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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
E*TRADE Group, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
[LOGO OF E*TRADE APPEARS HERE]
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NOTICE OF ANNUAL MEETING OF SHAREOWNERS
To Be Held March 9, 1999
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To our Shareowners:
You are cordially invited to attend the Annual Meeting of Shareowners of
E*TRADE Group, Inc. ("E*TRADE" or the "Company") which will be held at the
Quadrus Conference Center located at 2400 Sand Hill Road, Menlo Park,
California 94025, on March 9, 1999 at 10:00 a.m. local time, for the following
purposes:
1. To elect four directors to the Board;
2. To amend the Company's Certificate of Incorporation to increase the
Company's authorized Common Stock from 150 million to 300 million
shares;
3. To approve a series of amendments to the Company's 1996 Stock Incentive
Plan, including a 2,750,000 share increase in the maximum number of
shares of Common Stock reserved for issuance under the plan;
4. To consider and vote upon a proposal to ratify the selection of Deloitte
& Touche LLP as independent public accountants for the Company for the
fiscal year ending September 30, 1999; and
5. To act upon such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on January 19, 1999
as the record date for determining those shareowners who will be entitled to
vote at the meeting. The stock transfer books will not be closed between the
record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of E*TRADE Group, Inc. is required to constitute a quorum. Accordingly,
it is important that your shares be represented at the meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. If you elected to receive
the 1998 Proxy Statement and Annual Report electronically over the Internet
you will not receive a paper proxy card and should vote online, unless you
cancel your enrollment. If your shares are held in a bank or brokerage account
and you did not elect to receive the materials through the Internet, you may
be eligible to vote your shares electronically. Your proxy may be revoked at
any time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Very truly yours,
Christos M. Cotsakos
Chairman and Chief Executive Officer
Palo Alto, California
January 28, 1999
Shareowners Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREOWNERS OF
E*TRADE GROUP, INC.
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To Be Held March 9, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of E*TRADE Group, Inc. ("E*TRADE" or the "Company") of
proxies to be voted at the Annual Meeting of Shareowners which will be held at
the Quadrus Conference Center located at 2400 Sand Hill Road, Menlo Park,
California 94025, on March 9, 1999 at 10:00 a.m. local time, or at any
adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareowners. This Proxy Statement and
the proxy card were first mailed to shareowners on or about February 9, 1999.
The principal executive offices of E*TRADE are located at 2400 Geng Road, Palo
Alto, California 94303.
VOTING RIGHTS AND SOLICITATION
The close of business on January 19, 1999 was the record date for
shareowners entitled to notice of, and to vote at, the Annual Meeting. As of
that date, E*TRADE had 56,965,795 shares of common stock, $.01 par value per
share (the "Common Stock"), issued and outstanding. All of the shares of the
Company's Common Stock outstanding on the record date are entitled to vote at
the Annual Meeting, and shareowners of record entitled to vote at the meeting
will have one (1) vote for each share so held on the matters to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to E*TRADE will be
voted at the Annual Meeting of Shareowners in accordance with the shareowners'
instructions contained therein. In the absence of contrary instructions,
shares represented by such proxies will be voted FOR the election of directors
as described herein under "Proposal 1--Election of Directors," FOR the
proposal to amend the Company's Certificate of Incorporation as described
herein under "Proposal 2--Amendment of the Company's Certificate of
Incorporation," FOR the proposal to amend the 1996 Stock Incentive Plan as
described herein under "Proposal 3--Amendment of the Company's 1996 Stock
Incentive Plan," and FOR ratification of the selection of accountants as
described herein under "Proposal 4--Ratification of Selection of Independent
Public Accountants."
Election of directors by shareowners shall be determined by a plurality of
the votes cast by the shareowners entitled to vote at the election that are
present in person or represented by proxy. The approval of the proposal to
amend the Company's 1996 Stock Incentive Plan and the proposal to ratify the
selection of accountants each require a majority of the votes cast to be
affirmative. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. A broker
"non-vote" occurs when a nominee holding shares for a beneficial holder does
not have discretionary voting power and does not receive voting instructions
from the beneficial owner. Abstentions are counted in tabulations of the votes
cast on proposals presented to shareowners, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved. The
approval of the proposal to amend the Company's Certificate of Incorporation
to increase the authorized Common Stock of the Company requires the
affirmative vote of a majority of the Company's outstanding Common Stock
entitled to vote at the Meeting. Broker "non-votes" on the proposal to
increase the authorized Common Stock will have the effect of a vote against
that proposal.
On December 30, 1998, the Board of Directors voted to effect a 2-for-1 stock
split by distributing one additional share of common stock, par value $.01,
for every share of common stock outstanding to shareowners of record on
January 15, 1999. The disclosures herein do not reflect this 2-for-1 stock
split, which is expected to be payable by the transfer agent after market
close on January 29, 1999.
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come
before the meeting, the proxy holders will vote on such matters in accordance
with their best judgment. Any shareowner has the right to revoke his or her
proxy at any time before it is voted.
The entire cost of soliciting proxies will be borne by E*TRADE. The Company
has retained the services of Georgeson & Company Inc. ("Georgeson") to assist
in the solicitation of proxies. Georgeson will receive a fee from the Company
for services rendered of approximately $8,000, plus out-of-pocket expenses.
Proxies will be solicited principally through the use of the mails, but, if
deemed desirable, may be solicited personally, through the internet or by
telephone, telegraph or special letter by officers and regular E*TRADE
associates for no additional compensation. Arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send
proxies and proxy material to the beneficial owners of the Company's Common
Stock, and such persons may be reimbursed for their expenses.
Voting Electronically Via the Internet
Shareowners may vote via the internet at the www.ProxyVote.com web site if
they enrolled at the www.InvestorDelivery.com web site by January 15, 1999.
The internet voting procedures are designed to authenticate the shareowners
identity and to allow shareowners to vote their shares and confirm that their
instructions have been properly recorded.
If your shares are registered in the name of a bank or brokerage firm and
you have not elected to receive your Annual Report and Proxy Statement over
the internet, you may be eligible to vote your shares electronically over the
internet. A large number of banks and brokerage firms are participating in the
ADP Investor Communication Services online program. This program provides
eligible shareowners who receive a paper copy of the annual report and proxy
statement the opportunity to vote via the internet. If your bank or brokerage
firm is participating in ADP's program, your voting form will provide
instructions. If your voting form does not provide for voting via the
internet, please complete and return the paper proxy card in the self-
addressed postage paid envelope provided. Shareowners who elected to receive
the Annual Report and Proxy Statement over the internet will be receiving an
e-mail by February 28, 1999 with information on how to access shareowners
information and instructions for voting.
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PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of E*TRADE are grouped into three
classes, one of which is elected at each Annual Meeting of Shareowners to hold
office for a three-year term and until successors of such class have been
elected and qualified. The nominees for the Board of Directors are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for director listed below. In the event
that any nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them for the nominees listed
below. As of the date of this Proxy Statement, the Board of Directors is not
aware that any nominee is unable or will decline to serve as a director.
Nominees to Board of Directors
Class and
Year
Director in Which Term
Name Principal Occupation Since Will Expire Age
---- -------------------- -------- ------------- ---
Christos M. Cotsakos.... Chairman of the Board and Chief Executive 1996 Class I 50
Officer of E*TRADE Group, Inc. 1999
William A. Porter....... Chairman Emeritus of E*TRADE Group, Inc. 1982 Class I 70
1999
Richard S. Braddock..... Chairman and Chief Executive Officer of 1996 Class I 57
priceline.com 1999
Masayoshi Son........... President and Chief Executive Officer of 1998 Class II 41
SOFTBANK CORP. 2001
Christos M. Cotsakos joined E*TRADE Group, Inc. in March 1996 as President,
Chief Executive Officer and a director. In addition, Mr. Cotsakos became
Chairman of the Board in December 1998. Prior to joining E*TRADE, he served as
President, Co-Chief Executive Officer, Chief Operating Officer and a director
of A.C. Nielsen, Inc. from March 1995 to January 1996, as President and Chief
Executive Officer of Nielsen International from September 1993 to March 1995,
and as President and Chief Operating Officer of Nielsen Europe, Middle East
and Africa from March 1992 to September 1993. Mr. Cotsakos joined Nielsen
after 19 years with the Federal Express Corporation, where he held a number of
senior executive positions. Mr. Cotsakos serves as a director of several
leading-edge technology companies in both the public and private sector. A
decorated Vietnam Veteran, he received a BA from William Paterson College, an
MBA from Pepperdine University and is currently pursuing a PhD in economics at
the Management School, University of London. Mr. Cotsakos has been the
recipient of several industry and visionary awards during his tenure at
E*TRADE Group, AC Nielsen and Federal Express.
William A. Porter is Chairman Emeritus and Founder of E*TRADE Group, Inc.
Mr. Porter served as Chairman of the Board from the Company's inception until
December 1998. He founded the Company in 1982 and served as President until
October 1993 and Chief Executive Officer, Chief Financial Officer, Treasurer
and Secretary, until March 1996. He founded E*TRADE Securities, Inc. in 1992.
Mr. Porter is a founder and the first Chairman of the International Securities
Exchange. Mr. Porter received a BA in Mathematics from Adams State College, an
MA in Physics from Kansas State College, and an MBA in Management from the
Massachusetts Institute of Technology.
Richard S. Braddock has been a director of the Company since April 1996. Mr.
Braddock is Chairman and Chief Executive Officer of priceline.com, a position
he has held since August 1998. From September 1995 to July 1998, Mr. Braddock
was occupied as a private investor. From June 1994 to September 1995, he
served as a partner in Clayton, Dubilier & Rice, a leveraged buy-out firm.
From January 1993 to July 1993, he served as Chief Executive Officer of Medco
Containment Services. From 1974 to October 1992, Mr. Braddock served
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in various capacities with a division of Citibank, including as President and
Chief Executive Officer from 1990 to October 1992 and as a director from 1985.
Mr. Braddock serves on the board of directors of AmTec, Inc., Cadbury
Schweppes, Eastman Kodak Company, True North Communications Inc., Prime
Response (private) and the Lincoln Center for the Performing Arts. He received
a BA in History from Dartmouth and an MBA from Harvard University.
Masayoshi Son has been a director of the Company since August 1998. Mr. Son
has been President and Chief Executive Officer of SOFTBANK Corp. since 1981.
Mr. Son has been President and Chief Executive Officer of Mediabank
Corporation since 1994 and GeoCities Japan Corporation since 1997 and was
President and Chief Executive Officer of Japan Sky Broadcasting Co. Ltd. from
1996 to 1998 and SB Networks Corporation from 1997 to 1998. In addition, Mr.
Son is currently a director of Ziff-Davis Inc., PASONABANK Inc., and Yahoo!
Japan Corporation and a representative director of each of MIC Inc., Son Kosan
Ltd. and MAC.
Directors Not Standing for Election
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting are set forth below.
Class and
Year
Director in Which Term
Name Principal Occupation Since Will Expire Age
---- -------------------- -------- ------------- ---
William E. Ford......... Managing Member, General Atlantic Partners, LLC 1995 Class II 37
2001
George Hayter........... Partner, George Hayter Associates 1995 Class II 60
2001
Lewis E. Randall........ Private Investor 1983 Class III 56
2000
Lester C. Thurow........ Professor of Economics 1996 Class III 60
Massachusetts Institute of Technology 2000
William E. Ford has been a director of the Company since September 1995. Mr.
Ford is a managing member of General Atlantic Partners, LLC ("GAP LLC") and
has been with GAP LLC (or its predecessor) since July 1991. From August 1987
to July 1991, Mr. Ford was an associate with Morgan Stanley & Co.,
Incorporated. Mr. Ford is also a director of LHS Group, Inc., a publicly-
traded billing solutions software company, Envoy Corporation, a publicly-
traded health insurance claims processing company, GT Interactive Software
Corp., a publicly-traded interactive entertainment software company, MAPICS,
Inc., a publicly-traded resources planning software applications company,
Eclipsys Corporation, a provider of clinical, financial and administrative
software solutions to the health care industry, and several private software
companies in which GAP LLC or one of its affiliates is an investor. Mr. Ford
received a BA in Economics from Amherst College and an MBA from the Stanford
Graduate School of Business.
George Hayter has been a director of the Company since December 1995 and
currently provides consulting services to the Company. Mr. Hayter has served
as a partner of George Hayter Associates, a consulting firm, since 1990. From
1976 to December 1990, he served with the London Stock Exchange, his final
position being the Managing Director of Trading Markets Division. Mr. Hayter
serves on the boards of directors of Fraser Williams Group Ltd., a software
company, Critchley Group PLC, an electrical accessories company listed on the
London Stock Exchange, and Pegasus Group PLC, an accounting software company
listed on the London Stock Exchange. Mr. Hayter is chairman of ICM Computer
Group PLC, a UK listed information technology company, and of JSB Software
Technologies PLC, a UK AIM listed specialist software provider. He received an
MA in Natural Sciences from Queens' College, Cambridge, England.
