholders.
The text of Paragraph A of Article IV of the Certificate of Incorporation,
as it is proposed to the percentage that
such participant electedbe amended pursuant to purchase of thethis proposal, is as follows:
A. The total number of shares of stock that all
participants electedthe Corporation
shall have authority to purchase during that Participation Period. Any cash
remaining in the participants' accountsissue is two hundred twenty million
(220,000,000) of which (i) two hundred ten million (210,000,000)
shares shall be refunded to them.
PLAN BENEFITS
The plan benefits to employees derived fromshares of common stock, $0.001 par value per share
(the "Common Stock"), and (ii) ten million (10,000,000) shares shall
be shares of preferred sock, $0.001 par value per share (the
"Preferred Stock"). On the 1997 Plan will depend upon
such employee's leveleffective date of participation andthis Amendment, each
outstanding share of the Company's Class A common stock, price
performance. Therefore, the benefitspar value
$0.001 per share, and amount of awards that will be received
by each of the Named Executive Officers, the executive officers as a group and
all other employees as a group under the 1997 Plan are not presently
determinable.
STOCKHOLDER RIGHTS
No participant will have any rights as a stockholder with respect to any
shares he or she may have a right to purchase under the 1997 Plan until the date
such shares are actually purchased for the participant's account.
TERMINATION OF PURCHASE RIGHTS
A participant may elect to withdraw from participation under the 1997 Plan
at any time up to the last day of a Participation Period. As soon as practicable
after such a withdrawal, payroll deductions will cease and all amounts credited
to the participant's account will be refunded without interest. Termination of
employment by a participant in the 1997 Plan for any reason, including death,
will be treated as an automatic withdrawal.
RESTRICTIONS ON TRANSFER
Rights granted under the 1997 Plan are not transferable by a participant
other than by will or the laws of descent and distribution. If a participant
attempts to transfer, assign or otherwise encumber his or her rights or interest
under the 1997 Plan, such actClass B common stock, par value $0.001 per
share, shall be treated as an automatic withdrawal from
participation in the 1997 Plan.
AMENDMENT OR TERMINATION OF THE 1997 PLAN
The Boardautomatically reclassified and converted into one
share of Directors shall have the right to amend, modify or terminate
the 1997 Plan at any time without notice, except that certain amendments may
require stockholder approval pursuant to applicable laws or regulations.
In the event of a dissolution or liquidation of the Company, or a merger or
consolidation to which the Company is a constituent corporation, the 1997 Plan
shall terminate unless the plan of merger, consolidation
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or reorganization provides otherwise. If such a termination occurs, all amounts
that each participant has paid toward the purchase of shares under the 1997 Plan
shall be refunded without interest.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal current federal income tax
consequences of transactions under the 1997 Plan, which is intended to qualify
as an "employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code, as amended, is intended to be a summary of applicable
federal law. This summary does not describe all federal tax consequences, nor
does it describe state, local or foreign tax consequences, which consequences
may differ.
There are no federal income tax consequences to the Company by reason of
the grant of rights under the 1997 Plan. A participant will be taxed on amounts
withheld for the purchase of shares as if such amounts were actually received.
Other than this, no income will be taxable to a participant until disposition of
the shares acquired, and the method of taxation will depend upon the holding
period of the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the Participation Period
in which such shares were acquired or within one (1) year after the purchase
date on which those shares were actually acquired, whichever is later, then the
participant will realize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the purchase
date exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the Participation Period in which the
shares were acquired and more than one (1) year after the purchase date of those
shares, then the participant will realize ordinary income in the year of sale or
disposition equal to the lesser of (i) the amount by which the fair market value
of the shares on the sale or disposition date exceeded the purchase price paid
for those shares, or (ii) fifteen percent (15%) of the fair market value of the
shares on the participant's entry date into that Participation Period; and any
additional gain upon the disposition will be taxed as a long-term capital gain.
The Company will not be entitled to an income tax deduction with respect to such
disposition.
If the participant still owns the purchased shares at the time of his or
her death, the lesser of (i) the amount by which the fair market value of the
shares on the sale or disposition date exceeded the purchase price paid for
those shares, or (ii) fifteen percent (15%) of the fair market value of the
shares on the participant's entry date into the Participation Period in which
those shares were acquired, will constitute ordinary income in the year of
death.
STOCKHOLDERCommon Stock.
REQUIRED APPROVAL Only stockholders of record on the books of the Company at the close of
business on March 20, 1998 are entitled to vote with respect to approval of the
1997 Plan.AND EFFECTIVE DATE
The affirmative vote of the holders of a majority of the votesoutstanding Class
A Common Stock and Class B Common Stock, voting together as a single class, and
the affirmative vote of the shares
present or represented and voting is required for approvalholders of a majority of the 1997 Plan.
Unless markedoutstanding Class B
Common Stock, voting separately as a class, are required to approve this
proposal. If approved by the stockholders, the proposed amendment to the
contrary, proxies receivedCertificate of Incorporation will be voted "FOR" approvalbecome effective upon the filing of a
Certificate of Amendment with the Secretary of State of Delaware, which will
occur as soon as reasonably practicable after SAIC's conversion of the 1997 Plan.remaining
shares of Class B Common Stock into Class A Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL NO. 3
APPROVALAMENDMENT OF
1996 STOCK INCENTIVE PLAN
The Network Solutions, Inc. 1996 Stock Incentive Plan (the "1996 Plan") was
adopted by the Company's Board of Directors on September 18, 1996. The 1996 Plan
was effective on September 18, 1996, and was most recently amended and restated
effective July 7, 1997.
The text of the 1996 Plan is set forth in Annex B to this Proxy Statement.
The following is a summary of the principal features of the 1996 Plan and does
not purport to be complete. Stockholders are urged to read the 1996 Plan in its
entirety. This summary is subject to and qualified in its entirety by reference
to the 1996 Plan as set forth in Annex B. Any capitalized terms which are used
in this summary description but not defined here or elsewhere in this Proxy
Statement have the meanings assigned to them in the 1996 Plan.
PURPOSE
The purpose of the 1996 Plan is to promote the long-term success of the
Company and the creation of stockholder value by (1) encouraging Key Employees
to focus on critical long-range objectives, (2) encouraging the attraction and
retention of Key Employees with exceptional qualifications and (3) linking Key
Employees directly to stockholder interests through increased stock ownership.
The 1996 Plan seeks to achieve this purpose by providing for Awards in the form
of Restricted Stock, Stock Units, Stock Appreciation Rights ("SARs") and the
grant of both stock options which are intended to qualify as incentive stock
options ("ISOs") under Section 422(b) of the Internal Revenue Code of 1996, as
amended (the "Code"), and non-qualified stock options which are not intended to
satisfy the requirements of such Code section ("NSOs") (together, the
"Options"). Any Award under the Plan may include one of these elements or a
combination of several elements. In general, no payment from the employee to the
Company is required upon receipt of an Award.
Under the 1996 Plan, Awards may be granted to "Key Employees" of the
Company. The term "Key Employee" is defined by the 1996 Plan as (1) a common-law
employee of the Company, a parent or a subsidiary, (2) an outside director of
the Company and (3) a consultant or adviser who provides services to the
Company, a parent or a subsidiary as an independent contractor.
SHARES SUBJECT TO THE 1996 PLAN
Under the initial terms of the 1996 Plan, a total of 2,306,250 shares of
Class A Common Stock were available for grant as Awards under the 1996 Plan. On
each January 1 for the life of the 1996 Plan, commencing January 1, 1997, the
number of shares available under the 1996 Plan is increased by 2% of the number
of the Company's Class A and Class B common shares outstanding at the end of the
most recently concluded calendar year. Currently there are 2,870,650 shares
available for grant under the 1996 Plan, of which 1,867,162 shares are subject
to outstanding options as of March 13, 1998. If an Award granted under the 1996
Plan expires, is canceled or forfeited or terminates without having been fully
exercised, the unpurchased shares which were subject to that Award become
available again for the grant of additional Awards under the 1996 Plan. No Key
Employee may receive Options or SARs to purchase shares during any fiscal year
totaling in excess of 1,000,000 shares; provided, however, that a newly hired
Key Employee may receive Options or SARs to purchase up to 1,000,000 shares
during the portion of the fiscal year remaining after his or her date of hire.
In addition, the 1996 Plan provides that an Outside Director may elect to
receive his or her annual retainer payments and meeting fees, if any, from the
Company in the form of cash, nonqualified stock options or stock units or any
combination thereof in accordance with such rules as shall be established by the
Committee that administers the 1996 Plan. The number of shares available for
issuance under the 1996 Plan is subject to anti-dilution provisions.
ADMINISTRATION
The 1996 Plan is administered by a Committee appointed by the Board. The
Committee has membership composition which enables the 1996 Plan to qualify
under Rule 16b-3 with regard to the grant of Options or
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other rights under the 1996 Plan to persons who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Subject to the
requirements of applicable law, the Committee may designate persons other than
members of the Committee to carry out its responsibilities and may prescribe
such conditions and limitations as it may deem appropriate, except that the
Committee may not delegate its authority with regard to the selection for
participation in or the granting of Options or determining awards or other
rights under the 1996 Plan to persons subject to Section 16 of the Exchange Act.
PARTICIPANTS
Any Key Employee of the Company is eligible to participate in the 1996
Plan.
OPTIONS
The 1996 Plan provides for the grant to Key Employees of stock options,
which may consist of NSOs and ISOs. However, eligibility for the grant of ISOs
is limited to Key Employees of the Company or its parent or any subsidiaries of
the Company who are common-law employees; thus consultants and non-employee
directors of the Company are ineligible for grants of ISOs under the 1996 Plan.
The Exercise Price of ISOs to Key Employees who are common-law employees and who
own 10% or more of the total combined voting power of all classes of outstanding
stock of the Company, its parent or any subsidiary of the Company must equal at
least 110% of the fair market value of the Common Stock on the date of grant and
the term of such an ISO may not be greater than five years.
Options granted pursuant to the 1996 Plan need not have identical terms
with respect to each Optionee. The exercise price under each option shall be
established by the Committee, but in no event will the exercise price for ISOs
be less than 100% of the Fair Market Value of the stock on the date of grant;
provided, however, that any ISO granted to a 10% owner shall comply with the
rules set forth above. The 1996 Plan defines "Fair Market Value" as the market
price of shares of Common Stock, determined by the Board, which shall mean (1)
if the Shares were traded over-the-counter on the date in question but were not
classified as a national market issue, then the Fair Market Value shall be equal
to the mean between the last reported representative bid and asked prices quoted
by the NASDAQ system for such date, or (2) if the Shares were traded
over-the-counter on the date in question and were classified as a national
market issue, then the Fair Market Value shall be equal to the last-transaction
price quoted by the NASDAQ system for such date, or (3) if the Shares were
traded on a stock exchange on the date in question, then the Fair Market Value
shall be equal to the closing price reported by the applicable composite
transactions report for such date, or (4) if none of the foregoing provisions is
applicable, then the Fair Market Value shall be determined by independent
appraisals or as otherwise determined by the Committee in good faith on such
basis as it deems appropriate. As of March 13, 1998, the last reported sales
price for the Company's Common Stock was $26.875 per share as reported on the
Nasdaq National Market.
