SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
Sohu.com Inc.
(Name of Registrant as Specified In Its Charter)
(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)(4) 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:
- --------------------------------------------------------------------------------
SOHU.COM www.sohu.com
LOGO
- --------------------------------------------------------------------------------
May 2, 2006
Dear Sohu.com stockholders:
You are cordially invited to attend Sohu.com Inc.'s Annual Meeting of
Stockholders to be held at Sohu's offices at Level 12, Vision International
Center, No. 1 Unit Zhongguancun East Road, Haidian District, Beijing 100084,
People's Republic of China, on Friday, June 9, 2006 at 10:00 a.m., Beijing
time.
Accompanying this letter are the official Notice of Annual Meeting of
Stockholders, Proxy Statement and form of proxy. The matters listed in the
Notice of Annual Meeting of Stockholders are described in detail in the Proxy
Statement. At this year's Annual Meeting, we are asking stockholders to elect
two directors, each to serve for a two-year term, to approve an amendment to
Sohu's 2000 Stock Incentive Plan to include restricted stock units among the
types of incentives that may be granted to Sohu's directors, officers,
employees, consultants and advisors and to ratify the appointment of
PricewaterhouseCoopers Zhong Tian CPAs Limited Company as our independent
auditors. The Board of Directors recommends that you vote FOR election of the
director nominees, FOR the approval of the amendment to Sohu's 2000 Stock
Incentive Plan and FOR the ratification of PricewaterhouseCoopers Zhong Tian
CPAs Limited Company as our independent auditors. Please refer to the Proxy
Statement for detailed information on each of the proposals and the Annual
Meeting.
Every stockholder's vote is important to us. Whether or not you expect to
attend the meeting in person, we urge you to submit your proxy as soon as
possible. You may submit your proxy (1) over the Internet, (2) by telephone, or
(3) by signing, dating, and returning the enclosed proxy card and mailing it in
the envelope provided. For stockholders mailing from within the United States,
the postage is prepaid. Please complete and submit your proxy even if you plan
to attend the meeting in person.
We look forward to seeing those of you who are able to attend the meeting
in person.
Sincerely,
/s/ Charles Zhang
Charles Zhang
Chief Executive Officer
- --------------------------------------------------------------------------------
SOHU LETTERHEAD
[GRAPHIC]
[Graphic]
SOHU.COM
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
SOHU.COM INC.
----------------
TO BE HELD JUNE 9, 2006
10:00 a.m. BEIJING TIME
To the Stockholders of Sohu.com Inc.:
We hereby notify you that the Annual Meeting of Stockholders (the "Annual
Meeting") of Sohu.com Inc. will be held at Sohu's offices at Level 12, Vision
International Center, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People's Republic of China, on Friday, June 9, 2006 at 10:00
a.m., Beijing time, for the purpose of considering and acting upon the
following matters, all as described in the accompanying Proxy Statement:
1) To elect two directors, each to serve for a two-year term;
2) To approve an amendment to Sohu's 2000 Stock Incentive Plan to include
restricted stock units among the types of incentives that may be
granted to Sohu's directors, officers, employees, consultants and
advisors under the plan; and
3) To ratify the appointment of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company as Sohu's independent auditors for the fiscal year
ending December 31, 2006;
and to consider and act upon all other matters which may properly come
before the Annual Meeting or any adjournment or adjournments thereof.
We have not received notice of other matters that may be properly
presented at the Annual Meeting. The Board of Directors has set the close of
business on Thursday, April 27, 2006, as the record date for the purpose of
determining the stockholders entitled to notice of, and to vote at, the Annual
Meeting or any adjournment thereof, and only stockholders of record on that
date are entitled to notice of and to vote at the Annual Meeting.
Whether or not you plan to attend the meeting, please fill in, date, sign
and return the enclosed proxy promptly in the return envelope provided.
Alternatively, if you have shares registered directly with Sohu's transfer
agent, The Bank of New York, you may choose to vote those shares via the
Internet at The Bank of New York's voting Web site
(https://www.proxyvotenow.com/sohu), or you may vote telephonically by calling
The Bank of New York at 1-866-242-2612 (within the U.S. and Canada only, toll
free) or at 1-215-521-1348 (outside the U.S. and Canada). If your Sohu shares
are held in an account with a broker or bank participating in the ADP Investor
Communication Services program, you may be able to vote those shares via the
Internet at ADP Investor Communication Services' voting Web site
(www.proxyvote.com) or telephonically by calling the telephone number shown on
your voting form. See "Voting Via the Internet or By Telephone" in the proxy
statement for further details. You are cordially invited to attend the meeting.
By order of the Board of Directors,
Timothy B. Bancroft
Secretary
May 2, 2006
Table of Contents
Proxy Statement .......................................................... 1
Proposal I. Election of Directors ....................................... 2
General Information Relating to the Board of Directors .................. 4
Audit Committee Report .................................................. 6
Compensation Committee Report ........................................... 7
Proposal II. Amendment of Sohu's 2000 Stock Incentive Plan .............. 8
Beneficial Ownership of Common Stock .................................... 10
Section 16 (a) Beneficial Ownership Reporting Compliance ................ 11
Executive Officers ...................................................... 11
Executive Compensation .................................................. 12
Performance Graph ....................................................... 16
Certain Relationships and Related Transactions .......................... 17
Proposal III. Ratification of Appointment of Independent Auditors ....... 18
Miscellaneous ........................................................... 20
SOHU.COM INC.
Level 12, Vision International Center
No. 1 Unit Zhongguancun East Road, Haidian District
Beijing 100084, People's Republic of China
(011) 8610-6272-6666
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 2006
10:00 a.m. BEIJING TIME
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Sohu.com Inc. of proxies for use at Sohu's Annual
Meeting of Stockholders (the "Annual Meeting") to be held at Sohu's offices
located at Level 12, Vision International Center, No. 1 Unit Zhongguancun East
Road, Haidian District, Beijing 100084, People's Republic of China, on Friday,
June 9, 2006 at 10:00 a.m., Beijing time, and at any adjournments thereof. This
Proxy Statement and the accompanying proxy card are first being mailed to
stockholders on or about May 2, 2006. Sohu's Annual Report to Stockholders for
the fiscal year ended December 31, 2005 is being mailed to the stockholders
with this Proxy Statement, but does not constitute a part of the Proxy
Statement.
If 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 stockholder. If no specific instructions are given, the
shares represented by proxies will be voted as follows:
FOR the election of the nominees for directors named herein;
FOR approval of an amendment to Sohu's 2000 Stock Incentive Plan to
include restricted stock units among the types of incentives that may be
granted to Sohu's directors, officers, employees, consultants and advisors
under the plan; and
FOR ratifying the appointment of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company ("PricewaterhouseCoopers") as Sohu's independent auditors for
the fiscal year ending December 31, 2006.
In addition, if other matters come before the Annual Meeting, the persons
named in the accompanying proxy card will vote in accordance with their
judgment with respect to those matters. You have the power to revoke your proxy
at any time prior to its exercise by filing with Sohu's Chief Financial Officer
an instrument revoking it, by delivering an executed proxy bearing a later date
prior to or at the Annual Meeting, or by attending the Annual Meeting and
voting in person.
Sohu will bear the cost of soliciting proxies. Solicitations may be made
by mail, personal interview, telephone and/or telegram by Sohu's directors,
officers and employees, without additional compensation for such solicitation
activities. Sohu has made arrangements with The Bank of New York, 101 Barclay
Street, Floor 11E, New York, NY 10286 and Georgeson Shareholder, 219 Murray
Hill Parkway, East Rutherford, NJ 07073 to forward solicitation material to
record holders of shares of common stock and the beneficial owners of shares
held of record by brokers, banks, or other nominees. Sohu will reimburse banks,
brokerage firms, other custodians, nominees and fiduciaries for reasonable
expenses incurred in sending proxy material to beneficial owners of shares of
common stock held in their respective names.
Only stockholders of record on Sohu's books at the close of business on
April 27, 2006 will be entitled to vote at the Annual Meeting and any
adjournments. Each share of our common stock outstanding on the record date
will be entitled to one vote on each of the director nominees and one vote on
each other matter. Under Sohu's By-laws, the presence in person or by proxy of
a majority of the shares of common stock outstanding on the record date is
required for a quorum. Abstentions and broker non-votes are each included for
purposes of determining the presence or absence of a sufficient number of
shares to constitute a quorum for the transaction of business. With respect to
the approval of any particular proposal, abstentions and broker non-votes are
not counted in determining the number of votes cast. Other than the election of
directors, which requires a plurality of the votes cast in person
or by proxy, each matter to be submitted to the stockholders requires the
affirmative vote of the holders of a majority of the shares of Sohu common
stock that are present in person or by proxy at the Annual Meeting.
As of the close of business on March 31, 2006, there were 36,853,312
shares of Sohu common stock outstanding.
Proposal I. Election of Directors
Our Board of Directors is divided into two classes, with each class
holding office for a term of two years and the term of one class expiring each
year. The Board has fixed the number of directors to constitute the full Board
for the ensuing year at six, two of whom are to be elected at the Annual
Meeting for a term expiring at the 2008 Annual Meeting of stockholders and four
other directors whose terms expire at the 2007 Annual Meeting of stockholders.
At the recommendation of the Nominating Committee of the Board, the Board
has nominated Dr. Edward B. Roberts and Ms. Mary Ma for election in the class
of directors to be elected at the Annual Meeting and whose term will expire in
2008. Unless you indicate otherwise on your proxy, the proxies received will be
voted in favor of the election of Dr. Edward B. Roberts and Ms. Mary Ma to
serve as directors.
Although we expect that each of the nominees will be available for
election, if a nominee is not a candidate at the time the election occurs,
proxies will be voted for the election of a substitute nominee selected by the
Board of Directors, unless the Board chooses to reduce the number of directors
to the number of directors not up for election plus the number of nominees then
available for election, in which case the proxies would be voted for the
reduced number of nominees. The two nominees receiving a plurality of the votes
cast by the stockholders represented at the Annual Meeting, in person or by
proxy, will be elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF DR.
EDWARD B. ROBERTS AND MS. MARY MA.
The table below sets forth certain information with respect to the
nominees for election to the Board of Directors and those directors whose terms
of office will continue after the Annual Meeting. Both of the nominees for
election as directors are currently serving on the Board.
Dr. Edward B. Roberts Dr. Roberts is the David Sarnoff Professor of Management of Dr. Robert's term
Professor of Technology at Massachusetts Institute of Technology's Alfred P. Sloan expires at the
Management of School of Management. He chaired MIT's research and educational 2006 Annual Meeting.
Technology at programs in the management of technological innovation from 1967 to
Massachusetts Institute 1993. He also founded and chairs the MIT Entrepreneurship Center.
of Technology's Dr. Roberts is currently a director of Advanced Magnetics, Inc. and
Alfred P. Sloan School Medical Information Technology, Inc.. He has authored over 160
of Management. articles and eleven books, a recent one being Entrepreneurs in High
Technology (Oxford University Press, 1991). Dr. Roberts received four
degrees from M.I.T., including a Ph.D in 1962.
70 years old.
Director since 1996.
(2)(3)(4)
Ms. Mary Ma Ms. Ma is the Executive Director, Senior Vice President and Chief Ms. Ma's term
Executive Director, Financial Officer of Lenovo Group Limited, a listed company in Hong expires at the
Senior Vice President and Kong that produces information technology products and services. 2006 Annual Meeting.
CFO of Lenovo Prior to joining Lenovo Group Limited in 1990, Ms. Ma worked for
Group Limited the Chinese Academy of Sciences. Ms. Ma is a member of The Hong
Kong Institute of Directors and is a member of the Digital 21
Strategy Advisory Committee, appointed by the Hong Kong
53 years old Special Administration Region and the People's Republic of China in
Director since 2003 and August 2002. Ms. Ma holds a Bachelor's degree from the Capital
from March 2000 to Normal University.
November 2000
(3)(4)
2
Dr. Charles Zhang Dr. Zhang is Sohu's Founder and has been Chairman of the Board and Dr. Zhang's term
Sohu's Chairman Chief Executive Officer since August 1996. Dr. Zhang also served as expires at the
of the Board and Chief President from August 1996 until July 2004. Prior to founding Sohu, 2007 Annual Meeting.
Executive Officer. Dr. Zhang worked for Internet Securities Inc. and helped establish its
China operations. Prior to that, he worked as Massachusetts Institute
of Technology's liaison officer with China. Dr. Zhang has a Ph.D in
41 years old. experimental physics from Massachusetts Institute of Technology and
Director since 1996. a Bachelor of Science degree from Qinghua University in Beijing.
Dr. Zhang is a native of the People's Republic of China.
Mr. Charles Huang Mr. Huang is the Founder, CEO and Chairman of Netbig Education Mr. Huang's term
CEO and Chairman of Holdings Ltd., a leading education enterprise in China. Prior to expires at the
Netbig Education founding Netbig in 1999, Mr. Huang worked as Executive Director and 2007 Annual Meeting.
Holdings Ltd. Head of Asia Securitization Group of Deutsche Bank, New York and
Hong Kong, as well as Senior Vice President of Prudential Securities
Inc., New York. He holds an M.S. degree in Computer Science from
36 years old MIT and a B.S. degree from the University of Science and Technology
Director since 2001. of China. Mr. Huang is also a Chartered Financial Analyst.