4
Lewis E. Randall is a private investor who has been a director of the
Company since 1983. From 1989 to 1997, Mr. Randall served Lone Tree, Inc., a
privately held loan factor, in various capacities (board member, CFO,
president, co-owner). From 1984 to 1987, he was a member of the board, and
more briefly, CFO, of ViMart Corp., a privately held software marketing
company. Mr. Randall worked for both Apple Computer (1979-1983) and Intel
Corporation (1974-1978) during their formative years, largely as a manager of
software engineering teams. Mr. Randall holds a BA in philosophy from Harvard.
Lester C. Thurow has been a director of the Company since April 1996. Mr.
Thurow has been a Professor of Economics at Massachusetts Institute of
Technology ("MIT") since 1968. From 1987 to 1993, he served as Dean of MIT's
Sloan School of Management. Mr. Thurow has served as a director of Analog
Devices, Inc., a publicly-traded semiconductor and software company, since
1991, and as a director of Grupo Casa Autry, a publicly-traded wholesale
distributor of pharmaceuticals since 1993. Mr. Thurow received a BA in
economics from Williams College, an MA from Oxford and a PhD from Harvard
University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings during
fiscal 1998. Each director attended at least 75% of the aggregate of (i) the
total number of meetings of the Board and (ii) the total number of meetings
held by all committees of the Board on which he served.
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Nominating Committee of the Board. The Audit Committee is
composed of William E. Ford (Chair), Lester C. Thurow and George Hayter and is
charged with reviewing the Company's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls
and financial management practices. The Audit Committee held four meetings
during fiscal 1998. The Compensation Committee, which is composed of Richard
S. Braddock (Chair) and William E. Ford, recommends to the Board of Directors
compensation for the Company's key associates and administers the 1996 Stock
Incentive Plan (which is the successor to the 1993 Stock Option Plan and the
1983 Employee Incentive Stock Option Plan) and the 1996 Stock Purchase Plan.
The Compensation Committee held four meetings during fiscal 1998. The
Nominating Committee, which is comprised of Christos M. Cotsakos (Chair),
William A. Porter and Lewis E. Randall, nominates for shareowner approval
persons for membership on the Board of Directors. The Nominating Committee did
not meet during fiscal 1998. The Nominating Committee will consider nominees
recommended by shareowners. For the Annual Meeting of Shareowners in 2000,
recommendations must be received by E*TRADE no later than September 18, 1999.
Recommendations must be mailed to the Company's principal executive offices,
2400 Geng Road, Palo Alto, California 94303, Attention: Leonard C. Purkis.
DIRECTOR REMUNERATION
Non-associate directors receive $5,000 per year, in addition to $800 for
each meeting of the Board attended and $400 for committee meetings attended.
In addition, each non-associate director receives stock options pursuant to
the automatic option grant provisions of the Company's 1996 Stock Incentive
Plan (the "1996 Plan"). All directors receive reimbursement of reasonable out-
of-pocket expenses incurred in connection with meetings of the Board. No
director who is an associate of the Company will receive compensation for
services rendered as a director.
Under the Automatic Option Grant Program in effect under the 1996 Plan, each
individual who initially becomes a non-associate Board member will receive an
option grant for 20,000 shares of Common Stock on the date he or she joins the
Board, provided such individual has not otherwise been in the prior employment
of the Company. At each Annual Shareowners Meeting, each individual who has
been on the Board for at least six months and who continues to serve as a non-
associate Board member will automatically receive an option grant to purchase
5,000 shares of common stock, whether or not that individual is standing for
re-election to the Board at the Annual Shareowners meeting.
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Accordingly, at the 1998 Annual Shareowners Meeting, held on February 10,
1998, each of the following Board members received an option grant under the
Automatic Option Grant Program for 5,000 shares of Common Stock at an exercise
price $27.06 per share: Messers. Braddock, Ford, Hayter, Randall and Thurow.
Each automatic option will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service, and will be
immediately exercisable for all the option shares. However, any shares
purchased upon exercise of the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should the optionee
cease service on the Board prior to vesting in those shares. The initial
20,000-share grant will vest in a series of four successive equal annual
installments over the optionee's period of Board service measured from the
grant date. Each 5,000-share grant will vest upon the optionee's completion of
two years of Board service measured from the option grant date. However, each
outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company, or (ii) the death or disability of the
optionee while serving as a Board member.
For further information concerning such automatic option grants, please see
"Proposal 3--Amendment of the Company's 1996 Stock Incentive Plan--Automatic
Option Grant Program" which follows.
The Board of Directors recommends that shareowners vote FOR election of all
of the above nominees as directors.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has approved and recommends that the
shareowners approve an amendment to the Company's Certificate of Incorporation
to increase the authorized shares of the Company's common stock from
150,000,000 shares to 300,000,000 shares. The Board of Directors of the
Company believes the increase in the authorized shares is necessary to provide
the Company with the flexibility to act in the future with respect to
financing programs, acquisitions and other corporate purposes without the
delay and expense associated with obtaining special shareowner approval each
time an opportunity requiring the issuance of shares may arise.
On January 19, 1999, the Company had 56,965,795 shares of Common Stock
issued and outstanding. Also on that date, the Company had 8,311,040 shares of
Common Stock subject to outstanding options under the Company's 1996 Stock
Incentive Plan, including options incorporated from the predecessor plans, and
471,480 shares available for issuance under the Company's 1996 Stock Purchase
Plan. These share numbers do not take account of the Company's 2-for-1 stock
split effected by means of a 100% stock dividend on January 29, 1999. After
accounting for the 2-for-1 stock split, substantially all of the Company's
150,000,000 authorized shares have been issued or reserved for issuance and
thus few shares would be available to the Company for use in connection with
its future financing and other corporate needs.
The lack of authorized Common Stock available for issuance would
unnecessarily limit the Company's ability to pursue opportunities for future
financings, acquisitions, mergers and other transactions. The Company would
also be limited in its ability to effectuate future stock splits or stock
dividends. The Company has considered plans to issue additional shares of
Common Stock in possible future financings. The Board of Directors believes
that the increase in the authorized shares of Common Stock is necessary to
provide the Company with the flexibility to pursue the types of opportunities
described above without added delay and expense.
The availability of authorized but unissued shares of Common Stock might be
deemed to have the effect of preventing or discouraging an attempt by another
person to obtain control of the Company, because the additional shares could
be issued by the Board of Directors, which could dilute the stock ownership of
such person. The Company has no plans for such issuances and this proposal is
not being proposed in response to a known effort to acquire control of the
Company.
6
The additional shares of Common Stock to be authorized by adoption of the
amendment to the Certificate of Incorporation would have rights identical to
the currently outstanding shares of Common Stock of the Company. Adoption of
the proposed amendment to the Certificate of Incorporation would not affect
the rights of the holders of currently outstanding shares of Common Stock.
The authorization of additional shares of Common Stock pursuant to this
proposal will have no dilutive effect upon the proportionate voting power of
the present shareowners of the Company. However, to the extent that shares are
subsequently issued to persons other than the present shareowners and/or in
proportions other than the proportion that presently exists, such issuance
could have a substantial dilutive effect on present shareowners.
Adoption of the amendment to the Certificate of Incorporation to increase
the Company's authorized Common Stock requires the vote of a majority of the
outstanding shares of the Company's Common Stock. If the proposal is approved,
the Company intends to file an amendment to the Certificate of Incorporation
shortly after the Meeting. The amendment to the Certificate of Incorporation
will be effective immediately upon acceptance of filing by the Secretary of
the State of Delaware. The Board of Directors would be free to issue Common
Stock without further action on the part of the shareowners.
The Board of Directors recommends that shareowners vote FOR the approval of
the amendment to the Company's Articles of Incorporation.
PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE COMPANY'S 1996 STOCK INCENTIVE PLAN
The Company's shareowners are being asked to approve a series of amendments
to the Company's 1996 Stock Incentive Plan (the "1996 Plan") that will effect
the following changes: (i) increase the maximum number of shares of Common
Stock authorized for issuance over the term of the 1996 Plan from 11,894,120
shares to 14,644,120 shares and (ii) incorporate the Salary Investment Option
Grant and Director Fee Option Grant Programs into the 1996 Plan. The proposed
share increase will assure that a sufficient reserve of Common Stock is
available under the 1996 Plan to attract and retain the services of key
individuals essential to the Company's long-term growth and success. The
incorporation of the Salary Investment Option Grant and Director Fee Option
Grant Programs into the 1996 Plan will encourage executives and other highly
compensated associates and non-associate Board members to invest in an equity
position in the Company on a tax favored basis.
The 1996 Plan became effective on May 31, 1996 (the "Effective Date") upon
adoption by the Board and serves as the successor to the Company's 1993 Stock
Option Plan (the "1993 Plan"), which is the successor to the Company's 1983
Employee Incentive Stock Option Plan (the "1983 Plan"). All outstanding
options under the 1993 Plan have been incorporated into the 1996 Plan and no
further option grants or share issuances will be made under the 1993 Plan. The
amendment to increase the share reserve available under the 1996 Plan was
adopted by the Board as of October 21, 1998. The amendment to incorporate the
Salary Investment Option Grant and Director Fee Option Grant Programs into the
1996 Plan was adopted by the Board as of December 24, 1998. The following is a
summary of the principal features of the 1996 Plan, as amended. The summary,
however, does not purport to be a complete description of all the provisions
of the 1996 Plan. Any shareowner of the Company who wishes to obtain a copy of
the actual plan document may do so upon written request to the Company's
Secretary at the Company's principal executive offices in Palo Alto,
California.
Equity Incentive Programs
The 1996 Plan contains five separate equity incentive programs: (i) the
Discretionary Option Grant Program under which individuals in the Company's
service may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock at an exercise price not less than the fair
market value of these shares on the grant date, (ii) the Salary Investment
Option Grant Program which may, at the Plan Administrator's sole discretion,
be activated for one or more calendar years and, if so activated, will allow
executive officers and
7
other highly compensated associates the opportunity to apply a portion of
their base salary to the acquisition of special below-market stock option
grants, (iii) the Stock Issuance Program under which eligible individuals may,
in the Plan Administrator's discretion, be issued shares of Common Stock
directly, through the purchase of such shares at a price per share not less
than the fair market value at the time of issuance or as a fully-paid bonus
for services rendered to the Company or the attainment of designated
performance goals, (iv) the Automatic Option Grant Program under which option
grants will automatically be made at periodic intervals to eligible non-
associate Board members to purchase shares of Common Stock at an exercise
price equal to 100% of the fair market value of the option shares on the grant
date, and (v) the Director Fee Option Grant Program which may, in the Plan
Administrator's sole discretion, be activated for one or more calendar years
and, if so activated, will allow non-associate Board members the opportunity
to apply a portion of the annual retainer fee otherwise payable to them in
cash each year to the acquisition of special below-market stock option grants.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of
the Internal Revenue Code or non-statutory options not intended to satisfy
such requirements. All grants under the Automatic Option Grant, Salary
Investment Option Grant and Director Fee Option Grant Programs will be non-
statutory options.
Administration
The Compensation Committee has the exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to option
grants and stock issuances made to the Company's executive officers and non-
associate Board members. A secondary committee of the Board administers the
Discretionary Option Grant and Stock Issuance Programs for all other eligible
individuals. The Board may, at any time, terminate the secondary committee and
reassume all powers and authority previously delegated to such committee. The
term Plan Administrator, as used in this summary, will mean either the
Compensation Committee, the secondary committee or the Board, to the extent
each such entity is acting within the scope of its administrative jurisdiction
under the 1996 Plan. The Compensation Committee shall have the exclusive
authority to determine which Section 16 Insiders and other highly compensated
individuals will be eligible to participate in the Salary Investment Option
Grant Program for one or more calendar years, but no administrative discretion
will be exercised by the Compensation Committee with respect to the grants
made under the Automatic Option Grant, Salary Investment Option Grant and
Director Fee Option Grant Programs. All grants under the Automatic Option
Grant, Salary Investment Option Grant and Director Fee Option Grant Programs
will be made in strict compliance with the express provisions of each program.
Shareowner approval of this Proposal will also constitute pre-approval of
each option that is granted on or after the date of the 1999 Annual Meeting
pursuant to the provisions of the Automatic Option Grant Program and the
subsequent exercise of each such option in accordance with those provisions.
