<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NETWORK SOLUTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NETWORK SOLUTIONS, INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1999
---------------------
To the Stockholders of Network Solutions, Inc.:
The Annual Meeting of Stockholders of Network Solutions, Inc. (the
"Company") will be held on May 18, 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 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 Second Amended and
Restated Certificate of Incorporation to reclassify the Company's
Class A common stock, par value $0.001 per share, and Class B common
stock, par value $0.001 per share, 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 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 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
19, 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 ten 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,
1998 accompanies this Notice of Annual Meeting and Proxy Statement.
By Order of the Board of Directors
MICHAEL A. DANIELS
Chairman of the Board and
Acting Chief Executive Officer
Herndon, Virginia
April 16, 1999
<PAGE> 3
NETWORK SOLUTIONS, INC.
505 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 742-0400
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 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 18, 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, 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 19, 1999 will be entitled to vote at the Annual Meeting. As of
the close of business on March 19, 1999, there were 18,384,634 outstanding
shares of Class A Common Stock held by 105 stockholders of record and 14,850,000
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 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 ten 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
<PAGE> 4
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 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 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 shares of Common Stock and
10,000,000 shares shall be shares of the 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 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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<PAGE> 5
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide for a variable board consisting of one or
more members. On April 7, 1999 the Board of Directors by resolution changed the
exact number of directors from nine to eight, until changed by resolution of the
Board of Directors.
At the Annual Meeting, a Board of 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 12, 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:
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND PRIOR BUSINESS EXPERIENCE
- --------------------- --- ------------------------------------------------------------
<S> <C> <C>
Michael A. Daniels 53 Mr. Daniels has served as Chairman of the Board of the
Company since 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 Group Senior Vice President of SAIC from 1991 to 1993.
Donald N. Telage 54 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 74 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 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.
</TABLE>
3
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<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION AND PRIOR BUSINESS EXPERIENCE
- --------------------- --- ------------------------------------------------------------
<S> <C> <C>
Craig I. Fields 52 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, Muzak Incorporated and Firearms
Training Systems, Inc.
John E. Glancy 52 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 56 Mr. Heipt has served as a director of the Company since
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 37 Mr. Sclavos has served as a director of the Company since
1997. Mr. Sclavos has served as President, Chief Executive
Officer and director of VeriSign, Inc., a provider of
digital certificate services, since 1995. From 1993 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.
</TABLE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Company's Board of Directors held nine meetings during fiscal year
1998. Each director attended at least 75% of the aggregate number of meetings
of: (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 four meetings in fiscal year 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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<PAGE> 7
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 1998
were William A. Roper, Jr. (Chairman), Craig I. Fields and John E. Glancy.
The Compensation Committee held five meetings in fiscal year 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 October 1998, Mr. Daniels
received NSOs to purchase 10,000 shares of the Company's Class A Common Stock
with 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 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
5
<PAGE> 8
PROPOSAL NUMBER 2
PROPOSAL TO AMEND THE COMPANY'S SECOND AMENDED AND RESTATED 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 AND TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S CAPITAL
STOCK
The Board of Directors has approved the amendment of 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, 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 shares of Common Stock and
10,000,000 shares shall be shares of Preferred Stock. The Board of Directors
recommends that the Company's stockholders approve this amendment.
As of March 12, 1999, the Company had 33,234,634 shares of Common Stock
outstanding of which 18,384,634 shares were shares of Class A Common Stock and
14,850,000 shares were shares of Class B Common stock. An additional 5,156,474
shares of Class A Common Stock were 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 purchase. An
additional 14,850,000 shares were reserved for issuance on conversion of shares
of Class B Common Stock. The remaining 61,608,892 shares of Class A Common Stock
were unreserved.
