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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Definitive Additional
Materials
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) [_] Soliciting Material Pursuant
[X] Definitive Proxy Statement to Section 240.14a-11(c) or
Section 240.14a-12
DATA RETURN CORPORATION
(Name of Registrant as Specified In Its Charter)
DATA RETURN CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1)Title of each class of securities to which transaction applies:
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2)Aggregate number of securities to which transaction applies:
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3)Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:/1/
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4)Proposed maximum aggregate value of transaction:
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5)Total fee paid:
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/1/Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO OF DATA RETURN CORPORATION]
DATA RETURN CORPORATION
222 West Las Colinas Boulevard, Suite 450
Irving, Texas 75039
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 20, 2000
To our Shareholders:
The annual meeting of shareholders of Data Return Corporation, a Texas
corporation (the "Company"), will be held on Wednesday, September 20, 2000, at
10:00 a.m., local time, at the Marriott Hotel, 223 West Las Colinas Boulevard,
Irving, Texas, for the following purposes:
1. To elect two directors to the class of directors whose three-year term
will expire in 2003 and one director to the class of directors whose
three-year term will expire in 2001;
2. To approve an amendment to the Company's 1999 Long-Term Incentive Plan to
increase the number of shares of Common Stock reserved for issuance under
the plan by 1,772,000, from 3,228,000 to 5,000,000 shares; and
3. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on August 9, 2000 as
the record date for the determination of shareholders entitled to notice of
and to vote at the annual meeting or any adjournment thereof. Only holders of
record of Common Stock at the close of business on the record date are
entitled to notice of and to vote at the meeting. A complete list of such
shareholders will be available for examination at the offices of the Company
in Irving, Texas during normal business hours for a period of 10 days prior to
the meeting.
A record of the Company's activities during its fiscal year ended March 31,
2000 and financial statements for the fiscal year then ended are contained in
the accompanying 2000 Annual Report. The Annual Report does not form any part
of the material for solicitation of proxies.
All shareholders are cordially invited to attend the meeting. Shareholders
are urged, whether or not they plan to attend the meeting, to sign, date and
mail the enclosed proxy or voting instruction card in the postage-paid
envelope provided. If a shareholder who has returned a proxy attends the
meeting in person, such shareholder may revoke the proxy and vote in person on
all matters submitted at the meeting.
By Order of the Board of Directors
Mark Gunnin
Vice President--General Counsel and
Secretary
Irving, Texas
August 23, 2000
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[LOGO OF DATA RETURN CORPORATION]
DATA RETURN CORPORATION
222 West Las Colinas Boulevard, Suite 450
Irving, Texas 75039
PROXY STATEMENT
For Annual Meeting of Shareholders
To Be Held on September 20, 2000
GENERAL
This proxy statement is furnished to shareholders of Data Return Corporation
(the "Company") in connection with the solicitation by the Board of Directors
of the Company of proxies for use at the annual meeting of shareholders to be
held at the time and place and for the purposes set forth in the accompanying
notice. The approximate date of mailing of this proxy statement and the
accompanying proxy or voting instruction card is August 25, 2000.
Proxy Cards
If a proxy card is enclosed, it serves to appoint proxies for record holders
of Common Stock, par value $.001 per share ("Common Stock"), of the Company.
Shares represented by a proxy in such form, duly executed and returned to the
Company and not revoked, will be voted at the meeting in accordance with the
directions given. If no direction is made, the proxy will be voted for
election of the directors named in the proxy. Any shareholder giving a proxy
may revoke it at any time before it is voted by communicating such revocation
in writing to the Secretary of the Company or by executing and delivering a
later-dated proxy.
Quorum and Voting
The presence at the meeting, in person or by proxy, of the holders of a
majority of the Common Stock issued and outstanding and entitled to vote
thereat is necessary to constitute a quorum to transact business. Each share
represented at the meeting in person or by proxy will be counted for purposes
of determining whether a quorum is present. In deciding all matters, a holder
of Common Stock on the record date shall be entitled to cast one vote for each
share of Common Stock then registered in such holder's name.
The two candidates for election as directors in the class whose term expires
in 2003 and the one candidate for election as a director in the class whose
term expires in 2001 who receive the highest number of affirmative votes will
be elected. Passage of Proposal No. 2 requires the affirmative vote of a
majority of shares of Common Stock present in person or represented by proxy
at the meeting and entitled to vote on the proposals. The inspector of
elections appointed for the meeting will tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions will be counted towards a
quorum and have the same effect as negative votes with regard to Proposal 2.
In the event that a broker indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, such
broker non-votes will also be counted towards a quorum but will not be counted
in determining whether Proposal 2 is approved.
VOTING SECURITIES
The only voting security of the Company outstanding is its Common Stock.
Only holders of record of Common Stock at the close of business on August 9,
2000, the record date for the meeting, are entitled to notice of and to vote
at the meeting. On the record date for the meeting, there were 35,549,673
shares of Common Stock outstanding and entitled to be voted at the meeting.
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PROPOSAL NO. 1--ELECTION OF DIRECTORS
The Articles of Incorporation and Bylaws of the Company provide for three
classes of directors, each of which serves a three-year term. Pursuant to the
Company's Bylaws, the number of directors has been established by resolution
of the Board at five. One vacancy on the Board will remain after the meeting.
The vacancy was created when T. Geir Ramleth resigned from the Board.
The Board of Directors has nominated Jason A. Lochhead and Joseph M. Grant
from the class of directors whose term expires at the 2000 annual meeting for
re-election as directors of the Company to serve three-year terms expiring in
2003. In addition, the Board has elected Robert Ted Enloe, III to fill the
vacancy created when T. Geir Ranleth resigned from the Board, and the
shareholders are being asked to ratify such election. All duly submitted and
unrevoked proxies in the form enclosed will be voted for the nominees selected
by the Board of Directors, except where authorization so to vote is withheld.
Information with respect to the directors nominated for election this year,
and the directors whose terms do not expire at the 2000 annual meeting, is
presented below.