Share Reserve
A total of 14,644,120 shares of Common Stock have been authorized for
issuance under the 1996 Plan, assuming shareowner approval of the 2,750,000
share increase that forms part of this Proposal. In no event may any one
participant in the 1996 Plan be granted stock options, separately exercisable
stock appreciation rights, and direct stock issuances for more than 500,000
shares in the aggregate per calendar year under the 1996 Plan.
The shares of Common Stock issuable under the 1996 Plan may be drawn from
shares of the Company's authorized but unissued Common Stock or from shares of
Common Stock reacquired by the Company, including shares repurchased on the
open market. Shares subject to any outstanding options under the 1996 Plan
(including options incorporated from the 1993 Plan and the 1983 Plan) which
expire or otherwise terminate prior to exercise will be available for
subsequent issuance. Unvested shares issued under the 1996 Plan and
subsequently repurchased by the Company, at the original issue price paid per
share, pursuant to the Company's repurchase rights under the 1996 Plan will
also be available for reissuance. However, shares subject to any option
surrendered in accordance with the stock appreciation rights provisions of the
1996 Plan will not be available for subsequent issuance.
8
Eligibility
Associates, non-associate members of the Board or the board of directors of
any parent or subsidiary corporation, and consultants and other independent
advisors in the service of the Company or its parent or subsidiary
corporations will be eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. Only associates who are Section 16 Insiders or
other highly compensated individuals will be eligible to participate in the
Salary Investment Option Grant Program. Non-associate Board members will be
eligible to participate in the Automatic Option Grant and the Director Fee
Option Grant Programs.
As of December 31, 1998, ten executive officers, six non-associate Board
members and approximately 860 other associates were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs. The six non-
associate Board members were also eligible to participate in the Automatic
Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 1996 Plan will be the average of the high and low selling prices per share
of Common Stock on that date on the Nasdaq National Market. On December 31,
1998, the fair market value per share was $48.38.
Discretionary Option Grant Program
Grants
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants, the time or times when such grants are to be made, the number
of shares subject to each such grant, the status of any granted option as
either an incentive stock option or a non-statutory option under the federal
tax laws, the vesting schedule (if any) to be in effect for the option grant
and the maximum term for which any granted option is to remain outstanding.
All expenses incurred in administering the 1996 Plan will be paid by the
Company.
Price and Exercisability
Each granted option will have an exercise price per share not less than one
hundred percent (100%) of the fair market value per share of Common Stock on
the option grant date, and no granted option will have a term in excess of ten
years. The shares subject to each option will generally vest in a series of
installments over a specified period of service measured from the grant date.
The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale
of the shares purchased under the option and pay over to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the exercise price for the purchased shares plus all applicable withholding
taxes.
No optionee will have any shareowner rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members
of the optionee's immediate family or to a trust established exclusively for
one or more such family members, to the extent such transfer or assignment is
in furtherance of the optionee's estate plan.
Termination of Service
Upon the optionee's cessation of service, the optionee will have a limited
period of time in which to exercise any outstanding option to the extent
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
9
Cancellation/Re-grant Program
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of the Common Stock
and to issue replacement options with an exercise price based on the market
price of Common Stock at the time of the new grant.
Salary Investment Option Grant Program
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated associate of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. If such election is approved by the
Plan Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of Common Stock on the grant date. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the grant date. As a result, the total
spread on the option shares at the time of grant (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the amount of salary invested in that option.
The option will vest and become exercisable in a series of twelve (12) equal
monthly installments over the calendar year for which the salary reduction is
to be in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
The shares subject to each option under the Salary Investment Option Program
will immediately vest upon (i) an acquisition of the Company by merger or
asset sale or (ii) the successful completion of a tender offer for more than
50% of the Company's outstanding voting stock or a change in the majority of
the Board effected through one or more contested elections for Board
membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Salary Investment Option Grant Program. Options with
such a limited stock appreciation right may be surrendered to the Company upon
the successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from the Company in an amount
per surrendered option share equal to the excess of (i) the highest price per
share of Common Stock paid in connection with the tender offer over (ii) the
exercise price payable for such share.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not
less than one hundred percent (100%) of their fair market value, payable in
cash or check made payable to the Company. Shares may also be issued as a
bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a
vesting schedule tied to the performance of services or the attainment of
performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the 1996 Plan.
Automatic Option Grant Program
Grants
Under the Automatic Option Grant Program, each individual who is first
elected or appointed as a non-associate Board member at any time after August
15, 1996 will receive at the time of such initial election or
10
appointment an automatic option grant for 20,000 shares of Common Stock,
provided such individual was not previously in the employ of the Company or
any parent or subsidiary corporation. At each Annual Shareowners Meeting,
beginning with the 1997 Annual Meeting, each individual who is to continue in
service as a non-associate Board member, whether or not that individual is
standing for re-election to the Board at that particular meeting, will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served as a non-associate Board member for at
least six months. There will be no limit on the number of such 5,000-share
options which any one non-associate Board member may receive over his or her
period of Board service, and non-associate Board members who have previously
been in the Company's employ will be fully eligible for one or more 5,000-
share option grants over their period of Board service. Shareowner approval of
this Proposal will constitute pre-approval of each option subsequently granted
pursuant to the provisions of the Automatic Option Grant Program summarized
below and the subsequent exercise of that option in accordance with its terms.
Terms
Each option under the Automatic Option Grant Program will have an exercise
price per share equal to 100% of the fair market value per share of Common
Stock on the option grant date and a maximum term of ten years measured from
the grant date.
The option will be immediately exercisable for all the option shares, but
any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service
prior to vesting in those shares. Each initial 20,000-share grant will vest,
and the Company's repurchase right will lapse, in a series of four successive
equal annual installments upon the optionee's completion of each year of Board
service over the four-year period measured from the grant date. The shares
subject to each annual 5,000-share grant will vest upon the optionee's
completion of two years of Board service measured from the grant date.
The shares subject to each outstanding automatic option grant will
immediately vest upon (i) the optionee's death or permanent disability, (ii)
an acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than 50% of the Company's outstanding
voting stock or (iv) a change in the majority of the Board effected through
one or more proxy contests for Board membership.
Upon a successful completion of a hostile tender offer for more than 50% of
the Company's voting securities, the optionee will have thirty-day period in
which he or she may elect to surrender each outstanding automatic option grant
to the Company in return for a cash distribution in an amount per surrendered
option share equal to the excess of (i) the highest price paid per share of
Common Stock in such tender offer over (ii) the exercise price payable for
such share. Shareowner approval of this Proposal will constitute pre-approval
of each such option surrender in accordance with the terms of the 1996 Plan.
Director Fee Option Grant Program
Should the Director Fee Option Grant Program be activated in the future,
each non-associate Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. The option grant will
automatically be made on the first trading day in January in the year for
which the retainer fee would otherwise be payable in cash. The option will
have an exercise price per share equal to one-third of the fair market value
of the option shares on the grant date, and the number of shares subject to
the option will be determined by dividing the amount of the retainer fee
applied to the program by two-thirds of the fair market value per share of
Common Stock on the grant date. As a result, the total spread on the option
(the fair market value of the option shares on the grant date less the
aggregate exercise price payable for those shares) will be equal to the
portion of the retainer fee invested in that option. The option will vest and
become exercisable for the option shares in a series of twelve (12) equal
monthly installments over the calendar year for which the election is to be in
effect. However, the option will become immediately
11
exercisable and vested for all the option shares upon (i) certain changes in
the ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The shares subject to each option under Director Fee Option Grant Program
will immediately vest upon (i) an acquisition of the Company by merger or
asset sale or (ii) the successful completion of a tender offer for more than
50% of the Company's outstanding voting stock or a change in the majority of
the Board effected through one or more contested elections for Board
membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Director Fee Option Grant Program. Options with such
a limited stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than 50% of the
Company's outstanding voting stock. In return for the surrendered option, the
optionee will be entitled to a cash distribution from the Company in an amount
per surrendered option share equal to the excess of (i) the highest price per
share of Common Stock paid in connection with the tender offer over (ii) the
exercise price payable for such share.
12
Stock Awards
The following table shows, as to each of the Named Executive Officers in the
Summary Compensation Table and the various indicated individuals and groups,
the number of shares of Common Stock subject to options granted under the 1996
Plan since the May 31, 1996 effective date through December 31, 1998, together
with the weighted average exercise price payable per share.
OPTION TRANSACTIONS
Options Granted(1) Weighted Average
Name (Number of Shares) Exercise Price
---- ------------------ ----------------
Christos M. Cotsakos..................... 883,904(2) $22.72
Chairman and Chief Executive Officer of
E*TRADE Group
William A. Porter........................ -- --
Chairman Emeritus of E*TRADE Group
Kathy Levinson........................... 535,244(3) $22.24
President and Chief Operating Officer of
E*TRADE Group
Judy Balint.............................. 541,036(4) $20.77
President and Chief Operating Officer of
E*TRADE International
Debra Chrapaty........................... 750,636(5) $21.19
President and Chief Operating Officer of
E*TRADE Technologies
All executive officers as a group (10
persons)................................ 4,142,556(6) $21.50
Richard S. Braddock, Director............ 10,000 $22.03
William E. Ford, Director................ 10,000 $22.03
George Hayter, Director.................. 10,000 $22.03
Lewis E. Randall, Director............... 10,000 $22.03
Masayoshi Son, Director.................. 20,000 $25.19
Lester C. Thurow, Director............... 10,000 $22.03
All non-associate directors as a group (6
persons)................................ 70,000 $22.93
All associates, including current
officers who are not executive officers,
as a group (863 persons)................ 6,836,841(7) $18.77
- --------
(1) On October 22, 1998, the Company implemented an option
cancellation/regrant program pursuant to which associates who held
outstanding stock options with an exercise price in excess of $17.00 per
share were able to cancel the previously issued options and receive the
same number of options at an exercise price of $17.00, the closing price
of the Company's common stock on October 22, 1998. Each new option has a
maximum term of ten years, subject to earlier termination upon the
optionee's cessation of service, and will become exercisable in a series
of four successive equal annual installments over the optionee's period of
continued service with the Company measured from October 22, 1998, the
regrant date. Options covering a total of 3,605,651 shares of the
Company's common stock were cancelled and regranted under the program.
(2) Includes 350,000 shares of the Company's common stock that were cancelled
under the program.
(3) Includes 250,000 shares of the Company's common stock that were cancelled
under the program.
(4) Includes 214,664 shares of the Company's common stock that were cancelled
under the program.
(5) Includes 355,500 shares of the Company's common stock that were cancelled
under the program.
(6) Includes 1,736,604 shares of the Company's common stock that were
cancelled under the program.
(7) Includes 1,869,047 shares of the Company's common stock that were
cancelled under the program.
As of December 31, 1998, 8,410,478 shares of Common Stock were subject to
outstanding options under the 1996 Plan and 193,472 shares remained available
for future issuance. Through December 31, 1998, 11,049,397 shares of Common
Stock have been issued under the 1996 Plan.
13
New Plan Benefits
As of December 31, 1998, no option grants or direct stock issuances have
been made under the 1996 Plan on the basis of the proposed 2,750,000 share
increase to the maximum number of shares authorized for issuance under the
1996 Plan. In addition, no option grants or share issuances have, as of that
date, been made to non-associate Board members under the Discretionary Option
Grant or Stock Issuance Programs. As of December 31, 1998 the Salary
Investment Option Grant and Director Fee Option Grant Programs had not been
adopted, accordingly, no option grants have been made under those programs.
General Plan Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed or replaced by the successor corporation will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest, except to the extent the Company's repurchase rights
with respect to those shares are transferred to the successor corporation. The
Plan Administrator will have complete discretion to grant one or more options
under the Discretionary Option Grant Program which will become fully
exercisable for all option shares in the event those options are assumed in
the acquisition and the optionee's service with the Company or the acquiring
entity is involuntarily terminated within a designated period following such
acquisition. The Plan Administrator will have similar discretion to grant
options which will become fully exercisable for all the option shares should
the optionee's service terminate, whether involuntarily or through a
resignation for good reason, within a designated period following a change in
control of the Company (whether by successful tender offer for more than 50%
of the outstanding voting stock or by proxy contest for the election of Board
members). The Plan Administrator may also provide for the automatic vesting of
any outstanding shares under the Stock Issuance Program upon similar terms and
conditions. Each option outstanding under the Automatic Option Grant, Director
Fee Option Grant and Salary Investment Option Grant Programs will
automatically accelerate in full upon an acquisition or change in control of
the Company.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Stock Appreciation Rights
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the Plan:
Tandem stock appreciation rights, which may be granted under the
Discretionary Option Grant Program, provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be granted under the Discretionary
Option Grant Program to one or more officers of the Company as part of
their option grants. Limited stock appreciation rights will automatically
be included as part of each grant made under the Salary Investment Option
Grant and Director Fee Option Grant Programs. Options with such a limited
stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting stock. In return for the
surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the highest price per share of Common Stock paid in
connection with the tender offer over (b) the exercise price payable for
such share.
