SallieMae
11600 Sallie Mae Drive
Reston, Virginia 20193
April 8, 2002
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MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2002
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Dear Shareholder:
We invite you to attend USA Education, Inc.'s Annual Shareholders' Meeting
on Thursday, May 16, 2002 at 10:00 a.m. at the Corporation's offices located at
11600 Sallie Mae Drive, Reston, Virginia, 20193.
Your participation in the Annual Meeting is important. Regardless of
whether you plan to attend, we urge you to vote your proxy at your earliest
convenience. We hope that you will be able to attend the meeting and encourage
you to read the enclosed materials.
Thank you for your support of Sallie Mae.
Sincerely,
/s/ Edward A. Fox
Edward A. Fox
Chairman of the Board of Directors
USA EDUCATION, INC.
(to be renamed SLM CORPORATION as of May 17, 2002)
11600 Sallie Mae Drive
Reston, Virginia 20193
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 2002
---------------------
TIME ...................... o 10:00 a.m., local time, on Thursday, May 16, 2002
PLACE ..................... o 11600 Sallie Mae Drive
Reston, Virginia 20193
ITEMS OF BUSINESS ......... At the Annual Meeting, shareholders will be asked to vote on the
following items:
(1) Elect the Board of Directors for a term of one year;
(2) Reapprove the Corporation's Management Incentive Plan (the
"Management Incentive Plan" or "Plan") and amend the Plan to
increase the number of shares authorized under the Plan;
(3) Ratify the appointment of Arthur Andersen LLP as independent
auditors for 2002; and
(4) Conduct other business if properly introduced.
RECORD DATE ............... o You can vote if you were a shareholder on March 18, 2002.
ANNUAL REPORT o Our 2001 annual report and our 2001 Form 10-K, which are
AND FORM 10-K ............. not part of the proxy soliciting material, are enclosed.
PROXY VOTING .............. o The Board of Directors solicits your proxy and asks you to vote
your proxy at your earliest convenience to be sure your vote is
received and counted. You may vote by mail, telephone or over
the Internet, depending on how your share ownership is
recorded. If you plan to attend the Annual Meeting, please
advise my office directly at (703) 810-7785.
Mary F. Eure
Corporate Secretary
April 8, 2002
USA EDUCATION, INC.
(to be renamed SLM CORPORATION as of May 17, 2002)
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2002 PROXY STATEMENT
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TABLE OF CONTENTS
---------------------
ABOUT VOTING ................................................................. 1
CORPORATE PERFORMANCE ........................................................ 2
STOCK OWNERSHIP .............................................................. 3
PROPOSAL 1--ELECTION OF DIRECTORS ............................................ 4
Information Concerning Nominees ............................................. 4
Meetings of the Board and Its Committees .................................... 8
Certain Relationships ....................................................... 8
Director Compensation ....................................................... 9
EXECUTIVE COMPENSATION ....................................................... 9
Report of the Compensation and Personnel Committee on Executive Compensation 9
Summary Compensation Table .................................................. 12
2001 Option Grant Table ..................................................... 13
2001 Option Exercises and Year-End Value Table .............................. 13
Pension Plan Benefits ....................................................... 14
Employment Agreements ....................................................... 15
Indebtedness ................................................................ 16
Executive Officers .......................................................... 16
PROPOSAL 2--REAPPROVAL AND AMENDMENT OF THE MANAGEMENT
INCENTIVE PLAN .............................................................. 16
REPORT OF THE AUDIT/FINANCE COMMITTEE ........................................ 22
PROPOSAL 3--APPOINTMENT OF INDEPENDENT AUDITOR ............................... 23
GENERAL INFORMATION .......................................................... 24
Shares Outstanding .......................................................... 24
Principal Shareholders ...................................................... 24
Other Matters ............................................................... 25
Solicitation Costs .......................................................... 25
Shareholder Proposals for 2003 Annual Meeting ............................... 25
Section 16(a) Beneficial Ownership Reporting Compliance ..................... 25
EXHIBIT A--Management Incentive Plan Document ................................ 26
i
USA EDUCATION, INC.
---------------------
ABOUT VOTING
Who may vote?
Only USA Education, Inc. (to be renamed SLM Corporation as of May 17, 2002)
shareholders who owned common stock at the close of business on March 18, 2002,
the record date for the Annual Meeting, can vote. We refer to USA Education,
Inc. as Sallie Mae or the Corporation.
How are my votes counted?
In the election of directors, shares are entitled to cumulative voting,
which means that each share of your common stock is entitled to the number of
votes equal to the number of directors to be elected. Pursuant to the
Corporation's Certificate of Incorporation, the size of the Board will change
from 16 members to 15 members at this Annual Meeting. Accordingly, each share is
entitled to 15 votes in the election of directors.
If you vote in person, you may cumulate your votes and give one nominee all
of your votes or you may distribute your votes among the nominees in any manner.
If you vote by proxy, your votes will be cast and cumulated so as to elect the
maximum number of the nominees named on the proxy card, except that none of your
votes will be cast for any nominee for whom you instruct that the vote be
withheld. The 15 nominees who receive the greatest number of votes cast and
entitled to be voted at the Annual Meeting will be elected.
Approval of other matters at the Annual Meeting requires an affirmative
vote of at least a majority of the votes present or represented and entitled to
be voted on the matter, with each share of stock entitled to one vote.
Abstentions have the same effect as votes against the matter. Shares that are
not voted on a matter, including shares for which a broker does not have
discretionary voting authority, do not affect the vote.
How do I vote?
You may vote in person at the Annual Meeting or you may vote by proxy. We
recommend that you vote by proxy even if you plan to attend the Annual Meeting.
The process of voting by proxy differs slightly, based on how your share
ownership is recorded. Your share ownership is recorded in one of three ways:
direct ownership, recorded by the stock transfer agent for the Corporation, the
Bank of New York; beneficial ownership, recorded through a brokerage or bank
account; or beneficial ownership, recorded by the Corporation's 401(k) Plan
Trustee.
If your ownership is recorded directly, you will receive a proxy card. If
your share ownership is beneficial, your broker, bank and/or the 401(k) Plan
Trustee will issue you a voting instruction form that you use to instruct them
how to vote your shares. Your broker, bank or the 401(k) Plan Trustee must
follow your voting instructions.
If you receive a voting instruction card from your broker or bank, you may
vote those shares by mail, telephonically by calling the telephone number shown
on the voting form, or via the Internet at the web site shown on the voting
form. A proxy card or a voting instruction card from the 401(k) Plan Trustee may
be voted only by mail or by telephone.
Votes submitted via the Internet or by telephone must be received by 11:59
p.m., Eastern Standard Time, on May 15, 2002. (Votes submitted to the 401(k)
Plan Trustee must be received by May 13, 2002). Voting by returning a paper
proxy, via the Internet or by telephone will not affect your right to vote in
person should you decide to attend the Annual Meeting. However, if your shares
are held through a bank, broker or the 401(k) Plan and you wish to vote those
shares in person at the Annual Meeting, you must in advance of the Annual
Meeting, obtain a legal proxy from your bank, broker or the 401(k) Plan Trustee.
How do proxies work?
Sallie Mae's Board of Directors is requesting your proxy. Giving the Board
your proxy means that you authorize representatives of the Board to vote your
shares at the Annual Meeting in the manner you specify. If you sign and return
the enclosed proxy card or voting instruction form but do not specify how to
vote, the Board of Directors
1
will vote your shares in favor of all of the director nominees named in this
proxy statement, reapproval and amendment of the Management Incentive Plan and
ratification of Arthur Andersen LLP, as independent auditor. Giving the Board
your proxy also means that you authorize their representatives to vote any
other matter presented at the Annual Meeting in such manner as they determine
best. The Corporation does not know of any other matters to be presented at the
Annual Meeting as of the date of this proxy statement. If you own shares
through the 401(k) Plan, however, and do not vote your plan shares, the Trustee
will vote your plan shares in the same proportion as other plan shares have
been voted.
Can I change my vote?
A shareholder whose ownership is recorded directly has the power to change
or revoke a proxy prior to its exercise by voting in person at the Annual
Meeting, by giving written notice to the Corporate Secretary or by giving a
later dated proxy prior to the meeting. A shareholder whose shares are owned
beneficially through a bank, broker, or the 401(k) Plan must contact that entity
to change or revoke a previously given proxy.
CORPORATE PERFORMANCE
The Corporation's annual report to shareholders for 2001 is included in the
mailing with this proxy statement. We urge you to read it carefully.
The following graph compares the yearly percentage change in the
Corporation's cumulative total shareholder return on its common stock to that of
Standard & Poor's 500 Stock Index and Standard & Poor's 500 Diversified
Financial Services Index. The graph assumes a base investment of $100 at
December 31, 1996 and reinvestment of dividends through December 31, 2001.
USA EDUCATION, INC.
FIVE-YEAR CUMULATIVE TOTAL RETURN
[THE FOLLOWING INFORMATION WAS ALSO REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL]
Base
Company/Index Year 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
------------- ------- -------- -------- -------- -------- --------
USA EDUCATION, INC. .......................... $100.00 $151.60 $185.50 $165.60 $270.60 $337.40
S&P 500 DIV FINANCIAL SERVICES(1)(2) ......... 100.00 159.80 193.20 252.70 316.80 274.00
S&P 500 INDEX(1) ............................. 100.00 133.30 171.30 207.40 188.50 166.20
------------
(1) Source: Bloomberg Comparative Return Table
(2) Companies included in Standard & Poor's 500 Diversified Financial Services
Index are: AMBAC Financial, American Express, Bear Stearns, Charles Schwab
Corporation, Citigroup Inc., Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, Franklin Resources Inc., Lehman Brothers,
Merrill Lynch & Company, Moody's Corporation, Morgan Stanley Dean Witter,
State Street Corporation, Stilwell Financial, T. Rowe Price, and USA
Education, Inc.
2
STOCK OWNERSHIP
Sallie Mae encourages stock ownership by its directors, officers and
employees to align their interests with those of shareholders. We believe this
policy sharply focuses directors and the workforce on economic performance and
long-term strategic initiatives that will enhance shareholder returns.
To support our ownership policy, the Corporation:
o compensates non-employee directors only in the form of options on the
Corporation's common stock;
o requires that a portion of any annual bonus paid to any officer be in the
form of Sallie Mae stock;
o grants stock options to all employees; and
o established a share ownership policy for senior officers, which is
explained in the Executive Compensation section of this proxy statement.
In order to reinforce the importance of sustained, long-term shareholder
returns, some of these arrangements have share ownership retention requirements
or incentives.
The following table provides information regarding shares owned by each
director and nominee to the Board of Directors and for each executive officer of
the Corporation named in the Summary Compensation Table in this proxy statement
at February 28, 2002. As a group, the directors increased their share ownership
over the past 12 months by 30 percent, and directors and executive officers as a
group increased their ownership over the same period by 33 percent.
Total Total Percent
Economic Vested Beneficial of
Shares(1) Ownership(2) Options(3) Ownership(4) Class
--------- ------------ ---------- ------------ -----
Directors
Charles L. Daley(5) .................. 41,013 73,991 115,004 *
William M. Diefenderfer, III ......... 8,012 32,308 40,320 *
Thomas J. Fitzpatrick ................ 351,490 401,490 427,377 778,867 *
Edward A. Fox(5) ..................... 234,244 87,766 322,010 *
Diane Suitt Gilleland ................ 32,874 60,385 93,259 *
Earl A. Goode ........................ 5,569 15,659 21,228 *
Ann Torre Grant ...................... 24,732 63,627 88,359 *
Ronald F. Hunt(5) .................... 51,364 58,286 109,650 *
Benjamin J. Lambert, III ............. 33,554 52,734 86,288 *
James C. Lintzenich .................. 20,000 0 20,000 *
Albert L. Lord ....................... 499,489 561,989 823,134 1,322,623 *
Barry A. Munitz ...................... 44,399 65,877 110,276 *
A. Alexander Porter, Jr.(5) .......... 247,177 169,000 416,177 *
Wolfgang Schoellkopf(5) .............. 28,640 67,626 96,266 *
Steven L. Shapiro .................... 36,920 75,404 112,324 *
Barry Lawson Williams ................ 4,527 15,947 20,474 *
Named Executive Officers
Albert L. Lord ....................... 499,489 561,989 823,134 1,322,623 *
Thomas J. Fitzpatrick ................ 351,490 401,490 427,377 778,867 *
Marianne M. Keler(5) ................. 106,448 185,555 292,003 *
June M. McCormack .................... 88,434 0 88,434 *
John F. Remondi ...................... 73,303 326,850 400,153 *
Directors and Executive Officers
as a Group(6) ....................... 2,107,119 2,816,997 4,924,116 3.17%
------------
* Less than one percent
3
(1) Shares held directly or indirectly by the individual, including shares
credited to Corporation-sponsored retirement plans.
(2) Total of column 1 plus 12,500 unvested restricted stock units credited to
Mr. Lord's deferred compensation account and 50,000 unvested restricted
stock units each granted to Mr. Lord and Mr. Fitzpatrick under the terms of
their employment agreements, which are described later in this proxy
statement.
(3) Shares that may be acquired within 60 days through the exercise of stock
options.
(4) Total of columns 1 and 3. Except as otherwise indicated and subject to
community property laws, each owner has sole voting and sole investment
power with respect to the shares listed.
(5) Mr. Daley's share ownership includes 875 shares held through a limited
partnership, in which he owns a 50% interest. Mr. Fox's share ownership
includes 14,000 shares held in a charitable remainder trust. Mr. Hunt's
share ownership includes 525 shares held solely in his wife's name. Mr.
Porter's share ownership includes 244,500 shares over which he shares
investment and voting control. Mr. Schoellkopf's share ownership includes
5,000 shares held through a limited partnership of which he is the sole
general partner. Ms. Keler's share ownership includes 100 shares owned by
her son.
(6) Includes the directors and director nominees, the executive officers listed
above plus two other executive officers (a total of 21 persons).
PROPOSAL 1--ELECTION OF DIRECTORS
Currently, 16 individuals serve on the Board of Directors. Pursuant to the
Corporation's Certificate of Incorporation, the maximum number of individuals
who may serve on the Board as of the May 2002 Annual Meeting is 15. Accordingly,
shareholders are asked to elect 15 directors to serve on the Board for a
one-year term or until their successors are elected or appointed.
Upon the recommendation of the Nominations and Governance Committee of the
Board, the Board has nominated each of the current directors for reelection with
the exception of James C. Lintzenich, who has decided not to stand for
reelection. Two of the nominees, Earl A. Goode and Barry L. Williams were
individuals selected by the Lumina Foundation, Inc., the successor in interest
of USA Group, Inc. ("USA Group") and are nominated pursuant to the Corporation's
acquisition of certain stock and assets of USA Group. Mr. Lintzenich will join
the Board of Directors of the Student Loan Marketing Association (the "GSE").
Information Concerning Nominees
Biographical information about each nominee as of February 28, 2002 is set
forth below. Board service with the Corporation's predecessor entity and current
subsidiary, the GSE, is included.
The Board of Directors recommends a vote FOR the election of the 15
nominees named below. Proxies will be so voted unless shareholders specify a
contrary choice on their proxy card.
Nominees Description of Principal Business or Occupation
-------- -----------------------------------------------
Charles L. Daley Director, Executive Vice President and Secretary of TEB Associates, Inc., a real
Age 69 estate finance company, since 1992. Mr. Daley was Executive Vice President
Director since July 5, 1995 and Chief Operating Officer of First Peoples Financial Corporation, a bank
holding company, from 1987 to 1992 and Executive Vice President and
Chief Operating Officer of First Peoples Bank of New Jersey, a state-
chartered commercial bank, from 1984 to 1992.
4
Nominees Description of Principal Business or Occupation
-------- -----------------------------------------------
William M. Diefenderfer, III President and Co-Founder, enumerate Solutions, Inc. and since 1991, a
Age 56 partner with the law firm of Diefenderfer, Hoover & Wood, Pittsburgh, PA.
