SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
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Filed
by the Registrant
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x
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Filed
by a Party other than the Registrant
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o
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Check
the
appropriate box:
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o
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only
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| (as permitted by Rule 14a-6(e)(2)) | |||
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x
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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Soliciting
Material Under Rule 14a-12
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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):
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x
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No
fee required
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o
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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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):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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¨
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Fee
paid previously with preliminary materials.
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¨
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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.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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April
30,
2007
Dear
Sohu.com stockholders:
You
are
cordially invited to attend Sohu.com Inc.’s Annual Meeting of Stockholders to be
held at our offices at Level 12, Sohu.com Internet Plaza, No. 1 Unit
Zhongguancun East Road, Haidian District, Beijing 100084, People’s Republic of
China, on Friday, June 8, 2007 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 five directors, four
of whom
shall serve for a two-year term and one of whom shall serve until our 2008
Annual Meeting of Stockholders or
in
each case until their earlier death, resignation or removal,
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
the election of the director nominees 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.
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Sincerely,
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Charles
Zhang
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Chief
Executive Officer
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
OF
SOHU.COM
INC.
TO
BE HELD JUNE 8, 2007
10:
00 a.m. BEIJING TIME
April
30,
2007
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 our offices at Level 12, Sohu.com Internet
Plaza,
No. 1 Unit Zhongguancun East Road, Haidian District, Beijing 100084, People’s
Republic of China, on Friday, June 8, 2007 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:
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1)
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To
elect five directors, four of whom shall serve for a two-year term
and one
of whom shall serve until our 2008 Annual Meeting of Stockholders,
or in
each case until their earlier death, resignation or
removal;
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2)
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To
ratify the appointment of PricewaterhouseCoopers Zhong Tian CPAs
Limited
Company as our independent auditors for the fiscal year ending
December
31, 2007; and
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3)
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To
consider and act upon all other matters which may properly come
before the
Annual Meeting or any adjournment or postponement
thereof.
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We
have
not received notice of other matters that may be properly presented at the
Annual Meeting. Our
Board
of Directors has set the close of business on Wednesday, April 18, 2007,
as the
record date for the purpose of determining the stockholders of our common
stock
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
or
postponement 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 our 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.proxypush.com/sohu), or you may vote telephonically
by calling The Bank of New York at 1-866-474-8637 (within the U.S. and Canada
only, toll free) or at 1-212-785-0078 (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.
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By
order of the Board of Directors,
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Timothy
B. Bancroft
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Secretary
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Table
of Contents
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Proxy
Statement
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1
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Proposal
I. Election of Directors
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3
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General
Information Relating to the Board of Directors
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5
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Beneficial
Ownership of Common Stock
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9
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Section
16(a) Beneficial Ownership Reporting Compliance
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10
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Transactions
with Related Persons
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11
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Audit
Committee Report
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12
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Executive
Compensation
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14
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Executive
Officers
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14
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Compensation
Discussion and Analysis
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15
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Compensation
Committee Report
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16
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Summary
Compensation Table
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24
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Grants
of Plan-Based Awards
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26
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Outstanding
Equity Awards at Fiscal Year-End
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29
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Option
Exercises and Stock Vested
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31
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Pension
Benefits
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31
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Potential
Payments Upon Termination or Change-in-Control
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31
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Director
Compensation
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36
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Compensation
Committee Interlocks and Insider Participation
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37
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Proposal
II. Ratification of Appointment of Independent
Auditors
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37
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Principal
Accountant Fees, Services and Pre-Approval Process
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38
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Miscellaneous
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39
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SOHU.COM
INC.
Level
12, Sohu.com Internet Plaza
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 8, 2007
10:00
a.m. BEIJING TIME
PROXY
STATEMENT
This
Proxy Statement is furnished to our stockholders in connection with the
solicitation by our Board of Directors of our proxies for use at our Annual
Meeting of Stockholders (the “Annual Meeting”) to be held at our offices located
at Level 12, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road,
Haidian
District, Beijing 100084, People’s Republic of China, on Friday, June 8, 2007 at
10:00 a.m., Beijing time, and at any adjournment or postponement thereof.
This
Proxy Statement, notice of meeting and the accompanying proxy card are first
being mailed to our stockholders eligible to vote at the meeting on or about
May
4, 2007. Our Annual Report to Stockholders for the fiscal year ended December
31, 2006 is being mailed to our stockholders eligible to vote at the meeting
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; and
FOR
the
ratification of the appointment of PricewaterhouseCoopers Zhong Tian CPAs
Limited Company (“PricewaterhouseCoopers”) as our independent auditors for the
fiscal year ending December 31, 2007.
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 our 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.
Expenses
and Solicitation
We
will
bear the cost of soliciting proxies. Solicitations may be made by mail, personal
interview, telephone and/or telegram by our directors, officers and employees,
without additional compensation for such solicitation activities. We have
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 materials to record holders of our shares of
common stock and the beneficial owners of our shares of common stock held
of
record by brokers, banks, or other nominees. We will reimburse banks, brokerage
firms, other custodians, nominees and fiduciaries for reasonable expenses
incurred in sending out proxy materials to beneficial owners of shares of
our
common stock held in their respective names. The estimated cost of soliciting
proxies is not expected to exceed $100,000.
-1-
Voting
Procedures
Only
stockholders of record on our books at the close of business on April 18,
2007,
the record date relating to the Annual Meeting, will be entitled to vote
at the
Annual Meeting and any adjournment or postponement thereof. 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 the ratification of the appointment
of
PricewaterhouseCoopers as our independent auditors. Under our Amended and
Restated By-laws, the presence in person or by proxy of a majority of the
shares
of our 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. The election of directors requires a plurality of the
votes cast in person or by proxy. The nominees receiving the highest number
of
affirmative votes of the shares present or represented and voting on the
election of the directors at the Annual Meeting will be elected as directors.
The ratification of the appointment of PricewaterhouseCoopers as our independent
auditors requires the affirmative vote of the holders of a majority of the
shares of our common stock that are present in person or by proxy at the
Annual
Meeting.
As
of the
close of business on April 18, 2007,
there were 36,831,406 shares of our common stock outstanding.
-2-
Proposal
I. Election of Directors
Our
Board
of Directors (our “Board”) 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.
All
directors will hold office until their successors have been duly elected
and
qualified or until their earlier death, resignation or removal. In April
2007,
Dr. Zhonghan Deng was appointed as a director to the class whose term expires
at
the 2008 Annual Meeting of Stockholders, filling a vacancy created by the
April
1, 2007 resignation of Ms. Mary Ma. Under our Amended and Restated By-laws,
if a
director from any class resigns and our Board appoints a successor director,
such director must stand for re-election at our first Annual Meeting of
Stockholders following such appointment, regardless of the class to which
the
successor director was elected. Therefore, pursuant to our Amended and Restated
By-laws, Dr. Deng will stand for re-election at the Annual Meeting for a
term
that will expire at the 2008 Annual Meeting of Stockholders. Our Board has
fixed
the number of directors to constitute the full Board for the ensuing year
at
six, four of whom are to be elected at the Annual Meeting for a term expiring
at
the 2009 Annual Meeting of Stockholders, one of whom is to be elected at
the
Annual Meeting for a term expiring at the 2008 Annual Meeting of Stockholders,
and one other director whose term expires at the 2008 Annual Meeting of
Stockholders.
At
the
recommendation of our Nominating Committee of our Board, our Board has nominated
Dr. Charles Zhang, Mr. Charles Huang, Dr. Dave Qi and Mr. Shi Wang for election
in the class of directors to be elected at the Annual Meeting whose term
will
expire in 2009, and Dr. Zhonghan Deng for election in the class of directors
to
be elected at the Annual Meeting 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. Charles Zhang, Mr. Charles Huang, Dr. Dave Qi, Mr. Shi
Wang
and Dr. Zhonghan Deng to serve as directors.
Our
Board
knows of no reason why each of the nominees would be unable or unwilling
to
serve, but if that should be the case, proxies will be voted for the election
of
substitute nominee(s) selected by our Board, or for fixing the number of
directors at a lesser number. The proxies cannot be voted for a greater number
of persons than the number of nominees named in this Proxy Statement. The
five
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.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF
DR.
CHARLES ZHANG, MR. CHARLES HUANG, DR. DAVE QI, MR. SHI WANG AND DR. ZHONGHAN
DENG
The
table
below sets forth certain information with respect to the nominees for election
to our Board of Directors and those directors whose terms of office will
continue after the Annual Meeting. All of the nominees for election as directors
are currently serving on our Board.
-3-
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Dr.
Charles Zhang
Chairman
of our Board and Chief Executive Officer.
42
years old.
Director
since 1996.
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Dr.
Zhang is our Founder and has been Chairman of our Board and Chief
Executive Officer since August 1996. Dr. Zhang also served as President
from August 1996 until July 2004. Prior to founding Sohu, 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 experimental
physics
from Massachusetts Institute of Technology and a Bachelor of Science
degree from Tsinghua University in Beijing. Dr. Zhang is a native
of the
People’s Republic of China.
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Dr.
Zhang’s term expires at the 2007 Annual Meeting.
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Mr.
Charles Huang
CEO
and Chairman of Netbig Education Holdings Ltd.
37
years old.
Director
since 2001.
(1)(3)
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Mr.
Huang is
the Founder, Chief Executive Officer and Chairman of Netbig Education
Holdings Ltd., a leading education enterprise in China. Prior to
founding
Netbig in 1999, Mr. Huang worked as Executive Director and 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 MIT and a B.S. degree from
the
University of Science and Technology of China. Mr. Huang is also
a
Chartered Financial Analyst.
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Mr.
Huang’s term expires at the 2007 Annual Meeting.
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Dr.
Dave Qi
Professor
of Accounting and Associate Dean, the Cheung Kong Graduate School
of
Business.
43
years old.
Director
since 2005.
(1)(2)(3)
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Dr.
Qi is a Professor of Accounting and the Associate Dean of the Cheung
Kong
Graduate School of Business. He began teaching at the Cheung Kong
Graduate
School of Business in 2002 and was the founding Director of the
Executive
MBA program. Before joining 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 accounting, financial reporting, capital market and other
related topics. He has a Ph.D. in accounting from the Eli Broad
Graduate
School of 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.
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Dr.
Qi’s term expires at the 2007 Annual Meeting.
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Mr.
Shi Wang
Chairman
of China Vanke Co., Ltd.
56
years old.
Director
since 2005.
(3)
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Mr.
Wang is the Chairman of China Vanke Co., Ltd., of which Mr. Wang
was
Chairman and General Manager from 1991 to 1999. He founded the
Shenzhen
Exhibition Center of Modern Science and Education Equipment in
1984, which
is the predecessor to China Vanke Co., Ltd.. Mr. Wang is the Executive
Manager of the China Real Estate Association and is Deputy Director
of the
City Housing Development Council of the China Real Estate
Association.
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Mr.
Wang’s term expires at the 2007 Annual Meeting.
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Dr.
Zhonghan Deng
Chairman
and Chief Executive Officer of Vimicro Corporation.
39
years old.
Director
since 2007.
(1)(3)
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Dr.
Deng is the Chief Executive Officer and Chairman of the Board of
Directors
of Vimicro Corporation (NASDAQ: VIMC), which he co-founded in 1999.
Dr.
Deng received a Ph.D. in Electrical Engineering and Computer Sciences,
a
M.S. degree in Economics and a M.S. degree in Physics from the
University
of California, Berkeley. After graduation from Berkeley, Dr. Deng
worked
as a research scientist for International Business Machines Corporation
at
the T.J. Watson Research Center in Yorktown Heights, New York.
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Dr.
Deng’s term expires at the at 2007 Annual
Meeting
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-4-
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Dr.
Edward B. Roberts
Professor
of Management of Technology at Massachusetts Institute of Technology’s
Alfred P. Sloan School of Management.
71
years old.
Director
since 1996.
(2)(3)
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Dr.
Roberts is the David Sarnoff Professor of Management of Technology
at
Massachusetts Institute of Technology’s Alfred P. Sloan School of
Management. He chaired MIT’s research and educational programs in the
management of technological innovation from 1967 to 1993. He also
founded
and chairs the MIT Entrepreneurship Center. Dr. Roberts is currently
a
director of Advanced Magnetics, Inc. and Medical Information Technology,
Inc.. He has authored over 160 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.