14
Changes in Capitalization
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will
be made to (i) the maximum number and/or class of securities issuable under
the 1996 Plan, (ii) the number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the 1996 Plan per calendar year, (iii)
the number and/or class of securities for which grants are subsequently to be
made under the Automatic Option Grant Program to new and continuing non-
associate Board members and (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the
1996 Plan (including options granted under the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options granted or the
purchase of shares issued under either the Discretionary Option Grant or Stock
Issuance Programs in effect under the 1996 Plan. The Plan Administrator will
determine the terms of any such assistance. However, the maximum amount of
financing provided any participant may not exceed the cash consideration
payable for the issued shares plus all applicable taxes incurred in connection
with the acquisition of the shares.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
Amendment and Termination
The Board may amend or modify the 1996 Plan in any or all respects
whatsoever, subject to any required shareowner approval under applicable law
or regulation. The Board may terminate the 1996 Plan at any time, and the 1996
Plan will in all events terminate on May 30, 2006.
Federal Income Tax Consequences
Option Grants
Options granted under the 1996 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of disposition. For Federal tax purposes, dispositions are divided
into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and
more than one year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
15
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then
the excess of (i) the fair market value of those shares on the exercise date
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain or loss recognized upon the
disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the
ordinary income is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1996 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to
certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the
Company without limitation under Code Section 162(m).
16
Accounting Treatment
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or stock issuances at 100% of fair market value will not result in any direct
charge to the Company's earnings. However, the fair value of those options is
required to be disclosed in the notes to the Company's financial statements,
and the Company must also disclose, in the notes to the Company's financial
statements, the pro forma impact those options would have upon the Company's
reported earnings and net income per share had the value of those options at
the time of grant treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options may be a factor in determining the
Company's diluted earnings per share.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.
Shareowner Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the Meeting is required
for approval of the amendments to the 1996 Plan. Should such shareowner
approval not be obtained, no options will be granted on the basis of the
2,750,000 share increase and the Salary Investment Option Grant and Director
Fee Option Grant Programs will not be incorporated into the 1996 Plan. The
1996 Plan will remain in existence in accordance with the provision of the
plan document in effect immediately prior to the new amendments, and stock
options and direct stock issuances may continue to be made under the 1996 Plan
until the share reserve, as last approved by the shareowner, is issued.
The Board of Directors recommends that shareowners vote FOR the approval of
the amendments to the 1996 Plan.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the shareowners to ratify the selection of Deloitte &
Touche LLP as the Company's independent public accountants for the fiscal year
ending September 30, 1999. The affirmative vote of the holders of a majority
of the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Deloitte & Touche LLP.
In the event the shareowners fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board at its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such
a change would be in the best interest of the Company and its shareowners.
A representative of Deloitte & Touche LLP is expected to attend the Annual
Meeting and is not expected to make a statement, but will be available to
respond to appropriate questions and may make a statement if such
representative desires to do so.
The Board of Directors recommends that shareowners vote FOR the proposal to
ratify the selection of Deloitte & Touche LLP as the Company's independent
public accountants for the fiscal year ending September 30, 1999.
17
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998 by (i) each
person who is known to the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock of the Company, (ii) each director,
(iii) each officer listed in the Summary Compensation Table and (iv) all
directors and executive officers as a group. All shares are subject to the
named person's sole voting and investment power except where otherwise
indicated.
Name and Address Number of Shares Percent of
of Beneficial Owner Beneficially Owned Common Stock(1)
------------------- ------------------ ---------------
Christos M. Cotsakos (2)................. 1,709,905 2.9%
William A. Porter (3)(4)................. 2,231,451 3.8%
Richard S. Braddock (5).................. 289,081 *
William E. Ford (6)...................... 70,001 *
George Hayter (7)........................ 72,518 *
Lewis E. Randall (8)..................... 462,901 *
Masayoshi Son (9)........................ 20,000 *
Lester C. Thurow (5)..................... 70,001 *
SOFTBANK Holdings, Inc. (10)............. 15,647,922 27.5%
General Atlantic Partners LLC (11)....... 4,374,930 7.7%
Kathy Levinson (12)...................... 468,772 *
Judy Balint (13)......................... 76,994 *
Debra Chrapaty (14)...................... 64,637 *
All directors and executive officers as a
group (16 persons) (15)................. 5,262,684 9.0%
- --------
* Less than 1%.
(1) Based on 56,901,388 shares outstanding on December 31, 1998. Shares of
Common Stock subject to options that are exercisable within 60 days of
December 31, 1998 are deemed beneficially owned by the person holding
such options for the purpose of computing the percentage of ownership of
such person but are not treated as outstanding for the purpose of
computing the percentage of any other person.
(2) Includes 288,000 shares held by the Cotsakos Revocable Trust under
Agreement dated September 3, 1987, 105,000 shares held in an IRA account
and 60,000 shares held as a custodian for his daughter. Mr. Cotsakos
disclaims beneficial ownership of shares held as a custodian and one-half
the shares held by the Cotsakos Revocable Trust. Also includes 1,256,061
shares of Common Stock which Mr. Cotsakos has the option to purchase, of
which, 589,083 options to purchase shares are exercisable within 60 days
of December 31, 1998.
(3) The address of Mr. Porter is c/o E*TRADE Group, Inc., Four Embarcadero
Place, 2400 Geng Road, Palo Alto, California 94303.
(4) Includes 200,460 shares of Common Stock held by Mr. Porter's wife. Mr.
Porter disclaims beneficial ownership of such shares.
(5) Includes 70,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, 41,000 of which are subject to the
Company's right of repurchase.
(6) Excludes shares held by General Atlantic Partners II, L.P. and shares
held by GAP Coinvestment Partners, L.P. See footnote 11 below. Includes
70,000 shares of Common Stock issuable upon exercise of immediately
exercisable stock options, 41,000 of which are subject to the Company's
right of repurchase.
(7) Includes 70,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, 29,000 of which are subject to the
Company's right of repurchase.
(8) Includes 284,900 shares held by Lewis or Martha Randall, as Trustees of
the Lewis E. and Martha E. Randall Living Trust dated 8/16/84. Includes
60,000 shares held solely by Mr. Randall's wife. Mr. Randall disclaims
beneficial ownership of such shares held by his wife. Also includes
58,000 shares of Common Stock issuable upon exercise of immediately
exercisable stock options, 41,000 of which are subject to the Company's
right of repurchase.
18
(9) Excludes shares held by SOFTBANK Holdings, Inc. See footnote 10 below.
Includes 20,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, all of which are subject to the
Company's right of repurchase.
(10) Mr. Son, a director of the Company, is the President and Chief Executive
Officer of SOFTBANK Corporation, the parent company of SOFTBANK Holdings.
Mr. Son disclaims beneficial ownership of shares owned by SOFTBANK
Holdings. The address for SOFTBANK Holdings is 10 Langley Road, Suite
403, Newton Center, MA 02459.
(11) Includes 3,835,025 shares held by General Atlantic Partners II, L.P.
("GAP II") and 539,905 shares held by GAP Coinvestment Partners, L.P.
("GAP Coinvestment"). The general partner of GAP II is General Atlantic
Partners, LLC ("GAP LLC"), a Delaware limited liability company. Mr.
Ford, a director of the Company, is one of the managing members of GAP
LLC. The same managing members of GAP LLC are the general partners of GAP
Coinvestment. Mr. Ford disclaims beneficial ownership of shares owned by
GAP II and GAP Coinvestment except to the extent of his pecuniary
interest therein. The address for GAP II, GAP Coinvestment, GAP LLC and
Mr. Ford is: c/o General Atlantic Service Corporation, Three Pickwick
Plaza, Greenwich, CT 06830.
(12) Includes 245,927 shares held by the Levinson Family Trust under Agreement
dated November 17, 1994. Also includes 222,844 shares of Common Stock
issuable upon exercise of stock options that are exercisable within 60
days of December 31, 1998.
(13) Includes 76,708 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1998.
(14) Includes 64,636 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1998.
(15) Includes the information in the notes above, as applicable. With respect
to shares held by Mr. Cotsakos, includes only those shares which are
beneficially owned and those shares subject to options which are
exercisable within 60 days of December 31, 1998. In addition, includes an
additional 176,971 shares of Common Stock issuable upon exercise of stock
options that are exercisable within 60 days of December 31, 1998, which
options are held by executive officers of the Company who are not
identified in the above table.
19
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other highest-paid executive
officers ("Named Executive Officers") for services rendered in all capacities
to the Company and its subsidiaries for the fiscal years ended September 30,
1998, 1997 and 1996, respectively.
Summary Compensation Table(1)
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Options/SARs Compensation($)
- ------------------ ---- --------- -------- --------------- ------------ ---------------
Christos M. Cotsakos.... 1998 467,862 160,236 15,635(2) 233,904 2,500(11)
Chairman and Chief 1997 355,000 92,609 -- 300,000 --
Executive Officer 1996 126,134(3) 437 53,804(4) 1,080,000 --
William A. Porter (5)... 1998 199,359 72,757 -- -- 2,500(11)
Chairman Emeritus 1997 200,000 37,217 -- -- 1,426(11)
1996 206,667(6) 21,982 -- -- 2,013(11)
Kathy Levinson.......... 1998 292,100 67,561 -- 85,244 2,500(11)
President and Chief 1997 209,008 48,982 -- 200,000 1,124(11)
Operating Officer, 1996 163,309(7) 546 -- 144,000 --
E*TRADE Group
Judy Balint............. 1998 235,370 17,192 40,077(8) 51,372 2,500(11)
President and Chief 1997 92,445 35,000 65,000(9) 275,000 1,833(11)
Operating Officer, 1996 -- -- -- -- --
E*TRADE International
Debra Chrapaty.......... 1998 249,199 120,236 40,321(10) 80,136 2,500(11)
President and Chief 1997 48,611 60,000 -- 315,000 1,575(11)
Operating Officer, 1996 -- -- -- -- --
E*TRADE Technologies
- --------
(1) In accordance with the rules of the SEC, the compensation described in
this table does not include medical, group life insurance or other
benefits received by the Named Executive Officers that are available
generally to all salaried employees of the Company, and certain
perquisites and other personal benefits received by the Named Executive
Officers that do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Represents the benefit received by Mr. Cotsakos for a Company provided
auto.
(3) Includes $2,000 paid to Mr. Cotsakos in his capacity as a director.
(4) Includes $50,000 as reimbursement of relocation and moving expenses.
(5) Mr. Porter served as Chief Executive Officer until March 1996 and
Chairman of the Board until December 1998.
(6) Includes $4,000 paid to Mr. Porter in his capacity as a director.
(7) Includes $52,059 paid to Ms. Levinson in her capacity as a consultant
during the first quarter of fiscal 1996.
(8) Represents a $30,463 benefit received by Ms. Balint for Company provided
housing and a $9,614 benefit received by Ms. Balint for a Company
provided auto.
(9) Represents $65,000 as reimbursement of relocation and moving expenses.
(10) Represents $26,445 as reimbursement of relocation and moving expenses and
a $13,876 benefit received by Ms. Chrapaty for Company provided housing.
(11) Represents employer contributions to the Company's 401(k) Plan.
20
Stock Options
The following table contains information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan for the 1998 fiscal year
to the Named Executive Officers. No stock appreciation rights were granted to
those individuals during the 1998 fiscal year.