Upon exercise of an Option, and unless otherwise provided in the option
agreement, payment of the exercise price may be made (1) in cash, (2) by
delivery of Shares owned by the Optionee, (3) by a combination of cash and
shares, (4) with a full recourse promissory note, or (5) in any other form that
is consistent with applicable laws. If an option agreement provides, payment of
the Exercise Price may also be made via an irrevocable direction to a securities
broker to sell Shares and to deliver all or part of the sale proceeds to the
Company, as needed, or by share withholding by the Company. The Committee will
value the shares delivered in payment of the Exercise Price at one hundred
percent (100%) of the Fair Market Value on the day of such exercise.
Options shall have such terms and be exercisable in such manner and at such
times as the Committee may determine. However, each ISO must expire within a
period of not more than ten (10) years from the grant date. Unless otherwise
provided in the option agreement, each option shall be transferable only by will
or the law of descent and distribution and shall only be exercisable by the
Optionee during his or her lifetime. The option agreement shall contain such
vesting provisions as determined by the Committee at the time of grant. The
Committee may also determine, at the time of granting an Option or thereafter,
that the Option will become fully exercisable in the event of a Change in
Control.
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STOCK APPRECIATION RIGHTS
The terms of each grant of a SAR under the Plan are determined by the
Committee and set forth in a SAR Agreement between the Optionee and the Company.
The Committee may modify, extend or renew outstanding SARs or may accept the
cancellation of outstanding SARs in return for the grant of new SARs for the
same or a different number of shares and at the same or different price. Any
such modification, however, will not alter an Optionee's rights or obligations
under a SAR without the consent of the Optionee. SARs may be granted in
consideration of a reduction in the Optionee's other compensation.
Each SAR Agreement specifies how many shares the SAR pertains to and the
Exercise Price of the SAR. Each SAR Agreement also specifies the term of the SAR
and the date when all or any installment of the SAR will vest. A SAR Agreement
normally provides for expiration of the SAR before the end of its term if the
Optionee's service terminates. As in the case of Options, vesting conditions
generally are based on the Optionee's service after the date of grant, but the
SAR Agreement may provide for accelerated vesting in the event of the Optionee's
death, disability or retirement or other circumstances. The Committee may also
determine, at the time of granting a SAR or thereafter, that the SAR will become
fully exercisable in the event of a Change in Control. SAR agreements may
provide that the SARs are exercisable only if and when a Change in Control
occurs.
SARs may be awarded in combination with Options, Restricted Shares or Stock
Units, and such an Award may provide that the SARs will not be exercisable
unless the related Options, Restricted Shares or Stock Units are forfeited. A
SAR may only be included in an ISO at the time of SAR grant. A SAR may be
exercised by written notice to the Company. It is exercised automatically in the
event that the Exercise Price is less than the Fair Market Value of the
underlying shares on the date the SAR expires. Upon the exercise of a SAR, the
Optionee is entitled to receive an amount of cash and/or shares (as determined
by the Committee) with a Fair Market Value at the time of exercise equal to the
spread between the Fair Market Value of the shares subject to the SAR and the
Exercise Price.
RESTRICTED STOCK AND STOCK UNITS
The amount of each Award of Restricted Shares or Stock Units is determined
by the Committee. Such an Award may be made in combination with NSOs or SARs,
and the terms of the Award may require that Restricted Shares or Stock Units
will be forfeited if the related NSOs or SARs are exercised.
Restricted Shares are shares that are subject to forfeiture in the event
that the applicable vesting conditions are not satisfied. Restricted Shares
cannot be sold or otherwise transferred until they have vested, and the stock
certificates may be held in escrow until that time. A holder of Restricted
Shares under the Plan has the same voting, dividend and other rights as the
Company's other stockholders. But the Committee may require that a holder of
Restricted Shares invest any cash dividends in additional Restricted Shares
(which additional shares will not reduce the number of shares available for
Awards under the Plan).
A Stock Unit is an unfunded bookkeeping entry representing the equivalent
of one share, and the holder of Stock Units has only the rights of any unsecured
general creditor of the Company. A holder of Stock Units has no voting rights or
other privileges of a stockholder. However, the Committee may specify that a
holder of Stock Units is entitled to receive dividend equivalents equal to the
amount of cash dividends paid on the same number of shares. Dividend equivalents
may be converted into additional Stock Units. The Committee will determine the
time(s) at which dividend equivalents are distributed and whether settlement is
made in the form of cash, shares or a combination of both. Prior to
distribution, dividend equivalents will be subject to the same conditions and
restrictions (including forfeiture conditions) as the Stock Units to which they
attach.
Each Award of Restricted Shares or Stock Units will become vested, in full
or in installments, upon satisfaction of the conditions specified in the Stock
Award Agreement. A Stock Award Agreement may provide for accelerated vesting of
Restricted Shares or Stock Units in the event of the recipient's death,
disability, retirement or other events. The Committee may also determine, at the
time of making an Award or thereafter, that the Award will become fully vested
in the event of a Change in Control. Settlement of vested Stock Units will be
made in cash, Shares or a combination of both, as determined by the Committee
before
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distribution begins. The number of Stock Units actually settled may differ from
the number included in the original Award due to satisfaction of predetermined
performance factors. For this purpose, the Committee may designate the method of
converting the value of Stock Units to cash, including a method based upon the
Fair Market Value of Shares over a series of trading days. Distribution is made
in a lump sum or installments, as determined by the Committee, after all vesting
conditions have been satisfied or have lapsed. The Committee may defer the
distribution, or it may permit the recipient to elect a deferred distribution.
In either case, the Committee may provide for interest or additional dividend
equivalents to be credited on the deferred payment.
AMENDMENT AND TERMINATION
The 1996 Plan shall remain in effect until it is terminated by the Board.
The Board may at any time terminate, suspend, revise, modify or amend the 1996
Plan. An amendment of the 1996 Plan shall be subject to the approval of the
stockholders of the Company, only to the extent required by applicable laws,
regulations or rules. Also, no termination, suspension, revision, modification
or amendment of the 1996 Plan may adversely affect the rights of Option
recipients under any outstanding Options without their consent. Notwithstanding
the above, no ISOs may be granted after September 17, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal current federal income tax
consequences of transactions under the 1996 Plan is intended to be a summary of
applicable federal law. This summary does not describe all federal tax
consequences, nor does it describe state, local or foreign tax consequences,
which consequences may differ. Because the federal income tax rules governing
options and related payments are complex and subject to frequent change,
optionees are advised to consult their tax advisors prior to exercise of options
or dispositions of stock acquired pursuant to option exercise.
Options
ISOs and NSOs are treated differently for federal income tax purposes. ISOs
are intended to comply with the requirements of Section 422 of the Internal
Revenue Code. NSOs do not comply with such requirements.
An employee is not taxed on the grant or exercise of an ISO, except that
the difference between the Exercise Price and the Fair Market Value of the
Shares on the exercise date will be a preference item for purposes of the
alternative minimum tax. If an optionee holds the Shares acquired upon exercise
of an ISO for at least two years following grant and at least one year following
exercise, the optionee's gain, if any, upon a subsequent disposition of such
shares is long-term capital gain. The measure of the gain is the difference
between the proceeds received on disposition and the optionee's basis in the
shares (which generally equals the exercise price). If an optionee disposes of
stock acquired pursuant to exercise of an ISO before satisfying the one- and
two-year holding periods described above, the optionee will recognize both
ordinary income and capital gain in the year of disposition. The amount of the
ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the option price) or
(ii) the difference between the Fair Market Value of the stock on the exercise
date and the option price. The balance of the consideration received on such a
disposition will be long-term capital gain if the stock has been held for at
least one year following exercise of the ISO. The Company is not entitled to an
income tax deduction on the grant or exercise of an ISO or on the optionee's
disposition of the shares after satisfying the holding period requirement
described above. If the holding periods are not satisfied, the Company will be
entitled to a deduction in the year the optionee disposes of the shares, in an
amount equal to the ordinary income recognized by the optionee.
An employee is not taxed on the grant of an NSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the option
price and the value of the Shares on the date of exercise. The Company is
entitled to an income tax deduction in the year of exercise in the amount
recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain
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if the shares are held for at least one year following exercise. The Company
does not receive a deduction for this gain.
Stock Appreciation Rights
An Optionee is not deemed to receive any taxable income at the time a SAR
is granted, nor are the Company and its subsidiaries (if any) entitled to a tax
deduction at that time. Upon the exercise of a SAR payable in cash and/or
Shares, the Optionee recognizes an amount of ordinary income equal to the amount
of cash and/or the Fair Market Value of the Shares received. In the case of an
employee or former employee, the amount of ordinary income is subject to
withholding taxes. The Optionee's employer is entitled to a tax deduction in an
amount equal to the ordinary income that the Optionee is deemed to receive. In
general, the Optionee's basis in any Shares acquired by exercising a SAR is
equal to their Fair Market Value at the time of transfer.
Stock Units
A Participant is not deemed to receive any taxable income at the time an
Award of Stock Units is granted, nor are the Company and its subsidiaries (if
any) entitled to a tax deduction at that time. Employment taxes may be withheld
at the time of the grant of vested Stock Units. When vested Stock Units and any
dividend equivalents are settled and distributed, the Participant is deemed to
receive an amount of ordinary income equal to the amount of cash and/or the Fair
Market Value of Shares received. Such income is subject to withholding taxes in
the case of an employee or former employee. The employing company is allowed a
tax deduction in an amount equal to the ordinary income that the Participant is
deemed to receive.
Restricted Stock
Generally, a Participant is not deemed to receive any taxable income at the
time an Award of Restricted Shares is granted, nor are the Company and its
subsidiaries (if any) entitled to a tax deduction at that time. Dividends
received by the Participant on nonvested Restricted Shares are treated as
taxable compensation and are subject to withholding in the case of an employee
or former employee. The employing company is entitled to a deduction equal to
the amount of the dividends paid on nonvested Restricted Shares.
When Restricted Shares become vested, the Participant is deemed to receive
an amount of ordinary income equal to the excess of the Fair Market Value of the
Restricted Shares at the time they vest over any amount paid for the Restricted
Shares by the Participant. In the case of an employee or former employee, such
income is subject to withholding taxes. The Committee may permit these taxes to
be satisfied through the withholding of Shares. The employing company is
entitled to a deduction equal to the amount of ordinary income recognized by the
Participant. If nonvested Restricted Shares held by the Participant are
forfeited, the Participant is not entitled to a tax deduction.
Code section 83(b) permits a Participant to elect, within 30 days after the
transfer of any Restricted Shares to him or her, to be taxed at ordinary income
rates on the excess of the Fair Market Value of the Restricted Shares at the
time of the grant over any amount paid by the Participant for the Restricted
Shares. In the case of an employee or former employee, withholding taxes apply
at that time. If the Participant makes a section 83(b) election, any later
appreciation in the value of the Restricted Shares is taxed as capital gain when
the Restricted Shares are sold or transferred. At the time a Participant
recognizes ordinary income as a result of making a section 83(b) election, the
employing company is entitled to a tax deduction equal to the amount of the
Participant's ordinary income. If a Participant makes a section 83(b) election
and the Restricted Shares are later forfeited, the Participant is not entitled
to a tax deduction or a refund of the tax paid. Dividends received by the
Participant on Restricted Shares subject to a section 83(b) election are taxed
as dividends rather than compensation.
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162(m) Limitations
Section 162(m) of the Code limits the ability of a corporation to deduct
compensation paid to certain executives in excess of $1 million. Approval of the
1996 Plan by the stockholders is required in order to permit the Company to
deduct income attributable to Options and SARs in excess of this amount.