(1)(3)(4)
Dr. Dave Qi Dr. Qi is a Professor of Accounting and the Associate Dean of the Mr. Qi's term
Professor of Accounting Cheung Kong Graduate School of Business. He began teaching at the expires at the
and Associate Dean, the Cheung Kong Graduate School of Business in 2002 and was the 2007 Annual Meeting.
Cheung Kong Graduate founding Director of the Executive MBA program. Before joining
School of Business Cheung Kong Graduate School of Business, Dr. Qi was an Associate
Professor at the School of Accounting of the Chinese University of
Hong Kong. Dr. Qi has published many articles and research essays on
42 years old. accounting, financial reporting, capital market and other related topics.
Director since 2005. He has a Ph.D. in accounting from the Eli Broad Graduate School of
(1)(3)(4) management of Michigan State University, a Master of Business
Administration from the University of Hawaii at Manoa, a Bachelor of
Science and a Bachelor of Arts from Fudan University. Dr. Qi is
currently a member of the American Accounting Association.
Mr. Shi Wang Mr. Wang is the Chairman of China Vanke Co., Ltd., of which Mr. Wang Mr. Wang's term
Chairman of China was Chairman and General Manager from 1991 to 1999. He founded expires at the
Vanke Co., Ltd. the Shenzhen Exhibition Center of Modern Science and Education 2007 Annual Meeting.
Equipment in 1984, which is the predecessor to China Vanke Co., Ltd..
Mr. Wang is the Executive Manager of the China Real Estate
55 years old. Association and is Deputy Director of the City Housing Development
Director since 2005. Council of the China Real Estate Association.
(3)(4)
- ------------
(1) member of the Audit Committee
(2) member of the Compensation Committee
(3) member of the Nominating Committee
(4) The Board of Directors has determined that these directors and the nominees
are independent as that term is defined under Rule 4200(a)(15) of the
Nasdaq Stock Market Marketplace Rules.
3
GENERAL INFORMATION RELATING TO
THE BOARD OF DIRECTORS
The Board of Directors
The Board of Directors held four formal meetings in the fiscal year ended
December 31, 2005 and acted by consent in lieu of meetings on two occasions. No
member of the Board attended less than 75% of the total number of meetings of
the Board and committees thereof upon which he or she served during 2005,
except that Dr. Dave Qi and Mr. Shi Wang, who each joined the Board in May,
2005, missed one of the two board meetings that occurred during their tenures
on the Board, and Ms. Mary Ma missed two of the four Board meetings.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation Committee
and a Nominating Committee.
The members of the Audit Committee are Mr. Charles Huang, Dr. Dave Qi and
Mr. Thomas Gurnee, who are each independent directors. The Audit Committee
oversees our internal audit function and our accounting and financial reporting
processes and the audits of our financial statements. The Audit Committee held
six meetings in 2005. The Audit Committee and the full Board have adopted a
written charter for the Audit Committee. The Audit Committee appointed
PricewaterhouseCoopers to serve as Sohu's independent auditors for the fiscal
year ended December 31, 2005. The Board has determined that Dr. Dave Qi and Mr.
Thomas Gurnee are Audit Committee financial experts, as that term is defined in
Item 401 of Regulation S-K. The full responsibilities of the Audit Committee
are set forth in its charter, which is reviewed and updated annually and
approved by the Board, and is attached hereto as Appendix A. For more
information, see "Audit Committee Report."
The Compensation Committee currently consists of Dr. Edward B. Roberts and
Mr. Thomas Gurnee. The Compensation Committee acted through e-mail
communications among its members, and made recommendations to the Board of
Directors on four occasions in 2005. The Compensation Committee makes
recommendations concerning salaries and incentive compensation, administers and
approves stock option grants under Sohu's 2000 Stock Incentive Plan and
otherwise determines compensation levels and performs such other functions
regarding compensation as the Board may delegate to the Compensation Committee.
For more information, see "Compensation Committee Report".
The Nominating Committee currently consists of Mr. Charles Huang, Dr. Dave
Qi, Dr. Edward B. Roberts, Ms. Mary Ma, Mr. Thomas Gurnee and Mr. Wang Shi. The
purpose of the Nominating Committee is to assist the Board in identifying
individuals qualified to become directors under criteria approved by the Board,
periodically review director compensation and benefits, recommend to the Board
any proposed revisions to our corporate governance guidelines and assist the
Board in assessing directors' independence, board effectiveness, continuing
education, new director orientation and committee membership. The Nominating
Committee held no meeting in 2005 and acted by consent in lieu of meetings on
one occasion. The full responsibilities of the Nominating Committee are set
forth in its charter, which is reviewed and updated annually and approved by
the Board and is attached hereto as Appendix B.
It is a policy of the Nominating Committee that candidates for director be
determined to have unquestionable integrity and honesty, the ability to
exercise sound, mature and independent business judgment in the best interests
of the stockholders as a whole, a background and experience in fields which
will compliment the talents of the other Board members, the willingness and
capability to take the time to actively participate in Board and committee
meetings and related activities, the ability to work professionally and
effectively with other Board members and Sohu management, the ability to remain
on the Board long enough to make a meaningful contribution, and no material
relationships with competitors or other third parties that could create a
reasonable likelihood of a conflict of interest or other legal issues.
The Nominating Committee also considers the Board's current composition
and Sohu's evolving needs, including expertise, diversity and balance of
inside, outside and independent directors. In compiling its list of possible
candidates and considering their qualification, the Nominating Committee makes
its own inquiries, solicits input from other directors, and may consult or
engage other sources, such as a professional search firm, if it deems
appropriate.
4
The Nominating Committee will consider director candidates recommended by
stockholders provided the stockholders follow the procedures set forth below.
The committee does not intend to alter the manner in which it evaluates
candidates, including the criteria set forth above, based on whether the
candidate was recommended by a stockholder or otherwise.
Stockholders who wish to recommend individuals for consideration by the
Nominating Committee to become nominees for election to the Board of Directors
at the 2007 Annual Meeting of Stockholders may do so by submitting a written
recommendation to the committee, care of Sohu, at Level 12, Vision
International Center, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People's Republic of China, Attention: Jessica Zhang, in
accordance with the procedures set forth below in this Proxy Statement under
the heading "Deadline for Receipt of Stockholder Proposals." For nominees for
election to the Board of Directors proposed by stockholders to be considered,
the following information concerning each nominee must be timely submitted in
accordance with the required procedures:
o The candidate's name, age, business address, residence address,
principal occupation or employment, the class and number of shares of
Sohu's capital stock the candidate beneficially owns, a brief
description of any direct or indirect relationships with Sohu, and the
other information that would be required in a proxy statement soliciting
proxies for the election of the candidate as a director;
o A signed consent of the nominee to being named as a nominee, to
cooperate with reasonable background checks and personal interviews and
to serve as a director of Sohu, if elected; and
o As to the stockholder proposing such nominee, that stockholder's name
and address, the class and number of shares of Sohu's capital stock the
stockholder beneficially owns, a description of all arrangements or
understandings between the stockholder and the candidate and any other
person or persons (including their names) pursuant to which the
recommendation is being made, a list of all other companies that the
stockholder has recommended the candidate to for election as a director
in that fiscal year, and a representation that the stockholder intends
to appear in person or by proxy at the meeting to nominate the person
named in its notice.
Mr. Thomas Gurnee is not standing for re-election to the Board of
Directors and therefore will no longer serve as a member of the Audit
Committee, the Compensation Committee or the Nominating Committee after the
Annual Meeting. Dr. Dave Qi has been appointed to serve as a member of the
Compensation Committee effective immediately after the conclusion of the Annual
Meeting.
Compensation of Directors
Directors currently receive cash compensation for serving on the Board of
Directors of Sohu. They are reimbursed for reasonable travel expenses incurred
in connection with attending Board of Directors and committee meetings.
On April 1, 2005, the Board approved the payment of $10,000 per year to
non-employee members of the Board, meaning that every Director, other than Dr.
Charles Zhang, is paid $10,000 per year.
In 2005, the Board approved the following stock option grants to the
Board:
(i) On April 14, 2005, Mr. Charles Huang, Dr. Edward B. Roberts, Ms. Mary
Ma and Mr. Thomas Gurnee were each granted options to purchase 15,000
shares of common stock of Sohu. These options have an exercise price
of $17.00 per share and were exercisable in full on the date of grant.
(ii) On July 26, 2005, Dr. Dave Qi and Mr. Shi Wang were each granted
options to purchase 10,000 shares of common stock of Sohu. These
options have an exercise price of $20.78 per share and were
exercisable in full on the date of grant.
Also, on July 26, 2005, Dr. Charles Zhang, in his capacity as CEO, was
granted options to purchase 30,000 shares of common stock of Sohu. These
options have an exercise price of $22.86 per share and vest over a four year
period.
5
Audit Committee Report
The Audit Committee assists the Board in its oversight of our financial
reporting, internal controls and audit functions, and is directly responsible
for the appointment, retention, compensation and oversight of the work of our
independent auditors. The full responsibilities of the Audit Committee are set
forth in the Audit Committee charter. The Audit Committee charter, which is
reviewed and updated annually, was approved by the Board of Directors and is
attached hereto as Appendix A.
The Audit Committee reviews the scope of the annual audit by Sohu's
independent auditors and internal auditors, monitors Sohu's internal financial
and accounting controls and procedures and appoints the independent auditors.
In fulfilling its responsibilities, the Audit Committee:
o discussed and considered the independence of PricewaterhouseCoopers,
reviewing as necessary all relationships and services which might bear
on PricewaterhouseCoopers's objectivity as independent auditors;
o received written affirmation from PricewaterhouseCoopers that it is in
fact independent;
o discussed the overall audit process, receiving and reviewing all reports
of PricewaterhouseCoopers;
o involved PricewaterhouseCoopers in the Audit Committee's review of
Sohu's financial statements and related reports with management;
o provided to PricewaterhouseCoopers full access to the Audit Committee
and the full Board of Directors to report on all appropriate matters;
and
o discussed with PricewaterhouseCoopers all matters required to be
reviewed under generally accepted auditing standards.
The Audit Committee met with selected members of management and
PricewaterhouseCoopers to review financial statements, including quarterly
reports, discussing such matters as the quality of earnings; estimates,
reserves and accruals; the suitability of accounting principles; financial
reporting decisions; and audit adjustments.
The Audit Committee selected PricewaterhouseCoopers as Sohu's independent
auditors. In addition, the Audit Committee considered the quality and adequacy
of Sohu's internal controls and made recommendations to the full Board of
Directors for enhancing such controls.
Based upon its work and the information received in the inquiries outlined
above, the Audit Committee recommended to Sohu's Board of Directors that Sohu's
audited financial statements be included in Sohu's Annual Report on Form 10-K
for the year ended December 31, 2005 for filing with the Securities and
Exchange Commission.
The Audit Committee
Mr. Charles Huang
Dr. Dave Qi
Mr. Thomas Gurnee
6
COMPENSATION COMMITTEE REPORT
General Compensation Policy
The Compensation Committee believes that Sohu's compensation programs for
executive officers should be designed to attract, motivate, and retain talented
executives and should be determined within a competitive framework and based on
the achievement of overall financial results and individual contributions. The
Compensation Committee's objectives are to: (i) offer a total compensation
program that strives to be competitive with comparable talent at comparable
companies in China, but also permits recruiting and retention of talented
executives who might otherwise be employed by technology companies in the
United States and (ii) align the financial interests of executive officers with
those of the stockholders by providing equity-based incentive awards.
Base Salary
The base salary for each executive officer is set on the basis of the
responsibilities of the position held, the experience and performance of the
individual, and a review of comparable positions based on informal surveys of
the industry in China and the United States. In the past, Sohu generally has
targeted base salaries for its executive officers at the low end of the range
of comparable companies in China, but the Compensation Committee and the Board
of Directors have determined recently that, in order to attract and retain the
best persons possible, the base salaries for senior employees, including
executive officers, should be brought more in line with the middle of the range
of comparable companies in China.
Stock Options
Equity grants to Sohu's executive officers under Sohu's 2000 Stock
Incentive Plan allow the officers to acquire shares of Sohu's common stock at
the market price on the grant date over a specified period of time. Each option
typically vests in periodic installments from one to four years as specified in
the option agreement applicable to each grant. Generally, stock options are
granted when an executive joins Sohu. Additional options are granted from time
to time on the basis of an individual's performance, potential for future
responsibility and the number of unvested options held by the individual at the
time of the new grant. The grants are designed to align the interests of
executive officers with stockholders and to provide each executive officer with
a significant incentive to manage Sohu.
Other Elements of Executive Compensation
Compensation paid to Sohu's executive officers also generally includes
bonuses and the provision of housing and tax equalization. The bonus amount
paid to Dr. Zhang for 2005 was determined by the Compensation Committee based
on our financial results and certain operational milestones as well as the
results of our technology and product development efforts and a determination
by the Board that Dr. Zhang's annual compensation should be brought more in
line with that paid to the chief executives of other well-known technology
companies operating in China. The bonus amounts paid to Sohu's other executive
officers were determined by the Compensation Committee based on our 2005
financial results and other factors, including an evaluation of each
executive's overall qualitative performance, and a determination by the
Compensation Committee that senior employees' annual compensation should be
brought more in line with that paid to similarly situated senior employees of
other well-known technology companies operating in China.