Nominees For Directors
Class Whose Term Expires In 2003
Jason A. Lochhead, a co-founder of the Company, has served as Vice
President--Chief Technology Officer since November 1999 and previously served
as Vice President--Research and Product Development. Mr. Lochhead has served
as a director since the Company's inception. From September 1996 until August
1997, Mr. Lochhead was an independent consultant. Previously, from September
1995 to September 1996, while employed by Software Spectrum, Mr. Lochhead
served as an independent consultant to Microsoft where he served as a product
support engineer for Microsoft Mail and Microsoft Exchange. While at Software
Spectrum, Mr. Lochhead also served as the Microsoft Mail Gateway team lead for
the period from March 1996 to September 1996. From July 1993 to September
1995, Mr. Lochhead was a System Administrator at Hughes Training, a division
of Hughes Aircraft. Mr. Lochhead is a Microsoft Certified Systems Engineer.
Joseph M. Grant has served as a director since April 2000. Mr. Grant has
been Chairman of the Board and Chief Executive Officer of Texas Capital
Bancshares, Inc. since April 1998. Mr. Grant served as Chief Financial Officer
of Electronic Data Systems, Inc. ("EDS") from December 1990 to March 31, 1998
and an Executive Vice President since the consummation of the split-off of EDS
from General Motors Corporation on June 7, 1996. Prior to that time he had
been a Senior Vice President of EDS since February 1992. Prior to joining EDS
in December 1990, he served as executive vice president and chief systems
officer for American General Corporation from 1989 to 1990 and as chairman of
the board and chief executive officer of Texas American Bancshares Inc. from
1986 to 1989. Mr. Grant has a bachelor's degree from Southern Methodist
University. Mr. Grant also earned a M.B.A. in finance and a Ph.D. in finance
and economics from the University of Texas at Austin.
Class Whose Term Expires In 2001
Robert Ted Enloe, III has served as a director since August 2000. Mr. Enloe
has been managing partner of Balquita Partners, Ltd., a real estate and
securities investment partnership, since 1996. Mr. Enloe served as a member of
the Officer of the Chief Executive of Compaq from April to July 1999. From
1975 to 1996 he was President, and from 1992 to 1996 Chief Executive Officer,
of Liberte Investors, Inc. Mr. Enloe is also a director of Leggett & Platt,
Inc., SierraCities.com Inc., Advanced Switching Communications, Inc. and
Compaq Computer Corporation.
Continuing Directors
Class Whose Term Expires In 2001
Michelle R. Chambers, a co-founder of the Company, has served as President
and a director since the Company's inception and was appointed Chief Operating
Officer in April 1998. Before founding Data Return,
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from October 1996 to March 1997, Ms. Chambers was a Consultant at Microsoft,
where she was a member of the Microsoft Consulting team responsible for the
design and development of the migration plan for Audionet's (now Yahoo!
Broadcast) platform conversion from Unix to Windows NT. Prior thereto, Ms.
Chambers served as a product support engineer at Microsoft from February 1995
to October 1996, and was the Corporate E-mail Coordinator for Arco Exploration
and Production Technology from August 1993 to February 1995. Ms. Chambers is a
Microsoft Certified Systems Engineer. Ms. Chambers graduated magna cum laude
from the University of North Texas with a Bachelor in Business Administration
in Business Computer Information Systems.
Class Whose Term Expires In 2002
Sunny C. Vanderbeck, a co-founder of the Company, has served as Chairman of
the Board and Chief Executive Officer since the Company's incorporation in
August 1997. Before founding Data Return, from July 1996 to January 1997, Mr.
Vanderbeck was a technical product manager and Lead Internet/Intranet
Consultant for Software Spectrum, a reseller of Microsoft products. From May
1995 to June 1996, while employed by Software Spectrum, Mr. Vanderbeck served
as an independent consultant to Microsoft where he served as a team leader for
Microsoft Messaging products and as a product support engineer. From July 1994
to May 1995, Mr. Vanderbeck was an independent consultant. From 1990 to 1994,
Mr. Vanderbeck served as a Section Leader in the 2nd Ranger Battalion, a U.S.
Army Special Operations unit. Mr. Vanderbeck was a regional finalist for the
Ernst & Young Entrepreneur of the Year award and is a Microsoft Certified
Systems Engineer.
Board Meetings and Committees
During fiscal 2000, the Board of Directors held seven meetings, including
actions taken by unanimous consent. The Company has standing audit and
compensation committees of the Board of Directors. The current members of the
committees, number of meetings held by each committee in fiscal 2000, and a
brief description of the functions performed by each committee are set forth
below:
Audit Committee (2 meetings). Joseph M. Grant and Robert Ted Enloe, III.
The primary responsibilities of the audit committee are to review with the
Company's auditors the scope of the audit procedures to be applied in
conducting the annual audit and the results of the annual audit. Mr. Grant
joined the audit committee in April and August 2000, respectively. Prior
thereto, Nathan Landow and Geir Ramleth served on the audit committee.
Compensation Committee (0 meetings). Joseph M. Grant, Michelle R. Chambers
and Robert Ted Enloe, III. The compensation committee was formed within 90
days after the October 1999 initial public offering, which was after
compensation has been set for fiscal 2000. The primary responsibilities of the
compensation committee are to review and set the compensation levels of the
officers of the Company, including those officers who are also directors,
evaluate the performance of management, consider management succession and
related matters, administer the annual compensation plans of the Company and
administer the long-term incentive compensation plans of the Company. Mr.
Grant joined the compensation committee in April and August 2000,
respectively. Prior thereto, Nathan Landow and Geir Ramleth served on the
compensation committee.
Compensation Committee Interlocks and Insider Participation. Except for Ms.
Chambers, no officer or employee of the Company or its subsidiaries is a
member of the Company's compensation committee.
Compensation of Directors
The Company does not pay cash fees to any of its directors for serving on
the Board of Directors. However, the Company does reimburse directors for
travel, lodging and related expenses they may incur in attending Board and
committee meetings. In addition, under the 1999 Long-Term Incentive Plan,
which was approved and ratified by shareholders in fiscal 2000, non-employee
directors currently receive a one-time grant of an option to purchase 25,000
shares of Common Stock. The options are granted at fair market value on the
grant date and vest in three equal annual installments beginning one year
after the grant date and expire on the earlier of one-year after ceasing to
serve on the Board and the expiration of 10 years from the grant date.