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Dr.
Robert’s term expires at the 2008 Annual
Meeting.
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(1)
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member
of our Audit Committee
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(2)
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member
of our Compensation Committee
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(3)
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member
of our Nominating Committee
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GENERAL
INFORMATION RELATING TO
OUR
BOARD OF DIRECTORS
Our
Board of Directors
Our
Board
held four formal meetings in the fiscal year ended December 31, 2006 and
acted
by written consent in lieu of meeting on three occasions. No member of our
Board
attended less than 75% of the total number of meetings of our Board and
committees thereof upon which he or she served during 2006. All members of
our
Board are encouraged, but not required, to attend our annual meetings of
stockholders. At our 2006 Annual Meeting of Stockholders, Dr. Charles Zhang
and
Mr. Shi Wang were in attendance.
Independence
Our
Board
has determined that Messrs. Charles Huang and Shi Wang, Drs. Dave Qi, Edward
B.
Roberts and Zhonghan Deng are independent as that term is defined under Rule
4200(a)(15) of the Nasdaq Stock Market Marketplace Rules. In determining
independence pursuant to the Nasdaq listing standards, our Board affirmatively
determined whether such independent directors had any material relationship
with
us, or any of our subsidiaries, either directly or as a partner, stockholder
or
officer of an organization that may interfere with the director’s ability to
exercise independence. Our Board concluded that none of the independent
directors had any direct or indirect material relationships with us, or any
of
our subsidiaries. Our Board considers what it deems to be all relevant facts
and
circumstances in determining the independence of its members including whether
our directors have any family relationship with any executive officer or
any
direct or indirect interest in any of our customers or our customer agreements,
whether any of our directors have any interests in or ties to any of our
competitors, suppliers, or strategic business partners and whether our members
meet the independence standards set by the Securities and Exchange Commission,
or the SEC, and Nasdaq.
-5-
Committees
of our Board of Directors
Our
Board
has established a standing Audit Committee, Compensation Committee and
Nominating Committee.
Audit
Committee
The
members of our Audit Committee currently are Dr. Dave Qi, Mr. Charles Huang
and
Dr. Zhonghan Deng, who are each independent as defined in the Nasdaq Stock
Market listing standards applicable to audit committee members. Our Board
has
determined that Dr. Dave Qi is an Audit Committee financial expert, as that
term
is defined in Item 407(d)(5) of Regulation S-K. Our Audit Committee oversees
our
internal audit function and our accounting and financial reporting processes
and
the audits of our financial statements. Our Audit Committee held four meetings
in 2006. Our Audit Committee and the full Board have adopted a written charter
for our Audit Committee. Our Audit Committee appointed PricewaterhouseCoopers
to
serve as our independent auditors for the fiscal year ended December 31,
2006.
The full responsibilities of our Audit Committee are set forth in its charter,
which is reviewed and updated annually and approved by our Board. We attached
a
copy of our Audit Committee Charter as an appendix to our Proxy Statement
sent
to our stockholders in connection with our 2006 Annual Meeting of Stockholders.
For more information, see “Audit Committee Report.”
Compensation
Committee
Our
Compensation Committee currently consists of Drs. Edward B. Roberts and Dave
Qi.
Our Compensation Committee acted
through
e-mail communications among its members, and made recommendations to our
Board
on two occasions
in 2006. Our Compensation Committee makes recommendations concerning salaries
and incentive compensation, administers and approves stock option and restricted
stock unit grants under our 2000 Stock Incentive Plan, as amended, and otherwise
determines compensation levels and performs such other functions regarding
compensation as our Board may delegate to our Compensation Committee. Our
Compensation Committee does not have a written charter. Our Compensation
Committee designed an executive compensation program in order to reward
excellent performance and retain talented executive officers through a
combination of cash and equity incentive awards. The Compensation Discussion
and
Analysis below provides additional information regarding the Compensation
Committee’s determination of named executive officer and director compensation
levels and our Compensation Committee’s policies and procedures in making such
determinations.
Nominating
Committee
Our
Nominating Committee currently consists of Messrs. Charles Huang and Shi
Wang
and Drs. Dave Qi, Edward B. Roberts and Zhonghan Deng, who are each independent
directors as defined in the Nasdaq Stock Market listing standards. The purpose
of our Nominating Committee is to assist our Board in identifying individuals
qualified to become directors under criteria approved by our Board, periodically
review director compensation and benefits, recommend to our Board any proposed
revisions to our corporate governance guidelines and assist our Board in
assessing directors’ independence, board effectiveness, continuing education,
new director orientation and committee membership. Our Nominating Committee
did
not taken any action in 2006. The full responsibilities of our Nominating
Committee are set forth in its charter, which is reviewed and updated annually
and approved by our Board. We attached a copy of our Nominating Committee
Charter as an appendix to our Proxy Statement sent to our stockholders in
connection with our 2006 Annual Meeting of Stockholders.
-6-
It
is a
policy of our Nominating Committee that candidates for director (i) be
determined to have unquestionable integrity and honesty, (ii) have the ability
to exercise sound, mature and independent business judgment which is in the
best
interests of the stockholders as a whole, (iii) have a background and experience
in fields which will compliment the talents of the other Board members, (iv)
have the willingness and capability to take the time to actively participate
in
Board and committee meetings and related activities, (v) have the ability
to
work professionally and effectively with other Board members and our management,
(vi) have the ability to remain on our Board long enough to make a meaningful
contribution, and (vii) have no material relationships with competitors or
other
third parties that could create a reasonable likelihood of a conflict of
interest or other legal issues.
When
considering potential director nominees, our Nominating Committee also considers
our Board’s current composition and our evolving needs, including expertise,
diversity and balance of inside, outside and independent directors. In compiling
its list of possible candidates and considering their qualification, our
Nominating Committee makes its own inquiries, solicits input from other
directors on our Board, and may consult or engage other sources, such as
a
professional search firm, if it deems appropriate.
Our
Nominating Committee will consider director candidates recommended by
stockholders provided the stockholders follow the procedures set forth below.
There were no material changes to such procedures after we last provided
this
disclosure. 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.
In
2007,
Dr. Charles Zhang, our Chief Executive Officer, Chairman of our Board, and
a
stockholder, recommended Dr. Zhonghan Deng to our Nominating Committee for
consideration as a director.
Stockholders
who wish to recommend individuals for consideration by our Nominating Committee
to become nominees for election to our Board at the 2008 Annual Meeting of
Stockholders may do so by submitting a written recommendation to the committee,
care of Sohu.com Inc., at Level 12, Sohu.com Internet Plaza, 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 our Board proposed by
stockholders to be considered, the following information concerning each
nominee
must be timely submitted in accordance with the required
procedures:
|
·
|
The
candidate’s name, age, business address, residence address, principal
occupation or employment, the class and number of shares of our
capital
stock the candidate beneficially owns, a brief description of any
direct
or indirect relationships with us, and the other information that
would be
required in a proxy statement soliciting proxies for the election
of the
candidate as a director;
|
|
|
·
|
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, if elected; and
|
|
|
·
|
As
to the stockholder proposing such nominee, that stockholder’s name and
address, the class and number of shares of our 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.
|
-7-
Mr.
Thomas Gurnee, who was an independent director as defined in the Nasdaq Stock
Market listing standards, was a member of our Audit, Compensation and Nominating
Committees from January 1, 2006 until June 9, 2006. Mr. Gurnee did not stand
for
re-election as a director at our Annual Meeting of Stockholders held on June
9,
2006 and is no longer a member of our Board or any committees.
Ms.
Mary
Ma, who was an independent director as defined in the Nasdaq Stock Market
listing standards, was a member of our Audit and Nominating Committees from
July
11, 2000 until April 1, 2007. Ms. Mary Ma is no longer a member of our Board
or
any committees.
-8-
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2007 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 us to be the beneficial owner of more
than 5% of our 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) each named executive officer (as
defined
below) and (iv) all of our current directors and named executive officers
as a
group. Except as otherwise provided in the footnotes to this table, we believe
that the persons named in this table have voting and investment power with
respect to all the shares of common stock indicated.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of
Beneficial
Ownership (1)
|
Percent
of Class(1)
|
|||||
|
Charles
Zhang (2)
|
8,566,000
|
23.24
|
%
|
||||
|
Edward
Roberts (3)
|
829,900
|
2.25
|
%
|
||||
|
Carol
Yu (4)
|
168,125
|
*
|
|||||
|
Gong
Yu (5)
|
65,343
|
*
|
|||||
|
Charles
Huang (6)
|
51,500
|
*
|
|||||
|
Xin
(Belinda) Wang (7)
|
31,992
|
*
|
|||||
|
Shi
Wang (8) .
|
12,500
|
*
|
|||||
|
Dave
Qi (9)
|
10,000
|
*
|
|||||
|
Zhonghan
Deng (10)
|
0
|
*
|
|||||
|
All
directors, nominees and executive officers as a group (9
persons) (11).
|
9,735,360
|
26.18
|
%
|
||||
|
Photon
Group Limited (12)
|
7,917,000
|
21.52
|
%
|
||||
|
_______________________________
|
|||||||
|
*
|
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 SEC. The number of shares beneficially owned by a
person
includes shares of common stock subject to options, restricted
stock
units, convertible debt or warrants held by that person that are
currently
exercisable or convertible or exercisable or convertible within
60 days of
March 31, 2007. 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) 72,438 shares
of our common stock subject to options exercisable within 60 days
of March
31, 2007 and (ii)
7,917,000 shares
of our common stock 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, Sohu.com
Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian District,
Beijing 100084, People’s Republic of China.
|
|
(3)
|
Includes
(i) 24,000 shares
of our common stock subject to options held by Dr. Edward B. Roberts
which
are exercisable within 60 days of March 31, 2007; (ii) 309,087 shares
of our common stock are held by the Dr. Edward B. Roberts Trust
- 2003,
dated as of October 3, 2003; and (iii) 309,000
shares of our common stock 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
153,125 shares of our common stock subject to options exercisable
within
60 days of March 31, 2007. Ms. Yu’s address is c/o Sohu.com Inc., Level
12, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road,
Haidian
District, Beijing 100084, People’s Republic of China.
|
|
(5)
|
Includes
47,811 shares of our common stock subject to options exercisable
within 60
days of March 31, 2007. Dr. Gong’s address is c/o Sohu.com Inc., Level 12,
Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian
District, Beijing 100084, People’s Republic of China.
|
|
(6)
|
Includes
49,000 shares
of our common stock subject to options exercisable within 60 days
of March
31, 2007. Mr. Huang’s address is Suite 5206, Central Plaza, 18 Harbour
Road, Hong Kong.
|
|
(7)
|
Includes
31,992 shares of our common stock subject to options exercisable
within 60
days of March 31, 2007. Ms. Wang’s address is c/o Sohu.com Inc., Level 12,
Sohu.com Internet Plaza, No. 1 Unit Zhongguancun East Road, Haidian
District, Beijing 100084, People’s Republic of
China.
|
-9-
|
(8)
|
Includes
10,000 shares of our common stock subject to options exercisable
within 60
days of March 31, 2007. Mr. Wang’s address is Vanke Architecture Research
Center, No. 68 Meilin Road, Futian District, Shenzhen 518049, People’s
Republic of China.
|
|
(9)
|
Includes
10,000 shares of our common stock subject to options exercisable
within 60
days of March 31, 2007. Dr. Qi’s address is Tower E3, Oriental Plaza, East
Chang An Avenue, Beijing 100738, People’s Republic of
China.
|
|
(10)
|
Dr.