Chief Executive Officer Compensation
The annual base salary for Dr. Zhang, Sohu's founder and Chief Executive
Officer, which is currently set by his employment agreement at $230,000 per
annum, was recommended by the Compensation Committee and approved by the Board
of Directors. Prior to December 31, 1999, Dr. Zhang, earned $50,000 per annum
in salary. In consideration of the significant growth and scale of Sohu's
operations under the leadership of Dr. Zhang, effective January 1, 2000, his
salary was increased to $100,000 per annum and Sohu provided to Dr. Zhang a
housing allowance and tax equalization at a rate of 15% of his salary. On March
1, 2001, Dr. Zhang's salary was increased to $150,000 to bring his salary
closer to those other senior executives of companies comparable to Sohu. Dr.
Zhang's base salary remained at $150,000 in 2002 and was $165,000 in 2003, 2004
and 2005. On January 1, 2006,
7
Dr. Zhang's salary was increased to $230,000. In 2005, in addition to his base
salary of $165,000, Dr. Zhang earned bonus payments totaling $147,560. The
Compensation Committee recommended to the Board, and the Board approved, a
significant bonus payment to Dr. Zhang for 2005 (1) in order to bring Dr.
Zhang's annual salary more in line with that paid to the chief executive
officers of similar companies in China, (2) Dr. Zhang's leadership in Sohu's
successful expansion of its Sogou search engine and (3) important milestones
achieved by Sohu during 2005, including advances in research and development of
Sohu's technology and Sohu's securing of the role of exclusive Internet
sponsorship of the 2008 Beijing Olympics.
Dr. Zhang was also granted options to purchase 30,000 shares of common
stock in July 2005. These options have an exercise price of $22.86 per share
and vest over four years, with 25% vesting on the first anniversary of the
grant date and the remaining 75% vesting in 12 equal quarterly installments
beginning one calendar quarter after the date of such anniversary. In granting
these options, the Board sought effectively to renew and continue Dr. Zhang's
equity incentive into future years, in view of the fact that a comparable
number of his options had become vested.
In 2005 Dr. Zhang also received a housing allowance of $36,000, tax
equalization of $46,026, a car allowance of $1,440 and payments for health,
travel and disability insurance of $8,673.
Compensation Committee
Dr. Edward B. Roberts
Mr. Thomas Gurnee
Compensation Committee Interlocks and Insider Participation
Mr. Thomas Gurnee was a member of the Compensation Committee during the
fiscal year ended December 31, 2005. From January 2000 until December 2000, Mr.
Gurnee served as Sohu's Chief Financial Officer and Senior Vice President,
Finance.
Proposal II. Amendment of Sohu's 2000 Stock Incentive Plan
In April 2006, the Board of Directors adopted an amendment to Sohu's 2000
Stock Incentive Plan to permit the issuance of restricted stock units to
directors, officers, employees, consultants and advisors under the Stock
Incentive Plan. The Amended Stock Incentive Plan is attached hereto as Appendix
C. The following is a summary of the material provisions of the Stock Incentive
Plan, which is qualified by the full Stock Incentive Plan attached as Appendix
C.
The Board of Directors adopted the Stock Incentive Plan in January 2000 to
assist Sohu in attracting and retaining qualified persons to serve as
employees, officers, directors, consultants and advisors who will contribute to
Sohu's success and the success of the members of its network. Sohu also seeks
to motivate those people to achieve long-term objectives which will benefit
Sohu's stockholders. Employees, officers, directors, consultants and advisors
of Sohu and its subsidiaries are eligible to receive options, to make direct
purchases of restricted common stock and, if the proposed amendments is
approved by Sohu's stockholders at the Annual Meeting, to receive grants of
restricted stock units under the Stock Incentive Plan. The Stock Incentive Plan
was approved by Sohu's stockholders on July 5, 2000. On May 17, 2001, the
stockholders approved an amendment to the Stock Incentive Plan whereby the
number of shares of common stock covered by the plan was increased from
2,340,000 to 7,000,000; on May 14, 2004, the stockholders approved an amendment
to the Stock Incentive Plan whereby the number of shares of common stock
covered by the plan was increased from 7,000,000 to 8,000,000; and on May 12,
2005, the stockholders approved an amendment to the Stock Incentive Plan
whereby the number of shares of common stock covered by the plan was increased
from 8,000,000 to 9,500,000 and direct purchases of stock are permitted under
the Stock Incentive Plan.
The Compensation Committee administers the Stock Incentive Plan and has
wide discretion to award options, authorize direct purchases of restricted
common stock, and, if the proposed amendment is approved, award restricted
stock units, subject to the limitations set forth below. Subject to the
provisions of the Stock Incentive Plan, the Compensation Committee determines
who will be granted options, authorized to make direct purchases of restricted
common stock, or, if the proposed amendment is approved, receive grants of
restricted stock units, the type and
8
timing of options to be granted, vesting schedules and other terms and
conditions of options, the restricted common stock, or, if the amendment is
approved, restricted stock units, including the exercise price in the case of
options and purchase price in the case of restricted common stock, except that
such determinations are required to be made by the full Board of Directors with
respect to grants of options or restricted stock units to, or direct purchases
of restricted common stock by, executive officers, members of the Board of
Directors and non-employees. A significant number of Sohu's employees are
granted options. The number of options or, if the amendment is approved,
restricted stock units, awarded to, or then number shares of restricted common
stock purchasable by, a person is based on the person's potential ability to
contribute to Sohu's success, the person's position with Sohu and, to some
degree, length of service.
The Board of Directors may award "incentive" stock options or
"non-qualified" stock options. Sohu has granted both incentive and
non-qualified stock options under the Stock Incentive Plan, although the
majority of its grants have been non-qualified stock options because most
grantees are non-U.S. taxpayers who could not derive any additional benefit
from receiving an incentive stock option, which is entitled to special
treatment under the U.S. Internal Revenue Code.
As of April 21, 2006, options to purchase 3,190,969 shares of common stock
were outstanding under the Stock Incentive Plan and 1,419,071 shares remained
available for future option grants. The weighted average exercise price for
these outstanding options is $14.81 per share. Most of these outstanding
options become exercisable on a schedule at least as rapid as the following:
o with respect to 25% of the shares subject to the option, on the first
anniversary of the date of grant; and
o with respect to the remaining 75% of the shares subject to the option,
in twelve equal quarterly installments beginning one calendar quarter
after the date of such anniversary.
No shares of restricted stock are outstanding under the plan as of April
21, 2006.
Incentive stock options terminate upon the first to occur of (i) three
months after termination of an option holder's employment for any reason other
than death or disability, 180 days after an option holder's death and one year
after termination of an option holder's employment because of disability and
(ii) ten years after the grant date (five years after the grant date in the
case of a holder of more than 10% of the total combined voting power of Sohu's
common stock). Nonqualified options terminate upon the date specified in the
agreement granting the option.
Subject to limitations set forth in the Stock Incentive Plan, the
provisions of the U.S. Internal Revenue Code applicable to incentive stock
options and Nasdaq rules, the Board may terminate or amend the Stock Incentive
Plan in any respect at any time.
Sohu has filed with the Securities and Exchange Commission Registration
Statements on Form S-8 covering the shares of common stock underlying options
granted under the Stock Incentive Plan and restricted stock purchasable under
the Stock Incentive plan and, assuming approval by Sohu's stockholders of the
proposed amendment, intends to file an amendment to such Registration
Statements to cover shares of common stock issued pursuant to restricted stock
unit grants.
On April 21, 2006, the last reported sales price for our common stock on
the Nasdaq National Market was $26.41 per share.
The Board of Directors believes it is in the interest of Sohu and its
stockholders to adopt the proposed amendment to the Stock Incentive Plan. The
Board believes the added flexibility of having grants of restricted stock units
available under the Stock Incentive Plan will assist Sohu to continue to
attract and retain key personnel and to strengthen the identity of such
persons' interests with the interests of Sohu's stockholders. A majority of the
votes cast by the stockholders represented at the meeting, in person or by
proxy, is required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT OF
SOHU'S 2000 STOCK INCENTIVE PLAN.
9
Equity Compensation Plan Information
As of December 31, 2005, Sohu's equity compensation plan information is
summarized as follows:
Number of Weighted-average Number of securities
securities to be exercise remaining available
issued upon price of for future issuance
exercise of outstanding under equity
outstanding options, compensation plans
options, warrants warrants (excluding securities
and rights and rights reflected in column (a))
Plan category (a) (b) (c)
- ---------------------------------------------- ------------------- ------------------ -------------------------
Equity compensation plans approved by security
holders 2000 Stock Incentive Plan ........... 3,585,858 $ 14.44 1,264,336
Equity compensation plans not approved by
security holders ............................ -- -- --
--------- ---------
Total ........................................ 3,585,858 $ 14.44 1,264,336
========= =========
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the
beneficial ownership of Sohu's common stock as of March 31, 2006 by (i) each
person (including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act")) known by Sohu to be the
beneficial owner of more than 5% of Sohu's common stock (assuming conversion of
all outstanding exercisable options and warrants held by that person), (ii)
each current director and nominee for election as director, (iii) Sohu's Chief
Executive Officer and each other executive officer of Sohu named in this Proxy
Statement under the heading "Executive Compensation" and (iv) all current
directors and executive officers of Sohu as a group. Except as otherwise
provided in the footnotes to this table, Sohu believes that the persons named
in this table have voting and investment power with respect to all the shares
of common stock indicated.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership(1) Percent of Class(1)
- --------------------------------------------------------- ------------------------- --------------------
Charles Zhang (2) ....................................... 9,739,750 26.40%
Edward Roberts (3) ...................................... 995,147 2.70%
Thomas Gurnee (4) ....................................... 234,000 *
Charles Huang (5) ....................................... 49,000 *
Mary Ma (6 .............................................. 29,000 *
Carol Yu (7) ............................................ 113,125 *
Dave Qi (8) ............................................. 10,000 *
Shi Wang (9) ............................................ 10,000 *
Photon Group Limited (10) ............................... 7,917,000 21.48%
Pictet (London) Limited (11) ............................ 1,877,445 5.09%
All directors, nominees and executive officers as a group
(8 persons) . .......................................... 11,180,022 29.91%
- ------------
* Less than 1%.
(1) Includes the number of shares and percentage ownership represented by such
shares determined to be beneficially owned by a person in accordance with
the rules of the Securities and Exchange Commission, or the SEC. The number
of shares beneficially owned by a person includes shares of common stock
subject to options, convertible debt or warrants held by that person that
are currently exercisable or convertible or exercisable or convertible
within 60 days. Such shares are deemed outstanding for the purpose of
computing the percentage of outstanding shares owned by that person. Such
shares are not deemed outstanding, however, for the purpose of computing
the percentage ownership of each other person.
(2) Includes (i) 46,188 shares subject to options exercisable within 60 days of
March 31, 2006, (ii) 1,200,000 shares subject to a variable prepaid forward
sales contract Dr. Zhang entered into with Credit Suisse First Boston,
(iii) 7,917,000 shares beneficially owned by Photon Group Limited, of which
Dr. Zhang is a Director and therefore may be deemed to be a beneficial
owner of such shares. Dr. Zhang disclaims beneficial ownership of such
shares. Dr. Zhang's address is c/o Sohu.com Inc., Level 12, Vision
International Center, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People's Republic of China.
(3) Includes (i) 49,000 shares subject to options held by Dr. Edward B. Roberts
which are exercisable within 60 days of March 31, 2006, (ii) 200,000 shares
are subject to a variable prepaid forward sales contract with
SmithBarney/Citigroup, (iii) 376,747 shares are held
10
by the Dr. Edward B. Roberts Trust -- 2003, dated as of October 3, 2003;
and (iv) 309,000 shares are held by the Nancy H. Roberts Trust -- 2003,
dated as of October 3, 2003. Dr. Roberts and his wife, Nancy Roberts, are
the trustees of both trusts. Dr. Roberts's address is 300 Boylston Street,
Boston, Massachusetts 02116, U.S.A.
(4) Includes 234,000 shares subject to options exercisable within 60 days of
March 31, 2006. Mr. Gurnee's address is 18545 Vassing Road, Saratoga,
California 95070, U.S.A.
(5) Includes 49,000 shares subject to options exercisable within 60 days of
March 31, 2006. Mr. Huang's address is Suite 5206, Central Plaza, 18
Harbour Road, Hong Kong.
(6) Includes 29,000 shares subject to options exercisable within 60 days of
March 31, 2006. Ms. Ma's address is No. 6 Chuang Ye Road, Haidian District,
Beijing, People's Republic China.
(7) Includes 98,125 shares subject to options exercisable within 60 days of
March 31, 2006. Ms. Yu's address is c/o Sohu.com Inc., Level 12, Vision
International Center, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People's Republic of China.
(8) Includes 10,000 shares subject to options exercisable within 60 days of
March 31, 2006. Dr. Qi's address is Tower E3, Oriental Plaza, East Chang An
Avenue, Beijing, China
(9) Includes 10,000 shares subject to options exercisable within 60 days of
March 31, 2006. Mr. Wang's address is Vanke Architecture Research Center,
No. 63 Meilin Road, Futian District, Shenzhen 518049, People's Republic of
China
(10) Photon Group Limited's address is P.O. Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British Virgin Islands.