PLAN BENEFITS
The Committee has full discretion to determine the number and amount of
awards to be granted to Key Employees under the 1996 Plan. Therefore, the
benefits and amounts that will be received by each of the executive officers
named in the Summary Compensation Table, the executive officers as a group and
all other key management employees under the 1996 Plan are not presently
determinable. Details on stock options granted during the last two years to the
executive officers named in the Summary Compensation Table are presented herein
in the table entitled "Summary Compensation Table."
STOCKHOLDER APPROVAL
Only stockholders of record on the books of the Company at the close of
business on March 20, 1998 are entitled to vote with respect to approval of the
1996 Plan. The affirmative vote of the majority of the votes of the shares
present or represented and voting is required for approval of the 1996 Plan.
Unless marked to the contrary, proxies received will be voted "FOR" approval of
the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVALARTICLE IV OF THE 1996 STOCK INCENTIVE PLAN, AS AMENDED.
PROPOSAL NUMBER 4
RATIFICATIONCOMPANY'S CERTIFICATE OF INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the retention of Price Waterhouse LLP
as independent accountants for the Company for fiscal year 1998. The
stockholders are asked to ratify the designation of Price Waterhouse LLP as
independent accountants for the Company for the fiscal year ending December 31,
1998. A representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting to make a statement if he or she desires to do so, and such
representative is expected to be available to respond to appropriate questions.
Should the stockholders fail to ratify the designation of Price Waterhouse
LLP as independent accountants, retention of the firm for the fiscal year ending
December 31, 1998 will be reconsidered by the Board of Directors.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of Price Waterhouse LLP as independent
accountants for the Company's fiscal year ending December 31, 1998.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 1998.
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17INCORPORATION.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A Common Stock as of March 13, 1998,12, 1999, except as
otherwise indicated, by: (i) each person who is known by the Company to
beneficially own more than five percent of the Company's Class A Common Stock,
(ii) each of the Company's directors and nominees for director, (iii) each of
the Named Executive Officers (as defined on page 1710 of this Proxy Statement),
and (iv) all directors and executive officers of the Company as a group. SAIC
currently owns 11,925,00014,850,000 shares or 100% of the Company's outstanding Class B
Common Stock. Each share of Class B Common Stock is convertible at SAIC's option
into one share of Class A Common Stock. Therefore, SAIC's percentage ownership
is calculated based on 15,783,06318,384,634 shares of Class A Common Stock, representing
the total number of shares of Class A Common Stock outstanding as of March 13,
199812,
1999 and assuming conversion of the 11,925,00014,850,000 shares of Class B Common Stock
held by SAIC. The percentage ownerships of the other stockholders listed below
are based on the aggregate of the number of shares of Class A Common Stock
outstanding as of March 13, 199812, 1999 and any shares of Class A Common Stock subject
to options or other conversion rights that are exercisable or convertible by the
individual stockholder
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within 60 days of March 13, 199812, 1999 (although shares subject to options or other
conversion rights are not treated as outstanding for the purposes of calculating
the percentage ownership of any other stockholder).
SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENT(2)
- --------------------------- ------------------ ----------
Principal Stockholders:
Science Applications........................................ 11,925,000 75.8%14,850,000 44.7%
International Corporation (SAIC)(3)
10260 Campus Point Drive
San Diego, CA 92121
Essex Investment Management Company(4)...................... 754,055 19.8%
125 High Street
Boston, MA 02110
John McStay Investment Counsel(5)........................... 364,900 9.6%
5949 Sherry Lane, Suite 1560
Dallas, TX 75225Pilgrim Baxter & Associates, Ltd(4)......................... 1,331,600 7.2%
825 Duportail Road
Wayne, PA 19087
Directors and Named Executive Officers:
Gabriel A. Battista(6)...................................... 138,875 3.5%
J. Robert Beyster........................................... 1,8003,600 *
Raymond S. Corson(7)Bruce L. Chovnick(5)........................................ 9,2254,294 *
Michael A. Daniels(8)....................................... 35,090Daniels.......................................... 29,560 *
Craig I. Fields(9)Fields(6).......................................... 9,225900 *
John E. Glancy.............................................. 5003,000 *
J. Dennis Heipt............................................. 0 *
David H. Holtzman(10)....................................... 23,050Holtzman(7)........................................ 13,504 *
Robert J. Korzeniewski(11).................................. 35,090Korzeniewski(8)................................... 25,842 *
William A. Roper, Jr........................................ 1,0002,000 *
Stratton D. Sclavos(12)..................................... 9,725Sclavos(9)...................................... 22,900 *
Donald N. Telage(13)Telage(10)........................................ 46,625 1.2%39,488 *
All current executive officers and directors as a group (13(15
persons)(14)(11).............................................. 300,980 7.2%162,816 *
- ---------------
* Less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders, and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "Commission"). Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with respect to securities. Except as
indicated by footnotes and subject to community property laws, where
applicable, the persons named above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
15
18
(2) Applicable percentage ownership is based on 3,813,06318,384,634 shares of Class A
Common Stock outstanding as of March 13, 1998.12, 1999. Shares of Class A Common
Stock subject to options or other conversion rights and shares of Class B
Common Stock convertible into shares of Class A Common Stock that are
exercisable or convertible within 60 days of March 13, 199812, 1999 are deemed to
be beneficially owned by the person holding such options or conversion
rights for the purpose of computing the percentage ownership of such person
but are not treated as outstanding for the purpose of computing any other
person's percentage ownership.
(3) Based on a filing with the Commission dated as of February 11, 1998 and the
Company's Registration Statement on Form S-3 filed January 4, 1999, as
amended, indicating beneficial ownership as of December 31, 1997.the closing of the offering
conducted pursuant to such registration statement on February 12, 1999.
Represents 11,925,00014,850,000 shares of Class B Common Stock of the Company,
representing 100% of the outstanding shares of Class B Common Stock. Each
share of Class B Common Stock is convertible at the holder's option into
one share of Class A Common Stock and each is convertible within 60 days of
March 13, 1998.12, 1999.
(4) Based on a filing with the Commission dated March 12, 1998.10, 1999. Includes sole
power to vote or to direct the vote of 616,0301,230,000 shares of Class A Common
Stock, and sole power to direct the disposition of a total of 754,0551,331,600 shares of
Class A Common Stock.
8
11
(5) Based on oral information provided by John McStay Investment Counsel.
Includes sole power to vote or direct the vote and dispose of a total of
364,900 shares of Class A Common Stock.
(6) Includes 138,3754,000 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(7)12, 1999 and 294 shares purchased under
the Company's Employee Stock Purchase Plan.
(6) Represents 9,225900 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(8)12, 1999.
(7) Includes 34,59013,074 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(9) Represents 9,22512, 1999 and 430 shares purchased under
the Company's Employee Stock Purchase Plan.
(8) Includes 3,504 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(10)12, 1999 and 1,338 shares purchased
under the Company's Employee Stock Purchase Plan.
(9) Includes 22,95021,900 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(11)12, 1999.
(10) Includes 34,5908,398 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(12)12, 1999 and 1,530 shares purchased
under the Company's Employee Stock Purchase Plan, 500 shares of which are
indirectly beneficially owned by Dr. Telage through his spouse.
(11) Includes 9,225an aggregate of 71,230 shares of Class A Common Stock issuable
pursuant to options exercisable within 60 days of March 13, 1998.
(13) Includes 46,125 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 13, 1998.
(14) Includes an aggregate of 295,080 shares of Class A Common Stock issuable
pursuant to options exercisable within 60 days of March 13, 1998.12, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's directors, certain officers and
persons who own more than 10% of the Company's Class A Common Stock
(collectively, the "Reporting Persons") to file reports of their ownership and
changes in ownership of the Company's Class A Common Stock with the Commission.
Personnel of the Company generally prepare these reports on the basis of
information obtained from each director and officer. To the Company's knowledge,
based solely upon a review of such reports or written representations from
certain Reporting Persons that no other reports were required, the Company
believes that all reports required by Section 16(a) of the Exchange Act to be
filed by its directors and officers during the last fiscal year were filed on
time, except that J. Robert
16time.
9
19
Beyster, a director of the Company, reported the purchase of 600 shares of Class
A Common Stock approximately one week late.12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides, for the fiscal year ended December 31, 1997,1998,
certain summary information concerning compensation awarded or paid to, or
earned by, each person who served as the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers who were
serving as executive officers on December 31, 19971998 and whose salary and bonus
were in excess of $100,000 for services rendered to the Company during the
fiscal year ended December 31, 19971998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
----------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1)(2) BONUS($) AWARDS($)(3) OPTIONS(#)(4) COMPENSATION($)(5)
- --------------------------- ---- --------------- -------- ------------ ------------- ------------------
Michael A. Daniels(6)........ 1998 -- -- -- 10,000 --
Acting Chief Executive
Officer
Gabriel A. Battista.........Battista(7)....... 1998 434,281 -- -- 50,000 15,293
Chief Executive Officer 1997 350,000 125,000 -- -- --
Chief Executive Officer 1996 60,577(6)60,577(7) 37,500 -- 461,250922,500 --
Donald N. Telage............Telage............. 1998 188,999 85,000 -- 24,000 15,293
Senior Vice President, 1997 173,462 67,500(2) -- -- 14,867
Senior Vice President,Internet Relations and 1996 165,719 35,010(7) 29,984(8) 153,75035,010(8) 29,984(9) 307,500 13,209
Internet Relations and
Special Programs
Robert J. Korzeniewski......Korzeniewski....... 1998 165,462 90,000 -- 36,000 14,880
Chief Financial Officer and 1997 148,077 60,000 -- -- 12,945
Acting Chief FinancialOperating
Officer 1996 120,731 20,011 19,989(9) 115,30019,989(10) 230,600 9,954
Bruce L. Chovnick(11)........ 1998 181,730 65,000 -- 10,000 --
Senior Vice President, 1997 39,038 72,000 -- 200,000 --
General Manager, Internet
Technology Services
David H. Holtzman (10)......Holtzman(12)........ 1998 157,615 70,000 -- 24,000 7,934
Senior Vice President, 1997 128,346 60,000 -- 76,500153,000 --
Senior Vice President, 1996 -- -- -- -- --
Engineering
Raymond S. Corson........... 1997 124,039 17,000 -- -- 10,939
Senior Vice President, 1996 118,519 7,524 7,476(11) 30,750 9,815
Channel Development
- ---------------
(1) In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers which are available
generally to all salaried employees of the Company, and certain perquisites
and other personal benefits received by the Named Executive Officers which
do not exceed the lesser of $50,000 or 10% of any such officer's salary and
bonus disclosed in this table.
(2) Includes, where applicable, amounts electively deferred by each Named
Executive Officer under SAIC's Cash or Deferred Arrangement, SAIC's Key
Executive Stock Deferral Plan or the Company's Employee Stock Purchase
Plan.
(3) Represents restricted shares of SAIC Class A Common Stock. The amount
reported represents the market value on the date of grant (calculated by
multiplying the formula price of SAIC's Class A Common Stock on the date of
grant by the number of shares awarded), without giving effect to the
diminution in value attributable to the restriction on such stock. As of
December 31, 1996, the aggregate restricted stockholding of SAIC Class A
Common Stock for the Named Executive Officers was as follows: Gabriel A.