The Board of Directors recommends a vote FOR the election of each of the
nominated directors.
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PROPOSAL NO. 2--AMENDMENT OF 1999 LONG-TERM INCENTIVE PLAN
The shareholders are being asked to approve an amendment to the 1999 Long-
Term Incentive Plan (the "Incentive Plan") to increase the number of shares
reserved for issuance thereunder by 1,772,000, or approximately 4.9% of the
total outstanding shares of Common Stock on August 9, 2000.
The Board believes that the increase in the number of shares reserved for
issuance under the Incentive Plan is in the best interest of the Company
because of the continuing need to provide stock options to attract and retain
quality employees and remain competitive in the industry. The granting of
equity incentives under the Incentive Plan plays an important role in the
Company's efforts to attract and retain employees of outstanding ability. The
Board believes that the additional reserve of shares with respect to which
equity incentives may be granted will provide the Company with adequate
flexibility to ensure that the Company can continue to meet its goals and
facilitate expansion of the Company's employee base.
The Board of Directors approved the proposed amendment as of August 17,
2000, to be effective on shareholder approval. A summary of the principal
provisions of the Incentive Plan, assuming shareholder approval of the
amendment, is set forth below.
Incentive Plan History
The Incentive Plan was adopted by the Board of Directors and approved by the
shareholders in July 1999. Originally it covered 3,228,000 shares of Common
Stock. The purpose of the Incentive Plan is to offer eligible persons an
opportunity to participate in the Company's future performance through awards
of stock options, restricted stock and stock bonuses.
From inception of the Incentive Plan to August 23, 2000, options to purchase
an aggregate of 2,321,888 shares of Common Stock were granted under the
Incentive Plan. Of these, options were granted to the executive officers
identified in the Summary Compensation Table below, as follows: Sunny C.
Vanderbeck, 25,000 shares, Michelle R. Chambers, 25,000 shares, Michael S.
Shiff, 25,000 shares, Stuart A. Walker, 25,000, and J. Todd Steitle, 122,600
shares. During the same period, the Company's executive officers as of August
9, 2000 as a group (12 persons, including those listed above) were granted
options to purchase a total of 660,825 shares, all of the Company's employees
as of August 9, 2000, including officers who are not executive officers, as a
group had been granted options to purchase a total of 1,660,563 shares, and
the current directors who are not executive officers as a group (two persons)
were granted 50,000 options. No options were granted during the period under
the Incentive Plan to any associate of any executive officer or director of
the Company, and no person received 5% or more of such options other than
Mr. Prosen and Mr. Steitle.
Shares Subject to the Incentive Plan
The shares subject to issuance under the Incentive Plan consist of
authorized but unissued shares of Common Stock. After taking into account the
proposed amendment, the Board has reserved a total of 5,000,000 shares of
Common Stock.
If any option granted pursuant to the Incentive Plan expires or terminates
for any reason without being exercised in whole or in part, or any award
granted thereunder terminates without shares being issued, the shares released
from such award will again become available for grant and purchase under the
Incentive Plan. In the event that shares issued pursuant to awards granted
under the Incentive Plan are repurchased at the original issue price, such
shares will also again become available for grant and purchase under the
Incentive Plan. The number of shares is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.
Awards. The Incentive Plan provides for the discretionary grant of
incentive stock options ("ISOs"), within the meaning of Section 422 of the
Internal Revenue Code of 1986 (the "Code"), to employees and for the grant of
nonstatutory stock options ("NQSOs"), stock appreciation rights, performance
awards, dividend equivalents, stock payments and restricted stock to employees
and consultants ("Participants"). The Incentive Plan provides that the Company
cannot issue ISOs after June 2009.
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Administration. The Incentive Plan may be administered by the Board or a
board committee. The administrator has the power to determine the terms of the
options or other awards granted, including the exercise price of the options
or other awards, the number of shares subject to each option or other award
(up to 269,000 shares per year per participant), the exercisability thereof
and the form of consideration payable upon exercise. In addition, the
administrator has the authority to amend, suspend or terminate the Incentive
Plan, provided that no such action may affect any share of Common Stock
previously issued and sold or any option previously granted under the
Incentive Plan without the consent of the holder.
General. The exercise price of all ISOs granted under the Incentive Plan
must be at least equal to the fair market value of the Common Stock on the
date of grant. The exercise price of NQSOs and other awards granted under the
Incentive Plan is determined by the administrator, but the exercise price of
NQSOs must be at least 50% of the fair market value of the Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of the Company's outstanding
capital stock, the exercise price of any ISO granted must be at least equal to
110% of the fair market value on the grant date and the term of such ISO must
not exceed five years. The term of all other options granted under the
Incentive Plan may not exceed ten years.
Options and other awards granted under the Incentive Plan are generally not
transferable by the optionee. Options granted under the Incentive Plan must
generally be exercised within three months after the end of the optionee's
status as an employee, director or consultant, or within one year after such
optionee's termination by reason of disability or death but in no event later
than the expiration of the option's term.
The Incentive Plan provides that in the event of a change of control of Data
Return all options and other awards shall be assumed or a substitute option or
award issued by the acquiring company unless the board determines in its sole
discretion to accelerate vesting or remove any restrictions.
Federal Income Tax Information
The following is a general summary, as of the date of this proxy statement,
of the federal income tax consequences to the Company and Participants under
the Incentive Plan. The federal income tax laws may change and the federal,
state, local and foreign tax consequences for any Participant will depend upon
his or her individual circumstances. Any tax effects that accrue to
nonresident alien Participants as a result of participating in the Incentive
Plan depend on a number of factors, including whether awards under the
Incentive Plan constitute U.S. source income and whether provisions of any
treaty are applicable. Each Participant is encouraged to seek the advice of a
qualified tax advisor regarding the tax consequences of participation in the
Incentive Plan.