Deng’s address is 15/F, Shining Tower, No. 35, Xueyuan Road, Haidian
District, Beijing 100083, People’s Republic of China.
|
|
(11)
|
Includes
398,366
shares
of our common stock that such persons have the right to acquire
pursuant
to currently exercisable options or options that may be exercised
within
60 days of March 31, 2007.
|
|
(12)
|
Photon
Group Limited’s address is P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin
Islands.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act requires our directors and executive officers and
holders of more than 10% of our common stock to file with the SEC initial
reports of ownership and reports of changes in ownership of our common stock
and
other equity securities. Directors, executive officers and holders of more
than
10% of our common stock are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file. Based solely on a review of
copies
of reports furnished to us or written representations that no other reports
were
required, we believe that during the fiscal year ended December 31, 2006,
our
directors, executive officers and holders of more than 10% of our common
stock
complied with all applicable Section 16(a) reporting requirements, except
that
each of Drs. Dave Qi, Edward B. Roberts and Charles Zhang, Messrs. Shi Wang
and
Charles Huang, and Ms. Mary Ma, our former director, and Ms. Carol Yu filed
one
Form 4 late, with each such report relating to one transaction that took
place
on July 25, 2006.
-10-
TRANSACTIONS
WITH RELATED PERSONS
Loan
Agreements
Pursuant
to the terms described below, as of December 31, 2006, we had outstanding
long-term loans of $3.9 million to Dr. Zhang, our Chief Executive Officer,
Chairman of our Board and a major Sohu stockholder. During the fiscal year
2006,
the largest aggregate amount of these long-term loans was $3.9 million. The
outstanding long-term loans do not bear interest. Dr. Zhang did not repay
any
principal on these long term-term loans during fiscal year 2006.
The
long-term loans to Dr. Zhang are used to finance investments in our variable
interest entity, or VIE, Beijing Century High-Tech Investment Co., Ltd.,
or High
Century, which is owned 80% by Dr. Zhang. High Century, along with our other
VIEs, is used to facilitate our participation in telecommunications, Internet
content and certain other businesses in China where foreign ownership is
either
prohibited or restricted. As of December 31, 2006, the loans also included
amounts used to finance investments in Beijing Sohu Online Network Information
Services, Ltd., or Beijing Sohu, which was owned 80% by Dr. Zhang and 20%
by
High Century, and was liquidated in February 2007. Accordingly, all loans
related to Beijing Sohu were repaid in February 2007.
The
loan
agreements with Dr. Zhang provide for the following terms, subject to PRC
law:
(i) the loans can only be repaid to us by transferring the shares of High
Century to us; (ii) the shares of High Century cannot be transferred without
our
approval; and (iii) we have the right to appoint all directors and senior
management personnel of High Century. Dr. Zhang has pledged all of his shares
in
High Century as collateral for the loans. The loans are due on demand after
November 2003, and the earlier of a demand or, in any case, at such time
as Dr.
Zhang is not our employee. We do not intend to request repayment of the loans
as
long as PRC regulations prohibit us from directly investing in businesses
being
undertaken by our VIEs.
Transactions
with Lenovo Group Limited
In
fiscal
year 2006, Lenovo Group Limited purchased $960,000 in advertising services
from
us. Ms. Mary Ma, our former director, is the Executive Director, Vice President
and Chief Financial Officer of Lenovo Group Limited.
Transactions
with Vanke Co., Ltd.
In
fiscal
year 2006, China Vanke Co., Limited purchased $71,000 in advertising services
from us. Mr. Wang Shi, one of our Directors, is the Chairman of the Board
of
China Vanke Co., Limited.
Policies
and Procedures For Reviewing Transactions with Related
Persons
We
review
all relationships and transactions in which we enter into to determine whether
such relationships and transactions exceed $120,000 and whether they involve
any
related persons who have a direct or indirect material interest in such
relationships or transactions. The
term
“related person” has the same meaning as set forth in Item 404(a) of Regulation
S-K. We
have
developed and implemented unwritten processes and controls whereby we solicit
information from persons identified as related persons through written
questionnaires and, based on the information obtained and the facts and
circumstances of the relationship, make a determination as to whether the
related person has a direct or indirect material interest in the
transaction.
-11-
In
addition, pursuant to its duties under its written charter, our Audit Committee
reviews and approves or ratifies, as the case may be, any related person
transactions identified through the process described above. In deciding
whether
to approve or ratify a related person transaction, our Audit Committee takes
the
following into account:
|
·
|
the
nature of the related person’s interest in the
transaction;
|
|
|
·
|
the
material terms of the transaction, including, without limitation,
the
amount and type of transaction;
|
|
|
·
|
the
importance of the transaction to the related person and to
us;
|
|
|
·
|
whether
the transaction would impair the judgment of any of our directors
or
executive officers to act in our best interest;
|
|
|
·
|
whether
the terms of the transaction are substantially equal to or more
favorable
to us and no more favorable to the related person than if we had
negotiated similar arrangements with non-affiliated third parties;
and
|
|
|
·
|
any
other matters our Audit Committee deems
appropriate.
|
Any
member of our Audit Committee who is a related person with respect to a
transaction under review may not participate in the deliberations or vote
respecting approval or ratification of the transaction, provided, however,
that
such director may be counted in determining the presence of a quorum at a
meeting of the committee that considers the transaction.
To
our
knowledge, since January 1, 2006, all transactions with related persons to
which
we are or were a party have been reviewed under the policies and procedures
described above.
AUDIT
COMMITTEE REPORT
The
Audit
Committee assists the Board of Directors in its oversight of Sohu’s financial
reporting, internal controls and audit functions, and is directly responsible
for the appointment, retention, compensation and oversight of the work of
Sohu’s
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.
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:
|
·
|
discussed
and considered the independence of PricewaterhouseCoopers, reviewing
as
necessary all relationships and services which might bear on
PricewaterhouseCoopers’s objectivity as independent
auditors;
|
|
|
·
|
received
the written disclosures and the letter from the independent auditors
required by the Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and has discussed with the independent
auditors the auditors’ independence from Sohu and Sohu’s
management;
|
|
|
·
|
received
written affirmation from PricewaterhouseCoopers that it is in fact
independent;
|
-12-
|
·
|
discussed
the overall audit process, receiving and reviewing all reports
of
PricewaterhouseCoopers;
|
|
|
·
|
involved
PricewaterhouseCoopers in the Audit Committee’s review of Sohu’s financial
statements and related reports with management;
|
|
|
·
|
provided
to PricewaterhouseCoopers full access to the Audit Committee and
the full
Board of Directors to report on all appropriate
matters;
|
|
|
·
|
discussed
with PricewaterhouseCoopers all matters required to be reviewed
under
generally accepted auditing standards; and
|
|
|
·
|
discussed
with PricewaterhouseCoopers matters required to be discussed by
Statement
on Auditing Standards No. 61 (Communication with Audit
Committees).
|
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 the 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, 2006 for filing with the Securities and Exchange
Commission.
|
Respectfully
submitted,
|
|
|
AUDIT
COMMITTEE
|
|
|
Dr.
Dave Qi
|
|
|
Mr.
Charles Huang
|
|
|
Dr.
Zhonghan Deng (1)
|
|
| (1) Dr. Zhonghan Deng was named to the Audit Committee on April 13, 2007. |
-13-
Executive
Compensation
EXECUTIVE
OFFICERS
Our
named
executive officers are Dr. Charles Zhang, Ms. Carol Yu, Ms. Xin (Belinda)
Wang
and Dr. Gong Yu. For a description of the background of Dr. Zhang, see “ELECTION
OF DIRECTORS.”
Carol
Yu,
age 44,
is our Co-president and Chief Financial Officer. Ms. Yu joined us in March
2004
as our Chief Financial Officer. 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.
Gong
Yu, age
39,
is Sohu’s Chief Operating Officer. He joined Sohu in November 2003, when
Focus.cn, a leading real estate website where Dr. Gong was President and
CEO,
was acquired by us. He has also led Focus, wireless, online game and interactive
products center segments. Dr. Gong received his Bachelor degree in Automation
Engineering from Tsinghua University. He was exempt from the master program
due
to scholastic excellence and subsequently received his Ph.D. in Automation
Engineering from Tsinghua University.
-14-
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
of our Named Executive Officer Compensation Program and
Objectives
Our
named
executive officer compensation program is composed of the following
elements:
|
·
|
Cash
compensation, which includes an annual salary and the opportunity
to earn
an annual performance-based cash bonus;
|
|
|
·
|
Equity
incentive compensation, in the form of stock options and restricted
stock
units;
|
|
|
·
|
Other
benefits, in the form of housing allowances, tax equalization,
tuition/training reimbursement
and premiums paid for health, life and disability insurance;
and
|
|
|
·
|
Severance
benefits.
|
The
goal
of our named executive officer compensation program is to attract and retain
qualified management and create long-term value for our stockholders. Towards
this goal, we have designed and implemented a compensation program for our
named
executive officers that we believe will: (i) attract and retain
accomplished and high-potential executives; (ii) motivate them to achieve
both
short-term and long-term corporate goals; (iii) reward them for sustained
financial and operating performance and leadership excellence; and (iv) align
their interests with those of our stockholders. We believe that each of the
elements of our compensation program fulfills one or more of these objectives.
Administration
and Process
Our
executive compensation program is administered by the Compensation Committee
of
our Board of Directors. The Compensation Committee annually reviews the overall
compensation of our named executive officers, generally based on recommendations
submitted by our Chief Executive Officer and our Chief Financial Officer.
Neither we, nor our Compensation Committee, nor any named executive officer
has
any contractual arrangement with any compensation consultant who has a role
in
determining or recommending the amount or form of the compensation of our
named
executive officers or of any non-employee member of our Board of
Directors.
In
setting a named executive officer’s overall compensation level, the Compensation
Committee takes into consideration the factors discussed below.
Reward
Excellent Performance
Each
named executive officer’s pay level is set to be reflective of his or her
management experience and perceived leadership ability, continued high
performance and career of service to us. Key elements of our compensation
policy
that depend upon the named executive officer’s performance include:
|
·
|
A
discretionary annual performance-based cash bonus that is based
on an
assessment of the named executive officer’s performance against
pre-determined quantitative and qualitative measures within the
context of
our overall performance as a company and the performance of each
business
segment for which the named executive officer is responsible;
and
|
-15-
|
·
|
Equity
incentive compensation in the form of stock options or restricted
stock
units, the value of which is contingent upon the performance of
our common
stock in the public trading market, and which are subject to vesting
schedules that require continued service.
|
In
addition, in setting compensation levels, the Compensation Committee relies
on
its judgment of the named executive officer’s leadership qualities, operational
performance, level of responsibility within and contribution to our business,
and long-term potential to enhance stockholder value.
Competitive
Compensation Packages
In
order
to attract and retain talented executive officers and remain competitive,
we
consider the prevalent labor market for executive talent generally and at
companies with whom we compete for talent within our business sector in China.
To this end, our Compensation Committee annually collects compensation data
from
proxy filings by publicly-traded companies that we consider to be our peer
companies. We compile the total compensation paid to the named executive
officers of our peer companies and, where available, the amount of base salary,
equity-based compensation and other benefits paid by our peer companies to
their
named executive officers in similar positions to our named executive officers.
We then evaluate the total compensation paid to our named executive officers,
as
well as the individual elements of the pay package, against the compensation
paid to individuals in the same or similar position of our peer companies.
Generally speaking, we aim to set our total compensation so that it is in
the
median of the total compensation paid by our peer companies to ensure the
competitiveness of our compensation.
When
determining which companies should be included in our peer group, our
Compensation Committee generally focuses on successful or growing companies
in
the middle-market technology sector in China that are publicly-traded in
the
U.S. and surveys companies that it believes compete with us in attracting
upper-level management. For the 2006 compensation review, our Compensation
Committee determined that our peer group consisted of the following
companies:
|
·
|
SINA
Corporation
|
|
|
·
|
NetEase.com,
Inc.
|
|
|
·
|
Baidu.com,
Inc.
|
|
|
·
|
TOM
Online Inc.
|
|
|
·
|
KongZhong
Corporation
|
|
|
·
|
Linktone
Ltd.
|
|
|
·
|
The9
Limited
|
|
|
·
|
Ctrip.com
International, Ltd.
|
|
|
·
|
eLong,
Inc.
|
-16-
Other
Considerations
In
addition to the use of benchmarking in setting executive compensation levels,
the Compensation Committee takes into consideration the following additional
factors when setting the performance-based cash bonus:
|
·
|
Key
financial measurements such as revenue, operating profit, earnings
per
share and operating margins;
|
|
|
·
|
Revenue
growth percentage compared with selected competitors to indicate
our
growth or loss in market share;
|
|
|
·
|
Promoting
commercial excellence by launching new or continuously improving
products
or services;
|
|
|
·
|
Being
a leading market player and attracting and retaining customers;
|
|
|
·
|
Achieving
excellence in each named executive officer’s business area of
responsibility; and
|
|
|
·
|
Supporting
our values by promoting a culture of integrity and adherence to
our code
of conduct.
|
The
mix
of compensation elements is designed to reward recent results and motivate
long-term performance through a combination of cash and equity incentive
awards.