Battista -- none; Donald N. Telage -- 1,930 shares, with a market value as
of such date of $44,062; Robert J. Korzeniewski -- 261 shares, with a
market value as of such date of $5,959; Raymond S. Corson --
220 shares,
with a market value as of such date of $5,023;10
13
and all other employees -- 571,260 shares, with a market value as of such
date of $13,041,866. Dividends are payable on such restricted stock if and
when declared. However, SAIC has never declared or paid a cash
17
20 dividend on
its capital stock, and no cash dividends on its capital stock are
contemplated in the foreseeable future.
(4) Represents options to acquire shares of the Company's Class A Common Stock.
(5) Amounts listed in this column reflect amounts contributed by the Company
for the Named Executive Officers under SAIC's Cash or Deferred Arrangement
(exclusive of amounts deferred at the election of the Named Executive
Officer), SAIC's Profit Sharing Plan and SAIC's Employee Stock Retirement
Plan.
(6) Michael A. Daniels assumed the position of Acting Chief Executive Officer
with the Company in November 1998. Mr. Daniels is an employee of SAIC and
received no compensation from the Company in 1998.
(7) Gabriel A. Battista joined the Company in October 1996. Mr. Battista
resigned as a director and Chief Executive Officer of the Company in
November 1998. Included in Mr. Battista's annual1998 salary for 1996 would have been $350,000.
(7)is the payout of
earned comprehensive leave.
(8) Includes the award of 193 shares of SAIC Class A Common Stock which had a
market value on the date of grant (calculated by multiplying the formula
price of the SAIC Class A Common Stock on the date of grant by the number
of shares awarded) of $5,010.
(8)(9) Represents 1,155 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.
(9)(10) Represents 770 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.
(10)(11) Bruce L. Chovnick joined the Company in October 1997. Mr. Chovnick's annual
salary for 1997 would have been $150,000.
(12) David H. Holtzman joined the Company in January 1997. Mr. Holtzman's annual
salary for 1997 would have been $142,000.
(11) Represents 288 shares of SAIC Class A Common Stock which vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively.
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 19971998 to the Company's Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES PERCENT OF TOTALOPTIONS GRANTED APPRECIATION FOR
UNDERLYING OPTIONS GRANTEDTO EMPLOYEES IN EXERCISE OR OPTION TERM(4)
OPTIONS TO EMPLOYEES INFISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) FISCAL YEAR(%)(2) ($/SHARE)(3) DATE 5%($) 10%($)
- ---- ------------- ----------------- ------------ ---------- --------- ---------
Michael A. Daniels........ 10,000 0.74 23.50 10/25/03 64,926 143,470
Gabriel A. Battista.... -- -- -- -- -- --Battista....... 50,000 3.68 23.50 10/25/03 324,631 717,349
Donald N. Telage....... -- -- -- -- -- --Telage.......... 24,000 1.77 23.50 10/25/03 155,823 344,328
Robert J. Korzeniewski......... -- -- -- -- -- --Korzeniewski.... 36,000 2.65 23.50 10/25/03 233,734 516,491
Bruce L. Chovnick......... 10,000 0.74 23.50 10/25/03 64,926 143,470
David H. Holtzman...... 76,500 12.7 14.00 01/26/02 295,897 653,856
Raymond S. Corson...... -- -- -- -- -- --Holtzman......... 24,000 1.77 23.50 10/25/03 155,823 344,328
- ---------------
(1) Options have a maximum term of five years measured from the date of grant,
subject to earlier termination in certain events related to termination of
employment. These options vest at the rate of 30%, 30%, 20% and 20% of the
shares subject to the option on each of the first, second, third and fourth
year anniversaries of the date of grant, respectively.
(2) Based on options to purchase an aggregate of 600,5001,358,900 shares of Class A
Common Stock granted to employees, including the Named Executive Officers,
during fiscal year 1997.1998.
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14
(3) The exercise price is equal to the fair market value of the Class A Common
Stock on the date of grant as determined in the good faith judgment of the
Board of Directors.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10%
18
21 compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Class A Common Stock. The gains
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise of the options or
the sale of the underlying shares. The actual gains, if any, on the stock
option exercises will depend on the future performance of the Class A Common
Stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised.
There were no stock options exercised by the Named Executive Officers
during fiscal 1997. However, theThe following table shows the number of securities underlying unexercised
options held by each of the Named Executive Officers on December 31, 19971998 and
the value of unexercised in-the-money options held by each of the Named
Executive Officers on December 31, 1997.1998. The last reported sales price of the
Company's Class A Common Stock at fiscal year end was $13.125.$65.4375.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE TABLE
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
UPON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Michael A. Daniels......... 138,360 2,305,257 -- 102,240 -- 5,809,650
Gabriel A. Battista.......Battista........ 553,500 11,265,567 -- 419,000 -- 138,375 322,875 259,453 605,39124,167,688
Donald N. Telage.......... -- -- 46,125 107,625 -- --Telage........... 115,630 2,007,235 68,870 147,000 4,024,591 8,194,313
Robert J. Korzeniewski.... -- -- 34,590 80,710 -- --Korzeniewski..... 84,900 1,369,058 53,460 128,240 3,124,069 6,900,025
Bruce L. Chovnick.......... 56,000 1,276,169 4,000 150,000 233,750 8,600,625
David H. Holtzman.........Holtzman.......... 45,900 932,184 -- 131,100 -- -- 76,500 -- --
Raymond S. Corson......... -- -- 9,225 21,525 -- --7,265,156
- ---------------
(1) Value is calculated by (i) subtracting the exercise price per share from the
last reported sales price at fiscal year end of $13.125$65.4375 per share; and (ii)
multiplying by the number of shares subject to the option.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company does not currently have any written compensation arrangements
in effect with any of the Named Executive Officers other thanOfficers. In 1998, the Company had a
written compensation arrangement with Gabriel A. Battista, the Company's former
Chief Executive Officer.
The Company and Mr. Battista arewere parties to a letter agreement dated
September 24, 1996 governing his employment with the Company. The agreement setsset
forth Mr. Battista's compensation level and eligibility for bonuses, benefits
and option grants under the 1996 Stock Incentive Plan. Pursuant to the
agreement, if Mr. Battista's employment ishad been terminated for other than cause
or non-performance, Mr. Battista will bewould have been eligible to receive, if
terminated during his first year of employment, his first year base salary and
an additional $150,000 in bonus, and, if terminated during his second year of
employment, his first year base salary and an amount equal to the bonus awarded
to him for his first year of employment. If Mr. Battista resigns duringresigned after this
initial two-year period, and he willdid not receive any separation compensation.
Mr. Battista's
employment under the letter agreement is voluntary and may be terminated by the
Company or Mr. Battista at any time with or without cause or notice.
REPORT ON EXECUTIVE COMPENSATION
The 19971998 compensation of the Company's executive officers was generally
determined in accordance with SAIC and Company policy. The 1997 base salaries of
those executive officers hired prior to the Company's initial public offering in
September 1997 were determined in accordance with SAIC policy, while the 1997
base salaries of those executive officers hired after such time were determined
in accordance with Company policy. The bonuses for 19971998 for
all executive officers were determined in accordance with Company policy.guidelines established
by the Company's Compensation Committee. The Compensation Committee
12
15
comprises threefour non-employee members of the Board of Directors. The
19
22 members of
the Company's Compensation Committee are J. Robert Beyster (Chairman), Michael
A. Daniels, J. Dennis Heipt and Stratton D. Sclavos.
COMPENSATION PHILOSOPHY OF THE COMPANY
The Company's policy is to attract and retain key personnel through the
payment of competitive base salaries and to encourage and reward performance
through bonuses and stock ownership. The Company's objectives are to: (i) ensure
that there is an appropriate relationship between executive compensation and the
creation of stockholder value; (ii) ensure that the total compensation program
will motivate, retain and attract executives of outstanding abilities; and (iii)
ensure that current cash and equity incentive opportunities are competitive with
those of similar companies.
COMPENSATION PHILOSOPHY OF SAIC
Since its inception, SAIC has been an employee-owned corporation based upon
the philosophy that those who contribute to its success should share in its
rewards. SAIC'sThe Company's compensation policies, plans and programs have sought to
implement this employee ownership philosophy by closely aligning the financial
interest of SAIC's employees, including executive officers, with the financial
interest of its stockholders.
The compensation policy of SAIC is that a substantial portion of the
total compensation of executive officers be related to and contingent upon their
individual contribution and performance, the performance of business units under
their management and the performance of the company as a whole. In this way, SAICthe
Company has sought to encourage continuing focus on increasing its revenue,
profitability and stockholder value, while at the same time motivating its
executive officers to perform to the fullest extent of their abilities. SAICThe
Company generally sets the annual base salaries of its executive officers at or below
competitive levels, with a significant portion of an executive officer's
compensation consisting of annual and longer-term incentive compensation which
is variable and closely tied to corporate, business unit and individual
performance.
The 1997 compensation levels for the Company's executive officers generally
were determined in accordance with SAIC policy prior to the Company's initial
public offering in 1997 and prior to the formation of the Compensation
Committee. For this reason, the Compensation Committee did not undertake a
general assessment of executive compensation levels in 1997.
ELEMENTS OF EXECUTIVE OFFICER COMPENSATION
The Company's executive compensation consists primarily of a base salary
and the award of bonuses and stock options.
BASE SALARY
The 1998 annual base salaries of thoseCompany executives whose compensation was determined in
accordance with SAICCompany policy and were generally set at or below competitive levels and
a significant portion of executive officer compensation was annual and
longer-term incentive compensation, which is variable and closely tied to
corporate, business unit and individual performance. Several factors were
considered in determining base salaries for these executives, including relative
salaries of similarly situated and other executives of SAIC,the Company, individual
contribution and performance, the performance of business units under their
management and the performance of the Company as a whole.
The 1997 base salaries of those executives whose compensation was
determined in accordance with Company policy were determined at the time of
hiring on an individual basis by reference to an individual's salary grade and
corresponding salary range. Several factors are considered in determining the
appropriate salary grade for a particular officer, including level of
responsibility, prior experience and accomplishments, and the relative
importance of the job in terms of achieving corporate objectives. Among the
factors considered in determining the appropriate salary within a particular
salary range are the experience and performance of the executive.
20
23
BONUSES
Under Company policy, severalall executive officers were eligible to receive a
cash bonus for 1997 in accordance with the terms of their offers of employment.1998. Bonus amounts for all executive officers were based on a
qualitative assessment ofof: (i) the degree to which the executive officers were
able to achieve specific individual and business unit goals, and (ii) the
Company's overall performance in 1997.1998.
STOCK OPTIONS
Under Company policy, compensation based on performance of the Company's
Class A Common Stock is a key element of executive officer compensation. All
executive officers received an initial stock option grant as part of their
employment offers or prior to the Company's initial public offering in 1997. In
1998 the Company instituted a new yearly stock option grant program for the
executive officers and other employees. Each executive officer received a grant
of options under the new program. In general, stock option grants are determined
based on: (i) the executive officers' past performance and contribution to
Company performance; (ii) the expected future contribution of the executive
officers to the Company's performance; (iii) the executives' base pay level;
(iv) the number of options outstanding and the number available to be granted;
and (v) the practice of similarly situated companies. By awarding such options,
the Company seeks to encourage
13
16
individuals to remain with the Company and continue to focus on the long-term
technical and financial performance of the Company and on increasing stockholder
value.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Battista's compensation levels were determined at his time of hire and
were based on an analysis of the compensation levels of chief executive officers
of similarly situated companies, his experience and expected future contribution
to the Company, and the size and state of development of the Company. An
executive compensation consulting firm assisted in this analysis.