Incentive Stock Options. A Participant will recognize no income for federal
income tax purposes upon grant or exercise of an ISO. The basis of the shares
acquired upon exercise of an ISO (the "ISO Shares") transferred to a
Participant pursuant to the exercise of an ISO is the price paid for the
shares. If the Participant holds the ISO Shares for at least one year after
the date the option was exercised and two years after the date the option was
granted, the Participant will realize capital gain or loss (rather than
ordinary income or loss) upon disposition of the ISO Shares. This gain or loss
will be equal to the difference between the amount realized upon such
disposition and the basis of the ISO Shares. The rate of taxation that applies
to capital gain depends upon the amount of time the ISO Shares are held by the
Participant.
If the Participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the Participant will
realize ordinary income upon such disposition in an amount equal to the excess
of the fair market value of the ISO Shares on the date of exercise and the
option exercise price, or if less (and the disposition is a transaction in
which loss, if any, will be recognized), the gain on the disposition. Any
additional gain will be capital gain, taxed at a rate that depends upon the
amount of time the ISO Shares were held by the Participant.
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The Company is not entitled to a deduction upon the exercise of an ISO by
the Participant. If a Participant disposes of the ISO shares received pursuant
to such exercise in a disqualifying disposition, however, the Company may,
subject to the deduction limitations described below, deduct an amount equal
to the ordinary income recognized by the Participant upon disposition of the
ISO shares at the time such income is recognized by the Participant.
If a Participant uses already owned shares of Common Stock to pay the
exercise price for the ISO shares, the resulting tax consequences will depend
upon whether the already owned shares of Common Stock are "statutory option
stock," and, if so, whether such statutory option stock has been held by the
Participant for the applicable holding period referred to in Section
424(c)(3)(A) of the Code. In general, "statutory option stock" (as defined in
Section 424(c)(3)(B) of the Code) is any stock acquired through the exercise
of an ISO or an option granted pursuant to an employee stock purchase plan,
but not stock acquired through the exercise of a nonqualified stock option. If
the stock is statutory option stock with respect to which the applicable
holding period has been satisfied, no income will be recognized by the
Participant upon the transfer of such stock in payment of the exercise price
of an ISO. If the stock is not statutory option stock, no income will be
recognized by the Participant upon the transfer of the stock unless the stock
is not substantially vested within the meaning of the regulations under
Section 83 of the Code (in which event it appears that the Participant will
recognize ordinary income upon the transfer equal to the amount by which the
fair market value of the transferred shares exceeds their basis). If the stock
used to pay the exercise price of an ISO is statutory option stock with
respect to which the applicable holding period has not been satisfied, the
transfer of such stock will be a disqualifying disposition described in
Section 421(b) of the Code which will result in the recognition of ordinary
income by the Participant in an amount equal to the excess of the fair market
value of the statutory option stock at the time the ISO covering such stock
was exercised over the amount paid for such stock. Under the present
provisions of the Code, it is not clear whether all shares received upon the
exercise of an ISO with already-owned shares will be statutory option stock or
how the optionee's basis will be allocated among such shares.
Alternative Minimum Tax. The difference between the option exercise price
and the fair market value of the ISO Shares that are vested on the date of
exercise is an adjustment to income for purposes of the Alternative Minimum
Tax (the "AMT"). The AMT (imposed to the extent alternative minimum taxable
income exceeds the taxpayer's regular taxable income) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of alternative
minimum taxable income in excess of $175,000). Alternative minimum taxable
income is determined by adjusting regular taxable income for certain items
(including the difference between the fair market value of the ISO Shares on
the date of exercise and the exercise price), increasing that income by
certain tax preference items and reducing this amount by the applicable
exemption amount ($45,000 in the case of a joint return, subject to reduction
under certain circumstances). If a disqualifying disposition of the ISO Shares
occurs in the same calendar year as exercise of the ISO, the maximum amount
that will be included in AMT income is the gain on the disposition of the ISO
Shares. If there is a disqualifying disposition in a year other than the year
of exercise, the income on the disqualifying disposition will not be
considered income in the year of the disposition. The AMT rules are extremely
complex, and the AMT consequences may vary from person to person depending
upon the particular facts and circumstances involved. Each Participant should
consult his or her own tax advisor with respect to the AMT consequences of
participation in the Incentive Plan.
Nonqualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO for
vested shares, the Participant must include in income as compensation an
amount equal to the difference between the fair market value of the shares on
the date of exercise and the Participant's exercise price. Income recognized
by the Participant upon exercise of an NQSO will be considered compensation
subject to withholding by the Company (either by payment in cash or
withholding out of the Participant's salary). NQSOs are designed to provide
the Company with a deduction equal to the amount of ordinary income recognized
by the Participant at the time of such recognition, subject to the deduction
limitations described below.
The basis of the shares transferred to a Participant pursuant to the
exercise of an NQSO is the price paid for such shares plus an amount equal to
any income recognized by the Participant as a result of the exercise of the
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option. Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss, taxable at a rate that depends upon the length of time
the shares were held by the Participant. If a Participant uses already owned
shares of Common Stock to pay the exercise price for shares under an NQSO, the
number of shares received pursuant to the NQSO which is equal to the number of
shares delivered in payment of the exercise price will be considered received
in a nontaxable exchange, and the fair market value of the remaining shares
received by the Participant upon the exercise will be taxable to the
Participant as ordinary income. If the already owned shares of Common Stock
are not "statutory option stock" or are statutory option stock with respect to
which the applicable holding period referred to in Section 424(c)(3)(A) of the
Code has been satisfied, the shares received pursuant to the exercise of the
NQSO will not be statutory option stock and the Participant's basis in the
number of shares received in exchange for the shares delivered in payment of
the exercise price will be equal to the basis of the shares delivered in
payment. The basis of the remaining shares received upon the exercise will be
equal to the fair market value of the shares. However, if the already owned
shares of Common Stock are statutory option stock with respect to which the
applicable holding period has not been satisfied, it is not presently clear
whether the exercise will be considered a disqualifying disposition of the
statutory option stock, whether the shares received upon such exercise will be
statutory option stock or how the Participant's basis will be allocated among
the shares received.
Stock Appreciation Rights. There will be no federal income tax consequences
to either the Participant or the Company upon the grant of stock appreciation
rights ("SARs"). Generally, the Participant will recognize ordinary income
subject to withholding upon the receipt of payment pursuant to SARs in an
amount equal to the aggregate amount of cash received. Subject to the
deduction limitations described below, the Company generally will be entitled
to a corresponding tax deduction equal to the SARs includible in the
Participant's income.