Option/SAR Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(7)
--------------------------------------------------- ---------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted Fiscal Year (per Share)(6) Date 5% 10%
---- ---------- ------------ -------------- ---------- ---------- ----------
Christos M. Cotsakos.... 26,836(1) .75% $29.06 10/28/07 $ 491,000 $1,243,000
57,068(2) 1.58% $18.06 12/19/07 $ 648,000 $1,643,000
140,392(3) 3.90% $20.84 5/26/08 $1,840,000 $4,664,000
9,608(3) .27% $20.84 5/26/08 $ 126,000 $ 319,000
------- ----- ---------- ----------
233,904 6.50% $3,105,000 $7,869,000
William A. Porter....... -- -- -- -- -- --
Kathy Levinson.......... 11,100(1) .31% $29.06 10/28/07 $ 203,000 $ 514,000
24,144(2) .67% $18.06 12/19/07 $ 274,000 $ 695,000
1,599(4) .04% $20.84 5/26/08 $ 21,000 $ 53,000
48,401(4) 1.35% $20.84 5/26/08 $ 635,000 $1,608,000
------- ----- ---------- ----------
85,244 2.37% $1,133,000 $2,870,000
Judy Balint............. 4,664(1) .13% $29.06 10/28/07 $ 85,000 $ 216,000
11,708(2) .33% $18.06 12/19/07 $ 133,000 $ 337,000
1,599(4) .04% $20.84 5/26/08 $ 21,000 $ 53,000
33,401(4) .93% $20.84 5/26/08 $ 438,000 $1,110,000
------- ----- ---------- ----------
51,372 1.43% $ 677,000 $1,716,000
Debra Chrapaty.......... 5,500(5) .15% $31.75 10/31/07 $ 110,000 $ 278,000
14,636(2) .41% $18.06 12/19/07 $ 166,000 $ 421,000
25,000(2) .70% $18.06 12/19/07 $ 284,000 $ 720,000
1,599(4) .04% $20.84 5/26/08 $ 21,000 $ 53,000
33,401(4) .93% $20.84 5/26/08 $ 438,000 $1,110,000
------- ----- ---------- ----------
80,136 2.23% $1,019,000 $2,582,000
- --------
(1) Each option was granted on October 28, 1997 and became exercisable on
January 1, 1999.
(2) Each option was granted on December 19, 1997 and became exercisable on
July 1, 1998.
(3) The options were granted on May 27, 1998 and will become exercisable on a
combined basis as follows: 30,000 of the option shares became exercisable
on November 27, 1998 with the remaining 120,000 option shares becoming
exercisable in equal monthly installments upon Mr. Cotsakos' completion of
each month of service from December 27, 1998 through November 27, 2002.
See "Employment Contracts, Termination of Employment and Change-in-Control
Arrangements," which follows, for change of control and severance
arrangements.
(4) Each option was granted on May 27, 1998 and will become exercisable for
the option shares in five successive equal annual installments upon the
optionee's completion of each year of service over the five-year period
measured from the May 27, 1998 grant date. See "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements," which
follows, for change of control and severance arrangements.
21
(5) The option was granted on October 31, 1997 and will become exercisable for
the option shares in five successive equal annual installments upon the
optionee's completion of each year of service over the five-year period
measured from the October 31, 1997 grant date. See "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements," which
follows, for change of control and severance arrangements.
(6) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state tax liability incurred in connection with
such exercise.
(7) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from
the date of grant to the expiration date of the option. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
Option Exercises and Holdings
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the last fiscal year. No stock
appreciation rights were exercised during such year.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Number of Securities Value of Unexercised in-the-
Number of Underlying Unexercised Money Options/SARs at
Shares Options/SARs at FY-End FY-End(2)
Acquired on Value ------------------------- -------------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- -------------- ---------------
Christos M. Cotsakos.... 187,843 $3,810,000 416,905 839,156 $ 3,402,000 $ 5,873,000
William A. Porter....... -- -- -- -- -- --
Kathy Levinson.......... 40,000 $ 949,000 107,945 432,499 $ 827,000 $ 3,488,000
Judy Balint............. -- -- 51,708 274,664 $ 20,000 $ 80,000
Debra Chrapaty.......... -- -- 100,137 294,999 -- --
- --------
(1) Equal to the fair market value of the purchased shares on the option
exercise date less the exercise price paid for those shares.
(2) Based on the market price of $18.00 per share, which was the average of
the high and low selling price per share of the Company's Common Stock on
the Nasdaq National Market on the last day of the 1998 fiscal year, less
the exercise price payable for such shares.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
In March 1996, prior to the Company's initial public offering, Christos M.
Cotsakos entered into an employment agreement with the Company (the
"Employment Agreement"). The Employment Agreement provides for annual base
salary compensation of $250,000. Mr. Cotsakos' base salary is subject to
adjustment as follows: if, at the end of any fiscal quarter during the term of
the agreement, the Company' annualized revenues equal or exceed $75 million
and there is a positive net income at the end of such quarter, the base salary
shall be increased to an annualized basis of $320,000; and if, at the end of
any fiscal quarter during the term of the agreement, the Company's annualized
revenues equal or exceed $100 million and there is a positive net income at
the end of such quarter, the base salary shall be increased to an annualized
basis of $390,000. Mr. Cotsakos is also eligible to participate in the
Company's bonus plan and other benefit plans.
22
The Employment Agreement terminates on December 31, 2001, but is renewable
for successive one-year periods, unless either party gives 180 days' notice.
Upon termination of Mr. Cotsakos' employment, he is entitled to severance
payments as follows: (i) payment equal to five full years of current total
annual compensation if termination is within three years after a change in
control of the Company (as defined in the Employment Agreement) or if he
elects to terminate his employment for good reason (as defined in the
Employment Agreement) within three years after any change in control, and (ii)
payment equal to four full years of (A) current total annual compensation if
he is terminated by the Company other than for cause (as defined in the
Employment Agreement) and such termination is not described in (i) above and
(B) he elects to terminate his employment for good reason and such termination
is not described in (i) above. In addition, Mr. Cotsakos' options become
immediately exercisable upon a change in control or upon the termination of
Mr. Cotsakos other than for cause or at his election for good reason.
From January 1995 to December 1995, Kathy Levinson, the President and Chief
Operating Officer of E*TRADE Group was self-employed as a consultant. During
this period, Ms. Levinson worked under contract with the Company, pursuant to
which she provided consulting services to assist with E*TRADE's transition to
self-clearing operations. During the term of this agreement, Ms. Levinson was
paid $166,000 by the Company, and received a warrant to purchase 300,000
shares of Common Stock, which warrant was fully exercised by January 1996, and
options to purchase 300,000 shares of Common Stock which vest at a rate of 20%
per year over a period of five years and will terminate on January 2, 2005.
In January 1997, Ms. Levinson entered into a Management Continuity Agreement
with the Company (the "Levinson Agreement"). In the event that (i) Ms.
Levinson's employment is involuntarily terminated (as defined in the Levinson
Agreement) less than 60 days before or within 18 months after a change in
control of the Company (as defined in the Levinson Agreement); or (ii) Ms.
Levinson is terminated during the first 18 months of the Levinson Agreement
other than for cause (as defined in the Levinson Agreement) or good business
reasons (as defined in the Levinson Agreement), Ms. Levinson is entitled to
severance payments equal to 18 months base salary. Ms. Levinson's current base
salary is $350,000.
In April 1998, Ms. Balint entered into a Management Continuity Agreement
with the Company (the "Balint Agreement"). In the event that Ms. Balint's
employment is involuntarily terminated (as defined in the Balint Agreement)
less than 60 days before or within 18 months after a change in control of the
Company (as defined in the Balint Agreement), Ms. Balint is entitled to
severance payments equal to 18 months base salary. Ms. Balint's current base
salary is $250,000.
In April 1998, Ms. Chrapaty entered into a Management Continuity Agreement
with the Company (the "Chrapaty Agreement"). In the event that Ms. Chrapaty's
employment is involuntarily terminated (as defined in the Chrapaty Agreement)
less than 60 days before or within 18 months after a change in control of the
Company (as defined in the Chrapaty Agreement), Ms. Chrapaty is entitled to
severance payments equal to 12 months base salary. Ms. Chrapaty's current base
salary is $250,000.
In connection with an acquisition of the Company by merger or asset sale,
any outstanding option held by the Named Executive Officers under the
Company's 1996 Stock Incentive Plan will automatically accelerate in full and
all unvested shares of Common Stock held by such individuals subject to direct
issuances made under such plan will immediately vest in full, except to the
extent such options are to be assumed by, and the Company's repurchase rights
with respect to these shares are to be assigned to, the successor corporation.
In addition, the Compensation Committee as Plan Administrator of the 1996
Stock Incentive Plan will have the authority to provide for the accelerated
vesting of the shares of Common Stock subject to outstanding options held by
the Named Executive Officers or the shares of Common Stock subject to direct
issuances held by such individuals, in connection with the termination of the
officer's employment following: (i) a merger or asset sale in which these
options are assumed or are assigned or (ii) the Company's repurchase rights
with respect to unvested shares or (iii) certain hostile changes in control of
the Company. Options granted under either the 1993 Stock Option Plan or the
1983 Employee Incentive Stock Option Plan do not contain similar provisions,
but the Plan Administrator has discretion to extend provisions of the 1996
Plan to any such options.
23
Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee") of the Board of Directors sets
the base salary of the Company's executive officers and approves individual
bonus programs for executive officers. Option grants to executive officers are
made by the Committee, and the Committee has complete discretion in
establishing the terms of each such grant. The following is a summary of
policies of the Committee that affect the compensation paid to executive
officers, as reflected in the tables and text set forth elsewhere in this
Proxy Statement.
Compensation Philosophy
The Committee applies a consistent philosophy to compensation for all
associates, including executive officers. This philosophy is based on the
premise that the achievements of the Company result from the coordinated
efforts of all individuals working toward common objectives. The Company
strives to achieve those objectives through teamwork that is focused on
meeting the expectations of customers and shareowners.
. The Company pays for sustained relative performance. Executive officers
are rewarded based upon corporate performance and individual performance.
Corporate performance is evaluated by reviewing the extent to which
strategic and business plan goals are met, including such factors as
operating profit and performance relative to competitors. Individual
performance is evaluated by reviewing development progress against set
objectives and the degree to which Company values are fostered.
. The Company strives for fairness in the administration of pay. The
Company strives to balance the compensation paid to a particular
individual and the compensation paid to other persons both inside the
Company and at comparable companies.
General Compensation Policy
The Committee's overall policy is to offer the Company's executive officers
competitive cash-and equity-based compensation opportunities based upon their
personal performance, the financial performance of the Company and their
contribution to that performance. One of the Committee's primary objectives is
to have a substantial portion of each officer's compensation contingent upon
the Company's performance as well as upon his or her own level of performance.
The principal factors taken into account in establishing each executive
officer's compensation package are summarized below. Additional factors may be
taken into account to a lesser degree, and the relative weight given to each
factor varies with each individual in the sole discretion of the Committee.
The Committee may in its discretion apply entirely different factors, such as
different measures of financial performance, for future fiscal years.
Cash-Based Compensation. The Committee sets base salary for executive
officers on the basis of personal performance, the salary levels in effect for
comparable positions with other companies in the industry and internal
comparability considerations. This comparison group is not substantially the
same as the one included in the peer group index in the performance graph.
Effective October 1, 1996, the Company adopted a bonus plan (the "Bonus Plan")
to allow all eligible associates to share a portion of the Company's profits.
The Bonus Plan was amended October 1, 1997 to provide bonus payments to
associates based on both individual performance as well as performance of the
Company when predetermined performance goals are met or exceeded. Bonuses are
determined and paid semi-annually. The Chairman of the Board and the Chief
Executive Officer received bonuses under the Bonus Plan for fiscal 1998.
Effective January 1, 1995, the Company maintains an Internal Revenue Code
section 401(k) defined benefit plan (the "401(k) Plan") under which all of the
associates, including executive officers, may elect to defer compensation up
to the limits imposed by the Internal Revenue Code. Upon completion of one
year of service, the 401(k) Plan provides for employer contributions to the
401(k) Plan of an amount equal to 25% of the amount contributed by all
eligible associates, including executive officers, up to 2% for each
individual associates' total compensation. The Company made contributions of
$312,000 for the year ended September 30, 1998.
24
Long-Term Equity-Based Compensation. The Committee intends to make stock
option grants on an annual basis. Each grant is designed to align the
interests of the executive officers with those of the shareowners and provide
each individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's Common Stock
at a fixed price per share (the market price on the grant date) over a
specified period of time (up to 10 years), thus providing a return to the
officer only if he or she remains in the employment of the Company and the
market price of the shares appreciates over the option term. The size of the
option grant to each executive officer generally is set at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individuals current position with the Company, but the size of comparable
awards made to individuals in similar positions in the industry as reflected
in external surveys, the individual's potential for future responsibility and
promotion over the option term, the individual's personal performance in
recent periods and the number of options held by the individual at the time of
grant are also factors taken into account. Generally, as an officer's level of
responsibility increases, a greater portion of his or her total compensation
will be dependent upon Company performance and stock price appreciation rather
than base salary. The relative weight given to these factors varies with each
individual in the sole discretion of the Committee.
CEO Compensation. The base salary payable to Mr. Cotsakos, the Company's
Chief Executive Officer during fiscal year 1998, was determined by the terms
of his employment agreement (the "Agreement") entered into in March 1996. The
Agreement provides for annual base salary compensation of $250,000. Mr.
