Securities and Exchange Commission
Washington, D.C. 20549
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
American Express Company
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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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<PAGE>
AMERICAN EXPRESS COMPANY
[LOGO] 200 VESEY STREET
NEW YORK, NEW YORK 10285
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of Shareholders of American Express Company, a New
York corporation, will be held at the executive offices of the Company, 200
Vesey Street, 26th Floor, New York, New York 10285 (see directions on back
cover), on Monday, April 27, 1998 at 10:00 A.M., local time, for the following
purposes:
1. To elect directors;
2. To ratify the selection by the Company's Board of Directors of Ernst
& Young LLP, independent auditors, to audit the accounts of the Company and its
subsidiaries for 1998;
3. To consider and vote upon the adoption of the American Express
Company 1998 Incentive Compensation Plan, a copy of which is annexed to this
proxy statement;
4. and 5. To consider and vote upon two shareholder proposals, one
relating to cumulative voting and one relating to executive compensation, each
of which the Board of Directors opposes; and
To transact such other business as may properly come before the
meeting.
By Order of the Board of Directors:
STEPHEN P. NORMAN
SECRETARY
March 10, 1998
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE, OR VOTE
YOUR PROXY BY TELEPHONE AS DESCRIBED IN THE ENCLOSED TELEPHONE VOTING
INSTRUCTIONS.
This Statement is printed on recycled paper.
[Recycle Logo]
<PAGE>
AMERICAN EXPRESS COMPANY
{LOGO] 200 VESEY STREET
NEW YORK, NEW YORK 10285
March 10, 1998
PROXY STATEMENT
VOTE BY PROXY
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company for the Annual Meeting of
Shareholders to be held on Monday, April 27, 1998, and for any adjournment of
the meeting. A copy of the notice of the meeting is attached. This proxy
statement and form of proxy are first being mailed to shareholders on or about
March 11, 1998.
You are cordially invited to attend the meeting, but whether or not you
expect to attend in person, you are urged to sign and date the enclosed proxy
and return it in the enclosed prepaid envelope. If you are a shareholder of
record located in the U.S., you may vote your proxy by telephone as described in
the enclosed telephone voting instructions. If your shares are held in the name
of a bank, broker or other holder of record, you will receive instructions from
the holder of record on how to vote your shares, which may include telephone
voting instructions. Shareholders have the right to revoke their proxies at any
time prior to the time their shares are actually voted by submitting a later
dated proxy, by submitting subsequent voting instructions by telephone, or by
voting in person at the meeting.
The enclosed proxy indicates on its face the number of common shares
registered in the name of each shareholder of record on March 2, 1998, including
shares enrolled in the Company's Shareholder's Stock Purchase Plan.
Proxies furnished to employees set forth the number of shares credited to
their employee benefit plan accounts. Proxies returned or telephone voting
instructions sent by employees who participate in such plans will be considered
to be voting instructions to be followed by the plan trustee in voting the
shares credited to these accounts.
CONFIDENTIAL VOTING
As a matter of Company practice, the proxies, ballots and voting
tabulations relating to individual shareholders are kept private by the Company.
Such documents are available for examination only by the Inspectors of Election
and certain employees of the Company's independent tabulating agent engaged in
processing proxy cards and tabulating votes. The vote of any individual
shareholder is not disclosed to management except as may be necessary to meet
legal requirements. However, because all comments from shareholders made on the
proxy cards will be forwarded to management, the votes of the commenting
shareholders may be revealed.
GENERAL
Unless contrary instructions are indicated on the proxy or submitted by
telephone, all shares represented by valid proxies received pursuant to this
solicitation (and not revoked) will be voted as follows:
FOR the election of all nominees for directorships named in the proxy
statement,
FOR ratification of the selection of Ernst & Young LLP as independent
auditors for 1998,
FOR the adoption of the Company's 1998 Incentive Compensation Plan,
AGAINST the shareholder proposal relating to cumulative voting, and
AGAINST the shareholder proposal relating to executive compensation.
If a shareholder specifies a different choice on the proxy or by
telephone, his or her shares will be voted as specified.
The closing price of the Company's common shares on March 2, 1998, as
reported by the New York Stock Exchange Composite Transactions Tape, was $91.625
per share.
<PAGE>
The Company's 1997 Annual Report has been mailed to shareholders in
connection with this solicitation. A COPY OF THE COMPANY'S 1997 FORM 10-K,
EXCLUSIVE OF CERTAIN EXHIBITS, MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO
STEPHEN P. NORMAN, SECRETARY, AMERICAN EXPRESS COMPANY, 200 VESEY STREET, NEW
YORK, NEW YORK 10285-5005.
COST OF PROXY SOLICITATION
The Company will bear the cost of soliciting proxies. Directors, officers
or employees of the Company may solicit proxies on behalf of the Company in
person or by telephone, facsimile or electronic mail. The Company has engaged
the firm of Morrow & Co. to assist the Company in the distribution and
solicitation of proxies. The Company has agreed to pay Morrow & Co. a fee of
$18,000 plus expenses for these services.
The Company will also reimburse brokerage houses and other custodians,
nominees and fiduciaries for their expenses, in accordance with the regulations
of the Securities and Exchange Commission ("SEC") and the New York Stock
Exchange for sending proxies and proxy material to the beneficial owners of
common shares.
THE SHARES VOTING
The only voting securities of the Company are common shares, of which
465,057,281 shares were outstanding as of March 2, 1998. Each share is entitled
to one vote. Management believes that as of December 31, 1997, no person
beneficially owned more than five percent of the outstanding common shares of
the Company, except as set forth in the table below.
NUMBER OF AMERICAN
NAMES AND ADDRESSES EXPRESS COMMON SHARES PERCENT OF
OF BENEFICIAL OWNERS BENEFICIALLY OWNED CLASS (%)
------------------- --------------------- ---------
Warren E. Buffett, 49,456,900 (1) 10.6%
Berkshire Hathaway Inc.
and subsidiaries
1440 Kiewit Plaza
Omaha, Nebraska 68131
Edward C. Johnson 3d, 46,462,375 (2) 10.0%
Abigail P. Johnson and
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109
- -------------
(1) Reflects shares beneficially owned as of December 31, 1997, according to
information provided by Berkshire Hathaway Inc. ("Berkshire"). Of the
shares shown, 39,005,293 shares were beneficially owned by National
Indemnity Company, a subsidiary of Berkshire. Mr. Buffett, Berkshire and
the subsidiaries share voting and dispositive power over these shares. Mr.
Buffett, his spouse and a certain trust of which Mr. Buffett is a trustee,
but in which he has no economic interest, own approximately 41.5% of the
aggregate economic interests of the outstanding Class A and Class B shares
of Berkshire. As a result of such ownership and control, Mr. Buffett may
be deemed to be the beneficial owner of shares beneficially owned by
Berkshire.
In connection with obtaining the approval of the Board of Governors of the
Federal Reserve System to acquire up to 17% of the outstanding voting
shares of the Company, Berkshire and the Company have entered into an
agreement (effective for such time as Berkshire owns 10% or more of the
Company's outstanding voting securities), and Berkshire has made
commitments to the Board of Governors, designed to ensure that Berkshire's
investment in the Company will at all times be passive. Pursuant to an
additional agreement, so long as Berkshire owns 5% or more of the
Company's voting securities and Harvey Golub is the Company's Chief
Executive Officer, Berkshire and its subsidiaries will vote all Company
common shares owned by them in accordance with the recommendations of the
Board of Directors of the Company. Subject to certain exceptions,
Berkshire and its subsidiaries will not sell Company common shares to any
person who owns more than 5% of the Company's voting securities or who
seeks to change the control of the Company without the consent of the
Company.
2
<PAGE>
(2) Reflects shares beneficially owned as of December 31, 1997, according to a
statement on Schedule 13G filed with the SEC. According to such Schedule
13G, beneficial ownership was held as follows: sole dispositive power--FMR
Corp. ("FMR"), Mr. Johnson and Ms. Johnson - 46,457,075 shares; sole
voting power--FMR - 2,689,383 shares, Mr. Johnson - 5,393 shares, and Ms.
Johnson - 0 shares; shared dispositive and shared voting power--FMR and
Mr. Johnson - 4,500 shares and Ms. Johnson - 0 shares. Of the shares
shown, 42,532,512 shares were beneficially owned by FMR's wholly-owned
subsidiary, Fidelity Management and Research Company, and 323,980 shares
were beneficially owned by Fidelity International Limited ("FIL"). Mr.
Johnson and members of the Johnson family form a controlling group with
respect to FMR. Approximately 40% of the voting stock of FIL is owned by a
partnership controlled by Mr. Johnson and members of his family. Mr.
Johnson serves as Chairman of FMR and FIL. As a result of such common
ownership and control, FMR may be deemed to be a beneficial owner of the
shares owned by FIL. FMR disclaims beneficial ownership of the 323,980
shares beneficially owned by FIL.
VOTE REQUIRED
The 13 nominees receiving the greatest number of votes cast by the holders
of the Company's common shares entitled to vote at the meeting will be elected
directors of the Company.
The affirmative vote of a majority of the votes cast at the meeting is
necessary to ratify the selection of auditors, to adopt the 1998 Incentive
Compensation Plan (the "1998 Plan") and to approve the shareholder proposals.
METHOD OF COUNTING VOTES
Each common share is entitled to one vote. Votes will be counted and
certified by the Inspectors of Election, who are employees of ChaseMellon
Shareholder Services, L.L.C., the Company's independent Transfer Agent and
Registrar. Under SEC rules, boxes and a designated blank space are provided on
the proxy card for shareholders to mark if they wish either to abstain on one or
more of the proposals or to withhold authority to vote for one or more nominees
for director. In accordance with New York State law, such abstentions are not
counted in determining the votes cast in connection with the selection of
auditors, the 1998 Plan, and each of the shareholder proposals. Votes withheld
in connection with one or more of the nominees for director will not be counted
as votes cast for those nominees.
The New York Stock Exchange has informed the Company that management's
proposals to elect directors and to ratify the selection of auditors are each
considered "discretionary" items. This means that brokerage firms may vote in
their discretion on behalf of their clients if their clients have not furnished
voting instructions at least fifteen days prior to the date of the shareholders'
meeting. However, management's proposal to adopt the 1998 Plan and each of the
shareholder proposals are "non-discretionary," and brokers who have received no
instructions from their clients do not have discretion to vote on these items.
Such "broker non-votes" will not be considered as votes cast in determining the
outcome of these proposals.
SHAREHOLDERS ENTITLED TO VOTE
Only shareholders of record at the close of business on March 2, 1998 will
be entitled to vote at the Annual Meeting of Shareholders.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 2, 1998, common shares of the
Company owned by each current director and nominee for director and by all
current directors and executive officers of the Company as a group. Except as
described below, each of the persons listed below has sole voting and investment
power with respect to the shares shown. The table also shows the common share
equivalent units held by directors under the Directors' Deferred Compensation
Plan described on page 8.
3
<PAGE>
<TABLE>
<CAPTION>
AMERICAN EXPRESS
NUMBER OF COMMON SHARES
AMERICAN EXPRESS WHICH MAY BE
NAMES OF DIRECTORS COMMON ACQUIRED WITHIN COMMON SHARE
AND NOMINEES SHARES OWNED (1)(2) 60 DAYS (3) EQUIVALENTS (4)
------------ ------------------ ----------- ---------------
<S> <C> <C> <C>
Daniel F. Akerson..................... 10,200 1,999 3,442
Anne L. Armstrong..................... 8,001 4,819 8,923
Edwin L. Artzt........................ 6,500 1,699 --
William G. Bowen...................... 8,360 4,279 --
Kenneth I. Chenault................... 210,883 283,652 --
Charles W. Duncan, Jr................. 55,681 7,699 25,708
Harvey Golub.......................... 440,683 739,057 --
Beverly Sills Greenough............... 5,000 3,759 --
F. Ross Johnson....................... 17,621 7,699 --
Vernon E. Jordan, Jr.................. 7,471 4,279 12,750
Jan Leschly........................... 23,700 333 592
Drew Lewis............................ 20,200 2,597 --
Aldo Papone........................... 22,095 5,419 --
Frank P. Popoff....................... 8,759 1,000 --
All current Directors and
Executive Officers as a............. --------- --------- ------
group (30 individuals) (5).......... 1,494,493 3,607,707 51,415
</TABLE>
- -------------
(1) The number of shares owned by Messrs. Golub and Chenault and all current
directors and executive officers as a group includes 733, 5,176 and 38,451
shares held in their respective employee benefit plan accounts as of March
2, 1998.
The number of common shares shown includes 2,000 shares held by a trust of
which Mr. Popoff is a trustee. The number of common shares shown also
includes 500 shares held by a trust of which an executive officer is
co-trustee and 432 shares owned by children of such executive officer. The
number of common shares shown does not include shares as to which the
nominees and all current directors and executive officers as a group have
disclaimed beneficial ownership, as follows: 6,060 shares held by Duncan
Investors Ltd. of which Mr. Duncan is a partner, 6,150 shares held by a
trust of which Mr. Golub's wife is the sole trustee, 3,015 shares owned by
a child of Mr. Golub, 15,335 shares held by a limited partnership of which
Mr. Chenault and his wife are the general partners, 14,342 shares held by
Mr. Chenault's wife outright or as trustee or custodian for their
children, and 45,933 shares disclaimed by all current directors and
executive officers as a group.
(2) The number of shares owned by Messrs. Golub and Chenault and all current
directors and executive officers as a group includes 17,500, 92,458 and
276,089 shares, respectively, of restricted stock as to which the holders
possess sole voting power, but no investment power, during the restricted
period. Restrictions on the sale or transfer of these restricted shares
lapse over a period of years ending in the year 2004.
(3) Shares shown include common shares subject to stock options and common
shares issuable upon conversion of convertible debentures. Messrs. Golub
and Chenault and all current directors and executive officers as a group
hold debentures that are convertible into 11,810, 3,980 and 22,641 shares
respectively.
(4) These common share equivalent units are held in the Deferred Compensation
Plan for Directors described on page 8.
(5) The Company's current directors and executive officers as a group
beneficially owned approximately 5,102,200 of the Company's common shares
as of March 2, 1998, representing approximately 1.1% of the Company's
outstanding common shares. As of that date, none of the individuals named
in the above table beneficially owned more than 1% of the Company's
outstanding common shares.
-------------
4
<PAGE>
SHARE OWNERSHIP GUIDELINES FOR DIRECTORS
The Board of Directors believes that as a matter of governance each
director should acquire and maintain a meaningful investment in the Company.
Accordingly, the Board of Directors has observed since February 1994 a voluntary
share ownership guideline of 10,000 Company shares or share equivalents for each
director, such number of shares to be acquired over a five-year period
commencing February 1994 or on the date of such director's first election to the
Board, whichever is later.
SECURITY OWNERSHIP OF NAMED EXECUTIVES
The following table sets forth, as of March 2, 1998, beneficial ownership
of common shares of the Company by Harvey Golub, Chief Executive Officer of the
Company, and each of the four other most highly compensated executive officers
of the Company at the end of 1997 (collectively, the "named executives"). Except
as described below, each of the named executives has sole voting and investment
power with respect to the shares shown.
<TABLE>
<CAPTION>
AMERICAN EXPRESS
NUMBER OF AMERICAN COMMON SHARES
EXPRESS COMMON WHICH MAY BE ACQUIRED
NAME SHARES OWNED (1)(2) WITHIN 60 DAYS (3)
---- ------------------- ------------------
<S> <C> <C>
H. Golub.............................. 440,683 739,057
K. I. Chenault........................ 210,883 283,652
G. L. Farr............................ 51,851 269,999
J. S. Linen........................... 159,630 453,529
R. K. Goeltz.......................... 10,004 39,998
</TABLE>
- -------------
(1) The number of shares owned by Messrs. Golub, Chenault, Farr, Linen and
Goeltz includes 733, 5,176, 390, 7,699 and 4 shares held in their
respective employee benefit plan accounts as of March 2, 1998.
The number of common shares shown does not include shares as to which
Messrs. Golub and Chenault have disclaimed beneficial ownership, as
follows: 6,150 shares held by a trust of which Mr. Golub's wife is the
sole trustee, 3,015 shares owned by a child of Mr. Golub, 15,335 shares
held in a limited partnership of which Mr. Chenault and his wife are the
general partners and 14,342 shares held by Mr. Chenault's wife outright or
as trustee or custodian for their children. The number of common shares
owned by Mr. Linen includes 500 shares held by a trust of which he is a
co-trustee and 432 shares owned by his children.
(2) The number of shares owned by Messrs. Golub, Chenault, Farr, Linen and
Goeltz includes 17,500, 92,458, 12,500, 11,404 and 10,000 restricted
shares, respectively, as to which the holders possess sole voting power,
but no investment power, during the restricted period. Restrictions on the
sale or transfer of these restricted shares lapse over a period of years
ending in the year 2004.
(3) Shares shown include common shares subject to stock options and common
shares issuable upon conversion of convertible debentures. Messrs. Golub
and Chenault hold debentures that are convertible into 11,810 and 3,980
shares, respectively.
GOVERNANCE OF THE COMPANY
The business of the Company is managed under the direction of its Board of
Directors. Of the 13 director nominees, only Messrs. Golub and Chenault are
employees of the Company or a subsidiary.
The Board of Directors has six standing committees. Committee memberships,
the number of committee meetings held during 1997 and the functions of those
committees are described below.
AUDIT COMMITTEE
The current members of the Audit Committee are Charles W. Duncan, Jr.
(Chairman), Daniel F. Akerson, Edwin L. Artzt, William G. Bowen, Jan Leschly and
Drew Lewis.
The Audit Committee represents the Board in discharging its
responsibilities relating to the accounting, reporting, financial and internal
control practices of the Company and its subsidiaries. The Committee has general
responsibility for reviewing with management the financial and internal controls
and the accounting, audit and reporting
5
<PAGE>
activities of the Company and its subsidiaries. The Committee annually reviews
the qualifications and objectivity of the Company's independent auditors, makes
recommendations to the Board as to their selection, reviews the scope, fees and
results of their audit, reviews their non-audit services and related fees, is
informed of their significant audit findings and management's responses thereto,
and annually reviews the status of significant current and potential legal
matters. In addition, the Committee reviews the scope of the internal auditors'
plans each year and the results of their audits. The Committee also receives
reports on the U.S. Federal Sentencing Compliance program, including a review of
the distribution of and compliance with the Company's Code of Conduct, which is
sent periodically to employees of the Company and its subsidiaries around the
world, and receives reports as to compliance with the Code. The Committee is
also empowered to conduct its own investigations into issues related to its
responsibilities and to retain independent counsel or outside experts for such
purposes.
During 1997 the Audit Committee met five times.
COMPENSATION AND BENEFITS COMMITTEE
The current members of the Compensation and Benefits Committee are Frank
P. Popoff (Chairman), Anne L. Armstrong, Edwin L. Artzt, Beverly Sills Greenough
and F. Ross Johnson.
The Compensation and Benefits Committee consists solely of directors who
are not current or former employees of the Company or a subsidiary and oversees
incentive compensation plans for officers and key employees, approves standards
for setting compensation levels for Company executives and administers the
Company's executive incentive compensation plans for senior executives. The
Committee also approves the compensation of certain employees whose salaries are
above specified levels and makes recommendations to the Board for approval as
required. The Committee conducts an annual review of the performance of the
Company's Chief Executive Officer. It also reviews senior management development
programs and appraises senior management's performance. The Committee is
authorized to hire and regularly consult with independent compensation advisors.