Restricted Stock and Stock Bonus Awards. If a Participant receives a
restricted stock award and the restricted stock is both not freely
transferable and subject to substantial risk of forfeiture (within the meaning
of Code Section 83), the Participant will not recognize income for federal
income tax purposes at the time of the award, unless the Participant makes a
timely election under Code Section 83(b). If the Participant does not timely
make an 83(b) election, the Participant will include in income the fair market
value of the shares of stock on the date that the restrictions lapse as to
those shares, less any purchase price paid for such shares. The included
amount may be treated as ordinary income by the Participant and will be
subject to withholding by the Company (either by payment in cash or
withholding out of the Participant's award). The Company will be entitled to a
deduction at the time of income recognition in an amount equal to the amount
the Participant is required to include in income with respect to the shares,
subject to the deduction limitations below.
If the Participant makes a timely 83(b) election, the Participant who
receives a restricted stock award will include in income, as ordinary income,
the fair market value of the shares of stock on the date of grant of the award
less any purchase price paid for such shares. If a Section 83(b) election is
made within 30 days after the date the restricted stock is received, the
Participant will recognize ordinary income at the time of the receipt of the
restricted stock and the Company will be entitled to a corresponding deduction
equal to the fair market value (determined without regard to applicable
restrictions other than nonlapse restrictions) of the shares at such time less
the amount paid, if any, by the Participant for the restricted stock. The
income may be subject to withholding by the Company (either by payment in cash
or withholding out of the Participant's award). If an 83(b) election is made,
no additional income will be recognized by the Participant upon lapse of the
restrictions on the restricted stock, but, if the award is subsequently
forfeited, the Participant will not receive any deduction for the amount
recognized as ordinary income as a result of the 83(b) election.
If the restrictions on an award of restricted stock are not of a nature that
such shares are both subject to a substantial risk of forfeiture and not
freely transferable, within the meaning of Section 83 of the Code, the
Participant will recognize ordinary income for federal income tax purposes at
the time of the award in an amount equal to the fair market value of the
shares of restricted stock on the date of the award, less any amount paid
therefor. The Company will be entitled to a deduction at such time in an
amount equal to the amount the
7
<PAGE>
Participant is required to include in income with respect to the shares,
subject to the deduction limitations described below.
Dividend Equivalents. There will be no federal income tax consequences to
either the Participant or the Company upon the grant of dividend equivalents.
Generally, a Participant will recognize ordinary income subject to withholding
upon the receipt of payment pursuant to dividend equivalents in an amount
equal to the fair market value of the Common Stock and the aggregate amount of
cash received. Subject to the deduction limitations described below, the
Company generally will be entitled to a corresponding tax deduction equal to
the amount includable in the Participant's income.
Limitations on the Company's Compensation Deduction. Section 162(m) of the
Code limits the deduction that the Company may take during a year for
otherwise deductible compensation payable to certain executive officers of the
Company to the extent that compensation paid to such officers for such year
exceeds $1 million, unless such compensation is performance-based, is approved
by the Company's stockholders and meets certain other criteria. Compensation
attributable to a stock option or a stock appreciation right is deemed to
satisfy the requirements for performance-based compensation if (i) the grant
or award is made by the Committee; (ii) the plan under which the option or
right is granted states the maximum number of shares with respect to which
options or rights may be granted during a specified period to any employee;
and (iii) under the terms of the option or right, the amount of compensation
the employee could receive is based solely on an increase in the value of the
stock after the date of the grant or award. The Plan has been designed to
enable awards of options and limited rights granted by the Committee to
qualify as performance-based compensation for purposes of Section 162(m) of
the Code.
In addition, Section 280G of the Code limits the deduction that the Company
may take for otherwise deductible compensation payable to certain individuals
if such compensation constitutes an "excess parachute payment." Generally,
excess parachute payments arise from certain payments made to disqualified
individuals that are in the nature of compensation and are contingent on
certain changes in ownership or control of the Company. Disqualified
individuals for this purpose include certain employees and independent
contractors who are officers, stockholders or highly-compensated individuals.
Accelerated vesting or payment of awards under the Plan upon a change in
ownership or control of the Company could result in excess parachute payments.
In addition to the deduction limitation applicable to the Company, a
disqualified individual receiving an excess parachute payment is subject to a
20% excise tax on the amount thereof.
Maximum Tax Rates. Currently, the maximum tax rate applicable to ordinary
income is 39.6%. Long-term capital gain will be taxed at a maximum of 20%. In
order to receive long-term capital gain treatment, the shares acquired
pursuant to the Incentive Plan must be held for more than 12 months. Capital
gains may be offset by capital losses and up to $3,000 of capital losses may
be offset annually against ordinary income.
ERISA
The Incentive Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974 and is not qualified under Section
401(a) of the Internal Revenue Code.
The Board of Directors recommends a vote FOR the approval of the amendment to
the Company's 1999 Long-Term Incentive Plan.
8
<PAGE>
EXECUTIVE COMPENSATION
The following report of the compensation committee on executive compensation
and the information herein under "Executive Compensation--Performance Graph"
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission ("SEC") or subject to the SEC's proxy
rules, except for the required disclosure herein, or to the liabilities of
Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), and
such information shall not be deemed to be incorporated by reference into any
filing made by the Company under the Securities Act of 1933 or the Exchange
Act.
Report Of The Compensation Committee
On Executive Compensation
To the Shareholders
of Data Return Corporation:
The Compensation Committee of the Board of Directors consists of three
directors. The Committee reviews the Company's executive compensation program
and policies each year and determines the compensation of the executive
officers. The Committee's overall policy regarding compensation of the
Company's executive officers is to provide competitive salary levels and
compensation incentives that (i) attract and retain highly qualified
individuals in these key positions, (ii) recognize individual performance and
the performance of the Company relative to the performance of other companies
of comparable size, complexity and quality and (iii) support both the short-
term and long-term goals of the Company. The Compensation Committee believes
this approach closely links the compensation of the Company's executives to
the accomplishments of Company goals and coincides with stockholder
objectives.