(11) Pictet (London) Limited's address is Tower 42 Level 37, 25 Old Broad
Street, London EC2N 1HQ, United Kingdom.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Sohu's directors and executive
officers and holders of more than 10% of Sohu's common stock to file with the
SEC initial reports of ownership and reports of changes in ownership of common
stock and other equity securities of Sohu. Directors, executive officers and
holders of more than 10% of Sohu's common stock are required by SEC regulations
to furnish Sohu with copies of all Section 16(a) forms they file. Based solely
on a review of copies of reports furnished to Sohu or written representations
that no other reports were required, Sohu believes that during the fiscal year
ended December 31, 2005, its directors, executive officers and holders of more
than 10% of Sohu's common stock complied with all applicable Section 16(a)
reporting requirements, except that (i) Ms. Mary Ma filed a Form 4 late for one
transaction that took place on April 14, 2005; (ii) Mr. Edward Roberts filed a
Form 4 late for one transaction that took place on May 31, 2005; (iii) Mr. Wang
Shi filed a Form 4 late for one transaction that took place on August 16, 2005;
and (iv) Ms. Carol Yu filed a Form 4 late for one transaction that took place
on August 16, 2005.
EXECUTIVE OFFICERS
Sohu's executive officers are Dr. Charles Zhang and Ms. Carol Yu. For a
description of the background of Dr. Zhang, see "ELECTION OF DIRECTORS."
Carol Yu, age 43, has served as Sohu's Chief Financial Officer since March
2004. From December 2000 until December 2001, Ms. Yu served as Vice President
of Guangdong Kelon Refrigerating Company Limited, a home appliance manufacturer
in the People's Republic of China. From March 1995 until November 2000, Ms. Yu
served as Senior Vice-President Investment Banking of Donaldson Lufkin &
Jenrette Securities Corporation in Hong Kong. Ms. Yu also worked with Arthur
Andersen Hong Kong and Beijing for ten years and was a partner of the Audit
Division, holding the position of General Manager of Arthur Andersen-Hua Qiang,
the joint venture accounting firm formed between Arthur Andersen and the
Ministry of Finance in China. In addition, Ms. Yu is a Hong Kong Certified
Public Accountant.
11
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation earned by the
Chief Executive Officer and each of the other named executive officers of Sohu
for services rendered in all capacities to Sohu during fiscal 2005, 2004 and
2003:
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------
Other
Annual
Salary Bonus Compensation
Year ($) ($) ($)
Name and Principal Position (a) (b) (c) (d) (e)
- --------------------------------- ------ ----------- ---------------- --------------
Charles Zhang (1) ............... 2005 $165,000 $ 147,560 $ 83,466
Chairman of the Board and 2004 $165,000 $ 10,952(4) $ 82,183
Chief Executive Officer 2003 $165,000 $ 78,210 $100,645
Carol Yu (2) .................... 2005 $186,000 $ 128,000 $ 36,000
Chief Financial Officer 2004 $151,296 $ 37,433(4) $ 90,000
Victor Koo (3) .................. 2005 $ 45,000 $ 18,000(4) $ 26,516
Former President and 2004 $157,500 $ 34,020(4) $ 54,854
Chief Operating Officer 2003 $150,000 $ 62,081 $ 73,328
Derek Palaschuk (8) ............. 2005 -- -- --
Former Senior Vice President 2004 $ 32,667 $ 16,380(4) $ 6,533
and Chief Financial Officer 2003 $120,000 $ 39,960 $ 50,509
Long-Term Compensation
-------------------------------------
Awards Payouts
--------------------------- ---------
Restricted Securities
Stock Underlying LTIP All Other
Award(s) Options/SARs Payouts Compensation
($) (#) ($) ($)
Name and Principal Position (a) (f) (g) (h) (i)
- --------------------------------- ------------ -------------- --------- -----------------------
Charles Zhang (1) ............... -- 30,000 -- $ 8,673(5)
Chairman of the Board and -- 9,000 -- $ 8,390(5)
Chief Executive Officer -- 100,000 -- $ 3,874(5)
Carol Yu (2) .................... -- 40,000 -- $ 9,266(5)
Chief Financial Officer -- 180,000 -- $ 3,932(5)
Victor Koo (3) .................. -- -- -- $166,707(5)(7)
Former President and -- 30,000 -- $ 8,367(5)
Chief Operating Officer -- 60,000 -- $ 6,286(5)
Derek Palaschuk (8) ............. -- -- -- --
Former Senior Vice President -- -- -- $ 93,183(5)(6)
and Chief Financial Officer -- 50,000 -- $ 9,059(5)
- ------------
(1) The $83,466 of other annual compensation paid to Dr. Zhang in 2005 consists
of a $36,000 housing allowance, $46,026 for tax equalization and a $1,440
car allowance. The $82,183 of other annual compensation paid to Dr. Zhang
in 2004 consists of a $36,000 housing allowance, $44,743 for tax
equalization and a $1,440 car allowance. The $100,645 of other annual
compensation paid to Dr. Zhang in 2003 consists of a $36,000 housing
allowance, $56,705 for tax equalization, $6,500 of professional fees for
his personal tax returns and a $1,440 car allowance.
(2) The $36,000 of other annual compensation paid to Ms. Yu in 2005 consists of
a $36,000 housing allowances. The $90,000 of other annual compensation paid
to Ms. Yu in 2004 consists of a $30,000 housing allowances and a $60,000
moving allowance.
(3) The $26,516 of other annual compensation paid to Mr. Koo in 2005 consists
of a $16,500 housing allowance and $1,617 as professional fees, and $8,399
for tax equalization. The $54,854 of other annual compensation paid to Mr.
Koo in 2004 consists of a $30,000 housing allowance, and $24,854 for tax
equalization. The $73,328 of other annual compensation paid to Mr. Koo in
2003 consists of a $22,800 housing allowance, $1,500 of professional fees
for his personal tax returns and $49,028 for tax equalization.
(4) The bonuses earned in 2004 by Dr. Zhang, Ms. Yu, Mr. Koo and Mr. Palaschuk
were $10,952, $37,433, $34,020 and $16,380, respectively, which were
determined subsequent to the date of filing the proxy statement for the
year ended December 31, 2004. The $18,000 paid to Mr. Koo was his bonus
earned in the first quarter of 2005.
(5) Sohu paid $8,673, $9,266 and $8,707 in 2005 for group health, travel and
disability insurance for Dr. Zhang, Ms. Yu and Mr. Koo, respectively. Sohu
paid $8,390, $3,932, $8,367 and $6,533 in 2004 for group health, travel and
disability insurance for Dr. Zhang, Ms. Yu, Mr. Koo and Mr. Palaschuk,
respectively. Sohu paid $3,874, $6,286, and $9,059 in 2003 for group
health, travel and disability insurance for Dr. Zhang, Mr. Koo and Mr.
Palaschuk, respectively.
(6) Amount also includes $72,000 in severance payments made to Mr. Palaschuk in
2004 and $14,650 in payment for consulting services provided by Mr.
Palaschuk in 2004.
(7) Amount also includes $90,000 in severance payments made to Mr. Koo in 2005
and $68,000 in payment for consulting services provided by Mr. Koo in 2005.
(8) The $6,533 of other annual compensation paid to Mr. Palaschuk in 2004
consists of a $6,533 housing allowance. The $50,509 of other annual
compensation paid to Mr. Palaschuk in 2003 consists of a $24,000 housing
allowance, $1,147 in tuition fees for his child and $25,362 for tax
equalization.
12
OPTION GRANTS
The following table sets forth information regarding stock options granted
during the last fiscal year to the executive officers listed in the Summary
Compensation Table under the heading.
Individual Grants
----------------------------------------------------------
Potential
Realizable Value
Percent Of At Assumed
Number Total Annual Rates of Alternative To
Of Options/ Stock Price (f) and (g):
Securities SARs Appreciation For Grant Date
Underlying Granted Exercise Or Option Term (1) Value
Options/SARs To Employees Base Price Expiration ---------------------- Grant Date
Name Granted (#) In Fiscal Year ($/Sh) Date 5% ($) 10% ($) Present Value $
- --------------------- -------------- ---------------- ------------- ------------ --------- ------------ ----------------
(a) (b) (c) (d) (e) (f) (g) (h)
Charles Zhang ....... 30,000(2) 1.69% $ 22.86 7/25/2015 329,653 931,139 --
Carol Yu ............ 40,000(2) 2.25% $ 20.78 7/25/2015 522,737 1,324,719 --
Victor Koo .......... -- -- -- -- -- -- --
Derek Palaschuk ..... -- -- -- -- -- -- --
- ------------
(1) The potential realizable value is based on the term of the option at the
time of its grant, which is ten years for the stock options granted to the
executive officers in the table. The assumed 5% and 10% annual rates of
appreciation over the term of the options are set forth in accordance with
rules and regulations adopted by the Securities and Exchange Commission and
do not represent our estimates of stock price appreciation. The potential
realizable value is calculated using the market value per share at the
grant date as the base value on which appreciation has been calculated.
Actual gains, if any, on stock option exercises are dependent upon a number
of factors, including the future performance of the common stock and the
timing of option exercises, as well as the optionee's continued employment
through the vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.
(2) Options granted vest over a four-year period, with 25% of the options
vesting on March 30, 2006 and the remaining options vesting ratably on a
quarterly basis over the remaining term of the options.
AGGREGATED OPTION EXERCISES AND
FISCAL YEAR END OPTION VALUES
The following table sets forth information regarding stock option
exercises during the fiscal year ended December 31, 2005 by the officers of
Sohu listed on the Summary Compensation Table and the fiscal year-end value of
unexercised in-the-money options held by those officers:
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at Fiscal Year End at Fiscal Year End (1)($)
On Value ------------------------------- ---------------------------------
Name Exercise Received Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ---------- ------------- ------------- --------------- ------------- --------------
Charles Zhang ........... 132,969 $2,050,567 46,188 41,250 $ 374,259 $186,563
Carol Yu ................ -- -- 98,125 121,875 $ 19,688 $ 25,313
Victor Koo .............. 232,662 $3,657,701 -- -- -- --
Derek Palaschuk ......... 9,562 $ 162,139 -- -- -- --
- ------------
(1) Based on reported last sale price of Sohu common stock of $18.34 per share
on December 30, 2005, less the option exercise price.
Employment and Related Agreements
The summaries of the various agreements set forth below are qualified in
their entirety by reference to the full text of the agreements, which are (i)
an exhibit to Sohu's Quarterly Report on Form 10-Q for the quarter ended March
31, 2003, in the case of the January 2003 agreement with Mr. Victor Koo, (ii)
an exhibit to Sohu's Quarterly Report on Form 10-Q for the quarter ended March
31, 2004, in the case of the March 8, 2004 agreement with Ms. Carol Yu, and
(iii) an exhibit to Sohu's Current Report on Form 8-K filed on February 8,
2005, in the case of the resignation agreement with Mr. Victor Koo.
13
General Terms of Employment Agreement with Executives
Sohu normally enter into three-year employment agreement with its
executives. These employment agreements provide that the named executive will
receive (i) base salaries, (ii) incentive bonuses based on certain performance
criteria and (iii) stock options and other incentive awards. The employment
agreements also provide for the following additional benefits for the named
executives: vacation time and sick leave, health and medical insurance, life
and disability insurance, housing allowances, reimbursement of tuition fees for
the executives' children and tax equalization.
The employment agreements generally provide for continued employment until
termination by either party. Sohu may terminate any of the named executives'
employment with or without cause at any time. However, if the termination is
without cause, Sohu must provide the executive with 30 days' prior notice of
termination. If Sohu terminates without cause or an executive terminates his
employment for good reason (each as defined in the employment agreements), the
executive will be entitled to the following:
o The executive will continue to receive payments equal to the executive's
monthly base salary in effect on the date of termination for the shorter
of (i) six months and (ii) the remainder of the term of the executive's
employment agreement;
o Health insurance benefits will be provided at Sohu's expense for so long
as Sohu is obligated to pay severance; and
o Sohu will be obligated to continue to carry the executive on its
directors and officers' insurance policy for six years following the
date of termination at Sohu's expense, subject to certain limits on the
costs of the premiums.
In addition, if Sohu terminates an executive's employment without cause
and the termination is within the one-year period following a change in control
of Sohu (as defined in the employment agreements), all of the executive's stock
options and other stock awards will become immediately exercisable and any Sohu
repurchase rights will immediately terminate.
Also, if Sohu terminates an executive's employment agreement without
cause, if an executive terminates his employment agreement for good reason or
if an executive dies or becomes disabled, the executive will be entitled to
receive the bonus to which he would have been entitled had he continued to be
employed through the end of the then current year.
In addition, if an executive violates the agreement referred to below
related to confidentiality, nonsolicitation, noncompetition and assignment of
intellectual property after the termination of his employment:
o the executive will not be entitled to any further payments from Sohu;
and
o any insurance or other benefits that have continued will terminate
immediately.
The employment agreements also require the executives to enter into
agreements providing for (i) assignment of intellectual property, (ii)
confidential treatment of Sohu's proprietary information and (iii) during the
term of their employment and for the following year, (a) nonsolicitation of
Sohu's employees, contractors, customers, suppliers and partners and (b)
non-competition with Sohu.
Employment Agreement with Dr. Charles Zhang
Effective as of January 1, 2003, Sohu entered into three-year employment
agreement with Dr. Charles Zhang. The employment agreement provided that Dr.
Zhang received base salaries of $165,000 per year. In addition, Dr. Zhang
receives a car allowance under his employment agreement.