The Committee represents the Board in discharging its responsibilities
with respect to the Company's employee pension, savings and welfare benefit
plans. It appoints the members of management who serve on the Employee Benefits
Administration Committee and the Benefit Plans Investment Committee, which are
responsible, respectively, for the administration of the plans of the Company
and for the custody and management of assets of those plans that are funded. The
Committee receives periodic reports from the Employee Benefits Administration
and Benefit Plans Investment Committees on their activities.
During 1997 the Compensation and Benefits Committee met four times.
COMMITTEE ON DIRECTORS
The current members of the Committee on Directors are Vernon E. Jordan,
Jr. (Chairman), Anne L. Armstrong, Charles W. Duncan, Jr., and Drew Lewis.
The Committee on Directors identifies and recommends candidates for
election to the Board. It advises the Board on matters relating to directorship
practices, including the criteria for selecting directors, policies relating to
tenure and retirement of directors, and compensation and benefit programs for
non-employee directors. The Committee makes recommendations relating to the
duties and membership of committees of the Board.
The Committee recommends processes to evaluate the performance and
contributions of the Board as a whole and approves procedures designed to
provide that adequate orientation and training are provided to new members of
the Board.
The Committee also considers candidates who are recommended by
shareholders in accordance with the early notification and other requirements
set forth on page 31. Any shareholder who wishes to recommend a candidate for
election to the Board should submit such recommendation to the Secretary of the
Company.
During 1997 the Committee on Directors met two times.
EXECUTIVE COMMITTEE
The current members of the Executive Committee are Harvey Golub
(Chairman), William G. Bowen, Charles W. Duncan, Jr., Vernon E. Jordan, Jr. and
Frank P. Popoff.
6
<PAGE>
The Executive Committee is empowered to meet in place of the full Board
when emergency issues or scheduling makes it difficult to convene all of the
directors. The Committee may act on behalf of the Board on all matters permitted
by New York State law. All actions taken by the Committee must be reported at
the Board's next meeting.
The Executive Committee held no meetings during 1997.
FINANCE COMMITTEE
The current members of the Finance Committee are Drew Lewis (Chairman),
Daniel F. Akerson, Kenneth I. Chenault, F. Ross Johnson and Aldo Papone.
The Finance Committee oversees the investment of the Company's funds,
reviews the parameters of investment programs, receives reports on the progress
of investment activities and considers strategies as they relate to changing
economic and market conditions. The Committee's duties also include
responsibility for reviewing with management the capital needs and allocations
of the Company and its subsidiaries, including the Company's external and
intra-company dividend policies. The Committee also provides consultation on the
financial aspects of divestitures, acquisitions, major capital commitments,
major borrowings and proposed issuances of debt or equity securities, whether
privately or publicly distributed.
During 1997 the Finance Committee met three times.
PUBLIC RESPONSIBILITY COMMITTEE
The current members of the Public Responsibility Committee are William G.
Bowen (Chairman), Beverly Sills Greenough, Vernon E. Jordan, Jr., Jan Leschly
and Aldo Papone.
The Public Responsibility Committee reviews and considers the Company's
position and practices on issues in which the business community interacts with
the public, such as consumer policies, employment opportunities for minorities
and women, protection of the environment, purchasing from minority-owned
businesses, philanthropic contributions, privacy, shareholder proposals
involving issues of public interest, and similar issues, including those
involving the Company's positions in international affairs.
During 1997 the Public Responsibility Committee met two times.
DIRECTORS' FEES AND OTHER COMPENSATION
Directors who are not current employees of the Company or one of its
subsidiaries receive a retainer of $16,000 per quarter, except that directors
who attend fewer than 75 percent of the meetings of the Board and committees on
which they serve do not receive the fourth quarterly retainer. Each non-employee
director who serves as the chairman of one of the Board's standing committees
receives an annual retainer of $10,000. Directors do not receive separate fees
for attendance at Board or committee meetings. Directors are reimbursed for
their customary and usual expenses incurred in attending Board, committee and
shareholder meetings, including expenses for travel, food and lodging. Directors
who are current employees of the Company or a subsidiary receive no fees for
service on the Board or Board committees of the Company or any of its
subsidiaries.
In 1997 the Company adopted the Directors' Stock Plan to increase the
equity component of directors' annual compensation and thereby more closely
align their interests with those of the Company's shareholders. Under the Plan,
each non-employee director receives 200 common shares on the first business day
of each year, commencing January 1998, for service in the prior year. However,
if a director has attended less than 75% of all board meetings and meetings of
committees on which such director served during the prior calendar year, the
director will receive 150 Common Shares. Directors who join the Board on or
after July 1 receive 100 shares. On January 2, 1998, all non-employee directors
received 200 shares for 1997 service.
In March 1996 the Company amended its Retirement Plan for Non-Employee
Directors. Pursuant to the amendment, non-employee directors elected to the
Board after March 31, 1996 for the first time are not eligible to participate in
the plan. The plan is an unfunded, nonqualified plan that covers directors of
the Company whose Board service began on or prior to March 31, 1996 and who are
not current or former employees of the Company or its subsidiaries. Such
non-employee directors who serve at least five full years are eligible to
receive, upon their retirement from the Board of Directors, an annual benefit of
$30,000. The Company will pay the benefit for a period of
7
<PAGE>
years equal to the number of full years of service as a director or until death
occurs, whichever is earlier. In addition, the plan provides discretion for the
Board to grant benefits to any current non-employee director who does not
otherwise qualify for a benefit under the plan, although the Company has never
made such discretionary grants and does not contemplate any.
The Company also provides each non-employee director with group term life
insurance coverage of $50,000 and accidental death and dismemberment insurance
coverage of $300,000. Non-employee directors are also eligible to purchase
$50,000 of additional group term life insurance coverage. In 1997 six
non-employee directors purchased such insurance.
The Company maintains a Deferred Compensation Plan for Directors under
which directors may defer all or a portion of their annual compensation in
either a cash-based account or in Company Common Share Equivalent Units until
retirement or a later specified date. A Company Common Share Equivalent Unit is
an amount payable in cash which is designed to replicate the value of a Company
common share, including reinvested dividends. During 1997 deferred amounts
credited to the cash-based account earned interest at a rate equivalent to the
Moody's Average Corporate Bond Yield, and amounts credited to the Company Common
Share Equivalent Units were valued on the basis of the price of the Company's
common shares plus reinvested dividend equivalents. In 1997 the Company amended
its plan to provide that beginning in 1998, the crediting rate for the cash
portion of any deferred amounts will be the ROE based crediting schedule that is
provided in the Pay for Performance Deferral Program described on page 13. The
amendments also permit directors to switch deferred balances between the
cash-based and the stock-based investment alternatives. At the present time six
directors participate in the plan. Accumulated Common Share Equivalent Units are
shown on page 4.
In 1993 the shareholders of the Company approved a Directors' Stock Option
Plan (the "1993 Plan"), which provides for the automatic annual grant to each
non-employee director of a nonqualified option to purchase 1,000 common shares
of the Company, as of the date of each annual meeting of shareholders at which
the director is elected or re-elected. Under the 1993 Plan the option exercise
price is 100 percent of the fair market value of a common share on the date of
grant. Each option has a ten-year term and generally becomes exercisable in
three equal annual installments beginning on the first anniversary of the date
of grant. On April 28, 1997 each of the 12 then incumbent non-employee directors
(11 of whom are also current nominees for re-election as directors) received a
stock option to purchase 1,000 shares at an exercise price of $62.81 per share.
As part of its overall program to promote charitable giving as a means to
enhance the quality of life in the many communities in which the Company's
businesses operate, the Company maintains a Directors' Charitable Award Program
pursuant to which the Company has purchased life insurance policies on the lives
of participating directors and advisors to the Board who previously served as
directors. Upon the death of an individual director or advisor, the Company
expects to receive a $1 million death benefit, or $500,000 in the case of
advisors. The Company in turn expects to donate one-half of the individual death
benefit to the American Express Foundation and one-half to one or more
qualifying charitable organizations recommended by the individual director or
advisor. Individual directors and advisors derive no financial benefit from this
program since all charitable deductions accrue solely to the Company. The
Company bears only nominal cost, and benefits paid to the Company's Foundation
reduce the amount of funding that the Company provides to the Foundation.
Messrs. Duncan and Papone serve as directors of American Express Bank Ltd.
("AEB"), for which each receives an annual retainer of $25,000 and fees of
$1,000 for attendance at each board meeting. Mr. Duncan also receives an annual
retainer of $5,000 as chairman of AEB's Audit Committee and $750 for attendance
at each committee meeting.
Effective December 31, 1990, Mr. Papone retired as Chairman and Chief
Executive Officer of American Express Travel Related Services Company, Inc.
("TRS"). During 1997 Mr. Papone served as Senior Advisor and provided consulting
services individually and through his firm to the Company and TRS pursuant to
two consulting agreements providing for compensation of $18,750 per month under
the Company agreement and $250,000 for 1997 under the TRS agreement. The Company
expects these arrangements to continue in 1998. Mr. Jordan is a senior partner
of Akin, Gump, Strauss, Hauer & Feld, L.L.P. which provided legal services to
the Company in 1997 and is providing such services to the Company in 1998 at
customary and usual rates.
8
<PAGE>
ELECTION OF DIRECTORS
An entire Board of Directors, consisting of 13 members, is to be elected
at the meeting, to hold office until the next Annual Meeting of Shareholders. In
the case of a vacancy, the Board of Directors, upon the recommendation of the
Committee on Directors, may elect another director as a replacement or may leave
the vacancy unfilled. Decisions regarding the election of new directors during
the year normally are based upon such considerations as the size of the Board
and the need to obtain fresh perspectives or to replace the particular skills or
experience of former directors. Mr. Papone is retiring as a director of the
Company on April 27, 1998 pursuant to the Board's mandatory retirement policies.
During 1997 the Board of Directors met nine times and each of the current
directors attended more than 75 percent of the meetings of the Board and of the
Board committees on which the director served.
Unless authority to vote is withheld, the persons specified in the
enclosed proxy intend to vote for the following nominees, all of whom have
consented to being named in this proxy statement and to serving if elected.
Although management knows of no reason why any nominee would be unable to serve,
the persons designated as proxies reserve full discretion to vote for another
person in the event any nominee is unable to serve.
The following information is provided with respect to the nominees for
directorships. Italicized wording indicates principal occupation.
DANIEL F. AKERSON Director since 1995 Age 49
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, NEXTEL COMMUNICATIONS, INC., a domestic
and international digital wireless communications company, March 1996 to
present; General Partner, Forstmann Little & Co., an investment banking firm,
1994 to March 1996; Chairman and Chief Executive Officer, General Instrument
Corporation, a company engaged in developing technology, systems and product
solutions for the interactive delivery of video, voice and data, 1993 to 1995;
Member, Board of Directors, America Online, Incorporated.
ANNE L. ARMSTRONG Director since 1983 Age 70
CHAIRMAN OF THE BOARD OF TRUSTEES, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES, a non-profit public policy institution, 1987 to present; former
Chairman, President's Foreign Intelligence Advisory Board; former United States
Ambassador to Great Britain and Northern Ireland; Director, General Motors
Corporation, Halliburton Company, and Boise Cascade Corporation; Regent, Texas
A&M University System.
EDWIN L. ARTZT Director since 1994 Age 67
CHAIRMAN OF THE EXECUTIVE COMMITTEE AND DIRECTOR OF THE PROCTER & GAMBLE
COMPANY, a worldwide consumer products company, 1995 to present, Chairman of the
Board and Chief Executive Officer, 1990 to 1995; Director, Delta Air Lines,
Inc., GTE Corporation, Evenflo & Spalding Holdings Corp., and Barilla S.p.A.
(Italy); Member, The Business Council.
WILLIAM G. BOWEN Director since 1988 Age 64
PRESIDENT, THE ANDREW W. MELLON FOUNDATION, a not-for-profit corporation engaged
in philanthropy, 1988 to present; former President, Princeton University;
Director, Merck, Inc.; Member, Board of Trustees, Denison University; Member,
Board of Overseers, TIAA-CREF; Chairman, JSTOR.
9
<PAGE>
KENNETH I. CHENAULT Director since 1997 Age 46
PRESIDENT AND CHIEF OPERATING OFFICER, AMERICAN EXPRESS COMPANY, AND CHIEF
EXECUTIVE OFFICER, AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.,
February 1997 to present, Vice Chairman of American Express Company, January
1995 to February 1997; President - USA, American Express Travel Related Services
Company, Inc., 1993 to 1995; Director, Quaker Oats Company, the National
Collegiate Athletic Association, NYU Medical Center, and the Arthur Ashe
Institute for Urban Health; Member, the Council on Foreign Relations.
CHARLES W. DUNCAN, JR. Director since 1981 Age 71
CHAIRMAN, DUNCAN INTERESTS, 1985 to present; Director, American Express Bank
Ltd., The Coca-Cola Company, Newfield Exploration Company, United Technologies
Corporation and The Robert A. Welch Foundation; Former Chairman of the Board of
Governors, Rice University; Member, Council on Foreign Relations.
HARVEY GOLUB Director since 1990 Age 58
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, AMERICAN EXPRESS COMPANY, August 1993 to
present, President and Chief Executive Officer, February 1993 to August 1993,
President, 1991 to 1993, Chairman and Chief Executive Officer, American Express
Travel Related Services Company, Inc., 1991 to 1997; Director, American Express
Bank Ltd. and Campbell Soup Company; Dow Jones & Company, Inc.; Director, The
New York and Presbyterian Hospitals, Inc.; Member, Board of Trustees, Carnegie
Hall, New York City Partnership, New York Chamber of Commerce and Industry and
United Way of New York City; Member, President's Commission for the Arts and the
Humanities and The Business Roundtable.
BEVERLY SILLS GREENOUGH Director since 1990 Age 68
CHAIRMAN, LINCOLN CENTER FOR THE PERFORMING ARTS, 1994 to present; Managing
Director, Metropolitan Opera, 1991 to present; former General Director and
President, New York City Opera; Director, Time Warner Inc., Human Genome
Sciences, Inc. and Lincoln Center Theater; Member, Board of Trustees, Hospital
for Special Surgery and National Society for Multiple Sclerosis; Member,
President's Task Force on the Arts.
F. ROSS JOHNSON Director since 1986 Age 66
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, RJM GROUP, a management advisory and
investment firm, 1989 to present; Director, Power Corporation of Canada, Archer
Daniels Midland Company, and Noma Industries Ltd.; former Chairman, Economic
Club of New York; Retired Chairman, RJR/Nabisco, Inc.
VERNON E. JORDAN, JR. Director since 1977 Age 62
SENIOR EXECUTIVE PARTNER, AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P., attorneys,
Washington, D.C. and Dallas, Texas, 1982 to present; Director, Bankers Trust
Company, Bankers Trust New York Corporation, Chancellor Media Corporation, Dow
Jones & Company, Inc., J.C. Penney Company Inc., Revlon Group, Inc., Ryder
Systems, Inc., Sara Lee Corporation, Union Carbide Corporation and Xerox
Corporation; Trustee, Ford Foundation and Howard University.
JAN LESCHLY Director since 1997 Age 57
CHIEF EXECUTIVE AND DIRECTOR, SMITHKLINE BEECHAM PLC, developer and marketer of
pharmaceuticals, over-the-counter medicines and healthcare services including
clinical laboratory testing, disease management and pharmaceutical benefit
management, 1994 to present, Chairman, SmithKline Beecham Pharmaceuticals, 1990
to 1994; Director, British Pharma Group, Pharmaceutical Research and
Manufacturers Association and CBS Media Corporation; Trustee, National
Foundation for Infectious Diseases and Member, Emory Business School Dean's
Advisory Council.
10
<PAGE>
DREW LEWIS Director since 1986 Age 66
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER, UNION PACIFIC CORPORATION, a
transportation company, January 1997 to present; Chairman and Chief Executive
Officer, 1987 through December 1996; Director, Ford Motor Company, Lucent
Technologies Inc., FPL Group, Inc., Gulfstream Corp., Gannett Co., Inc., and
Union Pacific Resources Group Inc.
FRANK P. POPOFF Director since 1990 Age 62
CHAIRMAN OF THE BOARD, THE DOW CHEMICAL COMPANY, a producer of chemicals and
chemical products, 1992 to present, Chief Executive Officer, 1987 to 1995,
Director, U S WEST, Inc., United Technologies Corp. and Chemical Financial
Corporation, Michigan Molecular Institute; Member, Indiana University
Foundation, Chemical Manufacturers Association and The Business Council.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Company's Board of
Directors administers the Company's executive officer compensation programs. The
Committee consists entirely of non-employee directors who are not eligible to
participate in any of the Company's executive compensation programs. The
Committee uses independent compensation consultants' data.
OVERVIEW AND PHILOSOPHY
The objectives of the Company's executive compensation programs are to:
o Attract, motivate and retain the highest quality executives.
o Align their financial interests with those of the Company's long-term
investors.
o Motivate them to achieve tactical and strategic objectives in a manner
consistent with the Company's corporate values.
To achieve these objectives, the Company's executive compensation policies
and programs are designed to:
o Focus participants on high priority goals to increase shareholder value.
o Encourage behavior that exemplifies the Company's values relating to
customers, quality of performance, employees, integrity, teamwork and
good citizenship.
o Assess performance based on results and pre-set goals that link the
business activities of each individual and team to the goals of the
applicable business unit and the Company.
o Increase stock ownership to promote a proprietary interest in the
success of the Company.
EXECUTIVE OFFICER COMPENSATION
Executive officer compensation includes base salary, annual incentive and
long-term incentive awards. The Committee establishes reference points for each
of these elements of compensation for every executive officer position. The
reference points are compensation guidelines that reflect job responsibility
levels within the Company, the need to attract, retain and reward executive
talent and external market practices. In setting reference points, the Committee
may put different weights on each of these factors. For 1997, a comparative
group of approximately 50 companies was selected with the help of an outside
compensation consultant. This sample includes selected major corporations in the
Standard & Poor's 500 Index and the Standard & Poor's Financials that compete
with the Company in its primary lines of business or for executive talent, or
are of comparable size and scope of operations. Market data on comparable jobs
from this sample, including the 50th through 75th percentile pay levels, are
taken into consideration in establishing reference points and other compensation
guidelines. Reference points may be established at levels within, higher or
lower than the 50th to 75th percentile range of the comparative group. Actual
compensation is based on the Committee's judgment of Company or business unit
performance and individual performance under the programs described below.
11
<PAGE>
Executive officer base salary merit increases are based upon individual
performance and the executive's salary in relation to the reference point
established for the executive's position. In 1997, the Committee continued the
practice of extending the time interval between merit increases to 18 months or
longer, except in the case of a promotion or other job change or where warranted
by special circumstances.
For 1997, annual incentives were paid to the named executive officers and
certain other executives pursuant to 1997 awards which specify maximum award
amounts for Company performance levels. The award value is determined on a
formula basis by application of a performance grid that measures the Company's
1997 return on equity ("ROE") and 1997 growth in earnings per share. The
Committee retained the discretion to adjust the formula-derived amounts downward
after certifying that the performance goals set forth in the grid had been met.
The Committee exercised its discretion to determine the final value of
each 1997 incentive award. The Committee assessed performance against goals and
leadership performance, with each of these two categories weighted equally. The
goal category included an evaluation of the following performance areas
(weighted 50%, 25% and 25%, respectively): increase in shareholder value (e.g.,
shareholder return, earnings growth and return on equity), customer satisfaction
(e.g., customer satisfaction measures, client retention and growth in products
and services) and employee satisfaction (e.g., the Company's employee values
survey results). The leadership category was evaluated based on the Committee's
judgment of leadership performance, including such factors as innovation,
strategic vision, marketplace orientation, customer focus, collaboration and
managing change. The named executive officers were awarded final values ranging
from 1.4 to 1.9 times target. For 1997, annual incentive awards for executive
officers who did not participate in the above program were determined in
accordance with guidelines which range from 0 to approximately 200% of target
based on the goal and leadership performance areas described above.