In 1997,1998, Mr. Battista was paid a base salary of $350,000$340,000 pursuant to the
terms of his employment agreement. Pursuant toMr. Battista resigned as an officer and
director of the terms of Mr. Battista's employment agreement,Company in November 1998 and did not receive a bonus for 1998.
Mr. Battista received a bonus for 1997 of $125,000 based on a qualitative assessment of (i)
the degreeNSOs to which Mr. Battista was able to achieve specific individual goals
and (ii) the degree to which the Company achieved certain specified revenue and
profit goals.
Mr. Battista received options in 1996 to acquire 461,250purchase 50,000 shares of the Company's Class A
Common Stock whichwith an exercise price of $23.50 per share (which was equal to the
fair market value as determined in the good faith judgment of the Board of
Directors on the date of grant) during the Company's fiscal year 1998. Such
stock options vest over four years.as to 30%, 30%, 20% and 20% on the first, second, third and
fourth year anniversaries of the date of grant, respectively. Mr. Battista
did not
receive any optionsresigned prior to the first vesting date for the NSOs he was granted in 1997.1998.
See "Summary Compensation Table" on page 1710 of this Proxy Statement.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
tax deductibility by a corporation of compensation in excess of $1 million paid
to any of its five most highly compensated executive officers. Compensation
which qualifies as "performance-based" is excluded from the $1 million limit if,
among other requirements, the compensation is payable only upon attainment of
pre-established, objective performance goals under a plan approved by
stockholders. Income arising under the Company's 1996 Stock Incentive Plan currently does not qualify as
performance-based compensation.
The Compensation Committee will continue to monitor the compensation levels
potentially payable under the Company's compensation programs, but intends to
retain the flexibility necessary to provide total compensation in line with
competitive practice, the Company's compensation philosophy and the Company's
best interests, including compensation that may not be deductible.
21
24
The foregoing report has been furnished by the Company's Compensation
Committee of the Board of Directors.
COMPENSATION COMMITTEE
J. Robert Beyster, Chairman
Michael A. Daniels
J. Dennis Heipt
Stratton D. Sclavos
14
17
RELATIONSHIP WITH SAIC AND CERTAIN TRANSACTIONS
As of March 13, 1998,12, 1999, SAIC, an employee-owned, diversified professional and
technical services company, owned 11,925,00014,850,000 shares of the Company's outstanding
Class B Common Stock, representing approximately 75.8%44.7% of the outstanding Common
Stock of the Company and approximately 96.9%89.0% of the combined voting power of the
Company's outstanding Common Stock. SAIC intends to convert all of its shares of
the Company's Class B Common Stock into an identical number of shares of Class A
Common Stock. At such time SAIC will own approximately 44.8% of the voting power
and economic interest of the Company's outstanding Common Stock. Several
officers and employees of SAIC currently serve as directors of the Company. It
is anticipated that the composition of our Board of Directors will change in
connection with the decrease of SAIC's percentage ownership and voting control.
SAIC will, however, continue to be our largest stockholder and may be able to
exercise significant influence over us.
AGREEMENTS WITH SAIC
The Company has entered into a Corporate Services Agreement and a Tax
Sharing Agreement with SAIC. Pursuant to the Corporate Services Agreement, SAIC
provides certain services to the Company and the Company shares certain of
SAIC's systems. The services SAIC provides include various routine and ordinary
corporate services, including business insurance, accounting systems, employee
benefits, payroll, tax and legal services, as well as assistance in government
relations and corporate quality assurance services. The SAIC systems that the
Company shares include the management information system and the human resource
system. The total amount paid by the Company to SAIC under this agreement for
fiscal year 19971998 was $1,126,000.$1,447,000.
The Company and SAIC are parties to the Tax Sharing Agreement, certain
provisions of which became inapplicable for federal income tax purposes for
taxable years beginning after the completion of the Company's initial public
offering in 1997, at which time the Company ceased to be included in SAIC's
consolidated group for federal income tax purposes. Upon such deconsolidation,
the Company's ability to recognize a benefit for tax losses it incurs became
subject to SAIC's approval. In addition, the Tax Sharing Agreement will continue
to apply, to the extent appropriate, for state or local tax purposes if SAIC
were to continue to file a consolidated, combined or unitary tax return with the
Company for state or local tax purposes. In general, the Tax Sharing Agreement
requires, during the period prior to deconsolidation, that the Company pay SAIC
an amount in respect of federal income taxes generally equal to the amount of
the federal income taxes that the Company generally would be required to pay if
the Company were to file its own federal income tax return and was never part of
SAIC's consolidated group. For fiscal year 1997,1998, the Company paid SAIC an amount
of $11,655,000$1,867,000 in respect of federalstate income taxes under the Tax Sharing Agreement.
In addition, the Company is a party to a noncompetitionnon-competition agreement and a
registration rights agreement with SAIC.
OTHER TRANSACTIONS WITH SAIC
In fiscal year 1997,1998, the Company provided firewall monitoring services and engineering consulting services
to third parties under subcontracts from SAIC. The Company received $2,445,449$525,000 for
these services.
In addition, in fiscal year 1997,1998, SAIC provided engineering and other
services to third parties under subcontracts from the Company for which SAIC
received $137,741.$514,000.
The Company currently has offices located in Herndon, Virginia and
Charlotte, North Carolina under space usage arrangements with SAIC. In fiscal
year 1997,1998, the Company made payments of $1,125,000$1,946,000 to SAIC under such space
usage arrangements.
22
25
DUE TO PARENT LIABILITY
The cumulative result of the transactions with SAIC outlined above as of
December 31, 19971998 was a liability due SAIC of $1,250,000.$4,766,000.
15
18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established a Compensation Committee in fiscal year 1997, the
members of which are J. Robert Beyster (Chairman), Michael A. Daniels, J. Dennis
Heipt and Stratton D. Sclavos. There are no Compensation Committee Interlocks as
that term is defined under Item 402(j) of Regulation S-K, as promulgated under
the Exchange Act, among the committee members.
2316
2619
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
return for the Company's Class A Common Stock from September 26, 1997, the
effective date of the registration statement covering the Company's initial
public offering, through December 31, 19971998 relative to the Nasdaq Stock Market
(U.S. companies)Composite
Index (the "Nasdaq MarketComposite Index") and the HambrechtStandard & Quist
TechnologyPoor's Index (the "H&Q Technology"S&P
Index"). The measurement period is from September 26, 1997 (the first trading
day) through the last trading day of the Company's fiscal year ended December
31, 1997.1998. Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, the
following graph shall not be deemed "filed" with the Commission and shall not be
incorporated by reference into any such filing. Stockholder returns over the
periods indicated should not be considered indicative of future returns.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN AMONG
NETWORK SOLUTIONS, INC.,
THE NASDAQ MARKETCOMPOSITE INDEX
AND THE H&Q TECHNOLOGYS&P INDEX(1)
[STOCK PERFORMANCE GRAPH]
THE NASDAQ STOCK MARKET
NETWORK SOLUTIONS H&Q MEASUREMENT PERIOD NETWORK TECHNOLOGY NASDAQ
(FISCAL YEAR COVERED) SOLUTIONS INDEX MARKET INDEX-U.S.
----------------- -------------------- -----------------------
9/26/97'9/28/97' 100.00 100.00 100.00
9/'12/31/97' 73.00 84.00 94.00
'3/31/98' 206.00 102.00 110.00
'6/30/97 120.83 99.51 100.20
10/98' 250.00 104.00 113.00
'9/30/98' 231.00 92.00 102.00
'12/31/97 105.56 88.88 95.00
11/30/97 90.28 87.95 95.47
12/31/97 72.94 83.90 93.9798' 727.00 131.00 132.00
- ---------------
(1) Assumes $100 invested on September 26, 1997 in the Company's Class A Common
Stock, the Nasdaq MarketComposite Index and the H&Q TechnologyS&P Index. Total return assumes
reinvestment of dividends for the Nasdaq MarketComposite Index and the H&Q
TechnologyS&P Index.
With the exception of a $10,000,000 dividend to SAIC which was declared on
August 21, 1997 and paid on October 1, 1997, the Company has never paid
dividends on its Common Stock and has no present plans to do so.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP served as independent public accountants for the
Company for fiscal year 1998. No decision has been made at this time concerning
the Company's independent public accountants for the fiscal year ending on
December 31, 1999. The Company is evaluating its options, and this issue is
under review. A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting to
17
20
make a statement if he or she desires to do so, and such representative is
expected to be available to respond to appropriate questions.
OTHER MATTERS
Proposals Intended To Be Presented at the Next Annual
Meeting. 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 24
27
intended to be presented for consideration at the Company's 19992000
Annual Meeting of Stockholders must be received by the Company no later than
December 14, 199815, 1999 in order that they may be considered for inclusion in the
proxy statement and form of proxy related to that meeting.
The Company's Bylaws also establish an advance notice procedure with
respect to certain stockholder proposals and director nominations. In the event
a stockholder wishes to nominate a candidate for election as a director, or
wishes to propose any other matter for consideration at the 2000 Annual Meeting,
other than proposals to be included in the Proxy Statement, written notice of
such intent to make such nomination or propose such action must be given to the
Secretary of the Company pursuant to certain procedures set forth in the
Company's Bylaws, a copy of which is available upon request from the Secretary
of the Company. These procedures provide, among other things, that for
nomination of directors, such nominations, other than those made by the
nominating committee on behalf of the Board of Directors, shall be made by
notice in writing delivered or mailed by first-class United States mail or a
nationally recognized courier service, postage prepaid, to the Secretary or
Assistant Secretary of the Company, and received by him not less than 120 days
prior to the 2000 Annual Meeting; provided, however, that if less than 100 days'
notice of the meeting is given to stockholders, such nomination shall have been
mailed or delivered to the Secretary or the Assistant Secretary of the Company
not later than the close of business on the 7th day following the day on which
the notice of meeting was mailed. Any such notice must contain certain specified
information concerning the proposed nomination and the stockholder submitting
the proposed matter, all as set forth in the Bylaws. For matters other than the
nomination of directors, such stockholder's notice must be delivered to or
mailed to the Company's Secretary and received at the Company's principal
executive offices not less than 50 days nor more than 75 days prior to the
scheduled 2000 Annual Meeting date; unless less than 65 days' notice or prior
public disclosure of the date of the 2000 Annual Meeting is given or made to
stockholders, in which event such notice must be received not later than the
close of business on the 15th day following the day on which such notice of the
date of the 2000 Annual Meeting was mailed or such public disclosure was made.
Any such notice must contain certain specified information concerning the
proposed matter and the stockholder submitting the proposed matter, all as set
forth in the Bylaws. The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination of any person or the
request for such other action was not made in accordance with the foregoing
procedure, and if the chairman should so determine, the chairman shall so
declare to the meeting and the defective nomination or request for such other
action shall be disregarded. If the foregoing procedures are not followed and
such request for action is nonetheless permitted, the proxy holders appointed by
the Company herein shall have discretionary voting authority with respect to
such matters at the 2000 Annual Meeting.
Other Matters. Management knows of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
Proxy Solicitation. The expense of solicitation of proxies will be borne
by the Company. In addition to solicitation of proxies by mail, certain
officers, directors and Company employees who will receive no additional
compensation for their services may solicit proxies by mail, telephone or other
means. The Company is required to request brokers and nominees who hold stock in
their name to furnish this proxy material to beneficial owners of the stock and
will reimburse such brokers and nominees for their reasonable out-of-pocket
expenses in so doing.