In addition, the Compensation Committee considers the anticipated tax
treatment of the Company's executive compensation program. Section 162(m) of
the Internal Revenue Code generally limits the corporate tax deduction for
compensation paid to executive officers to $1 million annually, unless certain
conditions are met. Except in the case of option exercises or stock grants,
the Committee believes that it is unlikely that any officer will receive
compensation in excess $1 million in the near future. However, it will be the
policy of the Company to consider the impact, if any, of Section 162(m) on the
Company and to document as necessary specific performance goals in order to
seek to preserve the Company's tax deductions.
Base Salary
The Committee periodically reviews and establishes base salaries. Generally,
the base salaries of the Company's executive officers, including its Chief
Executive Officer, are determined in light of the Company's earnings and other
factors and after considering the following factors: the individual's
experience level, scope and complexity of the position held and annual
performance of the individual.
Incentive Compensation
The Company's executive officers, including its Chief Executive Officer, are
also eligible to earn annual bonuses. The Company's annual bonuses provide
motivation toward and reward the accomplishment of corporate annual objectives
and provide a competitive compensation package that will attract, reward and
retain top-caliber individuals. The annual bonus amounts are based on both
Company and individual performance. Performance goals are both qualitative and
quantitative in nature. Qualitative goals could include development and
retention of key personnel, quality of services and management effectiveness.
Quantitative goals could include revenue and earnings targets and cost
containment goals. At the end of each year, the extent to which individual and
Company goals are met is evaluated. If target goals are met, the executive
officers receive a target bonus. It is
9
<PAGE>
also the compensation policy of the Company to use stock options as a means of
furnishing longer-term incentives to officers and other employees of the
Company and its subsidiaries. Under its option plans, the Company has
flexibility in creating options.
COMPENSATION COMMITTEE
Current members:
Joseph M. Grant
Robert Ted Enloe, III
Michelle R. Chambers
Members during fiscal 2000:
Nathan A. Landow
T. Geir Ramleth
Michelle R. Chambers
Summary Compensation Table
The following table sets forth the total compensation of the Company's Chief
Executive Officer and the other four most highly compensated executive officers
whose total salary and bonus for fiscal 2000 exceeded $100,000 (each a "named
executive officer," and collectively, the "named executive officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------- ------------------
Other Shares
Name and Principal Fiscal Annual Underlying
Position Year Salary Bonus Compensation Options
------------------ ------ -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunny C. Vanderbeck..... 2000 $130,000 $55,950 --
Chairman and Chief 1999 95,000 5,000 -- --
Executive Officer
Michelle R. Chambers.... 2000 130,000 50,950 -- --
President and Chief 1999 95,000 5,000 -- --
Operating Officer
Michael S. Shiff........ 2000 175,000 66,610 -- --
Senior Vice President-- 1999 150,000 8,610 $ 40,000(1) 3,308,700
Marketing, Sales and
Business Development
Stuart A. Walker........ 2000 125,000 39,250 -- 121,050
Senior Vice President-- 1999 5,661 -- -- 538,000
Chief Financial Officer
and Treasurer
J. Todd Steitle......... 2000 141,500 17,080 -- 275,725
Vice President-- 1999 108,740 -- -- 134,500
Marketing
</TABLE>
--------
(1) Other annual compensation for Mr. Shiff consists of deferred salary.
10
<PAGE>
Option/SAR Grants in Fiscal 2000
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Option Term ($)
Individual Grants (1)
------------------------------------------------ -----------------
Number of Percent of
Securities Total Options
Underlying Options Granted to
Granted Employees Exercise Price
Name (number of shares) in fiscal 2000 Per Share ($) Expiration Date 5% 10%
---- ------------------ -------------- -------------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sunny C. Vanderbeck..... -- -- -- -- -- --
Michelle R. Chambers.... -- -- -- -- -- --
Michael S. Shiff........ -- -- -- -- -- --
Stuart A. Walker (2).... 121,050 4.15 1.66 July 23, 2009 126,570 320,753
J. Todd Steitle (3)..... 47,075 1.62 0.23 April 15, 2009 24,806 45,913
121,050 4.15 1.66 July 23, 2009 126,570 320,753
107,600 3.69 13.00 October 27, 2009 879,698 2,229,327
</TABLE>
--------
(1) The values shown are based on the indicated assumed annual rates of
appreciation compounded annually. Actual gains realized, if any, on stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the values shown in this table will be achieved.
(2) Amounts represent a single grant of options on July 23, 1999. One-fourth
of the grant becomes exercisable on each of the four one-year
anniversaries immediately succeeding the grant date.
(3) Amount represents a single grant of options on each of the following
dates: April 15, 1999, July 23, 1999 and October 27, 1999. One-fourth of
the July 23, 1999 grant becomes exercisable on each of the four one-year
anniversaries immediately succeeding the grant date. The April 16, 1999
and October 27, 1999 grants became immediately exercisable upon
consummation of the Company's initial public offering.
Fiscal 2000 Exercises and Year-End Option Values
The following table sets forth information concerning the value realized
upon exercise of options during fiscal 2000 and the number and value of
unexercised options held by each of the named executive officers at March 31,
2000. The values set forth in the table have been calculated using the last
reported sales price on March 31, 2000, less the per share exercise price,
multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares March 31, 2000 (#) March 31, 2000 ($)(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sunny C. Vanderbeck..... -- -- -- -- -- --
Michelle R. Chambers.... -- -- -- -- -- --
Michael S. Shiff........ -- -- 3,308,700 -- 121,735,35 --
Stuart A. Walker........ -- -- 538,000 121,050 19,713,665 4,254,895
J. Todd Steitle......... -- -- 289,175 121,050 9,224,867 4,254,895
</TABLE>
--------
(1) Based on a closing price of $36.81 at March 31, 2000.
11
<PAGE>
Employment Agreements
Sunny C. Vanderbeck, Michelle R. Chambers, Robert A. Prosen, Stuart A.