Long-term incentive compensation awards are granted annually, and are
designed to provide performance-based compensation that links value to Company,
business unit and individual performance over multi-year performance periods. In
1997, the incentive awards made to executive officers included Portfolio
Grant-VIII awards ("PG-VIII awards") and ten-year non-qualified stock option
grants. The size and grant value of actual awards were determined by the
Committee after reviewing the individual's annual performance, the size of
previous awards and relative contributions. The number or value of stock options
currently held by an executive is not taken into account in determining the
number of stock options to be granted. The awards were consistent with
established reference points.
The PG-VIII awards are long-term performance awards with two components
that are valued at the end of a three-year performance period commencing in
January 1997 and ending in December 1999. One component is valued based on
achievement of specified Company or business unit targets for cumulative
earnings (or earnings per share) and average ROE. The second component is valued
based on the Company's average daily share price for the 60-trading-day period
prior to the date of the Committee's meeting in February 2000. For certain
executive officers, minimum performance levels for cumulative earnings (or
earnings per share) and average ROE are required for the second component to
have any value. In determining the actual final value of the awards, the
Committee has retained the discretion to adjust downward the formula values of
the awards, after certifying that the performance goals have been met.
Nonqualified stock option awards were granted to link compensation to the
creation of incremental shareholder value. The ten-year nonqualified stock
option awards reward executives only to the extent that the Company's share
price increases for all shareholders. Each stock option has an exercise price
per share set at the fair market value per share as of the grant date.
Generally, each option becomes fully exercisable over a period of three years
after the grant. The Company has never repriced stock option awards and is
committed not to do so without shareholder approval.
The Committee in its judgment may also grant bonuses, restricted stock,
stock options or other long-term incentive awards to recognize special
individual contributions or job promotions, to attract new hires from outside
the Company or in the case of special circumstances. The Committee may also
accelerate vesting of awards in cases
12
<PAGE>
where the circumstances warrant. In 1997, Mr. Chenault received a restricted
stock award in recognition of his promotion to President.
The Committee reviews the Company's compensation practices relative to the
Company's strategic goals and industry practices and trends, and may make
changes from time to time to support better the interests of the Company and its
shareholders. Consistent with this approach, in 1997 and early 1998, the
Committee added new features to long-term incentive awards under the 1979 and
1989 Long-Term Incentive Plans. These features are designed to provide
additional incentives for participating employees to stay with the Company and
to increase their stock ownership.
In 1997 the Committee adopted a policy requiring senior officers and
certain other employees to enter into agreements relating to their incentive
awards. Under this agreement, certain compensation received under stock options,
restricted stock awards and Portfolio Grant awards is subject to forfeiture if
the officer or employee leaves the Company to join certain competitors or
engages in conduct detrimental to the Company.
In 1998 the Committee added a restoration stock option feature to
outstanding and new stock options, subject to the Committee's discretion to
change or cancel this feature as appropriate. A restoration option is an
automatic grant of a new stock option at the time a holder exercises an original
stock option and pays the exercise price by surrendering Company common shares
already owned. The original option must be outstanding for at least five years
for the employee to be eligible for a restoration grant. The number of common
shares subject to the new grant will equal the number of shares tendered to pay
the exercise price plus the number of shares, if any, tendered or withheld to
pay the applicable minimum tax withholding liability due on exercise of the
original option. The exercise price of the restoration option will be the fair
market value of the Company's common shares on the date of grant of the new
option. The restoration option becomes fully exercisable six months after its
grant date and may be exercised until the date the original option would have
expired. Senior officers of the Company must be in compliance with their stock
ownership guideline to exercise a restoration grant.
The Committee's policy is to structure compensation awards for executive
officers that will be consistent with the requirements of Section 162(m) of the
U.S. Internal Revenue Code of 1986 (the "Code"). Section 162(m) limits the
Company's tax deduction to $1 million per year for certain compensation paid in
a given year to the Chief Executive Officer and the four highest compensated
executives other than the CEO named in the proxy statement. According to the
Code and corresponding regulations, compensation that is based on attainment of
pre-established, objective performance goals and complies with certain other
requirements will be excluded from the $1 million dollar deduction limitation.
The Company's policy is to structure compensation awards for covered executives
that will be fully deductible where doing so will further the purposes of the
Company's executive compensation programs. However, the Committee also considers
it important to retain flexibility to design compensation programs that
recognize a full range of performance criteria important to the Company's
success, even where compensation payable under such programs may not be fully
deductible. The Company expects that compensation derived from the 1997 annual
incentive, Portfolio Grant-VIII and stock option awards will be excluded from
the deduction limitation of Section 162(m) and, therefore, will be fully
deductible by the Company. The Company also expects that the compensation
derived from the future vesting of restricted stock grants may be subject to
this limitation.
The Company's executive officers also participate in pension, incentive
savings, perquisite, deferred compensation and stock ownership programs. Since
1994, the Committee has adopted an annual Pay for Performance Deferral Program.
The program permits participants to defer compensation up to a maximum of one
times base salary each year. Deferral bookkeeping accounts are established for
each participating employee and credited or debited annually with "interest"
equivalents according to a schedule based on the Company's ROE as reported in
the annual report. Deferred balances are debited or reduced in value if the
annual ROE is zero or less for a given year. The Committee may adjust the ROE
schedule for major accounting changes, significant changes to the Company's ROE
objectives or if the annual rate of return on a 5-year Treasury note becomes
less than 4% or greater than 8%. The Committee may delay payments under the
program until they are fully deductible under Section 162(m).
13
<PAGE>
Approximately 175 senior officers are required to comply with stock
ownership targets. The ownership levels are equal to a multiple of an officer's
base salary on January 1, 1994 or a date following the officer's hire or
promotion date. The applicable multiples range from one times to five times base
salary, depending on job responsibilities. For Mr. Golub, the multiple is five
times his base salary. Restricted stock which has not vested and stock options
which have not been exercised do not count toward fulfilling the requirement.
Executives are expected to hold stock acquired under the long-term program for
application toward their stock ownership guidelines except in the case of stock
used for the payment of taxes or stock used to finance the cost of an option
exercise.
CHIEF EXECUTIVE OFFICER COMPENSATION
As is customary, the Committee determines Mr. Golub's annual compensation
by evaluating the Company's overall financial and business performance, Mr.
Golub's personal role in achieving that performance, and the economic and
competitive environment in which that performance is achieved.
American Express achieved excellent results in 1997. Major accomplishments
included:
o Total shareholder return ("TSR") from price appreciation and dividends
of 60% from year-end 1996 to year-end 1997. This compared with a TSR of
33% for companies in Standard & Poor's ("S&P") 500 Index, 48% for the
S&P Financials, and 25% for the Dow Jones Industrial Average (which
includes companies in both the S&P 500 Index and the S&P Financials).
o Net operating income of $1.99 billion, up 14 percent over $1.74 billion
in 1996. The 1996 results excluded two one-time items: a $300 million
after-tax gain on the exchange of DECS for shares of common stock of
First Data Corporation and a $138 million after-tax restructuring
charge. Growth in 1997 includes increases in net operating income of 19%
for American Express Financial Advisors ("AEFA"), 10% for Travel Related
Services ("TRS") and 20% for American Express Bank ("AEB").
o Growth in diluted operating earnings per share ("EPS") of 17% and return
on equity ("ROE") of 23.5%, the fifth consecutive year in which the
Company has reached or exceeded its long-term financial targets.
Consolidated revenue growth was 8.4%, slightly exceeding the Company's
target. Importantly, the percent of EPS improvement coming from revenue
growth (versus expense reduction) increased in 1997.
o Introduction of a wide range of new card products, with a particular
focus on international markets.
o Increased volumes and revenues in all of the Company's major businesses,
resulting in growth in card billed business, credit card loans
outstanding, assets under management, mutual fund sales and private
banking client assets.
o Development of a large number of alliances and partnerships with
financial service institutions and travel businesses, and continuing to
sign merchants worldwide.
o Strong progress in three areas targeted for growth:
1. Financial Services: Began to develop an overall strategy to help
American Express become the most trusted name in financial
services in the United States. The strategy is built around
providing financial services to consumers through multiple
channels: financial advisors, direct access via phone, fax and
Internet, the workplace, and third-party financial institutions.
The Company also launched an advertising campaign designed to
increase consumers' recognition of the American Express brand as
it relates to financial services.
2. International: Launched 20 new consumer and corporate cards,
including several cobranded products, expanded merchant coverage,
significantly improved the economics of the business card and
travel groups, formed a number of new relationships with financial
institutions, and reported strong financial results and business
advances at AEB.
14
<PAGE>
3. The American Express Network: Opened the network to other issuers
across most major international markets, where regulatory bodies
have ruled against policies proposed by Visa to block member banks
from issuing American Express Cards. The 10 network agreements
announced in 1997 bring American Express' total partnerships to
27. Cards-in-force with network partners grew 25 percent and
billings increased 41 percent, albeit from a relatively small
base.
The Committee also considered some disappointments, including:
o Competitive pressures and slow market share growth across most of
the businesses.
o A decline in consumer charge cards-in-force.
o Aggregate financial results from the international businesses below
the 25-to-30 percent targeted growth rate for earnings.
o Mixed investment results at AEFA.
o The inability to significantly expand the distribution breadth
within financial services or make the direct channel successful.
Despite these issues, the Company established strong momentum throughout
its major businesses. The leadership provided by Mr. Golub, Mr. Chenault and the
other members of the Office of the Chief Executive has helped achieve the
Company's success.
Mr. Golub did not receive an increase in his base salary in 1997, pursuant
to the Committee's practice of extending the time interval between executive
officer merit increases. His annual base salary in 1997 was $900,000, which was
effective in February 1995. At its February 1998 meeting, in recognition of 1997
achievements, the Committee awarded Mr. Golub $2,300,000 as payout of his 1997
incentive award, which was 1.9 times the reference point established for the
award. As described on page 12, the maximum award value was derived from a
formula based on the Company's 1997 ROE of 23.5% and growth in EPS of 17%. The
Committee certified that these performance goals had been satisfied.
In 1997, the Committee granted Mr. Golub long-term incentive awards
consisting of a 10-year non-qualified stock option to purchase 200,000 common
shares at fair market value at the date of grant and a PG-VIII award with a
grant value of $1,000,000. The stock option becomes exercisable in cumulative
annual installments of 33 1/3% over three years. The PG-VIII award earns value
as described on pages 19-20 and is payable after three years. These awards were
consistent with the award reference points established by the Committee as
described above.
The three-year performance period for Portfolio Grant VI awards granted in
February 1995 ended in December 1997. This award was structured to meet the
requirements for excluding compensation from the million dollar deduction
limitation. At its February 1998 meeting, the Committee certified the results
against cumulative earnings per share and average ROE goals of the awards, as
well as the average stock price at the end of the period. The Committee approved
a total payout of $2,856,231 for Mr. Golub. The payout reflects adjustments
approved by the Committee under the terms of the award to take into account
three-year financial results and unusual events (including restructuring
activities, and gains and losses from dispositions and accounting changes).
COMPENSATION AND BENEFITS COMMITTEE
Frank P. Popoff, Chairman
Anne L. Armstrong
Edwin L. Artzt
Beverly Sills Greenough
F. Ross Johnson
15
<PAGE>
The following table shows, for the fiscal years ending December 31, 1997,
1996 and 1995, the cash and other compensation paid or accrued and certain
long-term awards made to the named executives for services in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------------------
AWARDS PAYOUTS
---------------------- ---------
OTHER RESTRICTED LONG-TERM
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
POSITION AT COMPENSA- AWARDS SARS PAYOUTS COMPENSA-
DECEMBER 31, 1997 YEAR SALARY($) BONUS($)(2) TION($)(3) ($)(4) (# SHARES) ($)(5) TION($)(6)
---------------- ---- ---------- ---------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. Golub ...................... 1997 $ 900,000 $2,300,000 $ 268,598 $ 0 200,000 $2,856,231 $ 496,963
Chairman and Chief 1996 900,000 1,980,000 246,634 1,618,750 200,000 2,593,906 324,882
Executive Officer 1995 876,923 1,860,000 250,017 0 200,000 2,603,660 378,344
K.I. Chenault ................. 1997 630,769 1,400,000 224,050 2,645,000 150,000 1,713,705 179,501
President and 1996 550,000 990,000 188,152 1,156,250 110,000 1,129,532 109,717
Chief Operating Officer 1995 532,692 930,000 202,986 680,000 110,000 1,545,909 177,399
G.L. Farr ..................... 1997 550,000 900,000 177,453 0 110,000 1,713,705 140,884
Vice Chairman 1996 550,000 950,000 175,446 1,156,250 110,000 1,037,551 60,737
1995(1) 359,615 930,000 137,620 1,728,150 160,000 520,741 962,503
J.S. Linen .................... 1997 550,000 800,000 183,757 0 50,000 1,356,729 342,535
Vice Chairman 1996 550,000 695,000 184,032 0 50,000 1,426,596 233,878
1995 550,000 605,000 192,995 0 50,000 1,432,015 421,068
R.K. Goeltz ................... 1997 475,000 685,000 453,540 0 50,000 685,482 606,887
Vice Chairman and 1996(1) 156,164 625,000 172,070 432,500 70,000 0 112,360
Chief Financial Officer
</TABLE>
- ------------
(1) Reflects compensation after executives commenced employment with the
Company. Mr. Farr joined the Company on May 1, 1995, and Mr. Goeltz joined
the Company on September 3, 1996.
(2) 1997 bonuses were paid pursuant to 1997 incentive awards described on page
12.
(3) Amounts reported in this column for 1997 reflect perquisites, other
personal benefits and amounts reimbursed for the payment of taxes.
Included is the cost to the Company of the following perquisites and other
personal benefits: for Mr. Golub, local travel allowance of $84,661 (plus
$55,159 for the payment of related taxes) and personal travel expenses of
$93,778; for Mr. Chenault, local travel allowance of $84,661 (plus $55,159
for the payment of related taxes); for Mr. Farr, local travel allowance of
$84,661 (plus $55,159 for the payment of related taxes); for Mr. Linen,
local travel allowance of $84,661 (plus $55,159 for the payment of related
taxes), and for Mr. Goeltz, flexible perquisite allowance of $35,000 and
local travel allowance of $30,000. For Mr. Goeltz, the amount in this
column also includes reimbursement for the payment of taxes in connection
with his relocation as described in note 6 on page 17.
(4) Restricted stock awards are valued in the table above at their fair market
value based on the per share closing price of the Company's common shares
on the New York Stock Exchange on the date of grant. Restricted stock
holdings as of December 31, 1997 and their fair market value based on the
per share closing price of $89.25 on December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUE ON
NAME RESTRICTED SHARES DECEMBER 31, 1997
---- ----------------- -----------------
<S> <C> <C>
H. Golub................................. 35,000 $3,123,750
K.I. Chenault............................ 104,958 9,367,502
G.L. Farr................................ 25,000 2,231,250
J.S. Linen............................... 11,404 1,017,807
R.K. Goeltz.............................. 10,000 892,500
</TABLE>
16
<PAGE>
Dividends are payable on the restricted shares to the extent and on the
same date as dividends are paid on Company common shares. In 1995 Mr. Farr
was awarded 50,000 shares of restricted stock which provided for vesting
in equal installments on the first two anniversaries of the date of grant.
In 1996 Messrs. Golub, Chenault and Farr were awarded 35,000, 25,000, and
25,000 shares, respectively, of restricted stock which provided for
vesting in equal installments on the second and fourth anniversaries of
the date of grant.
(5) Includes payout of Portfolio Grant VI awards ("PG-VI awards"). Each PG-VI
award consisted of two components. Sixty percent of the target value of
each PG-VI award was allocated to a Financial Incentive component, which
was valued based on cumulative earnings and return on equity targets for
the business segments of the Company or for the Company on a consolidated
basis for the period January 1995 to December 1997. Forty percent was
allocated to Stock Incentive Units, which were valued based on the
Company's average share price during the 60 trading days prior to February
23, 1998. PG-VI awards granted to the named executives (other than Mr.
Goeltz, who joined the Company during the Performance Period) were
structured to satisfy requirements for deductibility of
"performance-based" compensation under the million dollar deduction
limitation. The value of the PG-VI award was adjusted by the Committee to
take into account three-year financial results and unusual events
(including restructuring activities and the gains and losses from
dispositions and accounting changes).
(6) Amounts reported under "All Other Compensation" for 1997 include the
relocation expenses described below as well as the dollar value of the
following:
<TABLE>
<CAPTION>
EMPLOYER
CONTRIBUTIONS ABOVE-MARKET
PAYMENTS UNDER PROFIT EARNINGS ON VALUE OF
UNDER CAPITAL SHARING, SAVINGS DEFERRED SPLIT-DOLLAR
PARTNERS I AND II AND RELATED PLANS COMPENSATION LIFE INSURANCE
----------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
H. Golub................. $144,663 $80,998 $228,347 $42,955
K.I. Chenault............ 79,464 56,834 22,826 20,377
G.L. Farr................ 0 49,500 45,566 45,818
J.S. Linen............... 224,954 49,500 43,927 24,154
R.K. Goeltz.............. 0 9,095 28,526 87,318
</TABLE>
Capital Partners I and Capital Partners II are limited partnerships
established by Lehman Brothers Holdings, Inc. ("Lehman Brothers"), formerly a
subsidiary of the Company, in 1985 and 1988, respectively. Pursuant to these
partnerships, senior officers were offered the opportunity to invest in a
portfolio of high risk investments. An affiliate of Lehman is the general
partner and invested most of the capital of the partnerships. Amounts reported
reflect income distributions and distributions related to the liquidation of
assets.
In 1996 the Board elected Mr. Goeltz as Vice Chairman and Chief Financial
Officer of the Company, which required that he relocate from the United Kingdom,
his place of prior employment, to the New York metropolitan area. In 1996 and
1997 the Company reimbursed Mr. Goeltz for relocation expenses, including
expenses in connection with transportation, temporary living, selling his home
in the United Kingdom and purchasing a home in the New York area. The 1997
reimbursement included $481,948 for relocation expenses plus $367,762 for the
payment of taxes by Mr. Goeltz in connection with such reimbursement. The
relocation expenses are included in the All Other Compensation column of the
Summary Compensation Table on page 16 and the reimbursement for taxes is
included in the Other Annual column of such table.
17
<PAGE>
The following table contains information concerning the grant of
nonqualified stock options in tandem with stock appreciation rights ("SARs") in
1997 to the named executives:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1997
INDIVIDUAL GRANTS (1)
--------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES EXERCISE PRICE PRESENT
NAME GRANTED (#) IN 1997 ($/SH) EXPIRATION DATE VALUE $(2)
---- ----------- ------- ------ --------------- ----------
<S> <C> <C> <C> <C> <C>
H. Golub...................... 200,000 3.2% $66.44 2/23/07 $2,938,000
K.I. Chenault................. 150,000 2.4 66.44 2/23/07 2,203,500
G.L. Farr..................... 110,000 1.7 66.44 2/23/07 1,615,900
J.S. Linen.................... 50,000 0.8 66.44 2/23/07 734,500
R.K. Goeltz................... 50,000 0.8 66.44 2/23/07 734,500
</TABLE>
- -------------
(1) The stock options shown were granted in February 1997. Options become
exercisable in cumulative annual installments of 33 1/3 percent per year
on each of the first three anniversaries of the grant date and may also
become exercisable upon death, disability, retirement or a change in
control of the Company as described on page 23. The options shown were
granted in tandem with SARs. SARs can be exercised only in very limited
circumstances, such as when the option is about to expire, when the
participant retires, or, for executive officers, when the related stock
option becomes fully exercisable and then only to the extent of 50% of the
underlying shares. Upon exercise of an SAR, the holder may receive cash,
common shares or other consideration equal in value to (or, at the
discretion of the Committee, less than the value of) the difference
between the option price and the fair market value of the Company's common
shares, and the appropriate portion or all of the related stock option is
then cancelled. Upon termination or exercise of any stock option, any
tandem SAR automatically terminates. The options shown are eligible for
the restoration feature described on page 13.