If (i) Dr. Zhang fails to comply with (a) the terms of his employment
agreement, (b) the agreement related to confidentiality, nonsolicitation,
noncompetition and assignment of intellectual property, or (c) the written
policies and procedures of Sohu, (ii) Dr. Zhang acts against the specific
instructions of Sohu's Board of Directors, or (iii) Dr. Zhang's employment is
terminated by Sohu for cause, he will forfeit all options and other stock
awards, whether vested or not, and all shares of common stock of Sohu, if any,
purchased by him pursuant to the exercise
14
of stock options or other stock awards and still then owned by him may be
repurchased by Sohu at the price paid by him.
On April 24, 2006, Sohu renewed the employment agreement with Dr. Charles
Zhang, which was identical in all material respects to the agreement that Dr.
Zhang entered into in 2003, except that Dr. Zhang's annual base salary was
increased to $230,000 and that Dr. Zhang's target bonus was increased to 50% of
his base salary.
Employment Agreement and Related Agreement with Mr. Victor Koo
Effective as of January 1, 2003, Sohu entered into a three-year employment
agreement with Mr. Victor Koo. The employment agreement provided that Mr. Koo
received base salaries of $150,000 per year, which was increased to $180,000 by
the Board of Directors effective on October 1, 2004. Mr. Koo's agreement had
parallel conditions of forfeiture similar to that of Dr. Zhang, but in Mr.
Koo's case the forfeiture is limited to all unvested stock options and other
stock awards.
On November 18, 2004, Sohu announced that Mr. Koo would resign from the
company effective March 31, 2005 to pursue entrepreneurial business
opportunities. In connection with this resignation, Sohu entered into an
agreement with Mr. Koo, pursuant to which:
o Except for certain specified provisions, Mr. Koo's January 2003
employment agreement was terminated on March 31, 2005;
o Mr. Koo served as a part-time consultant (on strategic and major
partnership matters) to Sohu from April 1, 2005 until September 1, 2005
for an aggregate of $68,000 in fees;
o Mr. Koo agreed not to compete with Sohu or solicit any of its employees
until the end of the consulting period. These provisions replaced the
non-competition and non-solicitation provisions of Mr. Koo's
aforementioned confidentiality, non-competition and non-solicitation
agreement with Sohu, but the remaining provisions of that agreement
remained in effect;
o Mr. Koo's health benefits and life insurance were continued through
December 31, 2005;
o Mr. Koo continued to receive his base annual salary and housing
allowance, as provided in his employment agreement, through September
30, 2005;
o Mr. Koo's options continued to vest through September 30, 2005 in
accordance with the applicable vesting schedules and his options, to the
extent vested, were exercisable until March 31, 2006; and
o Mr. Koo received a bonus for the period from January 1, 2005 through
March 31, 2005, pro-rated for such period, to the extent of any bonus
that he would have received for the entire 2005 fiscal year.
Employment Agreement with Ms. Carol Yu
On March 8, 2004, Sohu entered into an employment agreement with Ms. Carol
Yu, Sohu's current Chief Financial Officer, that is identical to the normally
executive employment agreement, except that:
o the agreement provided that Ms. Yu's annual base salary was $186,000,
which was increased to $230,000 effective as of January 1, 2006;
o the agreement does not entitle Ms. Yu to a car allowance;
o the agreement provided for a target bonus of 35% of her base salary,
which was increased to 50% effective as of January 1, 2006; and
o the agreement entitles Ms. Yu to reimbursement of her moving expenses
of up to $60,000, which is required to be repaid on the following
schedule: the entire amount is to be repaid if Ms. Yu leaves prior to
the first anniversary of her employment; two-thirds is to be repaid if
she leaves between the first anniversary and the second; and one-third
is to be repaid if she leaves between the second anniversary and the
third.
15
PERFORMANCE GRAPH
The following graph compares, for the period that Sohu's common stock has
been registered under Section 12 of the Exchange Act (which commenced July 12,
2000), the cumulative total stockholder return for Sohu, the Nasdaq Stock
Market (U.S. companies) Index (or the Nasdaq Market Index) and the Hemscott
Group Index for Internet Information Providers (or Hemscott Group Index).
Measurement points are July 12, 2000 (the first trading day) and the last
trading day of Sohu's fiscal years ended December 31, 2000, December 31, 2001,
December 31, 2002, December 31, 2003, December 31, 2004 and December 31, 2005.
The graph assumes that $100 was invested on July 12, 2000 in the common stock
of Sohu, the Nasdaq Market Index, and the Hemscott Group Index, and assumes
reinvestment of any dividends. The stock price performance on the following
graph is not necessarily indicative of future stock price performance.
COMPARE CUMULATIVE TOTAL RETURN
AMONG SOHU.COM INC.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
ASSUMES $100 INVESTED ON JULY 12, 2000
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED DEC. 31, 2005
Sohu.com Inc. Hemscott Group Index NASDAQ Market Index
--------------- ---------------------- --------------------
07/12/2000 .......... 100.00 100.00 100.00
12/31/2000 .......... 18.27 47.26 62.01
12/31/2001 .......... 9.23 25.81 49.43
12/31/2002 .......... 49.23 21.57 34.48
12/31/2003 .......... 230.08 60.00 51.84
12/31/2004 .......... 136.23 87.82 56.20
12/31/2005 .......... 141.08 133.47 57.44
16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Mr. Zhang Tao
- -----------------------------------
Approximately 80% of the Company's e-commerce cash on delivery services
are being provided by Beijing Qingfan Delivery Co., Ltd., or Qingfan, a company
owned by Mr. Zhang Tao, the brother of Dr. Charles Zhang, Sohu's Chief
Executive Officer, Chairman and a major Sohu stockholder. Total delivery fees
incurred by the Company to Qingfan were approximately $184,000 for the year
ended December 31, 2005.
(b) Transactions related to Beijing Sohu Online Network Information Services,
- -----------------------------------------------------------------------------
Ltd., Beijing Century High-Tech Investment Co., Ltd., Beijing Hengda Yitong
- ---------------------------------------------------------------------------
Internet Technology Development Co., Ltd., Beijing Sohu Internet Information
- ----------------------------------------------------------------------------
Service Co., Ltd., Beijing Goodfeel Information Technology Co., Ltd., Beijing
- -----------------------------------------------------------------------------
Huohu Digital Technology Co., Ltd., Beijing Tu Xing Tian Xia Information
- ------------------------------------------------------------------------
Consultancy Co., Ltd., Beijing Feng Yang Tian Lang Advertising Co., Ltd. and
- ----------------------------------------------------------------------------
Beijing Sogou Information Service Co., Ltd.
- -------------------------------------------
Beijing Sohu Online Network Information Services, Ltd., or Beijing Sohu,
is owned 80% by Dr. Charles Zhang and 20% by High Century. Beijing Sohu now
engages in Internet information services in the People's Republic of China, or
PRC.
Beijing Century High-Tech Investment Co., Ltd., or High Century, is owned
80% by Dr. Charles Zhang and 20% by an employee of Sohu. High Century engages
in investments in the PRC on behalf of Sohu.
Beijing Hengda Yitong Internet Technology Development Co., Ltd., or
Hengda, is owned by two employees of Sohu who are both PRC nationals and who
own 80% and 20% respectively. Hengda engages in Internet information and
wireless services in the PRC on behalf of Sohu.
Current PRC regulations prohibit foreign companies such as Sohu from
owning or operating telecommunications, Internet content and certain other
businesses in China. Sohu's indirect wholly owned PRC subsidiaries, Sohu ITC
Information Technology (Beijing) Co., Ltd., or Beijing ITC, and Beijing Sohu
New Era Information Technology Co., Ltd., or Sohu Era, do not have licenses to
provide Internet content and information services. Beijing Sohu Internet
Information Service Co. Ltd., or Sohu Internet, a PRC company that has received
approval to develop Internet content and information services, conducts the
content-related operations. Sohu Internet engages in Internet information,
wireless and e-commerce services in the PRC on behalf of Sohu. Sohu Internet is
owned 75% by High Century and 25% by Hengda.
Beijing Goodfeel Information Technology Co., Ltd., or Goodfeel, is owned
58.1% and 41.9%, respectively, by two employees of Sohu. Goodfeel engages in
value added wireless services in the PRC on behalf of Sohu.
Beijing Huohu Digital Technology Co., Ltd., or Huohu, is owned 75% by Sohu
Era, one of the indirect China-based subsidiaries of the Company, 25% by an
employee of Sohu. Huohu engages in software and technology development for
gaming business.
In May 2005, High Century and Sohu Internet acquired 56.1% and 43.9%
interests, respectively, in Beijing Tu Xing Tian Xia Information Consultancy
Co., Ltd., or Tu Xing Tian Xia. Tu Xing Tian Xia engages in mapping services in
the PRC.
Beijing Feng Yang Tian Lang Advertising Co., Ltd., or Feng Yang Tian Lang
is owned 50% by Sohu Internet, 50% by High Century. Feng Yang Tian Lang engages
in advertising services in PRC.
Beijing Sogou Information Service Co., Ltd., or Sogou Information, is
owned by two employees of Sohu, each of whom owns 50%. Sogou Information
engages in Internet information services in the PRC.
Because PRC regulations prohibit foreign companies from operating in the
telecommunications industry, Sohu Internet contracted with mobile network
operators on behalf of Sohu that generated wireless revenues of $26,330,000
during the year ended December 31, 2005. The relevant costs incurred by Sohu
Internet under the terms of such contracts was $11,983,000 during the year
ended December 31, 2005. Sohu Internet also generated e-commerce revenues of
$3,801,000 and incurred costs related to such e-commerce revenues of $3,901,000
during the year ended December 31, 2005. Hengda contracted with a fixed line
telephone network operator that generated
17
other revenues of $157,000 during the year ended December 31, 2005. The
relevant costs incurred by Hengda under the terms of such contract was $29,000
for Internet access services during the year ended December 31, 2005.
Loan Agreements
As of December 31, 2005, Sohu had outstanding long term loans of $9.8
million to Dr. Zhang and other employees for purposes of funding Sohu's
investments in Beijing Sohu, High Century, Hengda, Goodfeel, Huohu and Sogou
Information. No such loans were made to Dr. Zhang after the enactment of the
Sarbanes-Oxley Act of 2002. Sohu uses long term loans to these parties for
funding Sohu's investments in Beijing Sohu, High Century, Hengda, Goodfeel,
Huohu and Sogou Information because, as discussed above, PRC regulations
prohibit or restrict foreign companies such as Sohu from owning or operating
telecommunications, Internet content and certain other businesses in China.
The agreements contain provisions that, subject to PRC law, (i) the loans
can only be repaid to Sohu by transferring the shares of Beijing Sohu, High
Century, Hengda, Goodfeel, Huohu or Sogou Information to Sohu, (ii) the shares
of Beijing Sohu, High Century, Hengda, Goodfeel, Huohu or Sogou Information
cannot be transferred without the approval of Sohu, and (iii) Sohu has the
right to appoint all directors and senior management personnel of Beijing Sohu,
High Century, Hengda, Goodfeel, Huohu and Sogou Information. Dr. Zhang and the
other employee borrowers have pledged all of their shares in Beijing Sohu, High
Century, Hengda, Goodfeel, Huohu and Sogou Information as collateral for the
loans and the loans bear no interest and are due on demand after November 2003,
in the case of High Century, after November 2005, in the case of Huohu, after
August 12, 2006, in the case of Sogou Information, after October 2006, in the
case of Goodfeel, after November 3, 2006, in the case of Hengda and the earlier
of a demand or 2010, in the case of Beijing Sohu, or, in any case, at such time
as Dr. Zhang or the other employee borrowers, as the case may be, is not an
employee of Sohu. Sohu does not intend to request repayment of the loans as
long as PRC regulations prohibit it from directly investing in businesses being
undertaken by the VIEs.
(c) Transactions with Lenovo Group Limited
- ------------------------------------------
In fiscal 2005, Lenovo Group Limited purchased advertising service
amounted to $1,105,000 from Sohu. Ms. Mary Ma, one of our Directors, is the
Executive Director, Vice President and Chief Financial Officer of Lenovo Group
Limited.
(d) Transactions with Vanke Co., Limited
- ----------------------------------------
In fiscal 2005, China Vanke Co., Limited purchased advertising service
amounted to $22,000 from Sohu. Mr. Wang Shi, one of our Directors, is the
Chairman of Vanke Co., Limited.
Proposal III. Ratification of Appointment of Independent Auditors
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers as Sohu's independent auditors for the fiscal year
ending December 31, 2006. Representatives of PricewaterhouseCoopers will be
present at the Annual Meeting of Stockholders, will have the opportunity to
make a statement if they so desire and will be available to respond to
appropriate questions. Unless otherwise instructed on the proxy, properly
executed proxies will be voted in favor of ratifying the selection of
PricewaterhouseCoopers to audit the books and accounts of Sohu for the fiscal
year ending December 31, 2006.
Principal Accountant Fees and Services
Audit fees
----------
The aggregate fees billed by PricewaterhouseCoopers for professional
services rendered for the audit of Sohu's annual financial statements for the
fiscal year ended December 31, 2005, including the reviews of the financial
statements included in Sohu's Quarterly Reports on Form 10-Q, assistance with
Securities Act filings and the audit of management's assertion as to the
effectiveness of internal control over financial reporting required under Item
308 of Regulation S-K, were $856,000.
18
The aggregate fees billed by PricewaterhouseCoopers for professional
services rendered for the audit of Sohu's annual financial statements for the
fiscal year ended December 31, 2004, including the reviews of the financial
statements included in Sohu's Quarterly Reports on Form 10-Q, assistance with
Securities Act filings and the audit of management's assertion as to the
effectiveness of internal control over financial reporting required under Item
308 of Regulation S-K, were $1,201,730.