Currently, the Company has two classes of common stock, Class A Common
Stock and 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 while holders of Class B Common
Stock are entitled to 10 votes per share on all matters to be voted on by
stockholders. All of the outstanding shares of Class B Common Stock are held by
SAIC. SAIC intends to convert all of its 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 Board has determined
that it is in the best interests of the Company and its stockholders 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 the
Company's best interests to increase the number of authorized shares of 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 for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable without further action by the Company's
stockholders, except as may be required 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
6
<PAGE> 9
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 Board of Directors
and the stockholders.
The text of Paragraph A of Article IV of the Certificate of Incorporation,
as it is proposed to be amended pursuant to this proposal, is as follows:
A. The total number of shares of stock that the Corporation
shall have authority to issue is two hundred twenty million
(220,000,000) of which (i) two hundred ten million (210,000,000)
shares shall be shares 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 effective date of this Amendment, each
outstanding share of the Company's Class A common stock, par value
$0.001 per share, and Class B common stock, par value $0.001 per
share, shall be automatically reclassified and converted into one
share of Common Stock.
REQUIRED APPROVAL AND EFFECTIVE DATE
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 a majority of the outstanding 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
Certificate of Incorporation will become 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 remaining
shares of Class B Common Stock into Class A Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT OF
ARTICLE IV OF THE COMPANY'S CERTIFICATE OF INCORPORATION.
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 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 10 of this Proxy Statement),
and (iv) all directors and executive officers of the Company as a group. SAIC
currently owns 14,850,000 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 18,384,634 shares of Class A Common Stock, representing
the total number of shares of Class A Common Stock outstanding as of March 12,
1999 and assuming conversion of the 14,850,000 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 12, 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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<PAGE> 10
within 60 days of March 12, 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).
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENT(2)
- --------------------------- ------------------ ----------
<S> <C> <C>
Principal Stockholders:
Science Applications........................................ 14,850,000 44.7%
International Corporation (SAIC)(3)
10260 Campus Point Drive
San Diego, CA 92121
Pilgrim Baxter & Associates, Ltd(4)......................... 1,331,600 7.2%
825 Duportail Road
Wayne, PA 19087
Directors and Named Executive Officers:
J. Robert Beyster........................................... 3,600 *
Bruce L. Chovnick(5)........................................ 4,294 *
Michael A. Daniels.......................................... 29,560 *
Craig I. Fields(6).......................................... 900 *
John E. Glancy.............................................. 3,000 *
J. Dennis Heipt............................................. 0 *
David H. Holtzman(7)........................................ 13,504 *
Robert J. Korzeniewski(8)................................... 25,842 *
William A. Roper, Jr........................................ 2,000 *
Stratton D. Sclavos(9)...................................... 22,900 *
Donald N. Telage(10)........................................ 39,488 *
All current executive officers and directors as a group (15
persons)(11).............................................. 162,816 *
</TABLE>
- ---------------
* 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.
(2) Applicable percentage ownership is based on 18,384,634 shares of Class A
Common Stock outstanding as of March 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 12, 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 the closing of the offering
conducted pursuant to such registration statement on February 12, 1999.
Represents 14,850,000 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 12, 1999.
(4) Based on a filing with the Commission dated March 10, 1999. Includes sole
power to vote or to direct the vote of 1,230,000 shares of Class A Common
Stock, and sole power to direct the disposition of 1,331,600 shares of
Class A Common Stock.
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<PAGE> 11
(5) Includes 4,000 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 12, 1999 and 294 shares purchased under
the Company's Employee Stock Purchase Plan.
(6) Represents 900 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 12, 1999.
(7) Includes 13,074 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 12, 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 12, 1999 and 1,338 shares purchased
under the Company's Employee Stock Purchase Plan.
(9) Includes 21,900 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 12, 1999.
(10) Includes 8,398 shares of Class A Common Stock issuable pursuant to options
exercisable within 60 days of March 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 an aggregate of 71,230 shares of Class A Common Stock issuable
pursuant to options exercisable within 60 days of March 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.
