Section 16(a) of the Securities Exchange Act of 1934 requires directors and certain officers of FedEx and persons who own more than ten percent of FedEx'sFedEx’s common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership (Form 3) and reports of subsequent changes in their beneficial ownership (Form 4 or Form 5) of FedEx'sFedEx’s common stock. Such directors, officers and greater-than-ten-percent stockholders are required to furnish FedEx with copies of the Section 16(a) reports they file. The Securities and Exchange Commission has established specific due dates for these reports, and FedEx is required to disclose in this proxy statement any late filings or failures to file.
Based solely upon a review of the copies of the Section 16(a) reports (and any amendments thereto) furnished to FedEx and written representations from certain reporting persons that no additional reports were required, FedEx believes that its directors, reporting officers and greater-than-ten-percent stockholders complied with all these filing requirements for the fiscal year ended May 31, 2004.2006.
The following table lists certain persons known by FedEx to own beneficially more than five percent of FedEx'sFedEx’s outstanding shares of common stock as of March 31, 2004.2006.
The members of the Audit Committee meet all independence and qualification requirements of the New York Stock Exchange. The Board of Directors has determined that at least one member of the Audit Committee, John A. Edwardson, is an audit committee financial expert.
The members of the Compensation Committee meet all independence requirements of the New York Stock Exchange.
The members of the Nominating & Governance Committee meet all independence requirements of the New York Stock Exchange.
FedEx expects all board members to attend annual meetings of stockholders. Twelve of the fourteen membersEach member of the Board of Directors attended the 20032005 annual meeting of stockholders.
PROPOSAL 1 – ELECTION OF DIRECTORS
Current Nominees
The Board of Directors currently consists of thirteen members. All of FedEx’s directors divided into three classes (Class I, Class II and Class III). Directors in each class are elected to serve for three-year termsat each annual meeting of stockholders and hold office until the next annual meeting of stockholders. The Board proposes that expire in successive years. The termseach of the Class IIIthirteen current directors will expire atbe reelected to the upcoming annual meeting. TheBoard. In addition, the Board of Directors has nominated Judith L. Estrin, Philip Greer, J.R. Hyde, III, Shirley A. Jackson and Frederick W. SmithSteven R. Loranger for election as Class IIIa director. Each of the directors for three-year terms expiringelected at this annual meeting will hold office until the annual meeting of stockholders to be held in 2007 and until their successors arehis or her successor is duly elected and qualified. In addition, the Board of Directors has nominated Charles T. Manatt for election as a Class I director for a one-year term expiring at the annual meeting of stockholders to be held in 2005 and until his successor is elected and qualified. Each nominee, except for Mr. Manatt who is not currently a director, currently serves as a Class III director.
If you approve the Board of Directors' proposal to amend FedEx's Bylaws to provide for the annual election of directors, as more fully described under "Proposal 2 – Amendments to FedEx's Bylaws to Provide for the Annual Election of All Directors," then the term of all directors, including those elected at this annual meeting, will end at the 2005 annual meeting, and all directors will thereafter be elected for one-year terms.
Each nominee has consented to being named in this proxy statement and has agreed to serve if elected. If a nominee is unable to stand for election, the Board of Directors may either reduce the number of directors to be elected or select a substitute nominee. If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority.
The affirmative vote of a plurality of the votes cast at the meeting is required to elect the sixfourteen nominees as directors. This means that the sixfourteen nominees will be elected if they receive more affirmative votes than any other person.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"“FOR” THE ELECTION OF EACH OF THE SIXFOURTEEN NOMINEES.
The following table sets forth, with respect to each nominee, his or her name, age, principal occupation and employment during at least the past five years, the year in which he or she first became a director of FedEx (or its predecessor, FedEx Express) and directorships held in other public companies.
NOMINEE FOR ELECTION AS CLASS I DIRECTOR
Director, Year First
Elected as Director
| | Age
| | Principal Occupation,
Business and Directorships
|
|---|
Charles T. Manatt | | 68 | | Partner and co-founder of Manatt, Phelps & Phillips, LLP, a diversified law firm, since 1965; Co-Chair of ManattJones Global Strategies LLC, a global consulting firm providing international business, government and public affairs strategies and solutions, since October 2001; U.S. Ambassador to the Dominican Republic from 1999 to 2001. Former director of FedEx from 1989 to 1999. |
NOMINEES FOR ELECTION AS CLASS III DIRECTORSTO THE BOARD
| Director, Year First
|
|
|
| Principal Occupation, |
|
|---|
Elected as Director
|
| | |
|
| Age
| | |
| | Principal Occupation,
Business and Directorships
|
|---|
Judith L. Estrin
1989 |
| 49 | | President and Chief Executive Officer of Packet Design, LLC, an Internet technology company, since May 2000; Senior Vice President and Chief Technology Officer of Cisco Systems, Inc., a networking systems company, from April 1998 to April 2000; President and Chief Executive Officer of Precept Software, Inc., a computer software company, from March 1995 to April 1998. Director, The Walt Disney Company.
|
Philip Greer
1974 |
|
68 |
|
Managing Director, Greer Family Consulting and Investments, LLC, an investment management firm, since April 2002; Senior Managing Director of Weiss, Peck & Greer, L.L.C., an investment management firm, from 1995 to April 2002; General Partner of Weiss, Peck & Greer from 1970 to 1995. Director, The Robert Mondavi Corporation. |
J.R. Hyde, III
1977 |
|
61 |
|
Chairman of GTx, Inc., a biopharmaceutical company specializing in serious men's health issues, since March 2001; Chairman of Pittco Management, LLC, an investment management company, since January 1998; President of Pittco, Inc., an investment company, since April 1989; Chairman of AutoZone, Inc., an auto parts retail chain, from May 1986 to March 1997; Chief Executive Officer of AutoZone, Inc. from May 1986 to December 1996. Director, Autozone, Inc. and GTx, Inc. |
Shirley A. Jackson
1999 |
|
58 |
|
President of Rensselaer Polytechnic Institute, a technological university, since July 1999; Chairwoman and Commissioner of the United States Nuclear Regulatory Commission from July 1995 to June 1999; Commissioner of the United States Nuclear Regulatory Commission from May 1995 to July 1995. Director, AT&T Corp., Marathon Oil Corporation, Medtronic, Inc., Public Service Enterprise Group Incorporated, and United States Steel Corporation. Dr. Jackson also serves as a director of the New York Stock Exchange. |
Frederick W. Smith
1971 |
|
59 |
61 |
| | Chairman, President and Chief Executive Officer of FedEx since January 1998; Chairman of FedEx Express since 1975; Chairman, President and Chief Executive Officer of FedEx Express from 1983 to January 1998; Chief Executive Officer of FedEx Express from 1977 to January 1998; President of FedEx Express from 1971 to 1975. |
Continuing Directors
The terms of FedEx's four Class I directors expire at the annual meeting of stockholders to be held in 2005. The terms of FedEx's three Class II directors who will continue in office following the annual meeting expire at the annual meeting of stockholders to be held in 2006. If stockholders approve the Board of Directors' proposal to amend FedEx's Bylaws to provide for the annual election of directors, then the term of all directors will expire at the 2005 annual meeting. The following tables set forth, with respect to each current Class I and Class II director who will continue in office following the annual meeting, his or her name, age, principal occupation and employment during the past five years, the year in which he or she first became a director of FedEx (or its predecessor, FedEx Express) and directorships held in other public companies. One current Class II director, George J. Mitchell, is retiring as a director at the annual meeting.
CLASS I DIRECTORS CONTINUING IN OFFICE
Director, Year First
Elected as Director
| | Age
| | Principal Occupation,
Business and Directorships
|
|---|
James L. Barksdale
1999 | | 61 | 63 | | | Chairman and President, Barksdale Management Corporation, an investment management company, since April 1999; Managing Partner, The Barksdale Group, a venture capital firm, since April 1999; President and Chief Executive Officer of Netscape Communications Corporation, a provider of software, services and Web site resources to Internet users, from January 1995 to March 1999; various senior management positions at FedEx Express from 1979 to 1992, including Executive Vice President and Chief Operating Officer. Former director of FedEx Express from 1983 to 1991. Director, Sun Microsystems, Inc. and Time Warner Inc. | | | | | | | | | | | | | |
August A. Busch IV
2003 | | | 42 | | | President of Anheuser-Busch, Inc., a brewing organization, since July 2002; Vice President and Group Executive of Anheuser-Busch Companies, Inc. since August 2000; Group Vice President – Marketing of Anheuser-Busch, Inc. from August 2000 to July 2002; Vice President – Marketing & Wholesaler Operations of Anheuser-Busch, Inc. from November 1996 to August 2000. | | John A. Edwardson
2003 | | | 57 | | | Chairman and Chief Executive Officer of CDW Corporation, a provider of technology products and services, since January 2001; Chairman and Chief Executive Officer of Burns International Services Corporation, a provider of security services, from 1999 to 2000; President and Chief Operating Officer of UAL Corporation, an airline, from 1995 to 1998. Director, CDW Corporation. | | Judith L. Estrin
1989 | | | 51 | | | President and Chief Executive Officer of Packet Design, LLC, an Internet technology company, since May 2000; Senior Vice President and Chief Technology Officer of Cisco Systems, Inc., a networking systems company, from April 1998 to April 2000; President and Chief Executive Officer of Precept Software, Inc., a computer software company, from March 1995 to April 1998. Director, The Walt Disney Company. | | J. Kenneth Glass
2003 |
|
58 |
60 |
| | Chairman of the Board, President and Chief Executive Officer of First Horizon National Corporation ("(“First Horizon"Horizon”) and First HorizonTennessee Bank National Association (the "Bank"“Bank”) since January 2004; President and Chief Executive Officer of First Horizon and the Bank since July 2002; President and Chief Operating Officer of First Horizon and the Bank from July 2001 to July 2002; President – Retail Financial Services of the Bank from April 1999 to July 2001; President – Retail Financial Services of First Horizon from April 2000 to July 2001; Executive Vice President of First Horizon from April 1999 to April 2000; President – Tennessee Banking Group of the Bank from January 1993 to April 1999. Director, First Horizon and GTx, Inc. | | Philip Greer
1974 | | | 70 | | | Managing Director, Greer Family Consulting and Investments, LLC, an investment management firm, since April 2002; Senior Managing Director of Weiss, Peck & Greer L.L.C., an investment management firm, from 1995 to April 2002; General Partner of Weiss, Peck & Greer from 1970 to 1995. | | J.R. Hyde, III
1977 | | | 63 | | | Chairman of AutoZone, Inc., an auto parts retail chain, since March 2005 and from May 1986 to March 1997; Chief Executive Officer of AutoZone, Inc. from May 1986 to December 1996; Chairman of GTx, Inc., a biopharmaceutical company specializing in serious men’s health issues, since March 2001; Chairman of Pittco Management, LLC, an investment management company, since January 1998; President of Pittco, Inc., an investment company, since April 1989. Director, AutoZone, Inc. and GTx, Inc. | |
Shirley A. Jackson
1999 | | | 60 | | | President of Rensselaer Polytechnic Institute, a technological university, since July 1999; Chairwoman and Commissioner of the United States Nuclear Regulatory Commission from July 1995 to June 1999; Commissioner of the United States Nuclear Regulatory Commission from May 1995 to July 1995. Director, International Business Machines Corporation, Marathon Oil Corporation, Medtronic, Inc., NYSE Group, Inc. and Public Service Enterprise Group Incorporated. | | Steven R. Loranger
(New Nominee) | | | 54 | | | Chairman of the Board, President and Chief Executive Officer of ITT Corporation, a global multi-industry engineering and manufacturing company, since December 2004; President and Chief Executive Officer of ITT Corporation from June 2004 to December 2004; Executive Vice President and Chief Operating Officer of Textron, Inc., a global aircraft, industrial and finance company, from 2002 to 2004; various executive positions at Honeywell International Inc. (and its predecessor, AlliedSignal, Inc.), a technology and manufacturing company, from 1981 to 2002, including President and Chief Executive Officer of its Engines, Systems and Services divisions. Director, ITT Corporation. | | Charles T. Manatt
2004 | | | 70 | | | Partner and co-founder of Manatt, Phelps & Phillips, LLP, a diversified law firm, since 1965; Co-Chair of ManattJones Global Strategies LLC, a global consulting firm providing international business, government and public affairs strategies and solutions, since October 2001; U.S. Ambassador to the Dominican Republic from 1999 to 2001. Former director of FedEx from 1989 to 1999. | | Joshua I. Smith
1989 | | | 65 | | | Chairman and Managing Partner, Coaching Group, LLC, a consulting firm, since June 1998; Vice Chairman and President of iGate, Inc., a broadband networking company, from June 2000 to June 2001. Director, The Allstate Corporation and Caterpillar Inc. | | Paul S. Walsh
1996 |
|
49 |
51 |
| | Chief Executive Officer of Diageo plc, a consumer food and beverage company, since September 2000; Group Chief Operating Officer of Diageo plc from January 2000 to September 2000; Chairman, President and Chief Executive Officer of The Pillsbury Company, a wholly owned subsidiary of Diageo plc, from April 1996 to January 2000; Chief Executive Officer of The Pillsbury Company from January 1992 to April 1996. Director, Centrica plc and Diageo plc. | |
Peter S. Willmott
1974 |
|
67 |
69 |
| | Chairman and Chief Executive Officer of Willmott Services, Inc., a retail and consulting firm, since June 1989; Interim President and Chief Executive Officer of Fleming Companies, Inc., a wholesale distributor of consumable goods, from March 2003 to August 2003 (Fleming Companies, Inc. filed for reorganization in federal bankruptcy court in April 2003); Chief Executive Officer and President of Zenith Electronics Corporation, an electronics manufacturing company, from July 1996 to January 1998 (Zenith Electronics Corporation filed for reorganization in federal bankruptcy court in August 1999);1998; various senior management positions at FedEx Express from 1974 to 1983, including President and Chief Operating Officer. Director, Fleming Companies, Inc. | |
18
CLASS II DIRECTORS CONTINUING IN OFFICE
Director, Year First
Elected as Director
| | Age
| | Principal Occupation,
Business and Directorships
|
|---|
August A. Busch IV
2003 | | 40 | | President of Anheuser-Busch, Inc., a brewing organization, since July 2002; Vice President and Group Executive of Anheuser-Busch Companies, Inc. since August 2000; Group Vice President – Marketing of Anheuser-Busch, Inc. from August 2000 to July 2002; Vice President – Marketing & Wholesaler Operations of Anheuser-Busch, Inc. from November 1996 to August 2000. |
John A. Edwardson
2003 |
|
55 |
|
Chairman and Chief Executive Officer of CDW Corporation, a provider of technology products and services, since January 2001; Chairman and Chief Executive Officer of Burns International Services Corporation, a provider of security services, from 1999 to 2000; President and Chief Operating Officer of UAL Corporation, an airline, from 1995 to 1998. Director, CDW Corporation. |
Joshua I. Smith
1989 |
|
63 |
|
Chairman and Managing Partner, Coaching Group, LLC, a consulting firm, since June 1998; Vice Chairman and President of iGate, Inc., a broadband networking company, from June 2000 to June 2001. Director, The Allstate Corporation, CardioComm Solutions Inc. and Caterpillar Inc. |
DIRECTORS’ COMPENSATION Outside Directors’ Compensation
DIRECTORS' COMPENSATION
Beginning in July 2004,2006, non-employee (outside) directors will be paid: •·a quarterly retainer of $15,000;
•$2,000$18,750;· $2,000 for each in-person Board meeting attended;
•$1,000· $1,000 for each telephonic Board meeting attended;
•$1,500· $1,750 for each in-person committee meeting attended, other than for the Audit Committee;
•$750· $875 for each telephonic committee meeting attended, other than for the Audit Committee;
•$1,750· $2,000 for each in-person Audit Committee meeting attended; and
•$875· $1,000 for each telephonic Audit Committee meeting attended.
Directors who attend an in-person Board or committee meeting telephonically will be paid 75% of the applicable in-person meeting fee. Committee chairpersons other than forof the Audit Committee,Compensation, Nominating & Governance and Information Technology Oversight Committees will be paid an additional annual fee of $10,000.$12,000. The Audit Committee chairperson will be paid an additional annual fee of $15,000.$20,000. Each outside director who is elected at or who is remaining in office after the annual meeting also will receive a stock option for 6,0004,400 shares of common stock on the date of the 20042006 annual meeting. Any outside director appointed to the Board after the 2006 annual meeting will receive a stock option for 4,400 shares of common stock upon his or her appointment. Frederick W. Smith, the only director who is also a FedEx employee, receives no additional compensation for serving as a director. Outside directors are provided or reimbursed for travel (including spousal travel for certain meetings) and lodging and are reimbursed for other customary out-of-pocket expenses incurred in attending Board, committee and stockholder meetings. In addition, outside directors have FedEx Express and FedEx Ground discount shipping privileges and discount service privileges at FedEx Kinko’s on the same basis as provided generally to employees. FedEx invited Board members’ spouses to travel with the directors to attend a Board meeting held in Shanghai during fiscal 2006. In connection with this meeting, FedEx paid spousal air travel expenses for Philip Greer ($12,552), Dr. Shirley A. Jackson ($12,155) and Charles T. Manatt ($1,981). The Compensation Committee annually reviews director compensation, including, among other things, comparing FedEx'sFedEx’s director compensation practices with those of other public companies of comparable size. Before making a recommendation regarding director compensation to the Board, the Compensation Committee considers that the directors'directors’ independence may be compromised if compensation exceeds appropriate levels or if FedEx enters into other arrangements beneficial to the directors.
Retirement Plan for Outside Directors At its July 1997 meeting, the Board of Directors of FedEx Express (FedEx's(FedEx’s predecessor) voted to freeze the Retirement Plan for Outside Directors (that is, no further benefits would be earned under this plan). This plan is unfunded and any benefits under the plan are payable out of the assets of FedEx as a general, unsecured obligation of FedEx. Concurrent with the freeze, the Board amended the plan to accelerate the vesting of the benefits for each outside director who was not yet vested under the plan. In general, each outside director is entitled to a retirement benefit beginning as of the first day of the fiscal quarter of FedEx next following the date of termination of his or her directorship or the date such director attains age 60, whichever is later. The benefit is an annual amount, payable as a lump-sum distribution or in quarterly installments for no less than ten years and no more than fifteen years depending on years of service, equal to 10% for each year of service up to 100% of the annual retainer fee being paid to the outside director at the time the plan was frozen. Each outside director then serving on the Board who was not yet vested (two directors) will now receive a benefit equal to 10% for each year of service up to the date the plan was frozen. The remaining outside directors will receive their benefits based on their years of service and annual retainer at the time the plan was frozen. Once all benefits are paid from the plan, it will be terminated.
PROPOSAL 2 – AMENDMENTS TO FEDEX'S BYLAWS
TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS
The Board of Directors recommends that FedEx's Second Amended and Restated Bylaws be amendedCharles T. Manatt was elected to eliminate the classified structure of the Board and allow for the annual election of all directors.
Article III, Section 1 of FedEx's Bylaws currently provides that:
•- the Board of Directors
shall be divided into three classes as nearly equal in number as possible;
•one of the three classes shall stand for reelection each year; and
•each class of directors shall hold office for a three-year term.
The Board of Directors has determined that FedEx's Bylaws should be amended to repeal these provisions of Article III and to make certain other conforming changes to the Bylaws (the "Annual Election Amendments"). The proposed amendments to FedEx's Bylaws are attached to this proxy statement asAppendix A.
Proponents of a classified board structure believe that classification assures the continuity and stability of management and policies, as a majority of the directors at any given time would have prior experience. This fosters long-term planning and helps create long-term value. In the event of a hostile takeover attempt, the classification of directors would be beneficial to stockholders. While it would not prevent a takeover, it would give the Board time to consider alternative proposals. It also encourages the person seeking to gain control of a company to initiate arm's length discussions with the board of directors. Proponents also argue that longer terms under the classified board structure promote the independence of non-management directors by insulating them from outside short-term influences and reducing the threat that a director who refuses to conform will not be re-nominated.
A classified board of directors has the effect of making it more difficult for a substantial stockholder to gain control of a board of directors without the approval or cooperation of incumbent directors and, therefore, may deter unfriendly and unsolicited takeover proposals and proxy contests. A classified board of directors also makes it more difficult for stockholders to change a majority of directors even if a majority of stockholders are dissatisfied with the performance of incumbent directors. Many investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing these policies, that all directors should be equally accountable at all times for the company's performance and that the will of the majority of stockholders should not be impeded by a classified board.
The Board of Directors listened to the stockholders, reexamined the arguments for and against continuation of the classified Board, and determined that the classified Board should be eliminated.
If stockholders approve the Annual Election Amendments, then each director elected at this annual meeting will hold office for a one-year term until the 2005 annual meeting, subject to his or her earlier resignation, removal or death. In addition, each of the remaining directors also will stand for election at the 2005 annual meeting. In that regard, each of FedEx's directors not otherwise up for reelection at the 2005 annual meeting has agreed to shorten his or her existing term so that it concludes at the 2005 annual meeting if the Annual Election Amendments are approved by
stockholders. In addition, any director appointed by the Board of Directors to fill any newly created directorship or vacancy on the Board will hold office for a term ending at the next annual meeting.
If stockholders do not approve the Annual Election Amendments, the Board of Directors will remain classified. The five Class III directors, if elected at the 2004 annual meeting will serveof stockholders. Mr. Manatt previously served as a three-year term expiringdirector of FedEx (and its predecessor, FedEx Express) from 1989 until his resignation in 2007. All other directors will continue in office for their full three-year term, subjectDecember 1999 to their earlier resignation, removal or death.
The affirmative vote of at least 80%become the United States Ambassador to the Dominican Republic. In accordance with the terms of the outstanding sharesplan, Mr. Manatt is paid a retirement benefit of FedEx common stock$36,000 per year, payable in quarterly installments. The payments to Mr. Manatt under this plan will be required for approvalend in December 2009 unless Mr. Manatt elects, in accordance with the terms of the Annual Election Amendments. Abstentions will haveplan, to be paid a lump sum amount for the same effect as votes against the proposal.remaining installments.