The Compensation Committee seeks to balance compensation elements that are
based
on financial, operational and strategic metrics with others that are based
on
subjective judgments of each named executive officer’s performance.
Elements
of Compensation
Generally
Our
named
executive officers’ pay is composed of three main components: base salary,
annual performance-based cash bonus and long-term equity awards. We do not
target a specific weighting of these three components or use a prescribed
formula to establish pay levels. Rather, our Compensation Committee considers
changes in our business, external market factors and its financial position
each
year when determining pay levels and allocating between long-term and short-term
compensation for its named executive officers, and considers management’s
business development goals for the year in setting target bonus levels and
performance-based milestones.
According
to a recent industry compensation survey, Chinese Internet companies are
increasingly paying a higher percentage of the total cash compensation paid
to
their top management in the form of discretionary cash bonuses. We are part
of
this trend because we believe that it is consistent with our objective of
rewarding the outstanding performance of our named executive officers. However,
in
setting
cash compensation levels, we have favored a balance in which base salaries
are
generally targeted at slightly below the peer average and a bonus opportunity
that is targeted at slightly above the average. As
a
result, our named executive officers generally receive a slightly lower base
salary than the median base salaries paid to executives in similar positions
at
our peer companies and their discretionary performance-based cash bonus
opportunities are generally higher than their counterparts’ at our peer
companies. We feel that this bonus structure provides the named executive
officer a substantial incentive to meet or exceed his or her performance
goals.
We
include an equity incentive component as part of our compensation package
because we believe equity incentives align
the
long-term interests of our named executive officers with those of our
stockholders by linking
a
significant portion of compensation to stockholder value, because the value
of
granted equity awards increases or decreases in line with any increase or
decrease in the market price of our common stock.
Our 2000
Stock Incentive Plan, which was initially approved by our stockholders in
2000
and amended with the approval of our stockholders in 2006, provides us with
the
ability to make equity-based awards in various forms, including stock options
and restricted stock units.
-17-
The
cash
and equity components of compensation are supplemented by various other benefits
that provide for housing allowances, tax equalization, tuition/training reimbursement,
health, life and disability benefits, and severance benefits.
Annual
cash compensation
Base
Salary
We
include base salary as part of each named executive officer’s compensation
package because we believe that it is appropriate that some amount of the
named
executive officers’ compensation be provided in a fixed amount of cash, in order
to provide our executive officers with a basic level of annual income security.
When deciding
upon an appropriate base salary for each named executive officer, the
Compensation Committee considers the named executive officer’s previous salary,
the amounts paid to the named executive officer’s peers both within and outside
our company, and the named executive officer’s prior performance. Decisions
regarding salary increases take similar matters into account.
The
base
salary increases from 2005 to 2006 for our named executive officers were
as
follows:
|
2005
Base
|
2006
Increase
|
2006
Base Salary
|
|||||||||||
|
Name
|
Salary
|
Amount
|
Percentage
|
Effective
January 1, 2006
|
|||||||||
|
Charles
Zhang
|
$
|
165,000
|
$
|
65,000
|
39.4
|
%
|
$
|
230,000
|
|||||
|
Carol
Yu
|
$
|
186,000
|
$
|
44,000
|
23.7
|
%
|
$
|
230,000
|
|||||
|
Xin
(Belinda) Wang
|
$
|
80,000
|
$
|
40,000
|
50.0
|
%
|
$
|
120,000
|
|||||
|
Gong
Yu
|
$
|
70,000
|
$
|
50,000
|
71.4
|
%
|
$
|
120,000
|
|||||
As
the
table above indicates, we substantially increased the base salaries paid
to our
named executive officers in 2006. We believe these increases were warranted
in
light of the substantial growth we have experienced over the past several
years,
which has increased the scope of our named executive officers’ responsibilities.
Further, we believe it was necessary to increase the base salaries paid to
our
named executive officers to ensure that we continued to remain competitive
with
the salaries paid by our peer companies to its individuals in the same or
similar positions as our named executive officers.
The
base
salary increases from 2006 to 2007 for our named executive officers were
as
follows:
|
2006
Base
|
2007
Increase
|
2007
Base Salary
|
|||||||||||
|
Name
|
Salary
|
Amount
|
Percentage
|
Effective
January 1, 2007
|
|||||||||
|
Charles
Zhang
|
$
|
230,000
|
$
|
20,000
|
8.7
|
%
|
$
|
250,000
|
|||||
|
Carol
Yu
|
$
|
230,000
|
$
|
0
|
0.0
|
%
|
$
|
230,000
|
|||||
|
Xin
(Belinda) Wang
|
$
|
120,000
|
$
|
30,000
|
25.0
|
%
|
$
|
150,000
|
|||||
|
Gong
Yu
|
$
|
120,000
|
$
|
30,000
|
25.0
|
%
|
$
|
150,000
|
|||||
We
increased certain named executive officers’ base salaries in 2007 because the
named executive officers are taking on increasing responsibilities. Moreover,
we
believe such increases are necessary to keep us competitive with our peers.
In
addition, our increases are in line with our practice of providing base salaries
that were generally a bit below the median of those paid by our peer companies.
-18-
2006
Executive Bonus Plan
Our
2006
Executive Bonus Plan was intended to establish a direct correlation between
the
annual cash incentives paid to our named executive officers and our financial
and operating performance. We believe that the annual bonus rewards the
high-performing officers who drive results in these areas and provides them
with
an incentive to sustain this performance over a long Sohu career. Under the
plan, the named executive officers were eligible to receive a cash bonus
equal
to a percentage of their base salaries based on the attainment of certain
corporate performance goals which were established at the beginning of the
year.
Once the overall bonus opportunity is calculated, the Chief Executive Officer,
with respect to his direct reports (which include all of the named executive
officers other than our Chief Executive Officer), or the Compensation Committee,
with respect to the Chief Executive Officer, has the discretion to adjust
the
bonus opportunity based upon such named executive officer’s individual
performance during the year of up to 150%. The bonus eligibility as a percentage
of base salary, after any discretionary adjustment, varied with respect to
each
named executive officer as set forth below.
|
Name
|
2006
Threshold Bonus Opportunity
(as
a % of base salary)
|
2006
Targeted Bonus Opportunity
(as
a % of base salary)
|
2006
Maximum Bonus Opportunity
(as
a % of base salary)
|
|||||||
|
Charles
Zhang
|
0%
|
|
47.55%
|
|
105.7%
|
|
||||
|
Carol
Yu
|
0%
|
|
47.55%
|
|
105.7%
|
|
||||
|
Xin
(Belinda) Wang
|
0%
|
|
46.5%
|
|
102.7%
|
|
||||
|
Gong
Yu
|
0%
|
|
46.5%
|
|
102.7%
|
|
||||
On
April
23, 2006, our Compensation Committee established the bonus components for
each
named executive officer as a percentage of their bonus opportunity. For 2006,
our Compensation Committee selected the bonus components and weighting as
set
forth below for our named executive officers.
|
Performance
Bonus Components
|
||||||||||||||||
|
Name
|
Overall
Corporate
Performance
Results
|
Advertising
Results
|
Non-
Advertising
Results
|
Technology
and Product Results
|
Total
|
|||||||||||
|
Charles
Zhang
|
70%
|
|
-
|
-
|
30%
|
|
100%
|
|
||||||||
|
Carol
Yu
|
50%
|
|
10%
|
|
10%
|
|
30%
|
|
100%
|
|
||||||
|
Xin
(Belinda) Wang
|
40%
|
|
60%
|
|
-
|
-
|
100%
|
|
||||||||
|
Yu
Gong
|
40%
|
|
30%
|
|
30%
|
|
-
|
100%
|
|
|||||||
-19-
For
2006,
with respect to the overall corporate performance results, advertising results
and non-advertising results, our Compensation Committee selected the following
additional performance objectives: (i) GAAP Revenue (weighted 35%), (ii)
Non-GAAP Net Income (weighted 35%) and (iii) our GAAP Revenue growth, as
a
percentage, compared with the GAAP Revenue growth, as a percentage, of our
peers
which are identified above (weighted 30%). Non-GAAP Net Income is calculated
by
taking the GAAP Net Income from our audited financial statements and adding
back
in the compensation
cost of the share-based awards granted to employees under Statement of Financial
Accounting Standard 123R, effective from January 1, 2006. We
use
non-GAAP Net Income because
the
amount of share-based compensation expense cannot be anticipated by our
management and business line leaders and is not included in our annual budgets
and quarterly forecasts. In addition, share-based compensation expense does
not
involve any upfront or subsequent cash outflow, and therefore we do not factor
this in when evaluating and approving expenditures or when determining the
allocation of our resources to business segments. As a result, our performance
measures are based on non-GAAP financial measures that exclude share-based
compensation expense.
With
respect to the objectives in (i) and (ii) above, the total bonus opportunity
(e.g., with respect to Dr. Zhang, 35% of 70% which was tied to our achieving
certain levels of GAAP Revenue and 35% of 70% which was tied to our achieving
certain levels of non-GAAP Net income ) was subject to a sliding scale,
determined by our Compensation Committee, whereby the named executive officer
was eligible to receive anywhere from zero to 140% of the bonus component
based
on the actual performance of our company. With respect to the objective in
(iii)
above, the total bonus opportunity (e.g., with respect to Dr. Zhang, 30%
of 70%)
was subject to a sliding scale, determined by our Compensation Committee,
whereby the named executive officer was eligible to receive anywhere from
70% to
130% of the bonus component based on the actual performance of us vis-à-vis our
peers. For 2006, with respect to technology and product results, the named
executive officer was entitled to the percentage of the total bonus opportunity
if certain milestones were met with respect to the research and development
of
certain technology and products, as determined by our Compensation Committee.
This bonus component was subject to adjustment based upon a sliding scale,
determined by our Compensation Committee, whereby the named executive officer
was eligible to receive anywhere from zero to 150% of the bonus component
based
upon our Chief Executive Officer’s evaluation, with respect to his direct
reports (which include all of the named executive officers other than our
Chief
Executive Officer), and our Compensation Committee’s evaluation, with respect to
the Chief Executive Officer, of the named executive officer’s actual performance
with respect to the technology and product milestones.
The
Compensation Committee believes that these criteria are consistent with the
overall goals and long-term strategic direction that our Board of Directors
has
set for our company and are closely related to or reflective of financial
performance, operational improvements, growth and return to
stockholders.
In
establishing the goals, our Compensation Committee set threshold, target
and
maximum levels of attainment. The target performance levels are based on
our
performance budget and are intended to reward superior performance relative
to
our peers taking into consideration the market conditions and industry trends
that affect us. The target performance levels for each measure are
intended to
be
reasonably attainable given maximum effort on the part of our named executive
officers.
The
amounts actually paid to our named executive officers based on our financial
results described above, the attainment of the technology and product
milestones, if applicable to the named executive officer, and in each case
as
adjusted by our Chief Executive Officer or the Compensation Committee, as
applicable, for individual performance, are set forth in the Summary
Compensation Table below.
2007
Executive Bonus Plan
In
2007,
our Compensation Committee established
our 2007 Executive Bonus Plan on the same premises and tenets described above
under the 2006 Executive Bonus Plan. The 2007 Executive Bonus Plan is
essentially identical to the 2006 plan except with respect to the bonus
components and the weight given to each bonus component. For
2007,
our Compensation Committee selected the bonus components and weighting as
set
forth below for our named executive officers.
