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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material under Rule 14a-12
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.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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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 number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[COMPANY LOGO APPEARS HERE]
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NOTICE OF ANNUAL MEETING OF SHAREOWNERS TO BE HELD DECEMBER 21, 2000
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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
Hotel Sofitel, 223 Twin Dolphin Drive, Bordeaux Room, Redwood City, California
94065 on December 21, 2000 at 10:00 a.m. local time, for the following purposes:
1. To elect three directors to the Board of Directors;
2. To approve a 14,923,512 share increase in the maximum number of shares
of Common Stock reserved for issuance under the Company's 1996 Stock
Incentive Plan (the "1996 Plan");
3. To approve an additional amendment to the 1996 Plan to automatically
increase the number of shares reserved for issuance under the 1996
Plan in each of the four years beginning in 2002;
4. To approve an additional amendment to the 1996 Plan to increase the
annual maximum number of shares allowed to be granted to any one
participant from 2,000,000 shares to 6,000,000 shares;
5. To approve a new performance-based bonus plan;
6. To consider and vote upon a proposal to ratify the selection of
Deloitte & Touche LLP as independent public accountants for the
Company for fiscal year 2001; and
7. 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 November 6, 2000
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 and Series A Preferred Stock of the Company, voting together as a single
class, 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 Annual Report and Proxy
Statement electronically over the Internet, you will not receive a paper proxy
card and we encourage you to 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 still 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.
All shareowners are invited to attend the meeting. Details and directions
to the Hotel Sofitel may be found at WWW.ETRADE.COM/SHAREOWNERS. Although you
are not required to do so, we ask that you register in advance at
www.etrade.com/shareowners (username: shareowner; password: etrade2000) so that
we may plan for the appropriate number of attendees. If you do not have Internet
access, please call (650) 331-5397 to let us know that you will be attending.
Very truly yours,
/s/ Christos M. Cotsakos
Christos M. Cotsakos
Chairman of the Board and Chief
Executive Officer
November 22, 2000
Menlo Park, California
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 DECEMBER 21, 2000
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 Hotel Sofitel, 223 Twin Dolphin Drive, Bordeaux Room, Redwood City,
California 94065 on December 21, 2000 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 November 22, 2000.
The principal executive offices of E*TRADE are located at 4500 Bohannon Drive,
Menlo Park, California 94025.
VOTING RIGHTS AND SOLICITATION
The close of business on November 6, 2000 is the record date for
shareowners entitled to notice of, and to vote at, the Annual Meeting. As of
that date, E*TRADE had 306,586,119 shares of Common Stock, $.01 par value per
share (the "Common Stock"), issued and outstanding, and one (1) share of Series
A Preferred Stock, $.01 par value per share (the "EGI Special Voting Share"),
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. The EGI Special Voting Share
is entitled to vote at the Annual Meeting together with the Common Stock of the
Company as a single class. The EGI Special Voting Share is entitled to up to
that number of votes equal to the number of Exchangeable Shares of EGI Canada
Corporation (the "Exchangeable Shares") outstanding on the record date, other
than those Exchangeable Shares held by E*TRADE or its affiliates. The number of
Exchangeable Shares outstanding as of the record date, excluding those shares
held by E*TRADE or its affiliates, is 4,048,236 and therefore the EGI Special
Voting Share is entitled to 4,048,236 votes.
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 increase the shares available for issuance under the 1996 Plan as described
herein under "Proposal 2 -- Approval of Amendment to the Company's 1996 Stock
Incentive Plan," FOR the proposal to approve an additional amendment to
automatically increase the number of shares reserved for issuance under the 1996
Plan for calendar year 2002 and subsequent years as described herein under
"Proposal 3 -- Approval of Additional Amendment to the 1996 Stock Incentive Plan
to Automatically Increase the Number of Shares Available in Each of the Four
Years Beginning in 2002," FOR an additional amendment to the 1996 Plan to
increase the annual maximum number of shares allowed to be granted to any one
participant as described herein under "Proposal 4 -- Approval of Additional
Amendment to the Company's 1996 Stock Incentive Plan to Increase Annual Maximum
Number of Shares Granted to Any One Participant," FOR the approval of the
E*TRADE Bonus Plan as described herein under "Proposal 5 -- Approval of a New
Performance-Based Bonus Plan," and FOR ratification of the
selection of accountants as described herein under "Proposal 6 -- Ratification
of Selection of Independent Public Accountants."
Voting rights under the EGI Special Voting Share will be exercised by
Montreal Trust Company of Canada, as trustee for the holders of Exchangeable
Shares in accordance with instructions duly received from holders of
Exchangeable Shares. To the extent that no such instructions are received, such
voting rights will not be exercised.
Election of directors by shareowners shall be determined by a plurality of
the votes cast by the shareowners entitled to vote at the election who are
present in person or represented by proxy. The approval of the proposal to
increase the number of shares reserved for issuance under the 1996 Plan, the
proposal to approve the additional amendment to automatically increase the
shares reserved for issuance under the 1996 Plan in each of the four years
beginning in 2002, the proposal to increase the annual maximum number of shares
allowed to be granted to any one participant under the 1996 Plan, the proposal
to approve the E*TRADE performance-based bonus 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
in tabulations of the votes cast on proposals presented to shareowners.
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 the Company. The
Company has retained the services of Innisfree M&A Incorporated ("Innisfree") to
assist in the solicitation of proxies. Innisfree will receive a fee from the
Company for services rendered of approximately $15,000, 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, facsimile, telegraph or special letter by officers and other
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
holders of the Exchangeable Shares, and such persons may be reimbursed for their
expenses.
VOTING ELECTRONICALLY VIA THE INTERNET
Holders of E*TRADE Common Stock may vote via the Internet at the
www.ProxyVote.com Web site up until 11:59 p.m. EST on December 20, 2000.
(Electronic voting for the holders of Exchangeable Shares is not available so if
you are a holder of Exchangeable Shares, please follow the voting instructions
provided with your shareowner materials.) The Internet voting procedures are
designed to authenticate the shareowner's identity and to allow shareowners to
vote their shares and confirm that their instructions have been properly
recorded. If you would like to receive future shareowner materials
electronically, please enroll after you complete your voting process on
www.ProxyVote.com.
Please refer to the proxy card enclosed herewith for voting instructions.
If your voting form does not provide for voting via the Internet or you choose
not to vote over the Internet, please complete and return the paper proxy card
in the pre-addressed, postage-paid envelope provided herewith.
PROPOSAL 1
ELECTION OF DIRECTORS
Three directors are currently standing for re-election to the E*TRADE Board
of Directors. The members of the Board of Directors 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. In the absence of contrary instructions, 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 to 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
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NAME PRINCIPAL OCCUPATION DIRECTOR SINCE CLASS AND YEAR IN AGE
WHICH TERM WILL
EXPIRE
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Ronald D. Fisher Vice-Chairman, SOFTBANK Holdings Inc. 2000 Class II 53
Fiscal 2004
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William E. Ford Partner, General Atlantic Partners, 1995 Class II 39
LLC Fiscal 2004
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George Hayter Partner, George Hayter Associates 1995 Class II 62
Fiscal 2004
- ------------------------- --------------------------------------- ------------------ --------------------- ------
RONALD D. FISHER has been a director of the Company since October 2000. He
was appointed to fill the vacancy left by Mr. Masayoshi Son's departure from the
Board of Directors. Mr. Fisher is Vice-Chairman of SOFTBANK Holdings, Inc. where
he oversees all of SOFTBANK's activities outside of Asia. He joined SOFTBANK in
October of 1995. From January 1990 through September 1995, Mr. Fisher was the
Chief Executive Officer of Phoenix Technologies, Ltd., a company that develops
and markets system software for personal computers. Mr. Fisher joined Phoenix
Technologies from Interactive Systems Corporation, a UNIX software company that
was purchased by Eastman Kodak Company in 1988. At Interactive Systems Corp., he
served as the company's President, Chief Operating Officer and ultimately its
Chief Executive Officer. Mr. Fisher serves as a director of SOFTBANK
Corporation, Japan; Global Sports, Inc., a publicly-traded developer and
operator of e-commerce sporting goods businesses; InsWeb Corporation, a
publicly-traded online insurance company that enables consumers to shop online
and obtain quotes for insurance products; Key3media Group, Inc., a
publicly-traded producer, manager and promoter of tradeshows and other events
for the information technology industry; and PeoplePC, Inc., a publicly-traded
provider of computer products and services. Mr. Fisher received a Bachelor of
Commerce degree from the University of Witwatersand, South Africa, and an MBA
from Columbia University.
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 Priceline.com, a publicly-traded buyer-driven
e-commerce company whose "demand collection system" enables consumers to use the
Internet to save money on a wide range of products and services; Tickets.com, a
publicly-traded provider of entertainment tickets, event information and related
products and services through the Internet, retail stores, telephone sales
centers and interactive voice response systems; Eclipsys Corporation, a provider
of clinical, financial and administrative software solutions to the health care
industry; Prime Response, Inc. a provider of integrated eMarketing software
solutions that enable businesses to create and manage marketing campaigns; Wit
SoundView Group, Inc., a publicly-traded Internet investment, banking and
brokerage
firm; 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 been a
partner of George Hayter Associates, a consulting firm, since 1990. From 1976 to
1990, he served with the London Stock Exchange, with responsibility for
information and trading systems, his final position being the Managing Director
of Trading Markets Division. Mr. Hayter serves on the boards of two London Stock
Exchange listed companies. He serves on the board of Surfcontrol, PLC, a UK AIM
and EASDAQ listed specialist software provider, and is chairman of ICM Computer
Group PLC, an information technology services company. He also serves on the
board of two privately-held U.K. companies, Magacom Ltd. and RUPUS Ltd., where
he serves as Chairman of the Board. He received an MA in Natural Sciences from
Queens' College, Cambridge, England.
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.
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
NAME PRINCIPAL OCCUPATION DIRECTOR SINCE CLASS AND YEAR IN AGE
WHICH TERM WILL EXPIRE
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
Christos M. Cotsakos Chairman of the Board and Chief 1996 Class I 52
Executive Officer of E*TRADE Group, Fiscal 2002
Inc.
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
Peter Chernin President and Chief Operating Officer 1999 Class III 49
of FOX Entertainment Group, Inc. Fiscal 2003
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
David C. Hayden Chairman of the Board, Critical Path, 2000 Class I 45
Inc. Fiscal 2002
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
William A. Porter Chairman Emeritus of E*TRADE Group, 1982 Class I 72
Inc. Fiscal 2002
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
Lewis E. Randall Private Investor 1983 Class III 58
Fiscal 2003
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
Lester C. Thurow Professor of Management and 1996 Class III 62
Economics, Massachusetts Institute of Fiscal 2003
Technology
- ---------------------------- --------------------------------------- --------------- ----------------------- ---------
CHRISTOS M. COTSAKOS is Chairman of the Board and Chief Executive Officer
of E*TRADE Group, Inc. He joined E*TRADE in March 1996 as President and Chief
Executive Officer. Prior to being recruited to E*TRADE, he spent five years at
the A.C. Nielsen Company in various senior executive positions which culminated
in his position as global Co-Chief Executive Officer, Chief Operating Officer,
President and a director from March 1995 to January 1996. Mr. Cotsakos was
recruited to Nielsen after 19 years with the Federal Express Corporation, where
he held a number of senior executive positions. Mr. Cotsakos is a national
best-selling author with his recently published book, "IT'S YOUR MONEY." Mr.
Cotsakos is co-chair of the Vietnam Veterans Memorial Fund. Mr. Cotsakos serves
as a director of FOX Entertainment Group, Inc., Digital Island, Inc., Wit
SoundView Group, Inc., Webvan Group, Inc., and Official Payments Corporation. A
decorated Vietnam Veteran, he received a BA from William Paterson University, an
MBA from Pepperdine University and is currently completing a Ph.D. 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,
A.C. Nielsen and Federal Express.
PETER CHERNIN has been a director of the Company since October 1999. He has
been a director and President and Chief Operating Officer of FOX Entertainment
Group, Inc. since August 1998. Mr. Chernin has been an Executive Director,
President and Chief Operating Officer of News Corporation and a director,
Chairman and Chief Executive Officer of NAI since 1996. He was Chairman and
Chief Executive Officer of FOX Filmed Entertainment from 1994 until 1996,
Chairman of Twentieth Century FOX Film from 1992 until 1994 and President of the
FOX Entertainment Group of FOX Broadcasting Company from 1989 until 1992. Mr.
Chernin also served as director of T.V. Guide, Inc. and currently serves as a
director of Tickets.com, a publicly-traded provider of entertainment tickets,
event information and related products and services. He received a BA from the
University of California at Berkeley.
DAVID C. HAYDEN has served as a director of the Company since August 2000.
He was elected to fill the vacancy left by Richard Braddock's departure from the
Company's Board of Directors. Mr. Hayden is Chairman of the Board of Directors
of Critical Path, Inc., a position he has held since October 1998. He served as
Critical Path's Chairman, President, Chief Executive Officer and Secretary from
its inception in February 1997 until October 1998. From February 1993 to August
1996, Mr. Hayden served as Chairman, Chief Executive Officer, and co-founder of
The McKinley Group, Inc., creators of Magellan, an internet search engine. Mr.
Hayden serves as a director of cMeRun Corp., a publicly-traded company that
provides consumers access to brand name software programs via a secure Web
browser, and Hispanic Television Network, a publicly-traded company that
operates a U.S.-based, Spanish-language television network. Mr. Hayden received
a BA in political science from Stanford University.
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. Mr. Porter 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. Mr. Porter founded E*TRADE Securities,
Inc. in 1992. Mr. Porter is a founder and the first Chairman of the
International Securities Exchange. He 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.
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, Chief Financial
Officer, President, co-owner). From 1984 to 1987, he was a member of the board,
and more briefly, Chief Financial Officer, of ViMart Corp., a privately held
software marketing company. Mr. Randall worked for both Apple Computer from 1979
to 1983 and Intel Corporation from 1974 to 1978 during their formative years,
largely as a manager of software engineering teams. Mr. Randall holds a BA in
philosophy from Harvard University.
LESTER C. THUROW has been a director of the Company since April 1996. Mr.
Thurow has been a Professor of Management and 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 University and a Ph.D. from Harvard
University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings during
fiscal 2000, and acted by written consent on two occasions. Each director, other
than former director Masayoshi Son, 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 a Finance Committee, an Audit Committee, a Compensation
Committee, an International Committee, a Nominating Committee, and a Secondary
Committee.