(2) These values were calculated as of the grant date using a variation of the
Black-Scholes option pricing model. The model is a complicated
mathematical formula premised on immediate exercisability and
transferability of the options, which are not features of the Company's
options granted to executive officers and other employees. The values
shown are theoretical and do not necessarily reflect the actual values the
recipients may eventually realize. Any actual value to the officer or
other employee will depend on the extent to which market value of the
Company's common shares at a future date exceeds the exercise price. In
addition to the stock prices at grant and the exercise prices, which are
identical, the following assumptions for modeling were used to calculate
the values shown: a five-year period to exercise each option (based on the
typical time in which the Company's options are exercised), an expected
dividend yield of 2.6% (reflecting the historical average yield for the
most recent 60 months prior to the grant dates), expected stock price
volatility of .21% (reflecting the most recent volatility for the
month-end stock prices of the Company's common shares for the 60 months
prior to the grant dates), and a risk-free rate of return of 6.15%
(reflecting the yield on a zero-coupon five year bond on the option grant
dates). The assumptions and the calculations used for the model were
provided by an independent consulting firm and are consistent with the
assumptions for reporting stock option valuations in the Company's Annual
Report to Shareholders.
18
<PAGE>
The following table sets forth information for the named executives
regarding the exercise of stock options and/or SARs during 1997 and unexercised
options and SARs held as of the end of 1997:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
YEAR-END 1997 OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
SHARES AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
ACQUIRED VALUE -------------------- -----------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---- -------- ------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
H. Golub................. 587,935 $27,132,498 527,247 400,001 $31,058,743 $13,979,114
K.I. Chenault............ 290,084 12,559,915 156,338 260,001 8,468,468 8,601,014
G.L. Farr................ 0 0 143,332 236,668 7,409,882 8,579,358
J.S. Linen............... 39,914 1,801,239 403,529 100,001 25,415,755 3,494,814
R.K. Goeltz............. 0 0 23,332 96,668 1,077,636 3,296,054
</TABLE>
- -------------
(1) Based on the $89.25 closing price of the Company's common shares on the
New York Stock Exchange on December 31, 1997.
The following table sets forth information concerning long-term incentive
plan awards made in 1997 to the named executives:
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS -- PG-VIII AWARDS IN 1997
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED COMPONENT(1)
PERFORMANCE ----------------------------------------
NAME DOLLAR VALUE($)/NUMBER OF UNITS PERIOD(1) THRESHOLD ($) TARGET ($) MAXIMUM ($)
<S> <C> <C> <C> <C> <C>
H. Golub...........$600,000 Financial Incentive 1997-99 $450,000 $900,000 $2,700,000
6,837 Stock Incentive Units 1997-99 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
K.I. Chenault......$450,000 Financial Incentive 1997-99 337,500 675,000 2,025,000
5,128 Stock Incentive Units 1997-99 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
G.L. Farr..........$360,000 Financial Incentive 1997-99 270,000 540,000 1,620,000
4,102 Stock Incentive Units 1997-99 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
J.S. Linen.........$285,000 Financial Incentive 1997-99 213,750 427,500 1,282,500
3,248 Stock Incentive Units 1997-99 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
R.K. Goeltz........$285,000 Financial Incentive 1997-99 213,750 427,500 1,282,500
3,248 Stock Incentive Units 1997-99 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects Portfolio Grant-VIII ("PG-VIII") awards granted to the named
executives in February 1997 for the January 1997 to December 1999
performance period.
PG-VIII awards, which are performance-based awards, provide compensation
to retain participants in the employment of the Company and incentives
toward the achievement of Company and business unit goals that are
important to shareholders. Each PG-VIII award contains the two components
shown in this table, Financial Incentive and Stock Incentive Units
components. The Financial Incentive component will earn value based on
achievement of the cumulative earnings (or earnings per share) and average
return on equity targets for a business segment of the Company or the
Company on a consolidated basis, depending on whether the executive is
employed by a business unit or the Company. The threshold, target or
maximum amounts may be earned if varying combinations of the
pre-established cumulative earnings (or earnings per share) and average
return on equity targets are met. The component will not earn value unless
minimum levels of these performance measures are achieved during the
performance period. Each Stock Incentive Unit will earn value equal to the
average of the high and low sales prices of the Company's common shares
for the 60 trading days prior to the
19
<PAGE>
Committee's meeting in February 2000. Minimum performance levels for
cumulative earnings and return on equity are required for the Stock
Incentive Units of the PG-VIII awards to have any value. The Committee has
the discretion to make adjustments downward only to the sum of the value
of both components based on its assessment of Company, business unit and
individual performance. The awards may also vest and be paid upon death,
disability, retirement or a change in control of the Company as described
on page 23.
PG-VIII awards granted to the Company's executive officers were structured
to satisfy requirements for deductibility of "performance-based"
compensation under the Million Dollar Cap. Regulations applicable to the
Million Dollar Cap permit the value produced by these goals to be adjusted
downward only. The threshold, target and maximum estimated future payouts
for the Financial Incentive component of each PG-VIII award were
established as multiples of the dollar grant value of the component to
provide the Committee with flexibility to adjust downward the values
produced by both components of the award and still maintain the
deductibility of payments. The final value of the awards (including
downward adjustments) will be determined by the Committee based on its
assessment of factors such as Company, business unit and individual
performance for the 1997-99 performance period.
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
common shares of the Company for the last five fiscal years with the cumulative
total return on the S&P 500 Index and the S&P Financials over the same period
assuming the investment of $100 in the Company's common shares, the S&P 500
Index and the S&P Financials on December 31, 1992 and the reinvestment of all
dividends. On May 31, 1994 the Company distributed to shareholders all of the
common stock of Lehman owned by it as a special dividend. The graph accounts for
this distribution as though it were paid in cash and reinvested in common shares
of the Company.
[The table below contains the data points used in the Performance Graph which
appears in the printed Proxy Statement.]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
AMERICAN EXPRESS COMPANY, S&P 500 INDEX AND S&P FINANCIALS
Value of Investment
- --------------------------------------------------------------------------------
Year-End Data 1992 1993 1994 1995 1996 1997
American Express $100.00 $128.57 $144.54 $206.37 $288.48 $460.96
S&P 500 Index $100.00 $110.06 $111.52 $153.39 $188.59 $251.50
S&P Financials $100.00 $111.14 $107.14 $165.05 $223.03 $330.30
- --------------------------------------------------------------------------------
20
<PAGE>
PENSION BENEFITS
The Company maintains the American Express Retirement Plan (the
"Retirement Plan"), which provides benefits for eligible employees. Through June
30, 1995 the Retirement Plan was structured as a traditional, defined benefit
plan. Effective July 1, 1995, the present value of accrued benefits under the
Retirement Plan was converted to a cash balance formula.
Under the cash balance formula, each participant has an account, for
record keeping purposes only, to which credits are allocated each payroll period
based upon a percentage (the "Applicable Percentage") of the participant's base
salary plus bonus paid in the current pay period ("Pensionable Earnings"). The
Applicable Percentage is determined by the age and years of service of the
participant with the Company and its affiliates as of the end of the current
calendar year. The following table shows the Applicable Percentage used to
determine credits at the age and years of service indicated.
SUM OF AGE PLUS
YEARS OF SERVICE APPLICABLE PERCENTAGE
----------------- ---------------------
Less than 35 2.50%
35-44 3.25
45-59 4.25
60-74 5.75
75-89 8.00
90 or more 10.00
As of January 1, 1998 the sum of age plus years of service for Messrs.
Golub, Chenault, Farr, Linen and Goeltz was 74, 64, 60, 84 and 58, respectively.
In addition, all balances in the accounts of participants earn a fixed
rate of interest which is credited annually. The interest rate for a particular
year is based on the average of the daily five-year U.S. Treasury Note yields
for the previous October 1 through November 30. The minimum interest rate is 5
percent. The maximum rate is 10 percent or the annual maximum interest rate set
by the U.S. government for determining lump sum values, whichever is less. For
1997 the interest rate was 6.13%, and is 5.87% for 1998.
At retirement or other termination of employment, an amount equal to the
vested balance then credited to the account is payable to the participant in the
form of an immediate or deferred lump sum or annuity for the entire benefit
under the Plan. Participants may choose a separate form of payment of the
portion of the benefit accrued before July 1, 1995 if the individual
participated in the Retirement Plan or a predecessor plan before July 1, 1995.
Annuity payment options available before July 1, 1995 are available for this
portion of the benefit.
The table below sets forth the estimated annual benefit payable to each of
the named executives in the Summary Compensation Table as a single life annuity
at age 65 under the Retirement Plan and the American Express Supplemental
Retirement Plan (the "Supplemental Retirement Plan"). The Supplemental
Retirement Plan is an unfunded, non-qualified deferred compensation arrangement
that primarily provides benefits that cannot be payable under a qualified plan
like the Retirement Plan because of the maximum limitations imposed on such
plans by the Code. The projections contained in the table are based on the
following assumptions: 1) employment until age 65 at base salaries in effect at
December 31, 1997 with no increase in salary; 2) annual bonuses equal to the
average bonus over the last five years (1993 through 1997) for Messrs. Golub,
Linen and Chenault; the average of the 1996 and 1997 bonuses for Mr. Farr; and
the 1997 bonus for Mr. Goeltz; 3) interest credits at the actual rates for all
years through 1998, and the minimum rate of 5% for 1999 and later years; and 4)
the conversion to a straight life annuity at normal retirement age based on an
interest rate of 6.33% and the 1983 Group Annuity Mortality table, which sets
forth generally accepted life expectancies.
Prior to May 1, 1985 the Company maintained the American Express Funded
Pension Plan (the "Funded Pension Plan"), which was terminated effective April
30, 1985. In accordance with applicable federal law, all benefits under the
Funded Pension Plan accrued to the date of termination became fully vested and
nonforfeitable. Paid-up annuities were purchased from an insurance company to
cover vested accrued benefits, except for nominal amounts of vested accrued
benefits distributed in cash. Messrs. Linen and Chenault received past service
credit for the periods during which they were covered by the Funded Pension Plan
for purposes of determining the Applicable
21
<PAGE>
Percentage. The table sets forth separately the annual benefit payable by the
insurance company as a single life annuity at age 65 to Messrs. Linen and
Chenault.
<TABLE>
<CAPTION>
RETIREMENT PLAN AND ANNUAL BENEFITS
SUPPLEMENTAL RETIREMENT PLAN PAYABLE BY
EXECUTIVE OFFICER ESTIMATED ANNUAL BENEFITS INSURANCE COMPANY TOTAL ANNUAL BENEFITS
- ----------------- ------------------------- ----------------- ---------------------
<S> <C> <C> <C>
H. Golub................... $376,366 0 $376,366
J.S. Linen................. 621,716 65,508 687,224
K.I. Chenault.............. 451,429 5,747 457,176
G.L. Farr.................. 98,290 0 98,290
R.K. Goeltz................ 77,512 0 77,512
</TABLE>
At the time of Mr. Golub's employment by the Company in 1983, the Company
entered into a separate unfunded, non-qualified deferred compensation
arrangement with him. Under this arrangement, at the time of his retirement, the
Company will calculate the annual pension benefits that would have been payable
to him had he commenced participation in the Retirement Plan and the
Supplemental Retirement Plan effective November 1, 1978, which includes an
additional five years of service above his service with the Company (currently
seven years) and his seven years of service with American Express Financial
Corporation to compensate him for benefits he forfeited on termination of his
previous employment. For purposes of this arrangement, Mr. Golub's opening cash
balance account value and the ongoing Applicable Percentage were calculated
based upon an additional five years of service. The Company will pay to Mr.
Golub an amount on an unfunded basis to the extent of any difference between
such calculation and amounts he is eligible to receive under the Retirement Plan
and Supplemental Retirement Plan based on his actual years of service under
these Plans.
In 1995 the Compensation and Benefits Committee approved an unfunded,
non-qualified arrangement for Mr. Farr. The arrangement provides for an
additional service credit of five years upon the completion of five years of
actual service. At the end of five years of service, eligibility for pension
benefits and the value of pension benefits will be determined using a hire date
five years prior to actual date of hire. The Company will pay to Mr. Farr an
amount on an unfunded basis to the extent of any difference between such
calculation and amounts he is eligible to receive under the Retirement Plan and
Supplemental Retirement Plan based on his actual years of service under these
plans.
SEVERANCE, CHANGE IN CONTROL, AND OTHER ARRANGEMENTS
During 1993 the Compensation and Benefits Committee and the Board of
Directors adopted a uniform policy for severance arrangements applicable to
senior management, including the named executives, effective January 1, 1994. In
addition, in 1994 the Committee and the Board adopted certain arrangements
applicable to senior management and other employees that would be effective upon
a change in control of the Company.
Under the severance policy, in the event that the Company terminates the
employment of participating officers for reasons generally other than
misconduct, or in the event of a termination by mutual agreement, the officer
would be entitled to receive severance payments in installments over a period
not to exceed two years, subject to the execution of an agreement and compliance
with certain restrictive covenants, including a covenant not to compete or
solicit customers or employees, a nondisclosure covenant and a release of
claims. If the officer does not comply with these covenants following
termination of employment, severance payments will be subject to forfeiture or
recovery by the Company. For each named executive officer, the amount of
severance will equal two years' base salary in effect at termination and two
times the amount of bonus approved for the executive for the prior year. During
all or a portion of the period during which the participating officer receives
severance, long-term incentive awards held by the officer would remain
outstanding in accordance with their terms and the Company's welfare and benefit
plans would continue to provide coverage.
Senior management of the Company, including the named executives, would be
entitled to receive the same amount of severance in a lump sum (subject to
compliance with certain of the above covenants) if, within two years following a
change in control of the Company, the officer resigns for good reason or is
terminated by the Company for reasons generally other than willful misconduct or
conviction of a felony (the "Termination Conditions"). Good reason means certain
reductions in base salary, certain relocations, the assignment of duties
materially inconsistent with the duties prior to the change in control, or a
significant reduction in the officer's position. A change in control
22
<PAGE>
includes the acquisition of beneficial ownership by certain persons of 25% or
more of the Company's common shares or all outstanding voting securities of the
Company, the current Board members of the Company cease to constitute a majority
(except that any new Board member approved by at least a majority of the current
Board is considered to be a member of the current Board), or certain
reorganizations, mergers, consolidations, or sales of all or substantially all
of the Company's assets, or shareholder approval of a liquidation or dissolution
of the Company.
If either of the Termination Conditions is met, senior officers, including
the named executives, would also receive a pro rata bonus for the year in which
the officer is terminated, based on the average of the bonuses paid to the
officer for the two years prior to a change in control. The Company would also
transfer to the officers the policies under the Company's Key Executive Life
Insurance Plan, which currently provides coverage equal to four times annual
base salary up to a maximum of $1,500,000. Upon a change in control, the Company
would fully fund accrued benefits under the Company's Supplemental Retirement
Plan and any unfunded arrangement relating to an executive's additional service
credit toward the Retirement Plan with a lump sum contribution to a trust. If a
termination described above occurs within one year following a change in
control, such officers would be entitled to an additional benefit under the
Supplemental Retirement Plan as though they had been credited with an additional
two years of service and age under the American Express Retirement Plan (or one
year of credit if the termination occurs between one and two years following a
change in control). Upon a change in control, participants in the Company's
deferred compensation plans, including the Pay for Performance Deferral Program,
would receive an additional credit to their accounts of an amount equal to two
years of interest based on the rate for the year prior to the change in control
and a lump sum payment of their balances in these plans. Upon a change in
control, outstanding stock options and restricted stock awards issued to
participants under the 1989 Plan and a predecessor plan (other than certain
options issued outside of the U.S.) would immediately vest. If either of the
Termination Conditions is met, outstanding Portfolio Grant awards under the 1989
Plan would immediately vest and a pro rata amount would be paid based on an
award period ending on the date of termination of employment. Generally, to the
extent necessary to avoid the disallowance of the deductibility of payments or
benefits under the plans or programs described above, such payments or benefits
will be reduced to a level such that they will not constitute "parachute"
payments within the meaning of Section 280G of the Code.
The Committee has adopted certain policies relating to death, disability
and retirement that apply to awards issued under the 1989 Plan and a predecessor
plan. Under these policies, all unvested stock options and shares of restricted
stock will fully vest and Portfolio Grants will vest pro rata upon death or
disability. Shares of restricted stock that have been outstanding for more than
two years will fully vest or vest pro rata upon retirement (defined as age 55 or
older with 10 or more years of service) depending upon the original vesting
schedule of the grant. Portfolio Grants outstanding for more than one year will
vest upon retirement and be paid on a pro rata basis. For employees who retire
at age 60-61, all unvested stock options, shares of restricted stock and
Portfolio Grants will vest to the extent of 50% of the shares or value that
would otherwise have been forfeited, and for employees who retire at age 62 or
older, 100% of such shares or value. Holders of stock options (or the holder's
estate in the case of death) will have five years to exercise options that are
vested on the date of death or disability (but no longer than the remaining term
of the option) and will have the remaining term of the option to exercise
options that are vested upon retirement.
CERTAIN TRANSACTIONS AND OTHER MATTERS
In the ordinary course of business, the Company and its subsidiaries from
time to time engage in transactions with other corporations or financial
institutions whose officers or directors are directors or officers of the
Company or a subsidiary. Transactions with such corporations and financial
institutions are conducted on an arm's length basis and may not come to the
attention of the directors or officers of the Company or of the other
corporations or financial institutions involved.
From time to time, executive officers and directors of the Company and
their associates may be indebted to certain subsidiaries of the Company under
lending arrangements offered by those subsidiaries to the public. For example,
such persons may during the past year have been indebted to American Express
Centurion Bank for balances on the Optima Card or to American Express Financial
Advisors, Inc. for margin loans and may be similarly indebted to other
subsidiaries of the Company during 1998. Such indebtedness is in the ordinary
course of the Company's business, is substantially on the same terms, including
interest rates, as those prevailing at the time for comparable transactions with
other persons, and does not involve a more than normal risk of collectibility or
present
23
<PAGE>
other features unfavorable to the Company. In addition, such executive officers,
directors and associates may engage in transactions in the ordinary course of
business involving other goods and services provided by the Company and its
subsidiaries, such as travel, insurance and investment services, on terms
similar to those extended to employees of the Company generally. The Company and
its subsidiaries and affiliates, in the ordinary course of business, may have
individuals in their employ who are related to executive officers or directors
of the Company. These individuals are compensated commensurate with their
duties.
In the ordinary course of business, the Company and its subsidiaries
maintain various arm's length relationships with Berkshire Hathaway Inc.
("Berkshire"), FMR Corp. or companies in which they have substantial equity
positions, including the relationships described below. Some of these companies
are service establishments that accept the American Express Card for charges for
goods and services and pay TRS fees when the Card is used and may enter into
joint marketing arrangements from time to time. TRS provides Corporate Card
services to a number of these companies and receives fees for these services. A
company in which Berkshire has a substantial equity position is a participating
airline in TRS' Membership Rewards program and receives payments from TRS in
connection with such participation. The Company and its subsidiaries also from
time to time engage in other commercial transactions with companies in which
Berkshire has a substantial equity position and pay or receive fees in
connection with these transactions.