Director since August 8, 1997 Previously, Mr. Diefenderfer was Deputy Director of the Office of
Management and Budget from 1989 to 1991 by appointment of President
Bush. During that period Mr. Diefenderfer also served on the Deputies
Committee of the National Security Council, as Chairman of the President's
Council on Management and Integrity, and as Chairman of the President's
Council on Improvement and Efficiency. Mr. Diefenderfer has been a
director of the GSE since August 1997, a director of Chart House Enterprises
since 1991, and was a member of the Board of Trustees of Dickinson College
from 1992 to 1994.
Thomas J. Fitzpatrick President and Chief Operating Officer. Mr. Fitzpatrick joined the
Age 53 Corporation in 1998 as Executive Vice President. Prior to joining Sallie Mae,
Director since July 31, 2000 Mr. Fitzpatrick was President and Chief Executive Officer of Equity One,
and from July 1997 to Inc. He served as Vice Chairman of Commercial Credit Co. from 1988 to
May 1999 1989; President and Chief Operating Officer of Manufacturers Hanover
Consumer Services (MHCS) from 1983 to 1988; and Chief Financial Officer
of MHCS from 1978 to 1983. Mr. Fitzpatrick is currently a member of the
Board of Directors of MAB Paints, Inc.
Edward A. Fox Mr. Fox retired from the GSE in 1990 after serving as its President and Chief
Age 65 Executive Officer since its inception in 1973. From 1990 until 1994, he was
Director since July 31, 1997 the Dean of the Amos Tuck School of Business Administration at Dartmouth
College. Mr. Fox is a director of Delphi Financial Group, Greenwich Capital
Management and New England Financial. Mr. Fox serves as Trustee of the
University of Maine system and is a member of the Board of Directors and
President of the American Ballet Theatre.
Diane Suitt Gilleland Deputy Director of the Illinois Board of Higher Education. Previously,
Age 55 Dr. Gilleland was senior associate, Institute for Higher Education Policy
Director since March 25, 1994 (1998-1999); senior fellow, American Council on Education, Washington,
DC (1997); director, Arkansas Department of Higher Education (1990-
1997) and Chief Finance Officer for Arkansas Higher Education (1986-
1990). Dr. Gilleland is currently a director and on the Executive Committee
of the GSE and previously served by appointment of the President of the
United States from 1994 to 1997. Dr. Gilleland serves on the boards of
several organizations and as an advisor to state, national and international
higher education organizations.
Earl A. Goode Formerly, President of GTE Information Services and GTE Directories
Age 61 Corporation (1994 to 2000). Previously, Mr. Goode held a number of
Director since July 31, 2000 positions within GTE, including President of GTE Telephone Operations
North and East; President of GTE Telephone Company of the Southwest;
and Vice President--Operations, GTE Telephone Operations North.
Mr. Goode is Chairman of Indiana Sports Corp. and serves or has served
on the boards of Georgetown College Foundation, Alma College, the Chase
Bank of Texas, N.A.--Dallas, NBD Bank of Indiana, Meridian Insurance
Company, and Williams Manufacturing Company. He previously served on
the Board of Directors of USA Funds, Inc. from 1994 to 2000.
5
Nominees Description of Principal Business or Occupation
-------- -----------------------------------------------
Ann Torre Grant Strategic and Financial Consultant. Ms. Grant is an independent director of
Age 43 Franklin Mutual Series, which is part of the Franklin Templeton mutual fund
Director since July 31, 1997 complex, and Condor Technology Solutions, Inc., an information
technology consulting firm. Ms. Grant was a director of the GSE from 1997
to 2000. Ms. Grant was Executive Vice President, Chief Financial Officer
and Treasurer of NHP Incorporated, a national real estate services firm, from
1995 to 1997. Ms. Grant was Vice President and Treasurer of USAirways
from 1991 until 1995, and held other finance positions at USAirways from
1988 until 1991.
Ronald F. Hunt Attorney and private investor. Mr. Hunt retired from the GSE in 1990 after
Age 58 serving in a number of executive positions, beginning in 1973. Mr. Hunt is
Director since July 5, 1995 a director and Vice Chairman of the GSE; Chairman of the Board of
Directors of the National Student Clearinghouse, a not-for-profit corporation
that provides loan status verification and other services for participants in
the federal student loan program; a member of the Board of Directors of
enumerate Solutions, Inc., a software technology company; and a member
of the Board of Trustees of Warren Wilson College.
Benjamin J. Lambert, III Senator of the Commonwealth of Virginia since 1986. As a Senator,
Age 65 Dr. Lambert focuses on education issues. He serves on the Senate
Director since July 5, 1995 Committees on Education & Health, Finance, General Laws, and Privileges
& Elections, and a member of the Senate Finance Subcommittees on
Education, General Government, and Health & Human Resources.
Dr. Lambert has been self-employed as an optometrist since 1962.
Dr. Lambert is a director of Consolidated Bank & Trust Company and
Dominion Resources and was a director of the GSE from 1995 to 2000.
Dr. Lambert is also Secretary of the Board of Trustees of Virginia Union
University, where he has served as a Trustee for over 15 years. Dr. Lambert
is Secretary of the Virginia Commonwealth University Health Systems
Authority Board.
Albert L. Lord Vice Chairman and Chief Executive Officer of the Corporation
Age 56 (1997-present). Previously, Mr. Lord was President and principal
Director since July 5, 1995 shareholder of LCL Ltd., a Washington D.C. firm that provided investment
and financial consulting services. Mr. Lord served as the Executive Vice
President and Chief Operating Officer of the GSE from 1990 to 1994. From
July 1995 until August 1997, Mr. Lord was a director of the GSE. Mr. Lord
serves on the Board of Directors of SS&C Technologies, Inc.
Barry A. Munitz President and Chief Executive Officer, The J. Paul Getty Trust, Los Angeles,
Age 60 CA. Dr. Munitz formerly served as Chancellor and Chief Executive Officer
Director since July 31, 1997 of the California State University System from 1991 to 1997. Dr. Munitz
is former Chair of the American Council on Education and Vice Chair of
the National Commission on the Cost of Higher Education. He is a trustee
of Princeton University, a director of KB Home, and a member of the
Executive Committee of Los Angeles' KCET Public Television Station.
Dr. Munitz also served as a director of SunAmerica Corp. from 1994 to
1998. He currently serves as a Fellow to the American Academy of Arts
and Sciences.
6
Nominees Description of Principal Business or Occupation
-------- -----------------------------------------------
A. Alexander Porter, Jr. Co-Founder and President of Porter, Felleman Inc., an investment management
Age 63 company, since 1976. He is also General Partner of Amici Associates, L.P. since
Director since July 5, 1995 1976 and of the Collectors' Fund since 1984. Amici and the Collectors' Fund
are investment partnerships in which Mr. Porter has investment discretion to buy
and sell securities. Mr. Porter was a director of the GSE from 1995 to 2000.
He is a trustee of Davidson College in North Carolina, a founder and director
of Distribution Technology, Inc., a privately held company, and a trustee of
The John Simon Guggenheim Memorial Foundation.
Wolfgang Schoellkopf Chairman, Bank Austria Cayman Islands Limited and General Partner,
Age 69 PMW Capital Management, L.L.C. Formerly, Chief Executive Officer, Bank
Director since July 31, 1997 Austria Group's U.S. operations ending September 2001. Previously,
Mr. Schoellkopf was Partner, Ramius Capital Group (1996-1998), Vice
Chairman and Chief Financial Officer of First Fidelity Bancorporation from
1990 until 1996. From 1963 to 1988, Mr. Schoellkopf was with The Chase
Manhattan Bank, most recently as Executive Vice President and Treasurer.
Mr. Schoellkopf is a director of PMW Capital Management, LLC;
Inner-City Scholarship Fund; and Marymount University.
Steven L. Shapiro Certified Public Accountant and Personal Financial Specialist. Mr. Shapiro
Age 61 is Chairman of Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese,
Director since July 5, 1995 Wilson & Co., an accounting firm, where he has been employed since 1960,
and has served on its Board of Directors since 1966. Mr. Shapiro is a member
of the executive advisory council of Rutgers University, the American
Institute of Certified Public Accountants and the New Jersey Society of
CPAs. Mr. Shapiro also serves on the Board of Directors of the West Jersey
Hospital Foundation (since 1993) and The Bank, a subsidiary of Fulton
Financial Corporation located in Woodbury, New Jersey. He was director of
Carnegie Bancorp, a Princeton, New Jersey bank from 1992 to 1998, the
New Jersey Casino Reinvestment Development Authority from 1992 to
1998, First Peoples Financial Corp. from 1990 to 1992 and Vice Chairman
of the Board of Jefferson Bank of New Jersey from 1988 to 1990.
Barry L. Williams President, Williams Pacific Ventures, Inc. Interim President and CEO of the
Age 57 American Management Association International from 2000 to 2001.
Director since July 31, 2000 Previously, Mr. Williams held positions with Bechtel Group, where he
served as managing principal of Bechtel Investments, Inc. He previously
served on the Board of Directors of USA Funds, Inc. from 1995 to 2000.
Mr. Williams serves on the boards of PG&E Corporation, R. H. Donnelly
& Company, Northwestern Mutual Life Insurance Company, CH2M Hill,
Newhall Land & Farming Company, Synavant Inc., Simpson Manufacturing
Co., Inc., and Kaiser-Permanente. He is also a General Partner with WDG
Ventures, Inc. He has been President of the Harvard Alumni Association and
Lead Trustee of the Willits Environmental Trust.
7
Meetings of the Board and its Committees
During 2001, the Board of Directors met five times. Each of the incumbent
directors attended at least 75 percent of the total number of meetings of the
Board and committees on which they serve.
The Board uses committees to assist it in the performance of its duties.
Each committee has a charter approved by the Board, which sets forth the
respective committee's functions and responsibilities. Shareholders may obtain a
copy of a committee charter by contacting the Corporate Secretary. The standing
committees of the Board are the Audit/Finance Committee, the Compensation and
Personnel Committee, the Nominations and Governance Committee, the Operations
Committee, the Executive Committee and the Preferred Stock Committee. All of the
Committees, except the Executive Committee, are comprised entirely of
non-management directors. The purposes of the Audit/Finance, Compensation and
Personnel, and Nominations and Governance Committees, their current members, and
the number of meetings held during 2001 are set forth below.
Audit/Finance Committee. The Audit/Finance Committee assists the Board in
fulfilling its responsibilities by providing oversight relating to (1) audit
review and financial reporting functions, (2) assessment and management of
certain business risks, (3) adequacy of internal controls, (4) establishment of
an effective audit function, and (5) capital management and funding strategy.
Each member of the Audit/Finance Committee is an "independent director" as
defined in the Corporation's By-laws and by the New York Stock Exchange. The
current membership of the Audit/Finance Committee, which held nine meetings in
2001, is as follows: William M. Diefenderfer, III, Chairman; A. Alexander
Porter, Jr., Vice Chairman; Charles L. Daley; Ann Torre Grant; Benjamin J.
Lambert, III; and Barry L. Williams.
Compensation and Personnel Committee. The Compensation and Personnel
Committee assists the Board in fulfilling its responsibilities relating to human
resources, compensation and benefit matters concerning the Corporation and its
subsidiaries. The Committee makes recommendations to the Board as to
compensation and other benefits for members of the Board, reviews annually the
performance of the CEO and the executive officers of the Corporation and
establishes compensation terms for such individuals, and generally oversees the
programs and policies of the Corporation relating to compensation and the
development and retention of capable management and succession planning for the
Corporation's leadership.
Each member of the Committee is an "independent director" as defined by the
Corporation's By-laws and under Section 162(m) of the Internal Revenue Code. The
current membership of the Compensation and Personnel Committee, which held seven
meetings in 2001, is as follows: Barry A. Munitz, Chairman; William M.
Diefenderfer, III, Vice Chairman; Charles L. Daley; Earl A. Goode; Ann Torre
Grant; Wolfgang Schoellkopf; and Steven L. Shapiro.
Nominations and Governance Committee. The Nominations and Governance
Committee assists the Board in establishing appropriate standards for the
governance of the Corporation, the operations of the Board and the
qualifications of directors, as well as proposing candidates for Board
membership. The Committee reviews the composition, diversity and operation of
the Board, and considers the performance and contributions of individual
directors and the Board as a whole. The Committee considers nominees for
election to the Corporation's Board of Directors at the Annual Meeting of
shareholders. Shareholders may recommend candidates for nomination to the
Corporation's Board by sending their recommendation to the Corporate Secretary.
Each member of the Nominations and Governance Committee is an "independent
director" as defined in the Corporation's By-laws. The current membership of the
Nominations and Governance Committee, which held three meetings in 2001, is as
follows: Benjamin J. Lambert, III, Chairman; Diane Suitt Gilleland, Vice
Chairman; Ronald F. Hunt; A. Alexander Porter, Jr.; and Barry L. Williams.
Certain Relationships
Except for Mr. Lord and Mr. Fitzpatrick, no nominee is a current officer of
the Corporation or any of its subsidiaries. Mr. Fox and Mr. Hunt are each former
officers of the Corporation or one of its subsidiaries. There are no family
relationships among the nominees and the executive officers of the Corporation.
8
Director Compensation
Since 1997, the Board of Directors has been compensated solely in the form
of options granted on the Corporation's common stock. The Board believes that
all-equity compensation best aligns director and shareholder interests.
In January 2002, for service in 2002, Mr. Fox, as Chairman, received an
option grant covering 30,000 shares of the Corporation's common stock, Mr.
Porter, the lead independent director, received an option grant covering 25,000
shares, and other non-employee directors received an option grant covering
20,000 shares. These options vest upon the later of: 1) the Corporation's common
stock reaching a closing price of $103.20 (a 20 percent increase over the grant
price--the fair market value on the date of grant of $86.00 per share) for five
trading days; or 2) separation from service from the Board, whichever occurs
first. The options also vest on the fifth anniversary of their grant date. The
options are cancelled if the optionee is not elected to the Board at the May 16,
2002 meeting.
Directors are eligible to receive replacement options upon the exercise of
vested options. Replacement options are not additional compensation and are
explained in the Executive Compensation section of this proxy statement. In
2001, this program resulted in options covering 71,538 shares being granted to
Dr. Munitz; 68,872 options being granted to Dr. Gilleland; 63,438 options being
granted to Ms. Grant; 58,286 options being granted to Mr. Hunt; 55,748 options
being granted to Mr. Fox; 54,545 options being granted to Mr. Shapiro; 52,734
options being granted to Dr. Lambert; 38,496 options being granted to Mr. Daley;
15,414 options being granted to Mr. Williams; 15,125 options being granted to
Mr. Goode; 6,228 options being granted to Mr. Lintzenich; and 6,169 options
being granted to Mr. Diefenderfer.
The Corporation's non-employee directors are provided with $50,000 of life
insurance, are covered by a travel insurance plan while traveling on corporate
business and may receive a $1,500 per diem payment for additional work. No such
payments were made to directors in 2001. Neither Mr. Lord, Mr. Fitzpatrick, nor
Mr. Lintzenich, who served as an executive officer for a portion of 2001,
received any separate compensation for their service on the Board in 2001.
Neither Mr. Lord nor Mr. Fitzpatrick were recipients of the 2002 option grants
described above.
Non-employee directors who serve on the Board of the GSE are separately
compensated for that service. Mr. Diefenderfer, Mr. Hunt and Ms. Gilleland each
were compensated $6,000 for attending GSE Board meetings in 2001. Upon joining
the GSE Board, Mr. Lintzenich will be granted an option covering 20,000 shares.
EXECUTIVE COMPENSATION
This section includes (1) a report by the Compensation and Personnel
Committee (the "Compensation Committee" or "Committee") regarding the
Corporation's executive compensation policy; (2) a summary presentation of 2001
executive compensation in tabular form; (3) a summary of 2001 stock option
grants to Named Executive Officers; (4) a valuation of option exercises during
the year and remaining option holdings for Named Executive Officers; and (5)
descriptions of pension plan benefits, certain employment arrangements and
related transactions.