Audit-Related Fees
------------------
The aggregate fees billed by PricewaterhouseCoopers for assurance and
related services that are reasonably related to the performance of the audit or
review of Sohu's financial statements, and are not reported above, were
$810,000 for the fiscal year ended December 31, 2005 and $72,030 for the fiscal
year ended December 31, 2004. Such services for fiscal 2005 include advisory
services with respect to Sohu's efforts to enhance effective internal control
over financial reporting, due diligence exercise and audit of financial
statements in connection with acquisition of Go2Map and audit of segment
information. Such services for fiscal 2004 are attributable to Sohu's
acquisition of Goodfeel and general training regarding concepts and principles
in information technology controls.
Tax Fees
--------
The aggregate fees billed by PricewaterhouseCoopers for professional
services rendered for United States and People's Republic of China tax
compliance, tax advice, and tax planning were $198,000 for the fiscal year
ended December 31, 2005 and $150,902 for the fiscal year ended December 31,
2004. Such services for fiscal 2005 consisted of tax planning advisory
services, in related with Sohu's U.S. income tax, and U.S. and People's
Republic of China individual income tax for management and employees. Such
services for fiscal 2004 consisted of U.S. tax advice and compliance in
connection with Sohu's U.S. and People's Republic of China tax filings for
calendar year 2004.
All Other Fees
--------------
There were no other fees billed by PricewaterhouseCoopers for services
rendered to Sohu, other than the services described above.
Since the enactment of the Sarbanes-Oxley Act of 2002, the Audit Committee
has pre-approved all services provided by PricewaterhouseCoopers.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS AS INDEPENDENT AUDITORS.
19
MISCELLANEOUS
CODE OF ETHICS
Sohu has adopted a code of ethics that applies to the company's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of the code of
ethics is filed as an exhibit to Sohu's Annual Report on Form 10-K for the
fiscal year ended December 31, 2003.
OTHER MATTERS
Sohu's Board of Directors is not aware of any matter, other than those
described above, that may come before the meeting. However, if any matters are
properly presented to the meeting for action, it is intended that the persons
named in the enclosed proxy will vote on such matters in accordance with their
best judgment.
COMMUNICATIONS WITH DIRECTORS
Sohu's Board of Directors has not established a formal process for
stockholders to send communications to the Board of Directors and individual
directors. However, the names of all directors are available to stockholders in
this proxy statement. If Sohu receives any stockholder communication intended
for the full Board of Directors or any individual director, Sohu will forward
the communication to the full Board of Directors or the individual director,
unless the communication is clearly of a marketing nature or is unduly hostile,
threatening, illegal, or similarly inappropriate, in which case Sohu has the
authority to discard the communication or take appropriate legal action
regarding the communication.
All members of the Board of Directors are encouraged, but not required, to
attend Sohu's annual meetings of stockholders. At Sohu's 2005 annual meeting of
stockholders, one of the seven directors then in office was in attendance.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be considered for inclusion in
Sohu's proxy materials for the 2007 Annual Meeting of Stockholders, it must be
received by Sohu at Level 12, Vision International Center, No. 1 Unit
Zhongguancun East Road, Haidian District, Beijing 100084, People's Republic of
China, Attention: Jessica Zhang, no later than December 29, 2006. Proposals of
stockholders intended to be considered at the 2007 Annual Meeting of
Stockholders, but not included in Sohu's proxy materials for that meeting, must
be received by Sohu at the above address no less than 60 days nor more than 90
days prior to that meeting; provided, however, that if the date of the meeting
is first publicly announced or disclosed (in a public filing or otherwise) less
than 70 days prior to the date of the meeting, the proposal must be received
not more than ten days after the date of the meeting is first announced or
disclosed.
ANNUAL REPORT
A copy of Sohu's 2005 Annual Report to Stockholders is being mailed with
this Proxy Statement to each stockholder entitled to vote at the Annual
Meeting. Stockholders not receiving a copy of such Annual Report may obtain
one, without charge, by writing or calling Jessica Zhang of at Level 12, Vision
International Center, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People's Republic of China, telephone (011) 8610-6272-6616, or
by e-mail at xinzhang@sohu-inc.com.
VOTING VIA THE INTERNET OR BY TELEPHONE
For Shares Directly Registered in the Name of the Stockholder
Stockholders with shares registered directly with The Bank of New York may
vote those shares telephonically by calling The Bank of New York at
1-866-242-2612 (within the U.S. and Canada only, toll-free) or at
1-215-521-1348 (outside the U.S. and Canada), or via the Internet at The Bank
of New York's voting Web site (https://www.proxyvotenow.com/sohu).
20
For Shares Registered in the Name of a Broker or a Bank
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers telephone and Internet
voting options. This program is different from the program provided by The Bank
of New York for shares registered directly in the name of the stockholder. If
your shares are held in an account with a broker or a bank participating in the
ADP Investor Communication Services program, you may be able to vote those
shares telephonically by calling the telephone number shown on the voting form
received from your broker or bank, or via the Internet at ADP Investor
Communication Services' voting Web site (www.proxyvote.com).
General Information for All Shares Voted Via the Internet or By Telephone
Votes submitted via the Internet or by telephone must be received by 4
P.M. E.S.T. on June 8, 2006. Submitting your proxy via the Internet or by
telephone will not affect your right to vote in person should you decide to
attend the Annual Meeting. The telephone and Internet voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to
give their voting instructions and to confirm that stockholders' instructions
have been recorded properly. Stockholders voting via the Internet should
understand that there might be costs associated with electronic access, such as
usage charges from Internet access providers and telephone companies that must
be borne by the stockholder.
By order of the Board of Directors
People's Republic of China
May 2, 2006
21
Appendix A
Audit Committee Charter
A-1
SOHU.COM INC.
AUDIT COMMITTEE CHARTER
I. Composition of the Audit Committee: There shall be a committee of the Board
of Directors to be known as the Audit Committee. The Audit Committee shall
have at least three members. The Audit Committee shall be composed solely
of directors who (i) are "independent" as defined in The Nasdaq Stock
Market Marketplace Rules (the "Nasdaq Rules") or meet any applicable
exceptions in the Nasdaq Rules, (ii) meet the criteria for independence set
forth in Rule 10A-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), (iii) have not participated in the preparation of the
financial statements of the Company or any subsidiary within the last three
years, and (iv) are able to read and understand fundamental financial
statements, including the Company's balance sheet, income statement and
cash flow statement, all as determined by the Board of Directors. In
addition, at least one member of the Audit Committee shall be someone with
financial sophistication as described in the Nasdaq Rules as determined by
the Board of Directors.
The members of the Audit Committee shall be selected by the Board of
Directors and shall serve until their successors have been selected or
their earlier resignation or removal.
II. Purposes of the Audit Committee: The purpose of the Audit Committee is to
oversee the accounting and financial reporting processes of the Company and
the audits of the financial statements of the Company. In so doing, it is
the responsibility of the Audit Committee to provide an open avenue of
communication between management and the Board of Directors.
The outside auditors for the Company are accountable to the Audit Committee
and shall report directly to the Audit Committee. The Audit Committee has
the sole authority and responsibility to appoint, evaluate, oversee,
retain, compensate and, where deemed appropriate, replace the outside
auditors engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company, as well
as to approve all audit engagement fees and terms.
The outside auditors shall submit to the Company annually a formal written
statement describing relationships between the outside auditors and the
Company ("Statement as to Independence"), addressing at least the matters
set forth in Independence Standards Board Standard No. 1.
III. Meetings of the Audit Committee: The Audit Committee shall meet each
quarter, or more frequently if circumstances dictate, to discuss with
management the annual audited financial statements and any interim
financial statements and financial results. In addition to such meetings of
the Audit Committee as may be required to discuss the matters set forth in
Article IV, the Audit Committee shall meet separately at least annually
with management and the outside auditors to discuss any matters that the
Audit Committee or any of these persons or firms believe should be
discussed privately. In addition, the Audit Committee shall meet with the
outside auditors and management quarterly to review the Company's financial
statements. The Audit Committee shall also review the Company's disclosure
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Securities and Exchange Commission
("SEC") filings, and have the opportunity to discuss such disclosure with
management. The Audit Committee may request any officer or employee of the
Company or the Company's outside counsel or outside auditors to attend a
meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of conference call
or similar communications equipment by means of which all persons
participating in the meeting can hear each other. The Audit Committee shall
designate a "Secretary" of each meeting to keep the minutes of the meeting.
IV. Duties and Powers of the Audit Committee: To carry out its purposes, the
Audit Committee shall have the following duties and powers:
a. with respect to the outside auditor,
(i) to conduct an assessment of the competence and qualifications of
outside auditors and, based on that assessment, to retain outside
auditors on the Company's behalf;
A-2
(ii) to oversee the work of the outside auditors, including resolution
of disagreements between management and the auditors regarding
financial reporting, engaged by the Company for the purpose of
preparing or issuing an audit report or performing other audit,
review or attestation services for the Company, as well as to
approve all audit engagement fees and terms;
(iii) to pre-approve all audit and permissible non-audit services in
accordance with Section 202 of the Sarbanes-Oxley Act of 2002
("SOX") and the SEC rules promulgated thereunder;
(iv) to ensure that the outside auditors prepare and deliver annually
a Statement as to Independence (it being understood that the
outside auditors are responsible for the accuracy and
completeness of the statement), to discuss with the outside
auditors any relationships or services disclosed in the statement
that may affect the objectivity and independence of the Company's
outside auditors, and to take appropriate action in response to
the statement to satisfy itself of the outside auditors'
independence; and
(v) to review and discuss with the outside auditors at least
quarterly (A) all critical accounting policies and practices to
be used; (B) all alternative treatments of financial information
within generally accepted accounting principles that the auditors
have discussed with management and the ramifications of such
alternative disclosures and treatments; and (C) other material
written communications between the outside auditors and
management, such as any management letter or schedule of
unadjusted differences.
b. with respect to the internal audit function,
(i) to review the qualifications and experience of members of the
Company's internal audit team;
(ii) to review the internal audit function for performance,
sufficiency, and effectiveness;
(iii) to review the audit plans for the coming year and, where
appropriate, review the coordination of such plans with the
outside auditors;
(iv) to advise members of the internal auditing team that they are
expected to provide to the Audit Committee summaries of and, as
appropriate, reports to management prepared by the internal
auditing team and management's responses thereto;
(v) to review and approve the appointment, remuneration, performance,
and replacement of the internal audit management personnel,
graded at manager or above;
(vi) to conduct a private exit interview in case of any turnover in
the internal audit department at the manager or director level;
and
(vii) to review the risk assessment process that is in place
throughout the Company in order to identify, assess and manage
the principal risks of the Company's business.
c. with respect to financial reporting principles and policies and
internal audit controls and procedures,
(i) to advise management and the outside auditors that they are
expected to provide to the Audit Committee a timely analysis of
significant financial reporting issues and practices;
(ii) to consider any reports or communications, and management's
responses thereto, submitted to the Audit Committee by the
outside auditors pursuant to Statement on Auditing Standards No.
61 ("Communication with Audit Committees") or otherwise;
(iii) to meet with management and the outside auditors:
o to discuss the scope of the annual audit;
o to discuss the audited financial statements;
o to discuss any significant matters arising from any audit or
report or communication referred to in items b(iv) or c(ii)
above, whether raised by management, the internal audit team
or the outside auditors;
A-3
o to review the form of opinion the outside auditors propose
to render to the Board of Directors and stockholders;
o to discuss significant changes to the Company's auditing and
accounting principles, policies, controls, procedures and
practices proposed or contemplated by the outside auditors,
the internal audit team or management; and
o to inquire about significant risks and exposures, if any,
and the steps taken to monitor and minimize such risks;
(iv) to review all management representation letters ;
(v) to obtain from the outside auditors assurance that the audit was
conducted in a manner consistent with Section 10A of the Exchange
Act, which sets forth certain procedures to be followed in any
audit of financial statements required under the Exchange Act;
and
(vi) to discuss with the Company's senior management any significant
legal matters that may have a material effect on the financial
statements or the Company's compliance policies, including
material notices to or inquiries received from governmental
agencies.
d. with respect to reporting and recommendations,
(i) to prepare any report, including any recommendation of the Audit
Committee, required by the rules of the SEC to be included in the
Company's annual proxy statement;
(ii) to review this Charter at least annually and recommend any
changes to the full Board of Directors;
(iii) to report its activities to the full Board of Directors on a
regular basis;
(iv) to review and discuss with management the Company's annual and
quarterly financial statements and all internal control reports
or summaries thereof, and review other material reports on
financial information (excluding tax returns and reports)
submitted by the Company to any governmental body, or the public,
including management certifications as required by SOX (Sections
302 and 906) and reports rendered by the outside auditors; and
(v) to advise the Board of Directors of the Audit Committee's
recommendation as to inclusion of the Company's audited annual
financial statements in the Company's Annual Report on Form 10-K.
e. To establish procedures, in accordance with Section 301 of SOX and
Rule 10A-3 of the Exchange Act, for (a) the receipt, retention, and
treatment of complaints received by the Company regarding accounting,
internal accounting controls, or auditing matters; and (b) the
confidential, anonymous submission by employees of the Company of
concerns regarding questionable accounting or auditing matters.
f. To review on an ongoing basis all related party transactions for
potential conflict of interest situations as reported by the internal
audit function or the Chief Financial Officer and, if appropriate,
approve any such transactions, as required by the Nasdaq Rules.
g. To establish, review and update periodically a Code of Ethics and
Conduct and ensure that management has established a system to enforce
this code; to ensure that the code is in compliance with all
applicable rules and regulations; to monitor compliance with the code;
and to take such other actions as are set forth in the code.
h. With respect to the internal control and disclosure control
environments,
(i) To oversee the Company's compliance with Section 404 of SOX;
(ii) To review with management, the outside auditors and the internal
audit team the adequacy of the Company's disclosure controls and
procedures and internal controls over financial reporting,
including anti-fraud controls, and the findings and
recommendations of the outside auditors and the internal audit
team, together with management's proposed responsive actions; and
(iii) To consider and review the Company's annual assessment of the
effectiveness of its internal controls and the outside auditor's
attestation and report about the Company's assessment.