During 1997, in connection with its ongoing program of repurchasing
Company shares, the Company purchased Company common shares through Fidelity
Capital Markets, a subsidiary of FMR, at prevailing open market prices at the
time of purchase. The Company paid brokerage commissions totalling $64,489.
In 1983 the shareholders of the Company approved the adoption of the Stock
Purchase Assistance Plan ("SPAP") with the purpose of encouraging members of
senior management to increase their proprietary interest in the future
performance of the Company by providing full recourse loans to key employees for
exercising stock options (and/or for paying any taxes due upon exercise) or for
buying Company common shares at fair market value from the Company or in the
open market. The SPAP is administered by the Compensation and Benefits Committee
or its delegate. The maximum aggregate borrowing authority under SPAP is
presently $30 million. Under the terms of SPAP, eligible key employees
(approximately 175 persons, including the named executives) may borrow a maximum
of 300 percent of their respective annual base salaries, provided that such
persons furnish Company common shares as collateral under guidelines established
from time to time by the Committee. Presently, the value of the collateral must
equal 100 percent of the amount of the loan on the loan date. Such loans
currently have five-year maturities, bear interest payable quarterly at a
variable rate of two percentage points below the prime rate of a major New York
City bank, and are payable in full upon the occurrence of certain events,
including termination of employment. Based on the current prime rate, such loans
bear interest at the rate of 6.5 percent per annum. For all executive officers
as a group, the maximum aggregate amount outstanding during 1997 under SPAP was
$962,035, and as of March 2, 1998 the aggregate amount outstanding was $937,034.
SELECTION OF AUDITORS
The Board of Directors recommends to the shareholders their ratification
of its selection of Ernst & Young LLP, independent auditors, to audit the
accounts of the Company and its subsidiaries for 1998. The following resolution
will be offered at the shareholders' meeting:
RESOLVED, that the appointment by the Board of Directors of Ernst & Young
LLP, independent auditors, to audit the accounts of the Company and its
subsidiaries for 1998 is ratified and approved.
In the event the shareholders fail to ratify the appointment, the Board of
Directors will consider it a direction to select other auditors for the
subsequent year. Even if the selection is ratified, the Board of Directors, in
its discretion, may direct the appointment of a new independent accounting firm
at any time during the year, if the Board feels that such a change would be in
the best interests of the Company and its shareholders.
Ernst & Young LLP or a predecessor firm has been serving as the Company's
independent auditors since 1975. Ernst & Young LLP follows a policy of rotating
the partner in charge of the Company's audit every seven years. Other partners
and non-partner personnel are rotated on a periodic basis. The Company paid
Ernst & Young LLP the
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sum of $10.8 million for the firm's 1997 annual examination of the financial
statements of the Company and its subsidiaries.
A representative of Ernst & Young LLP will be present at the
shareholders' meeting with the opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
PROPOSAL TO ADOPT THE 1998 INCENTIVE COMPENSATION PLAN
The Company is asking for shareholder approval of the 1998 Incentive
Compensation Plan (the "1998 Plan"), which was approved by the Board of
Directors in February 1998. If approved by shareholders, the 1998 Plan will
replace the 1989 Plan and the Committee will not grant any new awards under the
1989 Plan. Awards outstanding under the 1989 Plan will continue to be governed
by that plan.
The Board of Directors believes that the Company's continued ability to
attract, motivate and retain experienced and highly qualified employees will
have a direct impact on the future success and profitability of the Company.
Awards made under the 1989 Plan and the 1998 Plan are designed to motivate
employees to use their best efforts during their employment and to link their
compensation to shareholder return and Company performance.
The 1989 Plan is due to expire in April 1999, and as of March 2, 1998
approximately 17,970,000 shares remained available for issuance in connection
with awards under that plan. The Board of Directors believes that an additional
share reserve will enable the Company to continue to provide the necessary
incentives to its employees over a period of years. In developing the 1998 Plan,
the Company obtained the advice of an outside compensation consultant and
incorporated a number of provisions that differ from the 1989 Plan to reflect
developments in compensation practices and trends since the shareholders adopted
the 1989 Plan. Among other items, the differences include: (i) a limit on the
number of restricted stock awards that may be issued, (ii) the flexibility to
use shares forfeited or surrendered to the Company under 1989 Plan awards for
issuance under the 1998 Plan, (iii) minimum vesting requirements for stock
options and restricted stock awards, (iv) an express prohibition on changing
these minimum vesting requirements or repricing stock options without
shareholder approval, and (v) increased individual grant limits under the
"Million Dollar Cap" rules.
The full text of the 1998 Plan is attached to this Proxy Statement as
Exhibit A. The principal features of the 1998 Plan are described below, but the
description is qualified in its entirety by reference to the text. The 1998 Plan
will not become effective unless shareholders approve it.
The Company's policy is to offset the dilutive effect of its
stock-based incentive plans and other share issuances through the regular
repurchase of its shares. The Company repurchases additional shares as a means
of returning excess capital to shareholders, with the result that the Company's
outstanding shares have declined steadily in recent years. Outstanding shares
were 496 million at the end of 1994, 483 million at the end of 1995, 473 million
at the end of 1996 and 466 million at the end of 1997. The Company currently
intends to continue its policy of repurchasing more shares than it issues with
the goal of preventing dilution from the 1998 Plan and other share issuances and
reducing shares outstanding.
GENERAL INFORMATION
The primary objective of the 1998 Plan is to promote shareholder value
by providing appropriate incentives to employees and certain other individuals
who perform services for the Company and its affiliates.
The 1998 Plan is administered by the Compensation and Benefits
Committee of the Board of Directors (the "Committee"), which consists
exclusively of non-employee directors. The 1998 Plan provides for the granting
of stock options, stock appreciation rights, restricted stock, performance
grants and awards providing benefits similar to the foregoing awards that are
designed to meet the requirements of non-U.S. jurisdictions ("Awards"). Certain
Awards under the 1998 Plan may be paid in cash, common shares, other Company
securities (such as debentures, preferred stock, or convertible securities) or
other property as determined by the Committee. The Committee has exclusive
discretion to select the participants who will receive Awards and to determine
the type, size and terms of each Award; however, non-employee directors are not
eligible to receive Awards. The Committee will also make all other
determinations that it decides are necessary or desirable in the interpretation
and administration of the 1998
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Plan. The Committee may delegate its authority to appropriate officers under the
1998 Plan in accordance with guidelines established by the Committee.
Under the 1998 Plan, the maximum number of common shares and other
equity securities that the Company may issue is 35,000,000, plus the number of
shares remaining available for new awards under the 1989 Plan on April 27, 1998,
which number will not exceed 17,970,000. In addition, commencing April 27, 1998,
shares subject to awards outstanding under the 1989 Plan or granted under the
1998 Plan which are recovered or not issued by the Company will be available for
issuance under the 1998 Plan as follows: (i) shares related to Awards issued
under the 1998 Plan or the 1989 Plan that are forfeited, terminated, canceled,
acquired by the Company or expire unexercised; (ii) shares surrendered or
withheld to pay the exercise price of Awards issued under the 1998 Plan or the
1989 Plan or to satisfy the tax withholding obligations under these Awards;
(iii) shares originally linked to Awards that are actually settled in cash or
consideration other than common shares or other equity securities. As of March
2, 1998, stock options covering a total of approximately 28,294,000 common
shares and 3,715,000 shares of restricted stock were outstanding under the 1989
Plan.
For purposes of counting shares against the share reserve under the
1998 Plan on the date of grant, Awards denominated solely in common shares (such
as stock options and restricted stock) and other Awards or securities that may
be exercised for or convertible into common shares will be counted against the
1998 Plan reserve on the date of grant of the Award based on the maximum number
of shares underlying the Award, as determined by the Committee. Equity
securities other than common shares issued pursuant to the 1998 Plan which are
not exercisable for or convertible into common shares will be counted on the
date of grant based on the number of shares issued.
AWARDS UNDER THE 1998 PLAN
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. A stock option ("Option"),
which may be a non-qualified or an incentive stock option, is the right to
purchase a specified number of common shares at a price ("Option Price") fixed
by the Committee. The Option Price paid to the Company may be no less than the
fair market value of the underlying common shares on the date of grant. As a
consequence, Options benefit the Participant only when a rising stock price
benefits all common shareholders. The Company may not decrease the exercise
price of an outstanding Option without shareholder approval, other than to make
equitable adjustments (e.g., for stock splits) under the anti-dilution
provisions of the 1998 Plan described below under "Other Provisions."
Options will generally expire not later than ten years after the date
on which they are granted. Options must have a vesting period of at least six
months (subject to exceptions for death, disability, retirement and corporate
transactions such as a change in control of the Company or a divestiture (each,
a "Defined Event")) and otherwise become exercisable at such times and in such
installments as the Committee shall determine. Payment of the Option Price must
be made in such form determined by the Committee, including (i) cash, (ii) by
tendering to the Company common shares having a fair market value equal to the
Option Price, (iii) if permitted by the Committee, authorizing a third party to
sell an appropriate number of shares acquired upon exercise of an Option and to
remit to the Company a sufficient portion of the sale proceeds to pay the entire
exercise price and any related tax withholding obligations or (iv) a combination
of these methods of payment.
A stock appreciation right ("SAR") may be granted alone or in tandem
with Options or other Awards. Upon exercise of an SAR, the holder must surrender
the SAR and surrender unexercised any related Option or other Award. At that
time the holder will receive, at the election of the Committee, cash, common
shares, other securities issued by the Company or other consideration equal in
value to (or, in the discretion of the Committee, less than) the difference
between the exercise price or Option Price per share and the fair market value
per share on the last business day preceding the date of exercise, multiplied by
the number of shares subject to the SAR or Option or other Award. An SAR is
subject to the same vesting requirements applicable to Options.
No Option or SAR may be exercised unless the holder has been employed
by or performing services for the Company or one of its affiliates from the date
of grant through the date of exercise, except that the Committee may permit
exercise of an Option or SAR after a participant is no longer employed by or
performing services for the Company or one of its affiliates by reason of a
period of Related Employment (as defined in the 1998 Plan), or a Defined Event.
In addition, the Committee may determine that Options and SAR's may be exercised
for a minimum period following death, which period may extend beyond the
original expiration date of the Option or SAR.
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RESTRICTED STOCK. A restricted stock Award is an award of common shares
which are subject to a restriction against transfer for a minimum of three years
or such longer period determined by the Committee. Restricted stock may also
contain performance-based conditions to vesting, such as Company, business unit,
participant and other performance objectives. The Committee may provide that the
restrictions lapse prior to three years in the case of Defined Events, a
promotion, the hiring of a new employee, the grant of performance-based
restricted stock, or if issued in payment of certain performance-based Awards.
In the event a participant's employment with the Company and its affiliates
terminates prior to the end of the restricted period (subject to the above
exceptions), the Company may cancel the shares. Prior to the expiration of the
restricted period, a Participant who has received a restricted stock Award has
the right to vote and to receive dividends on the underlying shares. No more
than 10,594,000 shares may be used for restricted stock Awards under the 1998
Plan (whether or not performance-based) and no more than an additional 5,297,000
shares may be used for performance-based restricted stock Awards. Restricted
stock Awards that are forfeited or otherwise canceled will again become
available for issuance pursuant to these limitations.
PERFORMANCE GRANTS. Performance Grants, sometimes called "Portfolio
Grants," are awards whose final value, if any, is determined by the degree to
which performance objectives selected by the Committee are achieved during a
specified period, subject to such adjustments as the Committee may approve based
on relevant factors. The Committee establishes performance objectives that may
be based upon Company, business unit, participant and/or other performance
objectives. The Committee may make such adjustments in the computation of any
performance measure as it considers are appropriate. The maximum value of an
Award may be a fixed dollar amount, an amount that varies from time to time
based on the value of a common share, or an amount that may be determined from
other criteria specified by the Committee. Payment under a Performance Grant may
vest over a period of time after the final value is determined.
The performance periods for Performance Grant awards may be long-term
(such as in the case of PG-VIII awards described on pages 19-20) or short-term
(such as in the case of annual incentive awards described on page 12). In the
past, the Company has structured annual incentive and Portfolio Grant awards for
certain executives as Performance Grants to maintain the Company's tax deduction
for the compensation paid under the Million Dollar Cap rules.
Performance Grants may be awarded alone or in conjunction with other
Awards. The Committee will generally determine the value of a Performance Grant
as soon as practicable after the end of the performance period or may determine
value based upon a portion of the performance period upon earlier termination of
the Participant's employment or performance of services, or at any time during
the performance period, including upon a Defined Event.
The rights of a Participant in a Performance Grant are provisional and
may be canceled or paid in whole or in part if the Participant's continuous
employment with, or performance of services for, the Company and its affiliates
terminates prior to payout, except termination by reason of a period of Related
Employment.
Payment of a Performance Grant may be made in cash, common shares,
other securities issued by the Company or its affiliates or other property or a
combination thereof as determined by the Committee. Deferred payments may be
made in installments with a return calculated on the basis of one or more
investment equivalents, as determined by the Committee in its discretion.
$1 MILLION CAP LIMITATIONS
As described on page 13, the Million Dollar Cap limits the Company's
tax deduction to $1 million per year for certain compensation paid to each of
the Company's covered executives. This limitation does not apply to
"performance-based compensation." The 1998 Plan contains provisions permitting
the Company to pay performance-based compensation to key employees. Options and
SARs may qualify as performance-based compensation if shareholders approve a
maximum limit on the number of shares underlying such awards that may be granted
to any Participant over a specified period. To satisfy this requirement, the
maximum number of common shares underlying Options and SARs that may be granted
to any participant in any three consecutive calendar years is limited to
3,000,000 (including Options and SARs granted under the 1989 Plan during 1998),
subject to anti-dilution adjustments as provided in the 1998 Plan. The increased
limit under the 1998 Plan will accommodate the issuance of restoration options
which are described on page 13.
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Other performance-based awards under the 1998 Plan include Performance
Grants and any other Award (other than Options and SARs) whose payment is
conditioned upon the attainment of specific amounts of or changes in one or more
of the following performance objectives: revenues, earnings, shareholders'
equity, return on equity, assets, return on assets, capital, return on capital,
book value, economic value added, operating margins, cash flow, shareholder
return, expenses or market share. The terms of an Award may include or exclude
items to measure these objectives, such as realized investment gains and losses,
extraordinary, unusual or non-recurring items, asset write-downs, effects of
accounting changes, currency fluctuations, acquisitions, divestitures, reserve
strengthening and other non-operating items. The performance objectives may
apply to the Company as a whole, one or more of its subsidiaries, divisions,
business units or business lines and may be applied on an absolute basis or
relative to other companies, industries or indices. The Committee may require
that payment of this kind of Award be subject to the other conditions, such as
completion of a period of service, even if the performance objectives specified
in the Award are satisfied. In addition, the Committee shall have the
discretion, by participant and by Award, to reduce (but not to increase) some or
all of the amount that would otherwise be payable under the Award.
Under these other Awards, in any one calendar year: (i) no participant
may be paid cash, common shares, other securities of the Company or other
property (other than shares of Restricted Stock) or any combination of the
foregoing with a value (as determined by the Committee) in excess of $6.5
million and, in addition, (ii) no Participant may receive more than 100,000
shares of Restricted Stock, subject to anti-dilution adjustments as provided in
the 1998 Plan. For purposes of the foregoing, the Committee will determine the
calendar year or years in which amounts under these Awards are deemed paid or
received.
The maximum levels described above are designed to preserve flexibility
and have been established at levels that will enable the Company to comply with
the technical provisions of the Million Dollar Cap and preserve the
deductibility of performance-based compensation paid to the covered executives.
The tax benefits derived from such deductions preserve corporate assets and
benefit the Company and its shareholders.
OTHER PROVISIONS
Common shares and other equity securities issued under the 1998 Plan
may be newly issued shares, treasury shares, reacquired shares or any
combination thereof. If the outstanding common shares are changed by reason of
any stock split, stock dividend, combination, subdivision or exchange of shares,
recapitalization, merger, consolidation, reorganization or other extraordinary
or unusual event, the Committee may direct that appropriate changes be made in
the maximum number or kind of securities that may be issued under the 1998 Plan
and in the terms of outstanding Awards, including the number of shares subject
to Awards and the exercise price of Awards.
A Participant's rights under the 1998 Plan may only be assigned or
transferred (in the event of death or where the Committee makes exceptions to
permit transferability). The Committee may permit a participant to pay taxes
required to be withheld with respect to an Award in any appropriate manner,
including, without limitation, by the surrender to the Company of common shares
owned by such person.
The expenses of the 1998 Plan are borne by the Company and participating
affiliates. Approximately 12,500 persons will be eligible to be considered for
Awards. The 1998 Plan will terminate on April 26, 2008 unless extended for up to
an additional five years by action of the Board of Directors of the Company. The
Board of Directors may amend the 1998 Plan and Awards outstanding under the 1998
Plan for any purpose consistent with the goals of the 1998 Plan. However, no
amendment may adversely affect in a material manner any right of a participant
under any outstanding Award without the written consent of the participant,
unless the participant's position, duties or responsibilities change or if
certain external changes (such as changes in tax laws) have or are expected to
have a significant effect on the performance of the Company, any subsidiary,
affiliate, department or division thereof or on the 1998 Plan or any Award. In
addition, no such amendment may be made without shareholder approval if the
amendment would increase the number of shares available for grant, decrease the
minimum exercise price for Options and SARs (other than changes made pursuant to
the anti-dilution provision of the 1998 Plan), reduce the minimum vesting period
for Options, SARs, or restricted stock Awards, or if the absence of shareholder
approval would adversely affect the compliance of the 1998 Plan with applicable
laws, rules and regulations.
If the 1998 Plan is approved by shareholders, the Committee may adopt
certain practices similar to those adopted for the 1989 Plan to make treatment
of awards issued under these plans similar. These include provisions relating to
a change in control of the Company (see page 23), death, disability and
retirement (see page 23), restor-
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ation options (see page 13) and forfeiture (see page 13). In addition, all
outstanding stock options (covering approximately 28,294,000 common shares as of
March 2, 1998) under the 1989 Plan are or may become eligible for the
restoration feature described on page 13. The Committee expects to provide that
upon exercise of these options, any applicable restoration options will be
issued under the 1998 Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS
Tax counsel for the Company has advised that under current law certain
of the federal income tax consequences to Participants and their employers of
Options granted under the 1998 Plan should generally be as set forth in the
following summary. (For purposes of this discussion, the term "employer" shall
be deemed to include the employer of an employee optionee and the taxpayer for
whom a non-employee performs services.)
An employee to whom an incentive Option which qualifies under Section
422 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), is
granted will not recognize income at the time of grant or exercise of such
Option. No federal income tax deduction will be allowable to the employee's
employer upon the grant or exercise of such Option. However, upon the exercise
of an incentive Option, special alternative minimum tax rules apply for the
employee. When the employee sells such shares more than one year after the date
of transfer of such shares and more than two years after the date of grant of
such Option (the "Minimum ISO Period"), the employee will normally recognize a
capital gain or loss equal to the difference, if any, between the sales price of
such shares and the Option exercise price. The tax rate applicable to such
capital gains will depend in part on the length of time the employee has held
such shares in excess of one year before sale. If the employee does not hold
such shares for the Minimum ISO Period, when the employee sells such shares, the
employee will recognize ordinary compensation income and possibly capital gain
or loss as well in such amounts as are prescribed by the Code and regulations
thereunder. Subject to applicable provisions of the Code and regulations
thereunder, including Section 162(m) of the Code, the employee's employer will
generally be entitled to a federal income tax deduction in the amount of such
ordinary compensation income.