Report of the Compensation and Personnel Committee on Executive Compensation
The Corporation's executive compensation program is administered by the
Compensation Committee of the Board of Directors. In this role, the Committee
develops a comprehensive compensation policy for senior management, which
includes appropriate long-term performance incentives with significant
equity-linked awards. The Committee annually reviews the performance of the CEO
and senior management team and after consultation with the Board, establishes
compensation terms for these individuals.
The Committee is composed entirely of non-employee independent directors,
as defined in the Corporation's By-laws and under Section 162(m) of the Internal
Revenue Code. The Committee utilizes the services of an independent compensation
consulting firm in establishing both executive and director compensation.
Compensation Policy. The Corporation's executive compensation policy is
based on a belief that compensation that promotes long-term management stock
ownership and is tied to corporate performance and sustained share price will
enhance shareholder value. To implement this policy, the Committee strives to
strike a balance between fixed compensation in the form of base salary, and "at
risk" compensation, in the forms of annual bonuses based on the attainment of
corporate and individual goals, and longer-term, stock-based awards.
9
A goal of the Committee is to offer a total compensation potential that is
competitive with that offered at peer companies. The Committee believes that the
Corporation's most direct competitors for executive talent are not necessarily
all of the companies that would be included in a peer group established to
compare shareholder returns. Thus, the compensation peer group is not the same
as the peer group index in the Comparison of Five Year Cumulative Total Return
graph included in this proxy statement. The peer group for compensation purposes
comprises companies whose revenues and market capitalization are within a range
above and below the Corporation's numbers. The group is reviewed annually and
changes are made as appropriate to reflect changes in the financial services
industry, such as mergers and acquisitions.
The total compensation package at the Corporation is designed to attract
and to retain executive officers who are entrepreneurial and desire a "risk and
reward" compensation structure that is based on ownership and performance
principles.
To further promote the principle of executives as owners, the Corporation
adopted stock ownership guidelines in January 1999. Ownership levels, which are
expected to be achieved over a three-year period, are:
Stock Ownership as a
Position Multiple of Base Salary
-------- -----------------------
CEO 10 x salary
President 10 x salary
Executive Vice President 10 x salary
Senior Vice President 7 x salary
Unvested performance stock and unexercised options, whether vested or not,
are not counted in calculating stock ownership.
As of February 28, 2002, 15 of the Corporation's 20 senior officers,
including all of the officers who have been with the Corporation three years or
more, have achieved compliance with their ownership guidelines. Moreover, two of
the five senior officers who joined the Corporation upon the USA Group
acquisition in August 2000 have already achieved their ownership targets.
Base Salary. In establishing salaries, the Committee reviewed the salaries
of executives at peer companies in positions that the Committee considered to be
comparable to their particular executive position. Mr. Lord's salary for 2001
was set below the 25th percentile for salaries paid to chief executive officers
at the Corporation's peer companies. Mr. Fitzpatrick's was set below the 50th
percentile. Salaries for all other Named Executive Officers were set below the
25th percentile. Accordingly, a significant portion of each executive officer's
cash compensation is subject to the achievement of goals as set forth in the
Corporation's performance bonus program.
Performance Bonuses. The Compensation Committee believes that executive
officer annual bonuses should be tied to satisfaction of specified performance
criteria. For 2001, the Compensation Committee established a bonus program under
the shareholder-approved Management Incentive Plan, under which bonuses could be
earned based on corporate performance and individual performance. The terms of
the program establish the maximum bonus amount that may be earned in any one
year. The Committee may use its discretion to reduce payments below that amount.
The corporate performance goals were set by the Committee in January 2001,
after consideration by the Board of the 2001 business plan. The goals, which
were directly related to key components of the 2001 business plan, were the
attainment of specified percentage increases over the prior year for: earnings
per share on a "core cash basis;" net income, also on a "core cash basis;"
preferred channel loan origination volume; and issuance of student loan
guarantees through the strategic USA Funds customer relationship. ("Core cash
basis" earnings are defined in the Corporation's annual report to shareholders.)
The corporate goals were communicated to all officers during the first quarter
of 2001 and status reports of corporate achievement towards the goals were
provided throughout the year to both the Committee and the officer group. The
Corporation's performance surpassed each goal, except the student loan guarantee
issuance goal. The bonuses awarded to Messrs. Lord and Fitzpatrick for 2001
performance were significantly lower than those awarded in 2000, as the awards
for 2000 reflected the accomplishment of the acquisition of the USA Group.
Mr. Lord's individual performance and thus, the award of the individual
component of his 2001 bonus, was evaluated by the Committee in consultation with
the full Board. The Committee considered the following
10
accomplishments in awarding Mr. Lord's individual performance-based bonus: the
successful completion of the integration of the USA Group and Sallie Mae
operations; continued development of a strong executive management team; growth
in the size and profitability of the Corporation's student loan portfolio;
extension of the Corporation's student loan business through completion of
negotiations for the acquisition of two higher education debt collection
businesses; and taking advantage of the low interest rate environment, to
improve the student loan spread and stabilize long-term capital needs.
The Compensation Committee approved other executive officer performance
bonuses, as recommended by Mr. Lord, based on his assessment of their individual
performance and on relative compensation levels within the executive officer
ranks. Consistent with the Compensation Committee's preference for
equity-oriented compensation, a minimum of 40 percent of each executive
officer's annual bonus (on a pre-tax or after-tax basis at the election of the
executive) was awarded in the form of Sallie Mae common stock.
Stock Options and Performance Stock. The Compensation Committee believes
that stock options provide an appropriate incentive to promote long-term stable
growth while aligning executives' interests with those of shareholders. In
January 2001, the Compensation Committee granted options to Mr. Lord and other
members of the senior management team. The options vest upon the stock price
reaching 120 percent of the grant price, but no earlier than 12 months from
their grant date. The options also vest on the fifth anniversary of their grant
date, or upon a change in control of the Corporation. If options vest upon a
change in control and, as a result, an executive becomes subject to excise
taxes, the Corporation will make certain tax gross-up payments on behalf of the
executive.
In 1999, the Corporation established a replacement option program to assist
executive officers in meeting their share ownership targets. The program also
applies to Board members. Under the replacement program, officers and directors
are eligible to receive new options upon their exercise of vested options in an
amount equal to the number of shares needed to pay the exercise price for the
original option. Replacement options carry an exercise price equal to the fair
market value of the Corporation's common stock on the date of their grant and
vest one year from the grant date. The term of replacement options equals the
remaining term of the underlying options.
Section 162(m). Section 162(m) of the Internal Revenue Code limits to $1
million the deductibility of compensation paid to each of the Corporation's five
Named Executive Officers, unless the compensation satisfies one of the
exceptions set forth in the Code, which includes an exception for
"performance-based compensation." The Compensation Committee generally attempts
to have significant aspects of performance-based compensation that it awards
qualify under Section 162(m), although it recognizes that situations may arise
where other considerations may prevail over obtaining such qualification. The
Compensation Committee believes that the compensation that the Corporation's
Named Executive Officers received under the 2001 Management Incentive Plan and
will realize upon exercise of stock options or upon vesting of performance
shares granted to them will qualify as "performance-based compensation," and
therefore will not be subject to the $1 million limitation.
Compensation and Personnel Committee
Barry A. Munitz, Chairman
William M. Diefenderfer, III, Vice Chairman
Charles L. Daley
Earl A. Goode
Ann Torre Grant
Wolfgang Schoellkopf
Steven L. Shapiro
11
Summary Compensation Table
The tables below set forth compensation information for the Corporation's
Chief Executive Officer and the Corporation's next four most highly compensated
executive officers employed by the Corporation at the end of the 2001 fiscal
year (collectively, the "Named Executive Officers") for 2001 and for prior
years, up to two, in which the individuals served as executive officers.
Annual Compensation Long-Term Compensation
------------------------------ -------------------------------
Securities
Stock Based Underlying All other
Name and Principal Position Year Salary Bonus(1) Awards ($) Options Compensation(2)
--------------------------- ---- -------- ---------- ------------- ---------- ---------------
Albert L. Lord ............... 2001 $750,000 $2,250,000 $ -- 749,895(4) $45,000
Chief Executive Officer 2000 $650,000 $3,000,000 $1,571,875(3) 463,691(4) $39,000
and Vice Chairman 1999 $650,000 $1,600,000 $ -- -- $39,000
Thomas J. Fitzpatrick ......... 2001 $550,000 $1,550,000 $ 435,427(5) 743,776(4) $33,000
President and Chief 2000 $500,000 $2,500,000 $2,153,125(5) 200,000 $30,000
Operating Officer 1999 $400,000 $1,086,000 $ 58,289(5) -- $16,062
Marianne M. Keler ............ 2001 $300,000 $ 550,000 $ -- 230,878(4) $18,000
Executive Vice President 2000 $250,000 $ 550,000 $ -- 50,000(4) $15,000
and General Counsel 1999 $200,000 $ 350,000 $ 31,417(6) 14,823(4) $11,987
John F. Remondi ............... 2001 $300,000 $ 550,000 $ 44,956(7) 100,000 $14,100
Executive Vice President and 2000 $200,000 $ 450,000 $1,632,193(7) -- $11,700
Chief Financial Officer
June M. McCormack ............ 2001 $282,692 $ 550,000 $ 643,089(8) 67,358(4) $10,200
Executive Vice President
------------
(1) Bonus is the amount earned for the year indicated and is typically paid in
the following year.
(2) Employer matching contributions under the Sallie Mae 401(k) Savings Plan and
the Sallie Mae Supplemental 401(k) Savings Plan.
(3) Amount reflects the market value of 25,000 shares of Sallie Mae stock on the
date of award, January 25, 2001, as restricted stock units (RSUs), as part
of Mr. Lord's 2000 bonus payment under the Management Incentive Plan. The
RSUs are compensation for service successfully performed in 2000; however,
the Compensation Committee placed restrictions on the RSUs as a retention
tool. All of the RSUs were forfeitable by Mr. Lord if he voluntarily left
employment prior to January 25, 2002, and one-half of the RSUs will be
forfeited if Mr. Lord voluntarily leaves employment on or after January 25,
2002, but prior to January 25, 2003. The value of all unvested RSUs as of
December 31, 2001 was $2,100,500.
(4) Includes options granted under the replacement option program.
(5) Amounts are the market value of 3,976 shares granted on January 25, 2001,
2,727 shares granted on January 27, 2000, and 1,321 shares granted on
January 28, 1999. These shares are forfeited if: 1) Mr. Fitzpatrick fails to
invest 100% of the annual bonus to which the award relates in Sallie Mae
stock for 12 months, or 2) Mr. Fitzpatrick voluntarily terminates his
employment during this 12-month period. The amount reported for 2000 also
includes the market value of 50,000 shares of performance stock granted on
July 31, 2000, which have vested or will vest upon the achievement of
corporate performance goals. As of December 31, 2001, a total of 28,250
shares of all the shares reported in this column remained unvested with a
market value of $2,373,565.
(6) Amount is the market value of 712 shares granted on January 28, 1999, which
vested one year from the grant date.
(7) Amounts are the market value of 715 shares granted on January 25, 2001, and
722 shares granted on January 27, 2000. These shares are forfeited if: 1)
Mr. Remondi fails to invest 100% of the annual bonus to which the award
12
relates in Sallie Mae stock for 12 months, or 2) Mr. Remondi voluntarily
terminates his employment during this 12-month period. The amount reported
for 2000 also includes the market value of 40,275 shares of performance
stock granted on January 3, 2000. These shares vested upon the achievement
of corporate performance goals. As of December 31, 2001, a total of 715
shares remained unvested with a market value of $60,074.
(8) Amount is the market value of 10,000 shares of performance stock granted on
January 1, 2001. As of December 31, 2001, 5,650 shares remained unvested
with a market value of $474,713.
2001 Option Grant Table
Number of
Securities
Underlying
Options Granted
--------------------- Grant
Name Initial Replacement Date
---- ------- ----------- ----------
Albert L. Lord ............... 250,000 01/15/2001
196,673 02/14/2001
137,770 02/14/2001
165,452 08/01/2001
-------- -------
250,000 499,895
Thomas J. Fitzpatrick ......... 200,000 01/15/2001
121,371 01/25/2001
44,148 01/31/2001
261,858 01/31/2001
9,873 07/24/2001
810 07/25/2001
105,716 07/25/2001
-------- -------
200,000 543,776
Marianne M. Keler ............ 125,000 01/15/2001
72,706 02/22/2001
33,172 08/08/2001
-------- -------
125,000 105,878
John F. Remondi ............... 100,000 01/15/2001
June M. McCormack ............ 10,000 05/10/2001
57,358 07/25/2001
-------- -------
10,000 57,358
Exercise Price % of Total
and Market Options Granted
Expiration Price on to Employees Grant Date
Name Date Grant Date in Fiscal Year Present Value
---- ---------- -------------- -------------- -------------
Albert L. Lord ............... 01/15/2011 $60.50 2.85% $ 7,092,500
08/13/2007 $68.90 2.24% $ 5,239,369
01/13/2010 $68.90 1.57% $ 4,251,582
08/13/2007 $79.85 1.89% $ 4,910,615
---- -----------
8.55% $21,494,066
Thomas J. Fitzpatrick ......... 01/15/2011 $60.50 2.28% $ 5,674,000
01/31/2010 $62.88 1.39% $ 3,402,029
08/13/2007 $62.83 0.50% $ 1,067,499
07/16/2008 $62.83 2.99% $ 6,706,183
06/14/2010 $77.80 0.11% $ 349,208
08/13/2007 $81.10 0.01% $ 24,835
07/16/2008 $81.10 1.21% $ 3,457,970
---- -----------
8.49% $20,681,724
Marianne M. Keler ............ 01/15/2011 $60.50 1.43% $ 3,546,250
08/13/2007 $72.26 0.83% $ 2,031,406
08/13/2007 $80.71 0.38% $ 995,160
---- -----------
2.64% $ 6,572,816
John F. Remondi ............... 01/15/2011 $60.50 1.14% $ 2,837,000
June M. McCormack ............ 05/10/2011 $65.25 0.11% $ 310,900
06/14/2010 $81.10 0.65% $ 2,114,789
---- -----------
0.76% $ 2,425,689
Options vest upon the stock price reaching 120 percent of the grant price
for five trading days, but no earlier than 12 months from their grant date. The
options also vest on the fifth anniversary of their grant date or upon a change
in control of the Corporation. If options vest upon a change in control and, as
a result, an executive becomes subject to excise taxes, the Corporation will
make certain gross-up payments on behalf of the executive. Replacement options
vest one year from their grant date.
2001 Option Exercises and Year-End Value Table
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at 12/31/01 at 12/31/01
Shares Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
Albert L. Lord ............ 931,041 $30,646,443.43 238,691 749,895 $6,926,813 $11,626,713
Thomas J. Fitzpatrick ..... 771,591 $15,145,721.67 1,652 742,124 $ 38,855 $14,088,268
Marianne M. Keler ......... 202,377 $ 7,284,351.25 92,032 230,878 $4,048,035 $ 3,904,822
John F. Remondi ........... -- $ -- 226,850 100,000 $9,330,121 $ 2,352,000
June M. McCormack ......... 120,000 $ 4,980,000.00 -- 67,358 $ -- $ 355,185
13
During the year, the Named Executive Officers who exercised stock options
retained all shares acquired from the exercise after selling only the number of
shares necessary to cover the cost of an exercise (including taxes). This
entitled the Named Executive Officers to grants of replacement options and
enabled them to increase their stock ownership positions, consistent with
corporate objectives. The table above sets forth information on the number and
the value of exercisable and unexercisable stock options held by the Named
Executive Officers as of the fiscal year-end, calculated by the difference
between the Corporation's fiscal year-end stock price, $84.02, and the option's
exercise price.