A-4
i. With respect to other Audit Committee responsibilities,
(i) To establish hiring policies with respect to employees or former
employees of the outside auditors;
(ii) To perform an annual Committee self-assessment; and
(iii) To receive training in order to better develop skills related to
the performance of its duties.
The Audit Committee may authorize one or more members of the Audit
Committee to carry out the duties set forth in paragraphs IV(a)(iii) and
IV(f) hereof between meetings of the Audit Committee and any
pre-approvals or approvals by Audit Committee members so authorized
shall be reported to the Audit Committee at its next meeting.
V. Resources and Authority of the Audit Committee: The Audit Committee shall
have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for
special audits, reviews and other procedures and, in accordance with
Section 301 of SOX and Rule 10A-3 of the Exchange Act, to retain
independent counsel and other experts, advisors or consultants as it
determines is necessary to carry out its duties, and to determine funding
for payment of (i) compensation to any such counsel, experts, advisors or
consultants, (ii) compensation to outside auditors engaged by the Audit
Committee and (iii) ordinary administrative expenses of the Audit
Committee.
A-5
Appendix B
Nominating Committee Charter
B-1
Sohu.com Inc.
Nominating Committee Charter
Organization
There shall be a committee of the Board of Directors to be known as the
Nominating Committee. The Nominating Committee shall have at least two members.
The Nominating Committee shall be composed solely of directors who are
"independent" in accordance with The Nasdaq Stock Market Marketplace Rules for
determining the independence of directors (subject to any Nasdaq exceptions),
and otherwise meet The Nasdaq Stock Market Marketplace Rules requirements for
the membership of the Nominating Committee. Independent Nominating Committee
members shall be free of any relationship that, in the opinion of the Board of
Directors, would interfere with their exercise of independent judgment as
Nominating Committee members.
Statement of Purpose
The purpose of the Nominating Committee shall be to assist the Board in
identifying individuals qualified to become Directors under criteria approved
by the Board, periodically review director compensation and benefits and
recommend to the Board any improvements to the Company's corporate governance
guidelines as it deems appropriate. The Nominating Committee shall also assist
the Board in assessment of board effectiveness, continuing education, new
director orientation and determining committee membership.
Responsibilities
In carrying out its responsibilities, the Nominating Committee believes
its policies and procedures should remain flexible, in order to best react to
changing needs of the Company.
In carrying out these responsibilities, the Nominating Committee will:
1. Evaluate the suitability of potential nominees for membership on the
Board, taking into consideration the Board's current composition,
including expertise, diversity, and balance of inside, outside and
independent directors, and considering the general qualifications of
the potential nominees, such as:
(a) Unquestionable integrity and honesty,
(b) The ability to exercise sound, mature and independent business
judgment in the best interests of the stockholders as a whole,
(c) A background and experience with fields which will complement the
talents of the other Board members,
(d) Willingness and capability to take the time to actively
participate in Board and committee meetings and related
activities,
(e) Ability to work professionally and effectively with other Board
members and Company management,
(f) Availability to remain on the Board long enough to make an
effective contribution, and
(g) Absence of material relationships with competitors or other third
parties that could present realistic possibilities of conflict of
interest or legal issues,
and see that all necessary and appropriate inquiries are made into the
backgrounds of such candidates.
2. Recommend to the Board the number and names of proposed nominees for
election as Director at the Annual Meeting of Stockholders and, in the
case of a vacancy on the Board, the name of an individual to fill the
vacancy.
3. Submit the minutes of all meetings of the Nominating Committee to, or
discuss the matters discussed at each committee meeting with, the
Board of Directors.
B-2
4. Review the direct and indirect relationships of members of the Board
with the Company or its management and assist the Board with its
determination of the independence of its members.
5. Monitor trends and best practices in director compensation, benefits
and stock ownership guidelines and recommend changes to the Board as
it deems appropriate, taking into consideration the interests of the
Company and its stockholders, maintenance of the independence of a
majority of the members of the Board, the work load, time commitment
and responsibilities involved in Board and committee meeting
participation, and comparison with the compensation practices of
comparable companies.
6. Monitor trends and best practices in corporate governance,
periodically review the corporate governance guidelines, and recommend
changes as it deems appropriate in those guidelines, in the corporate
governance provisions of the Company's By-Laws, and in the policies
and practices of the Board.
7. Annually review and make recommendations to the Board regarding its
process for evaluating the effectiveness of the Board and its
committees. The Nominating Committee shall oversee the annual
assessment of Board effectiveness and report to the Board.
8. Periodically review and make recommendations to the Board regarding
new director orientation and director continuing education.
9. Annually recommend to the Board following the annual meeting of
stockholders, committee membership and chairs.
10. Review this Nominating Committee charter at least annually, and make
any changes deemed appropriate, subject to review and approval of the
full Board of Directors.
11. Establish and maintain procedures for the submission of unsolicited
recommendations for nominees, including appropriate deadlines and the
type of information that must be provided with recommendations.
Authority and Resources
The Nominating Committee shall have the authority and resources to:
o solicit ideas for director nominees from other members of the Board,
and to make its own inquiries;
o solicit suggestions for director nominees from management,
stockholders and other sources;
o engage outside search or other consultants to assist in identifying
potential director nominees; and
o determine funding for payment of compensation to any such consultants
and ordinary administrative expenses of the nominating committee.
All potential nominees must first be considered by the Nominating
Committee before being contacted as possible nominees and before having their
names formally considered by the full Board.
B-3
Appendix C
Amended Stock Incentive Plan
C-1
SOHU.COM INC.
2000 STOCK INCENTIVE PLAN
(as amended)
1. Purpose. This 2000 Stock Incentive Plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of Sohu.com Inc., a
Delaware corporation (the "Company"), and any present or future parent or
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or
"ISOs"); and (b) to directors, officers, employees, consultants and advisors of
the Company and Related Corporations by providing them with opportunities (i)
to purchase stock in the Company pursuant to options granted hereunder which do
not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"), (ii)
to make direct purchases of common stock of the Company ("Restricted Stock
Purchases"), and (iii) to receive restricted share unit awards ("RSUs"). Both
ISOs and Non-Qualified Options are referred to hereafter individually as an
"Option" and collectively as "Options". Options, Restricted Stock Purchases and
RSUs are referred to hereafter individually as a "Stock Right" and collectively
as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean
"parent corporation" and "subsidiary corporation," respectively, as those terms
are defined in Section 424 of the Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be administered by
the Board of Directors of the Company (the "Board"). The Board may appoint a
Compensation Committee (as the case may be, the "Committee") of two (2) or more
of its members to administer the Plan and to grant Stock Rights hereunder,
provided such Committee is delegated such powers in accordance with applicable
state law. (All references in this Plan to the "Committee" shall mean the Board
if no such Compensation Committee has been so appointed). If the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan
shall be administered in accordance with the applicable rules set forth in Rule
16b-3 or any successor provisions of the Exchange Act or the rules under the
Exchange Act or any such successor provision ("Rule 16b-3"). Each member of the
Committee shall also be an "outside director" within the meaning of Section
162(m) of the Code and the regulations promulgated thereunder.
B. Authority of Board or Committee. Subject to the terms of the Plan, the
Committee shall have the authority to: (i) determine the employees of the
Company and Related Corporations (from among the class of employees eligible
under paragraph 3 to receive ISOs) to whom ISOs may be granted and to determine
(from among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options, to make purchases of Restricted Stock or to
receive RSUs) to whom Non-Qualified Options, rights to make Restricted Stock
Purchases or RSUs may be granted; (ii) determine the time or times at which
Options or RSUs may be granted or Restricted Stock Purchases made; (iii)
determine the exercise price of shares subject to each Option, which price
shall not be less than the minimum price specified in paragraph 6, and the
purchase price of shares subject to each Restricted Stock Purchase; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified
Option; (v) determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the exercise period; (vi)
determine whether restrictions such as repurchase options are to be imposed on
shares subject to Options and Restricted Stock Purchases and the nature of any
such restrictions; (vii) determine the performance goals or length of service
applicable to the grant of RSUs, the periods during which performance or length
of service is to be measured and whether the performance goals or length of
service requirements were met; (viii) impose such other terms and conditions
with respect to Stock Rights not inconsistent with the terms of this Plan as it
deems necessary or desirable; and (ix) interpret the Plan and prescribe and
rescind rules and regulations relating to it.
If the Committee decides to issue a Non-Qualified Option, the Committee
shall take whatever actions it deems necessary, under the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated
as an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it shall be final
unless otherwise determined by the Board. The Committee may from time to time
adopt such rules and regulations for carrying out the Plan as it may deem best.
No member of the Board or
C-2
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Stock Right granted under it.
C. Committee Actions. The Committee may select one of its members as its
chairman and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, acting at a meeting (whether held in
person or by teleconference), or acts reduced to or approved in writing by all
of the members of the Committee, shall be the valid acts of the Committee. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan,
subject to compliance with paragraph 2A.
D. Grant of Stock Rights to Board Members. Stock Rights may be granted to
members of the Board, subject to compliance with Rule 16b-3 when required by
paragraph 2A. All grants of Stock Rights to members of the Board shall be made
in all respects in accordance with the provisions of this Plan applicable to
other eligible persons.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, authorizations to make Restricted Stock Purchases and
RSUs may be granted to any employee, officer or director (whether or not also
an employee) or consultant or advisor of the Company or any Related
Corporation. The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant a Stock Right. Granting a Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Stock
Rights.
4. Common Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, $.001 par value (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is
9,500,000 minus that number of shares which are the subject of option grants
made, or were purchased pursuant to the exercise of options that were granted,
to employees, officers directors, or consultants of the Company or Related
Corporations prior to the date of the adoption of this plan by the Company's
Board of Directors, subject to adjustment as provided in paragraph 13. Any such
shares may be issued pursuant to the exercise of ISOs or Non-Qualified Options
so long as the aggregate number of shares so issued does not exceed such
number, as adjusted. If any Stock Right granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or if any shares of Common
Stock issued pursuant to a Stock Right have been repurchased by the Company in
accordance with the terms of the agreement or instrument pursuant to which the
Stock Right is granted then the unpurchased shares subject to such Stock Right
and any shares issued pursuant to a Stock Right that have been so repurchased
by the Company (or shares in substitution thereof) shall again be available for
grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time after January 24, 2000 and prior to January 24, 2010. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the participant,
to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 17.
6. Minimum Option Price; ISO Limitations.
A. Price for ISOs. The exercise price per share specified in the agreement
relating to each ISO granted under the Plan shall not be less than the fair
market value per share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
B. $100,000 Annual Limitation on ISOs. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
other incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee during
any calendar year in a manner which would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs were
granted) of Common Stock in that year. Any Options granted to an employee in
excess of such amount will be granted as Non-Qualified Options.
C-3
C. Determination of Fair Market Value. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange, or on the Nasdaq National Market or
the Nasdaq Small Cap Market, if the Common Stock is not then traded on a
national securities exchange; or (ii) the average of the low bid and high ask
prices as quoted on that date by an established quotation service for
over-the-counter securities, if the Common Stock is not then traded on a
national securities exchange or the Nasdaq National Market or the Nasdaq Small
Cap Market. If the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors in good faith it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length, if any.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9, 10, and 13B, each Option shall expire on the date specified by
the Committee and set forth in the original stock option agreement granting
such Option, provided that ISOs shall in any event expire not more than ten
years from the date of grant, and ISOs granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Related Corporation shall expire not
more than five years from the date of grant. Non-Qualified Options shall expire
on the date specified in the agreement granting such Non-Qualified Options,
subject to extension as determined by the Committee. ISOs, or any part thereof,
that have been converted into Non-Qualified Options may be extended as provided
in paragraph 17.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
13, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. Unless otherwise specified by the Committee or the Board of
Directors and subject to paragraphs 9 and 10 with respect to ISO's, Options
granted to employees shall vest on a schedule at least as rapid as the
following: (a) as to 25% of the shares subject to the Option, on the first
anniversary of the date of grant of the Option; and (b) as to the remaining 75%
of the shares subject to the Option, in 12 equal quarterly installments
beginning one calendar quarter after the date of such anniversary. The
Committee may also specify such other conditions precedent as it deems
appropriate to the exercise of an Option.
B. Full Vesting of Installments. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable, provided that the
Committee may specify a certain minimum number or percentage of the shares
issuable upon exercise of any Option that must be purchased upon any exercise.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option, despite the
fact that such acceleration may cause the application of Sections 280G and 4999
of the Code if an Acquisition, as defined below in paragraph 13B, occurs.