An individual to whom a non-qualified is granted will not recognize
income at the time of grant of such Option. When such optionee exercises such
non-qualified Option, the optionee will recognize ordinary compensation income
equal to the difference, if any, between the Option Price paid and the fair
market value, as of the date of Option exercise, of the shares the optionee
receives. The tax basis of such shares to such optionee will be equal to the
Option Price paid plus the amount includable in the optionee's gross income, and
the optionee's holding period for such shares will commence on the day on which
the optionee recognizes taxable income in respect of such shares. Subject to
applicable provisions of the Code and regulations thereunder, including those
under Section 162(m) of the Code, the employer of such optionee will generally
be entitled to a federal income tax deduction in respect of non-qualified
Options in an amount equal to the ordinary compensation income recognized by the
optionee. Any compensation includable in the gross income of an employee in
respect of a non-qualified Option will be subject to appropriate federal income
and employment taxes.
The discussion set forth above does not purport to be a complete
analysis of all potential tax consequences relevant to recipients of Options or
their employers or to describe tax consequences based on particular
circumstances and does not address Awards other than Options. It is based on
federal income tax law and interpretational authorities as of the date of this
proxy statement, which are subject to change at any time.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING
RESOLUTION:
RESOLVED, that the shareholders of the Company approve and adopt the
American Express Company 1998 Incentive Compensation Plan effective immediately
and that the Company is authorized to issue awards in accordance with such Plan.
SHAREHOLDER PROPOSALS
Management receives proposals during the year from shareholders, some of
which may be either implemented by management or withdrawn by the proponent
after review and discussion and therefore need not be presented to shareholders
in the proxy statement.
Other resolutions from shareholders, such as the ones presented below, are
regarded by management as being not in the best interests of the Company and its
shareholders, and are presented to the shareholders for a vote.
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SHAREHOLDER PROPOSAL 1
Mr. John J. Gilbert and/or Ms. Margaret R. Gilbert, 29 East 64th Street,
New York, New York 10021-7043, record owners of 360 shares and representing
additional family interests of 266 shares, will cause to be introduced from the
floor the following resolution:
"RESOLVED: That the stockholders of American Express Company, assembled in
annual meeting in person and by proxy, hereby request the Board of Directors to
take the steps necessary to provide for cumulative voting in the election of
directors, which means each stockholder shall be entitled to as many votes as
shall equal the number of shares he or she owns multiplied by the number of
directors to be elected, and he or she may cast all of such votes for a single
candidate, or any two or more of them as he or she may see fit."
SHAREHOLDERS' REASONS IN SUPPORT OF PROPOSAL:
"Continued strong support along the lines we suggest were shown at the
last annual meeting when 26.7%, approximately 3,300 owners of 81,258,000 shares,
were cast in favor of this proposal. The vote against included approximately
2,640 unmarked proxies.
California law still requires that unless stockholders have voted not to
have cumulative voting they will have it. Ohio also has the same provision.
The National Bank Act provides for cumulative voting. In many cases
companies get around it by forming holding companies without cumulative voting.
Banking authorities have the right to question the capability of directors to be
on banking boards. In many cases authorities come in after and say the director
or directors were not qualified. We were delighted to see the SEC has finally
taken action to prevent bad directors from being on boards of public companies.
The SEC should have hearings to prevent such persons becoming directors before
they harm investors.
Many successful corporations have cumulative voting. Example, Pennzoil
defeated Texaco in that famous case. Texaco's recent problems might have also
been prevented with cumulative voting getting directors on the board to prevent
such things. Ingersoll-Rand also having cumulative voting won two awards.
FORTUNE magazine ranked it second in its industry as "America's Most Admired
Corporations" and the WALL STREET TRANSCRIPT noted "on almost any criteria used
to evaluate management, Ingersoll-Rand excels." In 1994 and 1995 they raised
their dividend.
Lockheed-Martin, as well as VWR Corporation now have a provision that if
anyone has 40% of the shares, cumulative voting applies, which does in the
latter company.
In 1995 American Premier adopted cumulative voting. Alleghany Power System
tried to take away cumulative voting, as well as put in a stagger system, and
stockholders defeated it, showing stockholders are interested in their rights.
Hewlett Packard, a very successful company has cumulative voting.
If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain".
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE
FOLLOWING REASONS:
Similar proposals with respect to cumulative voting have been presented by
the proponent at many of the Company's previous Annual Meetings and have been
rejected by the shareholders each time. Your management remains committed to the
view that the present system of voting for directors provides the best assurance
that the decisions of the directors will be in the interests of all
shareholders, as opposed to the interests of special interest groups.
Cumulative voting is one of those issues that has the appearance of
fairness, but in reality would serve the interests of special interest groups.
It would make it possible for such a group to elect one or more directors
beholden to the group's narrow interests. This would introduce the likelihood of
factionalism and discord within the Board and may undermine its ability to work
effectively on behalf of the interests of all of the shareholders. The present
system of voting utilized by the Company and by most leading corporations
prevents the `stacking' of votes behind potentially partisan directors. The
present system thus promotes the election of a more effective Board in which
each director represents the shareholders as a whole.
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Avoidance of the destructive potential of cumulative voting is key to the
Company's goal of promoting shareholder value. The size and diversity of the
Company require a cohesive group of directors able to work together effectively
for the benefit of all shareholders.
SHAREHOLDER PROPOSAL 2
Mrs. Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, N.
W., Suite 215, Washington, D.C. 20037, record owner of 148 common shares, had
advised the Company that she plans to introduce the following resolution:
RESOLVED: "That the shareholders recommend that the Board take the
necessary step that American Express specifically identify by name and corporate
title in all future proxy statements those executive officers, not otherwise so
identified, who are contractually entitled to receive in excess of $250,000
annually as a base salary, together with whatever other additional compensation
bonuses and other cash payments were due them."
SHAREHOLDER'S REASONS IN SUPPORT OF PROPOSAL:
REASONS: "In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so identified,
and not the many other senior executive officers who should contribute to the
ultimate success of the Corporation." "Through such additional identification
the shareholders will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"Last year the owners of 11,486,000 shares, representing approximately
3.3% of shares voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this proposal".
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE
FOLLOWING REASONS:
The Company believes that the foregoing proposal serves no useful
purpose. It is not the Company's practice to grant employment contracts to its
executive officers. This is because the Company believes that the jobs of
executive officers should be dependent upon performance and not secured by
employment contracts.
Moreover, the Company believes that the compensation disclosure
requirements of the Securities and Exchange Commission ("SEC") are sufficiently
comprehensive and detailed to provide shareholders with the information they
need to make informed investment and voting decisions. The Company will continue
to look to the SEC rather than to the proponent for guidance on what is
meaningful disclosure in the area of executive compensation.
* * * *
NOMINATIONS, OTHER BUSINESS AND DEADLINE FOR SHAREHOLDER PROPOSALS
Nominations for director may be made only by the Board or a Board
committee or by a shareholder entitled to vote in accordance with the following
procedures. A shareholder may nominate a candidate for election as a director at
an annual meeting of shareholders only by delivering notice to the Company not
less than 90 nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting, except that if the annual meeting is called for
a date that is not within 30 days before or after such anniversary date, notice
must be received not later than the tenth day following the earlier of the date
the Company's notice of the meeting is first given or announced publicly. With
respect to a special meeting called to elect directors because the election of
directors is not held on the date fixed for the annual meeting, a shareholder
must deliver notice not later than the tenth day following the earlier of the
date that the Company's notice of the meeting is first given or announced
publicly. Any shareholder delivering notice of nomination must include certain
information about the shareholder and the nominee, as well as a written consent
of the proposed nominee to serve if elected.
The By-Laws also provide that no business may be brought before an annual
meeting except as specified in the notice of the meeting (which includes
shareholder proposals that the Company is required to set forth in its proxy
statement under SEC Rule 14a-8) or as otherwise brought before the meeting by or
at the direction of the Board or by a shareholder entitled to vote in accordance
with the following procedures. A shareholder may bring business before an annual
meeting only by delivering notice to the Company within the time limits
described above for
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delivering notice of a nomination for the election of a director at an annual
meeting. Such notice must include a description of and the reasons for bringing
the proposed business before the meeting, any material interest of the
shareholder in such business and certain other information about the
shareholder. These requirements are separate and apart from and in addition to
the SEC's requirements that a shareholder must meet in order to have a
shareholder proposal included in the Company's proxy statement under SEC Rule
14a-8.
A copy of the full text of the By-Law provisions discussed above may be
obtained by writing to the Secretary of the Company.
The Company's 1999 Annual Meeting of Shareholders will be held on April
26, 1999. Shareholders who intend to present a proposal for action at that
meeting to be included in the Company's proxy statement must submit their
proposals to the Secretary of the Company on or before November 10, 1998.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company has obtained a multi-risk liability insurance policy (the
"Policy") that provides coverage for, among other things, (i) directors and
officers liability ("D&O Liability") and (ii) fiduciary liability arising from
employee benefits plans sponsored by the Company ("Fiduciary Liability"). The
D&O Liability coverage provided by the Policy includes (i) reimbursement of the
Company in situations where it is permitted to indemnify directors or officers
and (ii) payment of loss, including settlements, judgements, and legal fees, on
behalf of directors or officers when the Company is not permitted to indemnify
them under applicable law. The Fiduciary Liability coverage provided by the
Policy includes coverage for directors and employees who are fiduciaries of the
Company's employee benefits plans against losses, including settlements,
judgments, and legal fees as a result of alleged breaches of fiduciary duty as
defined in the Employee Retirement Income Security Act of 1974, as amended. The
Policy is issued by Executive Risk Indemnity Company ("ERIC") and is effective
from November 30, 1997 to November 30, 2000. Excess coverage is provided by two
additional policies issued by the Federal Insurance Company ("Federal") and
various other insurers led by Lloyd's of London. The annualized premium
attributed to D&O Liability and Fiduciary Liability coverages is approximately
$640,000.
The Company also has a supplemental D&O Liability insurance policy that
applies above the multi-risk insurance policies issued by ERIC, Federal and
others in situations in which the Company is not permitted to indemnify
directors or officers under applicable law. The policy is issued by ACE
Insurance Company Ltd., and the annualized premium for this policy is $150,000.
* * * *
Management does not know of any business to be transacted at the meeting
other than as indicated herein. However, certain shareholders may present topics
for discussion from the floor. Should any matter other than as indicated herein
properly come before the meeting for a vote, the persons designated as proxies
will vote thereon in accordance with their best judgment.
You are urged to sign, date and return the enclosed proxy in the prepaid
envelope provided or, if applicable, to vote by telephone. Prompt voting may
save your Company the expense of a second mailing.
We encourage all shareholders to attend the Annual Meeting of Shareholders
on April 27, 1998. If you will need special assistance at the meeting because of
a disability or if you desire this document in an alternative accessible format,
please contact Stephen P. Norman, Secretary, American Express Company, 200 Vesey
Street, New York, New York 10285-5005. Because space may be limited, we hope
that registered shareholders will give us advance notice of their plans by
marking the box provided on the proxy card.
HARVEY GOLUB
Chairman and Chief Executive Officer
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EXHIBIT A
PROPOSED AMERICAN EXPRESS COMPANY
1998 INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of the 1998 Incentive Compensation Plan (the
"Plan") is to promote shareholder value by providing appropriate incentives to
employees of American Express Company (the "Company") and its affiliates and
certain other individuals who perform services for the Company and its
affiliates.
2. ADMINISTRATION. The Plan shall be administered solely by the
Compensation and Benefits Committee (the "Committee") of the Board of Directors
(the "Board") of the Company, as such Committee is from time to time
constituted, or any successor committee the Board may designate to administer
the Plan. The Committee may delegate any of its powers and duties to appropriate
officer(s) of the Company in accordance with guidelines established by the
Committee from time to time.
The Committee has all the powers vested in it by the terms of the Plan set forth
herein, such powers to include exclusive authority (except as may be delegated
as permitted herein) to select the employees and other individuals to be granted
awards under the Plan ("Awards"), to determine the type, size and terms of the
Award to be made to each individual selected, to modify the terms of any Award
that has been granted, to determine the time when Awards will be granted, to
establish performance objectives, to make any adjustments necessary or desirable
as a result of the granting of Awards to eligible individuals located outside
the United States and to prescribe the form of the instruments embodying Awards
made under the Plan. The Committee is authorized to interpret the Plan and the
Awards granted under the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations which it
deems necessary or desirable for the administration of the Plan. The Committee
(or its delegate as permitted herein) may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. Any decision of the Committee (or its delegate as permitted herein)
in the interpretation and administration of the Plan, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. The Committee may act only by a majority of
its members in office, except that the members thereof may authorize any one or
more of their members or any officer of the Company to execute and deliver
documents or to take any other action on behalf of the Committee with respect to
Awards made or to be made to Plan participants. No member of the Committee and
no officer of the Company shall be liable for anything done or omitted to be
done by him, by any other member of the Committee or by any officer of the
Company in connection with the performance of duties under the Plan, except for
his own willful misconduct or as expressly provided by statute.
3. PARTICIPATION. (a) AFFILIATES. If an Affiliate (as hereinafter defined)
of the Company wishes to participate in the Plan and its participation shall
have been approved by the Committee, the board of directors or other governing
body of the Affiliate shall adopt a resolution in form and substance
satisfactory to the Committee authorizing participation by the Affiliate in the
Plan with respect to its employees or other individuals performing services for
it. As used herein, the term "Affiliate" means any entity in which the Company
has a substantial direct or indirect equity interest, as determined by the
Committee in its discretion.
An Affiliate participating in the Plan may cease to be a participating company
at any time by action of the Board or by action of the board of directors or
other governing body of such Affiliate, which latter action shall be effective
not earlier than the date of delivery to the Secretary of the Company of a
certified copy of a resolution of the Affiliate's board of directors or other
governing body taking such action. If the participation in the Plan of an
Affiliate shall terminate, such termination shall not relieve it of any
obligations theretofore incurred by it under the Plan, except as may be approved
by the Committee.
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(b) PARTICIPANTS. Consistent with the purposes of the Plan, the Committee
shall have exclusive power (except as may be delegated as permitted herein) to
select the employees and other individuals performing services for the Company
and its Affiliates who may participate in the Plan and be granted Awards under
the Plan. Eligible individuals may be selected individually or by groups or
categories, as determined by the Committee in its discretion. No non-employee
director of the Company or any of its Affiliates shall be eligible to receive an
Award under the Plan.
4. AWARDS UNDER THE PLAN. (a) TYPES OF AWARDS. Awards under the Plan may
include one or more of the following types, either alone or in any combination
thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights," (iii)
"Restricted Stock," (iv) "Performance Grants" and (v) any Award providing
benefits similar to (i) through (iv) designed to meet the requirements of non-US
jurisdictions. Stock Options, which include "Nonqualified Stock Options" and
"Incentive Stock Options" or combinations thereof, are rights to purchase common
shares of the Company having a par value of $.60 per share and stock of any
other class into which such shares may thereafter be changed (the "Common
Shares"). Nonqualified Stock Options and Incentive Stock Options are subject to
the terms, conditions and restrictions specified in Paragraph 5. Stock
Appreciation Rights are rights to receive (without payment to the Company) cash,
Common Shares, other Company securities (which may include, but need not be
limited to, any equity or debt security of the Company or an Affiliate, or any
combination thereof ("Other Company Securities")) or property, or other forms of
payment, or any combination thereof, as determined by the Committee, based on
the increase in the value of the number of Common Shares specified in the Stock
Appreciation Right. Stock Appreciation Rights are subject to the terms,
conditions and restrictions specified in Paragraph 6. Shares of Restricted Stock
are Common Shares which are issued subject to certain restrictions pursuant to
Paragraph 7.
Performance Grants are contingent awards subject to the terms, conditions and
restrictions described in Paragraph 8, pursuant to which the participant may
become entitled to receive cash, Common Shares, Other Company Securities or
property, or other forms of payment, or any combination thereof, as determined
by the Committee.
(b) MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED. The maximum number of
Common Shares and other equity securities of the Company that may be issued
under the Plan is 35,000,000, plus the number of shares remaining available for
new awards under the 1989 Plan on April 27, 1998, which number will not exceed
17,970,000. In addition, commencing April 27, 1998, Common Shares or other
equity securities of the Company subject to awards outstanding under the 1989
Plan or granted under the 1998 Plan which are recovered or not issued by the
Company will be available for issuance under the 1998 Plan, as follows: (i)
shares related to Awards issued under the 1998 Plan or the 1989 Plan that are
forfeited, terminated, canceled, acquired by the Company or expire unexercised;
(ii) shares surrendered or withheld to pay the exercise price of Awards issued
under the 1998 Plan or the 1989 Plan or to satisfy the tax withholding
obligations under these Awards; and (iii) shares originally linked to Awards
that are actually settled in cash or consideration other than Common Shares or
other equity securities. Limits on the number of Restricted Stock Award grants
are described in Paragraph 7(d).
For purposes of counting shares against the share reserve under the 1998
Plan on the date of grant, Awards denominated solely in common shares (such as
Stock Options and Restricted Stock) and other Awards or securities that may be
exercised for or convertible into common shares will be counted against the 1998
Plan reserve on the date of grant of the Award based on the maximum number of
shares underlying the Award, as determined by the Committee. Equity securities
other than Common Shares issued pursuant to the 1998 Plan which are not
exercisable for or convertible into Common Shares will be counted based on the
number of shares issued. Common Shares and other equity securities of the
Company issued pursuant to the Plan may be either authorized but unissued
shares, treasury shares, reacquired shares or any combination thereof.
(c) RIGHTS WITH RESPECT TO COMMON SHARES AND OTHER SECURITIES.
(i) Unless otherwise determined by the Committee in its
discretion, a participant to whom an Award of Restricted Stock has
been made (and any person succeeding to such a participant's rights
pursuant to the Plan) shall have, after issuance of a certificate or
the entry on behalf of a
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participant of an uncertificated book position on the records of the
Company's transfer agent and registrar for the number of Common
Shares awarded and prior to the expiration of the Restricted Period
or the earlier cancellation or repurchase of such Common Shares as
herein provided, ownership of such Common Shares, including the
right to vote the same and to receive dividends or other
distributions made or paid with respect to such Common Shares
(provided that such Common Shares, and any new, additional or
different shares, or Other Company Securities or property, or other
forms of consideration which the participant may be entitled to
receive with respect to such Common Shares as a result of a stock
split, stock dividend or any other change in the corporate or
capital structure of the Company, shall be subject to the
restrictions hereinafter described as determined by the Committee in
its discretion), subject, however, to the options, restrictions and
limitations imposed thereon pursuant to the Plan. Notwithstanding
the foregoing, a participant with whom an Award agreement is made to
issue Common Shares in the future shall have no rights as a
shareholder with respect to Common Shares related to such agreement
until the book entry is made, or the certificate is issued on his
behalf.
(ii) Unless otherwise determined by the Committee in its
discretion, a participant to whom a grant of Stock Options, Stock
Appreciation Rights, Performance Grants or any other Award is made
(and any person succeeding to such a participant's rights pursuant
to the Plan) shall have no rights as a shareholder with respect to
any Common Shares or as a holder with respect to other securities,
if any, issuable pursuant to any such Award until the date of the
issuance of a stock certificate to him or the entry on his behalf of
an uncertificated book position on the records of the Company's
transfer agent and registrar for such Common Shares or other
instrument of ownership, if any. Except as provided in Paragraph 16,
no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash,
securities, other property or other forms of consideration, or any
combination thereof) for which the record date is prior to the date
such book entry is made or a stock certificate or other instrument
of ownership, if any, is issued.