Pension Plan Benefits
Annual Normal Retirement Benefit
Calculated as a Single Life Annuity (age 62)
Years of Service
Final Average --------------------------------------------------
Compensation 15 20 25 30
-------------- -------- -------- -------- --------
$ 500,000 $159,573 $212,764 $265,955 $319,146
600,000 192,573 256,764 320,955 385,146
700,000 225,573 300,764 375,955 451,146
800,000 258,573 344,764 430,955 517,146
900,000 291,573 388,764 485,955 583,146
1,000,000 324,573 432,764 540,955 649,146
1,100,000 357,573 476,764 595,955 715,146
1,200,000 390,573 520,764 650,955 781,146
1,300,000 423,573 564,764 705,955 847,146
Under the Corporation's regular and supplemental pension plans,
participants accrue benefits under a cash balance formula. Under the formula,
each participant has an account, for record keeping purposes only, to which
credits are allocated each payroll period based on a percentage of the
participant's compensation for the current pay period. The applicable percentage
is determined by the number of years of service the participant has with the
Corporation. If an individual participated in the Corporation's prior pension
plan as of September 30, 1999 and met certain age and service criteria, the
participant ("grandfathered participant") will receive the greater of the
benefits calculated under the prior plan, which uses a final average pay plan
method, or under the cash balance formula. Mr. Lord and Ms. Keler qualify as
grandfathered participants. Through December 31, 2005, Ms. McCormack's benefit
accrues under a formula grandfathered from the USA Group transaction that takes
into account compensation and age.
The Corporation's supplemental pension plan provides for designated
participants to receive the full amount of benefits to which they would have
been entitled under the pension plan but for limits on compensation and benefit
levels imposed by the Internal Revenue Code. For grandfathered participants, the
amount of compensation considered covered compensation for the prior
supplemental pension plan is the sum of the individual's salary and his annual
bonus, up to 35% of the prior year's salary. For all participants in the
supplemental cash balance plan (effective October 1, 1999), the amount of
compensation is the sum of salary and annual bonus.
The table above illustrates the approximate annual pension that may be
payable to an employee in the higher salary classifications under the
Corporation's prior final average pay plans, at age 62, as a single life
annuity. The benefit amounts shown are not subject to any deductions for Social
Security or other plan benefits. The credited years of service as of December
31, 2001 for Mr. Lord is 16 years, 9 months; Mr. Fitzpatrick 3 years, 4 months;
Ms. Keler, 17 years, 0 months; Ms. McCormack, 15 years, 9 months (includes
service with USA Group) and Mr. Remondi, 13 years, 5 months (includes service
with Nellie Mae). The projected annual benefit payable upon retirement at age 62
under the new cash balance plans for each of these individuals is: Mr.
Lord--$451,000; Mr. Fitzpatrick--$164,000; Ms. Keler--$419,000; Ms.
McCormack--$119,000; and Mr. Remondi--$397,000. Mr. Fitzpatrick is entitled to
additional retirement payments under his employment agreement.
14
Employment Agreements
The Corporation recently entered into employment agreements with Messrs.
Lord and Fitzpatrick to secure their commitment to continued employment with the
Corporation. The terms of the agreements are consistent with the Corporation's
emphasis on "at risk" executive compensation, in that the parties intend that
current base salary and the parameters for annual cash bonuses will not be
changed during the term of the agreements and the potential value of long-term
incentives for the executives is tied to increases in the Corporation's share
price. In addition, to retain the executives' service and promote their focus on
sustained increases in the Corporation's share price, the agreements defer the
executives' ability to realize the benefit of certain stock-based awards in some
cases beyond the term of their employment, notwithstanding that the awards may
vest earlier.
The term of Mr. Lord's agreement is the three-year period ending December
31, 2004, subject to a one-year extension unless either Mr. Lord or the Board
elect not to extend the term. Under the agreement, Mr. Lord received 1,000,000
stock options in January 2002 (the "2002 Options") and, subject to continued
employment, will receive 500,000 options in January 2003 (the "2003 Options").
The options are exercisable after price-vesting and time-vesting targets are met
and in any case on and after January 1, 2010 for the 2002 Options and January 1,
2011 for the 2003 Options. For each one-third of an option grant, the
price-vesting targets are a set percentage increase over the fair market value
of the options on the date of grant. The percentage targets are a 25 percent
increase, a 33 percent increase and a 50 percent increase, respectively, and
must be sustained for five consecutive trading days. For the 2002 Options, the
actual price-vesting targets are: $107.50; $114.38; and $129.00. The earliest
vesting date for the 2002 Option is June 1, 2005, and for the 2003 Options,
January 1, 2006. To the extent not forfeited or exercised, the options expire on
the tenth anniversary of their grant date. The options are not eligible for the
Corporation's replacement option program. Mr. Lord also received 50,000
restricted stock units in January 2002 and, subject to continued employment,
will receive 50,000 restricted stock units in January 2003. Both sets of
restricted stock units vest on December 31, 2004 and delivery of the vested
shares is deferred until retirement or termination of employment. If Mr. Lord's
employment is terminated by the Corporation without cause, or by Mr. Lord for
good reason, the vesting of the options and restricted stock units is
accelerated and Mr. Lord will receive a cash payment equal to his salary and
three-year average annual bonus multiplied by the lesser of three or the number
of years remaining in the term of the agreement. Additionally, if his
termination under either of these conditions follows within 24 months of a
change in control, Mr. Lord will receive a cash payment equal to three times
salary and three-year average annual bonus. If any change in control occurs,
regardless of whether a termination of employment occurs, Mr. Lord's unvested
stock options and restricted stock units vest. Change in control payments are
subject to being grossed-up for any excise taxes payable by Mr. Lord and for
taxes payable on the grossed-up amounts.
The agreement with Mr. Fitzpatrick is for the five-year period ending
December 31, 2006. Under the agreement, Mr. Fitzpatrick received 600,000 options
in 2002 (the "2002 Options") and, subject to continued employment, will receive
300,000 options in January 2003 (the "2003 Options"). The terms and conditions
of the options granted or to be granted to Mr. Fitzpatrick are generally the
same as those granted or to be granted to Mr. Lord. Mr. Fitzpatrick also
received 50,000 restricted stock units in January 2002 and subject to continued
employment, will receive 50,000 units in January 2003 and 50,000 units in
January 2004. All units vest on December 31, 2006, and delivery of the vested
shares is deferred until retirement or termination of employment. Provisions
regarding acceleration of vesting and delivery of shares subject to restricted
stock units, acceleration of exercisability of options, termination of
employment payments and change in control payments that apply to Mr. Lord also
generally apply to Mr. Fitzpatrick, with the exception of an additional
acceleration event applicable to Mr. Fitzpatrick in the event Mr. Lord leaves as
chief executive officer and Mr. Fitzpatrick is not selected to succeed Mr. Lord
as chief executive officer. Mr. Fitzpatrick is also entitled to a supplemental
retirement payment, which generally assures him of an annual benefit of $250,000
if he works continuously for the Corporation through age 60. This payment is
offset by any amounts paid under the Corporation's pension plan program.
The agreements each provide that Messrs. Lord and Fitzpatrick will not
compete with the Corporation or its affiliates for a period of at least two
years following termination of employment for any reason.
Also, the Corporation assumed Ms. McCormack's employment agreement upon the
USA Group acquisition in June 2000, as amended upon the acquisition. The
agreement with Ms. McCormack ends on August 1, 2003. The agreement entitles her
to a minimum annual base salary of $225,000, and grants of 120,000 options
covering
15
the Corporation's common stock and 60,000 shares of performance stock. The
options vested on June 14, 2001, 12 months after the grant date and after
achievement of price-vesting targets. The performance stock vests upon the
achievement of expense and revenue targets. If Ms. McCormack's employment is
terminated by the Corporation without cause or by Ms. McCormack for cause, as
those terms are defined in the agreement, Ms. McCormack is entitled to receive a
payment equal to twice her annual base salary.
Indebtedness
During 2000, the Corporation loaned $1,000,000 to Mr. Lord, at a variable
interest rate equal to the current prime interest rate as reported in the Wall
Street Journal, for the purposes of funding his ownership of Corporation common
stock. Mr. Lord paid the loan in full in January 2001.
One of the Corporation's subsidiaries, SLM Financial Corporation, is in the
business of consumer lending. Through this subsidiary, Ms. Keler obtained a
30-year mortgage loan in December 2001 on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. The loan did not involve more than
the normal risk of collectibility or present other unfavorable features.
Executive Officers
Biographical information about each Named Executive Officer as of February
28, 2002 is as follows:
Albert L. Lord, 56, was named Vice Chairman and Chief Executive Officer of
the Corporation in August 1997. From 1994 to 1997, Mr. Lord was President and
principal shareholder of LCL, Ltd., a Washington, DC firm that provided
investment and financial consulting services. From 1990 to 1994, Mr. Lord was
Executive Vice President and Chief Operating Officer of the GSE. From July 1995
until August 1997, Mr. Lord was a director of the GSE.
Thomas J. Fitzpatrick, 53, President and Chief Operating Officer, was
appointed as an executive officer of the Corporation in September 1998. From
July 1997 until May 1999 he served as a director of the Corporation. Before
joining the Corporation's executive management team, he served as President,
Chief Executive Officer and Director of Equity One, Inc. established in 1990.
Mr. Fitzpatrick was Vice Chairman of Commercial Credit Co. from 1988 until 1989.
From 1983 until 1988, Mr. Fitzpatrick was President and Chief Operating Officer
of Manufacturers Hanover Consumer Services, where he had been employed since
1978.
Marianne M. Keler, 47, Executive Vice President and General Counsel, was
appointed as an executive officer in August 1997. Ms. Keler joined the
Corporation in 1985, and managed the corporate law division from 1990 to 1997,
at which time she was named General Counsel. Ms. Keler also serves as President
of the GSE. From 1982 to 1985, Ms. Keler was an attorney at the Securities and
Exchange Commission.
June M. McCormack, 53, Executive Vice President, Guarantor Services and
Sales Marketing, was appointed as an executive officer in July of 2000. From
1997 to 2000, Ms. McCormack was Executive Vice President of USA Group. Prior to
joining USA Group, Ms. McCormack was employed at Sallie Mae from 1986 to 1997.
From 1979 to 1986, Ms. McCormack held positions at CSX Corp. in Jacksonville,
Florida.
John F. Remondi, 39, Executive Vice President and Chief Financial Officer,
was appointed as an executive officer of the Corporation in May 1999. Prior to
May 1999, Mr. Remondi was Chief Financial Officer and Senior Vice President of
corporate finance and administration for Nellie Mae, where he had been employed
since 1988. Prior to 1988, Mr. Remondi was employed by BayBank in the financial
division.
PROPOSAL 2--REAPPROVAL AND AMENDMENT OF
THE MANAGEMENT INCENTIVE PLAN
At the Annual Meeting, shareholders will be asked to reapprove the
Management Incentive Plan, with two amendments. The first amendment will
increase the annual limit on the amount of Performance Stock that may be granted
under the Plan to any one participant in any calendar year. The second amendment
will increase the number of shares authorized to be issued under the Plan by an
additional 1,600,000 shares; up to 250,000 shares of this new authorization may
be issued pursuant to Incentive Bonus and Performance Stock Awards. Shareholders
are being asked to reapprove the Plan so that the Plan satisfies section 162(m)
of the Internal Revenue Code (the "Code"), which governs the corporate
deductibility of compensation paid to certain executives in excess of
16
$1 million in any calendar year. The request to increase the number of shares
authorized to be issued under the Plan is being made so that the Corporation
may continue granting options on the Corporation's common stock and other
stock-based compensation to officers over the next several years.
The following information is provided in support of this proposal: a
description of the material terms of the Management Incentive Plan; an
explanation of the proposed amendments; and information as of March 18, 2002,
the record date for the meeting, about the number of options and rights granted
under all of the Corporation's equity compensation plans, as well as the number
of securities remaining available for future issuance under the plans. A copy of
the Management Incentive Plan, marked to highlight the proposed changes, is
attached as Exhibit A to this proxy statement.
If shareholders approve this proposal, it is the Corporation's intention to
again seek shareholder approval to increase the number of shares authorized to
be issued under the Plan at the May 2004 annual shareholders' meeting, for
granting stock-based compensation to senior officers in and after 2005.
Summary of the Plan
General. The Management Incentive Plan is designed to enable the
Corporation to attract, retain and motivate its management and other key
employees, and to further align the interests of these employees with those of
the Corporation's shareholders, by providing for or increasing the proprietary
interest of employees in the Corporation.
The Management Incentive Plan authorizes the grant and issuance of awards
that may take the form of Stock Options, Incentive Bonuses, Performance Stock
and Stock Units (any such arrangement, an "Award"). The Management Incentive
Plan has various provisions so that Awards under it may, but need not, qualify
for an exemption from the "short swing liability" provisions of Section 16(b) of
the Exchange Act pursuant to Rule 16b-3 and as "performance based compensation"
that is exempt from the $1 million limitation on the deductibility of
compensation under Section 162(m) of the Internal Revenue Code. The following
summary of the main features of the Management Incentive Plan is qualified in
its entirety by the complete text of the Management Incentive Plan, which is set
out as Exhibit A to this proxy statement.
Eligibility. Any person, including any director of the Corporation, who is
an employee, prospective employee, consultant or advisor of the Corporation or
any of its affiliates is eligible to be selected as a recipient of an Award (a
"Participant") under the Management Incentive Plan. While it is generally
expected that executives and middle managers will be eligible to participate,
Awards may from time to time be granted to employees who are not in these groups
but who have otherwise distinguished themselves for their contributions to the
Corporation. Currently, there are approximately 530 executives and middle
managers, out of a total of approximately 6,000 employees, who are eligible to
participate in the Management Incentive Plan.
Administration. The Management Incentive Plan is administered by one or
more committees (any such committee, a "Committee") of the Board of Directors of
the Corporation (the "Board"). With respect to any Award that is not intended to
satisfy the conditions of Exchange Act Rule 16b-3 or Code Section 162(m)(4)(C),
the Committee may delegate all or any of its responsibilities to one or more
directors or officers of the Corporation, including individuals who participate
in the Management Incentive Plan.
Subject to the express provisions of the Management Incentive Plan, the
Committee has broad authority to administer and interpret the Management
Incentive Plan, including, without limitation, authority to determine who is
eligible to participate in the Management Incentive Plan and to whom, and when,
Awards are granted under the Management Incentive Plan, to determine the number
of shares of Common Stock subject to Awards and the exercise or purchase price
of such shares under an Award, to establish and verify the extent of
satisfaction of any performance goals applicable to Awards, to prescribe and
amend the terms of the agreements evidencing Awards made under the Management
Incentive Plan (so long as shareholder approval of such amendment is not
required), and to make all other determinations deemed necessary or advisable
for the administration of the Management Incentive Plan.
Stock Subject to the Management Incentive Plan. Currently, the aggregate
number of shares of the Corporation's Common Stock ("Shares") that can be issued
under the Management Incentive Plan may not exceed 11,500,000. If shareholders
approve the amended Plan, the number of shares authorized to be issued may not
exceed 13,100,000. The number of Shares subject to the Management Incentive Plan
and to outstanding Awards
17
under the Management Incentive Plan will be appropriately adjusted by the Board
of Directors if the Corporation's Common Stock is affected through a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, dividend (other than quarterly cash dividends) or other
distribution, stock split, spin-off or sale of substantially all of the
Corporation's assets. For purposes of calculating the aggregate number of Shares
issued under the Management Incentive Plan, only the number of Shares actually
issued upon exercise or settlement of an Award and not returned to the
Corporation upon cancellation, expiration or forfeiture of an Award or in
payment or satisfaction of the purchase price, exercise price or tax withholding
obligation of an Award shall be counted.
In 2000, shareholders approved an amendment to the Plan, which provides
that grants of replacement options, i.e, options granted to purchase a number of
shares of common stock equal to the number of shares of common stock used to
exercise an underlying stock option, do not reduce the aggregate number of
shares authorized under the Plan.
Awards. The Management Incentive Plan authorizes the grant and issuance of
the following types of Awards: Stock Options, Incentive Bonuses, Performance
Stock and Stock Units.