Cotsakos' base salary is subject to adjustment as follows: if, at the end of
any fiscal quarter during the term of the agreement, the Company' annualized
revenues equal or exceed $75 million and there is a positive net income at the
end of such quarter, the base salary shall be increased to an annualized basis
of $320,000; and if, at the end of any fiscal quarter during the term of the
agreement, the Company's annualized revenues equal or exceed $100 million and
there is a positive net income at the end of such quarter, the base salary
shall be increased to an annualized basis of $390,000. Mr. Cotsakos is also
eligible to participate in the Company's bonus program and other benefit
plans. Under the Company's bonus program, each associate, including Mr.
Cotsakos, has a target bonus percentage, which is based on the associate's
position within the Company. In addition, the target bonus percentage has an
individual component and a Company component, which fluctuates based on the
associate's position within the Company. According to the terms of the bonus
program, the Company's Chief Executive Officer, Mr. Cotsakos, is the only
person who does not have an individual component and therefore his bonus is
entirely tied to the performance of the Company. The calculation and payment
of the individual and Company components is dependent upon whether the
individual and Company met certain predetermined goals. The Company goals are
a function of quarter over quarter revenue growth, operating margin, and the
ratio of customer inquiries per transaction (an internally derived efficiency
factor). Depending on whether the Company met, exceeded or did not meet its
goals, the Committee could authorize payment of bonuses at, above or below the
target bonus percentage levels. Under the Company's bonus program, the
Committee can specify that bonuses will be paid in either cash or options to
purchase shares of the Company's common stock. All bonus payments to Mr.
Cotsakos in fiscal 1998, were made in connection with the Company's bonus
program described above. Over the bonus measurement period, the Company
averaged quarter to quarter revenue growth of more than 10%, operating margins
of more than 15%, and achieved continued reductions in the ratio of customer
inquiries per transaction. As these measures met, and in some quarters
exceeded, the goals established, the Committee approved bonuses at, and in
certain quarters above, the target levels. As a result, Mr. Cotsakos received
cash bonuses of $160,236 and two option grants to purchase a total of 83,904
shares of the Company's common stock.
During fiscal 1998, the Committee reviewed the status of Mr. Cotsakos'
option holdings. Based on a review of option holdings by individuals in
comparable positions in comparable companies, and based on a desire to
maximize shareowner value by directly linking Mr. Cotsakos' compensation to
the achievement of a higher share price for the Company's Common Stock, the
Board of Directors granted Mr. Cotsakos two options on May 27, 1998, to
purchase a total of 150,000 shares of the Company's common stock under the
1996 Plan. The options have an exercise price of $20.84 per share, the fair
market value per share on the grant date. The options will become exercisable
on a combined basis as follows: 30,000 of the option shares became exercisable
on November 27, 1998 with the remaining 120,000 option shares becoming
exercisable in equal monthly
25
installments upon Mr. Cotsakos' completion of each month of service from
December 27, 1998 through November 27, 2002. This option will become
immediately exercisable upon a change in control or upon the termination of
Mr. Cotsakos other than for cause or at his election for good reason.
Deduction Limit for Executive Compensation. Section 162(m) of the Internal
Revenue Code, enacted in 1993, generally disallows a tax deduction to
publicly-held companies for compensation paid to certain executive officers,
to the extent that compensation exceeds $1 million per officer in any year.
The compensation paid to the Company's executive officers for the 1998 fiscal
year did not exceed the $1 million limit per officer, and it is not expected
that the compensation to be paid to the Company's executive officers for the
1999 fiscal year will exceed that limit. In addition, the Company's 1996 Stock
Incentive Plan is structured so that any compensation deemed paid to an
executive officer in connection with the exercise of his or her outstanding
options under the 1996 Stock Incentive Plan will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because
it is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach $1 million limit,
the Committee has decided at this time not to take any other action to limit
or restructure the elements of cash compensation payable to the Company's
executive officers. The Committee will reconsider this decision should the
individual compensation of any executive officer approach the $1 million level
in the future.
Submitted by the Compensation Committee of the Company's Board of Directors:
Richard S. Braddock
William E. Ford
26
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Richard S. Braddock, William E. Ford
and Keith Petty until August 1998, and solely Richard S. Braddock and William
E. Ford from August 1998 through the fiscal year ended September 30, 1998.
None of these individuals was at any time during fiscal 1998, or at any other
time, an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any other entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee.
Performance Graph
The following performance graph shows the percentage change in cumulative
total return to a holder of the Company's Common Stock, assuming dividend
reinvestment, compared with the cumulative total return, assuming dividend
reinvestment, of the NASDAQ Stock Market--U.S. Index, the Hambrecht & Quist
Internet Index and the previously reported peer group indicated below, during
the period from August 15, 1996 (the date prior to the Company's initial
public offering) through September 30, 1998.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AUGUST 15, 1996 TO SEPTEMBER 30, 1998
[PERFORMANCE GRAPH OF E*TRADE APPEARS HERE]
8/15/96 9/30/96 9/30/97 9/30/98
------- ------- ------- -------
E*TRADE GROUP, INC............................ $100 $126 $448 $178
HAMBRECHT & QUIST INTERNET INDEX.............. $100 $109 $131 $181
NASDAQ STOCK MARKET--U.S. INDEX............... $100 $108 $149 $152
PREVIOUSLY REPORTED PEER GROUP................ $100 $102 $137 $208
- --------
* $100 invested on 8/15/96 in stock, group or index.
27
Beginning fiscal year 1998, the Company elected to utilize the Hambrecht &
Quist Internet Index as its basis for comparison of cumulative total return.
This internet index was not used in the prior year as it was not a well
established index at the time of preparation of the proxy in connection with
the 1998 Annual Meeting of Shareowners. The Company believes that the
Hambrecht & Quist Internet Index is a better basis of comparison than the
prior group previously used by the Company.
The Company previously included the following companies as its Peer Group,
which companies are in the information technology services industry and/or
have been used by analysts, E*TRADE believes, as a basis for comparison to the
Company: Affiliated Computer Services Inc., Infousa, Inc. (formerly American
Business Information Inc.), America Online Inc., Barra Inc., Checkfree Corp.,
Cybercash, Inc., Newsedge Corp. (formerly Desktop Data Inc.), Envoy Corp.,
Harbinger Corp., Intuit Inc., Dialog Corp Plc (formerly M A I D Plc), Netscape
Communications Corp., Premiere Technologies Inc., Paychex Inc., Quickresponse
Services Inc., Charles Schwab, Sterling Communications Inc., and Transaction
Network Services Inc. During fiscal 1998, Compuserve Corporation Delaware and
Individual Inc. were acquired and have therefore not been included in the
fiscal 1998 cumulative total return calculation.
Certain Relationships and Related Transactions
During the fourth calendar quarter of 1996, the Company made a relocation
loan to Mr. Cotsakos, its Chief Executive Officer and a Director, in the
aggregate principal amount of $3,147,188. The proceeds of this loan were used
to fund the purchase by Mr. Cotsakos of a personal residence in the Silicon
Valley area. In providing this relocation loan, the Compensation Committee of
the Board of Directors considered, among other things, the rapid escalation of
residential housing costs in the Silicon Valley area as well as the costs
incurred by Mr. Cotsakos in relocating from Brussels, Belgium to California.
The relocation loan accrues interest at the rate of 7% per annum, which,
together with the principal amount, is due and payable in November 1999. The
loan is secured by a combination of assets, including the residence purchased,
having a fair market value of at least 140% of the amounts outstanding. The
due date of the relocation loan is subject to acceleration upon the occurrence
of certain events including the voluntary cessation of employment with the
Company by Mr. Cotsakos.
In June 1996, the Company entered into a consulting arrangement with Mr.
Hayter, a director of the Company, to provide international business
consulting services at a daily base rate of $1,500 for each day of consulting
services plus expenses, with the exception of attendance at Board meetings.
During the 1998 fiscal year, Mr. Hayter was paid $78,000 for consulting
services pursuant to this arrangement.
In June 1998, the Company entered into an agreement with SOFTBANK Corp., a
Japanese corporation ("SOFTBANK Corp."), to form a joint venture in Japan for
the provision of retail online brokerage services in Japan. Mr. Son is the
President and Chief Executive Officer of SOFTBANK Corp. In July 1998, the
Company entered into an agreement with SOFTBANK Holdings, Inc., a Delaware
corporation ("SOFTBANK Holdings"), whereby SOFTBANK Holdings purchased Common
Stock of the Company valued at $400 million. SOFTBANK Holdings is an affiliate
of SOFTBANK Corp. The stock purchase agreement with SOFTBANK Holdings
obligated the Company to appoint or elect Mr. Son to the Board of Directors.
In August 1997, the Company made a loan to Ms. Balint in the aggregate
principal amount of $75,000. The proceeds of this loan were used to fund a
portion of the purchase by Ms. Balint of a personal residence in the Silicon
Valley area. The loan accrues interest at the rate of 8% per annum, which,
together with the principal amount, is due and payable in August 1999. The due
date of the loan is subject to acceleration upon the occurrence of certain
events including the voluntary cessation of employment with the Company by Ms.
Balint.
In March 1996, Mr. Cotsakos entered into an Employment Agreement with the
Company. In January 1997, Ms. Levinson entered into a Management Continuity
Agreement, and in April 1998, Ms. Balint and Ms. Chrapaty also entered into
Management Continuity Agreements with the Company. See "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements."
28
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater-than-ten-percent
shareowners are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, except as set forth below, there was compliance for the
fiscal year ended September 30, 1998 with all Section 16(a) filing
requirements applicable to the Company's officers, directors and greater-than-
ten-percent beneficial owners.
The Initial Statement of Beneficial Ownership of Securities on Form 3 was
filed late for Connie M. Dotson, Jerry D. Gramaglia, and Leonard C. Purkis,
officers of the Company, and the Statement of Changes in Beneficial Ownership
of Securities on Form 4 was filed late for Judy Balint (one report reflecting
one sale of shares of Common Stock), Christos M. Cotsakos (four reports, each
reflecting one stock option exercise), Kathy Levinson (one report reflecting
one stock option exercise), Rebecca L. Patton (one report reflecting one stock
option exercise), and Stephen C. Richards (one report reflecting one stock
option exercise), officers of the Company, Lewis E. Randall (two reports, one
reflecting one stock option exercise and one reflecting four gifts of shares
of Common Stock), a director of the Company, and Keith Petty (one report
reflecting two stock option exercises), a former director of the Company.
SHAREOWNER PROPOSALS
Shareowner proposals intended to be considered at the 2000 Annual Meeting of
Shareowners must be received by E*TRADE no later than September 18, 1999. The
proposal must be mailed to the Company's principal executive offices, 2400
Geng Road, Palo Alto, California 94303, Attention: Leonard C. Purkis. Such
proposals may be included in next year's proxy statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
FORM 10-K
The Company filed an Annual Report on Form 10-K for fiscal year 1998 with
the Securities and Exchange Commission on or about December 29, 1998.
Shareowners may obtain a copy of this report, without charge, by writing to
Mr. Leonard C. Purkis, the Chief Financial Officer of the Company, at the
Company's principal offices located at Four Embarcadero Place 2400 Geng Road,
Palo Alto, California 94303.
29
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Shareowners who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
Christos M. Cotsakos
Chairman and Chief Executive Officer
January 28, 1999
Palo Alto, California
30
ANNEX A
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
E*TRADE GROUP, INC.
FIRST. The name of the corporation is E*TRADE Group, Inc. (the
"Corporation").
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. (a) The Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that the corporation is authorized to issue is Three Hundred
One Million (301,000,000) shares. Three Hundred Million (300,000,000) shares
shall be Common Stock, $0.01 par value per share. One Million (1,000,000)
shares shall be Preferred Stock, $0.01 par value.
(b) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is expressly authorized, in the resolution or
resolutions providing for the issuance of any wholly unissued series of
Preferred Stock, to fix, state and express the powers, rights, designations,
preferences, qualifications, limitations and restrictions thereof, including
without limitation: the rate of dividends upon which and the times at which
dividends on shares of such series shall be payable and the preference, if
any, which such dividends shall have relative to dividends on shares of any
other class or classes or any other series of stock of the Corporation;
whether such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which dividends on shares of such series
shall be cumulative; the voting rights, if any, to be provided for shares of
such series; the rights, if any, which the holders of shares of such series
shall have in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation; the rights, if
any, which the holders of shares of such series shall have to convert such
shares into or exchange such shares for shares of stock of the Corporation,
and the terms and conditions, including price and rate of exchange of such
conversion or exchange; and the redemption rights (including sinking fund
provisions), if any, for shares of such series; and such other powers, rights,
designations, preferences, qualifications, limitations and restrictions as the
Board of Directors may desire to so fix. The Board of Directors is also
expressly authorized to fix the number of shares constituting such series and
to increase or decrease the number of shares of any series prior to the
issuance of shares of that series and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not to decrease such number below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of two-
thirds of the total number of Directors which the Corporation would have if
there were no vacancies. In addition, new Bylaws may be adopted or the Bylaws
may be amended or repealed by the affirmative vote of at least 66 2/3 percent
of the combined voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 66 2/3 percent
of the combined voting power of all shares of the Corporation entitled to
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vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any
provision inconsistent with, this Article FIFTH.