-20-
|
|
|||||
|
|
|||||
|
Performance
Bonus Components
|
||||||||||||||||
|
Name
|
Overall
Corporate
Performance
Results
|
Advertising
Results
|
Non-
Advertising
Results
|
Technology
and Product Results
|
Total
|
|||||||||||
|
Charles
Zhang
|
50%
|
|
20%
|
|
-
|
30%
|
|
100%
|
|
|||||||
|
Carol
Yu
|
50%
|
|
-
|
-
|
50%
|
|
100%
|
|
||||||||
|
Xin
(Belinda) Wang
|
40%
|
|
60%
|
|
-
|
-
|
100%
|
|
||||||||
|
Yu
Gong
|
40%
|
|
20%
|
|
40%
|
|
-
|
100%
|
|
|||||||
Our
Compensation Committee readjusted certain bonus components and the weighting
given to each component in 2007 as compared to 2006 with respect to certain
of
the named executive officers due to a reallocation of certain named executive
officers’ responsibilities within our company. As a result of the changes in the
bonus components and the weighting from 2006 to 2007, the total bonus
opportunity with respect to Carol Yu, as a percentage of base salary, before
any
discretionary adjustment as described above has been made, has changed from
2006
from a targeted bonus opportunity of 47.55% to 48.25% in 2007 and a maximum
bonus opportunity from 105.7% to 107.6% in 2007.
Annual
equity Compensation - Stock options and Restricted Stock
Units
Our
equity-based compensation program is designed to recognize the scope of the
named executive officers’ responsibilities, reward demonstrated performance and
leadership, motivate future superior performance, align the interests of
the
named executive officers with the interests of our stockholders and retain
the
named executive officers through the terms of the awards. The vesting terms
of
the equity-based compensation require continued service to receive any payout
and therefore encourage continuity in our management. When determining the
level
of equity-based compensation to provide to our named executive officers,
we
endeavor to be in the median of our peer companies.
We
historically have granted stock options to our named executive officers.
Stock
options only have value to the extent the price of our common stock on the
date
of exercise exceeds the exercise price on grant date, and thus are an effective
compensation element only if the stock price grows over the term of the award.
In this sense, stock options were a motivational tool. Beginning, in July
2006,
however, we began granting restricted stock units to our named executive
officers. Unlike stock options, restricted stock units offer executives the
opportunity to receive shares of our common stock on the date the restriction
lapses.
We
believe that restricted stock units are more effective than stock options
in
compensating our named executive officers because they will reward and serve
to
retain named executive officers during times where our stock price remains
stable, as there is value to the restricted stock units upon vesting even
if the
market price of our common stock has not increased since the grant date.
The
rewards to our named executive officers are even greater if the market price
of
our common stock has risen, and thus our named executive officers’ interests are
aligned with those of our stockholders. Further, our practice of granting
restricted stock units is consistent with recent trends in China. As a result,
we believe it necessary to offer restricted stock units to our named executive
officers to be able to continue to attract and retain qualified management.
Additionally, due to the substantial value restricted stock units provide
our
named executive officers, we are able to grant the named executive officers
fewer restricted stock units than the number of stock options that would
have
been required to provide the same economic incentive. Finally, grants of
both
stock options and restricted stock units are expensed under Statement of
Financial Accounting Standards 123 (revised 2004), Share-Based Payment (SFAS
123R), or “SFAS 123R.” Although each restricted stock unit grant generally
results in a higher compensation expense than would an option to purchase
one
share of common stock at fair market value, we have reduced the number of
restricted stock units we grant sufficiently, in comparison to the number
of
stock options we would otherwise have granted, to cause the overall share-based
compensation expense to actually be lower than it would have been if we had
granted stock options. When determining the appropriate combination of stock
options and restricted stock units, our goal is to weigh the reduction in
our
overall reported earnings as a result of these grants against their potential
benefits as a compensation tool.
-21-
All
equity-based compensation is awarded pursuant to our 2000 Stock Incentive
Plan
and, in order to retain executive talent, is awarded once a year. Generally,
our
decisions to make equity-based compensation grants are independent of our
cash
compensation program decisions. Since we began granting restricted stock
units,
we have attempted to provide our named executive officers the same overall
equity benefit they would have received had they been granted stock options.
When making any grant, we consider the grant size and the appropriate
combination of stock options and restricted stock units. To do so, we make
certain assumptions about our stock price to determine the value of any proposed
grant to a named executive officer. We then compare the proposed equity grant
to
the equity compensation provided by our peer companies to ensure that the
total
equity compensation paid to the named executive officer is in the median
of our
peer companies.
Other
components of compensation
Our
named
executive officers receive various other benefits, such as housing allowances,
tax equalization, tuition/training reimbursement
and
health, life and disability insurance. We believe that these other benefits
are
reasonable, competitive (as it is customary for Chinese companies to provide
such benefits to their named executive officers) and consistent with our
overall
compensation program. Further, companies within our peer group in China provide
similar benefits to their named executive officers, and we believe that it
is
necessary to do the same for retention and recruitment purposes.
Specifically,
we provide Dr. Zhang a sizeable tax equalization benefit because Dr. Zhang’s tax
liability increases significantly as his income grows. We believe that providing
this benefit to executive officers is customary in China and necessary for
us to
continue attracting talented individuals.
Severance
Benefits
Under
Chinese law, we must pay severance to all employees who are Chinese nationalists
and who are terminated without cause or terminate
their employment with us for good reason.
The
severance benefit required to be paid under Chinese law equals the lesser
of (i)
the average monthly compensation paid to the terminated employee (including
any
bonuses or other payments made in the twelve months prior to the employee’s
termination) multiplied by the number of years the employee has been employed
with us, plus an additional month’s salary if thirty days prior notice of such
termination is given and (ii) the number of months such employee had remaining
under his or her employment agreement on the date of such termination or
resignation. However, we
believe that it is important, for recruiting and retention, to provide certain
of our named executive officers with severance benefits beyond those required
by
Chinese law to help minimize the financial stress in the event of job loss.
As a
result, we provide additional severance pay and benefit continuation to certain
of our named executive officers to help bridge the time until they secure
new
employment.
-22-
With
respect to Dr. Zhang, in addition to the severance benefit Dr. Zhang would
be
entitled to receive under Chinese law upon a termination without cause or
a
resignation for good reason, we are also obligated to pay him his monthly
housing allowance multiplied by the number of years he has been employed
with us
and the continuation of his insurance benefits for the lesser of (i) six
months
and (ii) the remainder of the term of his employment agreement (the “severance
period”).
Ms.
Yu is
not entitled to the severance benefits afforded under Chinese law because
she is
not a Chinese nationalist. Rather, she is entitled to severance benefits
based
on her employment agreement with us. With respect to Ms. Yu, if
we
terminate her without cause or she terminates her employment with us for
good
reason, we are obligated to pay her (1) her monthly
base salary in effect on the date of termination during the severance period,
(2) her monthly housing allowance during the severance period and (3) the
continuation of her insurance benefits during the severance period.
We
do not
provide Ms. Wang and Dr. Gong with any severance benefits other than those
required by Chinese law and as described in the first paragraph under this
“Severance” section.
Compensation
for Independent Directors in 2006
Non-management
directors’ compensation is guided by the following goals: compensation should
fairly pay directors for work required in a company of our size and scope;
compensation should align directors’ interests with the long-term interest of
stockholders; and the structure of the compensation should be simple,
transparent and easy for stockholders to understand. The compensation of
non-management directors in 2006 is described in the narrative following
the
Director Compensation Table below.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis or CD&A for the year ended December 31, 2006 with
management. Based on the review and discussion, the Compensation Committee
recommended to our Board of Directors that the CD&A be included in this
Proxy Statement.
|
Respectfully
submitted,
|
|
|
COMPENSATION
COMMITTEE
|
|
|
Dr.
Edward B. Roberts
|
|
|
Dr.
Dave Qi
|
-23-
SUMMARY
COMPENSATION TABLE (1)
The
following table sets forth the compensation during the fiscal year ended
December 31, 2006 to our CEO, CFO, and our two other most highly compensated
individuals who were not executive officers during fiscal 2006. All of these
individuals are collectively referred to as the named executive officers.
Except
for the CEO and the CFO, we did not have any other executive officers in
fiscal
year 2006.
|
Name
and
Principal
Positio
|
Year
|
Salary
($)
|
Option
Awards
($)(2)
|
Stock
Awards
($)(2)
|
Non-Equity
Incentive
Plan
Compensation ($)(3)
|
All
Other Compensation ($)(4)
|
Total
($)
|
|||||||||||||||
|
Charles
Zhang
Chairman
of the Board and Chief Executive Officer
|
2006
|
$
|
230,000
|
$
|
161,918
|
$
|
19,752
|
$
|
139,932
|
$
|
217,247
|
$
|
768,849
|
|||||||||
|
Carol
Yu
Co-President
and Chief Financial Officer
|
2006
|
$
|
230,000
|
$
|
572,163
|
$
|
19,752
|
$
|
137,448
|
$
|
60,168
|
$
|
1,019,531
|
|||||||||
|
Xin
(Belinda) Wang
Co-President
and Chief Marketing Officer
|
2006
|
$
|
120,000
|
$
|
117,637
|
$
|
30,047
|
$
|
70,308
|
$
|
56,386
|
$
|
394,378
|
|||||||||
|
Yu
Gong
Chief
Operating Officer
|
2006
|
$
|
120,000
|
$
|
221,189
|
$
|
24,038
|
$
|
70,308
|
$
|
20,000
|
$
|
455,535
|
|||||||||
|
(1)
|
All
annual cash bonuses paid to our named executive officers are reflected
in
the non-equity incentive plan compensation column of this table
and were
earned pursuant to our 2006 Executive Bonus Plan.
|
|
(2)
|
Represents
expense recognized with respect to restricted stock units and stock
options, as applicable, granted from January 1, 2002 through
December 31, 2006, in accordance with SFAS 123R. For awards granted
in 2006, see the “Grants of Plan-Based Awards Table” below. See
Note 19, “Shareholders’ Equity” in the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the fiscal
year
ended December 31, 2006, for the relevant assumptions we used to
determine
the valuation of our stock and option awards.
|
|
(3)
|
All
compensation earned in 2006 under our 2006 Executive Bonus Plan
was paid
on March 29, 2007.
|
-24-
|
(4)
|
The
table below shows the components of this column, which include
housing
allowances, tax equalization, tuition/ training reimbursement and
premiums
paid for health, life and disability
insurance.
|
|
Name
|
Housing
Allowances
|
Tax
Equalization
Allowances
|
tuition
/
training
Reimbursement
|
Health,
life and
Disability
Insurance
|
Total
|
|||||||||||
|
Charles
Zhang
|
$
|
55,000
|
$
|
157,215
|
-
|
$
|
5,032
|
$
|
217,247
|
|||||||
|
Carol
Yu
|
$
|
55,000
|
-
|
-
|
$
|
5,168
|
$
|
60,168
|
||||||||
|
Xin
(Belinda) Wang
|
$
|
20,000
|
-
|
$
|
36,386(1)
|
|
-
|
$
|
56,386
|
|||||||
|
Yu
Gong
|
$
|
20,000
|
-
|
-
|
-
|
$
|
20,000
|
|||||||||
|
(1)
|
The
expense related to the Ms. Wang’s tuition/training reimbursement
was originally calculated in Renminbi and was converted into US
dollars
based on the exchange rate of Rmb7.97 = $1, the average exchange
rate
quoted on State Administration of Foreign Exchange for
the month of August 2006.
|
-25-
GRANTS
OF PLAN-BASED AWARDS
The
following table sets forth a summary of all grants of plan-based awards
including estimated payouts under our 2006 Executive Bonus Plan, made to
our
named executive officers during the fiscal year ended December 31,
2006.