Walker, Mark A. Bowles, Mark C. Gunnin, Scott W. Brewer, Jason A. Lochhead and
Mark A. Warren have employment agreements expiring on June 30, 2002. These
agreements provide for:
. set base salaries; and
. incentive bonuses determined by the compensation committee or Board of
Directors.
Each of these executives has agreed not to compete with the Company during
the term of their agreement and for two years after resignation or termination
for cause or for one year after a termination without cause or any resignation
or termination following a change of control. The employment agreements define
"cause" as an employee committing an immoral crime, materially breaching their
employment agreement or failing to obey written directions of a senior
corporate executive. A "change of control" will be deemed to occur if a
substantial portion of the Company's ownership changes or the constitution of
the board changes during any 15-month period without the approval of the Board
of Directors or shareholders. If there has not been a change in control, the
agreements provide for the payment of salary for 12 months after any
termination by the Company other than for cause. Further, if the termination
follows a change of control and is not voluntary, it will be made in a lump
sum equal to the following items, or in the case of Mr. Vanderbeck, Ms.
Chambers, Mr. Prosen and Mr. Walker three times the following items:
. the highest annualized base salary earned during the employee's
employment with the Company;
. two times the employee's largest bonus during the last two years;
. any unpaid expense, reimbursement or accrued but unpaid salary or
benefit; and
. the estimated cost of insurance coverage for the next 12 months.
If the termination is following a change of control and is voluntary, the
base salary component of these severance payments will, in the case of Mr.
Vanderbeck, Ms. Chambers, Mr. Prosen, Mr. Walker and Mr. Gunnin, equal 75%
and, in the case of Mr. Bowles, Mr. Brewer, Mr. Lochhead and Mr. Warren equal
25%, of the highest annualized base salary earned during the employee's
employment with the Company.
In addition, upon a change of control, all outstanding options of Mr.
Vanderbeck, Ms. Chambers, Mr. Prosen, Mr. Walker and Mr. Gunnin will vest.
That number of the outstanding options of Mr. Bowles, Mr. Brewer, Mr. Warren
and Mr. Lochhead that would have vested upon their next annual vesting date
will immediately vest upon a change of control, and, if they are terminated
within 24 months of a change of control, all of their options will immediately
vest.
The Company also has employment agreements with Mr. Shiff, Mr. Garber and
Mr. Steitle. Mr. Shiff's agreement expires on December 31, 2002. His agreement
provides for a set base salary plus deferred salary and a fixed performance
bonus. Mr. Shiff's agreement provides for the payment of all accrued salary
and bonus upon his termination by Data Return. Upon a change of control, all
of Mr. Shiff's outstanding unvested options will vest immediately. Mr. Shiff
has agreed not to compete with the Company during the term of his agreement
and for one year after his termination.
Mr. Garber's agreement expires on March 31, 2004. His agreement provides for
a set base salary plus commissions. Upon a termination of his employment by
Data Return without cause, Mr. Garber is entitled to the payment of salary for
12 months and the right to participate in benefit plans and exercise his
outstanding options for 12 months. Upon a change of control, 50% of Mr.
Garber's outstanding unvested options vest immediately and the remaining 50%
vest one year later. As a result of the Company's October 1999 initial public
offering, 269,000 options will vest in October 2000. If Mr. Garber is
terminated following a change of control, he is entitled to 12 months of
salary and all of his outstanding unvested options immediately vest. Mr Garber
has agreed not to compete with the Company during the term of the agreement
and for one year after resignation or termination for cause.
12
<PAGE>
Mr. Steitle's agreement expired on May 3, 1999 and was automatically renewed
for a one-year period in May 1999 and 2000. His agreement will continue to be
renewed automatically for one year periods unless terminated by either party
upon notice at least 15 days prior to a renewal date. Mr. Steitle is entitled
to a set base salary. Upon termination other than for cause, Mr. Steitle is
entitled to his accrued salary. Upon a change of control, or if Mr. Vanderbeck
and Ms. Chambers cease to be executive officers, all of Mr. Steitle's unvested
options immediately vest. Mr. Steitle has agreed not to compete with the
Company during the term of his agreement and for one year after his agreement.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Common Stock as of March 31, 2000 by (i) each director, (ii) each
person known to the Company to own beneficially 5% or more of the Common
Stock, (iii) each named executive officer and (iv) all current directors and
executive officers as a group. Except as otherwise indicated, the address of
each beneficial owner of 5% or more of the Common Stock is 222 West Las
Colinas Boulevard, Suite 450, Irving, Texas 75039.
The information set forth below includes shares of common stock directly and
indirectly owned and shares of common stock underlying currently exercisable
options as well as those options which will become exercisable within 60 days
of March 31, 2000. Except as otherwise indicated, the named persons herein
have sole voting and dispositive power with respect to beneficially owned
shares.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned
---------------------
Number of Percent of
Beneficial Owner Shares Class
---------------- ---------- ----------
<S> <C> <C>
Sunny C. Vanderbeck(1).................................. 8,106,315 22.9
Michelle R. Chambers(2)................................. 6,562,255 18.5
Jason A. Lochhead....................................... 772,030 2.2
Nathan A. Landow(3)..................................... 5,135,210 14.5
T. Geir Ramleth(4)...................................... 96,571 *
Michael S. Shiff(5)..................................... 3,308,700 9.3
Stuart A. Walker(6)..................................... 538,000 1.5
J. Todd Steitle(7)...................................... 289,175 *
DCR Technology Fund I, Ltd.(1).......................... 8,106,315 22.9
OHG Technology, Ltd.(2)................................. 6,562,255 18.5
Nathan Landow Family Limited Partnership (3)............ 4,788,200 13.5
All directors and executive officers as a group (13
persons)(8)............................................ 25,403,194 71.8
</TABLE>
--------
* Less than 1%.
(1) Consists of 8,106,315 shares of Common Stock owned by DCR Technology Fund
I, Ltd., which is controlled by Mr. Vanderbeck.
(2) Consists of 6,562,255 shares of Common Stock owned by OHG Technology,
Ltd., which is controlled by Ms. Chambers.