9
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides, for the fiscal year ended December 31, 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, 1998 and whose salary and bonus
were in excess of $100,000 for services rendered to the Company during the
fiscal year ended December 31, 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1)(2) BONUS($) AWARDS($)(3) OPTIONS(#)(4) COMPENSATION($)(5)
--------------------------- ---- --------------- -------- ------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Daniels(6)........ 1998 -- -- -- 10,000 --
Acting Chief Executive
Officer
Gabriel A. Battista(7)....... 1998 434,281 -- -- 50,000 15,293
Chief Executive Officer 1997 350,000 125,000 -- -- --
1996 60,577(7) 37,500 -- 922,500 --
Donald N. Telage............. 1998 188,999 85,000 -- 24,000 15,293
Senior Vice President, 1997 173,462 67,500(2) -- -- 14,867
Internet Relations and 1996 165,719 35,010(8) 29,984(9) 307,500 13,209
Special Programs
Robert J. Korzeniewski....... 1998 165,462 90,000 -- 36,000 14,880
Chief Financial Officer and 1997 148,077 60,000 -- -- 12,945
Acting Chief Operating
Officer 1996 120,731 20,011 19,989(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(12)........ 1998 157,615 70,000 -- 24,000 7,934
Senior Vice President, 1997 128,346 60,000 -- 153,000 --
Engineering
</TABLE>
- ---------------
(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; --
10
<PAGE> 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 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 1998 salary 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.
(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.
(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.
(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 $142,000.
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1998 to the Company's Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES IN EXERCISE OR OPTION TERM(4)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR(%)(2) ($/SHARE)(3) DATE 5%($) 10%($)
- ---- ------------- ----------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Daniels........ 10,000 0.74 23.50 10/25/03 64,926 143,470
Gabriel A. Battista....... 50,000 3.68 23.50 10/25/03 324,631 717,349
Donald N. Telage.......... 24,000 1.77 23.50 10/25/03 155,823 344,328
Robert J. 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......... 24,000 1.77 23.50 10/25/03 155,823 344,328
</TABLE>
- ---------------
(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 1,358,900 shares of Class A
Common Stock granted to employees, including the Named Executive Officers,
during fiscal year 1998.
11
<PAGE> 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% 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.
The following table shows the number of securities underlying unexercised
options held by each of the Named Executive Officers on December 31, 1998 and
the value of unexercised in-the-money options held by each of the Named
Executive Officers on December 31, 1998. The last reported sales price of the
Company's Class A Common Stock at fiscal year end was $65.4375.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
UPON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Daniels......... 138,360 2,305,257 -- 102,240 -- 5,809,650
Gabriel A. Battista........ 553,500 11,265,567 -- 419,000 -- 24,167,688
Donald N. Telage........... 115,630 2,007,235 68,870 147,000 4,024,591 8,194,313
Robert J. 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.......... 45,900 932,184 -- 131,100 -- 7,265,156
</TABLE>
- ---------------
(1) Value is calculated by (i) subtracting the exercise price per share from the
last reported sales price at fiscal year end of $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. 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 were parties to a letter agreement dated
September 24, 1996 governing his employment with the Company. The agreement set
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 had been terminated for other than cause
or non-performance, Mr. Battista would 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. Mr. Battista resigned after this
initial two-year period, and he did not receive any separation compensation.
REPORT ON EXECUTIVE COMPENSATION
The 1998 compensation of the Company's executive officers was generally
determined in accordance with SAIC and Company policy. The bonuses for 1998 for
all executive officers were determined in accordance with guidelines established
by the Company's Compensation Committee. The Compensation Committee
12
<PAGE> 15
comprises four non-employee members of the Board of Directors. The 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.
The Company's compensation policy 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, the
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. The
Company generally sets the annual base salaries of its executive officers at
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.
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 Company executives was determined in
accordance with Company policy and were generally set at 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 the Company, individual
contribution and performance, the performance of business units under their
management and the performance of the Company as a whole.