Stock Options: Subject to the express provisions of the Management
Incentive Plan and as discussed in this paragraph, the Committee has discretion
to grant options, to determine the vesting schedule of options, the events
causing an option to expire, the number of shares subject to any option, the
restrictions on transferability of an option, and such further terms and
conditions, in each case not inconsistent with the Management Incentive Plan, as
may be determined from time to time by the Committee. Options granted under the
Management Incentive Plan may be either Incentive Stock Options qualifying under
Code Section 422 ("ISOs") or options which are not intended to qualify as
Incentive Stock Options ("NQSOs"). The exercise price for options may not be
less than 100% of the fair market value of the Corporation's Stock on the date
the option is granted, except in the case of options granted in assumption and
substitution of options held by employees of a corporation acquired by the
Corporation. The exercise price of an option may be paid through various means
specified by the Committee, including in cash or check, by delivering to the
Corporation shares of the Corporation's stock, by a reduction in the number of
Shares issuable pursuant to such option, or by a promissory note or other
commitment to pay (including such a commitment by a stock broker). The Committee
may, but need not, provide that the holder of an Award has a right (such as a
stock appreciation right) to receive a number of Shares or cash, or a
combination thereof, the amount of which is determined by reference to the value
of the Award.
The aggregate number of Shares subject to Options granted under the Plan
during any calendar year to any one Participant may not exceed 1,000,000. The
Corporation is not requesting a change to this annual limit.
Incentive Bonus: The Management Incentive Plan authorizes the grant of
Incentive Bonuses pursuant to which a Participant may become entitled to receive
an amount--which may be paid in cash, stock or stock units--based on
satisfaction of such performance criteria as are specified by the Committee.
Subject to the express provisions of the Management Incentive Plan and as
discussed in this paragraph, the Committee has discretion to determine the terms
of any Incentive Bonus, including the target and maximum amount payable to a
Participant as an Incentive Bonus, the performance criteria (which may be based
on financial performance and/or personal performance evaluations) and level of
achievement versus these criteria which determines the amount payable under an
Incentive Bonus, the fiscal year(s) as to which performance will be measured for
determining the amount of any payment, the timing of any payment earned by
virtue of performance, restrictions on the alienation or transfer of an
Incentive Bonus prior to actual payment, forfeiture provisions, and such further
terms and conditions, in each case not inconsistent with the Management
Incentive Plan, as the Committee may determine from time to time. All or any
portion of an Incentive Bonus may be designed to qualify as "performance based
compensation" that is exempt from the $1 million limit on deductible
compensation under Section 162(m) of the Code. The performance criteria for any
portion of an Incentive Bonus that is intended to satisfy the requirements for
"performance-based compensation" will be a measure based on one or more
"Qualifying Performance Criteria," as that term is defined below.
Notwithstanding satisfaction of any performance goals, the amount paid under an
Incentive Bonus may be reduced by the Committee on the basis of such further
considerations as the Committee in its sole discretion shall determine.
The maximum Incentive Bonus that may be awarded under the Plan during any
calendar year to any one Participant may not exceed $5,000,000. The maximum
number of Shares that may be awarded under any
18
Incentive Bonus during any calendar year to any one Participant may not exceed
50,000 Shares. The Corporation is not requesting a change to these annual
limits.
Performance Stock: Performance Stock is an Award of Shares, the grant,
issuance, retention and/or vesting of which is subject to such performance and
other conditions as are specified by the Committee. Subject to the express
provisions of the Management Incentive Plan and as discussed in this paragraph,
the Committee has discretion to determine the terms of any Performance Stock
Award, including the number of Shares subject to a Performance Stock Award or a
formula for determining such, the performance criteria and level of achievement
versus these criteria which determine the number of Shares granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance, which may not be shorter than a
12-month period, forfeiture provisions, the effect of termination of employment
for various reasons, and such further terms and conditions, in each case not
inconsistent with the Management Incentive Plan, as may be determined from time
to time by the Committee. The performance criteria upon which Performance Shares
are granted, issued, retained and/or vested may be based on financial
performance and/or personal performance evaluations, except that for any
Performance Stock that is intended by the Committee to satisfy the requirements
for "performance-based compensation" under Code Section 162(m) the performance
criteria shall be a measure based on one or more Qualifying Performance Criteria
(as defined below). Notwithstanding satisfaction of any performance goals, the
number of Shares granted, issued, retainable and/or vested under a Performance
Stock Award may be reduced by the Committee on the basis of such further
considerations as the Committee in its sole discretion shall determine.
The maximum number of shares of Performance Stock that may be awarded
during any calendar year to any one Participant is 50,000. The Corporation is
requesting an increase in this annual limit to 100,000 Shares.
Stock Units: A "Stock Unit" is a bookkeeping entry representing an amount
equivalent to the fair market value of one share of Common Stock, which may be
settled in Common Stock or cash. Stock Units may be issued upon exercise of
Stock Options, may be granted in payment and satisfaction of Incentive Bonus
Awards and may be issued in lieu of any other compensation that the Committee
elects to be paid in the form of Stock Units. Unless provided otherwise by the
Committee, settlement of Stock Units shall be made by issuance of Common Stock
and shall occur within 60 days after an Employee's termination of employment for
any reason, except that the Committee may provide for Stock Units to be settled
in cash (at the election of the Corporation or the Participant, as specified by
the Committee) and to be made at such other times as it determines appropriate
or as it permits a Participant to choose.
Qualifying Performance Criteria. Subject to shareholder approval of the
Management Incentive Plan, the performance criteria for any Incentive Bonus or
any Performance Stock that is intended to satisfy the requirements for
"performance based compensation" under Code Section 162(m) shall be any one or
more of the following performance criteria, either individually, alternatively
or in any combination, applied to either the Corporation as a whole or to a
business unit or subsidiary, either individually, alternatively or in any
combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, to previous
years' results or to a designated comparison group, in each case as specified by
the Committee in the Award:
(a) cash flow,
(b) earnings per share (including earnings before interest)
(c) cash flow
(d) total stockholder return,
(e) return on capital,
(f) return on assets or net assets,
(g) revenue,
(h) income or net income
(i) operating income or net operating income,
(j) operating profit or net operating profit,
(k) operating margin,
(l) return on operating revenue,
(m) market share,
(n) loan volume, and
(o) overhead or other expense reduction
19
The Committee shall appropriately adjust any evaluation of performance
under a Qualifying Performance Criteria to exclude any of the following events
that occurs during a performance period:
(i) asset write-downs,
(ii) litigation or claim judgments or settlements,
(iii) the effect of changes in tax law, accounting principles or other laws
or provisions affecting reported results,
(iv) accruals for reorganization and restructuring programs, and
(v) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management's discussion and
analysis of financial condition and results of operations appearing
in the Corporation's Form 10-K to the Securities and Exchange
Commission for the applicable year.
Change of Control. The Committee may provide that in connection with a
Change of Control, Awards will become exercisable, payable, vested, paid, or
canceled, and may provide for an absolute or conditional exercise, payment or
lapse of conditions or restrictions on an Award which would be effective only
if, upon the announcement of a transaction intended or reasonably expected to
result in a Change of Control, no provision is made under the terms of such
transaction for the holder of an Award to realize the full benefit of the Award.
Transferability of Awards. Generally, Awards granted under the Management
Incentive Plan may not be sold, assigned, conveyed, gifted, pledged,
hypothecated or otherwise transferred in any manner prior to the vesting or
lapse of any and all restrictions applicable to it, other than by will or the
laws of descent and distribution, except that the Committee may permit an Award
to be transferable to a member or members of the Participant's family or to
entities owned or established for the benefit of a Participant's family.
Amendments and Termination. The Board may amend, alter or discontinue the
Plan or any agreement evidencing an Award made under the Plan, but no such
amendment shall, without the approval of the shareholders of the Corporation:
(a) materially increase the maximum number of shares of Common Stock for which
Awards may be granted under the Plan; (b) reduce the price at which Stock
Options may be granted below the price specified in the Plan; (c) take any
action to reduce or adjust downward the exercise price of outstanding Stock
Options; (d) after a Change in Control, impair the rights of any Award holder,
without such holder's consent; (e) extend the term of the Plan; or (f) change
the class of persons eligible to be Participants. Awards will not be granted
under the Management Incentive Plan after January 23, 2008.
Federal Income Tax Consequences. The following discussion of the federal
income tax consequences of the Management Incentive Plan is intended to be a
summary of applicable federal law as currently in effect. State and local tax
consequences may differ and may be amended or interpreted differently during the
term of the Management Incentive Plan or of options granted thereunder. Because
the federal income tax rules governing options and related payments are complex
and subject to frequent change, optionees are advised to consult their tax
advisors prior to exercise of options or dispositions of stock acquired pursuant
to option exercise.
ISOs and NQSOs are treated differently for federal income tax purposes.
ISOs are intended to comply with the requirements of Section 422 of the Code.
NQSOs need not comply with such requirements.
An optionee is not taxed on the grant or exercise of an ISO. The difference
between the exercise price and the fair market value of the shares on the
exercise date will, however, be a preference item for purposes of the
alternative minimum tax. If an optionee holds the shares acquired upon exercise
of an ISO for at least two years following the option grant date and at least
one year following exercise, the optionee's gain, if any, upon a subsequent
disposition of such shares is long term capital gain. The measure of the gain is
the difference between the proceeds received on disposition and the optionee's
basis in the shares (which generally equals the exercise price). If an optionee
disposes of stock acquired pursuant to exercise of an ISO before satisfying the
one and two-year holding periods described above, the optionee will recognize
both ordinary income and capital gain in the year of disposition. The amount of
the ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the option price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the option price. The balance of the consideration received on such a
disposition will be long term capital gain if the stock had been held for at
least one year following exercise of the ISO. The Corporation is not entitled to
an income tax deduction on the grant or exercise of an ISO or on the optionee's
disposition of
20
the shares after satisfying the holding period requirement described above. If
the holding periods are not satisfied, the Corporation will be entitled to a
deduction in the year the optionee disposes of the shares in an amount equal to
the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of an NQSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the option
price and the fair market value of the shares acquired on the date of exercise.
The Corporation is entitled to an income tax deduction in the year of exercise
in the amount recognized by the optionee as ordinary income. Any gain on
subsequent disposition of the shares is long term capital gain if the shares are
held for at least one year following exercise. The Corporation does not receive
a deduction for this gain.
As described above, options granted under the Management Incentive Plan may
qualify as "performance-based compensation" under Section 162(m) of the Code in
order to preserve federal income tax deductions by the Corporation with respect
to any compensation required to be taken into account under Section 162 of the
Code that is in excess of $1 million and paid to a "Covered Employee" (as
defined under the Section 162 regulations). To so qualify, options must have an
exercise price at least equal to the fair market value of the underlying shares
on the date of grant, be awarded by a committee consisting of two or more
"outside directors" (as defined under the Section 162 regulations) and satisfy
the Plan's limit on the total number of shares subject to options that may be
awarded to any one participant during any calendar year.
Reasons for Proposal
The Corporation is requesting amendment of the Plan for two reasons. The
Corporation is seeking an increase in the maximum number of shares of
Performance Stock that the Corporation may grant to any one individual in any
calendar year to 100,000 shares from the current annual Plan limit of 50,000
shares. Since the Plan's establishment in 1998, the Corporation has entered into
several significant acquisitions. Performance stock grants have been used as a
long-term incentive for executives to promote achievement of strategic goals
such as integration of corporate acquisitions. The grants typically cover
performance over more than one year and the 50,000 share limit has restricted
the Corporation's flexibility in this context.
The Corporation is requesting an increase in the number of shares
authorized to be issued under the Plan by 1,600,000 shares (up to 250,000 shares
of this new authorization may be issued pursuant to Incentive Bonus and
Performance Stock Awards). In 1998, shareholders originally authorized 6,000,000
shares of the Corporation's common stock to be issued under the Management
Incentive Plan. This amount was increased by 5,500,000 shares in 2000 with
shareholder approval. As of March 18, 2002, 581,840 shares remain available for
granting under the Plan.
Grant activity under the Plan over the period from January 1998 through
January 2002 was driven by the following corporate events: building of the
senior management team, acquisitions, and the recent negotiations of employment
agreements for Messrs. Lord and Fitzpatrick.
Upon Mr. Lord's appointment to the Chief Executive Officer position in
1997, he began to build his senior management team. Several key individuals were
recruited into the Corporation and other employees were identified for
leadership roles, as the Corporation began its process of privatization. Stock
options and performance stock have been granted to the senior management team
and the Corporation believes that these grants have been a significant factor in
the excellent returns achieved for the Corporation's shareholders.
Since 1999, the Corporation has acquired industry leaders: Nellie Mae
Corporation, Student Loan Funding Corporation, and USA Group. Approximately
3,140,200 million shares of performance stock and options have been granted
under the Plan as a result of these acquisitions. The Corporation believes that
stock-based compensation awarded to incoming employees upon each acquisition has
been vital in the successful integration of these businesses. The Corporation
anticipates other acquisitions in the future, which may result in further
utilization of the Management Incentive Plan.
Finally, the Compensation and Personnel Committee negotiated employment
agreements with Messrs. Lord and Fitzpatrick in January of this year. The
material terms of the agreements are discussed in the Executive Compensation
section of this proxy statement. 2,650,000 shares are committed under the
agreements: 1,600,000 shares for Mr. Lord over a three-year period and 1,050,000
shares for Mr. Fitzpatrick over a five-year period.
21
The Corporation is also requesting that shareholders reapprove the Plan so
that the Plan will satsify the shareholder approval requirements of section
162(m) of the Internal Revenue Code. Under this section, shareholder approval
of the Plan is required every five years. Such approval was last obtained in
1998. The Corporation is seeking approval one year early because we are also
seeking an increase in the number of shares authorized to be issued under the
Plan at this time.
Information, as of March 18, 2002, to assist shareholders in evaluating
the potential dilutive effect of the Corporation's request is provided in the
following table:
Equity Compensation Plan Information
(a) Number of
Number of securities
securities to be remaining
issued upon Weighted-average Average available for
exercise of exercise price remaining future issuance
outstanding of outstanding life (years) under equity Types of
options, warrants options, warrants of options compensation Awards
Plan Category and rights and rights outstanding plans(1) Issuable(2)
-------------- ----------------- ----------------- ------------ --------------- -----------
Equity compensation plans
approved by security holders:
Directors Stock Plan ............. 1,669,106 $66.42 8.67 971,409 NQ, ST
Management Incentive Plan (3) ..... 6,766,396 $73.37 9.23 1,508,885 NQ, ISO,
RES,RSU
Expired Plans .................... 451,765 $37.13 5.47 -- NQ, ISO
--------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders:
Employee Stock Option Plan ....... 8,736,900 $70.21 9.18 2,523,293 NQ, RES
--------------------------------------------------------------------------------------------------------------------------
Total .............................. 17,624,167 $70.22 9.05 5,003,587
========== ====== ==== =========
------------
(1) Excludes securities included in column (a) and excludes shares that may be
issued under the replacement option program.
(2) NQ (Non-Qualified Stock Option), ISO (Incentive Stock Option), RES
(Restricted/Performance Stock), RSU (Restricted Stock Unit); ST (Stock
Grant).
(3) The Management Incentive Plan is subject to an aggregate limit of 1,500,000
shares that may be issued as Restricted Stock. As of the record date
175,591 shares are remaining from this authority.
** Contact the Corporate Secretary at 703-810-7785 for questions about the
equity compensation plans.
Required Vote
The affirmative vote of the holders of a majority of the shares of common
stock represented and voting at the Annual Meeting is required to approve the
amendment to the Management Incentive Plan. Unless marked to the contrary,
proxies received will be voted FOR approval of the amendment to the Management
Incentive Plan.
Board Recommendation
The Board of Directors of the Corporation recommends a vote FOR the
approval of the amendment to the Management Incentive Plan.