20
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by or paid to FedEx'sFedEx’s chief executive officer and its four other most highly compensated executive officers for services rendered in all capacities during the fiscal year ended May 31, 20042006 and each of the previous two fiscal years if such individual was anyears. | | | | | | | | | | Long-Term Compensation | | | | | | | | Annual Compensation | | Awards | | Payouts | | | | Name and Principal Position | | | | Year | | Salary
($) | | Bonus
($) | | Other Annual
Compensation
($)(1) | | Restricted
Stock
Award(s)
($)(2) | | Shares
Underlying
Options
(#) | | LTIP
Payouts
($) | | All Other
Compensation
($)(3) | | Frederick W. Smith | | 2006 | | 1,320,383 | | 2,679,147 | | | 1,250,664 | | | | – | | | | 250,000 | | | 3,375,000 | | | 13,725 | | | Chairman, President and | | 2005 | | 1,276,479 | | 3,343,376 | | | 1,049,342 | | | | – | | | | 325,000 | | | 3,000,000 | | | 10,989 | | | Chief Executive Officer | | 2004 | | 1,238,567 | | 2,647,756 | | | 1,029,636 | | | | – | | | | 250,000 | | | 1,192,500 | | | 8,794 | | | David J. Bronczek | | 2006 | | 877,588 | | 1,196,892 | | | 578,949 | | | | 712,591 | | | | 45,900 | | | 1,500,000 | | | 7,348 | | | President and Chief Executive | | 2005 | | 848,244 | | 1,678,508 | | | 551,435 | | | | 631,527 | | | | 51,000 | | | 1,500,000 | | | 6,367 | | | Officer – FedEx Express | | 2004 | | 823,302 | | 1,309,306 | | | 529,544 | | | | 664,908 | | | | 85,000 | | | 715,500 | | | 5,232 | | | Alan B. Graf, Jr. | | 2006 | | 778,137 | | 994,460 | | | 517,164 | | | | 554,218 | | | | 34,425 | | | 1,125,000 | | | 7,321 | | | Executive Vice President and | | 2005 | | 752,118 | | 1,310,286 | | | 378,133 | | | | 491,170 | | | | 38,250 | | | 1,125,000 | | | 6,289 | | | Chief Financial Officer | | 2004 | | 729,925 | | 1,073,826 | | | 364,588 | | | | 498,681 | | | | 65,000 | | | 596,250 | | | 5,793 | | | Daniel J. Sullivan(4) | | 2006 | | 869,271 | | 872,425 | | | 465,887 | | | | 475,031 | | | | 22,950 | | | 900,000 | | | 13,937 | | | President and Chief Executive | | 2005 | | 840,200 | | 1,144,778 | | | 370,990 | | | | 420,991 | | | | 25,500 | | | 900,000 | | | 13,509 | | | Officer – FedEx Ground | | 2004 | | 815,412 | | 858,275 | | | 394,034 | | | | 443,272 | | | | 37,500 | | | 477,000 | | | 12,779 | | | T. Michael Glenn | | 2006 | | 724,983 | | 926,530 | | | 458,910 | | | | 554,218 | | | | 34,425 | | | 1,125,000 | | | 7,391 | | | Executive Vice President, | | 2005 | | 700,891 | | 1,216,985 | | | 442,674 | | | | 491,170 | | | | 38,250 | | | 1,125,000 | | | 5,830 | | | Market Development and | | 2004 | | 680,062 | | 1,000,471 | | | 441,766 | | | | 498,681 | | | | 65,000 | | | 596,250 | | | 4,837 | | | Corporate Communications | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) Includes (a) tax reimbursement payments and (b) the aggregate incremental cost to FedEx of providing perquisites. (a)Tax Reimbursement Payments. The amounts shown include tax reimbursement payments relating to restricted stock awards (other than with respect to Mr. Smith, who did not receive any restricted stock awards during the last three fiscal years), certain perquisites and umbrella insurance premiums paid by FedEx on behalf of each named executive officer. Tax reimbursement payments were as follows:
| |
| |
| |
| |
| | Long-Term Compensation
| |
| |
|
|---|
| |
| |
| |
| |
| | Awards
| | Payouts
| |
| |
|
|---|
| |
| | Annual Compensation
| |
| |
|
|---|
| |
| | Restricted
Stock
Award(s)
($)(1)
| | Shares
Underlying
Options
(#)
| |
| |
| |
|
|---|
Name and Principal Position
| | Year
| | Salary
($)
| | Bonus
($)
| | Other Annual
Compensation
($)
| | LTIP
Payouts
($)
| | All Other
Compensation
($)
| |
|
|---|
Frederick W. Smith
Chairman, President and
Chief Executive Officer |
|
2004
2003
2002 |
|
1,238,567
1,195,295
1,150,008 |
|
2,647,756
1,031,194
1,317,985 |
|
357,919
438,883
312,143 |
(2)
(2)
(2) |
–
–
– |
|
250,000
375,000
437,500 |
|
1,192,500
–
– |
|
9,603
5,927
5,947 |
(3)
(3)
(3) |
|
David J. Bronczek(4)
President and Chief Executive
Officer – FedEx Express |
|
2004
2003 |
|
819,144
768,814 |
|
1,309,306
220,582 |
(5) |
477,371
543,687 |
(6)
(6) |
664,908
580,680 |
|
85,000
60,000 |
|
715,500
– |
|
6,041
3,118 |
(7)
(7) |
|
Kenneth R. Masterson
Executive Vice President, General
Counsel and Secretary |
|
2004
2003
2002 |
|
739,510
713,949
685,668 |
|
1,081,920
291,754
375,527 |
(5)
|
391,287
299,289
259,509 |
(8)
(8)
(8) |
498,681
435,510
361,800 |
|
65,000
45,000
56,250 |
|
596,250
–
– |
|
9,870
6,221
6,226 |
(9)
(9)
(9) |
|
Alan B. Graf, Jr.
Executive Vice President and
Chief Financial Officer |
|
2004
2003
2002 |
|
729,925
704,694
644,544 |
|
1,073,826
286,145
349,327 |
(5)
|
300,779
358,619
259,509 |
(10)
(10)
(10) |
498,681
435,510
361,800 |
|
65,000
45,000
56,250 |
|
596,250
–
– |
|
6,602
3,518
3,047 |
(11)
(11)
(11) |
|
T. Michael Glenn
Executive Vice President, Market
Development and Corporate
Communications |
|
2004
2003
2002 |
|
680,062
638,363
600,516 |
|
1,000,471
270,013
301,483 |
(5)
|
379,254
500,529
491,360 |
(12)
(12)
(12) |
498,681
435,510
361,800 |
|
65,000
45,000
56,250 |
|
596,250
–
– |
|
5,646
3,086
2,994 |
(13)
(13)
(13) |
|
| | F.W. Smith | | D.J. Bronczek | | A.B. Graf, Jr. | | D.J. Sullivan | | T.M. Glenn | | 2006 | | $ | 163,198 | | | $ | 478,315 | | | | $ | 369,815 | | | | $ | 339,464 | | | $ | 369,969 | | 2005 | | 134,147 | | | 410,043 | | | | 308,782 | | | | 306,412 | | | 319,052 | | 2004 | | 132,290 | | | 427,256 | | | | 310,003 | | | | 333,559 | | | 310,558 | | | | | | | | | | | | | | | | | | | | | | | | |
(b)Perquisites. Personal use of corporate aircraft is valued based on the aggregate incremental cost to FedEx on a fiscal-year basis. The incremental cost to FedEx of personal use of corporate aircraft is calculated based on the variable operating cost to FedEx, which includes the cost of fuel, aircraft maintenance, crew travel, on-board catering, landing fees, ramp fees and other smaller variable costs. Because FedEx corporate aircraft are used primarily for business travel, fixed costs that do not change based on usage, such as pilots’ salaries and purchase and lease costs, are excluded from this calculation. In addition, the incremental cost to FedEx is reduced by the amount that a named executive officer reimbursed FedEx for a portion of his personal use of corporate aircraft. FedEx has a written policy that sets forth guidelines and procedures regarding the personal use of corporate aircraft by FedEx executive officers and other employees. Pursuant to FedEx’s executive security policy, Mr. Smith is required to use FedEx corporate aircraft for
personal and business travel. Accordingly, personal travel on corporate aircraft by Mr. Smith and by his family members and guests who accompany him is not subject to a cap or other restriction on usage. Personal travel on FedEx corporate aircraft by Mr. Smith’s family members and guests who were not accompanied by Mr. Smith was subject, however, to a $300,000 cap during fiscal 2006. Personal travel on FedEx corporate aircraft by the other named executive officers and their family and guests is subject to a $100,000 cap per fiscal year. For purposes of the caps on personal travel under the policy, the value of personal travel on corporate aircraft is based on the aggregate incremental cost to FedEx as described above. Pursuant to FedEx’s policy on personal use of corporate aircraft, FedEx reimburses Mr. Smith for taxes relating to imputed income for his personal travel and the personal travel of his family members and guests who accompany him. FedEx does not reimburse Mr. Smith, however, for any taxes with respect to imputed income for personal travel by his family members and guests who do not travel with him. FedEx reimburses the other named executive officers for taxes relating to imputed income for certain business-related travel on corporate aircraft by their spouses or adult guests, but does not reimburse them for taxes on imputed income for any personal travel on corporate aircraft. Pursuant to FedEx’s executive security policy, the named executive officers are provided personal security and other services, including home security systems and monitoring. The perquisites that exceeded 25% of each executive’s total perquisites for the year or years indicated were as follows: F.W. Smith: (1) - Personal security and other services – $516,563, $486,241 and $528,332 for 2006, 2005 and 2004, respectively; and (2) personal use of corporate aircraft – $316,448, $258,730 and $271,320 for 2006, 2005 and 2004, respectively.
D.J. Bronczek: (1) Personal use of corporate aircraft – $74,383, $75,907 and $36,373 for 2006, 2005 and 2004, respectively; and (2) Memphis Grizzlies season tickets – $39,613 and $38,254 for 2005 and 2004, respectively. A.B. Graf, Jr.: (1) Personal use of corporate aircraft – $99,763, $41,049 and $21,863 for 2006, 2005 and 2004, respectively; (2) financial counseling and tax preparation services – $38,077 for 2006; and (3) personal security and other services – $18,516 for 2005. D.J. Sullivan: (1) Personal use of corporate aircraft – $77,123, $26,778 and $18,931 for 2006, 2005 and 2004, respectively; and (2) financial counseling and tax preparation services – $42,050, $25,050 and $27,750 for 2006, 2005 and 2004, respectively. T.M. Glenn: (1) Personal use of corporate aircraft – $61,873 for 2006; (2) Memphis Grizzlies season tickets – $39,613 and $38,254 for 2005 and 2004, respectively; and (3) imputed interest in connection with an interest-free demand loan – $47,203 for 2004. (2)The amounts in the table represent the closing market value of the shares awarded at the date of grant. At May 31, 2004,2006, the number and value of the aggregate restricted stock holdings of the named executive officers were as follows:
Name | | | | Number of Shares Held | | Value ($) | | F.W. Smith | | | – | | | – | | D.J. Bronczek | | | 21,789 | | | 2,380,884 | | A.B. Graf, Jr. | | | 16,726 | | | 1,827,650 | | D. J. Sullivan | | | 14,526 | | | 1,587,256 | | T.M. Glenn | | | 16,726 | | | 1,827,650 | |
Name
| | Number of Shares Held
| | Value ($)
|
|---|
| F.W. Smith | | – | | – | | D.J. Bronczek | | 27,924 | | 2,054,648 | | K.R. Masterson | | 20,693 | | 1,522,591 | | A.B. Graf, Jr. | | 20,693 | | 1,522,591 | | T.M. Glenn | | 20,693 | | 1,522,591 |
(2) | | Of the amounts shown for 2004, 2003 and 2002, $206,321, $229,956 and $171,991, respectively, represent personal use of corporate aircraft treated as taxable income to Mr. Smith. Of the amounts shown for 2003 and 2002, $140,002 and $89,839, respectively, are for financial counseling. Amounts related to personal use of corporate aircraft and financial counseling are based on Mr. Smith's Form W-2 for the immediately preceding calendar year. |
(3) |
|
The amounts shown represent excess life and umbrella insurance premiums paid on Mr. Smith's behalf. |
(4) |
|
Mr. Bronczek became an executive officer of FedEx in May 2003. |
(5) |
|
The amounts shown include special recognition bonuses. |
(6) |
|
Of the amounts shown for 2004 and 2003, $401,038 and $399,051, respectively, represent tax reimbursements related to restricted stock awards, and $38,409 and $83,696, respectively, represent personal use of corporate aircraft treated as taxable income to Mr. Bronczek. For 2004, $29,167 is for financial counseling. Amounts related to the personal use of corporate aircraft and financial counseling are based on Mr. Bronczek's Form W-2 for the immediately preceding calendar year. |
(7) |
|
Of the amounts shown for 2004 and 2003, $5,541 and $2,618, respectively, represent excess life and umbrella insurance premiums paid on Mr. Bronczek's behalf. The amounts shown also include a $500 matching contribution under the FedEx 401(k) plan. |
(8) |
|
Of the amounts shown for 2004, $300,779 represents tax reimbursements related to restricted stock awards, $41,306 is for financial counseling and $24,681 represents personal use of corporate aircraft treated as taxable income to Mr. Masterson. The amounts shown for 2003 and 2002 represent tax reimbursements related to restricted stock awards. Amounts related to personal use of aircraft and financial counseling are based on Mr. Masterson's Form W-2 for the immediately preceding calendar year. |
(9) |
|
Of the amounts shown for 2004, 2003 and 2002, $9,370, $5,721 and $5,726, respectively, represent excess life and umbrella insurance premiums paid on Mr. Masterson's behalf. The amounts shown also include a $500 matching contribution under the FedEx 401(k) plan. |
(10) |
|
The amounts shown for 2004 and 2002 represent tax reimbursements related to restricted stock awards. Of the amount shown for 2003, $299,289 represents tax reimbursements related to restricted stock awards and $41,934 represents personal use of corporate aircraft treated as taxable income to Mr. Graf. Amounts related to personal use of corporate aircraft are based on Mr. Graf's Form W-2 for the immediately preceding calendar year. |
(11) |
|
Of the amounts shown for 2004, 2003 and 2002, $6,102, $3,018 and $2,547, respectively, represent excess life and umbrella insurance premiums paid on Mr. Graf's behalf. The amounts shown also include a $500 matching contribution under the FedEx 401(k) plan. |
(12) |
|
Of the amounts shown for 2004, 2003 and 2002, $300,779, $299,289 and $259,509, respectively, represent tax reimbursements related to restricted stock awards and $47,203, $119,519 and $193,702, respectively, represent imputed interest in connection with Mr. Glenn's interest-free demand loan. Of the amounts shown for 2004 and 2003, $19,851 and $70,753, respectively, represent personal use of corporate aircraft treated as taxable income to Mr. Glenn. Amounts related to the interest free demand loan and personal use of corporate aircraft are based on Mr. Glenn's Form W-2 for the immediately preceding calendar year. |
(13) |
|
Of the amounts shown for 2004, 2003 and 2002, $5,146, $2,586 and $2,494, respectively, represent excess life and umbrella insurance premiums paid on Mr. Glenn's behalf. The amounts shown also include a $500 matching contribution under the FedEx 401(k) plan. |
(3) The amounts shown for each named executive officer include umbrella insurance premiums paid on each officer’s behalf of $3,083, $2,805 and $2,250 for 2006, 2005 and 2004, respectively. The amounts shown also include the following: F.W. Smith: Taxable excess life insurance benefits of $10,642, $8,184 and $6,544 for 2006, 2005 and 2004, respectively. D.J. Bronczek: (a) A $500 matching contribution under the FedEx 401(k) plan; and (b) taxable excess life insurance benefits of $3,765, $3,062 and $2,482 for 2006, 2005 and 2004, respectively. A.B. Graf, Jr.: (a) A $500 matching contribution under the FedEx 401(k) plan; and (b) taxable excess life insurance benefits of $3,738, $2,984 and $3,043 for 2006, 2005 and 2004, respectively. D. J. Sullivan: (a) Matching contributions under the FedEx Ground 401(k) plan of $7,500, $7,350 and $7,175 for 2006, 2005 and 2004, respectively; and (b) taxable excess life insurance benefits of $3,354. T.M. Glenn: (a) A $500 matching contribution under the FedEx 401(k) plan; and (b) taxable excess life insurance benefits of $3,808, $2,525 and $2,087 for 2006, 2005 and 2004, respectively. (4) Mr. Sullivan has announced that he will retire effective January 5, 2007. In connection with Mr. Sullivan’s retirement, he and FedEx Ground have entered into a consulting agreement, which is discussed under the caption “Consulting Agreement and Non-Competition Agreement – Consulting Agreement” on page 31. 23
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock option grants under FedEx'sFedEx’s stock option plans made during the fiscal year ended May 31, 20042006 to the named executive officers. The amounts shown for each named executive officer as potential realizable values are based entirely on assumed annualized rates of stock price appreciation of five percent and ten percent over the full ten-year term of the options. These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon overall stock market conditions and FedEx'sFedEx’s future performance and prospects. Consequently, there can be no assurance that the potential realizable values shown in this table will be achieved. | | | | Individual Grants | | | | | | | | | | Number of | | % of Total | | | | | | Potential Realizable Value | |
| | Individual Grants
| |
| |
| | | Shares | | Options | | | | | | at Assumed Annual Rates | |
|---|
| |
| | % of Total
Options
Granted to
Employees
in Fiscal
Year
| |
| |
| | Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term
| | | Underlying | | Granted to | | Exercise or | | | | of Stock Price Appreciation | |
|---|
| | Number of
Shares
Underlying
Options
Granted (#)
| |
| |
| | | Options | | Employees in | | Base Price | | Expiration | | for Option Term | |
|---|
Name
| | % of Total
Options
Granted to
Employees
in Fiscal
Year
| | Expiration
Date
| | | | Granted (#) | | Fiscal Year | | ($/Sh)* | | Date | | 5% ($) | | 10% ($) | |
|---|
| | | % of Total
Options
Granted to
Employees
in Fiscal
Year
| 10% ($)
| |
|---|
| F.W. Smith | | 250,000 | | 6.51 | | 6/2/2013 | | 25,711,050 | F.W. Smith | | | 250,000 | | | | 7.67 | | | | 89.70 | | | 6/1/2015 | | 14,102,962 | | 35,739,675 | | | D.J. Bronczek | | 85,000 | | 2.21 | | 6/2/2013 | | 8,741,757 | D.J. Bronczek | | | 45,900 | | | | 1.41 | | | | 89.70 | | | 6/1/2015 | | 2,589,304 | | 6,561,804 | | | K.R. Masterson | | 65,000 | | 1.69 | | 64.53 | | 6/2/2013 | | 6,684,873 | | | A.B. Graf, Jr. | | 65,000 | | 1.69 | | 64.53 | | 6/2/2013 | | 2,637,867 | | 6,684,873 | A.B. Graf, Jr. | | | 34,425 | | | | 1.06 | | | | 89.70 | | | 6/1/2015 | | 1,941,978 | | 4,921,353 | | D.J. Sullivan | | D.J. Sullivan | | | 22,950 | | | | 0.70 | | | | 89.70 | | | 6/1/2015 | | 1,294,652 | | 3,280,902 | | | T.M. Glenn | | 65,000 | | 1.69 | | 64.53 | | 6/2/2013 | | 2,637,867 | | 6,684,873 | T.M. Glenn | | | 34,425 | | | | 1.06 | | | | 89.70 | | | 6/1/2015 | | 1,941,978 | | 4,921,353 | | |
*The exercise price of the options granted to the individuals shown above was the fair market value of FedEx'sFedEx’s common stock (the average of the high and low prices of the stock on the New York Stock Exchange) at the date of grant. The options granted are subject to a vesting schedule as follows: 25% after one year from date of grant; 50% after two years; 75% after three years; and 100% after four years. The options may not be transferred in any manner other than by will or the laws of descent and distribution and may be exercised during the lifetime of the optionee only by the optionee. During fiscal 2004,2006, options for a total of 3,837,6283,259,335 shares were granted to various employees of FedEx and its subsidiaries.
24
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each named executive officer certain information about stock options exercised during the fiscal year ended May 31, 20042006 and unexercised stock options held at the end of the fiscal year. The | | Shares | | | | Number of Shares
Underlying Unexercised | | Value of Unexercised
In-the-Money Options | | | | Acquired on | | Value | | Options at FY-End | | at FY-End(2) | | Name | | | | Exercise | | Realized(1) | | Exercisable | | Unexercisable | | Exercisable | | Unexercisable | | F.W. Smith | | | – | | | $ | – | | | 2,525,000 | | | | 712,500 | | | $ | 169,865,743 | | $ | 24,210,938 | | D.J. Bronczek | | | 88,489 | | | 6,577,285 | | | 355,381 | | | | 141,650 | | | 22,296,322 | | 4,954,719 | | A.B. Graf, Jr. | | | 66,000 | | | 5,329,064 | | | 272,062 | | | | 106,863 | | | 17,013,001 | | 3,743,707 | | D.J. Sullivan | | | 60,000 | | | 2,977,685 | | | 42,625 | | | | 68,325 | | | 2,021,109 | | 2,366,760 | | T.M. Glenn | | | – | | | – | | | 222,062 | | | | 106,863 | | | 13,173,721 | | 3,743,707 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) If the shares were sold immediately upon exercise, the value realized upon exercise of an option is the difference between the actual sales price and the exercise price of the option andoption. Otherwise, the value realized is the difference between the fair market value of FedEx'sFedEx’s common stock (the average of the high and low prices of the stock on the New York Stock Exchange) on the date of exercise date.and the exercise price of the option. (2) The value of an unexercised in-the-money option at fiscal year-end is the difference between its exercise price and the fair market value of FedEx'sFedEx’s common stock on May 28, 2004.31, 2006 and the exercise price of the option. The value of unexercised in-the-money options, unlike the amounts set forth in the column "Value“Value Realized,"” has not been, and may never be, realized. Such options have not been, and may never be, exercised. The actual gain, if any, on exercise will depend on the value of FedEx'sFedEx’s common stock on the date of exercise. An option is "in-the-money"“in-the-money” if the fair market value of FedEx'sFedEx’s common stock exceeds the exercise price of the option. An option is "unexercisable"“unexercisable” if it has not yet vested.
| |
| |
| | Number of Shares
Underlying Unexercised
Options at FY-End (#)
| | Value of Unexercised
In-the-Money Options
at FY-End ($)
|
|---|
Name
| | Shares
Acquired on
Exercise (#)
| | Value
Realized ($)
|
|---|
| | Exercisable
| | Unexercisable
| | Exercisable
| | Unexercisable
|
|---|
| F.W. Smith | | 600,000 | | 30,963,480 | | 1,837,500 | | 825,000 | | 65,818,086 | | 17,789,281 | | D.J. Bronczek | | 61,756 | | 3,394,300 | | 322,424 | | 182,500 | | 12,501,083 | | 3,442,688 | | K.R. Masterson | | 186,000 | | 9,824,905 | | 177,374 | | 136,876 | | 5,715,877 | | 2,546,386 | | A.B. Graf, Jr. | | 40,000 | | 2,075,262 | | 285,374 | | 136,876 | | 11,609,295 | | 2,546,386 | | T.M. Glenn | | 40,000 | | 1,907,836 | | 149,374 | | 136,876 | | 4,535,075 | | 2,546,386 |
25
LONG-TERM INCENTIVE PLANS – AWARDS IN LAST FISCAL YEAR
In 2001,2003, the Compensation Committee established a long-term performance bonus plan to provide a long-term cash bonus opportunity to members of upper management, including executive officers, at the conclusion of fiscal year 20042006 if FedEx achieved certainan aggregate earnings-per-share goalsgoal established by the Compensation Committee with respect to the three-fiscal-year period 20022004 through 2004. Bonuses2006. Maximum bonuses were awarded under this plan for fiscal 20042006 to upper management,all eligible participants, including executive officers, under the long-term plan because FedEx'sFedEx’s performance substantially exceeded the thresholdplan goal for the three-fiscal-year period. The "LTIP Payouts"“LTIP Payouts” column in the Summary Compensation tableTable on page 2421 sets out the amounts of such bonuses awarded to the named executive officers for fiscal 2004.2006. The Compensation Committee has established long-term performance bonus plans for the three-fiscal-year periods 2003 through 2005, 2004 through 2006 and 2005 through 2007, 2006 through 2008 and 2007 through 2009, providing cash bonus opportunities for fiscal 2005, 20062007, 2008 and 2007,2009, respectively, if certain earnings-per-share goals established by the Compensation Committee are achieved with respect to those periods. No amounts can be earned for the 2003 through 2005, 2004 through 2006 andfiscal 2005 through 2007, 2006 through 2008 and 2007 through 2009 plans until 2005, 20062007, 2008 and 2007,2009, respectively, because achievement of the earnings-per-share goals can only be determined following the conclusion of the applicable three-fiscal-year period. The following table sets forth estimates of the possible future payouts to each of the named executive officers under FedEx'sFedEx’s long-term performance bonus plans. Mr. Sullivan, who has announced that he will retire effective January 5, 2007, is eligible for payouts under each of the plans based on the proportion of the applicable three-fiscal-year period during which he was employed.