ANNUAL REPORT. THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 19971998 IS BEING SENT CONCURRENTLY TO THE COMPANY'S
STOCKHOLDERS. IF YOU HAVE NOT RECEIVED OR HAD ACCESS TO THE 19971998
18
21
ANNUAL REPORT TO STOCKHOLDERS, PLEASE NOTIFY INVESTOR RELATIONS, 505 HUNTMAR
PARK DRIVE, HERNDON, VIRGINIA 20170 AND A COPY WILL BE SENT TO YOU.
By Order of the Board of Directors,
GABRIELMICHAEL A. BATTISTADANIELS
Chairman of the Board and Acting
Chief Executive Officer
Herndon, Virginia
April 15, 1998
2516, 1999
19
28
ANNEX A
NETWORK SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
29
TABLE OF CONTENTS
PAGE
----
Section 1. Establishment of the Plan................................... 1
Section 2. Definitions................................................. 1
Section 3. Shares Authorized........................................... 2
Section 4. Administration.............................................. 2
Section 5. Eligibility and Participation............................... 2
Section 6. Participation Periods....................................... 2
Section 7. Purchase Price.............................................. 3
Section 8. Employee Contributions...................................... 3
Section 9. Plan Accounts; Purchase of Shares........................... 3
Section 10. Withdrawal From the Plan.................................... 3
Section 11. Effect of Termination of Employment or Death................ 4
Section 12. Rights Not Transferable..................................... 4
Section 13. Recapitalization, Etc. ..................................... 4
Section 14. Limitation on Stock Ownership............................... 4
Section 15. No Rights as an Employee.................................... 5
Section 16. Rights as a Stockholder..................................... 5
Section 17. Use of Funds................................................ 5
Section 18. Amendment or Termination of the Plan........................ 5
Section 19. Governing Law............................................... 5
30
NETWORK SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. ESTABLISHMENT OF THE PLAN.
The Network Solutions, Inc. 1997 Employee Stock Purchase Plan (the "Plan")
is hereby established to provide Eligible Employees with an opportunity to
purchase the Company's Class A Common Stock so that they may increase their
equity interest in and share in the success of the Company. The Plan, which
provides for the purchase of stock through payroll withholding, is intended to
qualify under Section 423 of the Code.
SECTION 2. DEFINITIONS.
(a) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Company" means Network Solutions, Inc., a Delaware corporation.
(d) "Compensation" means the base compensation paid to a Participant during
a Participation Period in cash or in kind including overtime, commissions and
shift differential. Incentive compensation, other bonuses and other forms of
compensation for work outside the regular work schedule are excluded.
(e) "Date of Participation" means the first day of a Participation Period.
(f) "Eligible Employee" means any Employee of a Participating Company (i)
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week and (ii) who is an Employee at the commencement
of a Participation Period.
(g) "Employee" means any common-law employee of a Participating Company.
(h) "Fair Market Value" shall mean (i) the closing price of a share of
Stock on the principal exchange on which the shares are trading on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (ii) if the shares are not traded on an exchange but are quoted
on the Nasdaq National Market or a successor quotation system, the closing price
on the Nasdaq National Market or such successor quotation system on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a share as determined by the Plan Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
(i) "Participant" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 5 hereof.
(j) "Participating Company" means the Company and such present or future
Subsidiaries of the Company as the Board of Directors shall from time to time
designate.
(k) "Participation Period" means a period during which contributions may be
made toward the purchase of Stock under the Plan, as determined pursuant to
Section 6.
(l) "Plan Account" means the account established for each Participant
pursuant to Section 9(a).
(m) "Purchase Price" means the price at which Participants may purchase
Stock under Section 5 of the Plan, as determined pursuant to Section 7.
(n) "Stock" means the Class A Common Stock of the Company.
(o) "Subsidiary" means a subsidiary corporation as defined in Section 424
of the Code.
1
31
SECTION 3. SHARES AUTHORIZED.
The maximum aggregate number of shares which may be offered under the Plan
shall be 250,000 shares of Stock, subject to adjustment as provided in Section
13 hereof.
SECTION 4. ADMINISTRATION.
(a) The Plan shall be administered by a Plan Administrator appointed by the
Board of Directors. The interpretation and construction by the Plan
Administrator of any provision of the Plan or of any right to purchase stock
qualified hereunder shall be conclusive and binding on all persons.
(b) No member of the Board or the Plan Administrator shall be liable for
any action or determination made in good faith with respect to the Plan or the
right to purchase Stock hereunder. The Plan Administrator shall be indemnified
by the Company against the reasonable expenses, including attorney's fees
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which he or she
may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any stock purchased thereunder, and against all
amounts paid by him or her in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by him or
her in satisfaction of a judgment in any such action, suit or proceeding, except
in relation to matters as to which it shall be adjudged in such action, suit or
proceeding that the Plan Administrator is liable for negligence or misconduct in
the performance of his or her duties; provided that within sixty (60) days after
institution of any such action, suit or proceeding, the Plan Administrator shall
in writing offer the Company the opportunity, at its own expense, to handle and
defend the same.
(c) All costs and expenses incurred in administering the Plan shall be paid
by the Company. The Board or the Plan Administrator may request advice for
assistance or employ such other persons as are necessary for proper
administration of the Plan. A Participant who withdraws from the Plan in
accordance with Section 10 may again become a Participant, if he or she then is
an Eligible Employee, by following the procedure described in Section 5(a).
SECTION 5. ELIGIBILITY AND PARTICIPATION.
(a) Any person who qualifies or will qualify as an Eligible Employee on the
Date of Participation with respect to a Participation Period may elect to
participate in the Plan for such Participation Period. An Eligible Employee may
elect to participate by executing the participation agreement prescribed for
such purpose by the Plan Administrator. The participation agreement shall be
filed with the Plan Administrator no later than the deadline stated on the
participation agreement, and if none is stated, then no later than the first day
of the Participation Period. The Eligible Employee shall designate on the
participation agreement the percentage of his or her Compensation which he or
she elects to have withheld for the purchase of Stock, which may be any whole
percentage of the Participant's Compensation specified by the Plan
Administrator.
(b) By enrolling in the Plan, a Participant shall be deemed to have elected
to purchase the maximum number of whole shares of Stock which can be purchased
with the amount of the Participant's Compensation which is withheld during the
Participation Period, subject to any limitations imposed by the Plan
Administrator pursuant to Section 6, and/or Section 14.
(c) Once enrolled, a Participant will continue to participate in the Plan
for each succeeding Participation Period until he or she terminates
participation or ceases to qualify as an Eligible Employee. A Participant who
withdraws from the Plan in accordance with Section 10 may again become a
Participant, if he or she then is an Eligible Employee, by following the
procedure described in Section 5(a).
SECTION 6. PARTICIPATION PERIODS.
The Plan shall be implemented by one or more Participation Periods of not
more than twenty-seven (27) months each. The Plan Administrator shall determine
the commencement date and duration of each Participation Period, the purchase
dates that may occur during a Purchase Period and the maximum number of shares
that may be purchased by a Participant during the Participation Period.
2
32
SECTION 7. PURCHASE PRICE.
The Purchase Price for each share of Stock shall be the lesser of (i)
eighty-five percent (85%) of the Fair Market Value of such share on the Date of
Participation or (ii) eighty-five percent (85%) of the Fair Market Value of such
share on the last trading day prior to the date shares are purchased.
SECTION 8. EMPLOYEE CONTRIBUTIONS.
A Participant may purchase shares of Stock solely by means of payroll
deductions. Payroll deductions, as designated by the Participant pursuant to
Section 5(a), shall commence with the first paycheck issued during the
Participation Period and shall be deducted from each subsequent paycheck
throughout the Participation Period. If a Participant desires to decrease the
rate of payroll withholding during the Participation Period, he or she may do
so, if permitted by the Plan Administrator, by filing a new participation
agreement with the Plan Administrator. Such decrease will be effective as of the
first day of the second payroll period which begins following the receipt of the
new participation agreement. If a Participant desires to increase the rate of
payroll withholding, he or she may do so effective for the next Participation
Period by filing a new participation agreement with the Plan Administrator on or
before the date specified by the Plan Administrator, and if none is stated, then
no later than the first day of the Participation Period for which such change is
to be effective.
SECTION 9. PLAN ACCOUNTS; PURCHASE OF SHARES.
(a) The Company will maintain a Plan Account on its books in the name of
each Participant. At the close of each pay period, the amount deducted from the
Participant's Compensation will be credited to the Participant's Plan Account.
(b) As of the last day of each Participation Period, the amount then in the
Participant's Plan Account will be divided by the Purchase Price, and the number
of whole shares which results (subject to the limitations described in Sections
5(b), 9(c) and 14) shall be purchased from the Company with the funds in the
Participant's Plan Account. Share certificates representing the number of shares
of Stock so purchased shall be delivered to the Plan Administrator and kept in
an account pursuant to a participation agreement between each Participant and
the Company and subject to the conditions described therein which may include a
requirement that shares of Stock be held and not sold for certain time periods.
(c) In the event that the aggregate number of shares which all Participants
elect to purchase during a Participation Period shall exceed the number of
shares remaining available for issuance under the Plan, then the number of
shares to which each Participant shall become entitled shall be determined by
multiplying the number of shares available for issuance by a fraction the
numerator of which is the sum of the number of shares the Participant has
elected to purchase pursuant to Section 5, and the denominator of which is the
sum of the number of shares which all employees have elected to purchase
pursuant to Section 5. Any cash amount remaining in the Participant's Plan
Account under these circumstances shall be refunded to the Participant.
(d) Any amount remaining in the Participant's Plan Account caused by a
surplus due to fractional shares after deducting the amount of the Purchase
Price for the number of whole shares issued to the Participant shall be carried
over in the Participant's Plan Account for the succeeding Participation Period,
without interest. Any amount remaining in the Participant's Plan Account caused
by anything other than a surplus due to fractional shares shall be refunded to
the Participant in cash, without interest.
(e) As soon as practicable following the end of each Participation Period,
the Company shall deliver to each Participant a Plan Account statement setting
forth the amount of payroll deductions, the purchase price, the number of shares
purchased and the remaining cash balance, if any.
SECTION 10. WITHDRAWAL FROM THE PLAN.
A Participant may elect to withdraw from participation under the Plan at
any time up to the last day of a Participation Period by filing the prescribed
form with the Plan Administrator. As soon as practicable after a withdrawal,
payroll deductions shall cease and all amounts credited to the Participant's
Plan Account will be
3
33
refunded in cash, without interest. A Participant who has withdrawn from the
Plan shall not be a Participant in future Participation Periods, unless he or
she again enrolls in accordance with the provisions of Section 5.
SECTION 11. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH.
(a) Termination of employment as an Eligible Employee for any reason,
including death, shall be treated as an automatic withdrawal from the Plan under
Section 10. A transfer from one Participating Company to another shall not be
treated as a termination of employment.
(b) A Participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the Participant's Account under the
Plan in the event of such Participant's death subsequent to the purchase of
shares but prior to delivery to him of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of such
Participant's death prior to the last day of a Participation Period.
(c) Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant in the
absence of a valid designation of a beneficiary who is living at the time of
such Participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the Participant; or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant; or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
SECTION 12. RIGHTS NOT TRANSFERABLE.