REPORT OF THE AUDIT/FINANCE COMMITTEE
The Audit/Finance Committee has reviewed and discussed with management, and
the Corporation's independent auditors, Arthur Andersen LLP, the Corporation's
audited financial statements as of and for the year ended December 31, 2001. The
Committee also discussed with Arthur Andersen LLP the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants, and with and without management
present, discussed and reviewed the results of the independent auditors'
examination of the financial statements.
22
The Committee received and reviewed the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as amended, and have
discussed with the auditors the auditors' independence. The Committee discussed
with Arthur Andersen LLP relationships that may have an impact on their
objectivity and independence. The Committee considered whether the provisions
of non-financial audit services was compatible with Arthur Andersen LLP's
independence in performing financial audit services.
Following the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2001.
Audit/Finance Committee
William M. Diefenderfer, III, Chairman
A. Alexander Porter, Jr., Vice Chairman
Charles L. Daley
Ann Torre Grant
Benjamin J. Lambert, III
Barry L. Williams
PROPOSAL 3--APPOINTMENT OF INDEPENDENT AUDITOR
The selection and appointment of the Corporation's independent financial
auditor is approved annually by the Board of Directors based upon the
recommendation of the Audit/Finance Committee. On January 24, 2002, the Board of
Directors authorized the appointment of Arthur Andersen LLP, as the
Corporation's independent financial auditor for 2002. Arthur Andersen LLP has
served as auditor for the Corporation since October 23, 1997. Given
circumstances and matters relating to Arthur Andersen LLP, the engagement for
2002 is subject to ongoing review by the Corporation's Board of Directors.
This proposal is put before the shareholders because the Board believes
that it is a good corporate practice to seek shareholder ratification of the
selection of the independent financial auditor. If the appointment of Arthur
Andersen LLP is not ratified, the Board will evaluate the basis for the
shareholders' vote when determining whether to continue the firm's engagement.
Representatives of Arthur Andersen LLP are expected to attend the Annual
Meeting and to respond to appropriate questions from shareholders present at the
meeting, and will have an opportunity to make a statement if they desire to do
so.
Audit Fees. The aggregate fees billed for professional services rendered by
Arthur Andersen LLP for 2001 for the audit of the Corporation's annual financial
statements for 2001 and the reviews of the financial statements included in the
Corporation's Forms 10-Q for 2001 were $1,500,000.
Financial Information Systems Design and Implementation Fees. The aggregate
fees billed for 2001 for professional services rendered by Arthur Andersen LLP
for financial information systems design and implementation were $ -0-.
All Other Fees. The aggregate fees billed for professional services
rendered by Arthur Andersen LLP for 2001 for services other than those described
above were $6,600,000. Of this amount, approximately $2,900,000 was billed for
audit services that were not services for audit and review of the Corporation's
financial statements including in its SEC filings, such as statutory and
regulatory required audits, and the provision of comfort letters for debt
issuances, SEC registration statements, and securitization transactions.
Approximately $3,700,000 was billed for tax analysis and preparation.
23
Required Vote
The affirmative vote of the holders of a majority of the shares of common
stock present or represented and entitled to be voted at the Annual Meeting is
required to ratify the appointment of Arthur Andersen LLP. Unless marked to the
contrary, proxies received will be voted FOR the ratification of the
appointment of Arthur Andersen LLP as independent auditors for 2002.
Board Recommendation
The Board of Directors of the Corporation recommends a vote FOR the
ratification of the appointment of Arthur Andersen LLP as independent auditors
for 2002.
GENERAL INFORMATION
Shares Outstanding
At December 31, 2001, 155,495,548 of the Corporation's common stock par
value $.20 per share, were outstanding. At March 18, 2002, the record date,
155,347,507 shares of common stock were outstanding and eligible to be voted.
The common stock is listed on the New York Stock Exchange, under the symbol
"SLM."
Principal Shareholders
To the Corporation's knowledge, the following institutions were beneficial
owners of 5% or more of the Corporation's outstanding common stock on March 18,
2002. The holdings reported below are based solely on Schedules 13G filed with
the Securities and Exchange Commission as of December 31, 2001. The Corporation
is not aware of any other beneficial owner who became the beneficial owner of
5% or more of the Corporation's common stock between December 31, 2001 and
March 18, 2002.
Ownership
Percentage at
Name and Address of Beneficial Owner Shares(1) December 31, 2001
------------------------------------ -------- -----------------
Capital Group International, Inc.(2) ............... 18,365,990 11.81%
11100 Santa Monica Blvd.
Los Angeles, CA 90025
FMR Corp(3) ........................................ 17,619,661 11.33%
82 Devonshire Street
Boston, MA 02109
Bank of America Corporation(4) ..................... 8,113,867 5.21%
100 North Tryon Street
Charlotte, NC 28255
Capital Research and Management Company(5) ......... 7,847,000 5.05%
333 South Hope Street
Los Angeles, CA 90071
------------
(1) Except as indicated, each institution has sole investment power with respect
to the shares listed.
(2) Capital Guardian Trust Company, a subsidiary of Capital Group International,
Inc., beneficially owns 14,066,640 shares and has sole power to vote
10,429,230 of these shares and dispose of 14,066,640 shares.
(3) Fidelity Management and Research Company, a wholly-owned subsidiary of FMR
Corp., beneficially owns 17,443,430 or 11.218% of the shares outstanding,
does not have investment power over any of the shares, but may vote all of
the shares. Fidelity Management Trust Company, a wholly-owned subsidiary of
FMR Corp., beneficially owns 171,094 or 0.110% of the shares outstanding.
FMR Corp. has sole power to vote 143,794 of these 171,094 shares. In
addition, FMR Corp. beneficially owns 637 shares through Strategic Advisors,
Inc., a wholly-owned subsidiary with investment power but no power to vote.
Fidelity International Limited beneficially owns 4,500 of the shares
included herein, over which it has sole voting power.
(4) Bank of America Corp. has investment and voting power over 8,053,968 shares
and only voting power over the remaining 59,899 shares.
24
(5) Capital Research and Management Company, a registered investment adviser,
does not have sole or shared power to vote any of these shares; although it
has sole investment power over all the shares.
Other Matters
As of the date of this proxy statement, there are no matters that the Board
of Directors intends to present for a vote at the Annual Meeting other than the
business items discussed in this proxy statement. In addition, the Corporation
has not been notified of any other business that is proposed to be presented at
the Annual Meeting. If other matters now unknown to the Board come before the
Annual Meeting, the accompanying proxy card confers discretionary authority on
the persons named on the proxy card to vote such proxies on any such matters in
accordance with their best judgment.
Solicitation Costs
All expenses in connection with the solicitation of the enclosed proxy will
be paid by the Corporation. The Corporation has hired Georgeson Shareholder
Communications Inc. to solicit proxies for a fee of $7,000 plus reimbursement
for out-of-pocket expenses. In addition to solicitation by mail, officers,
directors, regular employees or other agents of the Corporation may solicit
proxies by telephone, telefax, personal calls, or other electronic means. The
Corporation will request banks, brokers, custodians and other nominees in whose
names shares are registered to furnish to beneficial owners of the Corporation's
common stock material related to the Annual Meeting, including the annual
report, this proxy statement and the proxy card to the beneficial owners of such
shares and, upon request, the Corporation will reimburse such registered holders
for their out-of-pocket and reasonable expenses in connection therewith.
Shareholder Proposals for 2003 Annual Meeting
A shareholder who intends to introduce a proposal for consideration at the
Corporation's year 2003 Annual Meeting, set for May 15, 2003, may seek to have
that proposal and a statement in support of the proposal included in the
Corporation's proxy statement if the proposal relates to a subject that is
permitted under U.S. Securities and Exchange Commission ("SEC") Rule 14a-8. To
qualify for this, the shareholder must submit the proposal and supporting
statement to the Corporation not later than December 9, 2002 and must satisfy
the other requirements of Rule 14a-8. The submission of a shareholder proposal
does not guarantee that it will be included in the Corporation's proxy
statement.
A shareholder may otherwise propose business for consideration or nominate
persons for election to the Board of Directors, in compliance with federal proxy
rules, applicable state law and other legal requirements and without seeking to
have the proposal included in the Corporation's proxy statement pursuant to Rule
14a-8. The Corporation's By-laws provide that any such proposals or nominations
for the Corporation's 2003 Annual Meeting must be received by the Corporation
after February 15, 2003 and on or before April 16, 2003. Any such notice must
satisfy the other requirements with respect to such proposals and nominations
contained in the Corporation's By-laws. If a shareholder fails to meet these
deadlines or fails to comply with the requirements of SEC Rule 14a-4, the
Corporation may exercise discretionary voting authority under proxies it
solicits to vote on any such proposal.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors to file reports on their holdings
of and transactions in the Corporation's common stock. To the Corporation's
knowledge, for the fiscal year 2001 all of the Corporation's executive officers
and directors timely filed all required reports under Section 16, except Mr.
Porter failed to report two purchase transactions for which he is an indirect
owner, resulting in three late filings.
25
Exhibit A
USA EDUCATION, INC.*
MANAGEMENT INCENTIVE PLAN
SECTION 1. PURPOSE OF PLAN
The purpose of this Management Incentive Plan ("Plan") of USA Education,
Inc., a Delaware corporation, is to enable the Corporation, as defined in
Section 2.2(a)(iii) hereof, to attract, retain and motivate its officers,
management and other key personnel, and to further align the interests of such
persons with those of the stockholders of the Corporation, by providing for or
increasing their proprietary interest in the Corporation.
SECTION 2. ADMINISTRATION OF THE PLAN
2.1 Composition of Committee. The Plan shall be administered by the Board
of Directors and/or by a committee of the Board of Directors of USA Education,
Inc., as appointed from time to time by the Board of Directors (the
"Committee"). The Board of Directors shall fill vacancies on, and from time to
time may remove or add members to, the Committee. The Committee shall act
pursuant to a majority vote or unanimous written consent. Notwithstanding the
foregoing, with respect to any Award that is not intended to satisfy the
conditions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or Section 162(m)(4)(C) of the Internal Revenue Code of
1986, as amended (the "Code"), the Committee may appoint one or more separate
committees (any such committee, a "Subcommittee") composed of one or more
directors of USA Education, Inc., (who may but need not be members of the
Committee) and may delegate to any such Subcommittee(s) the authority to grant
Awards, as defined in Section 5.1 hereof, under the Plan to Employees, to
determine all terms of such Awards, and/or to administer the Plan or any aspect
of it. Any action by any such Subcommittee within the scope of such delegation
shall be deemed for all purposes to have been taken by the Committee. The
Committee may designate the Secretary of the Corporation or other Corporation
employees to assist the Committee in the administration of the Plan, and may
grant authority to such persons to execute agreements evidencing Awards made
under this Plan or other documents entered into under this Plan on behalf of the
Committee or the Corporation.
2.2 Powers of the Committee. Subject to the express provisions of this
Plan, the Committee shall be authorized and empowered to do all things necessary
or desirable in connection with the administration of this Plan with respect to
the Awards over which such Committee has authority, including, without
limitation, the following:
(a) to prescribe, amend and rescind rules and regulations relating to this
Plan and to define terms not otherwise defined herein; provided that,
unless the Committee shall specify otherwise, for purposes of this Plan
(i) the term "fair market value" shall mean, as of any date, the
closing price for a Share, as defined in Section 3.1 hereof, reported
for that date on the composite tape for securities listed on the New
York Stock Exchange or, if no Shares traded on the New York Stock
Exchange on the date in question, then for the next preceding date for
which Shares traded on the New York Stock Exchange; and (ii) the term
"Corporation" shall mean USA Education, Inc. and its subsidiaries and
affiliates, unless the context otherwise requires.
(b) to determine which persons are Employees (as defined in Section 4
hereof), to which of such Employees, if any, Awards shall be granted
hereunder and the timing of any such Awards;
(c) to determine the number of Shares subject to Awards and the exercise or
purchase price of such Shares;
(d) to establish and verify the extent of satisfaction of any performance
goals applicable to Awards;
(e) to prescribe and amend the terms of the agreements evidencing Awards
made under this Plan (which need not be identical);
(f) to determine whether, and the extent to which, adjustments are required
pursuant to Section 11 hereof;
(g) to interpret and construe this Plan, any rules and regulations under
the Plan and the terms and conditions of any Award granted hereunder,
and to make exceptions to any such provisions in good faith and for the
benefit of the Corporation; and
* to be renamed SLM Corporation, effective May 17, 2002.
26
(h) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
2.3 Determinations of the Committee. All decisions, determinations and
interpretations by the Committee or the Board regarding the Plan shall be final
and binding on all Employees and Participants, as defined in Section 3 hereof.
The Committee or the Board, as applicable, shall consider such factors as it
deems relevant, in its sole and absolute discretion, to making such decisions,
determinations and interpretations including, without limitation, the
recommendations or advice of any officer of the Corporation or Employee and such
attorneys, consultants and accountants as it may select.
SECTION 3. STOCK SUBJECT TO PLAN
3.1 Aggregate Limits. Subject to adjustment as provided in Section 11, at
any time, the aggregate number of shares of the Corporation's common stock, $.20
par value ("Shares"), issued and issuable pursuant to all Awards (including all
ISOs (as defined in Section 5.1 hereof)) granted under this Plan shall not
exceed 13,100,000; provided that as of March 18, 2002 no more than 425,000 of
such Shares may be issued pursuant to all Incentive Bonuses and Performance
Stock Awards thereafter granted under the Plan. The Shares subject to the Plan
may be either Shares reacquired by the Corporation, including Shares purchased
in the open market, or authorized but unissued Shares. The number of shares of
common stock issued upon the exercise of "replacement options", i.e. options
granted to purchase a number of shares of common stock equal to the number of
shares of common stock used to exercise an underlying stock option (either
shares previously owned or shares acquired pursuant to the exercise of the
underlying option and sold in order to exercise e.g., such as in a so-called
"cashless exercise"), shall not reduce the aggregate number of shares authorized
under the Plan.
3.2 Code Section 162(m) Limits. The aggregate number of Shares subject to
Options granted under this Plan during any calendar year to any one Employee
shall not exceed 1,000,000. The aggregate number of Shares issued or issuable
under any Incentive Bonus Award granted under this Plan during any calendar year
to any one Employee shall not exceed 50,000. The aggregate number of Shares
issued or issuable under any Performance Stock Award granted under this Plan
during any calendar year to any one Employee shall not exceed 100,000.
Notwithstanding anything to the contrary in the Plan, the foregoing limitations
shall be subject to adjustment under Section 11 only to the extent that such
adjustment will not affect the status of any Award intended to qualify as
"performance based compensation" under Code Section 162(m).
3.3 Issuance of Shares. For purposes of Section 3.1, the aggregate number
of Shares issued under this Plan at any time shall equal only the number of
Shares actually issued upon exercise or settlement of an Award and not returned
to the Corporation upon cancellation, expiration or forfeiture of an Award or
delivered (either actually or by attestation) in payment or satisfaction of the
purchase price, exercise price or tax obligation of an Award.
SECTION 4. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Corporation, who is an employee,
prospective employee, consultant or advisor of the Corporation (an "Employee")
shall be eligible to be considered for the grant of Awards hereunder. For
purposes of this Plan, the Chairman of the Board's status as an Employee shall
be determined by the Board. For purposes of the administration of Awards, the
term "Employee" shall also include a former Employee or any person (including
any estate) who is a beneficiary of a former Employee. A "Participant" is any
Employee to whom an Award has been made and any person (including any estate) to
whom an Award has been assigned or transferred pursuant to Section 10.1.
SECTION 5. PLAN AWARDS
5.1 Award Types. The Committee, on behalf of the Corporation, is authorized
under this Plan to enter into certain types of arrangements with Employees and
to confer certain benefits on them. The following such arrangements or benefits
are authorized under the Plan if their terms and conditions are not inconsistent
with the provisions of the Plan: Stock Options, Incentive Bonuses and
Performance Stock. Such arrangements and benefits are sometimes referred to
herein as "Awards." The authorized types of arrangements and benefits for which
Awards may be granted are defined as follows:
Stock Options: A Stock Option is a right granted under Section 6 to
purchase a number of Shares at such exercise price, at such times, and on such
other terms and conditions as are specified in or determined pursuant to the
27
agreement evidencing the Award (the "Option Agreement"). Options intended to
qualify as Incentive Stock Options ("ISOs") pursuant to Code Section 422 and
Options which are not intended to qualify as ISOs ("Non-qualified Options") may
be granted under Section 6 as the Committee in its sole discretion shall
determine.