(iii) The Committee may, in its discretion, subject any Award
and the economic value derived by a participant therefrom, to
forfeiture by the participant upon the occurrence of certain events
as determined by the Committee.
5. STOCK OPTIONS. The Committee may grant Stock Options either alone, or
in conjunction with Stock Appreciation Rights, Performance Grants or other
Awards, either at the time of grant or by amendment thereafter. The Committee
may grant Incentive Stock Options to any employee provided the terms of such
grants comply with the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision, and the regulations
thereunder, and that any ambiguities in construction shall be interpreted in
order to effectuate that intent. Each Stock Option (referred to herein as an
"Option") granted under the Plan shall be evidenced by an instrument in such
form as the Committee shall prescribe from time to time in accordance with the
Plan and shall comply with the following terms and conditions, and with such
other terms and conditions, including, but not limited to, restrictions upon the
Option or the Common Shares issuable upon exercise thereof, as the Committee, in
its discretion, shall establish:
(a) The option price shall be equal to or greater than the fair
market value of the Common Shares subject to such Option at the time the
Option is granted, as determined by the Committee; but in no event will
such option price be less than the par value of such Common Shares. The
Committee in its discretion shall establish the expiration date of an
Option provided that, except as provided in Subparagraph (c)(iii)(B)
below, in no event shall the expiration date be later than ten years from
the date of grant of the Option.
(b) The Committee shall determine the number of Common Shares to be
subject to each Option. The number of Common Shares subject to an
outstanding Option may be reduced on a share-for-share or other
appropriate basis, as determined by the Committee, to the extent that
Common Shares under such Option are used to calculate the cash, Common
Shares, Other Company Securities or property, or other forms of payment,
or any combination thereof, received
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pursuant to exercise of a Stock Appreciation Right attached to such
Option, or to the extent that any other Award granted in conjunction with
such Option is paid.
(c) The Option shall not be exercisable:
(i) for at least six months after the date of grant, except as
the Committee may otherwise determine in the event of death,
disability, retirement or in connection with a corporate
transaction, which includes but is not limited to a change in
control of the Company, a divestiture, spin-off, split-off, asset
transfer, outsourcing or joint venture formation, (each, a "Defined
Event"), and only at such times and in such installments as the
Committee may establish;
(ii) unless payment in full for the shares being acquired
thereunder at the time of exercise is made in such form as the
Committee may determine in its discretion, including, but not
limited to (A) cash, (B) Common Shares, (C) if permitted by the
Committee, by authorizing a third party to sell, on behalf of the
participant, the appropriate number of Common Shares otherwise
issuable to the participant upon the exercise of the Option and to
remit to the Company a sufficient portion of the sale proceeds to
pay the entire exercise price and any tax withholding resulting from
such exercise, or (D) any combination thereof; and
(iii) unless the participant has been, at all times during the
period beginning with the date of the grant of the Option and ending
on the date of such exercise, employed by (in the case of an
Incentive Stock Option) or otherwise performing services for the
Company or an Affiliate, or a corporation, or a parent or subsidiary
of a corporation, substituting or assuming the Option in a
transaction to which Section 424(a) of the Code or any successor
statutory provision thereto, is applicable, except that
(A) in the case of any Nonqualified Stock Option, if such person
shall cease to be employed by or otherwise performing services for the
Company or an Affiliate solely by reason of a period of Related
Employment, he may, during such period of Related Employment, exercise the
Nonqualified Stock Option as if he continued such employment or
performance of service; or
(B) the Committee may establish, in its discretion, the extent to
which a person may continue to exercise an Option, which has not expired
and has not been fully exercised, in the event he terminates employment or
the performance of services by reason of a Defined Event; and in the event
of death, the Committee may provide a decedent's executors, heirs or
distributors a minimum period to exercise an Option with respect to any
shares as to which the decedent could have exercised the Option at the
time of his death, or such greater amount as the Committee may determine,
which period may extend beyond the original expiration date of the Option.
(d) The Committee has the discretion to grant Options at any time it
deems appropriate including, the discretion to grant or provide for the
automatic grant of an Option to restore the number of Common Shares a
participant tendered or had withheld to pay, or the share equivalency of
the cash tendered to pay, the exercise price or tax withholding obligation
upon the exercise of an outstanding Option.
6. STOCK APPRECIATION RIGHTS. The Committee may grant Stock Appreciation Rights
either alone, or in conjunction with Stock Options, Performance Grants or other
Awards, either at the time of grant or by amendment thereafter. Each Award of
Stock Appreciation Rights granted under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions, including, but not limited
to, restrictions upon the Award of Stock Appreciation Rights or the Common
Shares issuable upon exercise thereof, as the Committee, in its discretion,
shall establish:
(a) The Committee shall determine the number of Common Shares to be
subject to each Award of Stock Appreciation Rights. The number of Common
Shares subject to an outstanding Award of Stock Appreciation Rights may be
reduced on a share-for-share or other appropriate basis, as determined by
the Committee, to the extent that Common Shares under such Award of Stock
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Appreciation Rights are used to calculate the cash, Common Shares, Other
Company Securities or property or other forms of payment, or any
combination thereof, received pursuant to exercise of an Option attached
to such Award of Stock Appreciation Rights, or to the extent that any
other Award granted in conjunction with such Award of Stock Appreciation
Rights is paid.
(b) The Award of Stock Appreciation Rights shall not be exercisable
for at least six months after the date of grant except as the Committee
may otherwise determine in the event of a Defined Event.
(c) The Award of Stock Appreciation Rights shall not be exercisable:
(i) unless the Option or other Award to which the Award
of Stock Appreciation Rights is attached is at the time
exercisable; and
(ii) unless the person exercising the Award of Stock
Appreciation Rights has been at all times during the period
beginning with the date of the grant thereof and ending on the
date of such exercise, employed by or otherwise performing
services for the Company or an Affiliate, except that
(A) in the case of any Award of Stock Appreciation Rights (other
than those attached to an Incentive Stock Option), if such person shall
cease to be employed by or otherwise performing services for the Company
or an Affiliate solely by reason of a period of Related Employment as
defined in Paragraph 14, he may, during such period of Related Employment,
exercise the Award of Stock Appreciation Rights as if he continued such
employment or performance of services; or
(B) the Committee shall establish, in its discretion, the extent to
which a person may continue to exercise an Award of Stock Appreciation
Rights, which has not expired and has not been fully exercised, in the
event he terminates employment or the performance of services by reason of
a Defined Event; provided, that in the event of death, the Committee may
provide his executors, heirs or distributors a minimum period to exercise
an Award of Stock Appreciation Rights with respect to any shares as to
which the decedent could have exercised the Award of Stock Appreciation
Rights, or such greater amount as the Committee may determine, which
period may extent beyond the original expiration date of the underlying
Option.
(d) An Award of Stock Appreciation Rights shall entitle the holder
(or any person entitled to act under the provisions of subparagraph
6(c)(ii)(B) hereof) to exercise such Award or to surrender unexercised the
Option (or other Award) to which the Stock Appreciation Right is attached
(or any portion of such Option or other Award) to the Company and to
receive from the Company in exchange therefor, without payment to the
Company, that number of Common Shares having an aggregate value equal to
(or, in the discretion of the Committee, less than) the excess of the fair
market value of one share, at the time of such exercise, over the exercise
price (or Option Price, as the case may be) per share, times the number of
shares subject to the Award or the Option (or other Award), or portion
thereof, which is so exercised or surrendered, as the case may be. The
Committee shall be entitled in its discretion to elect to settle the
obligation arising out of the exercise of a Stock Appreciation Right by
the payment of cash or Other Company Securities or property, or other
forms of payment, or any combination thereof, as determined by the
Committee, equal to the aggregate value of the Common Shares it would
otherwise be obligated to deliver. Any such election by the Committee
shall be made as soon as practicable after the receipt by the Committee of
written notice of the exercise of the Stock Appreciation Right. The value
of a Common Share, Other Company Securities or property, or other forms of
payment determined by the Committee for this purpose shall be the fair
market value thereof on the last business day next preceding the date of
the election to exercise the Stock Appreciation Right, unless the
Committee, in its discretion, determines otherwise.
(e) A Stock Appreciation Right may provide that it shall be deemed
to have been exercised at the close of business on the business day
preceding the expiration date of the Stock Appreciation Right or of the
related Option (or other Award), or such other date as specified by the
Committee, if at such time such Stock Appreciation Right has a positive
value. Such deemed exercise
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shall be settled or paid in the same manner as a regular exercise thereof
as provided in subparagraph 6(d) hereof.
(f) No fractional shares may be delivered under this Paragraph 6,
but in lieu thereof a cash or other adjustment shall be made as determined
by the Committee in its discretion.
7. RESTRICTED STOCK. Each Award of Restricted Stock under the Plan
shall be evidenced by an instrument in such form as the Committee shall
prescribe from time to time in accordance with the Plan and shall comply
with the following terms and conditions, and with such other terms and
conditions as the Committee, in its discretion, shall establish:
(a) The Committee shall determine the number of Common Shares
to be issued to a participant pursuant to the Award, and the extent,
if any, to which they shall be issued in exchange for cash, other
consideration, or both.
(b) Common Shares issued to a participant in accordance with
the Award may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of
descent and distribution, or as otherwise determined by the
Committee, for such period as the Committee shall determine, from
the date on which the Award is granted (the "Restricted Period").
The Company will have the option to cancel or repurchase the shares
subject to the Award at such price, if any, as the Committee shall
have fixed, in its discretion, when the Award was made or amended
thereafter, which option will be exercisable on such terms, in such
manner and during such period as shall be determined by the
Committee when the Award is made or as amended thereafter. Common
Shares may be issued in certificate form or through the entry of an
uncertificated book position on the records of the Company's
transfer agent and registrar. The Company may impose appropriate
restrictions on the transfer of such Common Shares which shall be
evidenced in the manner permitted by law as determined by the
Committee in its discretion. Any attempt to dispose of any such
Common Shares in contravention of the foregoing repurchase or
cancellation option and other restrictions shall be null and void
and without effect. If Common Shares issued pursuant to a Restricted
Stock Award shall be repurchased or canceled pursuant to the option
described above, the participant, or in the event of his death, his
personal representative, shall forthwith deliver to the Secretary of
the Company any certificates for the Common Shares awarded to the
participant, accompanied by such instrument of transfer, if any, as
may reasonably be required by the Secretary of the Company. If the
option described above is not exercised by the Company, either by
the terms of the Award or action by the Company, such option and the
restrictions imposed pursuant to the first sentence of this
subparagraph 7(b) shall terminate and be of no further force and
effect.
(c) The vesting of a Restricted Stock Award may be conditioned
upon the attainment of specific performance objectives as the
Committee may determine, including but not limited to such
performance objectives described in subparagraph 8 (b). The
Restricted Period shall be for a minimum of three years except as
the Committee may determine in the event of a Defined Event, a
participant's promotion, or Restricted Stock Awards issued to any
employee newly employed by the Company or issued subject to
performance objectives, or as payment pursuant to a Performance
Grant or Qualifying Award.
(d) No more than 10,594,000 of the Common Shares that may be
issued under the Plan may be granted as Restricted Stock Awards, and
no more than an additional 5,297,000 may be granted as Restricted
Stock Awards subject to performance objectives as described above.
Restricted Stock Awards repurchased or canceled by the Company
pursuant to subparagraph 7(b) shall again become available for
issuance pursuant to these limitations.
8. PERFORMANCE GRANTS. The Award of a Performance Grant ("Performance
Grant") to a participant will entitle the participant to receive a specified
amount determined by the Committee (the "Actual Value"), if the terms and
conditions specified herein and in the Awards are satisfied. Each Award of a
Performance Grant shall be subject to the following terms and conditions, and to
such other terms
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and conditions, including but not limited to, restrictions upon any cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof, issued in respect of the Performance Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an
instrument in such form and substance as is determined by the Committee:
(a) The Committee shall determine the value or range of values
of a Performance Grant to be awarded to each participant selected
for an Award and whether or not such a Performance Grant is granted
in conjunction with an Award of Options, Stock Appreciation Rights,
Restricted Stock or other Award, or any combination thereof, under
the Plan (which may include, but need not be limited to, deferred
Awards) concurrently or subsequently granted to the participant (the
"Associated Award"). As determined by the Committee, the maximum
value of each Performance Grant (the "Maximum Value") shall be: (i)
an amount fixed by the Committee at the time the Award is made or
amended thereafter, (ii) an amount which varies from time to time
based in whole or in part on the then current value of a Common
Share, Other Company Securities or property, or other securities or
property, or any combination thereof or (iii) an amount that is
determinable from criteria specified by the Committee. Performance
Grants may be issued in different classes or series having different
names, terms and conditions. In the case of a Performance Grant
awarded in conjunction with an Associated Award, the Performance
Grant may be reduced on an appropriate basis to the extent that the
Associated Award has been exercised, paid to or otherwise received
by the participant, as determined by the Committee.
(b) The award period ("Award Period") in respect of any
Performance Grant shall be a period determined by the Committee. At
the time each Award is made, the Committee shall establish
performance objectives to be attained within the Award Period as the
means of determining the Actual Value of such a Performance Grant.
The performance objectives shall be based on such measure or
measures of performance, which may include, but need not be limited
to, the performance of the participant, the Company, one or more of
its subsidiaries or one or more of their divisions or units, or any
combination of the foregoing, as the Committee shall determine, and
may be applied on an absolute basis or be relative to industry or
other indices, or any combination thereof. The Actual Value of a
Performance Grant shall be equal to its Maximum Value only if the
performance objectives are attained in full, but the Committee shall
specify the manner in which the Actual Value of Performance Grants
shall be determined if the performance objectives are met in part.
Such performance measures, the Actual Value or the Maximum Value, or
any combination thereof, may be adjusted in any manner by the
Committee in its discretion at any time and from time to time during
or as soon as practicable after the Award Period, if it determines
that such performance measures the Actual Value or the Maximum
Value, or any combination thereof, are not appropriate under the
circumstances.
(c) The rights of a participant in Performance Grants awarded
to him shall be provisional and may be canceled or paid in whole or
in part, all as determined by the Committee.
(d) The Committee shall determine whether the conditions of
subparagraph 8(b) or 8(c) hereof have been met and, if so, shall
ascertain the Actual Value of the Performance Grants. If the
Performance Grants have no Actual Value, the Award and such
Performance Grants shall be deemed to have been canceled and the
Associated Award, if any, may be canceled or permitted to continue
in effect in accordance with its terms. If the Performance Grants
have an Actual Value and:
(i) were not awarded in conjunction with an Associated
Award, the Committee shall cause an amount equal to the Actual
Value of the Performance Grants earned by the participant to
be paid to him or his beneficiary as provided below; or
(ii) were awarded in conjunction with an Associated
Award, the Committee shall determine, in accordance with
criteria specified by the Committee (A) to cancel the
Performance Grants, in which event no amount in respect
thereof shall be paid to the participant or his
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beneficiary, and the Associated Award may be permitted to
continue in effect in accordance with its terms, (B) to pay
the Actual Value of the Performance Grants to the participant
or his beneficiary as provided below, in which event the
Associated Award may be canceled or (C) to pay to the
participant or his beneficiary as provided below, the Actual
Value of only a portion of the Performance Grants, in which
event all or a portion of the Associated Award may be
permitted to continue in effect in accordance with its terms
or be canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time or
times as the Committee shall determine, and shall be made pursuant to criteria
specified by the Committee.
Payment of any amount in respect of the Performance Grants which the
Committee determines to pay as provided above shall be made by the Company, as
promptly as practicable after the end of the Award Period or at such other time
or times as the Committee shall determine, and may be made in cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof or in such other manner, as determined by the Committee in
its discretion. Notwithstanding anything in this Paragraph 8 to the contrary,
the Committee may, in its discretion, determine and pay out the Actual Value of
the Performance Grants at any time during the Award Period, including but not
limited to upon a Defined Event.
9. DEFERRAL OF COMPENSATION. The Committee shall determine whether or not
an Award shall be made in conjunction with deferral of the participant's salary,
bonus or other compensation, or any combination thereof, and whether or not such
deferred amounts may be
(i) forfeited to the Company or to other participants,
or any combination thereof, under certain circumstances (which
may include, but need not be limited to, certain types of
termination of employment or performance of services for the
Company and its Affiliates),
(ii) credited with income equivalents (which may
include, but need not be limited to, interest, dividends or
other rates of return) until the date or dates of payment of
the Award, if any,
(iii) subject to increase or decrease in value based
upon the attainment of or failure to attain, respectively,
certain performance measures and/or
(iv) any other terms and conditions the Committee deems
necessary.
10. QUALIFYING AWARDS. The Committee may, in its sole discretion, grant
an Award (a "Qualifying Award") to any key employee with the intent that such
Award qualifies as "performance-based compensation" under Section 162(m) of the
Code, or any successor provision thereto, and the regulations thereunder
("Section 162(m)"). The provisions of this Paragraph 10 as well as all other
applicable provisions of the Plan not inconsistent with this Paragraph 10 shall
apply to all Qualifying Awards issued under the Plan, and any ambiguities in
construction shall be interpreted to effectuate that intent. Qualifying Awards
shall be of the type set forth in subparagraph (a) or (b) below.
(a) Qualifying Awards may be issued as Stock Options and Stock
Appreciation Rights. Commencing with calendar year 1998, the number of
Common Shares underlying all Options and Stock Appreciation Rights that
may be granted to any participant within any three consecutive calendar
years shall be limited to 3,000,000 (inclusive of Options or Stock
Appreciation Rights granted under the 1989 Plan during 1998), subject to
adjustment as provided in Paragraph 16. The foregoing limitation shall be
subject to the limitation set forth in Paragraph 4(b).
(b)(i) Qualifying Awards (other than Stock Options and Stock
Appreciation Rights) may be issued as Performance Grants and any other
Award whose payment is conditioned upon the achievement of the performance
objectives described in this subparagraph. Amounts earned under such
Awards shall be based upon the attainment of performance objectives
established by the Committee in accordance with Section 162(m). Such
performance objectives may vary by participant and by Award and shall be
based upon the attainment of specific amounts of, or changes in one or
more of the following: revenues, earnings, shareholders' equity, return on
equity, assets, return on assets, capital, return on capital, book value,
economic value added,
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<PAGE>
operating margins, cash flow, shareholder return, expenses or market
share. The Committee may provide that in measuring the achievement of the
performance objectives, an Award may include or exclude items such as
realized investment gains and losses, extraordinary, unusual or
non-recurring items, asset write-downs, effects of accounting charges,
currency fluctuations, acquisitions, divestitures, reserve-strengthening
and other non-operating items. The foregoing objectives may be applicable
to the Company as a whole, one or more of its subsidiaries, divisions,
business units or business lines, or any combination of the foregoing, and
may be applied on an absolute basis or be relative to other companies,
industries or indices or be based upon any combination of the foregoing.
In addition to the performance objectives the Committee may also condition
payment of any such Award upon the attainment of conditions, such as
completion of a period of service, notwithstanding that the performance
objective or objectives specified in the Award are satisfied. The
Committee shall have the discretion, by participant and by Award, to
reduce (but not to increase) some or all of the amount that would
otherwise be payable under the Award by reason of the satisfaction of the
performance objectives set forth in the Award. In making any such
determination, the Committee is authorized to take into account any such
factor or factors it determines are appropriate, including but not limited
to Company, business unit and individual performance.
(ii) Under all Awards granted pursuant to this subparagraph (b), in
any one calendar year: (A) no participant may be paid cash, Common Shares,
Other Company Securities or other property (other than shares of
Restricted Stock) or any combination of the foregoing with a value (as
determined by the Committee) in excess of $6.5 million and (B) in
addition, no participant may receive more than 100,000 shares of
Restricted Stock, subject to adjustment to the extent provided in
Paragraph 16. For purposes of the foregoing sentence, the calendar year or
years in which amounts under Qualifying Awards are deemed paid or received
shall be as determined by the Committee.