The Finance Committee, currently composed of Christos M. Cotsakos
(Co-Chair), William E. Ford (Co-Chair), Ronald D. Fisher and George Hayter,
reviews acquisition and investment strategies and candidates with the Company's
management, approves acquisitions and dispositions of certain assets, and also
makes recommendations to the Board of Directors. From October 1, 1999 through
January 26, 2000, the Finance Committee was composed of Christos M. Cotsakos,
William E. Ford and Masayoshi Son. The Board appointed George Hayter to the
Committee on January 26, 2000. Mr. Fisher succeeded Mr. Son on the Committee
beginning October 25, 2000, following Mr. Son's departure from the Board of
Directors and its committees. The Finance Committee held a total of four
meetings during fiscal 2000 and acted five times by written consent.
The Audit Committee, which is currently composed of Lester C. Thurow
(Chair), Lewis E. Randall and Peter Chernin, is charged with reviewing the
results of the Company's annual audit and meeting with the Company's independent
accountants to review the Company's internal controls and financial management
practices. From October 1, 1999 through the Board's realignment of its various
committees on January 26, 2000, the Audit Committee was composed of William E.
Ford, George Hayter and Lester C. Thurow. The Audit Committee held four meetings
during fiscal 2000 and acted once by written consent.
The Compensation Committee, which is currently composed of David C. Hayden
(Chair) and William E. Ford, recommends to the Board of Directors and acts with
its authority concerning 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. Until August 10, 2000, the Compensation Committee was
composed of Richard Braddock and William E. Ford. On August 11, 2000, Mr. Hayden
succeeded Mr. Braddock on the Compensation Committee following Mr. Braddock's
departure from the Board of Directors and Mr. Hayden's election to fill the
resulting vacancy. The Compensation Committee held six meetings during fiscal
2000 and acted six times by written consent.
The International Committee was created by resolution of the Board of
Directors on October 25, 2000 and is currently composed of George Hayter (Chair)
and Christos M. Cotsakos. The International Committee, which will oversee and
develop the strategic direction of the Company's current and future
international operations, did not meet in fiscal 2000.
The Nominating Committee, which is currently composed of Christos M.
Cotsakos (Chair) and William A. Porter, nominates for shareowner approval
persons for membership on the Board of Directors. The Nominating Committee met
twice during fiscal 2000. The Nominating Committee will consider nominees
recommended by shareowners. For the next Annual Meeting of Shareowners after the
meeting to be held December 21, 2000, recommendations must be received by
E*TRADE no earlier than June 24, 2001 and no later than July 24, 2001.
Recommendations must be mailed to the Company's principal executive offices,
4500 Bohannon Drive, Menlo Park, California 94025, Attention: Theodore J.
Theophilos, Corporate Secretary.
The Secondary Committee, which is currently composed of Christos M.
Cotsakos, has been delegated the authority to approve grants of options from the
Company's stock option plans to non-executive officers and associates. The
Secondary Committee acted 52 times by written consent in fiscal 2000.
DIRECTOR REMUNERATION
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"). During fiscal 2000, the Board of Directors retained a
consultant to review Board compensation. On April 19, 2000, upon recommendation
of the consultant, the Board authorized an amendment to the 1996 Plan to
decrease the number of shares initially granted to non-associate directors under
the Automatic Option Grant Program (described below) from 80,000 shares to
50,000 shares. The Board also changed director compensation to provide that
non-associate directors receive a retainer of $10,000 per year, in addition to
$1,500 for each Board meeting attended and $1,000 for each committee meeting
attended. All directors receive reimbursement for reasonable out-of-pocket
expenses incurred in connection with meetings of the Board. No director who is
an associate of the Company receives 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 50,000 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 20,000 shares of Common Stock, whether or not that individual is
standing for re-election to the Board at the Annual Shareowners Meeting.
Accordingly, at the Annual Shareowners Meeting held on December 21, 1999,
each of the following Board members received an option grant under the Automatic
Option Grant Program for 20,000 shares of Common Stock at an exercise price of
$29.4063 per share: Messrs. Braddock, Chernin, Ford, Hayter, Porter, Randall,
Son, and Thurow. Mr. Hayden and Mr. Fisher each received immediately exercisable
options to purchase 50,000 shares of Common Stock, all such shares subject to
the Company's right of repurchase, under the Automatic Option Grant Program on
the date each became a director (August 10, 2000 and October 25, 2000,
respectively).
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 50,000-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 20,000-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.
On July 26, 2000, the Plan Administrator for the 1996 Plan elected to
activate the Director Fee Option Grant Program. Under this program, 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. Options under the Director Fee Option Grant Program
are priced and administered in the same manner as options under the Salary
Investment Option Grant Program described in Proposal 2.
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 1996 STOCK INCENTIVE PLAN
The Company's shareowners are being asked to approve a 14,923,512 share
increase in the maximum number of shares of Common Stock reserved for issuance
under the Company's 1996 Stock Incentive Plan from 70,476,480 shares to
85,399,992 shares. As of September 30, 2000, 30,235,008 shares of Common Stock
were subject to outstanding options under the 1996 Plan and 1,055,445 shares
remained available for future issuance.
The proposed share increase will ensure that a sufficient reserve of Common
Stock is available under the 1996 Plan over the next year to attract and retain
the services of key individuals essential to the Company's long-term growth and
success.
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 additional
option grants or share issuances will be made under the 1993 Plan. All prior
amendments to increase the share reserve available under the 1996 Plan were duly
adopted by the Board and the shareowners. The amendment which is the subject of
this Proposal 2 was approved by the Board of Directors on October 25, 2000.
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, Theodore J. Theophilos, at the Company's principal
executive offices located at 4500 Bohannon Drive, Menlo Park, California 94025.
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 the shares on the grant date; (ii) the Salary Investment Option
Grant Program, which allows executive officers and 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 allows 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. Both the Salary
Investment Option Grant Program and the Director Fee Option Grant Program may be
activated for one or more calendar years at the Plan Administrator's sole
discretion, and the programs have been activated for calendar year 2001 and
thereafter, subject to the Plan Administrator's discretion to deactivate each
program at the end of any calendar year.
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, currently
composed of Christos M. Cotsakos, 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, means either the Compensation Committee or 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 has 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 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 the date of or after the Annual Meeting to be
held December 21, 2000 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 85,399,992 shares of Common Stock have been authorized for
issuance under the 1996 Plan, assuming shareowner approval of the 14,923,512
share increase that forms part of this Proposal. Currently, no one participant
in the 1996 Plan may be granted stock options, separately exercisable stock
appreciation rights, and direct stock issuances for more than 2,000,000 shares
in the aggregate per calendar year under the 1996 Plan. (A proposed increase in
the number of shares any one participant may be granted per year under the 1996
Plan, from 2,000,000 shares to 6,000,000 shares, is described more fully in
Proposal 4 in this Proxy Statement.)
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 reissuance. 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
reissuance.
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 September 30, 2000, 16 executive officers, 8 non-associate Board
members and 3,342 other associates were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. The 8 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 sale prices per
share of Common Stock on that date on the Nasdaq National Market. On September
29, 2000, the last trading day of fiscal 2000, the fair market value per share
was $16.3750.
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 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.
CANCELLATION/RE-GRANT PROGRAM
The Plan Administrator has 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
On August 23, 2000, the Plan Administrator elected to activate the Salary
Investment Option Grant Program for calendar year 2001 and thereafter, subject
to deactivation by the Plan Administrator in the Plan Administrator's sole
discretion. Under this program, each executive officer and other highly
compensated associate of the Company selected for participation by the Plan
Administrator may elect, prior to the start of a 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 (x) the highest price per
share of Common Stock paid in connection with the tender offer over (y) the
exercise price payable for such share.
DIRECTOR FEE OPTION GRANT PROGRAM
On July 26, 2000, the Plan Administrator elected to activate the Director
Fee Option Grant Program effective January 1, 2001. Under this program, 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. Options under the Director Fee Option Grant Program
are priced and administered in the same manner as options under the Salary
Investment Option Grant Program described immediately above.
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 was first
elected or appointed as a non-associate Board member at any time after August
15, 1996 but before April 19, 2000, received at the time of such initial
election or appointment an automatic option grant for 80,000 shares of Common
Stock, provided that such individual was not previously employed by the Company
or any parent or subsidiary corporation. Effective April 19, 2000, each
individual who is first elected or appointed as a non-associate Board member
will receive at the time of such initial election or appointment an automatic
option grant for 50,000 shares of Common Stock, provided such individual was not
previously employed by 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 20,000
shares of Common Stock, provided that such individual has served as a
non-associate Board member for at least six months. There is no limit to the
number of such 20,000-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 employed by
the Company will be fully eligible for one or more 20,000-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.
Each 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 50,000-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 20,000-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 contested elections 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 a 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 (x) the highest price paid per share of
Common Stock in such tender offer over (y) 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.
NEW PLAN BENEFITS
As of September 30, 2000, no option grants or direct stock issuances have
been made under the 1996 Plan with regard to the additional shares that are the
subject of this Proposal. In addition, no option grants or share issuances have,
as of September 30, 2000, been made under the Stock Issuance, Salary Investment
Option Grant or Director Fee Option Grant Programs. While the Plan Administrator
has activated the Salary Investment Option Grant Program and the Director Fee
Option Grant Program, eligible participants in the Salary Investment Option
Grant Program have not yet made elections as to the extent of their
participation, if any, and eligible non-associate directors have not yet made
elections as to the extent of their participation, if any, in the Director Fee
Option Grant Program. Therefore, the number of shares to be issued pursuant to
the Salary Investment Option Grant and the Director Fee Option Grant Programs
cannot be determined at this time.
The following table shows the number of options that will be issued under
the Automatic Option Grant Program in fiscal 2001:
------------------------------------------ ----------------------------------------------------
AUTOMATIC OPTION GRANT PROGRAM FOR FISCAL YEAR 2001
------------------------------------------ ------------------------- --------------------------
NAME AND POSITION $ VALUE NUMBER OF SHARES
------------------------------------------ ------------------------- --------------------------
Non-associate Directors as a group (8
persons) $2,783,750 (1) 170,000(2)
------------------------------------------ ------------------------- --------------------------
- --------
(1) Based on the market price of $16.3750 per share, which was the average of
the high and low selling prices per share of the Company's Common Stock on
the Nasdaq National Market on the last trading day of fiscal 2000
(September 29, 2000).
(2) Assumes grants of 20,000 shares each to six (6) eligible non-associate
members of the Board of Directors on December 21, 2000 and a grant of
50,000 shares to Ronald D. Fisher upon his election to the Board of
Directors on October 25, 2000. Two non-associate directors, Messrs. Hayden
and Fisher, will not qualify for automatic grants of 20,000 shares each
since they will not have been directors for the required six (6) month
period as of the date of the Annual Shareowners Meeting to be held December
21, 2000. Also assumes no additional change in the composition of the Board
of Directors during fiscal 2001.
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
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 that the Company's repurchase rights with
respect to those shares are transferred to the successor corporation. The Plan
Administrator has 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). On August 23, 2000, the
Plan Administrator amended the terms of the existing option grants to provide
for such acceleration in the event of an Involuntary Termination (as defined in
the 1996 Plan Document) within eighteen months following such an acquisition or
change in control. In addition, the Plan Administrator authorized such
acceleration provisions for all future grants to Section 16 Insiders and for
future grants to those individuals designated by the Secondary Committee. 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 1996 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. As discussed above, 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 or director 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.
CHANGES IN CAPITALIZATION
In the event that 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 to 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.
The 1996 Plan is not the exclusive vehicle by which the Board may award
stock to individuals performing services to the Company. The Board retains the
discretion to award stock outside the 1996 Plan, subject to appropriate
accounting, tax and regulatory requirements.
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.
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 Internal Revenue 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 Internal Revenue Code Section 162(m).
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 been treated as compensation expense. Whether or not granted at a
discount, the number of outstanding options are included in the calculation of
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 Annual Meeting is
required for approval of the amendments to the 1996 Plan. Should such shareowner
approval not be obtained, no options will be granted with respect to the
14,923,512 share increase. The 1996 Plan will remain in existence in accordance
with the provisions of the plan document in effect immediately prior to the new
amendment, 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
shareowners, is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE FOR APPROVAL OF THE
FOREGOING AMENDMENT TO THE 1996 PLAN.
PROPOSAL 3
APPROVAL OF ADDITIONAL AMENDMENT TO THE COMPANY'S 1996 STOCK INCENTIVE PLAN
TO AUTOMATICALLY INCREASE THE NUMBER OF SHARES AVAILABLE
IN EACH OF THE FOUR YEARS BEGINNING IN 2002
If Proposal 2 is approved by the Company's shareowners, the number of
shares authorized for issuance under the Company's 1996 Stock Incentive Plan
will increase by 14,923,512 shares. If the Company continues to grant options
under the 1996 Plan at a rate consistent with its historical practice, these
additional shares should be fully granted by the end of 2001. The Company is
seeking shareowner approval of a proposal to make available for issuance under
the 1996 Plan in each of the four years beginning in 2002 (in addition to any
shares then remaining authorized for issuance under the 1996 Plan) a number of
shares equal to five percent (5%) of the number of shares of Common Stock
outstanding on the last trading day in December of the immediately preceding
year. The proposal to further increase the number of shares authorized for
issuance under the 1996 Plan, in the manner described above, beginning in 2002,
has been duly adopted by the Board of Directors effective October 25, 2000.
The Company believes that its ability to grant stock options is critical to
its ability to attract, motivate and retain the highly skilled associates who
are essential to the Company's long-term growth and success. Approval of the
additional authorization for option grants proposed in this Proposal 3 will
enable the Company to continue option grants in accordance with its historical
practices for the four years beginning in 2002, and will require that the
Company not exceed its historical grant practices during this period. At the end
of the four-year period, the Company will be obliged to again obtain shareowner
approval for authorized shares under the 1996 Plan or a successor plan.
A summary of the 1996 Plan, including the federal income tax consequences
to the Company and to participants, is set forth under Proposal 2 above. The
affirmative vote of a majority of the outstanding voting shares of the Company
present or represented and entitled to vote at the Annual Meeting is required
for approval of the amendment to the 1996 Plan described in this Proposal 3.