Incentive Bonus: An Incentive Bonus is a bonus opportunity awarded under
Section 7 pursuant to which a Participant may become entitled to receive an
amount based on satisfaction of such performance criteria as are specified in
the document evidencing the Award (the "Incentive Bonus Agreement").
Performance Stock: Performance Stock is an award of Shares made under
Section 8, the grant, issuance, retention and/or vesting of which is subject to
such performance and other conditions as are expressed in the document
evidencing the Award (the "Performance Stock Agreement").
5.2 Grants of Awards. An Award may consist of one such arrangement or
benefit or two or more of them in tandem or in the alternative.
SECTION 6. STOCK OPTION GRANTS
The Committee may grant an Option or provide for the grant of an Option,
either from time-to-time in the discretion of the Committee or automatically
upon the occurrence of specified events, including, without limitation, the
achievement of performance goals, the satisfaction of an event or condition
within the control of the recipient of the Award, within the control of others
or not within the any person's control.
6.1 Option Agreement. Each Option Agreement shall contain provisions
regarding (a) the number of Shares which may be issued upon exercise of the
Option, (b) the purchase price of the Shares and the means of payment for the
Shares, (c) the term of the Option, (d) such terms and conditions of
exercisability as may be determined from time to time by the Committee, (e)
restrictions on the transfer of the Option and forfeiture provisions, and (f)
such further terms and conditions, in each case not inconsistent with the Plan
as may be determined from time to time by the Committee. Option Agreements
evidencing ISOs shall contain such terms and conditions as may be necessary to
comply with the applicable provisions of Section 422 of the Code.
6.2 Option Price. The purchase price per Share of the Shares subject to
each Option granted under the Plan shall equal or exceed 100% of the fair
market value of such Stock on the date the Option is granted, except that (i)
the Committee may specifically provide that the exercise price of an Option may
be higher or lower in the case of an Option granted to employees of a company
acquired by the Corporation in assumption and substitution of options held by
such employees at the time such company is acquired, and (ii) in the event an
Employee is required to pay or forego the receipt of any cash amount in
consideration of receipt of an option, the exercise price, which in no event
may be less than 85% of the fair market value of the Stock on the date the
Option is granted, plus such cash amount shall equal or exceed 100% of the fair
market value of such Stock on the date the Option is granted.
6.3 Option Term. The "Term" of each Option granted under the Plan,
including any ISOs, shall not exceed ten (10) years from the date of its grant.
6.4 Option Vesting. Options granted under the Plan shall be exercisable at
such time and in such installments during the period prior to the expiration of
the Option's Term as determined by the Committee in its sole discretion. The
Committee shall have the right to make the timing of the ability to exercise
any Option granted under the Plan subject to such performance requirements as
deemed appropriate by the Committee. At any time after the grant of an Option
the Committee may, in its sole discretion, reduce or eliminate any restrictions
surrounding any Participant's right to exercise all or part of the Option.
6.5 Termination of Employment. Subject to Section 12, upon a termination
of employment by a Participant prior to the full exercise of an Option, the
following procedures shall apply unless determined otherwise by the Committee
in its sole discretion or, in the case of an ISO, unless other procedures are
necessary to comply with the provisions of Section 422, 424 or 425 of the Code:
(a) Death or Disability. If an Employee terminates service on account of
becoming disabled, the Participant may exercise the Option in whole or
in part within one year after the date of the Employee's disability,
but in no event later than the date on which it would have expired if
the Employee had not become disabled. Unless provided otherwise by the
Committee, an Employee shall be deemed to be disabled if he or she is
determined to be disabled for purposes of meeting any insurance
requirements under long-term disability
28
policies ("Disability") provided by the Corporation. If an Employee
dies during a period in which he or she is entitled to exercise an
Option (including the periods referred to in the first sentence of this
paragraph (a) or in paragraph (c) of this Section), the Participant may
exercise the Option in whole or in part within one year after the date
of the Employee's death, but in no event later than the date on which
it would have expired if the Employee had lived, or one year after the
Employee's death, whichever date is earlier.
(b) Cause. If a Participant's employment with the Corporation or a
subsidiary shall be terminated for cause, as determined by the
Committee in its sole discretion, he or she shall forfeit any and all
outstanding option rights and such rights shall be deemed to have
lapsed for purposes hereof as of the date of the Participant's
termination of service.
(c) Other Forms of Termination. If a Participant ceases to be employed by
the Corporation or a subsidiary for any reason other than Disability,
death or termination for cause during a period in which he or she is
entitled to exercise an Option, the Participant's Option shall
terminate three months after the date of such cessation of employment,
but in no event later than the date on which it would have expired if
such cessation of employment had not occurred. During such period the
Option may be exercised only to the extent that the Participant was
entitled to do so at the date of cessation of employment unless the
Committee, in its sole discretion, permits exercise of the Option to a
greater extent. The employment of a Participant shall not be deemed to
have ceased upon his or her absence from the Corporation on a leave of
absence granted in accordance with the usual procedures of the
Corporation.
6.6 Option Exercise.
(a) Partial Exercise. An exercisable Option may be exercised in whole or in
part. However, an Option shall not be exercisable with respect to
fractional Shares and the Committee may require, by the terms of the
Option Agreement, a partial exercise to include a minimum number of
Shares.
(b) Manner of Exercise. All or a portion of an exercisable Option shall be
deemed exercised upon delivery to the representative of the Corporation
designated for such purpose by the Committee all of the following: (i)
notice of exercise in such form as the Committee authorizes specifying
the number of Shares to be purchased by the Participant, (ii) payment
or provision for payment of the exercise price for such number of
Shares, (iii) such representations and documents as the Committee, in
its sole discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933, as
amended, and any other federal, state or foreign securities laws or
regulations, (iv) in the event that the Option shall be exercised
pursuant to Section 10.1 by any person or persons other than the
Employee, appropriate proof of the right of such person or persons to
exercise the Option, and (v) such representations and documents as the
Committee, in its sole discretion, deems necessary or advisable to
provide for the tax withholding pursuant to Section 13. Unless provided
otherwise by the Committee, no Participant shall have any right as a
stockholder with respect to any Shares purchased pursuant to any Option
until the registration of Shares in the name of such person, and no
adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or
other rights for which the record date is prior to the date such Shares
are so registered.
(c) Payment of Exercise Price. To the extent authorized by the Committee,
the exercise price of an Option may be paid in the form of one of more
of the following, either through the terms of the Option Agreement or
at the time of exercise of an Option: (i) cash or certified or
cashiers' check, (ii) shares of capital stock of the Corporation that
have been held by the Participant for such period of time as the
Committee may specify, (iii) other property deemed acceptable by the
Committee, (iv) a reduction in the number of Shares or other property
otherwise issuable pursuant to such Option, (v) a promissory note of or
other commitment to pay by the Participant or of a third party, the
terms and conditions of which shall be determined by the Committee, or
(vi) any combination of (i) through (v).
SECTION 7. INCENTIVE BONUS
Each Incentive Bonus Award will confer upon the Employee the opportunity to
earn a future payment tied to the level of achievement with respect to one or
more performance criteria established for a performance period of not less than
one year.
29
7.1 Incentive Bonus Award. Each Incentive Bonus Award shall contain
provisions regarding (a) the target and maximum amount payable to the
Participant as an Incentive Bonus, (b) the performance criteria and level of
achievement versus these criteria which shall determine the amount of such
payment, (c) the period as to which performance shall be measured for
determining the amount of any payment, (d) the timing of any payment earned by
virtue of performance, (e) restrictions on the alienation or transfer of the
Incentive Bonus prior to actual payment, (f) forfeiture provisions, and (g)
such further terms and conditions, in each case not inconsistent with the Plan
as may be determined from time to time by the Committee. The maximum amount
payable as an Incentive Bonus may be a multiple of the target amount payable,
but the maximum amount payable pursuant to that portion of an Incentive Bonus
Award granted under this Plan for any fiscal year to any Participant that is
intended to satisfy the requirements for "performance based compensation" under
Code Section 162(m) shall not exceed five million dollars ($5,000,000).
7.2 Performance Criteria. The Committee shall establish the performance
criteria and level of achievement versus these criteria which shall determine
the target and maximum amount payable under an Incentive Bonus Award, which
criteria may be based on financial performance and/or personal performance
evaluations. The Committee may specify the percentage of the target Incentive
Bonus that is intended to satisfy the requirements for "performance-based
compensation" under Code Section 162(m). Notwithstanding anything to the
contrary herein, the performance criteria for any portion of an Incentive Bonus
that is intended by the Committee to satisfy the requirements for
"performance-based compensation" under Code Section 162(m) shall be a measure
based on one or more Qualifying Performance Criteria (as defined in Section
10.2 hereof) selected by the Committee and specified at the time the Incentive
Bonus Award is granted. The Committee shall certify the extent to which any
Qualifying Performance Criteria has been satisfied, and the amount payable as a
result thereof, prior to payment of any Incentive Bonus that is intended by the
Committee to satisfy the requirements for "performance-based compensation"
under Code Section 162(m).
7.3 Timing and Form of Payment. The Committee shall determine the timing
of payment of any Incentive Bonus. The Committee may provide for or, subject to
such terms and conditions as the Committee may specify, may permit a
Participant to elect for the payment of any Incentive Bonus to be deferred to a
specified date or event. The Committee may provide for a Participant to have
the option for his or her Incentive Bonus, or such portion thereof as the
Committee may specify, to be paid in whole or in part in Shares or Stock Units.
7.4 Discretionary Adjustments. Notwithstanding satisfaction of any
performance goals, the amount paid under an Incentive Bonus Award on account of
either financial performance or personal performance evaluations may be reduced
by the Committee on the basis of such further considerations as the Committee
in its sole discretion shall determine.
SECTION 8. PERFORMANCE STOCK
Performance Stock consists of an award of Shares, the grant, issuance,
retention and/or vesting of which shall be subject to such performance
conditions and to such further terms and conditions as the Committee deems
appropriate.
8.1 Performance Stock Award. Each Performance Stock Award shall contain
provisions regarding (a) the number of Shares subject to such Award or a
formula for determining such, (b) the performance criteria and level of
achievement versus these criteria which shall determine the number of Shares
granted, issued, retainable and/or vested, (c) the period as to which
performance shall be measured for determining achievement of performance,
provided that such period shall be no shorter than a 12-month period, (d)
forfeiture provisions, and (e) such further terms and conditions, in each case
not inconsistent with the Plan as may be determined from time to time by the
Committee.
8.2 Performance Criteria. The grant, issuance, retention and/or vesting of
each Performance Share shall be subject to such performance criteria and level
of achievement versus these criteria as the Committee shall determine, which
criteria may be based on financial performance and/or personal performance
evaluations. Notwithstanding anything to the contrary herein, the performance
criteria for any Performance Stock that is intended by the Committee to satisfy
the requirements for "performance-based compensation" under Code Section 162(m)
shall be a measure based on one or more Qualifying Performance Criteria
selected by the Committee and specified at the time the Performance Stock Award
is granted.
30
8.3 Timing and Form of Payment. The Committee shall determine the timing
of payment of any Incentive Bonus. The Committee may provide for or, subject to
such terms and conditions as the Committee may specify, may permit a
Participant to elect for the payment of any Performance Stock to be deferred to
a specified date or event. The Committee may provide for a Participant to have
the option for his or her Performance Stock, or such portion thereof as the
Committee may specify, to be granted in whole or in part in Shares or Stock
Units.
8.4 Discretionary Adjustments. Notwithstanding satisfaction of any
performance goals, the number of Shares granted, issued, retainable and/or
vested under a Performance Stock Award on account of either financial
performance or personal performance evaluations may be reduced by the Committee
on the basis of such further considerations as the Committee in its sole
discretion shall determine.
SECTION 9. STOCK UNITS
9.1 Stock Units. A "Stock Unit" is a bookkeeping entry representing an
amount equivalent to the fair market value of one share of Common Stock. Stock
Units represent an unfunded and unsecured obligation of the Corporation, except
as otherwise provided for by the Committee.
9.2 Grant of Stock Units. Stock Units may be issued upon exercise of
Options, may be granted in payment and satisfaction of Incentive Bonus Awards
and may be issued in lieu of, Performance Stock or any other Award that the
Committee elects to be paid in the form of Stock Units.
9.3 Settlement of Stock Units. Unless provided otherwise by the Committee,
settlement of Stock Units shall be made by issuance of Shares and shall occur
within 60 days after an Employee's termination of employment for any reason.
The Committee may provide for Stock Units to be settled in cash (at the
election of the Corporation or the Participant, as specified by the Committee)
and to be made at such other times as it determines appropriate or as it
permits a Participant to choose. The amount of Shares, or other settlement
medium, to be so distributed may be increased by an interest factor or by
dividend equivalents, which may be valued as if reinvested in Shares. Until a
Stock Unit is settled, the number of shares of Shares represented by a Stock
Unit shall be subject to adjustment pursuant to Section 11.
SECTION 10. OTHER PROVISIONS APPLICABLE TO AWARDS
10.1 Transferability. Unless the agreement evidencing an Award (or an
amendment thereto authorized by the Committee) expressly states that the Award
is transferable as provided hereunder, no Award granted under the Plan, nor any
interest in such Award, may be sold, assigned, conveyed, gifted, pledged,
hypothecated or otherwise transferred in any manner prior to the vesting or
lapse of any and all restrictions applicable thereto, other than by will or the
laws of descent and distribution. The Committee may in its sole discretion
grant an Award or amend an outstanding Award to provide that the Award is
transferable or assignable to a member or members of the Employee's "immediate
family," as such term is defined under Exchange Act Rule 16a-1(e), or to a
trust for the benefit solely of a member or members of the Employee's immediate
family, or to a partnership or other entity whose only owners are members of
the Employee's family, provided that (i) no consideration is given in
connection with the transfer of such Award, and (ii) following any such
transfer or assignment the Award will remain subject to substantially the same
terms applicable to the Award while held by the Employee, as modified as the
Committee in its sole discretion shall determine appropriate, and the
Participant shall execute an agreement agreeing to be bound by such terms.
10.2 Qualifying Performance Criteria. For purposes of this Plan, the term
"Qualifying Performance Criteria" shall mean any one or more of the following
performance criteria, either individually, alternatively or in any combination,
applied to either the Corporation as a whole or to a business unit or
subsidiary, either individually, alternatively or in any combination, and
measured either annually or cumulatively over a period of years, on an absolute
basis or relative to a pre-established target, to previous years' results or to
a designated comparison group, in each case as specified by the Committee in
the Award: (a) cash flow, (b) earnings per share (including earnings before
interest, taxes, depreciation and amortization), (c) return on equity, (d)
total stockholder return, (e) return on capital, (f) return on assets or net
assets, (g) revenue, (h) income or net income, (i) operating income or net
operating income, (j) operating profit or net operating profit, (k) operating
margin, (l) return on operating revenue, (m) market share, (n) loan volume and
(o) overhead or other expense reduction. The Committee may appropriately adjust
any evaluation of performance under a Qualifying Performance Criteria to
exclude any of the following events
31
that occurs during a performance period: (i) asset write-downs, (ii) litigation
or claim judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other laws or provisions affecting reported results,
(iv) accruals for reorganization and restructuring programs, and (v) any
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or in management's discussion and analysis of financial
condition and results of operations appearing in the Corporation's Form 10-K to
the Securities and Exchange Commission for the applicable year.