| Name |
Grant
Date
|
Estimated
Payouts
Under Non Equity
Incentive
Plan Awards(1)
|
All
Other Stock Awards: Number of
Shares of Stock or Units (#)(2)
|
Grant
Date Fair Value of Stock and
Option Awards
|
|||||||||||||||
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|||||||||||||||||
|
Charles
Zhang
|
N/A
07/25/06
|
$
|
0
|
$
|
109,365
|
$
|
243,053
|
4,000
|
$
|
87,060
|
|||||||||
|
Carol
Yu
|
N/A
07/25/06
|
$
|
0
|
$
|
109,365
|
$
|
243,053
|
4,000
|
$
|
87,060
|
|||||||||
|
Xin
(Belinda) Wang
|
N/A
07/09/06
|
$
|
0
|
$
|
55,800
|
$
|
123,300
|
5,000
|
$
|
120,325
|
|||||||||
|
Yu
Gong
|
N/A
07/09/06
|
$
|
0
|
$
|
55,800
|
$
|
123,300
|
4,000
|
$
|
96,260
|
|||||||||
|
(1)
|
The
amounts shown represent the range of non-equity incentive bonus
opportunities for each named executive officer under our 2006 Executive
Bonus Plan. The plan is described in detail in the “Compensation
Discussion and Analysis” above. Payment of bonuses under our 2006
Executive Bonus Plan was made on March 29, 2007,
and actual payments are reflected in the “Summary Compensation Table” in
the column titled “Non-Equity Incentive Plan Compensation.”
|
|
(2)
|
All
stock awards were granted under our 2000 Stock Incentive Plan,
as amended
and relate to our common stock. The stock awards were granted in
the form
of restricted stock units. The terms of the restricted stock units
are
described in the section below entitled “Terms
of Stock Option and Restricted Stock Unit Awards Granted under
our 2000
Stock Incentive Plan, as amended.”
|
-26-
Executive
Employment Agreements
We
normally enter into three-year employment agreements with our named executive
officers. Under these employment agreements, the named executive officers
are
generally entitled to (i) annual base salaries; (ii) annual performance-based
cash bonus; and (iii) equity incentive compensation, in the form of stock
options and restricted stock units, all as represented in the Summary
Compensation Table for 2006. The employment agreements may also provide for
the
following additional benefits for the named executive officers: vacation
time,
sick leave, health and medical insurance, life and disability insurance,
housing
allowances, tuition/training reimbursement
and tax
equalization.
The
employment agreements generally provide for continued employment until
termination by either party. We may terminate any of the named executive
officers’ employment with or without cause at any time. However, if the
termination is without cause, we must provide the named executive officer
with
30 days’ prior notice of termination. If
we
terminate without cause or a named executive officer terminates his or her
employment for good reason (each as defined below under the heading “Potential
Payments Upon Termination or Change-in-Control”), the named executive officer
will
be
entitled to the following, except as noted below:
|
·
|
Payments
equal to the named executive officer’s monthly base salary (which includes
his or her housing allowance) in effect on the date of termination
for the
shorter of (i) six months and (ii) the remainder of the term of
the named
executive officer’s employment agreement; and
|
|
|
·
|
Insurance
benefits for so long as we are obligated to pay
severance.
|
Notwithstanding
the provisions above with respect to our severance obligations, if, under
the
applicable People’s Republic of China (or PRC) law, any portion of the
employment agreements is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion will be deemed
to be modified or altered to conform to such applicable statue, rule, regulation
or ordinance, or, if that is not possible, to be omitted from such agreement.
As
such, PRC law will be applied if, at the time of such determination,
the
severance benefit
provided under PRC law is greater than that which the named executive officer
would be entitled to receive under his or her employment agreement.
In
addition, if we terminate a named executive officer’s employment without cause
and the termination is within the one-year period following a change-in-control
(as
defined below in under the heading “Potential Payments Upon Termination or
Change-in-Control”) of
us,
except as noted below, all of the named executive officer’s stock options and
other stock awards will become immediately exercisable.
Also,
if
we terminate a named executive officer’s employment agreement without cause, if
a named executive officer terminates his or her employment agreement for
good
reason or if a named executive officer dies or becomes disabled, the named
executive officer will be entitled to receive the bonus to which he or she
would
have been entitled had he or she continued to be employed through the end
of the
then current year.
The
employment agreements also require the named executive officers to enter
into
agreements providing for (i) assignment of intellectual property, (ii)
confidential treatment of our proprietary information and (iii) during the
term
of their employment and for the following year, (a) non-solicitation of our
employees, contractors, customers, suppliers and partners and (b)
non-competition with us.
-27-
If
a
named executive officer violates the confidentiality, non-solicitation,
non-competition and assignment of intellectual property agreement after the
termination of his or her employment:
|
·
|
the
named executive officer will not be entitled to any further payments
from
us;
|
|
|
·
|
any
insurance or other benefits that have continued will terminate
immediately; and
|
|
|
·
|
the
named executive officer must reimburse us for any severance payments
previously made by us to the named executive
officer.
|
Terms
of the Employment Agreements with the Named Executive Officers that Differ
from
our Executive Employment Agreements
Some
of
the provisions found in the executive employment agreements described
immediately above for specific named executive officers differ from those
general provisions described immediately above. For instance, if we
terminate Ms. Wang’s or Dr. Gong’s employment without cause or if they resign
for good reason, each of Ms. Wang and Dr. Gong will
only
be entitled to receive the severance benefit required under Chinese law,
which
is
a
payment
equal to
the lesser of (i) the average monthly compensation paid to them (including
any
bonuses or other payments made in the twelve months prior to the employee’s
termination) multiplied by the number of years each has been employed with
us
(which is 8 years for Ms. Wang and 4 years
for
Dr. Gong), plus an additional month’s salary if thirty days prior notice of such
termination is given and (ii) the number of months Ms. Wang or Dr. Gong had
remaining under his or her employment agreement on the date of such termination
or resignation. Neither Ms. Wang nor Dr. Gong is entitled to continued insurance
benefits. Finally, neither Ms. Wang nor Dr. Gong is entitled to a bonus if
we
terminate their employment agreement without cause, or if they die or become
disabled or they terminate their employment agreement for good reason.
Terms
of Stock Option and Restricted Stock Unit Awards Granted under our 2000 Stock
Incentive Plan, as amended.
All
equity awards granted in 2006 were granted pursuant to our 2000 Stock Incentive
Plan, as amended and provide for the following terms, as appropriate.
Stock
Options
We
did
not grant any stock options to our named executive officers in 2006. However,
stock options granted prior to 2006, which are reflected in the “Outstanding
Equity Awards at Fiscal Year End Table,” are subject to the following terms and
conditions. Unless our Compensation Committee determines otherwise, twenty-five
percent of the stock options vest on the first anniversary of the grant date
and
the remaining 75% vest ratably in 3-month intervals over the next 3 years
with
100% vesting occurring on the fourth anniversary of the grant date. The exercise
prices of the stock options were determined based on the fair market value
of a
share of our common stock on the date of grant. Under our 2000 Stock Incentive
Plan, the fair market value is determined as of the last business day for
which
the prices or quotes for our common stock are available prior to the date
an
option is granted and means the average, on such date, of the high and low
prices of our common stock on the Nasdaq National Market. The stock options
are
only exercisable into our common stock and have a term of 10 years.
As
described above under the heading “Employment Agreements,” if we terminate Dr.
Zhang’s and Ms. Yu’s employment without cause and the termination is within the
one-year period following a change-in-control of us, all of such named executive
officer’s stock options and other stock awards will become immediately
exercisable.
-28-
Restricted
Stock Units
Under
our
2000 Stock Incentive Plan, as amended, we may grant restricted stock units
which
represent the right to receive, upon vesting, at the discretion of our
Compensation Committee, either one share of our common stock for each unit
vested or an amount of cash equal to the then market value of one share of
our
common stock for each unit vested, in each case subject to any additional
or
different terms set forth in the applicable award agreement. Restricted stock
units granted to date have been settleable upon vesting only in our common
stock, and we expect that generally it will continue to grant restricted
stock
units that may only be settled upon vesting in our common stock. With respect
to
restricted stock units granted to our named executive officers, twenty-five
percent of the restricted stock units vest each year, beginning on the first
anniversary of the grant date.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following
table
sets forth a summary of all outstanding equity awards granted by us and held
by
each of our named executive officers as of December 31, 2006.
|
Option
Awards (1)
|
Stock
Awards (1)
|
||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
that
Have
not Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not Vested
($)
|
|||||||||||||
|
Charles
Zhang
|
10,938(2)
37,500(3)
9,000(4)
13,125(5)
|
|
-
-
-
16,875(5)
|
|
$
$
$
$
|
1.18
8.39
34.51
22.86
|
1/31/2012
1/10/2013
1/2/2014
7/26/2015
|
4,000(6)
|
|
$
|
96,000
|
||||||||
|
Carol
Yu
|
103,125(5)
16,875(5)
17,500(5)
|
|
46,875(5)
13,125(5)
22,500(5)
|
|
$
$
$
|
23.17
16.84
20.78
|
3/23/2014
7/27/2014
7/26/2015
|
4,000(6)
|
|
$
|
96,000
|
||||||||
|
Xin
(Belinda)
Wang
|
2,813(2)
7,235(7)
5,625
(5)
13,125(5)
|
|
-
-
4,375(5)
16,875(5)
|
|
$
$
$
$
|
1.07
1.37
16.84
17.65
|
1/31/2012
7/1/2012
7/27/2014
3/30/2015
|
5,000(6)
|
|
$
|
120,000
|
||||||||
|
Yu
Gong
|
18,750(5)
2,812(5)
19,687(5)
|
|
6,250(5)
2,188(5)
25,313(5)
|
|
$
$
$
|
31.40
16.84
17.65
|
11/17/2013
7/27/2014
3/30/2015
|
4,000(6)
|
|
$
|
96,000
|
||||||||
|
(1)
|
Options
and restricted stock unit awards were granted under our 2000 Stock
Incentive Plan, as amended, and related to our common stock.
|
|
(2)
|
These
options became fully vested on January 31, 2006.
|
|
(3)
|
These
options became fully vested on January 10, 2007.
|
|
(4)
|
These
options were granted to Dr. Zhang in consideration of his services
as our
director and they became fully vested on January 2,
2005.
|
|
(5)
|
Twenty-five
percent of the initial option grant vests on the first anniversary
of the
grant date and 6.25% of the options vests quarterly thereafter.
The grant
date of each option is listed on the table below by reference to
the
expiration date set forth in the above table.
|
-29-
|
Grant
Date
|
Expiration
Date
|
|
|
1/31/2002
|
1/31/2012
|
|
|
1/10/2003
|
1/10/2013
|
|
|
11/17/2003
|
11/17/2013
|
|
|
3/23/2004
|
3/23/2014
|
|
|
7/27/2004
|
7/27/2014
|
|
|
3/30/2005
|
3/30/2015
|
|
|
7/26/2005
|
7/26/2015
|
|
(6)
|
Twenty-five
percent of the restricted stock units vest each year beginning
on the
first anniversary of July 25, 2006, the grant date.
|
|
(7)
|
These
options became fully vested on July 1,
2006.
|
-30-
OPTION
EXERCISES AND STOCK VESTED
None
of
our named executive officers exercised any of their stock options or acquired
any shares of our common stock upon any exercise in fiscal 2006. In addition,
our named executive officers did not acquire any shares of our common stock
or
realize any value with respect to any restricted stock units as none of the
restricted stock units granted to our named executive officers vested in
fiscal
2006.
PENSION
BENEFITS
We
do not
have any plans that provide for payments or other benefits at, following,
or in
connection with retirement nor do we have any defined contribution or other
plan
that provides for the deferral of compensation on a basis that is not
tax-qualified.