Should shareowners not approve this Proposal 3, the authorized shares will not
be increased as described beginning in 2002, and when the number of shares
currently remaining authorized for issuance under the 1996 Plan is exhausted
(including the increase authorized by the amendment described in Proposal 2, if
approved by shareowners), the Company will not be able to grant additional
options under the 1996 Plan absent further shareowner action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE FOR THE APPROVAL OF
THE FOREGOING AMENDMENT TO THE 1996 PLAN.
PROPOSAL 4
APPROVAL OF ADDITIONAL AMENDMENT TO THE COMPANY'S 1996 STOCK INCENTIVE PLAN
TO INCREASE THE ANNUAL MAXIMUM NUMBER OF SHARES ALLOWED
TO BE GRANTED TO ANY ONE PARTICIPANT
The 1996 Stock Incentive Plan currently provides that the maximum number of
shares that may be granted to any one participant under the 1996 Plan, including
stock options, separately exercisable stock appreciation rights, and direct
stock issuances, may not exceed 2,000,000 shares in any one calendar year. This
Proposal 4 would increase the maximum number of shares allowed to be granted to
any one participant in one year from 2,000,000 shares to 6,000,000 shares.
Approval of the increase in the annual maximum number of shares allowed to
be granted to any one participant under the terms of the 1996 Plan will enable
the Company to continue to recruit, hire and retain highly-skilled associates
and executive officers who are critical to the Company's long term growth and
success. The proposal to increase the annual maximum number of shares that may
be granted under the 1996 Plan to any one participant, as described in this
Proposal 4, has been duly adopted by the Board of Directors effective October
25, 2000.
A summary of the 1996 Plan, including the federal income tax consequences
to the Company and to participants, is set forth under Proposal 2 above. The
affirmative vote of a majority of the outstanding voting shares of the Company
present or represented and entitled to vote at the Annual Meeting is required
for approval of the amendment to the 1996 Plan described in this Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE FOR THE APPROVAL OF
THE FOREGOING AMENDMENT TO THE 1996 PLAN.
PROPOSAL 5
APPROVAL OF A NEW PERFORMANCE-BASED BONUS PLAN
The Company's shareowners are being asked to approve the adoption of a new
performance-based bonus plan that would govern the payment of performance
bonuses to all of the Company's associates, including all executive officers
(the "Bonus Plan"). Section 162(m) of the Internal Revenue Code generally
disallows a tax deduction to publicly-held companies for compensation paid to
certain executive officers, to the extent that such compensation exceeds $1
million per officer in any year. However, if shareowners approve the Bonus Plan,
and the Company complies with certain other requirements set forth in Section
162(m), all amounts paid to executive officers under the Bonus Plan will qualify
for tax deduction. Shareowner approval of the Bonus Plan is one of the
requirements of Section 162(m) and is being sought only with respect to the
application of the Bonus Plan to the executive officers of the Company. If the
shareowners do not approve the Bonus Plan, the Company's executive officers will
not participate in the Bonus Plan as described in this proposal. The Company
reserves the right to amend the Bonus Plan at any time, without shareowner
approval, as it applies to associates who are not subject to Section 162(m). The
following description of the Bonus Plan describes the material terms of the Plan
but does not purport to describe all the terms of the Plan. The complete text of
the Plan is attached as Appendix A to this Proxy Statement, and you are urged to
read the Bonus Plan for more information.
Consistent with the Compensation Committee's (the "Committee") overall
policy of offering competitive cash and equity-based compensation based in large
part upon the financial performance of the Company, the Bonus Plan would provide
bonus payments to associates based primarily on the overall performance of the
Company and secondarily on the contribution of the associate's work group to
that performance. All associates, including, but not limited to, the Company's
Chairman and Chief Executive Officer, are eligible to participate in the Bonus
Plan. The amount of any bonus for any associate shall be defined by reference to
a target percentage of base salary determined, from time to time, by the
Committee or its designee. The Chairman and Chief Executive Officer will have a
target bonus to be established by the Committee, but at no less than three times
his base salary. No individual shall receive aggregate payments per year under
the Bonus Plan in excess of six times his or her base salary; for fiscal year
2001 that base salary shall be determined as of November 1, 2000. The primary
criteria for payment under the Bonus Plan is the achievement of targets
established by the Committee based upon some or all of the following: company
revenue, earnings per share, customer satisfaction and associate survey targets.
The specific criteria set by the Committee for a given period are referred to as
the "Company Performance Matrix." Except as otherwise set forth below, in the
event that the Company achieves 100% of the target Company Performance Matrix
for a given period, all associates will receive 100% of the target bonus
payment. In the event that the Company achieves less than 100% of the Company
Performance Matrix target but at least certain minimum threshold goals
established by the Committee, associates will receive a pro-rated share of the
target bonus payment; in the event that the Company achieves Company Performance
Matrix results that exceed the target to a level established by the Committee,
associates will receive a proportionately larger bonus payment; in the event
that the Company does not achieve at least the minimum threshold Company
Performance Matrix target, then no associate will receive any payment under the
Bonus Plan. With respect to all associates other than Section 162(m) "covered
persons", the Committee or its designee reserves the right to modify any
criteria, goals or payment amounts as appropriate. The Committee shall have the
power to reduce any amount payable to any Section 162(m) "covered person" or to
determine that no amount shall be payable to such "covered person."
If, and only if, the Company achieves at least the minimum Company
Performance Matrix target established by the Committee, then associates other
than the Chairman and Chief Executive Officer will be entitled to earn an
additional bonus amount based on achievement of the Divisional Performance
Matrix target as established by the Committee or its designee. The Divisional
Performance Matrix shall be based on some or all of the following: revenue,
cost, product, people and customer goals. The Chairman and Chief Executive
Officer will not be eligible to receive any bonus based on the Divisional
Performance Matrix.
No payment will be made to any associate under the Bonus Plan until and
unless the Committee certifies that the performance goals have been met (which
will be after the close of each applicable fiscal year).
Future amounts payable under the Bonus Plan cannot be determined at this
time because they will be based on: (i) the future performance of the Company
and its business groups; (ii) the Company and Divisional Performance Matrix
targets; and (iii) target percentage bonuses for associates to be established by
the Compensation Committee or its designee.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE TO APPROVE THE
TERMS OF THE E*TRADE BONUS PLAN.
PROPOSAL 6
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 fiscal year 2001.
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 FISCAL YEAR 2001.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock and the Company's Series A Preferred
Stock (see footnote 2 below) as of September 30, 2000 by (i) each person who is
known to the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock or Series A Preferred Stock of the Company, (ii) each
director, (iii) each officer listed in the Summary Compensation Table; and (iv)
all directors and current executive officers as a group. All shares are subject
to the named person's sole voting and investment power except where otherwise
indicated.
- ------------------------------------------------------ --------------------- ------------------------
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY PERCENT OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER (19) OWNED STOCK (1)
- ------------------------------------------------------ --------------------- ------------------------
Christos M. Cotsakos (3) 6,849,016 2.2%
- ------------------------------------------------------ --------------------- ------------------------
Kathy Levinson (4) 2,236,997 *
- ------------------------------------------------------ --------------------- ------------------------
Jerry D. Gramaglia (5) 473,153 *
- ------------------------------------------------------ --------------------- ------------------------
R. (Robert) Jarrett Lilien (6) 309,345 *
- ------------------------------------------------------ --------------------- ------------------------
Mitchell H. Caplan (7) 1,946,424 *
- ------------------------------------------------------ --------------------- ------------------------
Thomas A. Bevilacqua (8) 327,337 *
- ------------------------------------------------------ --------------------- ------------------------
William A. Porter (9) 6,837,348 2.2%
- ------------------------------------------------------ --------------------- ------------------------
William E. Ford (10) 7,236,680 2.4%
- ------------------------------------------------------ --------------------- ------------------------
George Hayter (11) 274,518 *
- ------------------------------------------------------ --------------------- ------------------------
Lewis E. Randall (12) 1,501,204 *
- ------------------------------------------------------ --------------------- ------------------------
Ronald D. Fisher (13) 60,500 *
- ------------------------------------------------------ --------------------- ------------------------
Lester C. Thurow (14) 353,696 *
- ------------------------------------------------------ --------------------- ------------------------
Peter Chernin (15) 100,000 *
- ------------------------------------------------------ --------------------- ------------------------
David C. Hayden (16) 50,000 *
- ------------------------------------------------------ --------------------- ------------------------
SOFTBANK Holdings Inc. (17) 62,591,688 20.6%
- ------------------------------------------------------ --------------------- ------------------------
All directors and current executive officers as a
group (24 persons) (18) 30,291,939 9.9%
- ------------------------------------------------------ --------------------- ------------------------
* Less than 1%
(1) Based on 304,504,764 shares outstanding on September 30, 2000. Shares of
Common Stock subject to options that are exercisable within 60 days of September
30, 2000 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) No Exchangeable Shares of EGI Canada Corporation (which are entitled to vote
in accordance with the terms of issuance of the one (1) outstanding share of the
Company's Series A Preferred Stock) are held by the individuals or entities
listed above as of September 30, 2000.
(3) Includes 2,451,875 shares held by the Cotsakos Revocable Trust under
Agreement dated September 3, 1987, 40,000 shares held in an individual
retirement account and 180,000 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
4,177,141 shares of Common Stock issuable upon exercise of stock options
exercisable within 60 days of September 30, 2000.
(4) Includes 929,228 shares held by the Levinson Family Trust under Agreement
dated November 17, 1994, and 219,205 shares held by the Internet Experience
Partnership under Agreement dated September 9, 1999. Ms. Levinson is a general
partner in the Internet Experience Partnership. Also includes 1,088,564 shares
of Common Stock issuable upon exercise of stock options exercisable within 60
days of September 30, 2000.
(5) Includes 353,153 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of September 30, 2000.
(6) Includes 102,610 shares held by the Piston Share Ownership Trust under
agreement dated November 15, 1991. Also includes 105,000 shares of Common Stock
issuable upon the exercise of stock options exercisable within 60 days of
September 30, 2000.
(7) Includes 307,842 shares held by Caplan Associates which Mr. Caplan controls.
Also includes 41,748 shares allocated to Mr. Caplan as of December 31, 1999 by
the Telebanc Financial Corporation Employee Stock Ownership Plan and warrants to
purchase 96,600 shares which are exercisable within 60 days of September 30,
2000. Also includes 1,305,409 shares of Common Stock issuable upon exercise of
stock options exercisable within 60 days of September 30, 2000.
(8) Includes 325,653 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of September 30, 2000.
(9) Includes 6,797,348 shares held by William A. and M. Joan Porter as Trustees
of the Porter RevocableTrust under agreement dated August 15, 1998. Also
includes 40,000 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) Includes 224,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, 88,000 of which are subject to the
Company's right of repurchase. Also includes 6,153,046 shares held by General
Atlantic Partners II, L.P. ("GAP II") and 859,634 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 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.
(11) Includes 272,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, 88,000 of which are subject to the
Company's right of repurchase.
(12) Includes 563,200 shares held by Lewis or Martha Randall, as Trustees of the
Lewis E. and Martha E. Randall Living Trust dated August 16, 1984. Includes
220,000 shares held solely by Mr. Randall's wife. Mr. Randall disclaims
beneficial ownership of such shares. Also includes 248,000 shares of Common
Stock issuable upon exercise of immediately exercisable stock options, 88,000 of
which are subject to the Company's right of repurchase.
(13) Excludes shares held by SOFTBANK Holdings, Inc. (See footnote 17 below.)
Includes 50,000 shares of Common Stock issuable upon exercise of immediately
exercisable stock options, all of which are subject to the Company's right of
repurchase. Also includes 10,500 shares of Common Stock issuable upon exercise
of stock options exercisable within 60 days of September 30, 2000.
(14) Includes 320,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, 88,000 of which are subject to the
Company's right of repurchase.
(15) Includes 100,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, all of which are subject to the Company's
right of repurchase.
(16) Includes 50,000 shares of Common Stock issuable upon exercise of
immediately exercisable stock options, all of which are subject to the Company's
right of repurchase.
(17) Shares are held through SOFTBANK's U.S. affiliate, Softbank America, Inc.
Mr. Fisher, a current director of the Company, is the Vice-Chairman of SOFTBANK
Holdings, Inc., a subsidiary of SOFTBANK CORP. Mr. Fisher disclaims beneficial
ownership of shares owned by SOFTBANK Holdings except to the extent of his
pecuniary interest therein. The address for SOFTBANK Holdings is 10 Langley
Road, Suite 403, Newton Center, MA 02459.
(18) Includes the information in the notes above, as applicable Includes an
additional 3,314,264 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of September 30, 2000, which options are held
by executive officers of the Company who are not identified in the table above.
(19) All addresses are c/o E*TRADE Group, Inc., 4500 Bohannon Drive, Menlo Park,
CA 94025, except as noted above.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation paid to (i) the Company's
Chief Executive Officer, (ii) the Company's former President and Chief Operating
Officer who but for her resignation as an officer of the Company would have been
one of the four other highest paid executive officers of the Company, and (iii)
the Company's four other highest-paid current executive officers ("Named
Executive Officers") for services rendered in all capacities to the Company and
its subsidiaries for the fiscal years ended September 30, 2000, 1999, and 1998,
respectively.
SUMMARY COMPENSATION TABLE(1)
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS COMPENSATION($)
- --------------------------- ------ - ---------- ----------- --------------- ------------ ---------------
Christos M. Cotsakos.......... 2000 575,000 1,393,676 134,801(7) 2,000,000 1,990 (6)
Chairman of the Board and 1999 522,789 1,140,999 15,685(2) 2,900,000(4) 1,743 (6)
Chief Executive Officer 1998 467,862 160,236 15,635(2) 935,616(13) 2,500 (6)
Kathy Levinson................ 2000 425,000 638,485 50,992(10) 1,278,745 1,962 (6)
Former President and Chief 1999 357,404 562,934 4,980(2) 1,750,000(5) 1,849 (6)
Operating Officer 1998 292,100 67,561 - 340,976(13) 2,500 (6)
Jerry D. Gramaglia............ 2000 339,904 253,514 200,224(11) 1,800,000 2,423 (6)
President and Chief 1999 267,635 229,121 59,577(3) 1,125,000(5) 5,000 (6)
Operating Officer 1998 55,596 30,252 - 1,000,000(13) -
R. (Robert) Jarrett Lilien.... 2000 221,923 647,790 - 400,000 5,196 (6)
Chief Brokerage Officer 1999 16,667(8) - - 20,000 -
1998 - - - - -
Mitchell H. Caplan............ 2000 196,827(9) 375,000(9) - 231,341 -
Chief Banking Officer 1999 - - - - -
1998 - - - - -
Thomas A. Bevilacqua 2000 300,000 234,954 8,527(2) 7,609 1,738 (6)
Chief Strategic Investment 1999 137,885 195,000 - 735,000(12) 4,820 (6)
Officer 1998 10,000(13)
- ----------
(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, except as
expressly noted, 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 for a Company provided automobile.