| |
| | Estimated Future Payouts
Under Non-Stock Price-Based Plans
|
|---|
| | Performance or
Other Period
Until Maturation
or Payout
|
|---|
Name
| | Threshold
($)
| | Target
($)
| | Maximum
($)
|
|---|
F.W. Smith | | 5/31/05
5/31/06
5/31/07 | | 500,000
562,500
562,500 | | 2,000,000
2,250,000
2,250,000 | | 3,000,000
3,375,000
3,375,000 |
D.J. Bronczek |
|
5/31/05
5/31/06
5/31/07 |
|
250,000
250,000
250,000 |
|
1,000,000
1,000,000
1,000,000 |
|
1,500,000
1,500,000
1,500,000 |
K.R. Masterson |
|
5/31/05
5/31/06
5/31/07 |
|
187,500
187,500
187,500 |
|
750,000
750,000
750,000 |
|
1,125,000
1,125,000
1,125,000 |
A.B. Graf, Jr. |
|
5/31/05
5/31/06
5/31/07 |
|
187,500
187,500
187,500 |
|
750,000
750,000
750,000 |
|
1,125,000
1,125,000
1,125,000 |
T.M. Glenn |
|
5/31/05
5/31/06
5/31/07 |
|
187,500
187,500
187,500 |
|
750,000
750,000
750,000 |
|
1,125,000
1,125,000
1,125,000 |
| | Performance or
Other Period | | Estimated Future Payouts
Under Non-Stock Price-Based Plans | | Name | | Until Maturation
or Payout | | Threshold
($) | | Target
($) | | Maximum
($) | | F.W. Smith | | | 5/31/07 | | | | 562,500 | | | 2,250,000 | | 3,375,000 | | | | | 5/31/08 | | | | 625,000 | | | 2,500,000 | | 3,750,000 | | | | | 5/31/09 | | | | 875,000 | | | 3,500,000 | | 5,250,000 | | D.J. Bronczek | | | 5/31/07 | | | | 250,000 | | | 1,000,000 | | 1,500,000 | | | | | 5/31/08 | | | | 250,000 | | | 1,000,000 | | 1,500,000 | | | | | 5/31/09 | | | | 375,000 | | | 1,500,000 | | 2,250,000 | | A.B. Graf, Jr. | | | 5/31/07 | | | | 187,500 | | | 750,000 | | 1,125,000 | | | | | 5/31/08 | | | | 187,500 | | | 750,000 | | 1,125,000 | | | | | 5/31/09 | | | | 300,000 | | | 1,200,000 | | 1,800,000 | | D.J. Sullivan | | | 5/31/07 | | | | 150,000 | | | 600,000 | | 900,000 | | | | | 5/31/08 | | | | 175,000 | | | 700,000 | | 1,050,000 | | | | | 5/31/09 | | | | 250,000 | | | 1,000,000 | | 1,500,000 | | T.M. Glenn | | | 5/31/07 | | | | 187,500 | | | 750,000 | | 1,125,000 | | | | | 5/31/08 | | | | 187,500 | | | 750,000 | | 1,125,000 | | | | | 5/31/09 | | | | 300,000 | | | 1,200,000 | | 1,800,000 | |
The estimated individual future payouts set forth in the table above are set dollar amounts ranging from threshold amounts, if the earnings-per-share goalsgoal achieved areis less than target, up to maximum amounts, if the plan goals aregoal is substantially exceeded. There can be no assurance that the estimated future payouts shown in this table will be achieved. 26
PENSION PLAN TABLE
Overview of Pension Plans FedEx maintains a tax-qualified, defined benefit pension plan called the FedEx Corporation Employees'Employees’ Pension Plan. Plan (the “Pension Plan”). In 2006, the maximum compensation limit under a tax-qualified pension plan is $220,000. The Internal Revenue Code also limits the maximum annual benefits that may be accrued under a tax-qualified, defined benefit pension plan. In order to provide 100% of the benefits that would otherwise be denied certain management-level participants in the Pension Plan due to these limitations, FedEx also maintains a supplemental non-tax-qualified plan called the FedEx Corporation Retirement Parity Pension Plan (the “Parity Plan”). Benefits under the Parity Plan are general, unsecured obligations of FedEx. Effective May 31, 2003, FedEx amended the Pension Plan and the Parity Plan to add a cash balance feature, which is called the Portable Pension Account. Eligible employees as of May 31, 2003 had the option to make a one-time election to accrue future pension benefits under either the new cash balance formula or the traditional pension benefit formula. In either case, employees retained all benefits previously accrued under the traditional pension benefit formula and will continue to receive the benefit of future salarycompensation increases on benefits accrued as of May 31, 2003. All eligible employees hired after May 31, 2003 willare only be eligible to participate in the Portable Pension Account feature. Traditional Pension Benefit The following table shows the estimated annual pension benefits, based on the traditional pension benefit formula, payable to participants upon normal retirement (age 60) on a single life annuity basis in specified remuneration classes and years of credited service under the FedEx Corporation Employees' Pension Plan and the FedEx Corporation Retirement Parity Pension Plan, which provides 100% of the benefit that would otherwise be denied certain participants by reason of Internal Revenue Code limitations on qualified plan benefits.Plan. These plans (under the traditional pension benefit formula) generally provide 2% of the average of“average earnings” (as defined in the three calendar years of highest earningsplans) during employment multiplied by years of credited service for benefit accrual up to 25 years. The benefits listed in the table are not subject to any reduction for Social Security or other offset amounts.
| | Years of Service
| | | Years of Service | |
|---|
Remuneration
| | | | 20 | | 25 | | 30 | | 35 | |
|---|
| | 10
| | 15
| | 20
| | 25
| | 30
| |
|---|
| $ 900,000 | | $ | 180,000 | | $ | 270,000 | | $ | 360,000 | | $ | 450,000 | | $ | 450,000 | | | 1,000,000 | | 200,000 | | 300,000 | | 400,000 | | 500,000 | | 500,000 | | | 1,200,000 | | 240,000 | | 360,000 | | 480,000 | | 600,000 | | 600,000 | | $1,500,000 | | $1,500,000 | | 600,000 | | 750,000 | | 750,000 | | 750,000 | | 1,600,000 | | 1,600,000 | | 640,000 | | 800,000 | | 800,000 | | 800,000 | | 1,700,000 | | 1,700,000 | | 680,000 | | 850,000 | | 850,000 | | 850,000 | | 1,800,000 | | 1,800,000 | | 720,000 | | 900,000 | | 900,000 | | 900,000 | | | 1,900,000 | | 380,000 | | 570,000 | | 760,000 | | 950,000 | | 950,000 | 1,900,000 | | 760,000 | | 950,000 | | 950,000 | | 950,000 | | | 2,000,000 | | 400,000 | | 600,000 | | 800,000 | | 1,000,000 | | 1,000,000 | 2,000,000 | | 800,000 | | 1,000,000 | | 1,000,000 | | 1,000,000 | | | 2,100,000 | | 420,000 | | 630,000 | | 840,000 | | 1,050,000 | | 1,050,000 | 2,100,000 | | 840,000 | | 1,050,000 | | 1,050,000 | | 1,050,000 | | | 2,200,000 | | 440,000 | | 660,000 | | 880,000 | | 1,100,000 | | 1,100,000 | 2,200,000 | | 880,000 | | 1,100,000 | | 1,100,000 | | 1,100,000 | | | 2,500,000 | | 500,000 | | 750,000 | | 1,000,000 | | 1,250,000 | | 1,250,000 | 2,500,000 | | 1,000,000 | | 1,250,000 | | 1,250,000 | | 1,250,000 | | | 2,600,000 | | 520,000 | | 780,000 | | 1,040,000 | | 1,300,000 | | 1,300,000 | | | 3,000,000 | | 600,000 | | 900,000 | | 1,200,000 | | 1,500,000 | | 1,500,000 | 3,000,000 | | 1,200,000 | | 1,500,000 | | 1,500,000 | | 1,500,000 | | 3,500,000 | | 3,500,000 | | 1,400,000 | | 1,750,000 | | 1,750,000 | | 1,750,000 | | 3,600,000 | | 3,600,000 | | 1,440,000 | | 1,800,000 | | 1,800,000 | | 1,800,000 | | 3,700,000 | | 3,700,000 | | 1,480,000 | | 1,850,000 | | 1,850,000 | | 1,850,000 | | 4,000,000 | | 4,000,000 | | 1,600,000 | | 2,000,000 | | 2,000,000 | | 2,000,000 | | 4,500,000 | | 4,500,000 | | 1,800,000 | | 2,250,000 | | 2,250,000 | | 2,250,000 | | 5,000,000 | | 5,000,000 | | 2,000,000 | | 2,500,000 | | 2,500,000 | | 2,500,000 | | |
The
Covered compensation for the traditional pension benefit under the Pension Plan and the Parity Plan for the named executive officers, and the remuneration specified in the abovepreceding table, includes "Salary"“Salary” and "Bonus"“Bonus” as reported in the Summary Compensation Table on page 24.21. Portable Pension Account For employees accruing benefits under the Portable Pension Account, the pension benefit earnedaccrued after May 31, 2003 is expressed as a notional cash balance account. For each plan year in which a participant is credited with a year of service, compensation credits are added based on the
participant's participant’s age, service and eligible compensation for the prior calendar year based on the following table:
| Age + Service on May 31
|
| | |
|
| Compensation Credit
| |
|
|---|
Less than 55 | | 5 | 5 | % | | 55-64 | | 6 | 6 | % | | 65-74 | | 7 | 7 | % | | 75 or over | | 8 | 8 | % | |
On June 1, 2003,May 31, 2005, the sum of age plus years of service for the three named executive officers who elected the Portable Pension Account feature was as follows: Mr. Smith – 89;93; Mr. Graf – 72;- 76; and Mr. Bronczek – 73.- 79. Eligible compensation under the Portable Pension Account feature includes “Salary” and “Bonus” as reported in the Summary Compensation Table on page 21. Interest credits are added to a participant'sparticipant’s Portable Pension Account benefit at the end of each fiscal quarter (August 31, November 30, February 28 and May 31). Interest credits are based on the Portable Pension Account balancetotal value of compensation and an annualinterest credits already received (the May 31 interest credit is added prior to the May 31 compensation credit) and the quarterly interest credit rate, which is equal to the greater of (a)1¤4 of the one-year Treasury constant maturities rate for April of the preceding plan year plus 1% or.25% and (b) 4%1%. The quarterly interest credit rate, when compounded quarterly, cannot result, however, in an annual rate for each plan year, however, will not be moregreater than the average 30-year Treasury rate for April of the preceding plan year. Interest credits will continue to be added until the last day of the month before plan benefits are distributed. The interest creditingquarterly interest-crediting rate for the plan year ended May 31, 20042006 was 4%1.0825%. The quarterly interest-crediting rate for the plan year ending May 31, 2007 is 1.2416%. AtUpon a participant’s retirement or other termination of employment, an amount equal to the vested Portable Pension Account notional balance is payable to the participant in the form of an immediate or deferred lump sum payment or annuity.
Covered Compensation; Estimated Annual Benefits under Portable Pension Account Under the traditional pension plan benefit, because the covered compensation for the named executive officers is the average of the three calendar years of highest earnings during employment the amountand, therefore, differs from that set forththe amounts shown as “Salary” and “Bonus” in the Summary Compensation Table andon page 21. The covered compensation for each named executive officer is stated below, together with the years of credited service achieved to date. Also shown below isdate under the traditional pension benefit. The table also shows the estimated annual pension benefits payable upon normal retirement (age 60), or at June 1, 2006 if the officer is past normal retirement age, under the Portable Pension Account feature to the three named executive officers that elected this feature.
| | Traditional Pension Benefit
| | Portable Pension Account
| | | Traditional Pension Benefit | | Portable Pension Account | |
|---|
Name
| | Covered
Compensation
| | Years of
Service
| | Estimated
Annual Benefits(1)
| | | | Covered
Compensation | | Years of
Service | | Estimated
Annual Benefits(1) | |
|---|
| F.W. Smith(2) | | $ | 2,315,736 | | 31 | | $ | 13,900 | F.W. Smith(2) | | | $ | 3,681,824 | | | | 31 | | | | $ | 70,480 | | | | D.J. Bronczek(2) | | 1,059,294 | | 25 | | 83,400 | D.J. Bronczek(2) | | | 1,918,906 | | | | 27 | | | | 196,952 | | | | K.R. Masterson | | 1,145,759 | | 24 | | – | | | A.B. Graf, Jr.(2) | | 1,066,505 | | 23 | | 72,800 | A.B. Graf, Jr.(2) | | | 1,720,027 | | | | 23 | | | | 146,325 | | | D.J. Sullivan(3) | | D.J. Sullivan(3) | | | 2,118,941 | | | | 34 | | | | – | | | | T.M. Glenn | | 952,735 | | 23 | | – | T.M. Glenn | | | 1,541,752 | | | | 25 | | | | – | | | |
(1) Assumes a hypothetical retirement date of June 1, 2006 for Mr. Smith. For purposes of calculating the estimated annual benefit payable at normal retirement age (age 60), for Messrs. Bronczek and Graf, (a) all future years of earnings are assumed to be equal to calendar year 2003 earnings. Also,2005 earnings and (b) the quarterly interest credited to the Portable Pension Account is assumed to be 4%1.2416% for all future years. The Portable Pension Account notional balance of each officer has been converted to a single life annuity based on an interest rate of 5.14%5.06% and U.S.United States government-approved assumptions as to life expectancy.
(2) Years of service used for the traditional pension benefit are frozen as of May 31, 2003.2003; however, covered compensation is not frozen and the applicable officers will receive the benefits of any future compensation increases.(3) Information for Mr. Sullivan is shown as of his expected retirement date of January 5, 2007, and includes a year of credited service for fiscal 2007. Retirement benefits for Mr. Sullivan are based on a formula of 1.333% per year of service for service earned prior to June 1, 2000 (27.4167 years) and 2% per year of service after that date. Mr. Sullivan’s total annual benefit is limited to 50% of his covered compensation.
Lump Sum Distribution Participants may elect to receive benefits accrued prior to December 31, 2004 under the Parity Plan as a single lump sum distribution. If a participant does not elect to receive a lump sum distribution, benefits accrued under the Parity Plan prior to December 31, 2004 will be paid as an annuity. As a result of changes in U.S. tax law, benefits accrued under the Parity Plan after December 31, 2004 must be paid to participants as a lump sum distribution. The table below sets forth the estimated present value of the lump sum pension benefit under the Parity Plan (both the traditional pension benefit and the Portable Pension Account benefit) that would be payable to each named executive officer if he elected to receive a lump sum distribution. | | Estimated Present Value of Parity Plan | | Name | | | | Lump Sum Distribution(1) | | F.W. Smith(2) | | | $ | 22,875,901 | | | D.J. Bronczek(3) | | | 9,392,572 | | | A.B. Graf, Jr.(3) | | | 7,925,773 | | | D.J. Sullivan(4) | | | 12,531,985 | | | T.M. Glenn(3) | | | 6,565,914 | | | | | | | | | | | |
(1) FedEx pays the employment taxes attributable to the Parity Plan benefit on behalf of the participant, and reimburses the participant for any taxes resulting from such payment of employment taxes. (2) The present value of the traditional pension benefit is equal to the single life annuity payable as of a hypothetical retirement date of June 1, 2006, converted based on an interest rate of 5.06% and U.S. government-approved assumptions as to life expectancy. The present value of the Portable Pension Account benefit is equal to the notional account balance as of June 1, 2006. (3) The present value of the traditional pension benefit is equal to the single life annuity payable upon the earliest retirement date permitted under the Parity Plan (age 55) based upon the officer’s current covered compensation and years of credited service, converted based on an interest rate of 5.06% and U.S. government-approved assumptions as to life expectancy. The present value of the Portable Pension Account benefit for each of Messrs. Bronczek and Graf is equal to his notional account balance as of June 1, 2006. (4) The present value of Mr. Sullivan’s benefit is based on his estimated Parity Plan benefit as of his expected retirement date of January 5, 2007, and assumes (a) his calendar year 2006 earnings are the same as his calendar year 2005 earnings and (b) an additional year of credited service for fiscal 2007. The present value is equal to the single life annuity converted based on an interest rate of 5.06% and U.S. government-approved assumptions as to life expectancy. 30
CONSULTING AGREEMENT AND NON-COMPETITION AGREEMENT Consulting Agreement FedEx Ground has entered into a consulting agreement with Daniel J. Sullivan, who has announced that he will retire as President and Chief Executive Officer of FedEx Ground effective January 5, 2007. The terms and conditions of the consulting agreement with Mr. Sullivan are summarized below. Term. The term of the agreement begins on January 5, 2007 and ends on December 31, 2008. The agreement may be terminated earlier by either party upon 30 days’ prior written notice. Services Provided. Mr. Sullivan will provide consulting services with respect to the class-action lawsuits and other proceedings that claim that the company’s owner-operators should be treated as employees rather than independent contractors, including providing deposition and trial testimony as necessary. Mr. Sullivan will also provide advice on such other matters as are identified by FedEx’s Chairman, President and Chief Executive Officer or Executive Vice President, General Counsel and Secretary. Mr. Sullivan’s services will be limited to no more than 40 hours a month. Payment for Services. Mr. Sullivan will receive annual cash consideration equal to one-half of his fiscal 2006 annual base salary ($435,864). During the term of the agreement, FedEx Ground will also make available to Mr. Sullivan: · Reasonable administrative assistance in connection with his performance of consulting services; · Office space and equipment in connection with his performance of consulting services; and · Corporate aircraft in connection with his performance of consulting services on terms consistent with use by FedEx executive management. In addition, Mr. Sullivan will be reimbursed for reasonable and necessary out-of-pocket expenses incurred in the performance of his consulting services. Indemnification. FedEx Ground will indemnify Mr. Sullivan, in a manner consistent with FedEx’s indemnification practices for executive management, from any liabilities, losses or suits related to his performance of services. Non-Competition Agreement In connection with the acquisition of Caliber System, Inc., FedEx entered into a Confidentiality, Non-Solicitation and Non-Competition Agreement with Mr. Sullivan dated as of January 27, 1998. Pursuant to this agreement, as it was amended by a First Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement dated as of April 3, 2000, Mr. Sullivan has agreed (i) during the term of his employment and for a period of 60 months thereafter, not to compete with FedEx in the express and non-express document and package delivery businesses (not including, however, the truckload and less-than-truckload freight businesses), (ii) during the term of his employment and for a period of 36 months thereafter, not to solicit any customer or otherwise materially interfere with the business or accounts of FedEx or solicit the employment or services of, or hire, any person who is, or was within the prior one-year period, engaged as an employee or consultant of FedEx and (iii) not to disclose any confidential information of FedEx. As consideration for the covenants set forth above, FedEx paid Mr. Sullivan a lump sum payment of $4,894,376. 31
REPORT ON EXECUTIVE COMPENSATION OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Role of the Compensation Committee The Compensation Committee of the Board of Directors, which is composed solely of independent directors, reviews and approves the compensation levels and programs for executive officers. With respect to the Chief Executive Officer, the Committee reviews and approves the corporate goals and objectives relevant to the CEO’s compensation, evaluates the CEO’s performance in light of these goals and objectives, and recommends to the Board of Directors for approval by its independent members the CEO’s compensation level based on this evaluation. The Compensation Committee has retained an independent compensation consultant, who reports directly to the Committee. During fiscal 2006, the Committee met with the consultant to discuss current and future trends and issues in executive compensation and to review the competitiveness of the compensation structure and level of the named executive officers. The independent consultant also assisted the Committee in the development and review of performance measures, strategies and alternative compensation components for FedEx’s annual and long-term incentive compensation programs. Overview of Executive Compensation Philosophy and Program FedEx'sFedEx’s mission is to produce superior financial returns for stockholders by providing high value-added supply chain, transportation, business and businessrelated information services through focused independent operating companies that compete collectively and are managed collaboratively.companies. The Compensation Committee of the Board of Directors is committed to establishing and overseeing a compensation program for executive officers that furthers FedEx'sFedEx’s mission.
FedEx'sFedEx’s compensation program for executive officers consists of four key elements: (1) a base salary, (2) an annual incentive cash bonus plan, (3) a long-term incentive cash bonus plan, and (4) long-term equity incentives in the form of stock options and restricted stock. The executive officer compensation program is designed to:
•·Attract, retain and develop highly qualified and experienced executive officers by paying them competitively, motivate them to contribute to FedEx'sFedEx’s success and reward them for their performance;
•·Link a significant part of each executive officer'sofficer’s compensation to short- and long-term corporate performance; and
•·Further align executive compensation with stockholder interests by focusing executive officers on building stockholder value and encouraging and facilitating significant ownership of FedEx common stock by executive officers.
The Compensation Committee believes that FedEx'sFedEx’s compensation structure for executive officers promotes the best interests of FedEx and its stockholders. The program enables FedEx to attract and retain highly talented and productive executive officers, while ensuring that they are compensated in such a manner as to advance both the short-sustain and enhance long-term interests of stockholders.stockholder value. Comparison Surveys In its fiscal 20042006 executive compensation review, the Compensation Committee considered compensation survey information published by two major consulting firms of general industry companies with annual sales in excess of $10 billion. The Compensation Committee believes that general industry is
the appropriate comparison category in determining competitive compensation because FedEx'sFedEx’s executives can be recruited from, and by, businesses outside FedEx'sFedEx’s industry peer group. Base Salary BaseThe Compensation Committee annually reviews the base salaries are reviewed annually forof all executive officers, including the Chief Executive Officer.CEO. The primary objective in setting salaries is to establish a competitive base compensation for FedEx executive officers.
Base salaries for executive officers, including the Chief Executive Officer,CEO, are targeted at the 50th percentile of base salaries for comparable positions in the two comparison surveys. With respect to Mr. Smith'sSmith’s base salary, the Compensation Committee also considers market survey data regarding projected base salary increases for chief executive officers of companies in the benchmark group. The base salary level of a particular executive officer, including the CEO, may be adjusted to
recognize individual competencies, skills and contributions, varying levels of experience and responsibilities, individual performance, internal equity issues or the desire to retain a valuable executive. None of these factors is given any particular weight and the specific factors used may vary among individual executives. BaseMr. Smith sets the base salaries forof the non-CEO executive officers, other thansubject to the Chief Executive Officer are based uponlimits established by the recommendationCompensation Committee. Any annual base salary increase for Mr. Smith generally takes effect on July 16 of each year. Any annual base salary increases for the non-CEO executive officers generally take effect on July 1 of each year. Mr. Smith. Mr. Smith'sSmith’s base salary was increased in fiscal 20042006 by 3.5% and. His fiscal 2006 base salary was slightly below the market median of base salaries of chief executive officers in the comparison surveys.
In May 2006, the Compensation Committee approved ad hoc base salary increases for certain executive officers, including Mr. Smith, which took effect on June 1, 2006. The base salary increases for Mr. Smith and Mr. Graf were based upon recent executive market compensation data. The base salary increases for the other affected executive officers were based upon recently increased responsibilities or internal equity issues. In connection with this ad hoc salary adjustment, Mr. Smith’s annual base salary was increased by 2%. Annual Incentive Cash Bonus Plans The annual incentive cash bonus program and the long-term incentive cash bonus plan described below reflectreflects the Compensation Committee'sCommittee’s philosophy thatthat: · there should be a strong relationship between pay and corporate performanceperformance; and that · a high proportionsignificant portion of an executive officerofficer’s compensation should be "at risk." Total“at risk” (i.e., directly dependent upon the achievement of pre-established corporate and/or individual performance goals). Chief Executive Officer Mr. Smith’s annual bonus was determined by the achievement of corporate objectives for consolidated pre-tax income for fiscal 2006. The Compensation Committee could adjust this amount upward or downward based on its consideration of several factors, including: FedEx’s stock price performance relative to the Standard & Poor’s 500 Composite Index, the Dow Jones Transportation Average and the Dow Jones Industrial Average; FedEx’s revenue and operating income growth
relative to competitors; FedEx’s cash flow; FedEx’s return on invested capital; FedEx’s U.S. revenue market share; FedEx’s reputation rankings by various publications and surveys; and the Committee’s assessment of the quality and effectiveness of Mr. Smith’s leadership during fiscal 2006. None of these factors was given any particular weight by the Compensation Committee in determining whether to adjust Mr. Smith’s bonus amount. Mr. Smith’s annual bonus target for fiscal 2006 was 130% of his base salary, with a maximum payout of 300% of his target bonus. Mr. Smith’s target annual bonus, combined with his base salary, has a 75th percentile target for total annual salary and bonus for chief executive officers (assuming achievementin the comparison surveys. The independent members of all individual and corporate objectives as described below) is targeted atthe Board of Directors, upon the recommendation of the Compensation Committee, approved an annual bonus for Mr. Smith of $2,679,147 for fiscal 2006. Mr. Smith’s fiscal 2006 annual bonus, together with his base salary, was below the 75th percentile of total annual salary and bonus targeted for comparable positionschief executive officers in the comparison surveys. Non-CEO Executive Officers FedEx Corporation executive vice presidents participateparticipated in the fiscal 2006 annual incentive cash bonus plan established for headquarters employees. Under this plan, anthe annual bonus target is established asfor each executive was 90% of his or her base salary, with a percentagemaximum payout of salary based on pay level.240% of the target bonus. A threshold payout of up to 30% of the target bonus iswas based on the achievement of individual objectives established at the beginning of the fiscal year for each executive officer.executive. The achievement level of each executive’s individual objectives was based on Mr. Smith’s evaluation at the conclusion of fiscal 2006, which was reviewed by the Compensation Committee. The balance of the bonus payout iswas based on FedEx'sFedEx’s consolidated pre-tax income for the fiscal year2006 and ranges,ranged, on a sliding scale, from a thresholdminimum amount if the plan'splan’s pre-established consolidated pre-tax income objectives are minimallythreshold was achieved up to a maximum amount if such financial performance goals aregoal was substantially exceeded. EachThe president and chief executive officer of the presidentseach of FedEx Express, FedEx Ground, FedEx Freight and FedEx Kinko's participatesKinko’s participated in the fiscal 2006 annual incentive cash bonus plan sponsored by his respective company. The target annual bonus for the president and chief executive officer of FedEx Express was 100% of his base salary, with a maximum payout of 240% of his target bonus. The target annual bonus for the president and chief executive officer of each of FedEx Ground, FedEx Freight and FedEx Kinko’s was 80% of base salary, with a maximum payout of 240% of the target bonus. Under each of these plans, an annual bonus target is established as a percentage of salary based on pay level. Under the FedEx Express, FedEx Ground and FedEx Freight plans, a threshold payout of up to 30% of the target bonus iswas based on the achievement of pre-established individual objectives. Underobjectives established at the FedEx Kinko's prorated plan, a threshold payout of up to 25%beginning of the target bonus isfiscal year for each executive. The achievement level of each executive’s individual objectives was based on Mr. Smith’s evaluation at the achievementconclusion of pre-established individual objectives.fiscal 2006, which was reviewed by the Compensation Committee. The balance of the bonus payout under each of the FedEx Express, FedEx Ground and FedEx Freight plans iswas based on each respective subsidiary'ssubsidiary’s operating income (30% of the target bonus) and FedEx'sFedEx’s consolidated pre-tax income (40% of the target bonus) for the fiscal year2006 and ranges,ranged, on a sliding scale, from a thresholdminimum amount if the plan'splan’s pre-established subsidiary operating income and FedEx'sFedEx’s consolidated pre-tax income objectives are minimallythresholds were achieved up to a maximum amount if such financial performance goals are substantially exceeded. The balance of the bonus payout under the FedEx Kinko's prorated plan is based on its earnings before interest and taxes ("EBIT") and sales revenue for the prorated fiscal year. The bonus payout portion based on EBIT ranges, on a sliding scale, from a threshold amount if the plan's pre-established EBIT objectives are minimally achieved up to an indefinite amount if such EBIT goals are substantially exceeded. The bonus payout portion based on sales revenue ranges, on a sliding scale, from a threshold amount if the plan's pre-established revenue objectives are minimally achieved up to a maximum amount if the sales revenue goals arewere substantially exceeded.