SIXTH. (a) Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at an annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.
(b) Special meetings of stockholders of the Corporation may be called only
by the (i) Chairman of the Board of Directors, (ii) President, (iii) Chairman
or the Secretary at the written request of a majority of the total number of
Directors which the Corporation would have if there were no vacancies upon not
fewer than 10 or more than 60 days' written notice, or (iv) holders of shares
entitled to cast not less than 10 percent of the votes at such special meeting
upon not fewer than 10 nor more than 60 days' written notice. Any request for
a special meeting of stockholders shall be sent to the Chairman and the
Secretary and shall state the purposes of the proposed meeting. Special
meetings of holders of the outstanding Preferred Stock may be called in the
manner and for the purposes provided in the resolutions of the Board of
Directors providing for the issue of such stock. Business transacted at
special meetings shall be confined to the purpose or purposes stated in the
notice of meeting.
(c) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 66 2/3% of
the combined voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SIXTH.
SEVENTH. (a) The number of Directors which shall constitute the whole Board
of Directors of this corporation shall be as specified in the Bylaws of this
corporation, subject to this Article SEVENTH.
(b) The Directors shall be classified with respect to the time for which
they severally hold office into three classes designated Class I, Class II and
Class III, as nearly equal in number as possible, as shall be provided in the
manner specified in the Bylaws of the Corporation. Each Director shall serve
for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which the Director was elected; provided,
however, that each initial Director in Class I shall hold office until the
annual meeting of stockholders in 1999, each initial Director in Class II
shall hold office until the annual meeting of stockholders in 1998, and each
initial Director in Class III shall hold office until the annual meeting of
stockholders in 1997. Notwithstanding the foregoing provisions of this Article
SEVENTH, each Director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized number of
Directors, (i) each Director then serving as such shall nevertheless continue
as a Director of the class of which he is a member until the expiration of his
current term, or his early resignation, removal from office or death, and (ii)
the newly created or eliminated directorship resulting from such increase or
decrease shall be apportioned by the Board of Directors among the three
classes of Directors so as to maintain such classes as nearly equally as
possible.
(d) Any Director or the entire Board of Directors may be removed by the
affirmative vote of the holders of at least 66 2/3 percent of the combined
voting power of all shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
(e) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 66 2/3% of
the combined voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required to alter, change, amend, repeal or adopt any provision
inconsistent with, this Article SEVENTH.
EIGHTH. (a) 1. In addition to any affirmative vote required by law, any
Business Combination (as hereinafter defined) shall require the affirmative
vote of at least 66 2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class
A-2
(for purposes of this Article EIGHTH, the "Voting Shares"). Such affirmative
vote shall be required notwithstanding the fact that no vote may be required,
or that some lesser percentage may be specified by law or in any agreement
with any national securities exchange or otherwise.
2. The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of the following
clauses (A) through (E):
(A) any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with or into (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) or Associate (as
hereinafter defined) of an Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with, or proposed by or on behalf of, any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder, of any assets of the
Corporation or any Subsidiary constituting not less than five percent of
the total assets of the Corporation, as reported in the consolidated
balance sheet of the Corporation as of the end of the most recent quarter
with respect to which such balance sheet has been prepared; or
(C) the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of related transactions) of any securities of the
Corporation or any Subsidiary to, or proposed by or on behalf of, any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a
combination thereof) constituting not less than five percent of the total
assets of the Corporation, as reported in the consolidated balance sheet of
the Corporation as of the end of the most recent quarter with respect to
which such balance sheet has been prepared; or
(D) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation, or any spin-off or split-up of any kind of
the Corporation or any Subsidiary, proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(E) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
similar transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the percentage of the outstanding shares of (i) any class of
equity securities of the Corporation or any Subsidiary or (ii) any class of
securities of the Corporation or any Subsidiary convertible into equity
securities of the Corporation or any Subsidiary, represented by securities
of such class which are directly or indirectly owned by any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder.
(b) The provisions of section (a) of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of this Certificate of Incorporation, if such Business
Combination has been approved by two-thirds of the whole Board of Directors.
(c) For the purposes of this Article EIGHTH:
1. A "person" shall mean any individual, firm, corporation or other
entity.
2. "Interested Stockholder" shall mean, in respect of any Business
Combination, any person (other than the Corporation or any Subsidiary) who
or which, as of the record date for the determination of stockholders
entitled to notice of and to vote on such Business Combination, or
immediately prior to the consummation of any such transaction
(A) is or was, at any time within two years prior thereto, the
beneficial owner, directly or indirectly, of 10 percent or more of the
then outstanding Voting Shares, or
A-3
(B) is an Affiliate or Associate of the Corporation and at any time
within two years prior thereto was the beneficial owner, directly or
indirectly, of 10 percent or more of the then outstanding Voting
Shares, or
(C) is an assignee of or has otherwise succeeded to any shares of
capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder,
if such assignment or succession shall have occurred in the course of a
transaction, or series of transactions, not involving a public offering
within the meaning of the Securities Act of 1933, as amended.
3. A "person" shall be the "beneficial owner" of any Voting Shares
(A) which such person or any of its Affiliates and Associates (as
hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.
4. The outstanding Voting Shares shall include shares deemed owned
through application of paragraph 3 above but shall not include any other
Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings given
those terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on the date of adoption of
this Certificate of Incorporation (the "Exchange Act").
6. "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules
and Regulations under the Exchange Act) is owned, directly or indirectly,
by the Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this
section (c) the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly,
by the Corporation.
(d) A majority of the directors shall have the power and duty to determine
for the purposes of this Article EIGHTH on the basis of information known to
them, (1) whether a person is an Interested Stockholder, (2) the number of
Voting Shares beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in
paragraph 3 of section (c), or (5) whether the assets subject to any Business
Combination or the consideration received for the issuance or transfer of
securities by the Corporation or any Subsidiary constitutes not less than five
percent of the total assets of the Corporation.
(e) Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
(f) Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 66 2/3
percent of the combined voting power of all shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any
provision inconsistent with, this Article EIGHTH.
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NINTH. This Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
TENTH. A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (1) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the General Corporation Law
of Delaware, or (4) for any transaction from which the Director derived any
improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of a corporation's directors
for breach of fiduciary duty, then a Director of the Corporation shall not be
liable for any such breach to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of the
foregoing provisions of this Article TENTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director
of the Corporation existing at the time of such repeal or modification.
A-5
ANNEX B
E*TRADE GROUP, INC.
1996 Stock Incentive Plan
As Amended And Restated Through December 24, 1998
ARTICLE ONE
General Provisions
I. PURPOSE OF THE PLAN
This 1996 Stock Incentive Plan is intended to promote the interests of
E*TRADE Group, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
--the Discretionary Option Grant Program under which eligible persons may,
at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
--the Salary Investment Option Grant Program under which eligible
associates may elect to have a portion of their base salary invested each
year in special option grants,
--the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary),
--the Automatic Option Grant Program under which eligible non-associate
Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and
--the Director Fee Option Grant Program under which non-associate Board
members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under
the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible
to participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons. The
members of the Secondary Committee may be Board members who are Associates
eligible to receive discretionary option grants or direct stock issuances
under the Plan or any other stock option, stock appreciation, stock bonus or
other stock plan of the Corporation (or any Parent or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
B-1
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding
options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant and Stock Issuance Programs under
its jurisdiction or any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Associates
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise
any discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those
programs.
IV.ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs are as follows:
1. Associates,
2. non-associate members of the Board or the board of directors of any
Parent or Subsidiary, and
3. consultants and other independent advisors who provide services to the
Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with
respect to the option grants under the Discretionary Option Grant Program,
which eligible persons are to receive option grants, the time or times when
such option grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the
consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with the Discretionary Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.
B-2
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals serving as non-
associate Board members on the Underwriting Date who have not previously
received a stock option grant from the Corporation, (ii) those individuals who
first become non-associate Board members after the Underwriting Date, whether
through appointment by the Board or election by the Corporation's
stockholders, and (iii) those individuals who continue to serve as non-
associate Board members at one or more Annual Stockholders Meetings held after
the Underwriting Date. A non-associate Board member who has previously been in
the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an option grant under the Automatic Option Grant Program
at the time he or she first becomes a non-associate Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-associate Board member.
F. All non-associate Board members shall be eligible to participate in the
Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
14,644,120 shares. Such authorized share reserve is comprised of (i) the
shares subject to the outstanding options under the Predecessor Plan which
have been incorporated into the Plan/1/, plus (ii) an additional increase of
4,000,000 shares authorized by the Board and subsequently approved by the
stockholders prior to the Section 12 Registration Date, plus (iii) an
additional increase of 1,900,000 shares authorized by the Board on December
22, 1997, and approved by the stockholders at the 1998 Annual Meeting; plus
(iv) an additional increase of 2,750,000 shares authorized by the Board on
October 21, 1998, subject to stockholder approval at the 1999 Annual Meeting.
B. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
500,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1996 calendar year.
C. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent those options expire or
terminate for any reason prior to exercise in full. Unvested shares issued
under the Plan and subsequently cancelled or repurchased by the Corporation,
at the original issue price paid per share, pursuant to the Corporation's
repurchase rights under the Plan shall be added back to the number of shares
of Common Stock reserved for issuance under the Plan and shall accordingly be
available for reissuance through one or more subsequent option grants or
direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares
of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under
the Plan shall be reduced by the gross number of shares for which the option
is exercised or which vest under the stock issuance, and not by the net number
of shares of Common Stock issued to the holder of such option or stock
issuance.
D. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made
to (i) the maximum number and/or class of securities issuable under the Plan,
(ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the Automatic Option Grant Program to new and continuing non- associate Board
members, (iv) the number and/or class of securities and the exercise price per
share in effect
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(l) Estimated to be 5,994,120 shares of Common Stock as of May 31, 1996. The
shares numbering listed in the Plan do not reflect the two (2) for one (1)
stock split approved by the Board on December 30, 1998, effective ;January
29, 1999.
B-3
under each outstanding option under the Plan and (v) the number and/or class
of securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
ARTICLE TWO
Discretionary Option Grant Program
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved
by the Plan Administrator; provided, however, that each such document shall
comply with the terms specified below. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the Plan applicable
to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (b) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale.
Except to the extent such sale and remittance procedure is utilized, payment
of the exercise price for the purchased shares must be made on the Exercise
Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set
forth in the documents evidencing the option, but no such option shall
be exercisable after the expiration of the option term.
B-4
(ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.
(iii) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the applicable post-
Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person
shall have exercised the option, paid the exercise price and become a holder
of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall
be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
the Plan shall not be subject to the terms of this Section II.
B-5
A. Eligibility. Incentive Options may only be granted to Associates.
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Associate under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Associate holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Associate to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-
vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares
of the capital stock of the successor corporation (or parent thereof), (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares
at the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate Transaction shall also be made to (i)
the exercise price payable per share under each outstanding option, provided
the aggregate exercise price payable for such securities shall remain the
same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service subsequently
B-6
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to grant
options under the Discretionary Option Grant Program which will automatically
accelerate in the event the Optionee's Service subsequently terminates by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Change in Control.
Each option so accelerated shall remain exercisable for fully-vested shares
until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon such
terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is approved by
the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
B-7
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual holding
one or more options with such a limited stock appreciation right shall have
the unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the Corporation,
to the extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which are
at the time vested under each surrendered option (or surrendered portion
thereof) over (B) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
option surrender date.
(iii) The Plan Administrator shall, at the time the limited stock
appreciation right is granted, pre-approve the subsequent exercise of that
right in accordance with the terms and conditions of this Section V.C.
Accordingly, no additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall continue in full force and
effect in accordance with the documents evidencing such option.