(3) Represents the benefit received for Company provided housing.
(4) Includes 1,400,000 shares of the Company's Common Stock (as adjusted for
2:1 stock splits on January 29, 1999 and May 21, 1999) that were
regranted under the Company's cancellation/regrant program on October 22,
1998.
(5) Includes 1,000,000 shares of the Company's Common Stock (as adjusted for
2:1 stock splits on January 29, 1999 and May 21, 1999) that were
regranted under the Company's cancellation/regrant program on October 22,
1998.
(6) Represents employer contributions to the Company's 401(k) Plan.
(7) Represents the benefit received for reimbursement of $108,625 for
personal tax and financial planning services and other perquisites of
$26,176 of which no one item exceeded 25% of total perquisites reported
for this individual.
(8) Represents the benefit received for compensation from the period from
August 31, 1999 (date of acquisition of TIR Holdings Limited, Inc.) to
September 30, 1999.
(9) Represents the benefit received for compensation from the period from
January 12, 2000 (date of acquisition of E*TRADE Financial Corporation,
formerly Telebanc Financial Corporation) to September 30, 2000.
(10) Represents the benefit received for reimbursement of $40,000 for
financial service fees and other perquisites of $10,992 of which no one
item exceeded 25% of the total perquisites reported for this individual.
(11) Represents the benefit received for reimbursement of $154,919 of
relocation expenses and other perquisites of $45,305 of which no one item
exceeded 25% of the total perquisites reported for this individual.
(12) Includes options to purchase 500,000 shares (as adjusted for 2:1 stock
splits on January 29, 1999 and May 21, 1999) received by Mr. Bevilacqua
while acting as a consultant to the Company and 110,000 shares as
adjusted for a 2:1 stock split effective May 21, 1999.
(13) As adjusted for 2:1 stock splits on January 29, 1999 and May 21, 1999.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan for fiscal year 2000 to
the Named Executive Officers. No stock appreciation rights were granted to those
individuals during fiscal year 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(10)
----------------- ---------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR (PER SHARE)(9) DATE 5% 10%
----- -------- ------------ -------------- ---- --- ---
Christos M. Cotsakos....... 2,000,000 (1) 12.39% $30.00 (11) 1/24/10 $17,678,075 $63,689,353
--------------------------- -------------------------------
2,000,000 12.39% $17,678,075 $63,689,353
Kathy Levinson............. 1,250,000 (2) 7.75% $30.00 (11) 1/19/01 $11,048,797 $39,805,846
28,745 (12) 0.18% $23.66 1/19/01 $ 427,649 $ 1,083,745
----------------------------- -------------------------------
1,278,745 7.93% $11,476,446 $40,889,591
Jerry D. Gramaglia......... 7,609 (4) 0.05% $23.66 4/5/10 $ 113,202 $ 286,875
1,792,391 (8) 11.11% $14.44 5/24/10 $16,274,312 $41,242,302
----------------------------- -------------------------------
1,800,000 11.16% $16,387,514 $41,529,177
R. (Robert) Jarrett Lilien. 250,000 (5) 1.55% $21.09 4/19/10 $ 3,316,444 $ 8,404,521
50,000 (6) 0.31% $14.44 5/24/10 $ 453,983 $ 1,150,483
100,000 (7) 0.62% $16.84 8/23/10 $ 1,059,298 $ 2,684,468
----------------------------- -------------------------------
400,000 2.48% $ 4,829,725 $12,239,472
Mitchell H. Caplan......... 125,000 (3) 0.77% $23.66 4/5/10 $ 1,859,665 $ 4,712,756
6,341 (4) 0.04% $23.66 4/5/10 $ 94,337 $ 239,069
100,000 (7) 0.62% $16.84 8/23/10 $ 1,059,298 $ 2,684,468
----------------------------- -------------------------------
231,341 1.43% $ 3,013,300 $ 7,636,293
Thomas A. Bevilacqua....... 7,609 (4) 0.05% $23.66 4/5/10 $ 113,202 $ 286,875
----------------------------- -------------------------------
7,609 0.05% $ 113,202 $ 286,875
- ---------
(1) The option was granted on January 24, 2000 and will be exercisable as
follows: 20% on grant date and monthly until May 3, 2002 for the remaining
shares.
(2) The option was granted on January 24, 2000 and would have been exercisable
25% per year over the next four years from the date of grant had Ms.
Levinson remained an employee of the Company.
(3) The option was granted on April 5, 2000 and will be exercisable 25% per
year over the next four years from the date of grant.
(4) The options were granted on April 5, 2000 and are exercisable as follows:
25% three months from the date of grant and 25% per year over the next
three years from the date of grant.
(5) The option was granted on April 19, 2000 and will become exercisable 25%
per year over the next four years from the date of grant.
(6) The options were granted on May 24, 2000 and will become exercisable 25%
per year over the next four years from the date of grant.
(7) The options were granted on August 23, 2000 and are fully vested as of the
date of grant.
(8) The options were granted on May 24, 2000 and vest 25% per year over four
years from June 1, 2000.
(9) 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 the issuance of net shares equal to
the difference between the number of options exercised and the shares of
Common Stock constructively exchanged. 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.
(10) 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.
(11) The stock options granted to Mr. Cotsakos and Ms. Levinson on January 24,
2000 were granted at a price $6.16 above the the average of the high and
low trading prices of the Company's Common Stock on the date of grant.
(12) The option was granted on April 5, 2000 and was exercisable as follows: 25%
three months from the date of grant and 25% per year over the next three
years from the date of grant had Ms. Levinson remained an employee of the
Company.
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
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON VALUE UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT
EXERCISE REALIZED(1) OPTIONS/SARS AT FY-END FY-END(2)
NAME ---------- ----------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ------------- ------------- ------------- -------------
Christos M. Cotsakos........... 2,153,247 $25,269,088 3,922,055 2,220,386 $34,153,024 $ 4,054,408
Kathy Levinson................. 272,699 $ 5,582,762 988,564 300,000 $10,106,922 $ 3,637,500
Jerry D. Gramaglia............. 130,000 $ 1,956,966 128,153 2,566,847 $ 1,151,875 $11,657,133
R. (Robert) Jarrett Lilien..... - $ - 105,000 315,000 $ - $ 96,875
Mitchell H. Caplan............. 99,708 $ 1,823,669 1,305,409 213,753 $13,553,796 $ 1,104,994
Thomas A. Bevilacqua........... 25,000 $ 521,250 325,653 181,956 $ 3,213,125 $ -
- ---------
(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 $16.3750 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 trading day of fiscal year 2000
(September 29, 2000), less the exercise price payable for such shares.
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.
During fiscal year 2000, the Company maintained a bonus plan, known as the "Get
Results, Get Rewarded Bonus Plan" (the "gr2 Bonus Plan"), to provide bonus
payments to associates based on both individual performance as well as
performance of the Company. Under the gr2 Bonus Plan, each associate, including
the Chief Executive Officer, had a target bonus percentage was based on the
associate's position within the Company. As discussed above, the target bonus
percentage had an individual component and a Company component, which fluctuated
based on the associate's position within the Company. If individual and/or
Company performance goals were met or exceeded, bonus payments would meet or
exceed target. Bonuses under the gr2 Bonus Plan are determined and paid
semi-annually. The Chairman of the Board and Chief Executive Officer received a
bonus under the gr2 Bonus Plan during fiscal 2000, and, if the Bonus Plan
described in Proposal 5 is approved by the shareowners, he will be eligible to
receive a bonus under that plan for fiscal 2001.
Effective January 1, 1995, the Company maintains an Internal Revenue Code
section 401(k) defined benefit plan (the "401(k) Plan") under which all
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 50% of the amount
contributed by all eligible associates, including executive officers, up to 3%
for each individual associates' total compensation. The Company made
contributions of $3,067,165 for the fiscal year ended September 30, 2000. The
Committee has also approved the creation of a Supplemental Executive Retirement
Program (SERP) which is in the process of being finalized.
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 individual's 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. Our Committee believes that Mr. Cotsakos makes unique and
singular contributions to the success of the Company. Paramount to the Company's
interests is insuring Mr. Cotsakos' retention and securing that his skills and
abilities remain focused on the continued growth and leadership of the Company.
Specifically, our Committee believes that:
o The exceptional vision and passionate commitment that Mr. Cotsakos
has demonstrated during his tenure as Chief Executive Officer has
been and continues to be a fundamental and essential asset of the
Company.
o The overall strategic and tactical direction of the Company
developed by Mr. Cotsakos is recognized as profoundly and
positively impacting on the long-term value of the shareowners'
interests in the Company.
o Mr. Cotsakos has left an indelible mark and will continue to shape
the Company's culture and its values.
o Mr. Cotsakos has and continues to greatly influence the course of
e-commerce and the financial services industry at large.
Under the terms of the 1999 Agreement with Mr. Cotsakos, the Company's
Chairman of the Board and Chief Executive Officer, Mr. Cotsakos received an
annual base salary of $575,000 during fiscal year 2000. During fiscal year 2000,
Mr. Cotsakos' compensation was determined by the terms of the 1999 Agreement.
Mr. Cotsakos was also eligible to participate in the gr2 Bonus Plan, up to a
maximum of three times his base salary, and other benefit plans. According to
the terms of the gr2 Bonus Plan, the Company's Chief Executive Officer, Mr.
Cotsakos, did not have an individual component and therefore his bonus was
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 2000 were
made in connection with the Company's bonus program described above. Over the
bonus measurement period (which constituted the second half of fiscal 1999, the
bonus for which was paid in October of 1999, and the first half of fiscal 2000,
the bonus for which was determined and paid in April of 2000), the Company
exceeded its revenue growth and operating margin
goals. As a result, the Committee approved bonuses above the target levels
resulting in Mr. Cotsakos receiving cash bonuses of $1,393,676. Mr. Cotsakos has
voluntarily foregone any bonus for the second half of fiscal 2000.
During fiscal 1999, the Committee reviewed the status of Mr. Cotsakos'
option holdings in connection with the adoption of the 1999 Agreement. 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 an
option on August 12, 1999 to purchase a total of 1,500,000 shares of the
Company's Common Stock under the 1996 Plan. Also, the Compensation Committee of
the Company authorized future additional option grants to Mr. Cotsakos of
2,000,000 shares in fiscal 2000 and 500,000 shares in fiscal 2001. The options
for fiscal year 2000 were granted on January 24, 2000 at an exercise price of
$30.00 per share. This exercise price was established at $6.16 greater than the
market value of the Company's Common Stock on that date, which was $23.84 per
share. Of the 2,000,000 shares granted, 400,000 shares were immediately
exercisable and the remaining 1,600,000 shares vest monthly at the rate of
57,143 shares per month through May 24, 2002. The options will become
immediately exercisable upon a change in control or upon the termination of Mr.
Cotsakos' employment 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.
Historically, the Committee and the Company have believed that the benefit to be
obtained by complying with the requirements for full deductibility of annual
bonuses (which require the establishment of formulas and shareowner approval,
among other things) was not significant enough to outweigh the benefits to the
Company of retaining absolute flexibility and discretion in determining
executive bonuses. This year, however, the Committee has decided that the Bonus
Plan described in Proposal 5 should be presented for shareowner approval so that
annual bonuses to the Company's senior executives can qualify as
performance-based compensation which will be fully deductible by the Company.
The Committee and the Company believe that it is important to retain
discretion over the compensation paid to the Company's executive officers. 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. However, in connection with the hiring of certain new officers, the
Company has granted options that are not under the 1996 Stock Incentive Plan and
which will not qualify as performance-based compensation under Section 162(m) if
these officers are among the five most highly compensated officers of the
Company at the time they exercise these options, and the Committee generally
reserves the right to pay amounts of compensation that may not be fully
deductible, if it believes that it is in the Company's best interests to do so.
Submitted by the Compensation Committee of the Company's Board of
Directors:
David C. Hayden (Chairman)
William E. Ford
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Effective June 1, 1999, the Company entered into an employment agreement
with Christos M. Cotsakos, Chairman of the Board and Chief Executive Officer of
E*TRADE Group, Inc. (the "1999 Agreement"), which superseded Mr. Cotsakos' 1996
Employment Agreement. The 1999 Agreement was amended by the Compensation
Committee effective October 1, 2000. Under the 1999 Agreement as amended, Mr.
Cotsakos received a base salary of $575,000 during fiscal year 2000 and he will
receive a base salary of $690,000 for fiscal year 2001. Mr. Cotsakos is also
eligible to participate in the Company's bonus plan (as discussed in Proposal 5
above), with a target bonus to be established by the Compensation Committee, but
at no less than three times his base salary, and he is further eligible to
participate in the Company's other benefit plans, including, but not limited to,
a split dollar insurance policy on Mr. Cotsakos' life in the face amount of
$10,000,000, and a supplemental executive retirement plan which is currently
being developed for the Company. In connection with the 1999 Agreement, Mr.
Cotsakos received an option to purchase 1,500,000 shares on August 12, 1999,
2,000,000 shares on January 24, 2000 and he will receive
an additional option grant of 500,000 shares in fiscal year 2001.
The 1999 Agreement as amended terminates on May 31, 2002, but is
automatically renewed for successive one-year periods, unless either party gives
180 days' notice of non-renewal. Upon termination of Mr. Cotsakos' employment,
he is entitled to severance payments as follows: (i) if (A) the Company
terminates Mr. Cotsakos' employment other than for cause within three years
following a change in control of the Company (as defined in the 1999 Agreement);
or (B) the Company terminates Mr. Cotsakos' employment other than for cause at
the request of or pursuant to an agreement with a third party who has taken
steps reasonably calculated to effect a change in control; or (C) Mr. Cotsakos
elects to terminate his employment for good reason (as defined in the 1999
Agreement) within three years following a change in control, then Mr. Cotsakos
will be entitled to payment equal to five full years of current total annual
compensation (as defined in the 1999 Agreement) and forgiveness of all loans
between himself and the Company (plus a "gross up" payment to cover taxes due
from such forgiveness); (ii) if (A) the Company terminates Mr. Cotsakos'
employment other than for cause in circumstances other than those described
above; or (B) Mr. Cotsakos elects to terminate his employment for good reason in
circumstances other than those described above, then Mr. Cotsakos will be
entitled to payment equal to four full years of current total annual
compensation (as defined in the 1999 Agreement) and forgiveness of all loans
between himself and the Company (plus a "gross up" payment to cover taxes due
from such forgiveness). In the event that Mr. Cotsakos' employment is
terminated, he and his wife are entitled to have their medical, dental and
health benefits paid by the Company until their deaths. In addition, all of Mr.