Mr. Smith's annual bonus is determined by the achievement of corporate objectives for consolidated pre-tax income for the fiscal year. The Compensation Committee may adjust this amount upward or downward based on its consideration of several factors, including: FedEx's stock
price performance relative to the Standard & Poor's 500 Composite Index, the Dow Jones Transportation Average and the Dow Jones Industrial Average; FedEx's revenue and operating income growth relative to competitors; FedEx's cash flow; FedEx's U.S. revenue market share; FedEx's reputation rankings by various publications and surveys; and the Compensation Committee's assessment of the quality and effectiveness of Mr. Smith's leadership during the fiscal year. None of these factors is given any particular weight by the Compensation Committee in determining whether to adjust Mr. Smith's bonus amount.
Taking into account these objectives and factors, the Compensation Committee recommends to the independent members of the Board a bonus that, when combined with base salary, has a 75th percentile target for totalTotal annual salary and bonus for chiefthese executive officers in(assuming achievement of all individual and corporate objectives as described above) is targeted at the comparison surveys. Mr. Smith received an annual bonus of $2,647,756 for fiscal 2004, which, together with his base salary, was above the 75th percentile of total annual salary and bonus for chief executive officerscomparable positions in the comparison surveys.surveys utilized by the Compensation Committee.
Long-Term Incentive Cash Bonus PlanProgram In keeping with the Compensation Committee'sCommittee’s philosophy of providing a total compensation package for executive officers that favors variable, at-risk components of pay based on corporate performance and stock price appreciation, long-term incentives comprise a significant component of an executive officer'sofficer’s total compensation. The long-term incentives are in the form of a cash bonus opportunity and stock-based awards, which are discussed in more detail below. These incentives are designed to motivate and award executive officers for achieving long-term corporate financial performance goals and maximizing stockholder value. Long-term incentives also serve to encourage the long-term employment of key employees and executive officers. In 2001,2003, the Compensation Committee established a long-term incentive cash bonus plan for members of upper management, including executive officers. This plan provided a bonus opportunity atfollowing the conclusion of fiscal 20042006 if FedEx achieved certainan aggregate earnings-per-share goalsgoal established by the Compensation Committee with respect to the three-fiscal-year period 20022004 through 2004. Bonuses2006. Maximum bonuses were awarded under this plan for fiscal 20042006 to all eligible participants under this plan because FedEx'sFedEx’s performance substantially exceeded the thresholdplan goal for the three-fiscal-year period. The Compensation Committee has established long-term performance bonus plans for the three-fiscal-year periods 2003 through 2005, 2004 through 2006 and 2005 through 2007, 2006 through 2008 and 2007 through 2009, providing cash bonus opportunities for fiscal 2005, 20062007, 2008 and 2007,2009, respectively, if certain earnings-per-share goals are achieved with respect to those periods. The Long-Term Incentive Plans table on page 2826 sets forth the estimated future payouts to the named executive officers under these plans if the three-fiscal-year earnings-per-share goals are achieved. Long-Term Equity Incentives The Compensation Committee believes that stock-based compensation aligns the interests of executive officers with stockholder interests by creating a direct link between compensation and stockholder return and gives the executive officers a significant, long-term interest in FedEx'sFedEx’s success. In addition, equity awards encourage and facilitate significant ownership of FedEx common stock by executive officers. Under the terms of FedEx'sFedEx’s stock option plans, FedEx may grant options to key employees (as determined by the Compensation Committee) to purchase such number of shares of FedEx common stock as is determined by the Compensation Committee. All decisions to grant stock
options are in the sole discretion of the Compensation Committee. In fiscal 2004,2006, options for 3,837,6283,259,335 shares of common stock were granted as long-term incentives to various key employees of FedEx, including executive officers. Stock options granted to executive officers generally vest ratably over four years beginning on the first anniversary of the date of grant.grant date. Because the exercise price of stock options is equal to the "fair“fair market value"value” (as defined in the plans) of FedEx'sFedEx’s common stock on the grant date, of grant, the options have value only if theFedEx’s stock price appreciates from the value on the date the options were granted. This design has the effect of focusing executive officers on the enhancement of stockholder value over the long-term. Under the terms of FedEx'sFedEx’s restricted stock plans, FedEx may award shares of restricted stock to key employees, including executive officers, as determined by the Compensation Committee. Shares of restricted stock awarded to executive officers generally vest ratably over four years beginning on the first anniversary of the date of grant.grant date. FedEx pays the taxes resulting from a restricted stock award on
behalf of the recipient and the Committee considers the amount paid in its determination of the recipient'srecipient’s total compensation. In fiscal 2004, 282,4232006, 233,939 shares of restricted stock were awarded to various key employees of FedEx, including executive officers. Stock option and restricted stock awards are generally made on an annual basis to executive officers. In appropriate cases, however, special grants may be authorized outside of the annual-grant framework. No suchThe president and chief executive officer of FedEx Kinko’s received a special grants were madestock option grant and restricted stock award in fiscal 2004 to executive officers.February 2006 in connection with his promotion. Mr. Smith did not receive any restricted stock awards in fiscal 2004.2006. A primary factor that the Compensation Committee generally considers in determining the number of option shares and shares of restricted stock to award to executive officers is an individual'sindividual’s position and level of responsibility. The Compensation Committee does not consider the stock option or common stock holdings of an executive officer, or any specific measures of corporate or individual performance, in determining the size of an option or restricted stock grant to that individual nor does the Committee consider any specific measures of corporate or individual performance.individual. The Compensation Committee generally designs the total annual base salary, bonus (assuming achievement of all individual and corporate objectives) and long-term incentive awards (stock option grants, restricted stock awards and cash)cash bonus) of executive officers to be comparable with the 75thpercentile of targeted total annual salary, bonus and long-term incentive compensation (cash and equity compensationawards) for comparable positions in the comparison surveys. Other factors that the Compensation Committee may consider with respect to the number of option shares and shares of restricted stock to award to an executive officer include: the promotion of an individual to a more senior position; a desire to retain a valued executive; a desire to recognize a particular officer'sofficer’s contributions; the number of shares then available to be granted; and stockholder dilution. None of these factors is given any particular weight and the specific factors used may vary among individual executives. Stock Ownership Goal In order to encourage significant stock ownership by FedEx’s senior management and to further align their interests with the interests of FedEx’s stockholders, the Board of Directors has adopted a stock ownership goal for senior officers that is included in FedEx’s Corporate Governance Guidelines. With respect to executive officers, the stock ownership goal is that within four years after being appointed to his or her position: · the Chief Executive Officer own at least 100,000 shares of FedEx common stock; and · each other executive officer own at least 30,000 shares of FedEx common stock. For purposes of meeting this goal, unvested restricted stock is counted, but unexercised stock options are not. Until the ownership goal is met, the executive should consider retaining (but is not required to do so) “net profit shares” resulting from the exercise of stock options. Net profit shares are the shares remaining after payment of the option exercise price and taxes owed upon the exercise of options. As of July 31, 2006, each person who had been an executive officer for over four years met the stock ownership goal established by the Board.
Other Benefits Executive officers are eligible to receive certain perquisites offered by FedEx, including financial counseling and tax preparation services, personal use of corporate aircraft and, pursuant to FedEx’s executive security policy, personal security and other services, including home security systems and monitoring. Executive officers also receive tax reimbursement payments relating to certain perquisites. The Compensation Committee believes that the perquisites provided to executive officers are reasonable and consistent with the overall executive compensation program. These benefits help FedEx retain highly effective leaders and allow them to operate more productively. Tax Deductibility of Compensation Section 162(m) of the Internal Revenue Code limits the income tax deduction by FedEx for compensation paid to the Chief Executive Officer and the four other highest-paid executive officers to $1,000,000 per year, unless the compensation is "performance based compensation"“qualified performance-based compensation” or qualifies under certain other exceptions. The Compensation Committee designs certain components of executive compensation to ensure full deductibility. The Compensation Committee believes, however, that stockholder interests are best served by not restricting the Compensation
Committee'sCommittee’s discretion and flexibility in crafting compensation programs, even though such programs may result in certain non-deductible compensation expenses.
FedEx's stock optionMr. Smith’s base salary is not designed to meet the requirements of Section 162(m) and, therefore, is subject to the $1,000,000 deductibility limit. FedEx’s equity compensation plans satisfy the requirements of Section 162(m). with respect to stock options, but not with respect to restricted stock awards. Accordingly, compensation recognized by the five highest-paid executive officers in connection with stock options granted under these plans is fully deductible. FedEx'sdeductible, but compensation with respect to restricted stock awards is subject to the $1,000,000 deductibility limit. FedEx’s annual and long-term incentive cash bonus plans and its restricted stock plans do not meet all of the conditions for qualification under Section 162(m). Compensation received by the five highest paid executive officers under these plans is subject, therefore, to the $1,000,000 deductibility limit.
Conclusion The Compensation Committee believes FedEx'sFedEx’s executive officer compensation policies and programs effectively serve the best interests of FedEx and its stockholders. The various components of executive officer compensation have been deliberately crafted to attract and retain highly qualified and effective executive officers and to motivate them to substantially contribute to FedEx'sFedEx’s future success for the benefit of stockholders. Compensation Committee Members
Philip Greer – Chairman
James L. Barksdale
August A. Busch IV
George J. Mitchell
Paul S. Walsh
| Compensation Committee Members |
| | Philip Greer – Chairman |
| | James L. Barksdale | | | August A. Busch IV | | | Charles T. Manatt | | | Paul S. Walsh | |
37
CHANGE-IN-CONTROL ARRANGEMENTS
CHANGE-IN-CONTROL ARRANGEMENTS
Stock Option and Restricted Stock Plans FedEx'sFedEx’s stock option plans provide that, in the event of a change inof control (as defined in the plans), each holder of an unexpired option under any of the plans has the right to exercise such option without regard to the date such option would first be exercisable. This right continues, with respect to holders whose employment with FedEx terminates following a change inof control, for a period of twelve months after such termination or until the option'soption’s expiration date, whichever is sooner.
FedEx'sFedEx’s restricted stock plans provide that, in the event of a change inof control (as defined in the plans), depending on the change of control event, the restricted shares will either be canceled and FedEx shall make a cash payment to each holder in an amount equal to the product of the highest price per share received by the holders of FedEx'sFedEx’s common stock in connection with the change inof control multiplied by the number of restricted shares held, or the restrictions applicable to any such shares will immediately lapse.
Management Retention Agreements FedEx has entered into Management Retention Agreements ("MRAs"(“MRAs”) with certain senioreach of its executive officers, of FedEx and its subsidiaries, including the named executive officers. The purpose of the MRAs is to secure the executives'executives’ continued services in the event of any threat or occurrence of a change of control (as defined in the MRAs). The terms and conditions of the MRAs with the named executive officers are summarized below. Term. The MRAs renew Each MRA renews annually for consecutive two-year terms, unless FedEx gives six months'months’ prior notice that the agreementsagreement will not be extended. The non-extension noticesnotice may not be given at any time when the Board of Directors has knowledge that any person has taken steps reasonably calculated to effect a change of control of FedEx. Employment Period. Upon a change of control, the MRA immediately establishes a three-year employment agreement with the executive officer. During the employment period, the officer'sofficer’s position (including status, title,offices, titles and reporting relationships), authority, duties and responsibilities)responsibilities may not be materially diminished. The officer's position is considered diminished if FedEx becomes a subsidiary of another company or if another company acquires all or substantially all of FedEx's assets, unless the parent or successor assumes all of FedEx's obligations under the MRA and the officer assumes a position with the parent or successor commensurate with his former position. Compensation. During the three-year employment period, the executive officer receives base salary (no less than his highest base salary over the twelve-month period prior to the change of control), annual bonus (no less than his average annual bonus over the three-year period prior to the change of control), incentive, savings and retirement plan benefits, expense reimbursement, fringe benefits, office and staff support, welfare plan benefits and vacation benefits. These benefits must be no less than the benefits the officer had during the 90-day period immediately prior to the change of control. Termination. The MRA terminates immediately upon the executive officer's death.officer’s death, voluntary termination or retirement. FedEx may terminate the MRA for disability, ifas determined in accordance with the procedures under FedEx’s long-term disability is determined to be total after 26 weeks.benefits plan. Once disability is established, the officer receives 180 days'days’ prior notice of termination. FedEx also may terminate the officer'sofficer’s MRA for "cause."“cause.”
Benefits for Qualifying Terminations. A "Qualifying Termination"“Qualifying Termination” is a termination by FedEx other than for cause, disability or death or by the officer "for“for good reason"reason” (principally relating to assignment of duties inconsistent with the officer'sofficer’s position and reductions in compensation) or by the officer for any reason during the thirty-day period beginning with the first anniversary date of the change of control.. In the event of a Qualifying Termination, the executive officer will receive: (1) a lump sum cash payment equal to three times his annual compensation, which includes his base salary, target annual bonus and target long-term incentive compensation, and company matching contributions to various benefit plans;compensation; and (2) a lump sum cash payment equal to the actuarial present value at terminationexcess of the amount required tobenefit that would be contributed by FedEx to fund the benefits to the officeraccrued under FedEx'sFedEx’s pension and parity plans based on an additional 36 months of base salary and target annual bonus and an additional 36 months of age and service or, if greater,over what was actually earned as of the numberdate of additional months of age and service necessary to provide the officer with 25 years of service and an attained age of 60 under the plans.termination. For a period ending on the earliest of (i) 36 months following the termination date, (ii) the commencement of equivalent benefits from a new employer, or (iii) the date on which the executive officer reaches age 60, FedEx agrees to keep in force each plan and policy providing medical, accidental death, disability and life coverage to the officer and his dependents with the same level of coverage and the same terms as each policy and plan in effect immediately prior to the termination date. FedEx agrees to pay any taxes incurred by the officer for any payment, distribution or other benefit (including any acceleration of vesting of any benefit) received or deemed received by the officer from FedEx that triggers certain excise taxes. In exchange for these benefits, the executive officer has agreed that, for the one-year period following his termination, he will not own, manage, operate, control or be employed by any enterprise that competes with FedEx or any of its affiliates. 39
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on FedEx's common stock during the last five fiscal years with the Standard & Poor's 500 Composite Index and the Dow Jones Transportation Average during the same period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested in FedEx's common stock and in each of the foregoing indices on May 31, 1999, and assumes the reinvestment of all dividends. The graph depicts the change in the value of FedEx's common stock relative to the indices as of the end of each fiscal year and not for any interim period. Historical stock performance is not necessarily indicative of future stock price performance.
Comparison of Five-Year Cumulative Total Return
(FedEx, S&P 500 Composite Index and Dow Jones Transportation Average)
PROPOSAL 3 – ADOPTION OF THE PROPOSED AMENDMENT TO FEDEX'S
INCENTIVE STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK RESERVED FOR ISSUANCE PURSUANT TO STOCK OPTIONS
FedEx's stockholders are being asked to approve the amendment to the FedEx Corporation Incentive Stock Plan (the "Plan"), which will increase the number of shares of FedEx common stock reserved for issuance pursuant to stock options under the Plan by 2,000,000 shares.
FedEx's Board of Directors adopted the amendment described above on May 28, 2004, subject to stockholder approval at the annual meeting.
FedEx's Board believes that increasing the number of shares of FedEx common stock reserved for issuance pursuant to stock options under the Plan is necessary to allow FedEx to continue to utilize stock options to attract and retain the services of key individuals essential to FedEx's long-term growth and financial success. FedEx relies on stock options to attract and retain key employees and other individuals and believes that such equity incentives are necessary for FedEx to remain competitive with regard to attracting and retaining qualified individuals.
In furtherance of these objectives, the Board of Directors, upon the recommendation of the Compensation Committee, has adopted the amendment to the Plan to provide for additional shares of FedEx common stock reserved for issuance pursuant to stock options, subject to approval by the stockholders at the annual meeting. A summary of the Plan is set forth below. This summary is, however, qualified by and subject to the more complete information set forth in the Plan, as proposed to be amended, a copy of which is attached asAppendix B.
Purpose of the Plan
The purpose of the Plan is to promote the long-term success of FedEx and its subsidiaries and to increase stockholder value by:
•attracting and retaining key employees and directors of outstanding ability;
•encouraging key employees and directors to focus on long-range objectives; and
•further aligning the interests of key employees and directors with the interests of the stockholders.
Administration of the Plan
The Plan is administered by those members (the "Committee"), not less than two, of the Compensation Committee of the Board of Directors, each of whom is both an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and a "non-employee director" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended. The Committee, subject to the provisions of the Plan:
•selects persons to receive awards from among those eligible;
•determines the types of awards and the number of shares of common stock covered by such awards;
•establishes the terms, conditions, restrictions and other provisions of awards; and
•amends, modifies, cancels or suspends awards.
The Committee has authority to interpret the Plan and all agreements and other instruments relating to awards, to adopt, amend and rescind rules for the administration of the Plan and to
make such other determinations and take such other actions that it deems necessary or advisable for the effective administration of the Plan.
Types of Awards
The Committee may award restricted shares of FedEx common stock and options to purchase shares of FedEx common stock under the Plan.
Number of Shares That May Be Awarded
Prior to the proposed amendment, under the Plan, FedEx may grant:
•options to purchase for cash an aggregate of not more than 3,000,000 shares of FedEx common stock; and
•restricted stock awards of not more than 500,000 shares of FedEx common stock.
Both amounts are subject to adjustment in the event of a stock split, stock dividend, recapitalization or other corporate reorganization. The total number of shares currently covered by the Plan represents % of the shares of common stock outstanding as of August 2, 2004. The Plan also provides that no person may be granted options for more than 600,000 shares during any fiscal year.
The proposed amendment would increase the aggregate number of shares of FedEx common stock purchasable for cash pursuant to stock options to 5,000,000 shares. The additional 2,000,000 shares proposed to be added pursuant to the amendment represents % of the shares of common stock outstanding as of August 2, 2004.
The Plan provides for the use of authorized but unissued shares or treasury shares. To the extent any shares of common stock covered by an award are forfeited, not issued or cease to be issuable for any reason, including, without limitation, because the award is terminated, canceled or expires unexercised, then the shares of common stock subject to such award may again be used for further awards under the Plan.
Term of the Plan
The Plan became effective on September 29, 2003. The Plan amendment will become effective when approved by the stockholders. Unless the Plan is earlier terminated in accordance with its provisions, no awards will be made under the Plan after May 31, 2013, but outstanding options and restrictions on restricted shares issued under the Plan may extend beyond that date.
Eligibility to Receive Awards
Unless otherwise determined by the Committee, awards of restricted stock and stock options may be made to key employees, including approximately 260 officers, of FedEx and its subsidiaries, as may be designated by the Committee. In addition, non-employee directors may receive stock options as set forth in the Plan, but are not eligible to receive restricted stock awards.
Provisions Applicable to Restricted Stock Awards
Terms, Conditions and Restrictions. The Committee has authority to establish the terms, conditions, restrictions and other provisions of each restricted stock award. Unless otherwise specified by the Committee, restricted shares shall be restricted for a period of at least one year
and not more than ten years. Except as otherwise provided in the Plan or determined by the Committee, the recipient of restricted shares must remain employed by FedEx or a subsidiary during the restriction period or otherwise forfeit all right, title and interest in and to the restricted shares. Until such time as the restrictions on the restricted shares terminate, FedEx or its designee will hold the certificates for such restricted shares in escrow on the recipient's behalf.
Agreements and Stock Legends. A restricted stock award will be evidenced by a written agreement, in such form as may be specified by the Committee, issued by FedEx and setting forth the terms, conditions, restrictions and other provisions of the award. Stock certificates for restricted shares may, if the Committee so determines, bear a legend referring to the restrictions and the instruments to which the shares are subject.
Rights with Respect to Shares. The recipient of a restricted stock award has all rights of ownership with respect to such underlying shares, including the right to vote such shares and to receive any dividends paid thereon, subject, however, to the provisions of the Plan, the agreement relating to the award and any legend on the stock certificate for such shares. Any additional shares of FedEx common stock received incident to the ownership of restricted shares, as a result of a stock dividend, stock split, merger or otherwise, will also be restricted and be subject to the same restrictions and bear the same legend as the original restricted shares.
Transferability Restrictions. During the applicable restriction period, restricted shares may not be sold, pledged, assigned, exchanged, encumbered, hypothecated, transferred or disposed of in any manner.
Lapse of Restrictions. Unless otherwise determined by the Committee, the restrictions applicable to restricted shares terminate with respect to such shares on the earliest to occur of:
•the specified expiration of the restriction period (including upon a change of control),
•the recipient's retirement at or after the age of 60,
•the recipient's permanent disability, or
•the recipient's death,
provided that, in the event of the recipient's retirement at or after the age of 60 or permanent disability, the restrictions will not terminate prior to six months after the date of award, unless otherwise specified by the Committee. If a recipient retires at or after the age of 55, but before the age of 60, the restrictions will continue until the earlier of the specified expiration of the restriction period, the recipient's permanent disability or the recipient's death.
Tax Reimbursement. At the Committee's discretion, FedEx may make a tax reimbursement cash payment in favor of an award recipient in connection with the tax consequences resulting from the restricted stock award, the lapse of restrictions on the restricted shares or the payment by the recipient of any taxes related thereto, subject to any conditions the Committee may specify.
Provisions Applicable to Stock Options
Exercise Price. The Committee may grant options to purchase FedEx common stock for cash at a price not less than the fair market value of the shares, which is equal to the average of the high and low prices of the common stock on the New York Stock Exchange on the grant date. The closing price of FedEx's common stock on August 2, 2004 was $ .
Term of Options; Incentive Stock Options. Unless otherwise determined by the Committee, options may not be exercised later than ten years after the grant date. Subject to the limitations imposed by the provisions of the Code, certain of the options granted under the Plan may be designated "incentive stock options."
Written Agreement. Each stock option granted under the Plan will be evidenced by a written agreement, in such form as may be specified by the Committee, issued by FedEx and setting forth the terms, conditions and other provisions of the stock option, including the number of shares covered by the stock option, the exercise price per share, the term of the stock option and the vesting schedule. A recipient of a stock option award may not exercise the stock option until he or she executes and delivers such agreement to FedEx.
Transferability Restrictions. A stock option issued under the Plan by its terms will be personal, and may not be sold, pledged, assigned, exchanged, encumbered, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution.
Rights After Termination of Employment. Unless otherwise determined by the Committee:
•No option may be exercised after termination of an optionee's employment or directorship for any reason other than death, disability or retirement.
•If an optionee retires, such optionee's option will continue to vest in accordance with its terms and may be exercised until the expiration of the stated period of the option.
•If an optionee's employment or directorship terminates by reason of permanent disability, such optionee's option immediately vests and may be exercised for a period of twenty-four months after such termination date (except no option may be exercised less than six months from the grant date) or until the expiration of the option, whichever period is shorter.
•If an optionee dies after retirement or within the twenty-four month period following termination by reason of disability, the optionee's option may be exercised by the optionee's legal representative, to the extent to which it was exercisable at the time of death, for a period of twelve months from the date of death or until the expiration of the option, whichever period is shorter.
•If an optionee dies while an employee or director, such optionee's options immediately vest and may be exercised by the optionee's legal representative for a period of twelve months from the date of death or until the expiration of the option, whichever period is shorter.