POTENTIAL
PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Severance
Benefits and Change-in-Control Arrangements
As
discussed in the narrative description following the “Grants of Plan-Based
Awards Table,” we have entered into employment agreements with each of our named
executive officers. These agreements, along with Chinese law requirements
which
are discussed in the Compensation Discussion and Analysis under the heading
“Severance Benefits”, provide for certain payments and other benefits if a named
executive officer’s employment with us is terminated under circumstances
specified in his or her respective agreement, including a change-in-control
of
us. A named executive officer’s rights upon the termination of his or her
employment will depend upon the circumstances of the termination. Central
to an
understanding of the rights of each named executive officer under the employment
agreements is an understanding of the definitions of “cause,”
“change-in-control,” “good reason,” and “disability” that are used in those
agreements. For purposes of the employment agreements such terms have the
following meanings:
“cause”
means:
|
·
|
willful
misconduct or gross negligence by the named executive officer,
or any
willful or grossly negligent omission to perform any act, resulting
in
injury to us;
|
|
|
·
|
misconduct
or negligence of the named executive officer that results in gain
or
personal enrichment of the named executive officer to our
detriment;
|
|
|
·
|
breach
of any of the named executive officer’s agreements with us, including, but
not limited to, the repeated failure to perform substantially the
named
executive officer’s duties to us, excessive absenteeism or
dishonesty;
|
|
|
·
|
any
attempt by the named executive officer to assign or delegate his
or her
employment agreement or any of the rights, duties, responsibilities,
privileges or obligations hereunder without our prior consent (except
in
respect of any delegation by the named executive officer of his
employment
duties hereunder to our other employees in accordance with our
usual
business practice);
|
|
|
·
|
the
named executive officer’s indictment or conviction for, or confession of,
a felony or any crime involving moral turpitude under the laws
of the
United States or any State thereof, or under the laws of China
or Hong
Kong;
|
|
|
·
|
declaration
by a court that the named executive officer is insane or incompetent
to
manage his or her business affairs;
|
|
|
·
|
habitual
drug or alcohol abuse which materially impairs the named executive
officer’s ability to perform his or her duties; or
|
|
|
·
|
filing
of any petition or other proceeding seeking to find the named executive
officer bankrupt or insolvent.
|
-31-
“change-in-control”
means the occurrence of any of the following events:
| · |
any
person (within the meaning of Section 13(d) or Section 14(d)(2)
of the
Securities Exchange Act of 1934) other than us, any trustee or
other
fiduciary holding securities under an employee benefit plan of
Sohu or any
corporation owned, directly or indirectly, by our stockholders
in
substantially the same proportion as their ownership of our common
stock,
becomes the direct or beneficial owner of securities representing
50% or
more of the combined voting power of our then-outstanding
securities;
|
|
|
·
|
during
any period of two (2) consecutive years after the date of the named
executive officer’s employment agreement, individuals who at the beginning
of such period constitute our Board of Directors, and all new directors
(other than directors designated by a person who has entered into
an
agreement with us to effect a transaction described in the first,
third
and fourth bullet point of this definition) whose election or nomination
to our Board was approved by a vote of at least two-thirds of the
directors then in office, cease for any reason to constitute at
least a
majority of the members of our Board;
|
|
|
·
|
the
effective date of a merger or consolidation of us with any other
entity,
other than a merger or consolidation which would result in our
voting
securities outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being
converted into voting securities of the surviving entity) more
than 50% of
the combined voting power of the voting securities of the surviving
entity
outstanding immediately after such merger or consolidation and
with the
power to elect at least a majority of the board of directors or
other
governing body of such surviving entity;
|
|
|
·
|
our
complete liquidation or the sale or disposition by us of all or
substantially all of our assets; or
|
|
|
·
|
there
occurs any other event of a nature that would be required to be
reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or
a response
to any similar item on any similar schedule or form) promulgated
under the
Securities and Exchange Act of 1934, whether or not we are then
subject to
such reporting requirements.
|
“disability”
means the named executive officer becomes physically or mentally impaired
to an
extent which renders him or her unable to perform the essential functions
of his
or her job, with or without reasonable accommodation, for a period of six
consecutive months, or an aggregate of nine months in any two year
period.
-32-
“good
reason” means the occurrence of any of the following events without the named
executive officer’s express
written consent, provided that the named executive officer has given notice
to
us of such event and we have not remedied the problem within fifteen (15)
days:
|
·
|
any
significant change in the duties and responsibilities of the named
executive officer inconsistent in any material and adverse respect
with
the name executive officer’s title and position (including status, officer
positions and reporting requirements), authority, duties or
responsibilities as contemplated by the named executive officer’s
employment agreement.
|
|
|
·
|
any
material breach by us of the employment agreement with the named
executive
officer, including without limitation any reduction of the name
executive
officer’s base salary or our failure to pay to the named executive officer
any portion of his or her compensation; or
|
|
|
·
|
the
failure, in the event of a change-in-control in which we are not
the
surviving entity, of the surviving entity or the successor to our
business
to assume the named executive officer’s employment agreement pursuant to
its terms or to offer the named executive officer employment on
substantially equivalent terms to those set forth in such employment
agreement
|
.
-33-
Potential
Payments
The
table
that follows summarizes the estimated potential post-employment compensation
that would have been payable to our named executive officers if the named
executive officers’ employment was terminated as described in the table below on
December 31, 2006. Such amounts do not reflect any actual payments to
be received by the named executive officers. In addition, for purposes of
the
calculations, we have assumed that the fair market value of our common stock
is
$24.00, which was the closing price of our common stock as quoted on the
Nasdaq
National Market on December 29, 2006, the last trading date during fiscal
2006.
|
Involuntary
Termination
|
Change
in Control
|
||||||||||||||||||||||||
|
Voluntary
Resignation
for
|
Voluntary
Resignation
for
|
Involuntary
Termination
within
12 months
|
|||||||||||||||||||||||
|
Name
|
Compensation
Element
|
Good
Reason
|
Death
or
Disability
|
Without
Cause
|
For
Cause
|
Good
Reason
|
Without
Cause
|
For
Cause
|
|||||||||||||||||
|
Charles
Zhang
|
Severance Pay (1)
|
|
$
|
191,667(2
|
)
|
0
|
$
|
191,667
(2
|
)
|
0
|
$
|
191,667
(2
|
)
|
$
|
191,667
(2
|
)
|
0
|
||||||||
|
Housing Allowance (1)
|
$
|
45,833
|
0
|
$
|
45,833
|
0
|
$
|
45,833
|
$
|
45,833
|
0
|
||||||||||||||
|
|
Bonus
|
$
|
0(3
|
)
|
$
|
0(4)
|
|
$
|
0(3
|
)
|
0
|
$
|
0(2
|
)
|
$
|
0(3
|
)
|
0
|
|||||||
|
|
Benefits
|
$
|
2,516
|
0
|
$
|
2,516
|
0
|
$
|
2,516
|
$
|
2,516
|
0
|
|||||||||||||
|
Accelerated
Vesting of Stock Options and Restricted Stock Unit Awards
|
$
|
0
|
0
|
0
|
0
|
0
|
$
|
180,380
|
0
|
||||||||||||||||
|
Total
|
$
|
240,016
|
0
|
$
|
240,016
|
0
|
$
|
240,016
|
$
|
420,396
|
0
|
||||||||||||||
|
Carol
Yu
|
Severance Pay (1)
|
|
$
|
115,000
|
0
|
$
|
115,000
|
0
|
$
|
115,000
|
$
|
115,000
|
0
|
||||||||||||
|
Housing
Allowance(1)
|
$
|
27,500
|
0
|
$
|
27,500
|
0
|
$
|
27,500
|
$
|
27,500
|
0
|
||||||||||||||
|
|
Bonus
|
$
|
0(3
|
)
|
$
|
0(4)
|
|
$
|
0(3
|
)
|
0
|
$
|
0(3
|
)
|
$
|
0(3
|
)
|
0
|
|||||||
|
|
Benefits
|
$
|
2,584
|
0
|
$
|
2,584
|
0
|
$
|
2,584
|
$
|
2,584
|
0
|
|||||||||||||
|
Accelerated
Vesting of Stock Options and Restricted Stock Unit Awards
|
0
|
0
|
0
|
0
|
0
|
$
|
447,094
|
0
|
|||||||||||||||||
|
Total
|
$
|
145,084
|
0
|
$
|
145,084
|
0
|
$
|
145,084
|
$
|
592,178
|
0
|
||||||||||||||
|
Xin
(Belinda) Wang
|
Severance Pay (1)
|
|
$
|
50,000
|
0
|
$
|
50,000
|
0
|
$
|
50,000
|
$
|
50,000
|
0
|
||||||||||||
|
Housing Allowance(1)
|
$
|
8,333
|
0
|
$
|
8,333
|
0
|
$
|
8,333
|
$
|
8,333
|
0
|
||||||||||||||
|
Accelerated
Vesting of Stock Options and Restricted Stock Unit Awards
|
0
|
0
|
0
|
0
|
0
|
$
|
183,804
|
0
|
|||||||||||||||||
|
Total
|
$
|
58,333
|
0
|
$
|
58,333
|
0
|
$
|
58,333
|
$
|
242,137
|
0
|
||||||||||||||
|
Yu
Gong
|
Severance
Pay (1)
|
|
$
|
50,000
|
0
|
$
|
50,000
|
0
|
$
|
50,000
|
$
|
50,000
|
0
|
||||||||||||
|
Housing
Allowance(1)
|
$
|
8,333
|
0
|
$
|
8,333
|
0
|
$
|
8,333
|
$
|
8,333
|
0
|
||||||||||||||
|
Accelerated
Vesting of Stock Options and Restricted Stock Unit Awards
|
0
|
0
|
0
|
0
|
0
|
$
|
225,655
|
0
|
|||||||||||||||||
|
Total
|
$
|
58,333
|
0
|
$
|
58,333
|
0
|
$
|
58,333
|
$
|
283,988
|
0
|
||||||||||||||
-34-
|
(1)
|
Severance
payments are made ratably over the severance period according our
standard
payroll practices.
|
|
(2)
|
Dr.
Zhang would have been entitled to the severance benefits under
PRC law as
they would have been greater than his severance benefits under
our
employment agreement with him.
|
|
(3)
|
In
the event of a voluntary resignation for good reason or an involuntary
termination without Cause, Dr. Zhang and Ms. Yu are each entitled
to
receive payments of the bonus for the remainder of the year of
the
termination, but only to the extent that the bonus would have been
earned
had Dr. Zhang and Ms. Yu continued in employment through the end
of such
year, as determined in good faith by our CEO, Board of Directors
or our
Compensation Committee based on the specific corporate and individual
performance targets established for such fiscal year, and only
to the
extent that bonuses were paid for such fiscal year to other similarly
situated employees. As the table above assumes that each of Dr.
Zhang and
Ms. Yu voluntarily resigned for good reason and/ or were terminated
without cause as of December 31, 2006, Dr. Zhang and Ms. Yu would
have
earned his or her entire bonus for 2006.
|
|
(4)
|
In
the event of a termination of Dr. Zhang’s and Ms. Yu’s employment by
reason of death or disability, they or their estates or representatives,
as applicable, are entitled to receive the bonus for the year in
which the
death or disability occurs to the extent that a bonus would have
been
earned had Dr. Zhang and Ms. Yu continued in employment through
the end of
such year, as determined in good faith by our CEO, Board of Directors
or
our Compensation Committee based on the specific corporate and
individual
performance targets established for such fiscal year, and only
to the
extent that bonuses are paid for such fiscal year to other similarly
situated employees. As the table above assumes that Dr. Zhang and
Ms. Yu
died or became disabled as of December 31, 2006, Dr. Zhang and
Ms. Yu
would have earned their entire bonus for 2006.
|
-35-
DIRECTOR
COMPENSATION (1)
The
following table summarizes the compensation paid to our directors during
fiscal
year 2006.
|
Name
|
Option
Awards
($)(2) (4)
|
Stock
Awards
($)(2)
(3)
|
Total($)
|
|||||||
|
Dave
Qi (5)
|
-
|
$
|
47,406
|
$
|
47,406
|
|||||
|
Shi
Wang (6)
|
-
|
$
|
47,406
|
$
|
47,406
|
|||||
|
Edward
B. Roberts (7)
|
-
|
$
|
47,406
|
$
|
47,406
|
|||||
|
Mary
Ma (8)
|
$
|
17,686
|
$
|
47,406
|
$
|
65,092
|
||||
|
Charles
Huang (9)
|
-
|
$
|
47,406
|
$
|
47,406
|
|||||
|
(1)
|
Dr.