The rights or interests of any Participant in the Plan, or in any Stock or
moneys to which he or she may be entitled under the Plan, shall not be
transferable by voluntary or involuntary assignment or by operation of law, or
by any other manner other than as permitted by the Code or by will or the laws
of descent and distribution. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than as permitted by the Code or by will or the laws of descent and
distribution, such act shall be treated as an automatic withdrawal under Section
10.
SECTION 13. RECAPITALIZATION, ETC.
(a) The aggregate number of shares of Stock offered under the Plan, the
number and price of shares which any Participant has elected to purchase
pursuant to Section 5 and the maximum number of shares which a Participant may
elect to purchase under the Plan in any Participation Period shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt of consideration by the
Company.
(b) In the event of a dissolution or liquidation of the Company, or a
merger or consolidation to which the Company is a constituent corporation, this
Plan shall terminate, unless the plan of merger, consolidation or reorganization
provides otherwise, and all amounts which each Participant has paid towards the
Purchase Price of Stock hereunder shall be refunded, without interest.
(c) The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
SECTION 14. LIMITATION ON STOCK OWNERSHIP.
Notwithstanding any provision herein to the contrary, no Participant shall
be permitted to elect to participate in the Plan (i) if such Participant,
immediately after his or her election to participate, would own stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or any parent or Subsidiary of the Company, or
(ii) if under the terms of the Plan the rights of the Employee to purchase Stock
under this Plan and all other qualified employee stock purchase plans of the
Company or its Subsidiaries would accrue at a rate which exceeds twenty-five
thousand dollars ($25,000)
4
34
of the Fair Market Value of such Stock (determined at the time such right is
granted) for each calendar year for which such right is outstanding at any time.
For purposes of this Section 14, ownership of stock shall be determined by the
attribution rules of Section 424(d) of the Code, and Participants shall be
considered to own any stock which they have a right to purchase under this or
any other stock plan.
SECTION 15. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan shall be construed to give any person the right to
remain in the employ of a Participating Company. Each Participating Company
reserves the right to terminate the employment of any person at any time and for
any reason.
SECTION 16. RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares he or she may have a right to purchase under the Plan until the date such
shares are actually purchased for the Participant's account, subject to the
stockholders' approval of the adoption of the Plan.
SECTION 17. USE OF FUNDS.
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions in separate accounts.
SECTION 18. AMENDMENT OR TERMINATION OF THE PLAN.
The Board of Directors shall have the right to amend, modify or terminate
the Plan at any time without notice. An amendment of the Plan shall be subject
to stockholder approval only to the extent required by applicable laws,
regulations or rules.
SECTION 19. GOVERNING LAW.
The Plan shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Delaware.
To record the adoption of the Plan by the Board of Directors, effective as
November 11, 1997, and subject to stockholder approval, the Company has caused
its authorized officer to execute the same on January 6, 1998.
NETWORK SOLUTIONS, INC.
By: /s/ GABRIEL A. BATTISTA
------------------------------------
Gabriel A. Battista
Chief Executive Officer
5
35
ANNEX B
NETWORK SOLUTIONS, INC.
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE JULY 7, 1997)
36
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. INTRODUCTION.................................... 1
ARTICLE 2. ADMINISTRATION.................................. 1
2.1 Committee Composition............................ 1
2.2 Committee Responsibilities....................... 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS..................... 1
3.1 Basic Limitation................................. 1
3.2 Additional Shares................................ 2
3.3 Dividend Equivalents............................. 2
ARTICLE 4. ELIGIBILITY..................................... 2
4.1 General Rules.................................... 2
4.2 Incentive Stock Options.......................... 2
4.3 Limits on Awards................................. 2
ARTICLE 5. OPTIONS......................................... 2
5.1 Stock Option Agreement........................... 2
5.2 Number of Shares................................. 2
5.3 Exercise Price................................... 2
5.4 Exercisability and Term.......................... 2
5.5 Effect of Change in Control...................... 3
5.6 Modification or Assumption of Options............ 3
ARTICLE 6. PAYMENT FOR OPTION SHARES....................... 3
6.1 General Rule..................................... 3
6.2 Surrender of Stock............................... 3
6.3 Exercise/Sale.................................... 3
6.4 Exercise/Pledge.................................. 3
6.5 Promissory Note.................................. 3
6.6 Other Forms of Payment........................... 3
ARTICLE 7. STOCK APPRECIATION RIGHTS....................... 3
7.1 SAR Agreement.................................... 3
7.2 Number of Shares................................. 3
7.3 Exercise Price................................... 4
7.4 Exercisability and Term.......................... 4
7.5 Effect of Change in Control...................... 4
7.6 Exercise of SARs................................. 4
7.7 Modification or Assumption of SARs............... 4
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS............... 4
8.1 Time, Amount and Form of Awards.................. 4
8.2 Payment for Awards............................... 4
8.3 Vesting Conditions............................... 4
8.4 Form and Time of Settlement of Stock Units....... 4
8.5 Death of Recipient............................... 5
8.6 Creditors' Rights................................ 5
ARTICLE 9. VOTING AND DIVIDEND RIGHTS...................... 5
9.1 Restricted Shares................................ 5
9.2 Stock Units...................................... 5
ARTICLE 10. PROTECTION AGAINST DILUTION.................... 5
10.1 Adjustments...................................... 5
10.2 Reorganizations.................................. 6
37
PAGE
----
ARTICLE 11. AWARDS UNDER OTHER PLANS....................... 6
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES....... 6
12.1 Effective Date................................... 6
12.2 Elections to Receive NSOs or Stock Units......... 6
12.3 Number and Terms of NSOs......................... 6
12.4 Number and Terms of Stock Units.................. 6
ARTICLE 13. LIMITATION ON RIGHTS........................... 6
13.1 Retention Rights................................. 6
13.2 Stockholders' Rights............................. 6
13.3 Regulatory Requirements.......................... 6
ARTICLE 14. LIMITATION ON PAYMENTS......................... 7
14.1 Basic Rule....................................... 7
14.2 Reduction of Payments............................ 7
14.3 Overpayments and Underpayments................... 7
14.4 Related Corporations............................. 7
ARTICLE 15. WITHHOLDING TAXES.............................. 7
15.1 General.......................................... 7
15.2 Share Withholding................................ 8
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS............... 8
16.1 General.......................................... 8
ARTICLE 17. FUTURE OF THE PLAN............................. 8
17.1 Term of the Plan................................. 8
17.2 Amendment or Termination......................... 8
ARTICLE 18. DEFINITIONS.................................... 8
ARTICLE 19. EXECUTION...................................... 10
38
NETWORK SOLUTIONS, INC.
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE JULY 7, 1997)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on September 18, 1996, subject to
approval by the Company's stockholders. The Plan was most recently amended and
restated on July 7, 1997 to reflect the recapitalization of the common shares of
the Company.
The purpose of the Plan is to promote the long-term success of the Company
and the creation of stockholder value by (a) encouraging Key Employees to focus
on critical long-range objectives, (b) encouraging the attraction and retention
of Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Awards in the form of Restricted
Shares, Stock Units, Options (which may constitute incentive stock options or
nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. Effective with the Company's initial public offering, the Committee
shall consist of two or more directors of the Company who shall satisfy the
requirements of Rule 16b-3 (or its successor) under the Exchange Act with
respect to the grant of Awards to persons who are officers or directors of the
Company under Section 16 of the Exchange Act or the Board itself.
The Board may also appoint one or more separate committees of the Board,
each composed of one or more directors of the Company who need not qualify under
Rule 16b-3, who may administer the Plan with respect to Key Employees who are
not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Key Employees and may
determine all terms of such Awards.
2.2 Committee Responsibilities. The Committee shall:
(a) Select the Key Employees who are to receive Awards under the Plan;
(b) Determine the type, number, vesting requirements and other
features and conditions of such Awards;
(c) Interpret the Plan; and
(d) Make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares initially reserved for award under the Plan shall be 2,306,250
shares. Effective January 1, 1997 and on each January 1 thereafter for the
remaining term of the Plan, the aggregate number of Common Shares which may be
issued under the Plan to individuals shall be increased by a number of Common
Shares equal to 2% of the total number of the Class A and Class B shares of
common stock of the Company outstanding at the end of the most recently
concluded calendar year. Any Common Shares that have been reserved but not
issued as Restricted Shares, Share Units, Options or SARs during any calendar
year shall remain available for grant during any subsequent calendar year.
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Notwithstanding the foregoing, no more than 1,000,000 Common Shares shall be
available for the grant of ISOs for the remaining term of the Plan. The
limitation of this Section 3.1 shall be subject to adjustment pursuant to
Article 10.
3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or
if Options or SARs terminate for any other reason before being exercised, then
the corresponding Common Shares shall again become available for Awards under
the Plan. If SARs are exercised, then only the number of Common Shares (if any)
actually issued in settlement of such SARs shall reduce the number available
under Section 3.1 and the balance shall again become available for Awards under
the Plan. If Restricted Shares are forfeited, then such Shares shall again
become available for Awards under the Plan.
3.3 Dividend Equivalents. Any dividend equivalents distributed under the
Plan shall not be applied against the number of Restricted Shares, Stock Units,
Options or SARs available for Awards, whether or not such dividend equivalents
are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 General Rules. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. All Outside Directors shall be
eligible for making an election described in Article 12.
4.2 Incentive Stock Options. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than ten percent (10%)
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(5) of the
Code are satisfied.
4.3 Limits on Awards. No Key Employee shall receive Options or SARs to
purchase Common Shares during any fiscal year covering in excess of 1,000,000
Common Shares; provided, however, a newly hired Key Employee may receive Options
or SARs to purchase up to 1,000,000 Common Shares during the portion of the
fiscal year remaining after his or her date of hire.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan, including
but not limited to rights of repurchase and rights of first refusal. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash payment
or in consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that new Options will be granted automatically to
the Optionee when he or she exercises the prior Options.
5.2 Number of Shares. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10.
5.3 Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price of an ISO shall in no event be
less than one hundred percent (100%) of the Fair Market Value of a Common Share
on the date of grant. In the case of an NSO, a Stock Option Agreement may
specify an Exercise Price that varies in accordance with a predetermined formula
while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an
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Award may provide that the Options will not be exercisable unless the related
SARs are forfeited. NSOs may also be awarded in combination with Restricted
Shares or Stock Units, and such an Award may provide that the NSOs will not be
exercisable unless the related Restricted Shares or Stock Units are forfeited.
5.5 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES
6.1 General Rule. The entire Exercise Price for the Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have already been owned by the Optionee for such duration as
shall be specified by the Committee. Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased under the
Plan.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
payment may be made with a full recourse promissory note; provided that to the
extent required by applicable law, the par value of the Common Shares shall be
paid in cash.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
by a SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10.
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7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price.
A SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may
also be awarded in combination with Options, Restricted Shares or Stock Units,
and such an Award may provide that the SARs will not be exercisable unless the
related Options, Restricted Shares or Stock Units are forfeited. A SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
7.5 Effect of Change in Control. The Committee may determine, at the time
of granting a SAR or thereafter, that such SAR shall become fully exercisable as
to all Common Shares subject to such SAR in the event that a Change in Control
occurs with respect to the Company.
7.6 Exercise of SARs. If, on the date when a SAR expires, the Exercise
Price under such SAR is less than the Fair Market Value on such date but any
portion of such SAR has not been exercised or surrendered, then such SAR shall
automatically be deemed to be exercised as of such date with respect to such
portion. Upon exercise of a SAR, the Optionee (or any person having the right to
exercise the SAR after his or her death) shall receive from the Company (a)
Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the
Committee shall determine. The amount of cash and/or the Fair Market Value of
Common Shares received upon exercise of SARs shall, in the aggregate, be equal
to the amount by which the Fair Market Value (on the date of surrender) of the
Common Shares subject to the SARs exceeds the Exercise Price.