Payment of Exercise Price. Because the options are to be granted as incentives, FedEx will not receive any cash consideration for granting options. Payment in full of the option price in cash must be made upon exercise of any option.
Cancellation of Outstanding Options. The Committee may revoke and cancel any outstanding options which, in the aggregate, would create a significant adverse effect on FedEx's financial statements if the Financial Accounting Standards Board subjects such options to new accounting rules.
Stock Option Grants to Non-Employee Directors
The Committee may grant to each non-employee director who is elected at or who remains in office following an annual meeting, immediately following such meeting, an option to purchase such number of shares of FedEx common stock as shall be determined by the Committee. Each
non-employee director who is elected or appointed a director other than at an annual meeting may be granted upon such election or appointment an option to purchase such number of shares of FedEx common stock as shall be determined by the Committee. Options granted to non-employee directors cannot be exercised earlier than one year from the grant date.
Repricing and Discounting Prohibited
The Plan prohibits the repricing of outstanding options (including, without limitation, by canceling an outstanding option and replacing such option with a new option with a lower exercise price) and the granting of discounted options.
Loans Prohibited
FedEx will not loan funds to an optionee for the purpose of paying the exercise price associated with a stock option issued under the Plan or for the purpose of paying any taxes associated with the issuance, exercise or vesting of any award under the Plan.
Change of Control
Upon the occurrence of a "change of control" (as defined in the Plan): (i) depending on the change of control event, the stock certificates evidencing any restricted shares will either be canceled and FedEx shall make a cash payment to the holders in an amount equal to the highest price per share received by the holders of FedEx's common stock in connection with the change of control multiplied by the number of restricted shares held, with any non-cash consideration to be valued in good faith by the Committee, or the restrictions applicable to any such shares will immediately lapse; and (ii) all outstanding stock options will become fully vested and immediately exercisable. Any option holder whose employment or directorship terminates following a change of control may exercise his or her option for a period ending on the earlier of the date of expiration of such option or the date that is twelve months after the termination of employment or directorship.
Termination and Amendment of the Plan
The Board of Directors or the Committee may suspend or terminate the Plan at any time and the Committee may amend or modify the Plan and amend, cancel or suspend any award made under the Plan at any time; provided, however, that without the consent of the recipients affected, no such suspension, termination, cancellation, amendment or modification may materially impair the rights of such recipients with respect to awards previously granted, except as provided in the Plan. Certain amendments and modifications as specified in the Plan, including an amendment to increase the number of shares issuable under the Plan or to reprice outstanding stock options, may not be made, however, without the requisite vote of FedEx's stockholders.
Benefits to Named Executive Officers and Others
During fiscal 2004, options to purchase 6,035 shares were granted under the Plan to 26 persons at an exercise price of $67.635 per share. None of the recipients was an executive officer or director of FedEx. There were no restricted stock awards under the Plan during fiscal 2004.
During fiscal 2005 (through August 2, 2004), options to purchase 1,544,900 shares have been granted under the Plan to 314 persons at an exercise price of $72.845 per share. None of the recipients was an executive officer or director of FedEx. Through August 2, 2004, restricted stock awards for 235,681 shares have been granted under the Plan to 122 persons. These grants included 6,145 shares of restricted stock to each of Messrs. Glenn, Graf and Masterson and
7,901 shares of restricted stock to Mr. Bronczek, for a total of 26,336 shares of restricted stock to the named executive officers. A total of 44,332 shares of restricted stock were granted to all executive officers as a group and a total of 165,013 shares of restricted stock were granted to all employees as a group who are not executive officers. There were no grants to non-employee directors. The closing price on the date of grant was $79.93. During the remainder of fiscal 2005, the Committee, in its discretion, may grant additional awards to eligible participants under the Plan.
New Plan Benefits
Any future awards granted to eligible participants under the Plan are subject to the discretion of the Committee and, therefore, are not determinable at this time.
Foreign Jurisdictions
In order to foster and promote achievement of the material purposes of the Plan in foreign jurisdictions and to fairly accommodate for differences in local law, tax policy or custom, the Committee may modify the terms of the Plan or provide additional terms. These modifications or additional terms may be reflected in sub-plans, supplements or alternative versions of the Plan.
Federal Income Tax Consequences
The following is a brief description of the material United States federal income tax consequences associated with awards under the Plan. It is based on existing United Sates laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. Tax consequences in other countries may vary.
Restricted Stock. Restricted stock is not taxable to a recipient at the time of grant, but instead is included in ordinary income (at its then fair market value) when the restrictions lapse. A recipient may elect, however, to recognize income at the time of grant, in which case the fair market value of the restricted shares at the time of grant is included in ordinary income and there is no further income recognition when the restrictions lapse. FedEx is entitled to a tax deduction in an amount equal to the ordinary income recognized by the recipient.
A recipient's tax basis for restricted shares will be equal to the amount of ordinary income recognized by the recipient. The recipient will recognize capital gain (or loss) on a sale of the restricted stock if the sale price exceeds (or is lower than) such basis. The holding period for restricted shares for purposes of characterizing gain or loss on the sale of any shares as long- or short-term commences at the time the recipient recognizes ordinary income pursuant to an award.
Stock Options. Neither incentive stock option grants nor non-qualified stock option grants cause any tax consequences to the optionee or FedEx. Upon the exercise of a non-qualified stock option, the excess of the market value of the shares acquired over their exercise price is ordinary income to the optionee and is deductible by FedEx. The optionee's tax basis for the shares is the market value thereof at the time of exercise. Any gain or loss realized upon a subsequent disposition of the stock will generally constitute capital gain.
Upon the exercise of an incentive stock option, the optionee will not realize taxable income, but the excess of the fair market value of the stock over the exercise price may give rise to alternative minimum tax. When the stock acquired upon exercise of an incentive stock option is subsequently sold, the optionee will recognize income equal to the difference between the sales price and the exercise price of the option. If the sale occurs after the expiration of two years from the grant date and one year from the exercise date, the income will constitute long-term capital gain. If the sale
occurs prior to that time, the optionee will recognize ordinary income to the extent of the lesser of the gain realized upon the sale or the difference between the fair market value of the acquired stock at the time of exercise and the exercise price; any additional gain will constitute capital gain. FedEx will be entitled to a deduction in an amount equal to the ordinary income recognized by the optionee. If the optionee exercises an incentive stock option more than three months after his or her termination of employment due to retirement or more than twelve months after his or her termination of employment due to permanent disability, he or she is deemed to have exercised a non-qualified stock option.
Compensation realized by optionees on the exercise of non-qualified stock options or the disposition of shares acquired upon exercise of any incentive stock options will be considered performance-based compensation under the Code and not subject to the $1,000,000 deductibility limit of Section 162(m) of the Code.
Vote Required for Approval
The affirmative vote of a majority of the shares present at the meeting in person or by proxy and entitled to vote is required to approve the proposed amendment to the Plan.
EQUITY COMPENSATION PLANS
Equity Compensation Plans Approved by Stockholders Stockholders approved FedEx's 1987, 1989,FedEx’s 1993, 1995, 1997, 1999 and 2002 Stock Incentive Plans, as amended, and theFedEx’s Incentive Stock Plan.Plan, as amended. Although options are still outstanding under the 1987, 19891993 and 19931995 plans, no shares are available under these plans for future grants. Stockholders also approved FedEx's 1995 Restricted Stock Plan. Equity Compensation Plans Not Approved by Stockholders FedEx'sFedEx’s 1997 and 2001 Restricted Stock Plans, as amended, were approved by the Board of Directors, but were not approved by the stockholders. Under the terms of these plans, key employees may receive restricted shares of common stock as determined by the Compensation Committee. Only treasury shares may be issued under these plans. Restrictions on the shares typically expire over four years from the award date. Holders of restricted shares are entitled to vote the shares and to receive any dividends paid on the shares.
In connection with its acquisition of Caliber System, Inc. in January 1998, FedEx assumed Caliber'sCaliber’s deferred compensation plan. This plan was approved by Caliber'sCaliber’s board of directors, but not by Caliber'sCaliber’s or FedEx'sFedEx’s stockholders. Following FedEx'sFedEx’s acquisition of Caliber, Caliber stock units under the plan were converted to FedEx common stock equivalent units. In addition, the employer'semployer’s 50% matching contribution on compensation deferred under the plan was made in FedEx common stock equivalent units. Subject to the provisions of the plan, distributions to participants with respect to their stock units are payable in shares of FedEx common stock on a one-for-one basis. Effective January 1, 2003, no further deferrals or employer matching contributions will be made under the plan. Participants may continue to acquire FedEx common stock equivalent units under the plan, however, pursuant to dividend equivalent rights.
Summary Table The following table sets forth certain information as of May 31, 20042006 with respect to compensation plans under which shares of FedEx common stock may be issued. The table does not include the additional shares of common stock that may be issued under FedEx's Incentive Stock Plan if the proposed Plan amendment is approved by the stockholders at the annual meeting.
Equity Compensation Plan Information
Plan Category | | | | Number of Shares
to be Issued
Upon Exercise
of Outstanding Options,
Warrants and Rights | | Weighted-Average
Exercise Price
of Outstanding Options,
Warrants and Rights | | Number of Shares
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Shares
Reflected in the
First Column) | | Equity compensation plans approved by stockholders | | | 16,959,711 | (1) | | | $ | 61.19 | | | | 8,810,279 | (2) | | Equity compensation plans not approved by stockholders | | | 12,585 | (3) | | | N/A | | | | 264,605 | (4) | | Total | | | 16,972,296 | | | | $ | 61.19 | | | | 9,074,884 | | |
(1) Plan Category
| | Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
| | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
| | Number of Shares Remaining Available for Future Issuance
Under Equity Compensation
Plans (Excluding Shares Reflected in the First Column)
| |
|
|---|
Equity compensation plans approved by stockholders |
|
16,985,692 |
(1) |
$ |
46.92 |
|
4,643,540 |
(2) |
|
Equity compensation plans not approved by stockholders |
|
15,382 |
(3) |
|
N/A |
|
244,453 |
(4) |
| | | |
| |
| |
| | | | | Total: | | 17,001,074 | | $ | 46.92 | | 4,887,993 | | |
(1)- Represents shares of common stock issuable upon exercise of outstanding options granted under
FedEx'sFedEx’s stock option plans. This number does not include: (a) 363,615139,815 shares of common stock issuable upon exercise of outstanding options granted under plans assumed by FedEx in acquisitions; (b) 11,1608,920 shares of common stock issuable under a retirement plan assumed by FedEx for former non-employee directors of Caliber System, Inc.; and (c) 64,695 46,971shares of common stock issuable under stock credit plans assumed by FedEx in the Caliber acquisition. The weighted average exercise price of outstanding options granted under option plans assumed in acquisitions as of May 31, 20042006 was $21.48.
$20.67.FedEx cannot make any additional awards under these assumed plans, but additional FedEx common stock equivalent units may be issued to current participants under the assumed stock credit plans pursuant to dividend equivalent rights. (2) - Includes
4,140,4407,998,267 option shares available for future grants under FedEx'sFedEx’s stock option plans and 503,100812,012 shares available for future restricted stock grants under FedEx's 1995 RestrictedFedEx’s Incentive Stock Plan, and Incentive Stock Plan. Only treasury shares may be issued under the 1995 Restricted Stock Plan.
- as amended.
(3) - Represents shares of FedEx common stock issuable pursuant to the deferred compensation plan assumed by FedEx in the Caliber acquisition as described on page
45.
- 40.
(4) - Represents the number of shares available for future grants under
FedEx'sFedEx’s 1997 and 2001 Restricted Stock Plans, as amended. Only treasury shares may be issued under these plans.
41
STOCK PERFORMANCE GRAPH The following graph compares the cumulative total return on FedEx’s common stock during the last five fiscal years with the Standard & Poor’s 500 Composite Index and the Dow Jones Transportation Average during the same period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested in FedEx’s common stock and in each of the foregoing indices on May 31, 2001, and assumes the reinvestment of all dividends. The graph depicts the change in the value of FedEx’s common stock relative to the indices as of the end of each fiscal year and not for any interim period. Historical stock performance is not necessarily indicative of future stock price performance. Comparison of Five-Year Cumulative Total Return
(FedEx, S&P 500 Composite Index and Dow Jones Transportation Average) 
| | | Fiscal Year Ended May 31, | | | | | 2001 | | | 2002 | | | 2003 | | | 2004 | | | 2005 | | | 2006 | | FedEx Corporation | | | $100 | | | $135 | | | $161 | | | $185 | | | $226 | | | $277 | | S&P 500 Composite Index | | | 100 | | | 86 | | | 79 | | | 94 | | | 101 | | | 110 | | Dow Jones Transportation Average | | | 100 | | | 94 | | | 86 | | | 104 | | | 128 | | | 168 | |
42
PROPOSAL 2 – AMENDMENTS TO FEDEX’S CERTIFICATE OF INCORPORATION AND BYLAWS TO ELIMINATE SUPERMAJORITY VOTING REQUIREMENTS The Board of Directors recommends that FedEx’s Amended and Restated Certificate of Incorporation, as amended, and Restated Bylaws be amended to remove all supermajority voting requirements. FedEx’s Certificate of Incorporation and Bylaws currently require an 80% supermajority vote of outstanding shares of FedEx common stock for the following actions: · Approving certain business combinations with greater-than-10% stockholders, unless (i) the transaction is approved by a majority of the disinterested directors, or (ii) the stockholders receive a “fair price” and other procedural requirements are met (the “fair price provision”); · Amending or repealing the fair price provision or the requirements in FedEx’s Certificate of Incorporation and Bylaws that (i) stockholder action be taken at a duly called annual or special meeting, and (ii) special meetings be called only by the Board of Directors; and · Dividing the Board into classes with staggered terms. The Board’s proposal, if adopted, would reduce the stockholder approval threshold for these actions to a simple majority of outstanding shares, subject to Section 203 of the Delaware General Corporation Law. At the 2005 annual meeting of FedEx’s stockholders, the stockholders approved a proposal requesting that simple majority voting be required on all matters for which stockholders vote. The purpose of the proposal was to eliminate all supermajority voting requirements from FedEx’s Certificate of Incorporation and Bylaws. Although the proposal was not binding, the Board of Directors and its Nominating & Governance Committee have reexamined the arguments for and against supermajority voting provisions and concluded that it is in the best interests of FedEx’s stockholders to remove all supermajority voting requirements in FedEx’s Certificate of Incorporation and Bylaws. The Board of Directors still believes that these supermajority voting requirements provide some protection against self-interested actions by one or a few large stockholders and encourage persons making unsolicited bids for FedEx to negotiate with the Board. However, the Board recognizes growing public sentiment that elimination of the requirements would increase the Board’s accountability to stockholders. In light of corporate governance trends and growing public sentiment, the Board of Directors has determined that the requirements should now be eliminated. Accordingly, the Board has approved and recommends that FedEx’s stockholders approve the removal of Articles Fifth and Sixth of FedEx’s Certificate of Incorporation and certain amendments to Articles Eighth and Twelfth of FedEx’s Certificate of Incorporation and Article VIII of FedEx’s Bylaws. Attached to this proxy statement as Appendix B is a marked version of Articles Fifth, Sixth, Eighth and Twelfth of FedEx’s Certificate of Incorporation and Article VIII of FedEx’s Bylaws, which reflects the proposed changes (the “Simple Majority Vote Amendments”). Fair Price Provision Article Fifth of FedEx’s Certificate of Incorporation requires the affirmative vote of at least 80% of the outstanding shares of FedEx common stock to approve certain business combinations, including certain mergers, consolidations, security issuances, reclassifications, recapitalizations, liquidations, dissolutions or sales, leases, exchanges, mortgages, pledges or transfers of a specified portion of assets, involving us or any subsidiary and the beneficial owner of more than 10% of FedEx’s outstanding voting stock (a “related person”), unless either (i) the business combination is approved by a majority of the directors who are not affiliated with the related person and who were directors
before the related person became a related person (the “continuing directors”), or (ii) the stockholders receive a “fair price” for their holdings and other procedural requirements are met. In addition, under Article Sixth of FedEx’s Certificate of Incorporation, if the business combination is not approved by a majority of the continuing directors, it must be approved by the affirmative vote of at least a majority of voting stock that is not owned by the related person. The Simple Majority Vote Amendments would repeal Articles Fifth and Sixth of FedEx’s Certificate of Incorporation. If Articles Fifth and Sixth are eliminated, then under Delaware law the holders of only a majority of outstanding voting stock generally would be required to approve the business combinations described above, subject to the following exception. If the transaction constitutes a “business combination” within the meaning of Section 203 of the Delaware General Corporation Law involving a person owning 15% or more of FedEx’s voting stock (referred to as an “interested stockholder”), then the transaction could not be completed for a period of three years after the time the person became an interested stockholder, unless (i) the Board of Directors approved either the business combination or the transaction that resulted in the person becoming an interested stockholder prior to such business combination or transaction, (ii) upon consummation of the transaction that resulted in the person becoming an interested shareholder, that person owned at least 85% of FedEx’s outstanding voting stock (excluding shares owned by persons who are directors and officers of the company and shares owned by certain employee benefit plans of FedEx), or (iii) the business combination was approved by the Board and by the affirmative vote of at least 662¤3% of FedEx’s outstanding voting stock not owned by the interested stockholder. Stockholder Action Article Twelfth of FedEx’s Certificate of Incorporation and Sections 5 and 11 of Article II of FedEx’s Bylaws provide that: (i) any action required or permitted to be taken by the company’s stockholders must be effected at a duly called annual or special meeting and may not be effected by a written consent of the stockholders, and (ii) special meetings of stockholders may be called only by a majority of the entire Board. Article Eighth and Article Twelfth of FedEx’s Certificate of Incorporation currently require the affirmative vote of at least 80% of the outstanding shares of FedEx common stock in order to amend or repeal (i) either of the above-described provisions of Article Twelfth and Sections 5 and 11 of Article II of FedEx’s Bylaws, or (ii) any other provision of Article Eighth, which sets forth certain powers of the Board of Directors. The Simple Majority Vote Amendments would eliminate these supermajority voting requirements of Articles Eighth and Twelfth of FedEx’s Certificate of Incorporation.
Classified Board Article VIII of FedEx’s Bylaws currently requires the affirmative vote of at least 80% of the outstanding shares of FedEx common stock in order to amend the Bylaws for the purpose of dividing the Board of Directors into classes with staggered terms. The Simple Majority Vote Amendments would eliminate this supermajority voting requirement. Vote Required for Approval The affirmative vote of at least 80% of the outstanding shares of FedEx common stock will be required for approval of the Simple Majority Vote Amendments. Abstentions will have the same effect as votes against the proposal. If the Simple Majority Vote Amendments are approved by our stockholders, the Board of Directors will restate FedEx’s Amended and Restated Certificate of Incorporation, as amended, and Restated Bylaws to reflect the Simple Majority Vote Amendments, and the resulting Second Amended and Restated Certificate of Incorporation (reflecting the Simple Majority Vote Amendments) will be executed, acknowledged, filed and recorded in accordance with the Delaware General Corporation Law. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL. 45
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee assists the Board of Directors in its oversight of FedEx'sFedEx’s financial reporting process. The Audit Committee'sCommittee’s responsibilities are more fully described in its charter, which is available on the FedEx Web site atattached to this proxy statement as Appendix Chttp://fdx.client.shareholder.com/governance.cfm.. Management has the primary responsibility for the financial statements and the financial reporting process, including internal control over financial reporting. FedEx’s independent registered public accounting firm is responsible for performing an audit of FedEx’s consolidated financial statements and expressing an opinion on the systemsfair presentation of those financial statements in conformity with United States generally accepted accounting principles. The independent registered public accounting firm also is responsible for performing an audit of and expressing an opinion on (i) management’s assessment of the effectiveness of internal controls. control over financial reporting and (ii) the effectiveness of FedEx’s internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited consolidated financial statements for the fiscal year ended May 31, 2004,2006, including a discussion of, among other things: (i) the acceptability and quality of the accounting principles,principles; (ii) the reasonableness of significant accounting judgments and critical accounting policies and estimates, andestimates; (iii) the clarity of disclosures in the financial statements.statements; and (iv) the adequacy and effectiveness of FedEx’s financial reporting procedures and internal control structure, including FedEx’s disclosure controls and procedures and internal control over financial reporting, and management’s assessment and report on internal control over financial reporting. The Audit Committee also discussed with the Chief Executive Officer and Chief Financial Officer of FedEx their respective certifications with respect to FedEx'sFedEx’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004.2006. The Audit Committee reviewed and discussed with the independent registered public accounting firm which is responsible for expressing an opinion on the conformity of those audited consolidated financial statements with generally accepted accounting principles, theirfor the fiscal year ended May 31, 2006, the firm’s judgments as to the acceptability and quality of FedEx'sFedEx’s accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditingthe standards of the Public Company Accounting Oversight Board (United States), including those matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee also reviewed and discussed with the independent registered public accounting firm their audit of (i) management’s assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of FedEx’s internal control over financial reporting. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with the independent registered public accounting firm those disclosures and other matters relating to independence with the independent registered public accounting firm.firm’s independence. The Audit Committee discussed with FedEx'sFedEx’s internal auditor and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditor and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of FedEx'sFedEx’s internal controls and the overall quality of FedEx'sFedEx’s financial reporting. In reliance on the reviews and discussions referred to above, and the receipt of an unqualified opinionopinions from Ernst & Young LLP dated June 22, 2004 regardingJuly 11, 2006, with respect to the auditedconsolidated financial
statements of FedEx as of and for the fiscal year ended May 31, 2004,2006, and with respect to management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of FedEx’s internal control over financial reporting, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited consolidated financial statements be included in theFedEx’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004,2006, for filing with the Securities and Exchange Commission. | Audit Committee Members | | | John A. Edwardson – Chairman | | | J. Kenneth Glass | | | Joshua I. Smith | | | Peter S. Willmott | |
Audit Committee Members
John A. Edwardson –Chairman
J. Kenneth Glass
Joshua I. Smith
Peter S. Willmott
The foregoing Report on Executive Compensation of the Compensation Committee of the Board of Directors, Stock Performance Graph and Report of the Audit Committee of the Board of Directors shall not be deemed to be soliciting material or to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent FedEx specifically incorporates this information by reference, and shall not otherwise be deemed to be filed with the Securities and Exchange Commission under such Acts.
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AUDIT AND NON-AUDIT FEES
The following table sets forth fees for services Ernst & Young LLP provided to FedEx during fiscal 20042006 and 2003:2005:
|
| | 2004
| | 2003
| | 2006 | | 2005 | |
|---|
| Audit fees | Audit fees | | $ | 7,330,000 | | $ | 5,917,000 | | $ | 12,594,000 | | $ | 14,168,000 | | | Audit-related fees | Audit-related fees | | 369,000 | | 398,000 | | 486,000 | | 466,000 | | | Tax fees | Tax fees | | 1,965,000 | | 1,967,000 | | 370,000 | | 1,438,000 | | | All other fees | All other fees | | 20,000 | | 20,000 | | 20,000 | | 27,000 | | | | |
| |
| | | | Total | | $ | 9,684,000 | | $ | 8,302,000 | | | | |
| |
| | Total | | | $ | 13,470,000 | | $ | 16,099,000 | |
•·Audit Fees. Represents fees for professional services provided for the audit of FedEx'sFedEx’s annual financial statements, andthe audit of FedEx’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, the review of FedEx'sFedEx’s quarterly financial statements and audit services provided in connection with other statutory or regulatory filings.
· •- Audit-Related Fees. Represents fees for assurance services related to the audit of
FedEx'sFedEx’s financial statements. The amounts shownfees for 2004fiscal 2006 and 20032005 include fees primarily for benefit plan audits.
· •- Tax Fees. Represents fees for professional services provided primarily for domestic and international tax compliance and advice. Tax compliance and preparation fees totaled
$1,301,000$34,000 and $842,000 in 2004 and 2003, respectively. While not required, during 2004, FedEx began transitioning from Ernst & Young LLP as its primary tax services provider to PricewaterhouseCoopers LLP. The transition is expected to be completed $649,000in fiscal 2005. Thereafter, tax fees paid by FedEx to Ernst & Young LLP are expected to be minimal.
2006 and 2005, respectively.· •- All Other Fees. Represents fees for products and services provided to FedEx not otherwise included in the categories above.
The amounts shown for fiscal 2006 and 2005 include fees for online technical resources. The amount shown for fiscal 2005 also includes fees for international operational audit services. FedEx'sFedEx’s Audit Committee has determined that the provision of non-audit services by Ernst & Young is compatible with maintaining Ernst & Young'sYoung’s independence.