ARTICLE THREE
Salary Investment Option Grant Program
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Associates eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each
selected individual who elects to participate in the Salary Investment Option
Grant Program must, prior to the start of each calendar year of participation,
file with the Plan Administrator (or its designate) an irrevocable
authorization directing the Corporation to reduce his or her base salary for
that calendar year by an amount not less than Ten Thousand Dollars
($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary
Committee shall have complete discretion to determine whether to approve the
filed authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall
automatically be granted an option under the Salary Investment Grant Program
on the first trading day in January of the calendar year for which the salary
reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33 1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
B-8
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x 66 2/3%), where
X is the number of option shares,
A is the dollar amount of the
approved reduction in the Optionee's
base salary for the calendar year,
and
B is the Fair Market Value per
share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year
for which the salary reduction is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service for
any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service,
until the earlier of (i) the expiration of the ten (10)-year option term or
(ii) the expiration of the three (3)-year period measured from the date of
such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of
the Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution. Such right of exercise shall lapse, and the option shall
terminate, upon the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for
which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. Each
such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall immediately become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully-vested shares
B-9
of Common Stock. The option shall remain so exercisable until the earlier of
(i) the expiration of the ten (10)-year option term, (ii) the expiration of
the three (3)-year period measured from the date of the Optionee's cessation
of Service or (iii) the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Primary Committee or the Board shall be required at
the time of the actual option surrender and cash distribution.
D. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
ARTICLE FOUR
Stock Issuance Program
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement
which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan Administrator,
but shall not be less than one hundred percent (100%) of the Fair Market
Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
B-10
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule, shall be determined by the Plan Administrator and
incorporated into the Stock Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock
split, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant's unvested shares
of Common Stock and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect
to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued
to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money indebtedness), the Corporation
shall repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other
assets attributable thereto) which would otherwise occur upon the cessation
of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common
Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation rights under
the Stock Issuance Program shall terminate automatically, and all the shares
of Common Stock subject to those terminated rights shall immediately vest in
full, in the event of any Corporate Transaction, except to the extent (i)
those repurchase/cancellation rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed in
the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof).
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C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time
while the Corporation's repurchase/cancellation rights remain outstanding
under the Stock Issuance Program, to provide that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FIVE
Automatic Option Grant Program
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual serving as a non-associate Board member on the
Underwriting Date shall automatically be granted at that time a Non-
Statutory Option to purchase 20,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary and has not previously received a stock option grant
from the Corporation.
2. Each individual who is first elected or appointed as a non-associate
Board member at any time after the Underwriting Date shall automatically be
granted, on the date of such initial election or appointment, a Non-
Statutory Option to purchase 20,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-
election to the Board at that particular Annual Meeting, shall
automatically be granted a Non-Statutory Option to purchase 5,000 shares of
Common Stock, provided such individual has served as a non-associate Board
member for at least six (6) months. There shall be no limit on the number
of such 5,000-share option grants any one Eligible Director may receive
over his or her period of Board service, and non-associate Board members
who have previously been in the employ of the Corporation (or any Parent or
Subsidiary) or who have otherwise received a stock option grant from the
Corporation prior to the Underwriting Date shall be eligible to receive one
or more such annual option grants over their period of continued Board
service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to
the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation,
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at the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. Each initial 20,000-share grant
shall vest, and the Corporation's repurchase right shall lapse, in a series of
four (4) successive equal annual installments over the Optionee's period of
continued service as a Board member, with the first such installment to vest
upon the Optionee's completion of one (1) year of Board service measured from
the option grant date. Each annual 5,000-share grant shall vest, and the
Corporation's repurchase right shall lapse, upon the Optionee's completion of
two (2) years of Board service measured from the option grant date.
E. Termination of Board Service. The following provisions shall govern the
exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom
the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of
death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve
(12)-month exercise period following such cessation of Board service, be
exercised for all or any portion of those shares as fully-vested shares of
Common Stock.
(iv) In no event shall the option remain exercisable after the expiration
of the option term. Upon the expiration of the twelve (12)-month exercise
period or (if earlier) upon the expiration of the option term, the option
shall terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service for any reason other than
death or Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of those shares as fully-vested shares
of Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Change in Control, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each automatic
option held by him or her. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash
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distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan, as amended and
restated on December 22, 1997, shall constitute pre-approval of the surrender
of each automatic option in accordance with the terms and provisions of this
Section II.C. No additional approval of any Plan Administrator or the consent
of the Board shall be required in connection with such option surrender and
cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same.
E. The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
ARTICLE SIX
Director Fee Option Grant Program
I. OPTION GRANTS
Each non-associate Board member may elect to apply all or any portion of the
annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-associate Board member who files such a timely election shall
automatically be granted an option under this Director Fee Option Grant
Program on the first trading day in January in the calendar year for which the
annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33 1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x 66 2/3%), where
X is the number of option shares,
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A is the portion of the annual retainer fee subject to the
non-associate Board member's election, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten
(10) years measured from the option grant date.
D. Termination of Board Service. Should the Optionee cease Board service for
any reason (other than death or Permanent Disability) while holding one or
more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such
cessation of Board service. However, each option held by the Optionee under
this Director Fee Option Grant Program at the time of his or her cessation of
Board service shall immediately terminate and cease to remain outstanding with
respect to any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.
E. Death or Permanent Disability. Should the Optionee's service as a Board
member cease by reason of death or Permanent Disability, then each option held
by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of
those shares as fully-vested shares until the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while holding
one or more options under this Director Fee Option Grant Program, then each
such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains a
Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. Each
such outstanding option shall be assumed by the successor corporation (or
parent thereof) in the Corporate Transaction and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service.
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C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.
D. The grant of options under the Director Fee Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
ARTICLE SEVEN
Miscellaneous
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering
a full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all holders
of Non-Statutory Options or unvested shares of Common Stock under the Plan
(other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use
shares of Common Stock in satisfaction of all or part of the Taxes incurred by
such holders in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder in either or
both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from the
shares of Common Stock otherwise issuable upon the exercise of such Non-
Statutory Option or the vesting of such shares, a portion of those shares with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the time the
Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other
B-16
than in connection with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was initially adopted by the Board on May 31, 1996, and was
subsequently approved by the stockholders. The Discretionary Option Grant and
the Stock Issuance Programs became effective immediately upon the Plan
Effective Date.
B. The Automatic Option Grant Program became effective on the Underwriting
Date. The Plan was subsequently amended by the Board on December 22, 1997 to
(i) increase the maximum number of shares of Common Stock authorized for
issuance under the Plan by 1,900,000 shares, (ii) allow individuals who
administer the Plan to be included in the group of non-associate Board members
eligible to receive option grants and direct stock issuances under the
Discretionary Option Grant and Stock Issuance Programs, (iii) remove certain
restrictions on the eligibility of non-associate Board members to serve as
Plan Administrator, and (iv) effect a series of technical changes to the
provisions of the Plan (including stockholder approval requirements, certain
holding period restrictions, and the frequency of which the Automatic Option
Grant Program may be amended) in order to take advantage of the November 1996
amendments to Rule 16b-3 of the 1934 Act which exempts certain officer and
director transactions under the Plan from the short-swing liability provisions
of the federal securities laws ("December 1997 Amendment"). The December 1997
Amendment was approved by the stockholders at the 1998 Annual Meeting.
C. On October 21, 1998, the Board amended and restated the Plan to increase
the maximum number of shares of Common Stock authorized for issuance under the
Plan by 2,750,000 shares, to 14,644,120 shares of Common Stock. On December
24, 1998 the Board again amended and restated the Plan to incorporate the
Salary Investment Option Grant and Director Fee Option Grant Programs. Both
Amendments are subject to stockholder approval at the 1999 Annual Meeting.
Options granted or shares issued in reliance on 2,750,000-share increase shall
be held in escrow until stockholder approval of the October 1998 Amendment.
The Salary Investment Option Grant Program and Director Fee Option Program
shall not be implemented until such time as the Primary Committee may deem
appropriate. The option grants made prior to the October 1998 Amendment shall
remain outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options or issuances and nothing in
the October 1998 Amendment shall be deemed to modify or in any away affect
those outstanding options or issuances. Subject to the foregoing limitations,
the Plan Administrator may make option grants under the Plan at any time
before the date fixed herein for the termination of the Plan.
D. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12(g) Registration Date. All options
outstanding under the Predecessor Plan on the Section 12(g) Registration Date
shall be incorporated into the Plan at that time and shall be treated as
outstanding options under the Plan. However, each outstanding option so
incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
E. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the
Predecessor Plan which do not otherwise contain such provisions.
F. The Plan shall terminate upon the earliest of (i) May 30, 2006, (ii) the
date on which all shares available for issuance under the Plan shall have been
issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
B-17
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval
of an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan
and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow, and such shares
shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise
of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
B-18
APPENDIX
The following definitions shall be in effect under the Plan:
A. Associate shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
B. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.
C. Board shall mean the Corporation's Board of Directors.
D. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time the Board approved such election or nomination.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporate Transaction shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
H. Corporation shall mean E*TRADE Group, Inc. and any corporate successor to
all or substantially all of the assets or voting stock of E*TRADE Group, Inc.
which shall by appropriate action adopt the Plan.
I. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.
J. Director Fee Option Grant Program shall mean the special stock option
grant in effect for non-associate Board members under Article Six of the Plan.
K. Eligible Director shall mean a non-associate Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
B-19
L. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the average of the high and low
selling prices per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no average of
the high and low selling prices per share for the Common Stock on the date
in question, then the Fair Market Value shall be the average of the high
and low selling prices per share on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and low selling
prices per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no average of the high and
low selling prices per share for the Common Stock on the date in question,
then the Fair Market Value shall be the average of the high and low selling
prices per share on the last preceding date for which such quotation
exists.
(iii) For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in the initial public offering
pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the Underwriting
Date, the Fair Market Value shall be determined by the Plan Administrator,
after taking into account such factors as it deems appropriate.
N. Hostile Take-Over shall mean a change in ownership of the Corporation
effected through the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to
a tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept.
O. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
P. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
any corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
Q. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation
(or
B-20
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the Service of the
Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
S. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Program.
U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant and Director
Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall
mean the inability of the non-associate Board member to perform his or her
usual duties as a Board member by reason of any medically determinable
physical or mental impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1996 Stock Incentive Plan, as set forth
in this document.
Y. Plan Administrator shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
Z. Plan Effective Date shall mean May 31, 1996, the date on which the Plan
was adopted by the Board.
AA. Predecessor Plan shall mean the Corporation's pre-existing 1993 Stock
Option Plan (which is the successor to the 1983 Employee Incentive Stock
Option Plan) in effect immediately prior to the Plan Effective Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more non-
associate Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders
and to administer the Salary Investment Option Grant Program solely with
respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary investment
option grant program in effect under the Plan.
DD. Secondary Committee shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
EE. Section 12 Registration Date shall mean the date on which the Common
Stock was first registered under Section 12(g) of the 1934 Act.
B-21
FF. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
GG. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Associate, a non-
associate member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
HH. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
II. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
JJ. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.
KK. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
LL. Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.
MM. Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the
vesting of those shares.
NN. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
OO. Underwriting Agreement shall mean the agreement between the Corporation
and the underwriter or underwriters who managed the initial public offering of
the Common Stock.
PP. Underwriting Date shall mean August 15, 1996, which is the date on which
the Underwriting Agreement was executed and priced in connection with an
initial public offering of the Common Stock.
B-22
E*TRADE GROUP, INC.
PROXY FOR
ANNUAL MEETING OF SHAREOWNERS
MARCH 9, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christos M. Cotsakos, Kathy Levinson and
Leonard C. Purkis, and each or any of them as Proxies of the undersigned, with
full power of substitution, and hereby authorizes them to represent and to vote,
as designated below, all of the shares of Common Stock of E*TRADE Group, Inc.,
held of record by the undersigned on January 19, 1999 at the Annual Meeting of
Shareowners of E*TRADE Group, Inc. to be held March 9, 1999 at 10:00 a.m. local
time, or at any adjournment thereof.
1. Election of Directors
[_] 1 FOR all nominees listed [_] 2 WITHHOLD AUTHORITY
below (Except as marked to vote for all
to the contrary below) nominees listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
Christos M. Cotsakos, William A. Porter, Richard S. Braddock, Masayoshi Son
___________________________________________________________________________
2. To amend the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock.
[_] 3 FOR [_] 4 AGAINST [_] 5 ABSTAIN
3. To approve a series of amendments to the 1996 Stock Incentive Plan,
including a 2,750,000 share increase in the maximum number of shares
authorized for issuance under the plan.
[_] 6 FOR [_] 7 AGAINST [_] 8 ABSTAIN
4. To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Company.
[_] 9 FOR [_] 10 AGAINST [_] 11 ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2, 3 AND 4.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ABOVE. THIS PROXY
WILL BE VOTED FOR PROPOSAL NOS. 1, 2, 3 AND 4 IF NO SPECIFICATION IS MADE.
Please sign exactly as your name(s) is (are) shown on the share certificate
to which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED: , 1999
___________________________________________
________________________________________________________________________________
Signature
________________________________________________________________________________
(Additional signature if held jointly)
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
________________________________________________________________________________
[_] [_] [_] [_] [_]