11. PAYMENT OF AWARDS. The Committee may, in its discretion, settle any
Award through the payment of cash, the delivery of Common Shares or Other
Company Securities, the granting of Awards or a combination thereof. Any Award
settlement, including payment deferrals, may be subject to conditions,
restrictions and contingencies as the Committee shall determine. The Committee
may permit or require the deferral of any Award payment, subject to such terms,
rules and procedures as the Committee may establish, which may include
provisions for the payment or crediting of interest, or dividend equivalents,
including converting such credits into deferred Common Share equivalents.
12. AMENDMENT OF THE PLAN OR AWARDS. The Plan may be amended in whole or
in part at any time and from time to time by the Board, and the terms of any
outstanding Award under the Plan may be amended from time to time by the
Committee in its discretion in any manner that it deems, provided however, that
no amendment may be made without shareholder approval if such amendment (i)
would increase the number of shares available for grant specified in Paragraphs
4(b) or 10, (ii) would decrease the minimum Option exercise price set forth in
Paragraph 5(a) (other than changes made pursuant to Paragraph 16 hereof), (iii)
reduce the minimum vesting periods set forth in Paragraphs 5(c)(i), 6(b) or 7(c)
or (iv) would, in the absence of shareholder approval, adversely affect
compliance of the Plan with applicable laws, rules and regulations. No such
amendment shall adversely affect in a material manner any right of a participant
under the Award without his written consent, unless the Committee determines in
its discretion that there have occurred or are about to occur significant
changes in the participant's position, duties or responsibilities, or
significant changes in economic, legislative, regulatory, tax, accounting or
cost/benefit conditions which are determined by the Committee in its discretion
to have or to be expected to have a significant effect on the performance of the
Company, or any subsidiary, affiliate, division or department thereof, on the
Plan or on any Award under the Plan. Any shareholder approval requirement under
the Plan will be met if such approval is obtained in accordance with applicable
law.
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<PAGE>
13. DISABILITY. For the purposes of this Plan, a participant shall be
deemed to have terminated his employment or performance of services for the
Company and its Affiliates by reason of disability, if the Committee shall
determine that the physical or mental condition of the participant by reason of
which such employment or performance of services terminated was such at that
time as would entitle him to payment of monthly disability benefits under the
Company's Long Term Disability Benefit Plan, or, if the participant is not
eligible for benefits under such plan, under any similar disability plan of the
Company or an Affiliate in which he is a participant. If the participant is not
eligible for benefits under any disability plan of the Company or an Affiliate,
he shall be deemed to have terminated such employment or performance of services
by reason of disability if the Committee shall determine that his physical or
mental condition would entitle him to benefits under the Company's Long Term
Disability Benefit Plan if he were eligible therefor. Notwithstanding the above,
the Committee may determine a participant's disability based upon any other
criteria specified by the Committee.
14. TERMINATION OF A PARTICIPANT. For all purposes under the Plan, the
Committee shall determine whether a participant has terminated employment by or
the performance of services for the Company and its Affiliates; provided,
however, that transfers between the Company and an Affiliate or between
Affiliates, and approved leaves of absence shall not be deemed such a
termination.
15. RELATED EMPLOYMENT. For the purposes of this Plan, Related Employment
shall mean the employment or performance of services by an individual for an
employer that is neither the Company nor an Affiliate, provided that (i) such
employment or performance of services is undertaken by the individual at the
request of the Company or an Affiliate, (ii) immediately prior to undertaking
such employment or performance of services, the individual was employed by or
performing services for the Company or an Affiliate or was engaged in Related
Employment as herein defined and (iii) such employment or performance of
services is in the best interests of the Company and is recognized by the
Committee, in its discretion, as Related Employment for purposes of this
Paragraph 15. The death or disability of an individual during a period of
Related Employment as herein defined shall be treated, for purposes of this
Plan, as if the death or onset of disability had occurred while the individual
was employed by or performing services for the Company or an Affiliate.
16. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Shares of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination, subdivision or
exchange of shares, a sale by the Company of all or part of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, if the Committee shall determine, in its
discretion, that such change equitably requires an adjustment in the terms of
any Award or the maximum number of Common Shares that may be issued as Awards
pursuant to the Plan, such adjustment may be made by the Committee and shall be
final, conclusive and binding for all purposes of the Plan. The Committee may
also provide for the adjustment and settlement of outstanding Awards as it deems
appropriate and consistent with the Plan's purpose in the event of a "change in
control" of the Company, as that term is defined in the Company's Senior
Executive Severance Plan.
17. DESIGNATION OF BENEFICIARY BY PARTICIPANT. A participant may name a
beneficiary to receive any payment in which he may be entitled in respect of any
Award under the Plan in the event of his death, on a written form to be provided
by and filed with the Secretary, and in a manner determined by the Committee in
its discretion. The Committee reserves the right to review and approve
beneficiary designations. A participant may change his beneficiary from time to
time in the same manner, unless such participant has made an irrevocable
designation. Any designation of beneficiary under the Plan (to the extent it is
valid and enforceable under the applicable law) shall be controlling over any
other disposition, testamentary, or otherwise, as determined by the Committee in
its discretion. If no designated beneficiary survives the participant and is
living on the date on which any amount becomes payable to such participant's
beneficiary, such payment will be made to the legal representatives of the
participant's estate, and the term "beneficiary" as used in the Plan shall be
deemed to include such person or persons. If there is any question as to the
legal right of any beneficiary to receive a distribution under the Plan, the
Committee in its discretion may determine that the amount in question be paid to
the legal
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<PAGE>
representatives of the estate of the participant, in which event the Company,
the Board and the Committee and the members thereof will have no further
liability to anyone with respect to such amount.
18. FINANCIAL ASSISTANCE. If the Committee determines that such action is
advisable, the Company may assist any person to whom an Award has been granted
in obtaining financing from the Company under the American Express 1983 Stock
Purchase Assistance Plan (or other program of the Company, or one of its
Affiliates approved pursuant to applicable law), or from a bank or other third
party, on such terms as are determined by the Committee, and in such amount as
is required to accomplish the purposes of the Plan, including, but not limited
to, to permit the exercise of an Award, the participation therein, and/or the
payment of any taxes in respect thereof. Such assistance may take any form that
the Committee deems appropriate, including, but not limited to, a direct loan
from the Company or an Affiliate, a guarantee of the obligation by the Company
or an Affiliate, or the maintenance by the Company or an Affiliate of deposits
with such bank or third party.
19. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Determinations made by the Committee
under the Plan need not be uniform and may be made selectively among
eligible individuals under the Plan, whether or not such eligible
individuals are similarly situated. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee or other person any
right to continue to be employed by or perform services for the Company or
any Affiliate, and the right to terminate the employment of or performance
of services by any participant at any time and for any reason is
specifically reserved.
(b) No participant or other person shall have any right with respect
to the Plan, the Common Shares reserved for issuance under the Plan or in
any Award, contingent or otherwise, until written evidence of the Award
shall have been delivered to the recipient and all the terms, conditions
and provisions of the Plan and the Award applicable to such recipient (and
each person claiming under or through him) have been met.
(c) Except as may be approved by the Committee, an Award or a
participant's rights and interest under the Plan may not be sold, assigned
or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death) including, but not by way of limitation, execution,
levy, garnishment, attachment, pledge, bankruptcy or in any other manner.
Not by way of limitation, the Committee may allow for a participant to
transfer an Award to one or more members of his immediate family, to a
partnership of which the only partners are members of the participant's
immediate family, or to a trust established by the participant for the
benefit of one or more members of his immediate family.
(d) No Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment shall be issued
hereunder with respect to any Award unless counsel for the Company shall
be satisfied that such issuance will be in compliance with applicable
federal, state, local and foreign legal, securities exchange and other
applicable requirements.
(e) The Company and its Affiliates shall have the right to deduct
from any payment made under the Plan any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Shares, Other Company Securities or property, other securities or
property, or other forms of payment, or any combination thereof, upon
exercise, settlement or payment of any Award under the Plan, that the
participant (or any beneficiary or person entitled to act) pay to the
Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold federal, state,
local or foreign income or other taxes. If the amount requested is not
paid, the Company may refuse to issue Common Shares, Other Company
Securities or property, other securities or property, or other forms of
payment, or any combination thereof. Notwithstanding anything in the Plan
to the contrary, the Commit-
A-11
<PAGE>
tee may, in its discretion, permit an eligible participant (or any
beneficiary or person entitled to act) to elect to pay a portion or all of
the amount requested by the Company for such taxes with respect to such
Award, at such time and in such manner as the Committee shall deem to be
appropriate (including, but not limited to, by authorizing the Company to
withhold, or agreeing to surrender to the Company on or about the date
such tax liability is determinable, Common Shares, Other Company
Securities or property, other securities or property, or other forms of
payment, that would otherwise be distributed, or have been distributed, as
the case may be, pursuant to such Award to such person, having a fair
market value equal to the amount of such taxes).
(f) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under the Plan, and the rights
to the payment of Awards shall be no greater than the rights of the
Company's general creditors.
(g) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of,
and consent to, any action taken under the Plan by the Company, the Board
or the Committee or its delegates.
(h) Fair market value in relation to Common Shares, Other Company
Securities or property, other securities or property or other forms of
payment of Awards under the Plan, or any combination thereof, as of any
specific time shall mean such value as determined by the Committee in
accordance with applicable law.
(i) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(j) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Awards hereunder or
any Common Shares issued pursuant hereto as may be required by Section 13
or 15(d) of the Exchange Act (or any successor provision) or any other
applicable statute, rule or regulation.
(k) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating
to the Plan and to Awards granted under the Plan, shall be governed by the
substantive laws, but not the choice of law rules, of the State of New
York.
20. PLAN TERMINATION. The Plan may be suspended in whole or in part at any
time and from time to time by the Board. This Plan shall terminate upon the
earlier of the following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating the
Plan; or
(b) ten years from the date the Plan is initially approved and
adopted by the shareholders of the Company in accordance with Paragraph 21
hereof, provided, however, that the Board may, prior to the expiration of
such ten-year period, extend the term of the Plan for an additional period
of up to five years for the grant of Awards other than Incentive Stock
Options. No termination of the Plan shall materially alter or impair any
of the rights or obligations of any person, without his consent, under any
Award theretofore granted under the Plan, except that subsequent to
termination of the Plan, the Committee may make amendments permitted under
Paragraph 12.
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<PAGE>
21. SHAREHOLDER ADOPTION. The Plan shall be submitted to the shareholders
of the Company for their approval and adoption at a meeting to be held on or
before April 27, 1998, or at any adjournment thereof. The Plan shall not be
effective and no Award shall be made hereunder unless and until the Plan has
been so approved and adopted. The shareholders shall be deemed to have approved
and adopted the Plan only if it is approved and adopted at a meeting of the
shareholders duly held by vote taken in the manner required by the laws of the
State of New York.
A-13
<PAGE>
DIRECTIONS TO THE 1998 AMERICAN EXPRESS COMPANY
ANNUAL MEETING OF SHAREHOLDERS
American Express Company's world headquarters, site of the Company's 1998
Annual Meeting of Shareholders, are located at 200 Vesey Street on the west side
of lower Manhattan in the office complex known as the World Financial Center.
The World Financial Center is a part of Battery Park City, a 10-acre development
of office buildings, residences and parks located on the southwestern tip of
Manhattan. It is connected to the World Trade Center by two pedestrian
overpasses and is also accessible at street level by automobile.
BY SUBWAY
Take any of the several subway lines (A, C, E, N, R or the 1, 2, 3, 4, 5
or 9 trains) that stop at or near the World Trade Center. Walk from the World
Trade Center across the Westside Highway (also known as West Street) via one of
the two pedestrian overpasses. The American Express building is on the north
side of the Winter Garden in the World Financial Center.
BY AUTOMOBILE OR TAXICAB
Proceed south on the Westside Highway in lower Manhattan toward the twin
towers of the World Trade Center. Enter the World Financial Center, which is
directly across the Westside Highway from the towers, by turning west on either
Murray Street or Vesey Street. Proceed to the main entrance of the American
Express building, located at the corner of Vesey Street and the Westside
Highway.
<PAGE>
AMERICAN EXPRESS COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING ON APRIL 27, 1998
The undersigned hereby appoints Richard K. Goeltz, Louise M. Parent and Stephen
P. Norman, or any of them, proxies or proxy, with full power of substitution, to
vote all common shares of American Express Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at the
executive offices of the Company, 200 Vesey Street, 26th Floor, New York, New
York 10285, on April 27, 1998 at 10:00 A.M., local time, and at any adjournment
thereof, as directed below with respect to the proposals set forth in the Proxy
Statement and in their discretion upon any matter that may properly come before
the meeting or any adjournment thereof.
Election of Directors. Nominees:
(01) D.F. Akerson (02) A.L. Armstrong
(03) E.L. Artzt (04) W.G. Bowen
(05) K.I. Chenault (06) C.W. Duncan, Jr.
(07) H. Golub (08) B. Sills Greenough
(09) F.R. Johnson (10) V.E. Jordan Jr.
(11) J. Leschly (12) D. Lewis
(13) F.P. Popoff
(COMMENTS/ADDRESS CHANGE)
(If you have written in the above space, please mark the corresponding box on
the reverse side of this card.)
(CONTINUED AND TO BE DATED AND SIGNED ON OTHER SIDE)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. YOUR SHARES CANNOT BE VOTED UNLESS
YOU SIGN THIS CARD. THE SIGNER HEREBY REVOKES ALL PROXIES HERETOFORE GIVEN BY
THE SIGNER TO VOTE AT SAID MEETING OR ANY ADJOURNMENT THEREOF.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE. o
NOTICE TO EMPLOYEES PARTICIPATING IN THE AMERICAN EXPRESS
INCENTIVE SAVINGS PLAN:
This proxy card indicates the number of whole shares credited to your account in
the American Express Incentive Savings Plan (ISP) as of February 17, 1998.
However, all the shares credited to your account in ISP as of March 2, 1998 will
be voted according to your voting instructions indicated on this card if
American Express Trust Company, the Trustee of the ISP, receives such
instructions in a timely manner.
To be received in a timely manner, ChaseMellon Shareholder Services, L.L.C.,
which is acting on behalf of and at the direction of the Trustee, must receive
your proxy card for tabulation by April 20, 1998.
If the Trustee does not receive your voting instructions in a timely manner,
your shares held in the ISP will be voted by the Trustee, in the same proportion
as the Trustee has received timely voting instructions on other shares held in
ISP.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREON
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSALS 4 AND 5.
Please mark
your votes as
indicated in
this example. /X/
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
- --------------------------------------------------------------------------------
WITHHOLD
FOR ALL FROM ALL
NOMINEES NOMINEES
Item 1 - Election of Directors / / / /
FOR the slate, except vote WITHHELD
from the following nominee(s):
- --------------------------------------
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
Item 2 - Selection of Ernst & Young
LLP as Independent Auditors / / / / / /
Item 3 - Adoption of the Company's
1998 Incentive Compensation Plan / / / / / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEMS 4 AND 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
Item 4 - Shareholder proposal #1
relating to cumulative
voting / / / / / /
Item 5 - Shareholder proposal #2 relating
to executive compensation / / / / / /
- --------------------------------------------------------------------------------
I plan to attending meeting. / /
COMMENTS/ADDRESS
CHANGE / /
(Please mark this box if you have written comments/ address change on the
reverse side.)
Signature(s)----------------------------------------- Date ----------------
NOTE: Please date and sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor, administrator,
corporate officer, trustee or guardian, please give full title as such.
VOTE BY TELEPHONE
QUICK * * * EASY * * * IMMEDIATE
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
o You will be asked to enter a Control Number, which is located in the box in
the lower right hand corner of this form.
- --------------------------------------------------------------------------------
OPTION #1: To vote as the Board of Directors recommends on ALL proposals: Press
1.
- --------------------------------------------------------------------------------
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
OPTION #2: IF YOU CHOOSE TO VOTE ON EACH PROPOSAL SEPARATELY PRESS 0. YOU WILL
HEAR THESE INSTRUCTIONS:
- --------------------------------------------------------------------------------
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9.
To withhold FOR AN INDIVIDUAL nominee, press 0 and listen to
the instructions. The two digit identification code you will
need can be found before each nominee's name on the reverse
side of this card.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
The instructions are the same for all remaining proposals.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1.
- --------------------------------------------------------------------------------
PLEASE DO NOT RETURN THE ABOVE PROXY CARD IF VOTED BY PHONE.
- --------------------------------------------------------------------------------
CALL * TOLL FREE * ON A TOUCH TONE TELEPHONE
1-800-840-1208 - ANYTIME
THERE IS NO CHARGE TO YOU FOR THIS CALL.
<PAGE>
- --------------------------------------------------------------------------------
SCRIPT FOR
LONG VOTING PROCESS
- --------------------------------------------------------------------------------
SPEECH 1 Please enter the control number located in the lower right hand
corner of the form.
- --------------------------------------------------------------------------------
name of the company
SPEECH 2 To vote as the ______________________ Board recommends on ALL
proposals - Press 1 now.
- --------------------------------------------------------------------------------
SYSTEM Wait two seconds. If 1 is pressed - system goes to Closing A.
If no entry made, System goes to Speech 3.
- --------------------------------------------------------------------------------
SPEECH 3 To vote on each proposal separately, Press 0 now.
- --------------------------------------------------------------------------------
Proposal 1:
To vote for All Nominees, Press 1; to Withhold for all
SPEECH 4 nominees, Press 9.
To withhold for an individual nominee, Press 0
Make your selection now.
- --------------------------------------------------------------------------------
System waits three seconds.
SYSTEM
If selection 1 or 9 made, go to Speech 5.
If 0 is selected, go to Subset 4A.
- --------------------------------------------------------------------------------
Subset: Enter the two digit number that appears next to the
nominee you DO NOT wish to vote for.
System: Wait 3 seconds - If no selection, go to Speech 5
SPEECH 4A Press 1 to withhold from another Nominee or Press 0
if you have completed voting on Directors
Subset: If 1 - repeat Subset - Enter the two...
If 0 - go to Proposal 2, speech 5
- --------------------------------------------------------------------------------
Proposal 2:
To vote FOR, Press 1, AGAINST, Press 9,
SPEECH 5 ABSTAIN, Press 0.
System waits 3 seconds - if no selection - go to Speech 6.
- --------------------------------------------------------------------------------
Proposal 3:
To vote FOR, Press 1, AGAINST, Press 9,
SPEECH 6 ABSTAIN, Press 0.
System waits 3 seconds - if no selection - go to next Proposal.
- --------------------------------------------------------------------------------
And so forth for each proposal - after completion -
Go to Closing B
- --------------------------------------------------------------------------------
You voted as the Board recommended. If this is correct, Press 1,
if incorrect, Press 0.
CLOSING A
If 1 is pressed, go to Speech 7.
If 0 is pressed, go to Speech 8.
- --------------------------------------------------------------------------------
You voted as follows:
Proposal 1 - For All - Withhold All -
Withhold Nominee number _________
Proposal 2 - For, Against, Abstain
CLOSING B and so on.
If this is correct, Press 1 now; if incorrect, Press 0.
If 1 is pressed, go to Speech 7.
If 0 is pressed, go to Speech 8.
- --------------------------------------------------------------------------------
SPEECH 7 Thank you for voting.
- --------------------------------------------------------------------------------
SPEECH 8 Your votes have been cancelled. Please try again, or sign, mark
and return your proxy in the envelope provided. Thank you.
- --------------------------------------------------------------------------------