9. Termination of Employment. If a participant who was granted an ISO
ceases to be employed by the Company and all Related Corporations other than by
reason of death or disability as defined in paragraph 10, no further
installments of his ISOs shall become exercisable following the date of such
cessation of employment, and his ISOs shall terminate after the passage of
three (3) months from the date of termination of his employment, but in no
event later than on their specified expiration dates, except to the extent that
such ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 17. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
The Board or Committee may establish such provisions in particular Stock
Right grant agreements as it may deem appropriate with respect to the treatment
of Stock Rights other than ISOs upon the termination of the employment of the
holder of the Stock Right.
C-4
10. Death; Disability.
A. Death. If a participant who was granted an ISO ceases to be employed by
the Company and all Related Corporations by reason of his death, any ISO of his
may be exercised, to the extent of the number of shares with respect to which
he could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws
of descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or one hundred and eighty (180) days from the date
of such participant's death.
B. Disability. If a participant who was granted an ISO ceases to be
employed by the Company and all Related Corporations by reason of his
disability, he or, in the event of his death, his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws
of descent and distribution, shall have the right to exercise any ISO held by
him on the date of termination of employment, to the extent of the number of
shares with respect to which he could have exercised it on that date, at any
time prior to the earlier of the specified expiration date of the ISO or one
(1) year from the date of the termination of the participant's employment. For
the purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or successor statute.
11. Assignability. No ISO, and unless specified in the agreement or
instrument pursuant to which the Option is granted, no Non-Qualified Option
shall be assignable or transferable by the participant except by will or by the
laws of descent and distribution, and during the lifetime of the participant
each Stock Right shall be exercisable only by him or her. No Stock Right, and
no right to exercise any portion thereof, shall be subject to execution,
attachment, or similar process, assignment, or any other alienation or
hypothecation. Upon any attempt so to transfer, assign, pledge, hypothecate, or
otherwise dispose of any Stock Right, or of any right or privilege conferred
thereby, contrary to the provisions thereof or hereof or upon the levy of any
attachment or similar process upon any Stock Right, right or privilege, such
Stock Right and such rights and privileges shall immediately become null and
void.
12. Terms and Conditions of Stock Rights. Stock Rights shall be evidenced
by instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof to the extent applicable
and may contain such other provisions as the Committee deems advisable which
are not inconsistent with the Plan. Without limiting the foregoing, such
provisions may include transfer restrictions, rights of refusal, vesting
provisions, repurchase rights and drag-along rights with respect to shares of
Common Stock issuable upon exercise of Stock Rights, and such other
restrictions applicable to shares of Common Stock issuable upon exercise of
Stock Rights as the Committee may deem appropriate. In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination, cancellation or other provisions as the Committee
may determine. The Committee may from time to time confer authority and
responsibility on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper officers of the
Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, a
participant's rights with respect to Options granted or RSUs granted to him or
her hereunder shall be adjusted as hereinafter provided, unless otherwise
specifically provided in the written agreement between the participant and the
Company relating to such Option or such RSU:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options or pursuant to the RSU shall be appropriately increased
or decreased proportionately, and, for Options, appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. Consolidations, Mergers or Sales of Assets or Stock. If the Company is
to be consolidated with or acquired by another person or entity in a merger,
sale of all or substantially all of the Company's assets or stock or otherwise
(an "Acquisition"), the Committee or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to outstanding Options or shares acquired upon exercise of
any Option or outstanding RSUs, take one or more of the following actions: (i)
make appropriate provision for
C-5
the continuation of such Options or RSUs by substituting on an equitable basis
for the shares then subject to such Options or RSUs the consideration payable
with respect to the outstanding shares of Common Stock in connection with the
Acquisition; (ii) accelerate the date of exercise of such Options or receipt of
Common Stock or cash pursuant to such RSUs or of any installment of any such
Options or RSUs; (iii) upon written notice to the participants, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options, including those which are not then exercisable, shall terminate;
(iv) terminate all Options or RSUs in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options or RSUs
(to the extent then exercisable) over the exercise price thereof (if any); or
(v) in the event of a stock sale, require that the participant sell to the
purchaser to whom such stock sale is to be made, all shares previously issued
to such participant upon exercise of any Option or pursuant to any RSU, at a
price equal to the portion of the net consideration from such sale which is
attributable to such shares. Nothing contained herein will be deemed to require
the Company to take, or refrain from taking, any one or more of the foregoing
actions.
C. Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
(i) a participant upon exercising an Option shall be entitled to receive for
the purchase price paid upon such exercise the securities he would have
received if he had exercised his Option prior to such recapitalization or
reorganization and had been the owner of the Common Stock receivable upon such
exercise at such time and (ii) a participant who has received an RSU shall be
entitled to receive the securities he would have received if he had been the
owner of the Common Stock due to him pursuant to such RSU at the time of such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to the foregoing subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code or any
successor thereto) or would cause any adverse tax consequences for the holders
of such ISOs. If the Committee determines that such adjustments made with
respect to ISOs would constitute a modification of such ISOs, it may refrain
from making such adjustments.
E. Issuances of Securities and Non-Stock Dividends. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options or to be issued pursuant to RSUs. No adjustments
shall be made for dividends paid in cash or in property other than securities
of the Company (and, in the case of securities of the Company, such adjustments
shall be made pursuant to the foregoing subparagraph A).
F. Fractional Shares. No fractional shares shall be issued under the Plan,
and the participant shall receive from the Company cash in lieu of such
fractional shares.
G. Adjustments. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also
be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board, as applicable, shall
determine the specific adjustments to be made under this paragraph 13 and its
determination shall be conclusive.
If any person or entity owning Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such Common Stock, except as otherwise provided in
subparagraph B, such shares or securities or cash shall be subject to all of
the conditions and restrictions applicable to the Common Stock with respect to
which such shares or securities or cash were issued, unless otherwise
determined by the Committee or the Board of Directors of the Surviving Entity.
14. Means of Exercising Options; RSU Awards; Payments to Company; Ownership
of Shares.
A. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by the holder thereof giving written notice to the
Company at its principal office address. Such notice shall identify the
C-6
Option being exercised and specify the number of shares as to which such Option
is being exercised, accompanied by full payment of the purchase price therefor.
B. RSU Awards. The Committee shall determine the number of RSUs granted to
the participant which have been earned at such time as set forth in the written
agreement between the Company and the participant pursuant to which the RSUs
were granted, and the Committee may then elect to deliver to the participant
(i) a number of shares of Common Stock equal to the number of RSUs determined
by the Committee to have been earned or (ii) cash equal to the fair market
value at such time of such number of shares of Common Stock.
C. Payments. All payments to the Company shall be made either (i) in
United States dollars in cash or by check, or (ii) at the discretion of the
Committee, delivery of an irrevocable and unconditional undertaking,
satisfactory in form and substance to the Company, by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery to the Company of a copy of irrevocable and unconditional
instructions, satisfactory in form and substance to the Company, to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, or (iii) at the discretion of the
Committee, through delivery of shares of Common Stock having a fair market
value equal as of the date of the exercise to the cash exercise price of the
Stock Right, or (iv) at the discretion of the Committee, by delivery of the
participant's personal recourse note bearing interest payable not less than
annually at no less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, or (v) at the discretion of the Committee, with
respect to Restricted Stock sold to participant's who are neither U.S.
taxpayers nor executive officers nor directors of the Company, by delivery of
the participant's promissory note, which may be without recourse, or partial or
full recourse, to the participant at the Committee's discretion, bearing
interest at such rate as the Committee may determine or (vi) at the discretion
of the Committee, by any combination of (i), (ii), (iii), (iv), and (v) above.
D. Ownership of Shares. The holder of a Stock Right shall not have the
rights of a shareholder with respect to the shares covered by his Stock Right
until the date of issuance of the shares subject to the Stock Right have been
recorded in the books of the Company. Except as expressly provided above in
paragraph 13 with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the record
date is before the date such issuance is recorded in the books of the Company.
15. Term and Amendment of Plan. This Plan was originally adopted by the
Board on January 24, 2000 and approved by the stockholders of the Company on
July 5, 2000. The Plan was amended by the Directors of the Company on January
15, 2001 and in March 2001, and the amendments were approved by the
stockholders of the Company on May 17, 2001. The Plan was amended again by the
Directors of the Company on March 25, 2003. The Plan was further amended by the
Directors of the Company on April 13, 2004, and the amendment was approved by
the stockholders of the Company on May 14, 2004. The Plan was further amended
by the Directors of the Company on April 5, 2005, and the amendment was
approved by the stockholders of the Company on May 12, 2005. The Plan was
further amended by the Directors in April 2006. The Plan shall expire on that
date which is ten years from the date of its original adoption by the Board
(except as to Options outstanding on the expiration date). Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time,
except that, without the approval of the stockholders obtained within 12 months
before or after the Board adopts a resolution authorizing any of the following
actions: (a) the total number of shares that may be issued under the Plan may
not be increased (except by adjustment pursuant to paragraph 13); (b) the
provisions of paragraph 3 regarding eligibility for grants of ISOs may not be
modified; (c) the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs may not be modified (except by
adjustment pursuant to paragraph 13); and (d) the expiration date of the Plan
may not be extended.
16. Section 162(m). Notwithstanding anything herein to the contrary, no
Stock Right shall become exercisable, vested or realizable if such Stock Right
is granted to an employee that is a "covered employee" as defined in Section
162(m) of the Code and the Committee has determined that such Stock Right
should be structured so that it is not "applicable employee remuneration" under
such Section 162(m) unless and until the terms of this Plan, including any
amendment hereto, have been approved by the Company's stockholders in the
manner and to the extent required under such Section 162(m).
C-7
17. Amendment of Stock Rights. The Board or Committee may amend, modify or
terminate any outstanding Stock Rights including, but not limited to,
substituting therefor another Stock Right of the same or a different type,
changing the date of exercise or realization, and converting an ISO to a
Non-Qualified Option; provided that, except as otherwise provided in paragraphs
9, 10, and 15, the participant's consent to such action shall be required
unless the Board or Committee determines that the action, taking into account
any related action, would not materially and adversely affect the participant.
18. Application Of Funds. The proceeds received by the Company from the
exercise of Options granted and Restricted Stock Purchases authorized under the
Plan shall be used for general corporate purposes.
19. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the making of a Restricted Stock Purchase for less than
its fair market value, the making of a Disqualifying Disposition (as defined in
paragraph 21), the vesting of forfeitable stock purchased pursuant to a
Restricted Stock Purchase or the vesting of rights pursuant to an RSU, the
Company, in accordance with Section 3402(a) of the Code, may require the holder
of the Stock Right to pay additional withholding taxes in respect of the amount
that is considered compensation includible in such person's gross income. The
Committee in its discretion may condition (i) the exercise of an Option, (ii)
the making of a Restricted Stock Purchase for less than its fair market value,
(iii) the vesting of forfeitable stock purchased pursuant to a Restricted Stock
Purchase, or (iv) the vesting of rights pursuant to an RSU, on the
participant's payment of such additional withholding taxes.
21 Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A "Disqualifying Disposition" is any
disposition (including any sale) of such Common Stock before the later of:
A. two years after the date the employee was granted the ISO, and
B. one year after the date the employee acquired Common Stock by
exercising the ISO. If the employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
C-8
(Please sign, date and return |X|
this proxy in the enclosed Votes must be indicated
postage prepaid envelope.) (x) in Black or Blue ink.
PROPOSAL I. Election of directors
FOR all nominees |_| WITHHOLD AUTHORITY to vote |_| *EXCEPTIONS |_|
listed below for all nominees listed below
NOMINEES: Dr. Edward B. Roberts and Ms. Mary Ma
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions _________________ To change your address, please mark this box |_|
PROPOSAL II. APPROVAL OF AMENDMENT TO FOR AGAINST ABSTAIN
Sohu's 2000 STOCK INCENTIVE PLAN. |_| |_| |_|
PROPOSAL III. APPOINTMENT OF PRICEWATERHOUSECOOPERS ZHONG FOR AGAINST ABSTAIN
TIAN CPAS LIMITED COMPANY AS INDEPENDENT |_| |_| |_|
AUDITORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
Note: Please sign as your name(s) is (are) shown on the
certificates to which the Proxy applies. When signing as
attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized
officer. If a partnership or limited liability company,
please sign in partnership or limited liability company name
by authorized person.
Date Share Owner sign here Co-Owner sign here
_________ ________________________ _____________________
SOHU.COM INC.
Level 12, Vision International Center
No. 1 Unit Zhongguancun East Road, Haidian District
Beijing 100084, People's Republic of China
Proxy for the Annual Meeting of Stockholders - June 9, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The person or entity signed on the reverse side of this proxy card hereby
appoints Dr. Charles Zhang and Ms. Carol Yu and each of them, as proxy or
proxies for such person or entity, with full power of substitution, who may act
by unanimous vote of said proxies or their substitutes as shall be present at
the meeting, or, if only one be present, then the one shall have all the powers
hereunder, to represent and to vote, as designated on the other side (if no
direction is made, this Proxy will be voted FOR Proposals I, II and III, all of
the shares of common stock, par value $0.001 per share, of Sohu.com Inc.
standing in the name of such person or entity on April 27, 2006 at the Annual
Meeting of Stockholders of Sohu.com Inc. to be held on Friday, June 9, 2006 at
10:00 a.m., Beijing time, and any adjournment thereof. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the meeting.
SOHU.COM INC.
P.O. BOX 11075
NEW YORK, N.Y. 10203-0075
(Continued, and to be marked, dated and signed, on the other side.)