(3) Includes 4,788,200 shares of Common Stock owned by Nathan Landow Family
Limited Partnership, which is controlled by Mr. Landow. The address for
Nathan Landow Family Limited Partnership is 4710 Bethesda Avenue,
Bethesda, Maryland 20814. Mr. Landow resigned from our board of directors
to pursue other business interests effective March 31, 2000.
(4) Mr. Ramleth resigned from the Board of Directors to pursue other business
interests in May 2000.
(5) Consists of 3,308,700 shares of Common Stock issuable pursuant to options
that are exercisable within 60 days of March 31, 2000.
(6) Consists of 538,000 shares of Common Stock issuable pursuant to options
that are exercisable within 60 days of March 31, 2000.
(7) Consists of 289,175 shares of Common Stock issuable pursuant to options
that are exercisable within 60 days of March 31, 2000.
(8) Includes 4,724,313 shares of Common Stock issuable pursuant to options
that are exercisable within 60 days of March 31, 2000. Giving effect to
the resignations of Mr. Landow and Mr. Ramleth, the number of shares and
percent of class owned would be 20,171,413 and 57.0%, respectively.
14
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return for
the Common Stock, the Nasdaq Stock Market Index (US Companies), and Nasdaq
Computer and Data Processing Stocks for the years indicated as prescribed by
the SEC's rules (assumes $100 invested on October 27, 1999 in Common Stock,
Nasdaq Stock Market Index (US Companies) and Nasdaq Computer and Data
Processing Stocks).
[PERFORMANCE GRAPH]
Legend
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
CRSP Total Returns
Symbol Index for: 10/1999 11/1999 12/1999 01/2000 02/2000 03/2000
------- ------- ------- ------- ------- -------
[_] Data Return Corporation 100.0 165.8 326.7 355.0 391.6 224.8
Nasdaq Stock Market (US
-- -- -- -- -- m Companies) 100.0 115.9 141.4 136.1 162.1 158.7
- - - - - - - - . Nasdaq Computer and 100.0 120.7 163.7 145.1 171.7 161.0
Data Processing Stocks
SIC 7370--7379 US &
Foreign
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/28/1999.
15
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and officers of the
Company, and persons who own more than 10% of the Common Stock, to file with
the SEC initial reports of ownership and reports of changes in ownership of
such stock. Directors, officers and beneficial owners of more than 10 percent
of the Common Stock are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the year ended March 31, 2000, all Section 16(a)
filing requirements applicable to its directors, officers and beneficial
owners of more than 10 percent of its Common Stock were complied with, except
for certain executive officers who inadvertently failed to timely file Form 4s
reporting shares acquired by them during the Company's October 1999 initial
public offering.
AUDITORS
The Board of Directors has reappointed Ernst & Young LLP to audit the
financial statements of the Company for the year ending March 31, 2001. Such
appointment will not be submitted to shareholders for ratification or
approval. Representatives of Ernst & Young LLP are expected to be present at
the meeting to respond to appropriate questions from the shareholders and will
be given the opportunity to make a statement should they desire to do so.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Shareholder proposals for inclusion in the Company's proxy materials in
connection with the 2001 annual meeting of shareholders, which is currently
scheduled to be held on September 21, 2001, must be received by the Company at
its office in Irving, Texas, addressed to the Secretary of the Company, no
later than June 12, 2001. Shareholders who intend to present a proposal at the
2001 annual meeting of shareholders without inclusion of such proposal in the
Company's proxy materials must provide notice of such proposal to the Company
not later than 90 days prior to the meeting.
The cost of solicitation of proxies will be borne by the Company. The
Company may employ Corporate Investor Communications, Inc. to solicit proxies
from brokers, bank nominees, institutional holders and individual holders for
use at the meeting at a fee not to exceed $5,500 plus certain expenses. In
addition, certain officers and employees of the Company, who will receive no
additional compensation for their services, may solicit proxies in person or
by mail, telephone, facsimile telecommunication or telegraph.
The Board of Directors does not intend to present any other matter at the
meeting and knows of no other matters that will be presented. However, if any
other matter comes before the meeting, the persons named in the enclosed proxy
intend to vote thereon in accordance with their best judgment.
DATA RETURN CORPORATION
Sunny C. Vanderbeck
Chairman and
Chief Executive Officer
Irving, Texas
August 23, 2000
16
<PAGE>
DATA RETURN CORPORATION
This Proxy is Solicited by the Board of Directors
For the Annual Meeting of Shareholders to be Held September 20, 2000
The undersigned shareholder of Data Return Corporation (the "Company")
hereby appoints Stuart A. Walker and Mark C. Gunnin, or either one or
both of them, attorneys and proxies of the undersigned, each with full
power of substitution, to vote on behalf of the undersigned at the Annual
Meeting of Shareholders of Data Return Corporation to be held on Wednesday,
September 20, 2000, at 10:00 a.m., local time, at the Marriott Hotel, 223 West
Las Colinas Boulevard, Irving, Texas, and at any adjournments of said meeting,
all of the shares of common stock in the name of the undersigned or which the
undersigned may be entitled to vote.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<CAPTION>
Please mark
your votes as [X]
indicated in
this example
<S> <C>
1. The election as Class I Directors of Jason A. Lochhead and Joseph M. Grant 2. To approve an amendment to the Company's
and as a Class II Director of Robert Ted Enloe, III. 1999 Long-Term Incentive Plan to increase
FOR all nominees WITHHOLD INSTRUCTION: To withhold authority the number of shares of Common Stock
listed above AUTHORITY to vote for any individual nominee, reserved for issuance under the plan by
(except as marked to to vote for all write that nominee's name on the 1,772,000, from 3,228,000 to 5,000,000
the contrary) nominees listed line provided below. shares.
above
[ ] [ ] ------------------------------------ FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS ABOVE AND IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR SUCH
PROPOSALS.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and the proxy statement furnished
herewith.
Dated: , 2000
------------------------------------------
-------------------------------------------------------
Shareholder's Signature
-------------------------------------------------------
Shareholder's Signature
Signature should agree with name printed hereon. If stock is
held in the name of more than one person, EACH joint owner
should sign. Executors, administrators, trustees, guardians,
and attorneys should indicate the capacity in which they
sign. Attorneys should submit powers of attorney.
PLEASE SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