7.7 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
8.1 Time, Amount and Form of Awards. Awards under the Plan may be granted
in the form of Restricted Shares, in the form of Stock Units, or in any
combination of both. Restricted Shares or Stock Units may also be awarded in
combination with NSOs or SARs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs or
SARs are exercised.
8.2 Payment for Awards. To the extent that an Award is granted in the
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash an amount
equal to the par value of such Restricted Shares. To the extent that an Award is
granted in the form of Restricted Shares from the Company's treasury or in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units
shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement which may include performance
conditions. A Stock Award Agreement may provide for accelerated vesting in the
event of the Participant's death, disability or retirement or other events. The
Committee may determine, at the time of making an Award or thereafter, that such
Award shall become fully vested in the event that a Change in Control occurs
with respect to the Company.
8.4 Form and Time of Settlement of Stock Units. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both. The actual number of Stock Units
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eligible for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 10.
8.5 Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
8.6 Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
ARTICLE 9. VOTING AND DIVIDEND RIGHTS.
9.1 Restricted Shares. The holders of Restricted Shares awarded under the
Plan shall have the same voting, dividend and other rights as the Company's
other stockholders. A Stock Award Agreement, however, may require that the
holders of Restricted Shares invest any cash dividends received in additional
Restricted Shares. Such additional Restricted Shares shall be subject to the
same conditions and restrictions as the Award with respect to which the
dividends were paid. Such additional Restricted Shares shall not reduce the
number of Common Shares available under Article 3.
9.2 Stock Units. The holders of Stock Units shall have no voting rights.
Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at
the Committee's discretion, carry with it a right to dividend equivalents. Such
right entitles the holder to be credited with an amount equal to all cash
dividends paid on one Common Share while the Stock Unit is outstanding. Dividend
equivalents may be converted into additional Stock Units. Settlement of dividend
equivalents may be made in the form of cash, in the form of Common Shares, or in
a combination of both. Prior to distribution, any dividend equivalents which are
not paid shall be subject to the same conditions and restrictions as the Stock
Units to which they attach.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 Adjustments. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) The number of Stock Units included in any prior Award which has
not yet been settled;
(c) The number of Common Shares covered by each outstanding Option and
SAR; or
(d) The Exercise Price under each outstanding Option and SAR.
Except as provided in this Article 10, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
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of stock of any class, the payment of any stock or other dividend or any other
increase or decrease in the number of shares of stock of any class.
10.2 Reorganizations. In the event that the Company is a party to a
merger or other reorganization, outstanding Options, SARs, Restricted Shares and
Stock Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting and
accelerated expiration, or for settlement in cash.
ARTICLE 11. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Common Shares issued under this Plan. Such Common
Shares shall be treated for all purposes under the Plan like Common Shares
issued in settlement of Stock Units and shall, when issued, reduce the number of
Common Shares available under Article 3.
ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
12.1 Effective Date. No provision of this Article 12 shall be effective
unless and until the Board has determined to implement such provision.
12.2 Elections to Receive NSOs or Stock Units. An Outside Director may
elect to receive his or her annual retainer payments and meeting fees from the
Company in the form of cash, NSOs, Stock Units, or a combination thereof. Such
NSOs and Stock Units shall be issued under the Plan. An election under this
Article 12 shall be filed with the Company on the prescribed form and subject to
such filing deadlines and election procedures as shall be established by the
Committee.
12.3 Number and Terms of NSOs. The number of NSOs to be granted to
Outside Directors in lieu of annual retainers and meeting fees that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The terms of such NSOs shall also be determined by the Board.
12.4 Number and Terms of Stock Units. The number of Stock Units to be
granted to Outside Directors shall be calculated by dividing the amount of the
annual retainer or the meeting fee that would otherwise be paid in cash by the
arithmetic mean of the Fair Market Values of a Common Share on the ten (10)
consecutive trading days ending with the date when such retainer or fee is
payable. The terms of such Stock Units shall be determined by the Board.
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent or a Subsidiary. The Company and
its Parents and Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, and for any reason, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
13.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Articles 8, 9 and 10.
13.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
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ARTICLE 14. LIMITATION ON PAYMENTS.
14.1 Basic Rule. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 14. For purposes of this Article 14, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
14.2 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within ten (10) days of
receipt of notice. If no such election is made by the Participant within such
ten (10) day period, then the Company may elect which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this Article
14, present value shall be determined in accordance with section 280G(d)(4) of
the Code. All determinations made by the Auditors under this Article 14 shall be
binding upon the Company and the Participant and shall be made within sixty (60)
days of the date when a Payment becomes payable or transferable. As promptly as
practicable following such determination and the elections hereunder, the
Company shall pay or transfer to or for the benefit of the Participant such
amounts as are then due to him or her under the Plan and shall promptly pay or
transfer to or for the benefit of the Participant in the future such amounts as
become due to him or her under the Plan.
14.3 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
14.4 Related Corporations. For purposes of this Article 14, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 15. WITHHOLDING TAXES.
15.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any
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withholding tax obligations that arise in connection with the Plan. The Company
shall not be required to issue any Common Shares or make any cash payment under
the Plan until such obligations are satisfied.
15.2 Share Withholding. A Participant may satisfy all or part of his or
her withholding or income tax obligations by having the Company withhold all or
a portion of any Common Shares that otherwise would be issued to him or her or
by surrendering all or a portion of any Common Shares that he or she previously
acquired. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions.
ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS.
16.1 General. Except as provided in Article 15 or the Award agreement, an
Award granted under the Plan shall not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as provided in
the Award agreement, an Option or SAR may be exercised during the lifetime of
the Optionee only by him or her or by his or her guardian or legal
representative. This Article 16 shall not preclude a Participant from
designating a beneficiary who will receive any outstanding Awards in the event
of the Participant's death, nor shall it preclude a transfer of Awards by will
or by the laws of descent and distribution.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as amended and restated, shall become
effective on July 7, 1997. The Plan shall remain in effect until it is
terminated under Section 17.2, except that no ISOs shall be granted after
September 17, 2006.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. DEFINITIONS.
18.1 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
18.2 "Board" means the Company's Board of Directors, as constituted from
time to time.
18.3 "Change in Control" shall be deemed to occur upon any "person" (as
defined in Section 13(d) of the Exchange Act), other than the Company, its
Parent or Subsidiary or employee benefit plan or trust maintained by the
Company, its Parent or Subsidiary, becoming the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 50% of
the total combined voting power of the Class A and Class B common stock of the
Company outstanding at such time, without the prior approval of the Board.
18.4 "Code" means the Internal Revenue Code of 1986, as amended.
18.5 "Committee" means a committee of the Board, as described in Article
2.
18.6 "Common Share" means one share of the Class A common stock of the
Company.
18.7 "Company" means Network Solutions, Inc., a Delaware corporation, or
its successor.
18.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
18.9 "Exercise Price," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is
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subtracted from the Fair Market Value of one Common Share in determining the
amount payable upon exercise of such SAR.
18.10 "Fair Market Value" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
(c) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by independent appraisals or as otherwise
determined by the Committee in good faith on such basis as it deems
appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
Journal. Such determination shall be conclusive and binding on all persons.
18.11 "ISO" means an incentive stock option described in section 422(b) of
the Code.
18.12 "Key Employee" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor.
18.13 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
18.14 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase one Common Share.
18.15 "Optionee" means an individual or estate who holds an Option or SAR.
18.16 "Outside Director" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
18.17 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
18.18 "Participant" means an individual or estate who holds an Award.
18.19 "Plan" means the Network Solutions, Inc. 1996 Stock Incentive Plan,
as amended from time to time.
18.20 "Restricted Share" means a Common Share awarded under the Plan.
18.21 "SAR" means a stock appreciation right granted under the Plan.
18.22 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
9
47
18.23 "Stock Award Agreement" means the agreement between the Company and
the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
18.24 "Stock Option Agreement" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
18.25 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
18.26 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 19. EXECUTION.
To record the adoption of the amended and restated Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto.
NETWORK SOLUTIONS, INC.
By /s/ Gabriel A. Battista
Its Chief Executive Officer
10
4822
PROXY
NETWORK SOLUTIONS, INC.
505 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING - MAY 19, 199818, 1999
The undersigned hereby appoints Gabriel A. Battista AND Michael A. Daniels and Robert J.
Korzeniewski or each of them, proxies, each with the power of substitution, to
vote the shares of the undersigned at the Annual Meeting of Stockholders of
NETWORK SOLUTIONS, INC. on May 19, 1998,18, 1999, and any adjournments or postponements
thereof, upon all matters that may properly come before the meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
This proxy, which is solicited on behalf of the Board of Directors, will
be voted FOR each of the director nominees listed and FOR the mattersmatter described
in paragraphsparagraph 2 3 and 4 unless the stockholder specifies otherwise, in which case it
will be voted as specified. If you wish to vote in accordance with the Board of
Directors' recommendations, please sign the proxy. You need not mark any boxes.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
49
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS TO COME Please mark [X]
BEFORE THE MEETING: your votes as
indicated in
this example
1. To elect the Board of nine directors: NOMINEES: Gabriel A. 2. To approve the Company's 1997 Employee
Battista, Michael A. Daniels, Stock Purchase Plan.
FOR all nominees WITHHOLD Donald N. Telage, J. Robert
listed to the right AUTHORITY Beyster, Craig I. Fields, John
(except as marked to vote for all nominees E. Glancy, J. Dennis Heipt,
to the contrary) listed to the right William A. Roper, Jr., and FOR AGAINST ABSTAIN
Stratton D. Sclavos
[ ] [ ] [ ] [ ] [ ]
INSTRUCTION: To withhold
authority to vote for any
individual nominee, write name
or names below.
-----------------------------
3. To approve the Company's 1996 Stock 4. To ratify the designation
Incentive Plan, as amended. of Price Waterhouse LLP
as independent
accountants of the
FOR AGAINST ABSTAIN Company for the period
[ ] [ ] [ ] ending December 31, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated:_______________, 1998
---------------------------
---------------------------23
The Board of Directors recommends a vote FOR the following matters to come
before the meeting.
Please mark [X]
your votes as
indicated in
this sample
1. To elect the Board of eight directors: NOMINEES: Michael A. Daniels,
Donald N. Telage, J. Robert
FOR all nominees WITHHOLD Beyster, Craig I. Fields, John E.
listed to the right AUTHORITY Glancy, J. Dennis Heipt, William A.
(except as marked to vote for all Roper, Jr., and Stratton D. Sclavos.
to the contrary) nominees listed to
the right INSTRUCTION To withhold authority to
[ ] [ ] vote for any individual nominee,
write name or names below.
___________________________________
2. To approve an amendment to the Company's Certificate of Incorporation to
reclassify the Class A Common Stock and Class B Common Stock and to increase
the number of the authorized shares of the Company's Capital Stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated:_______________________________________, 1999
___________________________________________________
___________________________________________________
Signature(s) of Stockholder or Stockholders
(Executors, Administrators, Trustees, etc. should
give full title.)
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU
ARE URGED TO MARK, SIGN, DATE AND PROMPTLY RETURN
THIS PROXY, USING THE ENCLOSED ENVELOPE.
_______________________________________________________________________________
- FOLD AND DETACH HERE -