BONUSES
Under Company policy, all executive officers were eligible to receive a
cash bonus for 1998. Bonus amounts for all executive officers were based on a
qualitative assessment of: (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 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
<PAGE> 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 1998, Mr. Battista was paid a base salary of $340,000 pursuant to the
terms of his employment agreement. Mr. Battista resigned as an officer and
director of the Company in November 1998 and did not receive a bonus for 1998.
Mr. Battista received NSOs to purchase 50,000 shares of the Company's Class A
Common Stock with 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 as to 30%, 30%, 20% and 20% on the first, second, third and
fourth year anniversaries of the date of grant, respectively. Mr. Battista
resigned prior to the first vesting date for the NSOs he was granted in 1998.
See "Summary Compensation Table" on page 10 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 1996 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.
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
<PAGE> 17
RELATIONSHIP WITH SAIC AND CERTAIN TRANSACTIONS
As of March 12, 1999, SAIC, an employee-owned, diversified professional and
technical services company, owned 14,850,000 shares of the Company's outstanding
Class B Common Stock, representing approximately 44.7% of the outstanding Common
Stock of the Company and approximately 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 1998 was $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 1998, the Company paid SAIC an amount
of $1,867,000 in respect of state income taxes under the Tax Sharing Agreement.
In addition, the Company is a party to a non-competition agreement and a
registration rights agreement with SAIC.
OTHER TRANSACTIONS WITH SAIC
In fiscal year 1998, the Company provided engineering consulting services
to third parties under subcontracts from SAIC. The Company received $525,000 for
these services.
In addition, in fiscal year 1998, SAIC provided engineering and other
services to third parties under subcontracts from the Company for which SAIC
received $514,000.
The Company currently has offices located in Herndon, Virginia and
Charlotte, North Carolina under space usage arrangements with SAIC. In fiscal
year 1998, the Company made payments of $1,946,000 to SAIC under such space
usage arrangements.
DUE TO PARENT LIABILITY
The cumulative result of the transactions with SAIC outlined above as of
December 31, 1998 was a liability due SAIC of $4,766,000.
15
<PAGE> 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.
16
<PAGE> 19
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, 1998 relative to the Nasdaq Composite
Index (the "Nasdaq Composite Index") and the Standard & Poor's Index (the "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, 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 COMPOSITE INDEX
AND THE S&P INDEX(1)
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
THE NASDAQ STOCK MARKET
NETWORK SOLUTIONS H&Q TECHNOLOGY INDEX -U.S.
----------------- -------------------- -----------------------
<S> <C> <C> <C>
'9/28/97' 100.00 100.00 100.00
'12/31/97' 73.00 84.00 94.00
'3/31/98' 206.00 102.00 110.00
'6/30/98' 250.00 104.00 113.00
'9/30/98' 231.00 92.00 102.00
'12/31/98' 727.00 131.00 132.00
</TABLE>
- ---------------
(1) Assumes $100 invested on September 26, 1997 in the Company's Class A Common
Stock, the Nasdaq Composite Index and the S&P Index. Total return assumes
reinvestment of dividends for the Nasdaq Composite Index and the S&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
<PAGE> 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 intended to be presented for consideration at the Company's 2000
Annual Meeting of Stockholders must be received by the Company no later than
December 15, 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, 1998 IS BEING SENT CONCURRENTLY TO THE COMPANY'S
STOCKHOLDERS. IF YOU HAVE NOT RECEIVED OR HAD ACCESS TO THE 1998
18
<PAGE> 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,
MICHAEL A. DANIELS
Chairman of the Board and Acting
Chief Executive Officer
Herndon, Virginia
April 16, 1999
19
<PAGE> 22
PROXY
NETWORK SOLUTIONS, INC.
505 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING - MAY 18, 1999
The undersigned hereby appoints 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 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 matter described
in paragraph 2 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)
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<PAGE> 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.
_______________________________________________________________________________
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