10.3 Dividends. Unless otherwise provided by the Committee, no adjustment
shall be made in Shares issuable under Awards on account of cash dividends
which may be paid or other rights which may be issued to the holders of Shares
prior to their issuance under any Award. The Committee shall specify whether
dividends or dividend equivalent amounts shall be paid to any Participant with
respect to the Shares subject to any Award that have not vested or been issued
or that are subject to any restrictions or conditions on the record date for
dividends.
10.4 Agreements Evidencing Awards. The Committee shall, subject to
applicable law, determine the date an Award is deemed to be granted, which for
purposes of this Plan shall not be affected by the fact that an Award is
contingent on subsequent stockholder approval of the Plan. The Committee or,
except to the extent prohibited under applicable law, its delegate(s) may
establish the terms of agreements evidencing Awards under this Plan and may,
but need not, require as a condition to any such agreement's effectiveness that
such agreement be executed by the Participant and that such Participant agree
to such further terms and conditions as specified in such agreement. The grant
of an Award under this Plan shall not confer any rights upon the Participant
holding such Award other than such terms, and subject to such conditions, as
are specified in this Plan as being applicable to such type of Award (or to all
Awards) or as are expressly set forth in the Agreement evidencing such Award.
10.5 Tandem Stock or Cash Rights. Either at the time an Award is granted
or by subsequent action, the Committee may, but need not, provide that an Award
shall contain as a term thereof, a right, either in tandem with the other
rights under the Award or as an alternative thereto, of the Participant to
receive, without payment to the Corporation, a number of Shares, cash or a
combination thereof, the amount of which is determined by reference to the
value of the Award.
10.6 Financing. The Committee may in its discretion provide financing to a
Participant in a principal amount sufficient to pay the purchase price of any
Award and/or to pay the amount of taxes required by law to be withheld with
respect to any Award. Any such loan shall be subject to all applicable legal
requirements and restrictions pertinent thereto, including Regulation G
promulgated by the Federal Reserve Board. The grant of an Award shall in no way
obligate the Corporation or the Committee to provide any financing whatsoever
in connection therewith.
SECTION 11. CHANGES IN CAPITAL STRUCTURE
11.1 If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or
shares or securities are distributed in respect of such outstanding securities,
in either case as a result of a reorganization, merger, consolidation,
recapitalization, restructuring, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split, spin-off or the like, or if substantially all of the property and
assets of the Corporation are sold, then, unless the terms of such transaction
shall provide otherwise, the Committee shall make appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Awards theretofore granted
under this Plan and the exercise or settlement price of such Awards, provided,
however, that such adjustment shall be made in such a manner that will not
affect the status of any Award intended to qualify as an ISO under Code Section
422 or as "performance based compensation" under Code Section 162(m), and (ii)
the maximum number and type of shares or other securities that may be issued
pursuant to such Awards thereafter granted under this Plan.
SECTION 12. CHANGE OF CONTROL
12.1 Effect of Change of Control. The Committee may through the terms of
the Award or otherwise provide that any or all of the following shall occur,
either immediately upon the Change of Control or a Change of Control
Transaction, or upon termination of the Employee's employment within
twenty-four (24) months following a Change of Control or a Change of Control
Transaction: (a) in the case of an Option, the Participant's ability to
exercise any portion of the Option not previously exercisable, (b) in the case
of an Incentive Bonus, the right to
32
receive a payment equal to the target amount payable or, if greater, a payment
based on performance through a date determined by the Committee prior to the
Change of Control, and (c) in the case of Shares issued in payment of any
Incentive Bonus, and/or in the case of Performance Stock or Stock Units, the
lapse and expiration on any conditions to the grant, issuance, retention,
vesting or transferability of, or any other restrictions applicable to, such
Award. The Committee also may, through the terms of the Award or otherwise,
provide for an absolute or conditional exercise, payment or lapse of conditions
or restrictions on an Award which shall only be effective if, upon the
announcement of a Change of Control Transaction, no provision is made in such
Change of Control Transaction for the exercise, payment or lapse of conditions
or restrictions on the Award, or other procedure whereby the Participant may
realize the full benefit of the Award.
12.2 Definitions. Unless the Committee or the Board shall provide
otherwise, "Change of Control" shall mean an occurrence of any of the following
events: (a) an acquisition (other than directly from the Corporation) of any
voting securities of the Corporation (the "Voting Securities") by any "person
or group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) other than an employee benefit plan of the Corporation, immediately after
which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
under the Exchange Act) of more than fifty percent (50%) of the combined voting
power of the Corporation's then outstanding Voting Securities; (b) approval by
the stockholders of (i) a merger, consolidation or reorganization involving the
Corporation, unless the company resulting from such merger, consolidation or
reorganization (the "Surviving Corporation") shall adopt or assume this Plan
and a Participant's Awards under the Plan and either (A) the stockholders of
the Corporation immediately before such merger, consolidation or reorganization
own, directly or indirectly immediately following such merger, consolidation or
reorganization, at least seventy-five percent (75%) of the combined voting
power of the Surviving Corporation in substantially the same proportion as
their ownership immediately before such merger, consolidation or
reorganization, or (B) at least a majority of the members of the Board of
Directors of the Surviving Corporation were directors of the Corporation
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization, or (ii) a complete liquidation or dissolution
of the Corporation; or (c) such other events as the Committee or the Board from
time to time may specify. "Change of Control Transaction" shall include any
tender offer, offer, exchange offer, solicitation, merger, consolidation,
reorganization or other transaction which is intended to or reasonably expected
to result in a change of control.
SECTION 13. TAXES
13.1 Withholding Requirements. The Committee may make such provisions or
impose such conditions as it may deem appropriate for the withholding or
payment by the Employee or Participant, as appropriate, of any taxes which it
determines are required in connection with any Awards granted under this Plan,
and a Participant's rights in any Award are subject to satisfaction of such
conditions.
13.2 Payment of Withholding Taxes. Notwithstanding the terms of Section
13.1 hereof, the Committee may provide in the agreement evidencing an Award or
otherwise that all or any portion of the taxes required to be withheld by the
Corporation or, if permitted by the Committee, desired to be paid by the
Participant, in connection with the exercise of a Non-qualified Option or the
exercise, vesting, settlement or transfer of any other Award shall be paid or,
at the election of the Participant, may be paid by the Corporation withholding
shares of the Corporation's capital stock otherwise issuable or subject to such
Award, or by the Participant delivering previously owned shares of the
Corporation's capital stock, in each case having a fair market value equal to
the amount required or elected to be withheld or paid. Any such elections are
subject to such conditions or procedures as may be established by the Committee
and may be subject to disapproval by the Committee.
SECTION 14. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan or any agreement
evidencing an Award made under the Plan, but no such amendment shall, without
the approval of the shareholders of the Corporation:
(a) materially increase the maximum number of shares of Common Stock for
which Awards may be granted under the Plan;
(b) reduce the price at which Options may be granted below the price
provided for in Section 6.2;
33
(c) reduce or adjust downward the exercise price of outstanding Options,
whether through amendment, cancellation or replacement grants, or any
other means;
(d) after a Change in Control, impair the rights of any Award holder,
without such holder's consent;
(e) extend the term of the Plan; or
(f) change the class of persons eligible to be Participants.
SECTION 15. COMPLIANCE WITH OTHER LAWS AND REGULATIONS.
The Plan, the grant and exercise of Awards thereunder, and the obligation
of the Corporation to sell, issue or deliver Shares under such Awards, shall be
subject to all applicable federal, state and foreign laws, rules and
regulations and to such approvals by any governmental or regulatory agency as
may be required. The Corporation shall not be required to register in a
Participant's name or deliver any Shares prior to the completion of any
registration or qualification of such Shares under any federal, state or
foreign law or any ruling or regulation of any government body which the
Committee shall, in its sole discretion, determine to be necessary or
advisable. This Plan is intended to constitute an unfunded arrangement for a
select group of management or other key employees.
No Option shall be exercisable unless a registration statement with
respect to the Option is effective or the Corporation has determined that such
registration is unnecessary. Unless the Awards and Shares covered by this Plan
have been registered under the Securities Act of 1933, as amended, or the
Corporation has determined that such registration is unnecessary, each person
receiving an Award and/or Shares pursuant to any Award may be required by the
Corporation to give a representation in writing that such person is acquiring
such Shares for his or her own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof.
SECTION 16. OPTION GRANTS BY SUBSIDIARIES
In the case of a grant of an option to any eligible Employee employed by a
Subsidiary, such grant may, if the Committee so directs, be implemented by the
Corporation issuing any subject shares to the Subsidiary, for such lawful
consideration as the Committee may determine, upon the condition or
understanding that the Subsidiary will transfer the shares to the optionholder
in accordance with the terms of the option specified by the Committee pursuant
to the provisions of the Plan. Notwithstanding any other provision hereof, such
option may be issued by and in the name of the Subsidiary and shall be deemed
granted on such date as the Committee shall determine.
SECTION 17. NO RIGHT TO CORPORATION EMPLOYMENT
Nothing in this Plan or as a result of any Award granted pursuant to this
Plan shall confer on any individual any right to continue in the employ of the
Corporation or interfere in any way with the right of the Corporation to
terminate an individual's employment at any time. The Award agreements may
contain such provisions as the Committee may approve with reference to the
effect of approved leaves of absence.
SECTION 18. EFFECTIVENESS AND EXPIRATION OF PLAN
The Plan shall be effective on the date the Board adopts the Plan. All
Awards granted under this Plan are subject to, and may not be exercised before,
the approval of this Plan by the stockholders prior to the first anniversary
date of the effective date of the Plan, by the affirmative vote of the holders
of a majority of the outstanding shares of the Corporation present, or
represented by proxy, and entitled to vote, at a meeting of the Corporation's
stockholders or by written consent in accordance with the laws of the State of
Delaware; provided that if such approval by the stockholders of the Corporation
is not forthcoming, all Awards previously granted under this Plan shall be
void. No Awards shall be granted pursuant to the Plan more than ten (10) years
after the effective date of the Plan.
SECTION 19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the stockholders of the Corporation for approval shall be construed as
creating any limitations on the power of the Board or the Committee to adopt
such other incentive arrangements as it or they may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under the Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
34
SECTION 20. GOVERNING LAW
This Plan and any agreements hereunder shall be interpreted and construed
in accordance with the laws of the State of Delaware and applicable federal
law. The Committee may provide that any dispute as to any Award shall be
presented and determined in such forum as the Committee may specify, including
through binding arbitration. Any reference in this Plan or in the agreement
evidencing any Award to a provision of law or to a rule or regulation shall be
deemed to include any successor law, rule or regulation of similar effect or
applicability.
35
[SallieMae Logo]
NOTICE OF
2002
ANNUAL MEETING
AND PROXY STATEMENT
-------------------------------------------
YOUR VOTE IS IMPORTANT!
Please complete and return the
enclosed proxy card in the enclosed
envelope or vote by phone or over
the Internet.
-------------------------------------------
USA Education, Inc.
11600 Sallie Mae Drive
Reston, Virginia 20193
USA EDUCATION, INC.
11600 SALLIE MAE DRIVE
RESTON, VA 20193
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return to USA Education, Inc., c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS: USAED1 KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
================================================================================
USA EDUCATION, INC.
The Board of Directors recommends a vote FOR Items 1-3 to be voted upon at the
Annual Meeting.
Vote On Directors
1. Nominees:
01) CHARLES L. DALEY 09) BENJAMIN J. LAMBERT III
02) W.M. DIEFENDERFER III 10) ALBERT L. LORD
03) THOMAS J. FITZPATRICK 11) BARRY A. MUNITZ
04) EDWARD A. FOX 12) A. ALEXANDER PORTER, JR.
05) DIANE SUITT GILLELAND 13) WOLFGANG SCHOELLKOPF
06) EARL A. GOODE 14) STEVEN L. SHAPIRO
07) ANN TORRE GRANT 15) BARRY L. WILLIAMS
08) RONALD F. HUNT
For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number on
the line below.
O O O --------------------------------------------
Vote On Proposals For Against Abstain
2. Reapprove the Management Incentive O O O
Plan and Amend the Plan to Increase
the Number of Shares Authorized.
3. Ratify the Appointment of Arthur O O O
Andersen LLP as the Corporation's
independent auditors.
If you wish to include comments and/or
address changes, please mark this box O
and write them on the back where
indicated.
(Please sign, date and return this proxy card in the enclosed envelope.)
--------------------------------------- ----------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------
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USA EDUCATION, INC.
Proxy solicited by the Board of Directors for Annual Meeting - May 16, 2002
Each of the undersigned, revoking all other proxies heretofore given, hereby
constitutes and appoints Albert L. Lord, A. Alexander Porter, Jr. and Marianne
M. Keler, and each of them individually, with full power of substitution, as
proxy or proxies to represent and vote all shares of Common Stock, par value
$.20 per share (the "Common Stock"), of USA Education, Inc. (the "Company")
owned by the undersigned at the Annual Meeting and any adjournments or
postponements thereof.
The shares represented hereby will be voted in accordance with the directions
given in this proxy. If not otherwise directed herein, shares represented by
this proxy will be voted FOR Item 1 (Election of Directors), FOR Item 2
(Reapprove/Amend the Management Incentive Plan) and FOR Item 3 (Ratification of
Appointment of Independent Auditors). If any other matters are properly brought
before the Annual Meeting, proxies will be voted on such matters as the proxies
named herein, in their sole discretion, may determine.
Address Changes/Comments:
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(If you noted any address Changes or Comments above, please check the
corresponding box on the reverse.)
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USA EDUCATION, INC.
11600 SALLIE MAE DRIVE
RESTON, VA 20193
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
instruction card in hand when you call. You will be prompted to enter your
12-digit Control Number which is located below and then follow the simple
instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign and date your instruction card and return it in the postage-paid
envelope we've provided or return to USA Education, Inc., c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS: USAED3 KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED.
USA EDUCATION, INC.
The Board of Directors recommends a vote FOR Items 1-3 to be voted upon at the
Annual Meeting.
Vote On Directors
1. Nominees:
01) CHARLES L. DALEY 09) BENJAMIN J. LAMBERT III
02) W.M. DIEFENDERFER III 10) ALBERT L. LORD
03) THOMAS J. FITZPATRICK 11) BARRY A. MUNITZ
04) EDWARD A. FOX 12) A. ALEXANDER PORTER, JR.
05) DIANE SUITT GILLELAND 13) WOLFGANG SCHOELLKOPF
06) EARL A. GOODE 14) STEVEN L. SHAPIRO
07) ANN TORRE GRANT 15) BARRY L. WILLIAMS
08) RONALD F. HUNT
For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number on
the line below.
O O O --------------------------------------------
Vote On Proposals For Against Abstain
2. Reapprove the Management Incentive O O O
Plan and Amend the Plan to Increase
the Number of Shares Authorized.
3. Ratify the Appointment of Arthur O O O
Andersen LLP as the Corporation's
independent auditors.
If you wish to include comments and/or
address changes, please mark this box O
and write them on the back where
indicated.
(Please sign, date and return this proxy card in the enclosed envelope.)
--------------------------------------- ----------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
--------------------------------------------------------------------------------
USA EDUCATION, INC.
Instruction Card Solicited by Fidelity Management Trust Company
Each of the undersigned, revoking all other proxies heretofore given, hereby
directs Fidelity Management Trust Company ("Fidelity") to constitute and appoint
Albert L. Lord, A. Alexander Porter, Jr. and Marianne M. Keler, and each of them
individually, with full power of substitution, as proxy or proxies to represent
and vote all shares of Common Stock, par value $.20 per share (the "Common
Stock"), of USA Education, Inc. (the "Company") credited to the account of the
undersigned at the Annual Meeting and any adjournments or postponements thereof.
The shares represented hereby will be voted in accordance with the directions
given on this card. If no direction is made, if the card is not signed, or if
the card is not received by May 13, 2002, the shares credited to your account
will be voted in proportion to directions received by Fidelity. Your directions
will be treated confidentially by Fidelity.
Address Changes/Comments:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(If you noted any address Changes or Comments above, please check the
corresponding box on the reverse.)
--------------------------------------------------------------------------------