Cotsakos' options will become immediately exercisable upon a change in control
or upon the termination of Mr. Cotsakos' employment with the Company other than
for cause or at his election for good reason or upon Mr. Cotsakos' death or
disability.
The Compensation Committee of the Company authorized, as of June 1, 1999,
the Company's entry into a four-year employment agreement with Kathy Levinson,
former President and Chief Operating Officer of E*TRADE Group (the "Levinson
Agreement"). Under the Levinson Agreement, Ms. Levinson received an annual base
salary of $425,000. Ms. Levinson was also eligible to participate in the
Company's bonus plan, up to a maximum of two times 80% of her base salary, and
the Company's other benefit plans. In connection with the Levinson Agreement,
Ms. Levinson received an option grant for 750,000 shares on August 12, 1999, and
the Compensation Committee authorized a future additional option grant of
1,250,000 shares in fiscal 2000. Effective May 24, 2000, Ms. Levinson resigned
voluntarily from her position as President and Chief Operating Officer; however,
Ms. Levinson remained an associate of the Company in a transitionary role
through October 23, 2000, at which time she voluntarily resigned from any
further employment with the Company.
From January 1995 to December 1995, Ms. Levinson 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 1,200,000 shares of Common Stock, which warrant was fully exercised
by January 1996, and options to purchase 1,200,000 shares of Common Stock which
vested at a rate of 20% per year over a period of five years and would have
terminated on January 2, 2005.
Effective June 1, 2000, the Company entered into a four-year employment
agreement with Mr. Gramaglia concerning his employment in the position of
President and Chief Operating Officer of the Company (the "Gramaglia
Agreement"). Under the Gramaglia Agreement, Mr. Gramaglia receives an annual
base salary which may be increased in the discretion of the Compensation
Committee. Mr. Gramaglia is also eligible to participate in the Company's bonus
plan, under which his target bonus is 80% of his base salary, which may be
increased as determined by the Chairman/Chief Executive Officer and the
Compensation Committee, and the Company's other benefit plans. In connection
with the Gramaglia Agreement, Mr. Gramaglia received an option grant for
1,791,391 shares on May 24, 2000, and the Compensation Committee intends to
authorize a future additional option grant of 207,609 shares in calendar year
2001. In the event that Mr. Gramaglia's employment is involuntarily terminated
(as defined in the Gramaglia Agreement) less than 60 days before or within three
years after a change in control of the Company (as defined in the Gramaglia
Agreement), Mr. Gramaglia is entitled to: (i) severance payments equal to 18
months base salary; and (ii) continuation of health care, life insurance and
certain other benefits until the later of (x) the end of the term of the
Gramaglia Agreement; or (y) the date eighteen months following the date of the
termination of Mr. Gramaglia's employment. Mr. Gramaglia's current base salary
is $510,000.
Effective July 12, 1999, the Company entered into an employment agreement
with R. (Robert) Jarrett Lilien (the "Lilien Agreement"). Under the terms of the
Lilien Agreement, Mr. Lilien held the position of Chief Executive Officer of TIR
(Holdings), Ltd. ("TIR") a wholly-owned subsidiary of the Company. The Lilien
Agreement provides for a term of three years following the closing of the
Company's acquisition of TIR, which occurred on August 31, 1999 (the "Term").
Thus, the Term runs from August 31, 1999 through August 31, 2002. During the
Term, in the event that Mr. Lilien's employment is terminated by the Company
without "cause" (as defined in the Lilien Agreement) or in the event that Mr.
Lilien voluntarily resigns from his position for "good reason" (as defined in
the Lilien Agreement), then: (i) the Company (or Mr. Lilien) will provide thirty
days' prior written notice of that fact; (ii) the Company will provide a
severance payment equivalent to one month's salary for each year of service with
TIR, providing for the continuity of Mr. Lilien's service with any business
entity of the Company, not to exceed twelve months' pay excluding the one
month's notice provision; and (iii) the Company will pay Mr. Lilien that amount
of a pre-established bonus pool pro-rated to the date of the termination of Mr.
Lilien's employment. Mr. Lilien's base salary under the Lilien Agreement was
$200,000 per year. In the event that Mr. Lilien remains employed beyond the
Term, Mr. Lilien's employment will be "at-will", meaning that either Mr. Lilien
or the Company could terminate the relationship at any time, with or without
"cause", with no obligation on the part of the Company to pay any severance. Mr.
Lilien's current base salary is $275,000 per year.
Effective May 31, 1999, the Company entered into an employment agreement
with Mitchell H. Caplan (the "Caplan Agreement"). Under the terms of the Caplan
Agreement, Mr. Caplan held the position of President and Chief Executive Officer
of Telebanc Financial Corporation, a wholly-owned subsidiary of the Company (now
E*TRADE Financial Corporation, or "ETFC"). The Caplan Agreement provides for a
term of one year following the closing of the Company's acquisition of ETFC,
which occurred on January 12, 2000 (the "Term"). Thus, the Term runs from
January 12, 2000 through January 12, 2001. During the Term, in the event that
Mr. Caplan's employment is terminated by the Company without "cause" (as defined
in the Caplan Agreement) or in the event that Mr. Caplan voluntarily resigns
from his position for "good reason" (as defined in the Caplan Agreement), then
the Company will continue to pay Mr. Caplan's base salary, until the earlier of:
(i) six months following the termination of employment; or (ii) the date that
Mr. Caplan commences employment elsewhere (the "Severance Period"). In the event
that Mr. Caplan commences employment elsewhere during the Severance Period, then
the Company will pay the difference, if any, between Mr. Caplan's base salary as
an employee of the Company and Mr. Caplan's salary with his new employer. In the
event that Mr. Caplan remains employed beyond the Term, Mr. Caplan's employment
will be "at-will", meaning that either Mr. Caplan or the Company could terminate
the relationship at any time, with or without "cause", with no obligation on the
part of the Company to pay any severance. Mr. Caplan's current base salary is
$325,000 per year.
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,
outstanding options held by the Named Executive Officers, as well as other
associates, are subject to a Special Addendum to Stock Option Agreement that
provides that unvested options will automatically accelerate in full and all
unvested shares of Common Stock held by such individuals subject to direct
issuance made under the 1996 Plan will immediately vest in full in the event of
the termination of the officer's employment within eighteen months following:
(i) a Corporate Transaction (as defined in the 1996 Plan); or (ii) a Change in
Control. Notwithstanding the foregoing, in the event that the Company and the
other party to a transaction constituting a Change in Control agree to treat
such transaction as a "pooling of interests" for accounting purposes and it is
determined that the acceleration mentioned above would preclude the treatment of
such transaction as a "pooling of interests" and providing further that, absent
such acceleration, the transaction could be treated as a "pooling of interests",
then there shall be no acceleration of vesting under the Special Addendum to
Stock Option Agreement. 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.
CERTAIN SEVERANCE AGREEMENTS
The Company has a program providing Management Continuity Agreements, which
cover certain executive officers, including those named in the Summary
Compensation Table (with the exception of Mr. Cotsakos
and Ms. Levinson). The program provides that if the executive officer is
involuntarily terminated (as defined in the Management Continuity Agreement)
within 60 days prior to the occurrence of a change in control or within 18
months following an occurrence of a change of control (as defined in the
Management Continuity Agreement), then the executive shall be entitled to
receive a severance payment in an amount up to twenty-four months (or such
lesser amount determined by the Compensation Committee) of the executive
officer's base salary in effect at the time of termination and an amount equal
to the amount the executive officer would have received in bonus payments over a
period up to twenty-four months (or such lesser amount determined by the
Compensation Committee) under the Company's bonus plan as it was in effect
immediately prior to the change in control, presuming that the executive officer
and the Company each met 100% of all target goals.
In addition, in the event of an occurrence which constitutes a change of
control, any and all loans outstanding by and between the Company and the
Chairman and Chief Executive Officer and executive officers (Section 16(b)
Insiders) will be forgiven and deemed paid in full and a gross-up payment made
for purposes of fulfilling the individual officer's resultant tax liability. For
this purpose, an occurrence constituting a change of control shall mean (a) the
acquisition (other than from the Company) by any person, entity or "group" of
40% or more of either the then-outstanding shares of Common Stock or the
combined voting power or the Company's then-outstanding voting securities
entitled to vote generally in the election of directors; or (b) the failure for
any reason of individuals who constitute the incumbent Board to continue to
constitute at least a majority of the Board; or (c) approval by the shareowners
of the Company of a reorganization, merger or consolidation, in each case, with
respect to which the shares of the Company's voting stock outstanding
immediately prior to such reorganization, merger or consolidation do not
constitute or become exchanged for or are converted into more then 40% of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated company's then-outstanding voting
securities, or a liquidation or dissolution of the Company or of the sale of all
or substantially all of the assets of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From October 1, 1999 until August 10, 2000, the Compensation Committee was
composed of Richard Braddock and William E. Ford. On August 10, 2000, David C.
Hayden succeeded Mr. Braddock on the Compensation Committee. None of these
individuals was at any time during fiscal 2000, 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, except as follows: Mr. Cotsakos is
a member of the Board of Directors of FOX Entertainment Group, Inc. and Mr.
Chernin, a director of the Company, is the President and Chief Operating Officer
of FOX Entertainment Group, Inc. (See discussion with respect to Messrs. Chernin
and Cotsakos immediately following in "Certain Relationships and Related
Transactions".)
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1996, the Company entered into a consulting arrangement with Mr.
Hayter, a director of the Company, to provide international business consulting
services. During fiscal year 2000, Mr. Hayter was paid $65,055 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. Masayoshi Son, a
former director of the Company, 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 approximately $400
million. In connection with the joint venture agreement, and during fiscal year
1998, the Company also entered into an agreement to borrow $4,076,000 from
SOFTBANK Corp. for working capital purposes. Principal and interest on the loan
are due in January 2003. SOFTBANK Holdings is an affiliate of SOFTBANK Corp. The
stock purchase agreement with SOFTBANK Holdings specifies, as requested by the
Company, that Mr. Son be appointed or elected to the Board of Directors. Mr. Son
served on the Company's Board of Directors until October 2000 when he was
succeeded by Ronald D. Fisher, the Vice-Chairman of SOFTBANK Holdings. Mr.
Fisher is standing for re-election to the Board of Directors at the Annual
Meeting.
The Company has made capital commitments to two venture capital funds
organized to assist the Company to maintain a technological leadership position
in its industry. Of the $100 million committed by investors to E*TRADE eCommerce
Fund ("Fund I"), $25 million was contributed by the Company on October 1, 1999.
Of the approximately $200 million committed to E*TRADE eCommerce Fund II ("Fund
II"), $50.3 million had been committed by the Company as of June 16, 2000. The
Company's capital commitments were made on the same terms as those applicable to
the third party investors in the Funds. Each of the Funds invests in early to
mid-stage companies that are focused on the infrastructure, tools, services and
applications that support the delivery of eCommerce. Through the Funds, the
Company is better positioned to identify new, emerging technologies and to
capitalize on them. Also, by raising third party capital, the Funds have
effectively leveraged the Company's own investment resources.
Each Fund is managed by its respective General Partner (with respect to
each Fund, the "General Partner"). Thomas A. Bevilacqua, the Company's Chief
Strategic Investment Officer, and Christos M. Cotsakos, the Chairman of the
Board of Directors and Chief Executive Officer of the Company, are the managing
members of the General Partner. The Company is a non-managing member of the
General Partner. The General Partner receives an annual management fee of
approximately 1.75% of the total committed capital, which is paid to the Company
net of direct expenses of the Funds. To the extent that the Funds generate a net
profit, 20% of Fund I profits and 25% of Fund II profits are allocated to the
General Partner. As a member of the General Partner, the Company is entitled to
receive 50% of such amount in Fund I and 32% in Fund II, provided that for each
of Fund I and Fund II up to one-fifth of the Company's interest can be allocated
by the managing members to Company personnel. The managing members of the
General Partner and the investment professionals dedicated to the activities of
the Funds are entitled to the balance of net profits. To date, no profits have
been distributed to any party. In several instances, the managing members of the
General Partner have received stock options from companies in which Fund I has
invested for their service on the Board of Directors of such companies.
Through an investment vehicle, Christos M. Cotsakos and Thomas A.
Bevilacqua have invested, respectively, $1 million and $0.5 million in each of
Fund I and II. Additional executive officers and directors who have invested in
Fund I are as follows: Peter Chernin, a director of the Company ($0.5 million
through a trust); David C. Hayden, a director of the Company ($1.0 million);
Mitchell H. Caplan, Chief Banking Officer of the Company ($0.5 million); William
A. Porter, Chairman Emeritus and a director of the Company ($1.0 million through
a trust); Dennis L. Lundien, Chief Internal Audit and Privacy Officer of the
Company ($100,000); Connie M. Dotson, Chief Service Quality Officer of the
Company ($100,000 through a trust); Jerry D. Gramaglia, President and Chief
Operating Officer of the Company ($200,000 through a trust); Joshua Levine,
Chief Technology Officer of the Company ($100,000); Judy Balint, Chief
International Officer of the Company ($300,000); Lester C. Thurow, a director of
the Company ($100,000); Michael G. Sievert, Chief Sales and Marketing Officer of
the Company ($100,000); Brigitte VanBaelen, Chief Community Relations Officer
and Assistant Corporate Secretary of the Company ($50,000); Pamela S. Kramer,
Chief Content Development Officer of the Company ($100,000); Leonard C. Purkis,
Chief Financial Officer of the Company ($200,000 through a trust); and Lewis E.
Randall, a director of the Company ($100,000 through a trust). The Internet
Experience LP, of which the Company's former President and Chief Operating
Officer, Kathy Levinson, is a partner, has invested $1.0 million. Softbank
America, Inc. of which Ronald D. Fisher, a current director of the Company, is
affiliated, has invested $25 million in Fund I. The following entities with
which former director Masayoshi Son and current director Ronald D. Fisher are
affiliated have made investments totaling $25.0 million in Fund II: Softbank
Technology Ventures VI, LP; Softbank U.S. Ventures VI, LP; Softbank Technology
Ventures Advisors VI, LP; and Softbank Technology Ventures Side Fund VI, LP.