Zhang has been omitted from this table because he receives no compensation
for serving on our Board. All compensation paid to Dr. Zhang in
fiscal
year 2006 was paid to him in his capacity as Chief Executive Officer
and
is reported in the “Summary Compensation Table.” Thomas Gurnee, our former
director, who did not stand for re-election as a director at our
2006
Annual Meeting of Stockholders has been omitted from this table
because he
did not receive any compensation for serving on our Board in
2006.
|
|
(2)
|
Represents
expense recognized with respect to restricted stock units and stock
options, as applicable, granted from January 1, 2002 through December
31,
2006, in accordance with SFAS 123R. See
Note 19, Shareholders’ Equity” in the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the fiscal
year
ended December 31, 2006 for the relevant assumptions we used to
determine
the valuation of our stock and option awards.
|
|
(3)
|
As
of December 31, 2006, each of our non-employee directors had the
following
number of outstanding awards of restricted stock units: Dave Qi:
5,000;
Shi Wang: 5,000; Edward B. Roberts: 5,000; Mary Ma: 5,000; and
Charles
Huang: 5,000.
|
|
(4)
|
As
of December 31, 2006, each of our non-employee directors had the
following
number of outstanding stock options: Dave Qi: 10,000; Shi Wang:
10,000;
Edward B. Roberts: 24,000; Mary Ma: 32,000; Charles Huang: 49,000;
and
Thomas Gurnee: 234,000.
|
|
(5)
|
The
grant date fair value of the 2006 restricted stock units granted
to Dave
Qi, computed in accordance with SFAS 123R, is $108,825.
|
|
(6)
|
The
grant date fair value of the 2006 restricted stock units granted
to Shi
Wang, computed in accordance with SFAS 123R, is
$108,825.
|
|
(7)
|
The
grant date fair value of the 2006 restricted stock units granted
to Edward
B. Roberts, computed in accordance with SFAS 123R, is $108,825.
|
|
(8)
|
Mary
Ma resigned as a member of our Board as of April 1, 2007. On July
25,
2006, we granted to Mary Ma 5,000 restricted stock units. 50% of
such
units vested on January 25, 2007 and the remaining restricted stock
units
were forfeited upon Mary Ma’s resignation. As of April 1,
2007, Mary Ma did not have any restricted stock units outstanding.
The grant date fair value of the 2006 restricted stock units granted
to
Mary Ma, computed in accordance with SFAS 123R, is
$108,825.
|
|
(9)
|
The
grant date fair value of the 2006 restricted stock units granted
to
Charles Huang, computed in accordance with SFAS 123R, is
$108,825.
|
-36-
Compensation
In
2006,
we compensated
our
non-employee members of our Board of Directors with equity-based compensation.
Directors who are our employees do not receive any compensation for their
service as a member of our Board of Directors or any committee. In addition,
they are reimbursed for reasonable travel expenses incurred in connection
with
attending Board of Directors and committee meetings.
Equity
Compensation
On
July
25, 2006, Drs. Dave Qi and Edward B. Roberts, Messrs. Shi Wang and Charles
Huang, and Ms. Mary Ma were each granted 5,000 restricted stock units, 50%
of
such restricted stock units vested on January 25, 2007 and the remaining
50%
vest on July 25, 2007 except with respect to Ms. Mary Ma whose remaining
50%
were forfeited upon her resignation as a member of our Board.
In
addition, effective as of the first business day of each calendar year
commencing with January 2, 2007, each non-employee director will be
granted such number of restricted stock units as is equal to $100,000 divided
by
the average of the daily closing prices of shares of our common stock on
the
Nasdaq National Market for the month of December immediately preceding such
effective date as reported by the Nasdaq National Market, with 50% of such
restricted stock units vesting on July 1 of each such calendar year and the
remaining 50% vesting on December 31 of each such calendar year.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During
the fiscal year 2006, none of the members of our Compensation Committee was
our
current or former officer or employee, except for Mr. Thomas Gurnee, who
served
as our Chief Financial Officer and Senior Vice President of Finance from
January
2000 until December 2000. Mr. Gurnee did not stand for re-election as a director
at our Annual Meeting of Stockholders held on June 9, 2006 and is no longer
a
member of our Board or our Compensation Committee.
No
member
of our Compensation Committee has had any relationship with us requiring
disclosure under Item 404 of Regulation S-K under the Exchange Act. No
member of our Compensation Committee during 2006 was our officer or an officer
of any of our subsidiaries.
None
of
our executive officers has served as a director or member of the compensation
committee (or other committee serving an equivalent function) of any other
organization, one of whose executive officers served as a member of our Board
of
Directors or Compensation Committee.
Proposal
II. Ratification of Appointment of Independent Auditors
Our
Audit
Committee of our Board of Directors has selected PricewaterhouseCoopers as
our
independent auditors for the fiscal year ending December 31, 2007.
PricewaterhouseCoopers has served as our independent auditors since 2000.
Representatives of PricewaterhouseCoopers will be present at the Annual Meeting,
will have the opportunity to make a statement if they so desire and will
be
available to respond to appropriate questions. Stockholder ratification of
our
independent auditors is not required under Delaware law or under our Sixth
Restated Certificate of Incorporation or our Amended and Restated By-Laws.
If
our stockholders do not ratify the selection of PricewaterhouseCoopers as
our
independent auditors for the current fiscal year ending December 31, 2007,
our
Audit Committee will evaluate what would be in our best interests and our
stockholders and consider whether to select new independent auditors for
the
current fiscal year or for future fiscal years. Unless otherwise instructed
on
the proxy, properly executed proxies will be voted in favor of ratifying
the
appointment of PricewaterhouseCoopers to audit our books and accounts for
the
fiscal year ending December 31, 2007.
-37-
PRINCIPAL
ACCOUNTANT FEES, SERVICES AND PRE-APPROVAL PROCESS
Audit
fees
The
aggregate fees billed by PricewaterhouseCoopers for professional services
rendered for the audit of our annual financial statements for the fiscal
year
ended December 31, 2006, including the reviews of the financial statements
included in our 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 $956,000.
The
aggregate fees billed by PricewaterhouseCoopers for professional services
rendered for the audit of our annual financial statements for the fiscal
year
ended December 31, 2005, including the reviews of the financial statements
included in our 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.
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 our financial statements, and are not reported above, were $48,000 for
the
fiscal year ended December 31, 2006 and $810,000 for the fiscal year ended
December 31, 2005. Such services for fiscal 2006 are attributable to the
audit
of financial statements in connection with our acquisition of 21 East
Entertainment Limited, an entertainment provider in China. Such
services for fiscal 2005 include advisory services with respect to our efforts
to enhance effective internal controls over financial reporting, due diligence
exercises, the audit of financial statements in connection with our acquisition
of Go2Map and the audit of segment information.
Tax
Fees
The
aggregate fees billed by PricewaterhouseCoopers for professional services
rendered for U.S. and People’s Republic of China tax compliance, tax advice, and
tax planning were $70,125 for the fiscal year ended December 31, 2006 and
$198,000 for the fiscal year ended December 31, 2005. Such
services for fiscal 2006 consisted of tax planning advisory services, related
to
our income tax in the U.S. and the People’s Republic of China. Such services for
fiscal 2005 consisted of tax planning advisory services, related to our U.S.
income tax, and U.S. and People’s Republic of China individual income tax for
management and other employees.
All
Other Fees
The
aggregate fees billed by PricewaterhouseCoopers for other services related
to
the subscription of PricewaterhouseCoopers’ accounting database were $3,084 for
the fiscal year ended December 31, 2006. For the fiscal year ended December
31,
2005, there were no other fees billed by PricewaterhouseCoopers for other
services rendered to us.
-38-
Pre-Approval
Process
Our
Audit
Committee will consider annually for pre-approval a list of specific services
and categories of services, including audit and audit-related, tax and other
services, for the upcoming or current fiscal year to be provided by the
independent auditors. Thereafter, our Audit Committee’s policy is to pre-approve
all such services as it deems advisable. Any service that is not included
in the
approved list of services or that does not fit within the definition of a
pre-approved service is required to be presented separately to our Audit
Committee for consideration at our next regular meeting or, if necessary,
by
other means of communication. In 2006 and 2005, our Audit Committee pre-approved
all services provided by PricewaterhouseCoopers.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS AS INDEPENDENT AUDITORS.
Miscellaneous
Code
of Ethics
We
have
adopted a code of ethics that applies to our 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 our Annual Report on Form 10-K for the fiscal year ended December
31, 2003 and can be found on our website at www.sohu.com.
In
addition, copies of our code of ethics may be obtained free of charge by
writing
to Jessica Zhang, Sohu.com Inc., Level 12, Sohu.com Internet Plaza, No. 1
Unit
Zhongguancun East Road, Haidian District, Beijing 100084, People’s Republic of
China.
Other
Matters
Our
Board
of Directors is not aware of any matter, other than those described above,
that
may come before the Annual 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
Our
Board
of Directors has not established a formal process for stockholders to send
communications to our Board of Directors and individual directors. However,
the
names of all directors are available to stockholders in this Proxy Statement.
If
we receive any stockholder communication intended for the full Board of
Directors or any individual director, we 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 we have the authority to discard the
communication or take appropriate legal action regarding the
communication.
-39-
Deadline
for Receipt of Stockholder Proposals
In
order
for a stockholder proposal to be considered for inclusion in our proxy materials
for the 2008 Annual Meeting of Stockholders, it must be received by us at
Sohu.com Inc., Level 12, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun
East
Road, Haidian District, Beijing 100084, People’s Republic of China, Attention:
Jessica Zhang, no later than December
29, 2007.
Proposals of stockholders intended to be considered at the 2008 Annual Meeting
of Stockholders, but not included in our proxy materials for that meeting,
must
be received by us 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
our 2006 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 at Sohu.com Inc., Level 12, Sohu.com Internet
Plaza, 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 1-866-474-8637 (within
the
U.S. and Canada only, toll-free) or at 1-212-785-0078 (outside the U.S. and
Canada), or via the Internet at The Bank of New York’s voting Web site
(https://www.proxypush.com/sohu).
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 7,
2007.
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.
-40-
Householding
of Annual Meeting Materials
We
participate in the practice of “householding” proxy statements and annual
reports. This means that unless stockholders of record give contrary
instructions, only one copy of our proxy statement or annual report may be
sent
to multiple stockholders in each household. This procedure saves printing
and
postage costs by reducing duplicative mailings. We will promptly deliver
a
separate copy of either document to you if you call or write to Jessica Zhang
at
Sohu.com Inc., Level 12, Sohu.com Internet Plaza, No. 1 Unit Zhongguancun
East
Road, Haidian District, Beijing 100084, People’s Republic of China, telephone
(011) 8610-6272-6616, or contact Ms. Zhang by e-mail at xinzhang@sohu-inc.com.
If you want to receive separate copies of our proxy statement or annual report
in the future, or if you are receiving multiple copies and would like to
receive
only one copy per household, you should contact your bank, broker or other
record holder, or you may contact us at the above address, telephone number,
or
e-mail address.
|
By
order of our Board of Directors
|
|
|
People’s
Republic of China
|
|
|
April
30, 2007
|
-41-
|
(Please
sign, date and return
this
proxy in the enclosed
postage
prepaid envelope.)
|
x
Votes
must be indicated
(x)
in Black or Blue ink.
|
|
PROPOSAL
I.
|
Election
of directors
|
|
FOR
all nominees listed below
|
o |
WITHHOLD
AUTHORITY
to
vote for all nominees listed below
|
o |
*EXCEPTIONS
|
o | |||
NOMINEES:
Dr. Charles Zhang, Mr. Charles Huang, Dr. Dave Qi, Mr. Shi Wang and Dr. Zhonghan
Deng
(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
|
o |
|
PROPOSAL
II.
|
RATIFICATION
OF THE APPOINTMENT OF
|
|||||||
|
PRICEWATERHOUSECOOPERS
ZHONG TIAN CPAS LIMITED
|
FOR
|
AGAINST
|
ABSTAIN
|
|||||
|
COMPANY
AS INDEPENDENT AUDITORS.
|
o
|
o
|
o
|
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, Sohu.com Internet Plaza
No.
1 Unit Zhongguancun East Road, Haidian District
Beijing
100084, People’s Republic of China
Proxy
for the Annual Meeting of Stockholders - June 8, 2007
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 Annual
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 and II), 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 18, 2007 at the Annual Meeting
of
Stockholders of Sohu.com Inc. to be held on Friday, June 8, 2007 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
Annual Meeting.
(Continued,
and to be marked, dated and signed, on the other side.)