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PROPOSAL 43 – RATIFICATION OF THE APPOINTMENT OF
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Appointment of Independent Registered Public Accounting Firm Ernst & Young LLP audited FedEx'sFedEx’s annual financial statements for the fiscal year ended May 31, 2004.2006. The Audit Committee has appointed Ernst & Young to be FedEx'sFedEx’s independent registered public accounting firm for the fiscal year ending May 31, 2005.2007. The stockholders are asked to ratify this appointment at the annual meeting. Representatives of Ernst & Young will be present at the meeting to respond to appropriate questions and to make a statement if they so desire. Policies Regarding Independent AuditorRegistered Public Accounting Firm The Audit Committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm. To help ensure the independence of the independent registered public accounting firm, the Audit Committee has adopted two policies: the Policy on Engagement of Independent Auditor and the Policy on Hiring Certain Employees and Partners of the Independent Auditor. The Policy on Engagement of Independent Auditor is available on FedEx'sFedEx’s Web site athttp://fdx.client.shareholder.com/governance.cfmir.fedex.com/governance/Auditor_Policy.cfm. Pursuant to the Policy on Engagement of Independent Auditor, the Audit Committee preapproves all audit services and non-audit services to be provided to FedEx by its independent registered public accounting firm. The Audit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented at the next Audit Committee meeting. The Audit Committee may preapprove for up to one year in advance the provision of particular types of permissible routine and recurring audit-related, tax and other non-audit services, in each case described in reasonable detail and subject to a specific annual monetary limit also approved by the Audit Committee. The Audit Committee must be informed about each such service that is actually provided. In cases where a service is not covered by one of those approvals, the service must be specifically preapproved by the Audit Committee no earlier than one year prior to the commencement of the service. Each audit or non-audit service that is approved by the Audit Committee (excluding tax services performed in the ordinary course of FedEx'sFedEx’s business) will be reflected in a written engagement letter or writing specifying the services to be performed and the cost of such services, which will be signed by either a member of the Audit Committee or by an officer of FedEx authorized by the Audit Committee to sign on behalf of FedEx. The Audit Committee will not approve any prohibited non-audit service or any non-audit service that individually or in the aggregate may impair, in the Audit Committee'sCommittee’s opinion, the independence of the independent registered public accounting firm. In addition, FedEx'sFedEx’s independent registered public accounting firm may not provide any services, to FedEx officers or Audit Committee members, including financial counseling and tax services.services, to any FedEx officer, Audit Committee member or FedEx managing director (or its equivalent) in the Finance department or to any immediate family member of any such person. Pursuant to the Policy on Hiring Certain Employees and Partners of the Independent Auditor, FedEx will not hire a person who is concurrently a partner or other professional employee of the independent registered public accounting firm or, in certain cases, an immediate family member of
such a person. Additionally, FedEx will not hire a former partner or professional employee of the independent registered public accounting firm in an accounting role or a financial reporting oversight role if he or she remains in a position to influence the independent registered public accounting firm'sfirm’s operations or policies, has capital balances in the independent registered public accounting firm or maintains certain other financial arrangements with the independent registered public accounting firm. FedEx will not hire a former member of the independent registered public accounting firm'sfirm’s audit engagement team (with certain exceptions) in a financial reporting oversight role without waiting for a required "cooling-off"“cooling-off” period to elapse.
The FedEx Executive Vice President and Chief Financial Officer will approve any hire who was employed during the preceding three years by the independent registered public accounting firm, and will annually report all such hires to the Audit Committee. Vote Required For Ratification The Audit Committee is responsible for selecting FedEx'sFedEx’s independent registered public accounting firm. Accordingly, stockholder approval is not required to appoint Ernst & Young as FedEx'sFedEx’s independent registered public accounting firm for fiscal year 2005.2007. The Board of Directors believes, however, that submitting the appointment of Ernst & Young to the stockholders for ratification is a matter of good corporate governance. If the stockholders do not ratify the appointment, the Audit Committee will review its future selection of the independent registered public accounting firm. The ratification of the appointment of Ernst & Young as FedEx'sFedEx’s independent registered public accounting firm requires the affirmative vote of a majority of the shares present at the meeting in person or by proxy and entitled to vote. 50
PROPOSAL 4 – STOCKHOLDER PROPOSAL: GLOBAL WARMING REPORT FedEx is not responsible for the content of this stockholder proposal or supporting statement. FedEx has been notified that the Free Enterprise Action Fund, 12309 Briarbush Lane, Potomac, Maryland 20854, the beneficial owner of 111 shares of FedEx common stock, intends to present the following proposal for consideration at the annual meeting: “Global Warming Report Resolved: The shareholders request the Board of Directors to report on the scientific and economic analyses relevant to FedEx’s environmental policy concerning greenhouse gases, omitting proprietary information and at reasonable cost. This report should discuss the: 1. Specific scientific data and studies relied on to formulate FedEx’s greenhouse gas policy. 2. Extent to which FedEx believes human activity will significantly alter global climate, whether such change is necessarily undesirable and whether a cost-effective strategy for mitigating any undesirable change is practical. 3. Estimates of costs and benefits to FedEx of its greenhouse gas policy. Supporting Statement: FedEx’s main responsibility is to create shareholder value. Company policy should be based on sound scientific and economic analyses and not appeasement of external activist groups. Policy based on faulty analyses or external pressure may reduce shareholder value. Calls to mitigate alleged manmade-climate change rely on suppositions that manmade greenhouse gas (GHG) emissions significantly impact global climate; that such climate change will necessarily be undesirable; and that cost-effective action can mitigate undesirable climate change. Climate varies significantly because of natural causes. [National Academy of Sciences (NAS), Natural Climate Variability on Decade-to-Century Time Scales, 1995.] Twentieth century temperature trends do not correlate well with concurrent trends in manmade GHG emissions. Mathematical models attempting to forecast climate change resulting from manmade GHG emissions have not been validated against historical climate data [NAS, Reconciling Observations of Global Temperature Change, 2000.] No existing model forecasts climate with certainty [NAS, Radiative Forcing of Climate Change: Expanding the Concept and Addressing Uncertainties, 2005.] Warm periods are associated with human development and prosperity. The Vikings thrived in Greenland until the 14th century cold period called the “Little Ice Age,” when they abandoned settlements because of encroaching sea ice. The Little Ice Age persisted until the 19th Century and immediately preceded the current warming trend. [NAS 1995.] The Kyoto Protocol’s mandatory GHG emission reductions may “avoid” just 0.07 degrees Centigrade of warming through 2050 at an estimated cost of as much as 2% of GDP per year. [United Nations, Third Assessment Report, 2001.]
The U.S. Senate has rejected mandatory limits on manmade GHG emissions as being too costly relative to uncertain benefits. FedEx says it is committed to minimizing GHG emissions from its operations and products. FedEx is purchasing new hybrid electrically-powered trucks and blocks of so-called “renewable energy” to reduce GHG emissions. Such purchases may cost more than conventional trucks and energy without providing commensurate benefits to the Company or the environment. FedEx supports or cooperates with activist groups that advocate mandatory GHG emissions limits, including Environmental Defense and World Resources Institute. Laws and regulations limiting GHG emissions are expected to increase energy costs. FedEx acknowledges in its 2005 Annual Report that higher fuel costs can adversely impact operating income. FedEx’s direct or indirect support for mandatory GHG regulation could harm shareholder value without providing any benefit to the environment.” Board of Directors’ Statement in Opposition The Board of Directors and its Nominating & Governance Committee have considered this proposal and concluded that its adoption would not be in the best interests of our stockholders. We certainly agree that our main responsibility is to create shareholder value. The purpose (and, we believe, the effect) of our environmental policy decisions is precisely to fulfill that responsibility. While our environmental initiatives have the effect of protecting the environment and advancing the cause of environmental advocates who share our belief in effective environmental and business policy, we undertake the initiatives for business reasons. Not only are the initiatives good for the environment, they are in the best interests of FedEx and our stockholders. As described in our environmental policy statement, we are committed to using innovations and technologies to minimize atmospheric emissions (including greenhouse gases). We reduce greenhouse gases by increasing our fuel and energy efficiency, thereby reducing our fuel and energy usage. For example: · The FedEx Express OptiFleet E700 hybrid electric vehicle not only decreases particulate emissions by over 90 percent and decreases greenhouse gas emissions by over 25 percent, but also increases fuel economy by over 40 percent. · In August 2005, we opened California’s then largest corporate solar electric system atop the FedEx Express regional hub in Oakland. Besides being environmentally friendly, the Oakland solar project is intended to reduce our long-term costs for energy in California and hedge against future increases in energy costs. To date, this solar electric system has provided over 900,000 kilowatt hours of renewable energy generated by sunlight. · We are modernizing our aircraft fleet – for example, retiring and replacing older Boeing 727s with newer aircraft – which will have the effect not only of reducing greenhouse gas emissions and airport noise, but also increasing our jet fuel efficiency. We must purchase large quantities of fuel and other forms of energy to operate our aircraft, vehicles and facilities, and the price and availability of fuel and other traditional energy sources can be
unpredictable and beyond our control. Moreover, we believe that more stringent governmental regulation of greenhouse gas emissions and energy efficiency is possible, if not likely. In anticipation of potential price increases, supply shortages or disruptions and regulatory requirements, we owe our stockholders a duty to be proactive in finding opportunities to reduce our reliance on fuel and other traditional energy sources – by increasing our energy efficiency and exploring the use of alternative energy sources. In sum, this proposal is unnecessary, as all of our environmental policy decisions are already intended to promote and protect the economic future of FedEx and our stockholders and employees, and we do not believe that FedEx’s resources are best spent preparing and publishing a “global warming report” on the extent to which “human activity will significantly alter global climate.” Accordingly, we recommend that you vote against this proposal. Vote Required for Approval If this proposal is properly presented at the meeting, approval requires the affirmative vote of a majority of the shares present at the meeting in person or by proxy and entitled to vote. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL. 53
PROPOSAL 5 – STOCKHOLDER PROPOSAL: MAJORITY VOTING FOR DIRECTOR ELECTIONS FedEx is not responsible for the content of this stockholder proposal or supporting statement. FedEx has been notified that the International Brotherhood of Teamsters General Fund, 25 Louisiana Avenue, N.W., Washington, D.C. 20001, the beneficial owner of 176 shares of FedEx common stock, intends to present the following proposal for consideration at the annual meeting: “RESOLVED: That the shareholders of FedEx Corporation (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s governance documents (certificate of incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders. STATEMENT OF SUPPORT:Our Company is incorporated in Delaware. Among other issues, Delaware corporate law addresses the issue of the level of voting support necessary for a specific action, such as the election of corporate directors. Delaware law provides that a company’s certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). Further, the law provides that if the level of voting support necessary for a specific action is not specified in the certificate of incorporation or bylaws of the corporation, directors “shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.” Our Company presently uses the plurality vote standard for the election of directors. We feel that it is appropriate and timely for the Board to initiate a change in the Company’s director election vote standard. Specifically, this shareholder proposal urges that the Board of Directors initiate a change to the director election vote standard to provide that in director elections a majority vote standard will be used in lieu of the Company’s current plurality vote standard. Specifically, the new standard should provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board. Under the Company’s current plurality vote standard, a director nominee in a director election can be elected or re-elected with as little as a single affirmative vote, even while a substantial majority of the votes cast are “withheld” from that director nominee. So even if 99.99% of the shares “withhold” authority to vote for a candidate or all the candidates, a 0.01% “for” vote results in the candidate’s election or re-election to the board. The proposed majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board. It is our contention that the proposed majority vote standard for corporate board elections is a fair standard that will strengthen the Company’s governance and the Board. Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent directors who fail to receive a majority vote when standing for re-election under a majority vote standard or whether a plurality director election standard is appropriate in contested elections. We urge your support FOR this important director election reform.” Board of Directors’ Statement in Opposition The Board of Directors and its Nominating & Governance Committee oppose this proposal because the proposed change is unnecessary and has the potential to disrupt FedEx’s highly effective corporate governance processes. Moreover, making this fundamental change right now would be premature.
The proposed change is unnecessary.The system of plurality voting, which the proponent seeks to replace, has long been the accepted system among major U.S. companies, and the rules governing plurality voting are well known and understood. Plurality voting for director elections also continues to be the default system under Delaware law and most other state corporate laws. In June 2006, the American Bar Association’s Committee on Corporate Laws made official its decision to retain the default system of plurality voting in the ABA’s Model Business Corporation Act, to which lawmakers in many states (other than Delaware) refer in drafting state corporate laws. Given the practical issues raised by implementation of the majority voting concept, the ABA Committee concluded that it would be “unwise to change the statutory plurality default rule” to a majority vote standard. Using the longstanding plurality-voting standard, our stockholders have always elected extremely qualified and experienced directors with the highest level of personal and professional ethics, integrity and values. All but two of FedEx’s 13 current directors qualify as independent under the Board’s director independence standards, which are stricter than applicable legal requirements. FedEx’s Audit and Compensation Committees and its Nominating & Governance Committee, which is responsible for recommending our director nominees, are each composed entirely of independent directors. It is also worth noting that no FedEx Corporation director has ever received less than 80% of the total votes cast, so the proposed change would not have had any effect on the composition of FedEx’s Board of Directors. The proposed change would raise difficult issues and have potentially disruptive consequences.Existing provisions of Delaware law would prevent this proposal from achieving its intended goal of electing directors by a majority vote and removing directors who do not receive a majority vote. Under Delaware law, a director serves until a successor is elected and qualified, and a director may only be removed by a majority vote of the stockholders. Therefore, even if this proposal is adopted, an incumbent director who does not receive a majority vote will nonetheless continue to hold office because no successor will have been elected. Likewise, a new director nominee who does not receive a majority vote will cause an incumbent director not standing for election to hold over until the next election of directors. Of course, an unelected “holdover” director could resign, but then the Board of Directors would be responsible for appointing someone to fill the resulting vacancy. Having the Board appoint directors is less democratic than having stockholders elect them by plurality vote. Using a majority vote standard for director elections would effectively transform an abstention or withheld vote into a vote against a Board nominee, and this may not be the intent of each stockholder. It is worth noting that in June 2006 the Proxy Working Group of the New York Stock Exchange recommended amending NYSE rules to eliminate broker discretionary voting in director elections. Currently, NYSE rules permit a broker to vote the shares it holds on behalf of the beneficial holder of the shares on routine matters, such as uncontested director elections, if the broker does not receive voting instructions from the beneficial owner within a specified time period. Elimination of this broker discretionary vote would significantly reduce the number of votes cast in favor of directors in uncontested elections. As a result, a sizeable withhold vote could prevent a director from receiving the support of a majority of votes cast and thus from being elected under a majority voting standard. If this proposal is adopted and especially if the NYSE’s recommended amendment is approved, we might need to implement costly vote-getting strategies, even in routine elections, to ensure director nominees obtain the required vote. The Board does not believe such increased spending would be an optimal use of company funds. The Board also believes this proposal would foster contested elections, which would expose our stockholders to additional unnecessary expense and uncertainty. Contested elections would also hamper the Board’s efforts to attract and retain the best director candidates, who typically have many
opportunities to serve as directors of other large public companies with plurality voting systems. In addition, the proposed change would impair stockholders’ ability to elect their favored director candidate in a contested election by requiring a higher threshold than a plurality vote. Making the proposed change now would be premature.Governmental entities, scholars and corporations, including FedEx, continue to research the desirability and mechanics of implementing a change to the voting standard for director elections. We recognize that over the past year several companies have voluntarily initiated various changes in their director election requirements. A consensus has not yet developed, however, as to the most workable solution. We will continue to monitor developments and be prepared to take whatever action is appropriate to further our longstanding commitment to first-rate corporate governance. At this point in time, however, we believe that the proposed change would raise many difficult issues and perhaps have unintended, unforeseen, unnecessary and potentially harmful consequences for our stockholders. Accordingly, we recommend that you vote against this proposal. Vote Required for Approval If this proposal is properly presented at the meeting, approval requires the affirmative vote of a majority of the shares present at the meeting in person or by proxy and entitled to vote. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “AGAINST” THIS PROPOSAL. 56
OTHER MATTERS
We knowFedEx’s Bylaws require stockholders to give advance notice of no other business that willany proposal intended to be presented at the annual meeting. The deadline for this notice has passed and we have not received any such notices. If any other matter properly comes before the stockholders for a vote at the meeting, however, the proxy holders will vote your shares in accordance with their best judgment.
ADDITIONAL INFORMATION
Proxy Solicitation FedEx will bear all costs of this proxy solicitation. In addition to soliciting proxies by this mailing, we expect that our directors, officers and regularly engaged employees may solicit proxies personally or by mail, telephone, facsimile or other electronic means, for which solicitation they will not receive any additional compensation. FedEx will reimburse brokerage firms, custodians, fiduciaries and other nominees for their out-of-pocket expenses in forwarding solicitation materials to beneficial owners upon our request. FedEx has retained Morrow & Co., Inc. to assist in the solicitation of proxies for a fee of up to $25,000, which includes$10,000 plus reimbursement of certain disbursements and expenses. Householding We have adopted a procedure approved by the Securities and Exchange Commission called "householding."“householding.” Under this procedure, stockholders of record who have the same address and last name and do not participate in electronic delivery will receive only one copy of this proxy statement and the 20042006 Annual Report to Stockholders, unless contrary instructions have been received from one or more of these stockholders. This procedure will reduce our printing costs and postage fees. Stockholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of our annual report or proxy statement, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of
our annual report or proxy statement for your household, please contact our transfer agent, EquiServeComputershare Trust Company, N.A. (in writing: P.O. Box 43069, Providence, Rhode Island 02940-3069; by telephone: in the U.S. or Canada, 1-800-446-2617; outside the U.S. or Canada, 1-781-575-2723). If you participate in householding and wish to receive a separate copy of this proxy statement or the 20042006 Annual Report, or if you do not wish to participate in householding and prefer to receive separate copies of future annual reports or proxy statements, please contact EquiServeComputershare as indicated above. A separate copy of this proxy statement and the 20042006 Annual Report will be delivered promptly upon request. Beneficial stockholders who are not record holders can request information about householding from their banks, brokers or other holders of record. Stockholder Proposals for 20052007 Annual Meeting Stockholder proposals intended to be presented at FedEx's 2005FedEx’s 2007 annual meeting must be received by FedEx no later than April 18, 200516, 2007 to be eligible for inclusion in FedEx'sFedEx’s proxy statement
and form of proxy for next year'syear’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120. For any proposal that is not submitted for inclusion in next year'syear’s proxy statement (as described in the preceding paragraph), but is instead sought to be presented directly at the 20052007 annual meeting, including nominations of director candidates, FedEx'sFedEx’s Bylaws require stockholders to give advance notice of such proposals. The required notice must be given no more than 120 days and no less than 90 days in advance of the anniversary date of the immediately preceding annual meeting. Accordingly, with respect to our 20052007 annual meeting of stockholders, our Bylaws require notice to be provided to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120, as early as May 30, 200528, 2007 but no later than June 29, 2005.27, 2007. If a stockholder fails to provide timely notice of a proposal to be presented at the 20052007 annual meeting, the chairman of the meeting will declare it out of order and disregard any such matter. | | By order of the Board of Directors, |
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| | | KENNETH R. MASTERSON | | | Secretary | | | CHRISTINE P. RICHARDS | |
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APPENDIX A FedEx Corporation STANDARDS OF DIRECTOR INDEPENDENCE A director will be considered “independent” only if the Board affirmatively determines that the director has no direct or indirect “material relationship” with FedEx, other than as a director. In making its independence determinations, the Board will broadly consider all relevant facts and circumstances. In addition, the Board will assume that each of the following relationships is not a “material relationship” and therefore will not, by itself, prevent a director from being considered “independent”:
·APPENDIX A
Prior Employment of Director. The director was employed by FedEx or was personally working on FedEx’s audit as an employee or partner of FedEx’s independent auditor, and over five years have passed since such employment, partner or auditing relationship ended.
·Prior Employment of Immediate Family Member. An immediate family member was an officer of FedEx or was personally working on FedEx’s audit as an employee or partner of FedEx’s independent auditor, and over five years have passed since such employment, partner or auditing relationship ended. ·Current Employment of Immediate Family Member. An immediate family member is employed by FedEx in a non-officer position, or by FedEx’s independent auditor not as a partner and not participating in the firm’s audit, assurance or tax compliance practice. ·Interlocking Directorships. An executive officer of FedEx served on the board of directors of a company that employed the director or employed an immediate family member as an executive officer, and over five years have passed since either such relationship ended. ·Business Relationships. The director or an immediate family member is a partner, greater than 10% shareholder, director or officer of a company that makes or has made payments to, or receives or has received payments (other than contributions, if the company is a tax-exempt organization) from, FedEx for property or services, and the amount of such payments has not within any of such other company’s three most recently completed fiscal years exceeded one percent (or $1 million, whichever is greater) of such other company’s consolidated gross revenues for such year. ·Indebtedness. A director or an immediate family member is a partner, greater than 10% shareholder, director or officer of a company that is indebted to FedEx or to which FedEx is indebted, and the aggregate amount of such debt is less than one percent (or $1 million, whichever is greater) of the total consolidated assets of the indebted company. ·Charitable Contributions. A director is a trustee, fiduciary, director or officer of a tax-exempt organization to which FedEx contributes, and the contributions to such organization by FedEx have not within any of such organization’s three most recently completed fiscal years exceeded one percent (or $250,000, whichever is greater) of such organization’s consolidated gross revenues for such year. An “immediate family member” includes a director’s spouse, parents, children, siblings, mother- and father-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares such director’s home. A-1
If the Board determines that a director who has a relationship with FedEx that does not satisfy the above categorical standards is nonetheless “independent,” the Board will disclose the basis for such determination in FedEx’s annual proxy statement. The Board will continue to monitor the applicable independence requirements of the New York Stock Exchange and any other law and will ensure that these standards of director independence continue to be consistent with those requirements. Directors have an affirmative obligation to inform the Board of any changes in their circumstances or relationships that may impact their designation by the Board as “independent.” A-2
APPENDIX B
PROPOSED AMENDMENTS TO FEDEX CORPORATION'S
SECONDFEDEX’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, AND RESTATED BYLAWS
Proposed Amendments to Certificate of Incorporation ARTICLE FIFTH: Certain Business Combinations Article III, Sections 1 and 21. Higher Vote for Certain Business Combinations. In addition to any affirmative vote of FedEx's Secondholders of a class or series of capital stock of the Corporation required by law or this Amended and Restated Bylaws are amendedCertificate of Incorporation, and except as otherwise expressly provided in paragraph 2 of this ARTICLE FIFTH, a Business Combination (as hereinafter defined) with or upon a proposal by a Related Person (as hereinafter defined) shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to read as follows:
Section 1. Number, Election and Termvote generally in the election of Directors. The number of directors which shall constitute the whole boardDirectors (the “Voting Stock”). Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise.
2. When Higher Vote is Not Required. The provisions of paragraph 1 of this ARTICLE FIFTH shall not more than fifteen, withbe applicable to a particular Business Combination and such Business Combination shall require only such affirmative vote as is required by law and other provisions of this Amended and Restated Certificate of Incorporation, if all of the exact number to be determined from time to timeconditions specified in either of the following paragraphs (A) or (B) are met:
(A) Approval by the board of directors. At each annual meeting of stockholders, all directors shall be elected for a term expiring at the next succeeding annual meeting of stockholders. Each director shall hold office until his or her successorDirectors. The Business Combination has been duly elected and qualified or until his or her earlier disqualification, death, resignation or removal. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director.
Section 2. Newly Created Directorships and Vacancies. Vacancies and newly created directorships resulting from an increase in the authorized number of directors shall be filledapproved by a majority of the directorsContinuing Directors (as hereinafter defined).
(B) Price and Procedure Conditions. All of the following conditions shall have been met:
(1) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following:
(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealer’s fees) paid by the Related Person for any shares of Common Stock acquired by it (a) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”) or (b) in the transaction in which it became a Related Person, whichever is higher; or
(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Related Person became a Related Person (such latter date is referred to in this ARTICLE FIFTH as the “Determination Date”), whichever is higher; or
(2) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Shares of any other class or series of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this-paragraph 2(B)(2) shall be required to be met with respect to every class of outstanding Voting Stock whether or not the Related Person has previously acquired any shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share price (including any broker commissions, transfer taxes and soliciting dealers’ fees), paid by the Related Person for any shares of such class or series of Voting Stock acquired by it (a) within the two-year period immediately prior to the Announcement Date or (b) in the transaction in which it became a Related Person, whichever is higher;
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(ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and
(iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.