Through a wholly-owned entity, the Company has purchased for cash three
pieces of residential real estate in the Silicon Valley area and has leased two
of the properties to executive officers of the Company with an option to buy at
the Company's original purchase price as long as the executive officer is
employed by the Company at the time the option is exercised. Jerry D. Gramaglia,
President and Chief Operating Officer of the Company, leases one of the pieces
of property from the Company at the fair market value rental rate of $8,250 per
month. Charles W. Thomson, the Company's Chief People and Culture Officer of the
Company, leases one of the pieces of property from the Company at the fair
market value rental rate of $5,500 per month. The third piece of property has
not yet been leased.
In June 1998, the Company entered into a joint venture agreement with
SOFTBANK Corp. to form E*TRADE Japan KK ("E*TRADE Japan") to provide online
securities trading services to residents of Japan. As part of the transaction,
the Company invested approximately $8 million in exchange for a 42% ownership
position in this joint venture. E*TRADE Japan went public in September 2000, at
which point the Company's ownership percentage was reduced from 42% to 32%.
Pursuant to the joint venture agreement, the Company had the right to nominate
two of the five directors to the board of directors of E*TRADE Japan. The
Company nominated Christos M. Cotsakos, the Chairman of the Board of Directors
and Chief Executive Officer of the Company, and Judy Balint, the Chief
International Officer of the Company. Each of the persons serving on the E*TRADE
Japan Board of Directors received warrants to purchase shares of E*TRADE Japan
in connection with their service on the Board. Mr. Cotsakos received on March
30, 2000 warrants to purchase 180 shares of E*TRADE Japan at an exercise price
of approximately $650 per share and on June 8, 2000 warrants to purchase 70
shares of E*TRADE Japan at an exercise price of approximately $720 per share. On
March 30, 2000, Ms. Balint received warrants to purchase 250 shares of E*TRADE
Japan at an exercise price of approximately $650 per share. Each warrant becomes
exercisable for 25% of the shares subject to the warrant per year. As of
September 29, 2000, the last trading day of fiscal 2000, the closing price of
shares of E*TRADE Japan on the Nasdaq Japan was approximately $6,301 per share.
In February 2000, the Company loaned Dennis L. Lundien, the Company's Chief
Internal Audit and Privacy Officer, the sum of $1.6 million. The principal
amount of the loan is due in March 2002. Interest on the loan at the rate of
6.2% began to accrue immediately. Accrued interest on the loan is due upon loan
maturity and the loan is collateralized by a deed of trust on real property.
In March 2000, the Company loaned Theodore J. Theophilos, the Company's
Chief Legal Affairs Officer and Corporate Secretary, $4.0 million to fund a
portion of the purchase of a personal residence in the Silicon Valley area. The
principal amount of the loan is due in March 2005. Interest on the loan at the
rate of 6.8% begins to accrue in April 2003. Accrued interest on the loan is due
upon loan maturity and the loan is collateralized by a deed of trust on real
property.
In May 2000, the Company loaned Charles W. Thomson, Chief People and
Culture Officer of the Company, approximately $4.2 million to fund a portion of
the purchase of a personal residence in the Silicon Valley area. The principal
amount of the loan is due in May 2005. Interest on the loan at the rate of 6.4%
begins to accrue in June 2003. Accrued interest on the loan is due upon loan
maturity and the loan is collateralized by a deed of trust on real property. The
property which is the subject of the deed of trust is currently listed for sale.
In May and June 2000, the Company made loans to six executive officers of
the Company, the proceeds of which were applied solely to pay the purchase price
for shares of the Company's stock pursuant to the exercise of vested stock
options. The executive officers who participated in this program exercised and
held the option shares purchased with the proceeds of the loans. The Company
loaned the following officers the amounts listed, to purchase the number of
shares listed following their names: Christos M. Cotsakos, Chairman of the Board
and Chief Executive Officer, (approximately $14.4 million to purchase 1,730,572
shares); Jerry D. Gramaglia, President and Chief Operating Officer
(approximately $900,000 to purchase 100,000 shares); Michael Sievert, Chief
Sales and Marketing Officer (approximately $73,000 to purchase 7,000 shares);
Connie M. Dotson, Chief Service Quality Officer (approximately $1.3 million to
purchase 157,064 shares); Leonard C. Purkis, Chief Financial Officer
(approximately $1.8 million to purchase 200,000 shares); and Pamela Kramer,
Chief Content Development Officer (approximately $80,000 to purchase 7,184
shares). The principal amount of each loan is due thirteen months after it was
made. Interest on each loan at the rate of 7.75% began to accrue immediately.
Accrued and unpaid interest on each loan is due one year from the date of that
loan and additional accrued but unpaid interest for the last month of the term
is due on maturity. Each loan is collateralized by a stock pledge of the number
of shares purchased with the proceeds of the loan.
On May 15, 2000, the Company entered into a strategic alliance with Wit
SoundView Group, Inc. ("Wit" or trading symbol "WITC"). The transactions
contemplated by the strategic alliance were contingent on the closing of the
acquisition of E*OFFERING Corp. ("E*OFFERING") by Wit, which closed on October
16, 2000. In connection with the closing, several of the Company's executive
officers and directors received shares of Common Stock of Wit in exchange for
their shares or options to purchase shares of E*OFFERING. Christos M. Cotsakos,
Chairman of the Board and Chief Executive Officer, received 367,610 shares of
WITC in exchange for 550,000 shares of Common Stock of E*OFFERING. Suzanne
Cotsakos, Mr. Cotsakos' daughter, received 8,042 shares of
WITC in exchange for 10,500 shares plus accrued but unpaid dividends of Series A
Preferred Stock of E*OFFERING. (Mr. Cotsakos disclaims beneficial ownership of
his daughter's interest.) Kathy Levinson, former President and Chief Operating
Officer, received 100,257 shares of WITC in exchange for 150,000 shares of
Common Stock and options to purchase 66,838 shares of WITC in exchange for
options to purchase 100,000 shares of Common Stock of E*OFFERING. Thomas A.
Bevilacqua, Chief Strategic Investment Officer, received 133,676 shares of WITC
in exchange for 200,000 shares of Common Stock of E*OFFERING and 3,830 shares of
WITC for 5,000 shares plus accrued but unpaid dividends of Series A Preferred
Stock of E*OFFERING. A family trust under which Connie M. Dotson, Chief Service
Quality Officer, is a trustee received 6,127 shares of WITC in exchange for
8,000 shares plus accrued but unpaid dividends of Series A Preferred Stock of
E*OFFERING. Jerry D. Gramaglia, President and Chief Operating Officer, received
6,127 shares of WITC for 8,000 shares plus accrued but unpaid dividends of
Series A Preferred Stock and options to purchase 16,710 shares of WITC in
exchange for options to purchase 25,000 shares of Common Stock of E*OFFERING.
Dennis L. Lundien, Chief Internal Audit and Privacy Officer, received 3,830
shares of WITC for 5,000 shares plus accrued but unpaid dividends of Series A
Preferred Stock of E*OFFERING. A revocable trust of which William A. Porter,
Chairman Emeritus and a director of the Company, is a trustee, received 22,978
shares of WITC in exchange for 30,000 shares plus accrued but unpaid dividends
of Series A Preferred Stock of E*OFFERING. A revocable trust under which Leonard
C. Purkis, Chief Financial Officer, is a trustee received 6,127 shares of WITC
for 8,000 shares plus accrued but unpaid dividends of Series A Preferred Stock
of E*OFFERING. Brigitte VanBaelen, Chief Community Relations Officer and
Assistant Corporate Secretary, received 1,532 shares of WITC in exchange for
2,000 shares plus accrued but unpaid dividends of Series A Preferred Stock of
E*OFFERING. William Ford, a director of the Company, received options to
purchase 50,129 shares of WITC in exchange for options to purchase 75,000 shares
of Common Stock of E*OFFERING. Judy Balint, Chief International Officer,
received 6,127 shares of WITC in exchange for 8,000 shares plus accrued but
unpaid dividends of Series A Preferred Stock of E*OFFERING. Softbank Technology
Ventures V LP, Softbank Technology Ventures Advisors Fund V LP and Softbank
Technology Entrepreneurs Fund V LP, with which Masayoshi Son, a former director
of the Company, and Ronald D. Fisher, a current director of the Company, are
affiliated received a total of 2,287,517 shares of WITC in exchange for
2,412,905 shares plus accrued but unpaid dividends of Series C Preferred Stock
of E*OFFERING. See below for discussion of interests of General Atlantic
Coinvestment Partners II LP and General Atlantic Partners 61 LP, and additional
General Atlantic Partners entities, of which director William E. Ford is
affiliated.
On January 12, 2000, General Atlantic Partners 61, L.P. ("GAP 61"), with
which director William E. Ford is affiliated, purchased an aggregate of
6,003,560 shares of Series C Convertible Preferred Stock of E*OFFERING, an
affiliate of the Company, for an aggregate purchase price of approximately
$20,900,076 and GAP Coinvestment Partners II, L.P. ("GAPCO II") purchased an
aggregate of 1,295,290 shares of Series C Convertible Preferred Stock of
E*OFFERING for an aggregate purchase price of approximately $4,509,268. General
Atlantic Partners, LLC ("GAP LLC") is the general partner of GAP 61 and General
Atlantic Partners II, L.P., a shareowner of the Company. The managing members of
GAP LLC are also the general partners of GAP Coinvestment Partners, L.P. ("GAPCO
I"), a shareowner of the Company, and GAPCO II. Mark F. Dzailga, a managing
member of GAP LLC and a general partner of each of GAPCO I and GAPCO II, was a
member of the Board of Directors of E*OFFERING.
Pursuant to an Agreement and Plan of Merger dated May 15, 2000 (the "Merger
Agreement"), by and among E*OFFERING, Wit and the Wit Sound View Corporation
("Merger Sub"), E*OFFERING was merged with and into the Merger Sub (the
"Merger"). On October 16, 2000, the effective date of the Merger, each of GAPCO
II and GAP 61 exchanged its shares of Series C Convertible Preferred Stock of
E*OFFERING for 1,235,899 and 5,728,287 shares of Common Stock of WITC,
respectively. Effective October 16, 2000, William E. Ford, a director of the
Company, became a director of Wit. Mr. Ford is a managing member of GAP LLC and
a general partner of each of GAPCO I and GAPCO II.
Pursuant to the Share Reallocation and Escrow Participation Agreement dated
as of September 30, 2000, by and among Wit, Merger Sub, the Company and certain
of the shareholders of E*OFFERING, including GAP 61 and GAPCO II, the parties
agreed that (i) certain shares of Common Stock of WITC received by such
shareholders (other than the Company) in the merger that would not otherwise be
deposited in the escrow fund under the Merger Agreement would be deposited in
the escrow fund in lieu of certain shares of Common Stock of WITC received by
the Company and its affiliates in the Merger that would otherwise have been
deposited in the escrow fund, and (ii)
certain shares of Common Stock of WITC that would otherwise be received by such
shareholders (other than the Company) in the Merger would be instead allocated
to the Company under the Merger Agreement.
Pursuant to the Stock Purchase Agreement dated May 15, 2000 (the "Stock
Purchase Agreement") by and among Wit, the Company, General Atlantic Partners
68, L.P. ("GAP 68"), GAPCO II and GapStar, LLC ("GapStar" and together with GAP
68 and GAPCO II, the "Purchasers"), Wit agreed to issue and sell to the
Purchasers or their designees, and the Purchasers agreed to purchase from Wit,
an aggregate of 2,000,000 shares of Common Stock at a price per share of $10.25,
for an aggregate purchase price of $20,500,000. Pursuant to a Letter Agreement
dated October 16, 2000 by and among Wit, the Company, GapStar, GAP 61 and GAPCO
II, GAP 68 and GapStar agreed to assign and transfer all of their rights under
the Stock Purchase Agreement to GAP 61 and GAPCO II, and each of GAP 61 and
GAPCO II agreed to purchase an aggregate of 1,645,070 and 354,930 shares of
Common Stock of WITC, respectively, for an aggregate purchase price of
approximately $16,861,967 and $3,638,032, respectively. On October 24, 2000,
each of GAP 61 and GAPCO II funded such aggregate purchase price to Wit.
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 and the Chase Hambrecht &
Quist Internet 100 Index during the period from August 16, 1996 (the date the
Company's Common Stock commenced public trading) through September 30, 2000.
COMPARISON OF 49 MONTH CUMULATIVE TOTAL RETURN*
AUGUST 16, 1996 TO SEPTEMBER 30, 2000
[PERFORMANCE GRAPH OF E*TRADE APPEARS HERE]
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
8/16/96 9/30/96 9/30/97 9/30/98 9/30/99 9/30/00
------- ------- ------- ------- ------- -------
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
E*TRADE GROUP, INC. $100 $117 $418 $166 $835 $584
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
NASDAQ STOCK MARKET - U.S. INDEX $100 $108 $149 $151 $247 $328
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
CHASE HAMBRECHT & QUIST INTERNET 100 INDEX
$100 $110 $133 $183 $567 $819
- ------------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
- ----------------
* $100 invested on 8/16/96 in stock or index.
Beginning fiscal year 1998, the Company elected to utilize the Chase
Hambrecht & Quist Internet 100 Index as its basis for comparison of cumulative
total return. The Company believes that the Chase Hambrecht & Quist Internet 100
Index is the best representation of the Company's peer group.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company with the Securities and Exchange Commission (the "SEC").
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 during the fiscal year ended September 30, 2000, all
filing requirements under Section 16(a) applicable to its officers, directors,
and greater than ten-percent beneficial owners were complied with except as
follows: Initial Statements of Beneficial Ownership of Securities on Form 3 were
filed late for director Peter Chernin, Amy J. Errett, the Company's Chief Asset
Gathering
Officer, and Michael Sievert, the Company's Chief Sales and Marketing Officer;
in November 2000, Joshua Levine, the Company's Chief Technology Officer,
reported on a Form 5 the grant of options to purchase 100,000 shares of Common
Stock which was due to be reported on a Form 4 on June 10, 2000.
SHAREOWNER PROPOSALS
Shareowner proposals may be submitted for inclusion in the Company's next
proxy statement after the meeting to be held on December 21, 2000, but must be
received by the Company no later than July 24, 2001. The proposal must be mailed
to the Company's principal executive offices, 4500 Bohannon Drive, Menlo Park,
California 94025, Attention: Theodore J. Theophilos, Corporate Secretary. 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.
Under the terms of the Company's Bylaws, shareowners who intend to present
an item of business at the next Annual Meeting of Shareowners after the meeting
to be held on December 21, 2000 (other than a proposal submitted for inclusion
in the Company's proxy materials) must provide notice of such business to the
Corporate Secretary no earlier than June 24, 2001 and no later than July 24,
2001, as set forth more fully in such Bylaws.
AUDIT COMMITTEE REPORT
In accordance with its written charter, a copy of which is attached as
APPENDIX B, adopted by the Board of Directors (the "Board"), the Audit Committee
of the Board (the "Committee") assists the Board in fulfilling its
responsibility for oversight of the quality and integrity of the accounting,
auditing and financial reporting practices of the Company. During the fiscal
year ended September 30, 2000, the Committee met four times and acted once by
unanimous written consent, and the Committee chair, as representative of the
Committee, discussed the interim financial information contained in each
quarterly earnings announcement with the Company's Chief Financial Officer and
independent auditors prior to public release. The members of the Audit Committee
have been determined to be independent pursuant to Rule 4200(a)(15) of the
National Association of Securities Dealers' ("NASD") listing standards.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence, and satisfied itself as to the auditors' independence. The
Committee also discussed with management, the internal auditors and the
independent auditors the quality and adequacy of the Company's internal controls
and the internal audit function's organization, responsibilities, budget and
staffing, and concurred in the appointment of a new director of internal audit,
Dennis L. Lundien, Chief Internal Audit and Privacy Officer. The Committee
reviewed with both the independent and the internal auditors their audit plans,
audit scope, and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted accounting standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Committee also discussed the results of the
internal audit examinations.
The Committee reviewed the audited financial statements of the Company as
of and for the fiscal year ended September 30, 2000, with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that the Company's
audited financial statements be included in its Annual Report on Form 10-K for
the fiscal year ended September 30, 2000, for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment, subject
to shareowner approval, of the independent auditors, and the Board concurred in
such recommendation.
Submitted by the Audit Committee of the Company's Board of Directors:
Lester C. Thurow (Chair)
Lewis E. Randall
Peter Chernin
FORM 10-K
The Company filed an Annual Report on Form 10-K for fiscal year 2000 with
the Securities and Exchange Commission on November 8, 2000. Shareowners may
obtain a copy of this report, without charge, by writing to Theodore J.
Theophilos, Corporate Secretary, at the Company's principal offices located at
4500 Bohannon Drive, Menlo Park, California 94025.
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 are represented at the meeting, regardless
of the number of shares you hold. YOU ARE, THEREFORE, URGED TO EXECUTE PROMPTLY
AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE.
If you elected to receive the Annual Report and Proxy Statement electronically
over the Internet, you will not receive a paper proxy card and we encourage you
to vote online, unless you cancel your enrollment. 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,
/s/ Christos M. Cotsakos
Christos M. Cotsakos
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
November 22, 2000
Menlo Park, California
APPENDIX A: E*TRADE Bonus Plan
E*TRADE GROUP, INC.
ASSOCIATE BONUS PLAN
(EFFECTIVE OCTOBER 1, 2000)
I. PURPOSES
The purposes of this Associate Bonus Plan (the "Plan") are: (a) to provide
greater incentive for the Company's associates continually to exert their
best efforts on behalf of E*TRADE Group, Inc. (the "Company") by rewarding
them for services rendered with compensation that is in addition to their
regular salaries; (b) to attract and to retain in the employ of the Company
persons of outstanding competence; and (c) to further the identity of
interests of such associates with those of the Company's shareowners
through a strong performance-based reward system.
II. FORM OF AWARDS
Incentive compensation awards under this Plan shall be generally granted in
cash, less any applicable withholding taxes; provided that the Compensation
Committee of the Board of Directors (the "Committee") may determine, from
time to time, that all or a portion of any award may be paid in the form of
an equity based incentive, including without limitation stock options,
restricted shares, or outright grants of Company stock.
III. DETERMINATION OF AWARDS
1. Incentive awards for participants other than the Chairman and Chief
Executive Officer shall be determined annually according to the achievement
of Company and Divisional Performance Matrix targets that shall be
established in the first 90 days of each year by the Committee or, in the
case of individuals other than the Chairman and Chief Executive Officer,
its designee. The Company Performance Matrix shall include some or all of
the following: target company revenue, earnings per share, customer
satisfaction and associate survey performance results. The Divisional
Performance Matrix shall include some or all of the following: revenue,
cost, product, people and customer goals. Awards shall be defined by
reference to a target percentage of base salary determined, from time to
time, by the Committee or its designee. Incentive awards described in this
subsection shall be calculated and paid on an annual basis, based on
performance over the course of that year. Except as otherwise provided
below, in the event that the Company achieves 100% of the target Company
Performance Matrix for a given period, associates will receive 100% of
their target bonus amounts. In the event that the Company achieves less
than 100% of the Company Performance Matrix target but achieves at least
certain minimum threshold goals established by the Committee, associates
will receive a pro-rated share of their target bonus amounts; in the event
that the Company achieves Company Performance Matrix goals that exceed the
target to a level established by the Committee, associates will receive
proportionately larger bonus amounts; in the event that the Company does
not achieve at least the minimum threshold Company Performance Matrix
goals, then no associate will receive any payment under this plan. If, and
only if, the Company achieves at least the minimum Company Performance
Matrix goals established by the Committee, then associates other than the
Chairman and Chief Executive Officer will be entitled to earn an additional
bonus amount based on achievement of the Divisional Performance Matrix, at
such levels as may be established by the Committee or its designee. With
respect to all associates other than Section 162(m) "covered persons", the
Committee or its designee reserves the right to modify any criteria, goals
or payment amounts as appropriate. As discussed in Section III(3), below,
the Committee shall have the power to reduce any amount payable to any
Section 162(m) "covered person" or to determine that no amount shall be
payable to such "covered person."
2. Incentive awards for the Chairman and Chief Executive Officer shall be
determined annually, solely according to the achievement of those Company
Performance Matrix goals applicable to all other
associates of the Company. There shall be no Divisional Performance Matrix
applicable to the Chairman and Chief Executive Officer and no award based
on such Matrix. The Committee shall determine the Chairman and Chief
Executive Officer's award each year. Payouts for the Chairman and Chief
Executive Officer shall be made on an annual basis, based on the Company's
results for the full year.
3. Notwithstanding anything to the contrary contained in this Plan, the
Committee shall have the power, in its sole discretion, to reduce the
amount payable to any Participant (or to determine that no amount shall be
payable to such Participant) with respect to any award prior to the time
the amount otherwise would have become payable hereunder. In the event of
such a reduction, the amount of such reduction shall not increase the
amounts payable to other participants under the Plan. The maximum award
that may be payable under this Plan for Fiscal Year 2001 shall be six times
the base salary of any associate, including the Chairman and Chief
Executive Officer, as of November 1, 2000.
IV. ADMINISTRATION
1. Except as otherwise specifically provided, the Plan shall be
administered by the Committee or, in the case of individuals other than the
Chairman and Chief Executive Officer and Section 162(m) "covered persons,"
the Committee's designee. The Committee members shall be appointed pursuant
to the Bylaws of the Company, and the members thereof shall be ineligible
for awards under this Plan for services performed while serving on said
Committee.
2. The decision of the Committee or, in the case of individuals other than
the Chairman and Chief Executive Officer and Section 162(m) "covered
persons," the Committee's designee, with respect to any questions arising
as to interpretation of the Plan, including the severability of any and all
of the provisions thereof, shall be, in its sole and absolute discretion,
final, conclusive and binding.
V. ELIGIBILITY FOR AWARDS
1. Awards under the Plan may be granted by the Committee or its designee to
any associate who is in good standing (as determined by the Committee or
its designee) at the time the award is made. Generally, associates subject
to any performance warning or disciplinary action will not be eligible to
receive any payment under this Plan. No award may be granted to a member of
the Company's Board of Directors except for services performed as an
associate of the Company.
2. To be eligible for an award an associate shall be employed by the
Company as of the date final award amounts are calculated and approved by
the Committee under this Plan.
3. Unless otherwise determined by the Committee or its designee, in its
sole discretion, for purposes of this Plan, the term "associate" shall
include an employee of a corporation or other business entity in which this
Company shall directly or indirectly own 50% or more of the outstanding
voting stock or other ownership interest.
VI. AWARDS
1. The Committee shall determine each year the payments, if any, to be made
under the Plan. Awards for any fiscal year shall be granted not later than
the end of the first quarter of the fiscal year, and payments pursuant to
the Plan shall be made as soon as practicable after the close of the fiscal
year.
2. Upon the granting of awards under this Plan, each participant shall be
informed of his or her award by his or her direct manager and that such
award is subject to the applicable provisions of this Plan.
VII. DEFERRAL OF AWARDS
A participant in this Plan who is also eligible to participate in any
deferred compensation plan offered by the Company may elect to defer
payments pursuant to the terms of that plan.
VIII. RECOMMENDATIONS AND GRANTING OF AWARDS
1. Recommendations for awards shall be made to the Committee or its
designee by the Chief Executive Officer and/or the Chief People and Culture
Officer, except that, with respect to the President and Chief Operating
Officer, recommendations for awards shall be made solely by the Chairman
and Chief Executive Officer.
2. Any award shall be made in the sole discretion of the Committee, which
shall take final action on any such award. No person shall have a right to
an award under this Plan until final action has been taken granting such
award.
IX. AMENDMENTS AND EXPIRATION DATE
While it is the present intention of the Company to grant awards annually,
the Committee reserves the right to modify or amend this Plan or any
formula, target or goal established hereunder from time to time or to
repeal the Plan entirely, or to direct the discontinuance of granting
awards either temporarily or permanently, at any time, except as otherwise
prohibited by law, including the restrictions described in Section 162(m)
of the Internal Revenue Code, as such statute may be amended in the future.
X. MISCELLANEOUS
All expenses and costs in connection with the operation of this Plan shall
be borne by the Company and no part thereof shall be charged against the
awards anticipated by the Plan. Nothing contained herein shall be construed
as a guarantee of continued employment of any participant hereunder. This
Plan shall be construed and governed in accordance with the laws of the
State of California.
APPENDIX B: Audit Committee Charter
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
SECTION I - PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Company to any
governmental body or the public; the Company's systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board of Directors have established; and the Company's auditing, accounting
and financial reporting processes generally. Consistent with this function, the
Audit Committee should encourage continuous improvement of, and should foster
adherence to, the Company's policies, procedures and practices at all levels.
The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
o Review and appraise the audit efforts of the Company's independent
accountants.
o Provide an open avenue of communication among the independent accountants,
financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
SECTION II - ORGANIZATION
There shall be an Audit Committee of the Board of Directors to be known as
the Audit Committee. The Audit Committee shall consist of at least three (3)
members who at all times shall be members of the Board of Directors, and that
such members shall be designated by resolution of the Board of Directors, each
such member to serve until he is no longer a director or until removed and a
successor is elected by the Board of Directors, whichever shall first occur. The
Audit Committee members shall all be financially literate, as defined by the
National Association of Securities Dealers ("NASD"), and at least one member of
the Audit Committee shall have accounting and related financial management
expertise. The Audit Committee shall be composed of directors who are
independent as that term is defined by the NASD.
SECTION III - STATEMENT OF POLICY
The Audit Committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the Company, and the quality and integrity of the financial reports of the
Company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors and the financial management of the Company.
SECTION IV - CONTINUOUS ACTIVITIES - GENERAL
1. Provide an open avenue of communication between the independent auditor,
and the board of directors.
2. Meet four times per year or more frequently as circumstances require. The
Audit Committee may ask members of management or others to attend meetings
and provide pertinent information as necessary.
3. Confirm the independence of the independent auditor.
4. Review with the independent auditor the coordination of audit efforts
regarding the completeness of coverage, and the effective use of audit
resources. the responsibilities set forth herein do not reflect or create
any duty or obligation of the Audit Committee to plan, conduct, oversee or
determine the appropriate scope of any audit, or to determine that the
Company's financial statements are complete, accurate, fairly presented, or
in accordance with Generally Accepted Accounting Principles or applicable
law. in exercising its business judgment, the
Audit Committee shall rely on the information and advice provided by the
Company's management and/or its outside auditor.
5. Inquire of management and the independent auditor, about significant risks
or exposures and assess the steps management has taken to minimize such
risk to the Company and related entities.
6. Consider and review with the independent auditor:
a) The adequacy of the Company's and related entities' internal controls
including computerized information system controls and security.
b) Related findings and recommendations of the independent auditor
together with management's responses.
c) New or proposed financial reporting issues to determine their impact
on the Company.
7. Consider and review with management, and the independent auditor:
a) Significant findings during the year, including the status of previous
audit recommendations.
b) Any difficulties encountered in the course of audit work including any
restrictions on the scope or activities or access to required
information.
8. Meet periodically with the independent auditor and management in separate
executive sessions to discuss any matters that the Audit Committee or these
groups believe should be discussed privately with the Audit Committee.
9. Instruct the independent auditor that the Audit Committee as
representatives of the Board of Directors and the shareholders, is the
auditor's client.
10. Report periodically to the Board of Directors on significant results of the
foregoing activities.
11. Review and update this Charter periodically, as conditions dictate.
12. Perform such duties required to be performed by independent directors of
the Company pursuant to law or the bylaws or regulations of the Nasdaq
Stock Market.
13. Perform such other duties as the Board of Directors may from time to time
assign to it.
SECTION V - CONTINUOUS ACTIVITIES - RE: REPORTING SPECIFIC POLICIES
1. Advise financial management and the independent auditor that they are
expected to provide a timely analysis of significant current financial
reporting issues and practices. in conjunction with this timely analysis,
the Audit Committee should review related SEC filings on Form 10-K prior to
submission to the sec. in addition, filings on form 10-Q should be reviewed
either with the Chair of the Committee or the entire Committee.
2. Provide that financial management and the independent auditor discuss with
the Audit Committee their qualitative judgments about the appropriateness,
not just the acceptability, of accounting principles and financial
disclosure practices used or proposed to be adopted by the Company.