(3) The consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Related Person has previously paid for shares of such class of Voting Stock. If the Related Person has paid for shares of any class or series of Voting Stock with varying forms of consideration, the form of consideration given for such class or series of Voting Stock in the Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Stock previously acquired by it.
(4) No Extraordinary Event (as hereinafter defined) shall have occurred after the Related Person became a Related Person and prior to the consummation of the Business Combination.
(5) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) is mailed to public stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required pursuant to such Act or subsequent provisions).
3. Certain Definitions. For purposes of this ARTICLE FIFTH:
(A) A “person” shall mean any individual, firm, corporation or other entity.
(B) The term “Business Combination” shall mean any of the following transactions, when entered into by the Corporation or a subsidiary of the Corporation with, or upon a proposal by, a Related Person or any other corporation (whether or not itself a Related Person which is, or after such transaction would be, an Affiliate (as hereinafter defined) of a Related Person:
(1) the merger or consolidation of the Corporation or any subsidiary of the Corporation; or
(2) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a series of transactions) of any assets of the Corporation or any subsidiary of the Corporation having an aggregate Fair Market Value of $5,000,000 or more;
(3) the issuance or transfer by the Corporation or any subsidiary of the Corporation (in one or a series of transactions) of securities of the Corporation or that subsidiary having an aggregate Fair Market Value of $5,000,000 or more; or
(4) the adoption of a plan or proposal for the liquidation or dissolution of the Corporation; or
(5) the reclassification of securities (including a reverse stock split), recapitalization, consolidation or any other transaction (whether or not involving a Related Person) which has the direct or indirect effect of increasing the voting power, whether or not then exercisable, of a Related Person in any class or series of capital stock of the Corporation or any subsidiary of the Corporation; or
(6) any agreement, contract or other arrangement providing directly or indirectly for the foregoing.
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(C) The term “Related Person” shall mean any person (other than the Corporation, a subsidiary of the Corporation or any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or a subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan acting in such capacity) which:
(1) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock, or
(2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Related Person, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
(D) A person shall be a “beneficial owner” of any Voting Stock:
(1) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
For the purposes of determining whether a person is a Related Person pursuant to subparagraph (C) of this paragraph 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (D) of this paragraph 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(E) The term “Continuing Director” shall mean any member of the Board of Directors who is not affiliated with a Related Person and who was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor to a Continuing Director who is not affiliated with the Related Person and is recommended to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board of Directors.
(F) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as in effect on August 1, 1984.
(G) The term “Extraordinary Event” shall mean, as to any Business Combination and Related Person, any of the following events that is not approved by a majority of the Continuing Directors:
(1) any failure to declare and pay at the regular date therefor any full quarterly dividend (whether or not cumulative) on outstanding Preferred or Preference Stock; or
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(2) any reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock); or
(3) any failure to increase the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification, (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock; or
(4) any Related Person shall become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which resulted in such Related Person becoming a Related Person; or
(5) the receipt by the Related Person, after such Person has become a Related Person, of a direct or indirect benefit (except proportionately as a shareholder) from any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any subsidiary of the Corporation, whether in anticipation of or in connection with the Business Combination or otherwise.
(H) “Fair Market Value” means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in office, thoughuse, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith.
(I) In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in subparagraphs B(1) and (2) of paragraph 2 of this ARTICLE FIFTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.
4. Powers of the Board of Directors. A majority of all Continuing Directors shall have the power to make all determinations with respect to this ARTICLE FIFTH, on the basis of information known to them after reasonable inquiry, including, without limitation, the transactions that are Business Combinations, the persons who are Related Persons, the number of shares of Voting Stock owned by any person, the time at which a Related Person becomes a Related Person and the Fair Market Value of any assets, securities or other property, and any such determinations of such Directors shall be conclusive and binding.
5. No Effect on Fiduciary Obligations of Related Persons. Nothing contained in this ARTICLE FIFTH shall be construed to relieve any Related Person from any fiduciary obligation imposed by law.
6. Amendment or Repeal. The affirmative vote of the holders of not less than 80% of the total voting power of the Voting Stock of the Corporation, voting together as a quorum,single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this ARTICLE FIFTH.[Repealed]
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ARTICLE SIXTH: In addition to any affirmative vote of holders of a class or series of capital stock of the Corporation required by law or this Amended and Restated Certificate of Incorporation, unless the Business Combination (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation) has been approved by a sole remaining director,majority of the Continuing Directors (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation), a Business Combination with or upon a proposal by a Related Person (as defined in ARTICLE FIFTH of this Amended and Restated Certificate of Incorporation) shall require the directors so chosen shall hold office untilaffirmative vote of the next annual meetingholders of stockholders and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitutenot less than a majority of the whole boardVoting Stock (as constituted immediately prior to any such increase), the Courtdefined in ARTICLE FIFTH of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Article VIII of FedEx's Secondthis Amended and Restated BylawsCertificate of Incorporation) beneficially owned by stockholders other than such Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law or in any agreement with any national securities exchange or otherwise.
The affirmative vote of the holders, other than the Related Person proposing the amendment, repeal or adoption of any provision inconsistent with this ARTICLE SIXTH, of not less than a majority of the Voting Stock of the Corporation, voting together as a single class, shall be required in order to amend, repeal or adopt any provision inconsistent with this ARTICLE SIXTH.[Repealed]
* * * * * * * * * * * * ARTICLE EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: The Board of Directors shall have power to make, alter, amend and repeal the By-laws (except so far as the By-laws adopted by the stockholders shall otherwise provide). Any By-laws made by the Directors under the powers conferred hereby may be altered, amended or repealed by the Directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to readthe contrary, Sections 5 and 11 of Article II of the By-laws shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote generally in the election of Directors, voting together as follows:a single class. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this ARTICLE EIGHTH. To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board, to designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The By-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such B-5
absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in the By-laws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Amended and Restated Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and, unless the resolution or By-laws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with statute, to sell, lease or exchange all or substantially all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the Corporation. * * * * * * * * * * * * ARTICLE TWELFTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this ARTICLE TWELFTH. * * * * * * * * * * * * Proposed Amendments to Bylaws ARTICLE VIII. AMENDMENTS Subject to the provisions of the certificate of incorporation of the corporation, these bylaws may be altered, amended or repealed, or new bylaws may be adopted, by the stockholders or by the board of directors. Notwithstanding the foregoing and anything contained in these bylaws to the contrary, Sections 1 and 2 of Article III herein shall not be altered, amended or repealed for the purpose of dividing the board of directors into classes with staggered terms and no provision inconsistent therewith shall be adopted for such purpose without the affirmative vote of the holders of at least 80%a majority of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. Notwithstanding anything contained in these bylaws to the contrary, the affirmative vote of the holders of at least 80%a majority of the voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal the preceding sentence of this Article VIII.
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APPENDIX C
APPENDIX B
FedEx Corporation
INCENTIVE STOCK PLAN
1. PurposeAUDIT COMMITTEE CHARTER
Purpose The purpose of the FedEx Corporation Incentive Stock Plan (the "Plan")Audit Committee is to: · Oversee the independent auditor’s qualifications, independence and performance, and preapprove all audit and allowable non-audit services to aidbe provided by the Company and its subsidiaries in securing and retaining key employees and directorsindependent auditor; · Assist Board oversight of outstanding ability and to motivate them to exert their best efforts to achieve(i) the long-term goalsintegrity of the CompanyCompany’s financial statements and its subsidiaries. The Company believes thatother financial information; (ii) the ownership or increased ownershipeffectiveness of the Company's Common Stock by employeesCompany’s disclosure controls and directors will further align their interests with thoseprocedures and internal control over financial reporting; (iii) the performance of the Company's other stockholdersCompany’s internal auditors; and will promote(iv) the long-term success ofCompany’s compliance with legal and regulatory requirements; and · Prepare the Company. 2. Definitions
Unless the context clearly indicates otherwise, for purposes of the Plan, the following terms shall have the respective meanings indicated below:
"Award" means an award granted under the Plan, which mayaudit committee report required to be included in the formCompany’s annual proxy statement.
Membership The Audit Committee shall consist of Restricted Shares or a Stock Option. "Boardsuch number of Directors" meansmembers of the Board of Directors as shall be appointed by the Board from time to time, but in no event shall the Committee consist of fewer than three members. The Board of Directors shall designate the Chairperson of the Company.
"Code" meansCommittee. The Board of Directors may change the Internal Revenue Code of 1986, as amended. A reference to any provisionmembership of the Code shall include reference toCommittee at any successor provisiontime.
The members of the Code. "Common Stock" meansCommittee shall meet the common stock, par value $0.10 per share,applicable independence and qualification requirements of the Company.
"Company" means FedEx Corporation, a Delaware corporation.
"New York Stock Exchange Act" meansand the Securities Exchange Act of 1934, including all rules and regulations thereunder, as amended. A referencewell as any other legal requirements applicable to any provisionCommittee members.
Functions, Powers and Responsibilities The Audit Committee shall: Independent Auditor 1. Be directly responsible for, and have the sole authority with respect to, the appointment, retention, replacement, compensation, evaluation and oversight of the Exchange Act or rule promulgated underCompany’s independent auditor (including resolution of any disagreements between management and the Exchange Actindependent auditor), which will report directly to the Committee. The Committee may consult with management, but shall include reference to any successor provision or rule.not delegate these responsibilities. "Incentive Stock Option" means a Stock Option or portion thereof that is intended2. Preapprove, in accordance with applicable law, all audit and allowable non-audit services to be provided by the independent auditor, and oversee the disclosure of information related to the categories of services provided by, and fees paid to, the independent auditor. The Committee shall approve any audit or non-audit service to be provided by the independent auditor within one year prior to the commencement of such service.
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3. Review and discuss, prior to the filing of an "incentive stock option"audit report with the Securities and Exchange Commission, a report from the independent auditor regarding (i) all critical accounting policies and practices to be used; (ii) all alternative treatments of financial information within GAAP for policies and practices related to material items that have been discussed with management, ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditor; and (iii) other material written communications between the independent auditor and management. 4. Receive and review, at least annually, a report from the independent auditor describing (i) the independent auditor’s internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review or peer review, or by any inquiry or investigation by governmental or professional authorities, within the meaning of Section 422 ofpreceding five years, respecting one or more audits performed by the Codeindependent auditor, and any steps taken to address any such issues; and (iii) all relationships between the independent auditor and the regulations promulgated thereunder.Company. "Non-Management Director" means a member of5. Annually evaluate, and report to the Board of Directors who is not an employeewith respect to, the qualifications, performance and independence of the independent auditor and the lead audit partner.
6. Review and discuss with the independent auditor (i) the scope and results of each independent audit of the Company (including any difficulties encountered by the auditor and any significant disagreements with management), (ii) any related management letter, and (iii) management’s responses to recommendations made or difficulties encountered by the independent auditor in connection with the audit. Internal Auditors 7. Review the appointment and replacement, and annually review the performance, of the senior internal auditing executive. 8. Periodically review and discuss with the independent auditor the organizational structure, responsibilities, budget and staffing of the internal audit department. 9. Review the annual audit plan of the internal audit department and the results of any of its subsidiaries. "Non-Qualified Option" means a Stock Option or portion thereof that is not an Incentive Stock Option.
"Participant" means any individual who receives an Award.
"Restricted Shares" means shares of Common Stock granted under the Planaudits that are subjectsignificant to certain restrictions as providedthe Company’s system of internal controls and management’s responses to such reports.
Financial Reporting 10. Review and discuss with management and the independent auditor the Company’s quarterly and annual financial reports, including management’s discussion and analysis of financial condition and results of operations, any certification, report, opinion or review rendered by the independent auditor inSection 8. connection with such reports and any communications required by professional standards between the independent auditor and the Committee prior to the public release of such information. "Restricted Stock Award" means a grant11. Recommend to the Board of Restricted Shares underDirectors whether the Plan.
"Stock Option" is a right granted underaudited annual financial statements should be included in the Plan to purchase a specified number of shares of Common Stock at a specified price. A Stock Option may be an Incentive Stock Option or a Non-Qualified Option.Company’s Annual Report on Form 10-K.
3. Term12. Review and discuss with management and the independent auditor (i) significant accounting and financial reporting issues and judgments made in connection with the preparation of the Plan
The Plan shall be effectiveCompany’s financial statements and other public reports, including the Company’s selection and application of significant accounting principles; (ii) any major issues as to the adequacy of the dateCompany’s internal controls and any special audit steps adopted in light of material control deficiencies; (iii) the development, selection and disclosure of critical accounting policies and estimates; (iv) the effect of financial reporting and accounting initiatives and any related party or off-balance sheet transactions on which it is approvedthe Company’s financial statements; and (v) any analyses prepared by
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management or the independent auditor of the effect of alternative assumptions, estimates or GAAP methods on the Company’s financial statements. 13. Review and discuss generally with management the types of information to be disclosed and the types of presentations to be made in the Company’s earnings press releases and in any financial information and earnings guidance provided by the Company's stockholders. UnlessCompany to analysts and rating agencies. Internal Control Structure 14. Review, and discuss with management, the Plan is earlier terminated in accordance withindependent auditor and the provisions hereof, no Award shall be granted undersenior internal auditing executive, the Plan after May 31, 2013, but outstanding Stock Optionsadequacy and restrictions on Restricted Shares may extend beyond such date. 4. Administrationeffectiveness of the PlanCompany’s (i) financial reporting procedures, and (ii) internal control structure, including its disclosure controls and procedures and internal control over financial reporting (including any material weaknesses, significant deficiencies or significant changes to internal controls).
15. Review and discuss with management, the independent auditor and the senior internal auditing executive the Company’s annual internal control report and the independent auditor’s attestation to such report. (a) The CommitteeRisk Assessment and Risk Management. The Plan shall be administered
16. Review and discuss with management (i) the guidelines and policies that govern the processes by those members, not less than two,which the Company assesses and manages its exposure to risk, and (ii) the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures. Code of Business Conduct & Ethics 17. Periodically review the accounting- and auditing-related portions of the CompensationCompany’s Code of Business Conduct & Ethics and recommend any proposed changes to the Nominating & Governance Committee of the Board of Directors, each of whom qualifies as both an "outside director" withinDirectors. Other 18. Prepare the meaning of Section 162(m)audit committee report required to be included in the Company’s annual proxy statement. 19. Periodically review the Company’s policy for hiring employees and former employees of the CodeCompany’s current and a "non-employee director" as defined in Rule 16b-3 underformer independent auditors. 20. Periodically review the Exchange Act (the "Committee").Company’s procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and (ii) the confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters. (b) Authority21. Meet separately, periodically, with management, with the senior internal audit executive (and other members of the Committee.internal audit staff, as appropriate) and with the independent auditor.
(1) Subject22. Discuss with the Company’s General Counsel or his designees any legal matters that may have a material impact on the Company’s financial statements or compliance policies relating to accounting or auditing matters.
23. Have the authority, to the provisions ofextent the Plan, the Committee shall have sole and complete authority and discretion to: (i) select Participants and make Awards; (ii) determine the types of Awards and the number of shares of Common Stock covered by Awards; (iii) establish the terms, conditions, restrictions and other provisions of Awards; and (iv) amend, modify, cancel or suspend Awards. (2) The Committee shall have sole and complete authority and discretion to interpret the Plan and all agreements and other documents and instruments relating to Awards, to adopt, amend and rescind rules for the administration of the Plan and to make such other determinations and take such other actions that it deems necessary or advisableappropriate to carry out its duties, to retain independent legal, accounting or other advisors and to approve each such advisor’s fees and other retention terms.
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24. Determine the appropriate funding for and direct the effective administrationpayment by the Company of (i) compensation to the Plan. (3) All decisionsindependent auditor, (ii) compensation to any independent legal, accounting or other advisors retained by the Committee, and (iii) ordinary administrative expenses of the Committee relatingthat are necessary or appropriate in carrying out its duties.
25. Annually review the Committee’s own performance, and report the results of such review to the Plan or any Award shall be final, conclusive and binding on all persons. Committee decisions shall be made by a majority of its members present at any meeting at which a quorum is present. Any decision reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made at a meeting duly held. (c) Limitation of Liability. Neither the Board of Directors norDirectors.
26. Annually review and reassess the Committee, noradequacy of this charter and recommend any member of either, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan or any Award. 5. Types of Awards
The Committee may grant Stock Options and Restricted Shares under and subject to the provisions of the Plan.
6. Stock Subject to the Plan
(a) Restricted Shares. The maximum number of shares of Common Stock available to be issued under the Plan pursuant to Restricted Stock Awards is 500,000 shares (subject to adjustment as provided inSection 14).
(b) Stock Options. The maximum number of shares of Common Stock that may be optioned and sold under the Plan pursuant to Stock Options is 5,000,000 shares (subject to adjustment as provided inSection 14).
(c) Restoration of Shares. To the extent any shares of Common Stock covered by an Award are forfeited, not issued or cease to be issuable for any reason, including, without limitation, because the Award is terminated, canceled or expires unexercised, then the shares of Common Stock subject to such Award may again be used for further Awards under the Plan.
(d) Source of Stock. Shares of Common Stock issued under the Plan may consist, in whole or in part, of authorized but unissued shares or treasury shares. No fractional shares of Common Stock shall be issued under the Plan.
7. Eligibility and Participation in the Plan
(a) Eligible Recipients. Unless otherwise determined by the Committee,
(1) key employees, including officers, of the Company and its subsidiaries who are from time to time responsible for the management, growth and protection of the business of the Company and its subsidiaries are eligible to receive Restricted Shares and Stock Options; and
(2) Non-Management Directors are eligible to receive Stock Options, but not Restricted Shares.
(b) Grant of Awards. The Committee shall, in its sole and complete discretion and subject to the provisions of the Plan, (1) select from time to time the employees, from among those eligible, who shall receive Awards, (2) determine the type of Award to be granted and (3) determine and establish the terms, provisions, conditions and restrictions of each Award, including the number of shares of Common Stock subject to the Award. Subject to the provisions of the Plan, Awards may be granted singly or in combination with other Awards or in combination with, in replacement of, as alternatives to or as the payment form for grants or rights under any other compensation plan, contract or agreement of the Company or any subsidiary. Non-Management Directors may be granted Stock Options as provided inSection 9(d).
(c) No Right to Receive Award. No employee or Non-Management Director shall have any right to receive an Award or, having received an Award, to receive a future Award.
(d) Rights of Employees and Others.
(1) Neither the Plan nor any Award shall (i) confer upon any employee or Non-Management Director any right to remain employed by, or to continue to provide services to, the Company or any subsidiary, (ii) limit in any way the right of the Company or any subsidiary to terminate any individual's employment by or service on behalf of the Company or any subsidiary, whether or not such individual is a Participant, or (iii) require the Board of Directors to nominate any director for reelection by the Company's stockholders.
(2) No person shall have any rights or claims under or pursuant to the Plan except in accordance with the provisions of the Plan.
8. Provisions Applicable to Restricted Stock Awards
(a) Terms, Conditions and Restrictions. The Committee shall establish the terms, conditions, restrictions and other provisions of each Restricted Stock Award. Unless otherwise specified by the Committee, shares subject to a Restricted Stock Award shall be restricted for a period of at least one year and not more than ten years (the "Restriction Period"). Except as provided inSection 8(g) below, the Participant must remain employed by the Company or a subsidiary during the Restriction Period or otherwise forfeit all right, title and interest in and to the Restricted Shares. Notwithstanding the foregoing, if a Participant retires at or after the age of 55, but before the age of 60, the Restriction Period shall continue after the Participant's retirement in accordance with the terms of
the Restricted Stock Award or until the earlier to occur of the events described inSections 8(g)(3) and(4) below.
(b) Agreements; Stock Legend. Each Restricted Stock Award will be evidenced by a written agreement, in such form as may be specified by the Committee, issued by the Company and setting forth the terms, conditions, restrictions and other provisions of such Award. As a condition to receiving a Restricted Stock Award, each proposed recipient must execute and deliver such agreement to the Company. Certificates for Restricted Shares may, if the Committee so determines, bear a legend referring to the restrictions and the instruments to which such shares are subject.
(c) Rights with Respect to Shares. A Participant who receives a Restricted Stock Award shall have all rights of ownership with respect to such underlying shares of Common Stock, including the right to vote such shares and to receive any dividends paid thereon, subject, however, to the provisions of the Plan, the agreement relating to the Restricted Stock Award and any legend on the certificate for such shares. Until such time as any restrictions imposed pursuant toSection 8(a) on any Restricted Shares shall terminate, the Company or its designee will hold the certificate(s) for such Restricted Shares in escrow on such Participant's behalf.
(d) Transferability Restriction. Shares of Common Stock subject to a Restricted Stock Award may not be sold, pledged, assigned, exchanged, encumbered, hypothecated, transferred or disposed of in any manner during the Restriction Period applicable thereto.
(e) Additional Shares Received With Respect to Restricted Shares. Any shares of Common Stock or other securities of the Company received by a Participant as a stock dividend on, or in connection with a stock split or combination, share exchange, reorganization, recapitalization, merger, consolidation or otherwise with respect to, shares of Common Stock received as a Restricted Stock Award shall have the same status, be subject to the same restrictions and bear the same legend, if any, as the shares received pursuant to the Restricted Stock Award.
(f) Tax Reimbursement. In the sole discretion of the Committee, any agreement relating to a Restricted Stock Award may provide for a tax reimbursement cash payment to be made by the Company in favor of any Participant in connection with the tax consequences resulting from a Restricted Stock Award, the lapse of restrictions on any Restricted Shares or the payment by a Participant of any taxes related thereto, subject to such conditions as the Committee may specify.
(g) Lapse of Restrictions. Unless otherwise determined by the Committee, any restrictions imposed pursuant toSection 8(a) on Restricted Shares shall terminate with respect to such shares on the earliest to occur of the following,provided, that no restrictions shall lapse less than six months from the date of award in the event of (2) and (3) below, unless otherwise specified by the Committee:
(1) the expiration of the Restriction Period (including pursuant toSection 15(b)(1) below);
(2) the Participant's retirement at or after the age of 60;
(3) the Participant's permanent disability; or
(4) the Participant's death.
Upon the termination of such restrictions, the certificates for such shares of Common Stock shall be released from escrow and delivered to the Participant or, in the event of the Participant's death, the Participant's personal representative and any legend on such certificates shall be removed.
9. Provisions Applicable to Stock Options
(a) Limit on Awards. No Participant shall receive Stock Options for more than 600,000 shares of Common Stock during any fiscal year of the Company.
(b) Agreements. Each Stock Option will be evidenced by a written agreement, in such form as may be specified by the Committee, issued by the Company and setting forth the terms, conditions and other provisions of the Stock Option, including the number of shares of Common Stock covered by the Stock Option, the exercise price per share, the term of the Stock Option and the vesting schedule. A Participant may not exercise a Stock Option until he or she executes and delivers such agreement to the Company.
(c) Terms and Conditions. All Stock Options shall be subject to the following terms and conditions and to such other terms and conditions consistent with the terms of the Plan as the Committee shall determine:
(1) Option Price. The exercise price per share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant. The "Fair Market Value" of the Common Stock on a particular date shall mean, for all purposes under the Plan, the average of the high and low sales prices of the Common Stock as reported on the New York Stock Exchange composite tape on that date. In the event that such method for determining Fair Market Value is not practicable, then the Committee shall determine the Fair Market Value of the Common Stock in such manner as it deems appropriate.
(2) Time of Exercise of Option. Unless otherwise determined by the Committee, each Stock Option shall be exercisable during and over such period ending not later than ten years from the grant date. Unless otherwise determined by the Committee, no Stock Option shall be exercisable prior to the first anniversary of the grant date, except as provided inSections 9(c)(4) and15(b)(2) below.
(3) Method of Exercise and Payment. Each Stock Option may be exercised by giving written notice to the Company specifying the number of shares to be purchased and accompanied by payment in full (including applicable taxes, if any) in cash therefor. No Stock Option shall be exercised for less than the lesser of 50 shares or the full number of shares for which the Stock Option is then exercisable. No Participant shall have any rights to dividends or other rights of a stockholder with respect to shares subject to his or her Stock Option until he or she has given written notice of exercise, paid in full for such shares and, if requested, given the representation described inSection 10 below.
(4) Rights After Termination of Employment.
(i) Retirement. Unless otherwise determined by the Committee, if a Participant's employment or directorship terminates by reason of his or her retirement, the Participant's Stock Option will continue to vest in accordance with its terms and may be exercised until the expiration of the stated period of the Stock Option;provided,however, that if the Participant dies after such termination of employment or directorship, any unexercised Stock Option, to the extent to which it was exercisable at the time of the Participant's death, may thereafter be exercised by the legal representative of the estate or by the legatee of the Stock Option under the last will for a period of twelve months from the date of the Participant's death or the expiration of the stated period of the Stock Option, whichever period is the shorter.