3. Inquire as to the auditor's independent qualitative judgments about the
appropriateness, not just the acceptability, of the accounting principles
and the clarity of the financial disclosure practices used or proposed to
be adopted by the Company.
4. Determine, in regard to new transactions or events, management's reasoning
for the appropriateness of the accounting principles and disclosure
practices adopted by management and assure concurrence of the auditor's
with such reasoning.
5. Inquire as to the auditor's views about how the Company's choices of
accounting principles and disclosure practices may affect public views and
attitudes about the Company.
SECTION VI - SCHEDULED ACTIVITIES
1. Recommend the selection of the independent auditor for approval by the
Board of Directors and election by shareowners, approve the compensation of
the independent auditor, and review and approve management's proposed
discharge of the independent auditor.
2. Consider, in consultation with the independent auditor, the audit scope and
plan of the independent auditor.
3. Review with management and the independent auditor the results of annual
audits and related comments including:
a) The independent auditor's audit of the Company's and related entities'
annual financial statements, accompanying footnotes and its report
thereon.
b) Any significant changes required in the independent auditor's audit
plans.
c) Any difficulties or disputes with management encountered during the
course of the audit.
d) The auditor's reasoning in accepting or questioning significant
estimates made by management.
e) Other matters related to the conduct of the audit which are to be
communicated to the Audit Committee under Generally Accepted Auditing
Standards.
4. Review any reports of examination made by regulatory authorities.
5. Arrange for the independent auditor to be available to the full Board of
Directors at least annually to help provide a basis for the Board to
recommend the appointment of the auditor.
SECTION VII - OVERSIGHT ACTIVITIES
1. Be apprised of all management consulting engagements performed by the
Company's independent auditor as well as any other study undertaken at the
request of management that is beyond the scope of the audit engagement
letter. Consider the impact of these projects on the auditor's independence
based on their nature and the significance of their fees.
2. Review periodically with the Chief Legal Affairs Officer, legal and
regulatory matters that may have a material impact on the Company's and
related entities' financial statements, compliance policies and programs.
3. Conduct or authorize investigations into any matters within the Audit
Committee's scope of responsibilities. the committee shall be empowered to
retain independent counsel and other professionals to assist it in the
conduct of any investigation.
4. Discuss and assist management with the formation and maintenance of an
internal audit function. The primary function of the Internal Audit
Department would be to assist the Audit Committee in fulfilling its
oversight responsibilities by reviewing, in detail and on an on-going,
daily basis: the financial reports and other financial information provided
by the Company to any governmental body or the public; the Company's
systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the board have established; and
the Company's auditing, accounting and financial reporting processes
generally.
5. Review management's development and the monitoring of the Company's
compliance with its Code of Ethical Conduct.
6. Review and approve agreements or arrangements (other than
employment agreements approved by the Compensation Committee of the Board
of Directors) between the Company and Executive Officers (or entities in
which an Executive Officer holds an interest) in which agreements or
arrangements the Committee believes are in the best interests of the
Company to engage.
SECTION VIII - GENERAL
1. The Committee shall hold regular meetings at such places and at
such times as shall be determined from time to time by resolution of the
Committee, and that special meetings of the Committee may be held from time
to time pursuant to the call of the chairman of the Committee. In lieu of a
meeting, the Audit Committee may also act by unanimous written consent
resolution.
2. The chairman of the Committee shall, when present, preside at all
of the meetings of the Committee and shall call and designate the time and
place of all special meetings of the Committee.
3. The Committee shall designate a person (who need not be a member of the
Committee) to keep minutes of its meetings. the minutes shall be retained
by the Corporate Secretary of the Company.
4. The Committee shall report periodically to the board on significant results
of the foregoing activities.
5. The Committee shall perform such other duties as the Board may from time to
time assign to it.
Appendix C:
E*TRADE GROUP, INC.
1996 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED THROUGH OCTOBER 25, 2000
ARTICLE ONE
GENERAL PROVISIONS
ALL SHARE NUMBERS IN THIS DOCUMENT REFLECT THE 2-FOR-1 STOCK SPLITS EFFECTED ON
JANUARY 29, 1999 AND MAY 21, 1999.
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
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
2
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.
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
3
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
85,399,992 shares, except as adjusted from time to time as set forth in Section
V(B) below. 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 plus (ii) an additional increase of 16,000,000 shares
authorized by the Board and subsequently approved by the stockholders prior to
the Section 12 Registration Date, plus (iii) an additional increase of 7,600,000
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
11,000,000 shares authorized by the Board on October 21, 1998, and approved by
the stockholders at the 1999 Annual Meeting; plus (v) an additional increase of
11,900,000 shares authorized by the Board and approved by the stockholders on
December 21, 1999; plus (vi) an additional increase of 14,923,512 shares
authorized by the Board on October 25, 2000, subject to stockholder approval at
the Annual Meeting to be held December 21, 2000.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase, on the first trading day of January of each
calendar year in the four (4) calendar-year period beginning with the 2002
calendar year and continuing through the share increase effected for calendar
year 2005, by an amount equal to five percent (5%) of the total number of shares
of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 2,000,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1996 calendar year, and for more than 6,000,000 shares of
Common Stock in the aggregate per calendar year, beginning with the 2001
calendar year.
4
D. 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.
E. 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 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.
5
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.
6
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.
(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
7
(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.
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
8
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
9
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 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.
10
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.
(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
11
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.
12
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.
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
13
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
14
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 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.
15
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,
(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
16
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)
17
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).
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.
18
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 80,000 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 until April
19, 2000 shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 80,000 shares of Common Stock,
provided that individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary.
3. Each individual who is first elected or appointed as a
non-associate Board member at any time after April 19, 2000 shall automatically
be granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 50,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.
4. 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 20,000 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 20,000 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.
19
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, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 50,000-share or 80,000-share
grant (as applicable, in accordance with the provisions of Sections I.A.2 and
I.A.3 of this Article Five) 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 20,000-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
20
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 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 24, 1998, 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
21
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.
22
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,
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.
23
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
24
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.
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.
25
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 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.
26
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 7,600,000 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 11,000,000 shares, to 58,576,480 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 were approved by the stockholders at the 1999 Annual Meeting. 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.
D. On December 21, 1999, the Board amended and restated the Plan to
increase the maximum number of shares of Common Stock authorized for issuance
under the Plan by 11,900,000 shares, to 70,476,480 shares of Common Stock. The
Amendment was concurrently approved by the stockholders on December 21, 1999.
The option grants made prior to the December 1999 Amendment shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances and nothing in the
27
December 1999 Amendment shall be deemed to modify or in any away affect those
outstanding options or issuances.
E. On April 19, 2000, the Board amended and restated the Plan to reduce
the number of shares granted upon the initial grant to new non-associate Board
members under Article Five of the Plan from 80,000 shares of Common Stock to
50,000 shares of Common Stock.
F. On October 25, 2000, the Board amended and restated the Plan to (i)
increase the maximum number of shares of Common Stock authorized for issuance
under the Plan by 14,923,512 shares, subject to stockholder approval at the
Annual Meeting to be held December 21, 2000 (ii) to provide that the number of
shares of Common Stock available for issuance under the Plan shall automatically
increase, on the first trading day of January of each calendar year in the four
(4) calendar-year period beginning with the 2002 calendar year and continuing
through the share increase effected for calendar year 2005, by an amount equal
to five percent (5%) of the total number of shares of Common Stock outstanding
on the last trading day in December of the immediately preceding calendar year,
subject to stockholder approval at the Annual Meeting to be held
December 21, 2000 and (iii) to increase the maximum number of shares which any
one person participating in the Plan may receive in options, separately
exercisable stock appreciation rights and direct stock issuances to 6,000,000
shares in the aggregate beginning with the calendar year 2001 from the 2,000,000
share maximum in effect from the Plan Effective Date through calendar year 2000.
The option grants made prior to the October 2000 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
2000 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.
G. 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.
H. 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.
28
I. 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.
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
29
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.
30
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.
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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.
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 of Common Stock on the date in question on
the Stock Exchange determined by the Plan Administrator to be the
primary market for the
A-2
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
A-3
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 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.
A-4
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.
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
A-5
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.
A-6
COMMON STOCK AND SERIES A PREFERRED STOCK
PROXY FOR ANNUAL MEETING OF SHAREOWNERS
DECEMBER 21, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christos M. Cotsakos, Theodore J. Theophilos 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 November 6, 2000 at the Annual Meeting of
Shareowners of E*TRADE Group, Inc. to be held December 21, 2000, or at any
adjournment thereof.
1. Election of Directors.
01) Ronald D. Fisher 02) William E. Ford 03) George Hayter
/ / FOR / / AGAINST / / FOR ALL EXCEPT
To withhold authority vote, mark "For All Except" and write the nominee's number
on the line below.
- -------------------------------
2. To approve a 14,923,512 share increase in the maximum number of shares of
Common Stock reserved for issuance under the Company's 1996 Stock Incentive
Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an additional amendment to the 1996 Stock Incentive Plan to
automatically increase the number of shares reserved for issuance under the 1996
Plan in each of the four years beginning in 2002.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an additional amendment to the 1996 Stock Incentive Plan to
increase the annual maximum number of shares allowed to be granted to any one
participant from 2,000,000 shares to 6,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
5. To approve a new performance-based bonus plan.
/ / FOR / / AGAINST / / ABSTAIN
6. To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the Company.
/ / FOR / / AGAINST / / ABSTAIN
7. 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, 4, 5 and 6.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ABOVE. IN THE
ABSENCE OF CONTRARY INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1,
2, 3, 4, 5 and 6.
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: _____________________, 2000
----------------------------------
(Signature)
----------------------------------
(Additional signature if held jointly)
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
E*TRADE GROUP, INC.
INSTRUCTION CARD
VOTING DIRECTION GIVEN BY THE HOLDER OF
EXCHANGEABLE SHARES OF EGI CANADA CORPORATION
FOR THE DECEMBER 21, 2000 ANNUAL MEETING
OF SHAREOWNERS OF E*TRADE GROUP, INC.
The undersigned, a holder of exchangeable shares (the "Exchangeable
Shares") of EGI Canada Corporation ("ECC"), having read the Notice of Annual
Meeting (the "Meeting") of shareowners of E*TRADE Group, Inc. ("EGI" or the
"Company") to be held at Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City,
California 94065, at 10:00 a.m. local time on December 21, 2000, the Proxy
Statement dated November 22, 2000, and the accompanying Notice to Holders of
Exchangeable Shares, receipt of each of which is hereby acknowledged, does
hereby instruct and direct Montreal Trust Company of Canada (the "Trustee") as
trustee for the voting rights of holders of Exchangeable Shares pursuant to the
provisions of the Voting and Exchange Trust Agreement (the "Agreement") dated
August 28, 2000 among EGI, ECC and the Trustee, as follows:
(PLEASE SELECT ONE OF A, B OR C)
A. / / Exercise or cause to be exercised, whether by proxy given by the Trustee
to a representative of EGI or otherwise, the undersigned's voting rights
at the Meeting, or any postponement or adjournment thereof, as follows:
(PLEASE COMPLETE THE FOLLOWING ONLY IF YOU HAVE SELECTED ALTERNATIVE A)
1. Election of Directors
01) Ronald D. Fisher 02) William E. Ford 03) George Hayter
/ / FOR / / AGAINST / / FOR ALL EXCEPT
To withhold authority vote, mark "For All Except" and write the nominee's number
on the line below.
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2. To approve a 14,923,512 share increase in the maximum number of shares of
Common Stock reserved for issuance under the Company's 1996 Stock Incentive
Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an additional amendment to the 1996 Stock Incentive Plan to
automatically increase the number of shares reserved for issuance under the 1996
Stock Incentive Plan in each of the four years beginning in 2002.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve an additional amendment to the 1996 Stock Incentive Plan to
increase the annual maximum number of shares allowed to be granted to any one
participant from 2,000,000 shares to 6,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
5. To approve a new performance-based bonus plan.
/ / FOR / / AGAINST / / ABSTAIN
6. To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the Company for fiscal year 2001; and
/ / FOR / / AGAINST / / ABSTAIN
(IF YOU HAVE SELECTED ALTERNATIVE A, PLEASE GO DIRECTLY TO THE
SIGNATURE LINE AT THE BOTTOM OF PAGE 3.)
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B. / / Deliver a proxy to the undersigned at the Meeting, with respect to all
Exchangeable Shares held by the undersigned on the record date for the
Meeting so that the undersigned may execute personally the
undersigned's voting rights at the meeting or any postponement or
adjournment thereof.
(IF YOU HAVE SELECTED ALTERNATIVE B, PLEASE GO DIRECTLY TO THE
SIGNATURE LINE AT THE BOTTOM OF PAGE 3.)
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C. / / Deliver a proxy to Christos M. Cotsakos, Theodore J. Theophilos and
Leonard C. Purkis, and each or any of them, or in lieu of the
foregoing, ---------------------------------, as the designee of the
undersigned to attend and act for and on behalf of the undersigned at
the Meeting, with respect to the Exchangeable Shares held by the
undersigned on the record date for the Meeting with all the powers
that the undersigned would possess if personally present and acting
thereat including the power to exercise the undersigned's voting
rights at the Meeting or any postponement or adjournment thereof.
(IF YOU HAVE SELECTED ALTERNATIVE C, PLEASE GO DIRECTLY TO THE
SIGNATURE LINE AT THE BOTTOM OF THIS PAGE.)
THE BOARD OF DIRECTORS OF EGI RECOMMENDS A VOTE FOR PROPOSAL NUMBERS 1, 2, 3, 4,
5 AND 6. THIS VOTING INSTRUCTION, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
SPECIFIED ABOVE.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME(S) IS (ARE) SHOWN ON THE SHARE
CERTIFICATE TO WHICH THIS VOTING INSTRUCTION APPLIES. IF THIS VOTING INSTRUCTION
IS NOT DATED, IT SHALL BE DEEMED TO BE DATED ON THE DAY WHICH IT WAS MAILED TO
THE SHAREHOLDER. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
Signature: Date:
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Print Name:
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Signature: Date:
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Print Name:
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VOTING INSTRUCTION CARDS MUST BE RECEIVED BY THE TRUSTEE, MONTREAL TRUST COMPANY
OF CANADA, C/O IICC, 6250 KESTREL ROAD, MISSISSAUGA, ONTARIO LST 1Y9 PRIOR TO
5:00 PM (TORONTO TIME) ON TUESDAY, DECEMBER 19, 2000.
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.