(ii) Disability. Unless otherwise determined by the Committee, if a Participant's employment or directorship terminates by reason of permanent disability, the Participant's Stock Option may thereafter be exercised in full (except that no Stock Option may be exercised less than six months from the grant date) for a period of twenty-four months from the date of such
termination of employment or directorship or the stated period of the Stock Option, whichever period is the shorter;provided,however, that if the Participant dies within a period of twenty-four months after such termination of employment or directorship, any outstanding Stock Option may thereafter be exercised by the legal representative of the estate or by the legatee of the Stock Option under the last will for a period of twelve months from the date of the Participant's death or the expiration of the stated period of the Stock Option, whichever period is the shorter.
(iii) Death. Unless otherwise determined by the Committee, if a Participant's employment or directorship terminates by reason of the Participant's death, the Participant's Stock Option may thereafter be exercised in full by the legal representative of the estate or by the legatee of the Stock Option under the last will for a period of twelve months from the date of the Participant's death or the expiration of the stated period of the Stock Option, whichever period is the shorter.
(iv) Other. Unless otherwise determined by the Committee, if a Participant's employment or directorship terminates for any reason other than death, retirement or permanent disability, the Participant's Stock Option shall thereupon terminate.
(d) Grant of Stock Options to Non-Management Directors. Non-Management Directors shall not be eligible to receive any Awards other than Stock Options as specified in thisSection 9(d).
(1) Discretionary Awards. The Committee may grant a Non-Qualified Option to any Non-Management Director for such number of shares of Common Stock as the Committee shall determine;provided,however, that such grants of Non-Qualified Options only may be made (i) immediately following an annual meeting of the Company's stockholders to any of the Non-Management Directors who are then incumbent after such meeting and (ii) in connection with a Non-Management Director's election or appointmentchanges to the Board of Directors if other than at an annual meeting.for approval.
(2) Terms and Conditions of Stock Options. The Committee shall establish the terms and conditions of Non-Qualified Options granted27. Report regularly to Non-Management Directors,provided, that any Non-Qualified Option granted to a Non-Management Director (i) shall have an exercise price per share not less than 100% of the Fair Market Value of the Common Stock on the date of grant and (ii) shall not be exercisable earlier than one year from the date of grant, except as provided inSections 9(c)(4) and15(b)(2). Unless otherwise provided in the Plan, all provisions of the Plan with respect to the terms of Non-Qualified Options granted to employees shall be applicable to Non-Qualified Options granted to Non-Management Directors.
(e) Designation of Certain Options as Incentive Stock Options. Stock Options, or portions thereof, granted to employees may in the discretion of the Committee be designated as Incentive Stock Options. In addition to the other applicable terms and conditions contained in thisSection 9, the aggregate Fair Market Value of the shares of Common Stock covered by an Incentive Stock Option (determined at the time the Stock Option is granted) with respect to which an Incentive Stock Option is exercisable for the first time by any individual Participant during any calendar year (under the Plan and all other similar plans of the Company and its subsidiaries) shall not exceed $100,000 (or such other amount as may be specified by Section 422(d) of the Code).
(f) Transferability Restriction. Unless otherwise determined by the Committee, a Stock Option by its terms shall be personal and may not be sold, pledged, assigned, exchanged, encumbered, hypothecated, transferred or disposed of in any manner by the Participant other than by will or by the laws of descent and distribution. During a Participant's lifetime, only the Participant or a duly appointed legal representative may exercise the Stock Option, unless otherwise determined by the Committee.
(g) Repricing Prohibited. Neither the Committee nor the Company shall "reprice" outstanding Stock Options for any reason. For purposes of the Plan, a "repricing" means lowering the exercise price per share of an outstanding Stock Option or any other action that has the same effect or is treated as a repricing under generally accepted accounting principles and includes, without limitation, a tandem cancellation of a Stock Option at a time when its exercise price per share exceeds the fair market value of the underlying Common Stock and exchange for another option or other equity security (unless such cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction).
(h) Use of Proceeds. Proceeds received by the Company pursuant to the exercise of Stock Options shall constitute general funds of the Company.
10. Compliance with Applicable Laws; Investment Representation
Notwithstanding any other provision of the Plan or any agreement relating to a particular Award, the Company shall have no obligation to issue any shares of Common Stock under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares of Common Stock under the Plan, the Company may require a written statement that the Participant is acquiring such shares for his or her own account for investment and not for the purpose or with the intention of distributing the shares or any part thereof. The certificates representing shares of Common Stock issued under the Plan may bear such legend or legends as the Committee deems appropriate in order to assure compliance with applicable securities laws and regulations and to reflect any restrictions on transfers.
11. Transfer, Leave of Absence, Etc.
For purposes of the Plan, (a) a transfer of an employee from the Company to a subsidiary, or vice versa, or from one subsidiary to another, and (b) a leave of absence, duly authorized in writing by the Company or a subsidiary, shall not be deemed a termination of employment.
12. Tax Withholding
All distributions under the Plan (including, without limitation, the grant of Awards and the issuance of Common Stock pursuant to an Award) are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any Award or the issuance of any Common Stock pursuant to an Award on the satisfaction of applicable withholding obligations (including, without limitation, by requiring a Participant to relinquish a portion of any proceeds received by the Participant in connection with the sale of shares acquired upon exercise of a Stock Option).
13. Prohibition on Loans
The Company shall not loan funds to any Participant for the purpose of paying the exercise price associated with any Stock Option or for the purpose of paying any taxes associated with the issuance, exercising or vesting of any Award.
14. Changes in Capitalization
If the outstanding Common Stock shall at any time be changed or exchanged as a result of a stock dividend, stock split, share combination, exchange or reclassification, recapitalization, merger, consolidation or other corporate reorganization affecting the Common Stock, (a) the number and kind of shares that have been issued and that may thereafter be issued under the Plan, (b) the number and kind of shares underlying Restricted Stock Awards still subject to a Restriction Period, (c) the exercise prices and the number and kind of shares subject to outstanding Stock Options
and (d) such other terms of Awards as the Committee deems appropriate, shall be approximately and equitably adjusted by the Committee in its sole and complete discretion.
15. Change of Control
(a) Definition. For purposes of the Plan, the term "Change of Control" means the occurrence of any of the following events following the effective date of the Plan:
(1) Any "person" (as such term is used in Sections 13(d) and 14 of the Exchange Act), other than (i) the Company, (ii) any subsidiary of the Company, (iii) any employee benefit plan (or a trust forming a part thereof) maintained by the Company or any subsidiary of the Company, (iv) any underwriter temporarily holding securities of the Company pursuant to an offering of such securities or (v) any person in connection with a transaction described in clauses (i), (ii) and (iii) ofSection 15(a)(2) below, becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 30% or more of the total voting power of the Company's then outstanding voting securities, unless such securities (or, if applicable, securities that are being converted into voting securities) are acquired directly from the Company in a transaction approved by a majority of the Incumbent Board (as defined below).
(2) The consummation of a merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued, or the sale or other disposition, in one transaction or a series of transactions, of all or substantially all of the assets of the Company (a "Corporate Transaction"), unless:
(i) the stockholders of the Company immediately before such Corporate Transaction will own, directly or indirectly, immediately following such Corporate Transaction, at least 60% of the total voting power of the outstanding voting securities of the corporation or other entity resulting from such Corporate Transaction (including a corporation or other entity that acquires all or substantially all of the Company's assets, the "Surviving Company") or the ultimate parent company thereof in substantially the same proportion as their ownership of the voting securities of the Company immediately before such Corporate Transaction;
(ii) the individuals who were members of the Board of Directors immediately prior toon matters within the executionscope of the agreement providing for such Corporate Transaction constitute a majorityCommittee, as well as any special issues that merit the attention of the membersBoard.
28. Perform such other duties required by law or otherwise as are necessary or appropriate to oversee the integrity of the board of directorsCompany’s accounting and financial reporting practices, or equivalent governing body of the Surviving Company or the ultimate parent company thereof; and (iii) no person, other than (A) the Company, (B) any subsidiary of the Company, (C) any employee benefit plan (or a trust forming a part thereof) maintained by the Company or any subsidiary of the Company, (D) the Surviving Company, (E) any subsidiary or parent company of the Surviving Company, or (F) any person who, immediately prior to such Corporate Transaction, was the beneficial owner of securities of the Company representing 30% or more of the total voting power of the Company's then outstanding voting securities, is the beneficial owner of 30% or more of the total voting power of the then outstanding voting securities of the Surviving Company or the ultimate parent company thereof.
(3) The stockholders of the Company approve a complete liquidation or dissolution of the Company.
(4) Directors who, as of the effective date of the Plan, constitute the Board of Directors (the "Incumbent Board"), ceasemay from time to constitute at least a majority of the Board of Directors (or, in the event of any merger, consolidation or reorganization the principal purpose of which is to change the Company's state of incorporation, form a holding company or effect a similar reorganization as to form, the board of directors of such surviving company or its ultimate parent company);provided,however, that any individual becoming a member of the Board of Directors subsequent to thetime direct.
Amended May 27, 2005
effective date of the Plan whose election, or nomination for election by the Company's stockholders, was approved by a vote of a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened proxy contest relating to the election of directors.
Notwithstanding the foregoing, a Change of Control will not be deemed to occur solely because any person (a "Subject Person") becomes the beneficial owner of more than the permitted amount of the outstanding voting securities of the Company as a result of the acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportional number of voting securities beneficially owned by the Subject Person,provided, that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such acquisition by the Company, the Subject Person becomes the beneficial owner of any additional voting securities that increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person to 30% or more of the total voting power, then a Change of Control will have occurred.C-4
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| | | | | | 2006 Annual Meeting of FedEx Corporation Stockholders
Monday, September 25, 2006 10:00 a.m. local time Tennessee Grand Ballroom at the Hilton Hotel 939 Ridge Lake Boulevard Memphis, Tennessee 38120
If you wish to attend the annual meeting in person, you will need to bring this Admission Ticket with you. |
— PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS. —
Annual Meeting Proxy Card |
| 123456 |
| C0123456789 |
| 12345 |
o | Please mark this box with an X if your address
has changed and print the new address below. | 
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(b) Effect of Change of Control. Notwithstanding any other provision of the Plan, upon a Change of Control:
A (1) Restricted Shares. In the event of a Change of Control as described inSection 15(a)(2), as shall be determined by the Committee: (i) the stock certificates evidencing any Restricted Shares shall be canceled and the Company shall make a cash payment to those Participants in an amount equal to the highest price per share received by the holders of Common Stock in connection with such Change of Control multiplied by the number of Restricted Shares then held by such Participant, with any non-cash consideration to be valued in good faith by the Committee; or (ii) the Restriction Periods with respect to all outstanding Restricted Shares shall immediately lapse. In the event of a Change of Control as described inSection 15(a)(1),(3) or(4), the Restriction Periods with respect to all outstanding Restricted Shares shall immediately lapse. (2) Stock Options. In the event of a Change of Control, all outstanding Stock Options shall become fully vested and immediately exercisable. Notwithstanding any other provision of the Plan, any Participant whose employment or directorship terminates following a Change of Control may exercise his or her Stock Option in full for a period ending on the earlier of the date of expiration of such Stock Option or the date which is twelve months after such termination of employment or directorship.
(c) Deemed Change of Control. If the Company enters into an agreement or series of agreements or the Board of Directors adopts a resolution that results in the occurrence of a Change of Control, and the employment or directorship of a Participant is terminated after the entering into of such agreement or series of agreements or the adoption of such resolution, then, upon the occurrence of the Change of Control, a Change of Control shall be deemed to have retroactively occurred on the date of entering into of the earliest of such agreements or the adoption of such resolution.
16. Amendments
The Board of Directors orrecommends a vote FOR the Committee may suspendlisted nominees and Proposals 2 and 3. 1. Election of Directors. o To Vote FOR All Nominees o To WITHHOLD Vote From All Nominees | 01 - o | | 02 - o | | 03 - o | | 04 - o | | 05 - o | | 06 - o | | 07 - o | | 08 - o | | 09 - o | | 10 - o | o For All Except - | To withhold a vote for a specific nominee, mark this box with an X and the appropriately numbered box to the right from the corresponding nominee list on the reverse side. | 11 - o | | 12 - o | | 13 - o | | 14 - o | | | | | | | | | | | | | |
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| For |
| Against |
| Abstain | | | | 2. Approval of Amendments to Certificate of Incorporation and Bylaws to Eliminate Supermajority Voting Requirements. | | o | | o | | o | | Mark this box if you would like your name to be disclosed with your vote and comments, if any. | o | | | | | | | | | | | 3. Ratification of Independent Registered Public Accounting Firm. | | o | | o | | o | | Mark this box if you leave comments below. | o | | | | | | | | | | | The Board of Directors recommends a vote AGAINST Proposals 4 and 5. | | | | | |
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| For |
| Against |
| Abstain | | | | 4. Stockholder Proposal Regarding Global Warming Report. | | o | | o | | o | | | | | | | | | | | | | | 5. Stockholder Proposal Regarding Majority Voting For Director Elections. | | o | | o | | o | | | |
B Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed. The signer hereby revokes all proxies previously given by the signer to vote at said meeting or terminate the Plan at any time and the Committee may amendpostponements or modify the Plan and amend, modify, canceladjournments thereof. NOTE: Please sign exactly as name appears on this card. Joint owners should each sign. When signing as attorney, officer, executor, administrator, trustee or suspend any Award at any time and from time to time;provided,however, that without the consent of the Participant affected, no such suspension, termination, cancellation, amendment or modification may materially impair the rights of any Participant under any Award theretofore granted, exceptguardian, please give full title as provided in
Section 17 below. Notwithstanding the foregoing, without the requisite vote of the Company's stockholders, no such amendment or modification may:
(a) increase the total number of shares of Common Stock issuable under the Plan pursuant toSection 6;such.
(b) expand the type of Awards available under the Plan; Signature 1 - Please keep signature within the box | | Signature 2 - Please keep signature within the box | | Date (mm/dd/yyyy) | | | | | oo/oo/oooo | | | | | | | | | | 0101821 | | 10UPX | | COY |
(c) materially expand the class of persons eligible to receive Awards; (d) extend the term of the Plan;Admission Ticket
(e) materially change the method of determining the exercise price per share of Stock Options;
(f) "reprice" an outstanding Stock Option;
(g) increase the maximum number of shares subject to Stock Options that may be granted to a Participant; or
(h) delete or limit the provisions ofSection 9(g) (repricing prohibition) orSection 13 (loan prohibition).
In addition, any "material revision" of the Plan (within the meaning of the rules of the New York Stock Exchange) not listed inSections 16(a) through(h) above also shall require the requisite vote of the Company's stockholders.
17. Cancellation of Outstanding Options
If the Committee, after consulting with management of the Company, determines that application of an accounting standard in compliance with any statement issued by the Financial Accounting Standards Board concerning the treatment of Stock Options would have a significant adverse effect on the Company's financial statements because of the fact that Stock Options granted before the issuance of such statement are subject to new accounting rules, then the Committee in its absolute discretion may cancel and revoke all outstanding Stock Options to which such adverse effect is attributed and the holders of such Stock Options shall have no further rights in respect thereof. Such cancellation and revocation shall be effective upon written notice by the Committee to the holders of such Stock Options.
18. Foreign Jurisdictions
Awards granted to Participants who are foreign nationals or who are employed by the Company or any of its subsidiaries outside of the United States may have such terms and conditions different from those specified in the Plan and such additional terms and conditions as the Committee, in its judgment, determines to be necessary, appropriate or desirable to foster and promote achievement of the material purposes of the Plan and to fairly accommodate for differences in local law, tax policy or custom or to facilitate administration of the Plan. The Committee may approve such sub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the Company's stockholders.
19. Compliance with Section 16(b)
With respect to Participants who are subject to Section 16 of the Exchange Act ("Reporting Persons"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. All transactions under the Plan involving Reporting Persons are subject to such conditions, regardless of whether the conditions are expressly set forth in the Plan. Any provision of the Plan that is contrary to a condition of Rule 16b-3 shall not apply to such Reporting Persons.
ADMISSION TICKET
FedEx Corporation
Annual Meeting of Stockholders
Monday, September 27, 2004
25, 2006 10:00 a.m. local time
Hilton Hotel
Tennessee Grand Ballroom
939 Ridge Lake Boulevard
Memphis, Tennessee 38120 Please present this Admission Ticket and a valid, government-issued photo identification (such as a driver'sdriver’s license or a passport) for admission to the meeting. Security measures will be in place at the meeting to help ensure the safety of attendees. Metal detectors similar to those used in airports will be located at the entrance to the meeting room and briefcases, handbags and packages will be inspected. No cameras or recording devices of any kind, or signs, placards, banners or similar materials, may be brought into the meeting. Anyone who refuses to comply with these requirements will not be admitted.
This Admission Ticket is not transferable. FedEx Corporation
Proxy Solicited on Behalf of the Board of Directors of FedEx
Corporation for the Annual Meeting of Stockholders, September 27, 200425, 2006 The undersigned hereby constitutes and appoints Kenneth R. MastersonChristine P. Richards and Alan B. Graf, Jr., and each of them, his or her true and lawful agents and proxies, each with full power of substitution, to represent the undersigned and to vote all of the shares of FedEx Corporation common stock of the undersigned at the Annual Meeting of Stockholders of FedEx to be held in the Tennessee Grand Ballroom at the Hilton Hotel, 939 Ridge Lake Boulevard, Memphis, Tennessee 38120, on Monday, September 27, 2004,25, 2006, at 10:00 a.m. local time, and at any postponements or adjournments thereof, on ItemsProposals 1 through 45 as specified on the reverse side hereof (with discretionary authority under ItemProposal 1 to vote for a substitute nominee if any nominee is unable to stand for election) and on such other matters as may properly come before said meeting.This card also constitutes voting instructions for any shares held for the undersigned in any benefit plan of FedEx Corporation or its subsidiaries. If you wish to instruct a plan trustee or record holder on the voting of shares held in your account, your instructions must be received by September 22, 2004.20, 2006. If no direction is given, the plan trustee will vote the shares held in your account in the same proportion as votes received from other plan participants.
Election of Directors – Nominees: Election of Directors.01 - James L. Barksdale | | 02 - August A. Busch IV | | 03 - John A. Edwardson | | 04 - Judith L. Estrin | | 05 - J. Kenneth Glass |
Class I Nominee:06 - Philip Greer |
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COMMENTS07 - J.R. Hyde, III |
01) | 08 - Shirley A. Jackson | | 09 - Steven R. Loranger | | 10 - Charles T. Manatt
Class III Nominees:
02) Judith L. Estrin
03) Philip Greer
04) J. R. Hyde, III
05) Shirley A. Jackson
06) | 11 - Frederick W. Smith |
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(If you have written in the above space, please mark the corresponding box on the reverse side of this card.)12 - Joshua I. Smith | | 13 - Paul S. Walsh | | 14 - Peter S. Willmott | | |
You are encouraged to specify your choices by marking the appropriate boxes on the reverse side, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors' recommendations. Mr. MastersonThis proxy when properly executed will be voted as specified by you. If no direction is made, this proxy will be voted (and voting instructions given) FOR Proposals 1, 2 and 3 and AGAINST Proposals 4 and 5. The Board of Directors recommends that you vote FOR Proposals 1, 2 and 3 and AGAINST Proposals 4 and 5.
In their discretion, the proxy holders are authorized to vote on such other matters as may properly come before the meeting or any postponements or adjournments thereof. You are encouraged to specify your choices by marking the appropriate boxes on the reverse side, but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. Ms. Richards and Mr. Graf cannot vote your shares unless you sign, date and return this card or vote on the Internet or by telephone. |
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FOLD AND DETACH HERE
Dear Stockholder:
Internet and telephone voting are convenient ways to vote your shares on matters to be covered at the 2004 Annual Meeting of Stockholders.
If you choose to vote on the Internet or by telephone.
NOTE: If you vote on the Internet, you may elect to have next year’s proxy statement and annual report to stockholders delivered to you electronically. We strongly encourage you to enroll in electronic delivery. It is a cost-effective way for us to send you proxy materials and annual reports.
Telephone and Internet Voting Instructions
You can vote by telephone OR Internet! Available 24 hours a day 7 days a week! Instead of mailing your proxy, you do not needmay choose one of the two voting methods outlined below to vote your proxy.
To vote using the Telephone (within U.S. and Canada) |
| To vote using the Internet |
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| · | Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time on a touch tone telephone. There is NO CHARGE to you for the call. | · | Go to the following Web site: WWW.COMPUTERSHARE.COM/EXPRESSVOTE | | | | | · | Follow the simple instructions provided by the recorded message. | · | Enter the information requested on your computer screen and follow the simple instructions. |
VALIDATION DETAILS ARE LOCATED ON THE FRONT OF THIS FORM IN THE COLORED BAR.
If you vote by telephone or the Internet, please DO NOT mail back yourthis proxy card. If you wish to attend the annual meeting in person, however, you will need to bring the Admission Ticket attached to this proxy card with you. Votes
Proxies submitted throughby telephone or the Internet or by telephone must be received by 11:59 p.m. Eastern timeTime on September 26, 2004.24, 2006.
THANK YOU FOR VOTING Your vote is important. Thank you for voting.
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Vote-by-Internet | | | | | Vote-by-Telephone | | |  | | OR | | |  | Log on to the Internet and go to
http://www.eproxyvote.com/fdx | | | | | Call toll-free
1-877-PRX-VOTE (1-877-779-8683) | |
NOTE: If you vote on the Internet, you may elect to have next year's proxy statement and annual report to stockholders delivered to you via the Internet. We strongly encourage you to enroll in Internet delivery. It is a cost-effective way for us to send you proxy materials and annual reports.
ý | | Please mark your votes as in this example. | | |
This proxy when properly executed will be voted as specified by you. If no direction is made this proxy will be voted FOR Items. 1, 2, 3 and 4.
The Board of Directors recommends that you vote FOR Items 1, 2, 3 and 4.
The Board of Directors Recommends a vote FOR Items 1, 2, 3 and 4
1. |
Election of Class I Director
and Class III Directors. | FOR
ALL
o | | WITHHELD
ALL
o | |
2. |
Approval of Amendments to FedEx's Bylaws | | FOR
o | | AGAINST
o | | ABSTAIN
o |
FOR ALL EXCEPT
o vote withheld from the following nominees(s): |
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3. |
Approval of Amendment to FedEx's Stock Incentive Plan |
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FOR
o |
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AGAINST
o |
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ABSTAIN
o |
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4. |
Ratification of Independent Registered Public Accounting Firm |
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FOR
o |
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AGAINST
o |
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ABSTAIN
o |
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Comments on reverse side. |
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I request my name be disclosed with my vote and comments, if any. |
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In their discretion, the proxy holders are authorized to vote on such other matters as may properly come before the meeting or any postponements or adjournments thereof. |
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The signer hereby revokes all proxies previously given by the signer to vote at said meeting or at any postponements or adjournments thereof.
NOTE: Please sign exactly as the name appears on this card. Joint owners should each sign. When signing as attorney, officer, executor, administrator, trustee or guardian, please give full title as such. |
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QuickLinks
2004 PROXY STATEMENTINFORMATION ABOUT THE ANNUAL MEETINGSTOCK OWNERSHIPCORPORATE GOVERNANCE MATTERSMEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORSCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSPROPOSAL 1 – ELECTION OF DIRECTORSDIRECTORS' COMPENSATIONPROPOSAL 2 – AMENDMENTS TO FEDEX'S BYLAWS TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORSYOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.SUMMARY COMPENSATION TABLESTOCK OPTION GRANTS IN LAST FISCAL YEARAGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUESLONG-TERM INCENTIVE PLANS – AWARDS IN LAST FISCAL YEARPENSION PLAN TABLEREPORT ON EXECUTIVE COMPENSATION OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORSCHANGE-IN-CONTROL ARRANGEMENTSSTOCK PERFORMANCE GRAPHComparison of Five-Year Cumulative Total Return (FedEx, S&P 500 Composite Index and Dow Jones Transportation Average)PROPOSAL 3 – ADOPTION OF THE PROPOSED AMENDMENT TO FEDEX'S INCENTIVE STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE PURSUANT TO STOCK OPTIONSEQUITY COMPENSATION PLANSEquity Compensation Plan InformationREPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORSAUDIT AND NON-AUDIT FEESPROPOSAL 4 – RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMOTHER MATTERSADDITIONAL INFORMATIONPROPOSED AMENDMENTS TO FEDEX CORPORATION'S SECOND AMENDED AND RESTATED BYLAWSFedEx Corporation INCENTIVE STOCK PLAN | 