SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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|_| Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-12
----------
SLM Corporation
(Name of Registrant as Specified in its Charter)
----------
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SLM Corporation
11600 Sallie Mae Drive
Reston, Virginia 20193
April 7, 2003
MEETING OF SHAREHOLDERS
To Be Held May 15, 2003
Dear Shareholder:
We invite you to attend SLM Corporation's Annual Shareholders' Meeting on
Thursday, May 15, 2003 at 11:00 a.m. at the Corporation's offices located at
11600 Sallie Mae Drive, Reston, Virginia, 20193.
Your participation in the Annual Meeting is important. Regardless of
whether you plan to attend, we urge you to vote your proxy at your earliest
convenience. We hope that you will be able to attend the meeting and encourage
you to read the enclosed materials.
Thank you for your support of Sallie Mae.
Sincerely,
/s/ Edward A. Fox
----------------------------------
Edward A. Fox
Chairman of the Board of Directors
SLM CORPORATION
11600 Sallie Mae Drive
Reston, Virginia 20193
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On May 15, 2003
TIME o 11:00 a.m., local time, on Thursday, May 15, 2003
PLACE o 11600 Sallie Mae Drive, Reston, Virginia 20193
ITEMS OF BUSINESS At the Annual Meeting, shareholders will be asked to vote on
the following items:
(1) Elect the Board of Directors for a term of one year;
(2) Amend the Corporation's Certificate of Incorporation to
increase the number of authorized shares of common
stock;
(3) Ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2003; and
(4) Conduct other business if properly introduced.
RECORD DATE o You can vote if you were a shareholder on March 17, 2003.
ANNUAL REPORT o Our 2002 annual report and our 2002 Form 10-K, which are
AND FORM 10-K not part of the proxy soliciting material, are enclosed.
PROXY VOTING o The Board of Directors solicits your proxy and asks you
to vote your proxy at your earliest convenience to be
sure your vote is received and counted. You may vote by
mail, telephone or over the Internet, depending on how
your share ownership is recorded. If you plan to attend
the Annual Meeting, please advise my office directly at
(703) 810-7785.
Mary F. Eure
Corporate Secretary
April 7, 2003
SLM CORPORATION
2003 PROXY STATEMENT
TABLE OF CONTENTS
ABOUT VOTING ................................................................... 1
CORPORATE PERFORMANCE .......................................................... 2
STOCK OWNERSHIP ................................................................ 3
PROPOSAL 1--ELECTION OF DIRECTORS .............................................. 4
Nominees .................................................................... 4
CORPORATE GOVERNANCE............................................................ 7
Board Governance Guidelines.................................................. 7
Meetings of the Board and Its Committees .................................... 7
Certain Relationships ....................................................... 8
Director Compensation ....................................................... 8
EXECUTIVE COMPENSATION ......................................................... 9
Report of the Compensation and Personnel Committee on Executive Compensation 9
Summary Compensation Table .................................................. 12
2002 Option Grant Table ..................................................... 13
2002 Option Exercises and Year-End Value Table .............................. 14
Pension Plan Benefits ....................................................... 14
Employment Agreements ....................................................... 15
Indebtedness ................................................................ 16
Executive Officers .......................................................... 16
PROPOSAL 2--AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION......... 17
REPORT OF THE AUDIT COMMITTEE .................................................. 18
PROPOSAL 3--APPOINTMENT OF INDEPENDENT AUDITOR ................................. 19
GENERAL INFORMATION ............................................................ 20
Shares Outstanding .......................................................... 20
Principal Shareholders ...................................................... 20
Other Matters ............................................................... 21
Solicitation Costs .......................................................... 21
Shareholder Proposals for 2004 Annual Meeting ............................... 21
Section 16(a) Beneficial Ownership Reporting Compliance ..................... 21
Householding................................................................. 21
EXHIBIT A--Audit Committee Charter.............................................. 22
i
SLM CORPORATION
ABOUT VOTING
Who may vote?
Only SLM Corporation shareholders who owned common stock at the close of
business on March 17, 2003, the record date for the Annual Meeting, can vote. We
refer to SLM Corporation as Sallie Mae or the Corporation.
How are my votes counted?
In the election of directors, shares are entitled to cumulative voting,
which means that each share of common stock is entitled to the number of votes
equal to the number of directors to be elected. As a result, each share is
entitled to 15 votes in the election of directors.
If you vote in person, you may cumulate your votes and give one nominee
all of your votes or you may distribute your votes among the nominees in any
manner. If you vote by proxy, your votes will be cast and cumulated so as to
elect the maximum number of the nominees named on the proxy card, except that
none of your votes will be cast for any nominee for whom you instruct that the
vote be withheld. The 15 nominees who receive the greatest number of votes cast
and entitled to be voted at the Annual Meeting will be elected.
Approval of the amendment to the Corporation's Certificate of
Incorporation requires the affirmative vote of at least a majority of shares
outstanding on the record date, with each share of stock entitled to one vote.
Abstentions and shares that are not voted, including shares for which a broker
does not have discretionary voting authority, have the same effect as votes
against this item.
Approval of other matters at the Annual Meeting requires an affirmative
vote of at least a majority of the votes present or represented and entitled to
be voted on the matter, with each share of stock entitled to one vote.
Abstentions have the same effect as votes against the matter. Shares that are
not voted on a matter, including shares for which a broker does not have
discretionary voting authority, do not affect the vote.
How do I vote?
You may vote in person at the Annual Meeting or you may vote by proxy. We
recommend that you vote by proxy even if you plan to attend the Annual Meeting.
The process of voting by proxy differs slightly, based on how your share
ownership is recorded. Your share ownership is recorded in one of three ways:
direct ownership, recorded by the stock transfer agent for the Corporation, the
Bank of New York; beneficial ownership recorded through a brokerage or bank
account; or beneficial ownership recorded by the Corporation's 401(k) Plan
Trustee.
If your ownership is recorded directly, you will receive a proxy card. If
your share ownership is beneficial, your broker, bank and/or the 401(k) Plan
Trustee will issue you a voting instruction form that you use to instruct them
how to vote your shares. Your broker, bank or the 401(k) Plan Trustee must
follow your voting instructions.
If you receive a voting instruction card from your broker or bank, you may
vote those shares by mail, telephonically by calling the telephone number shown
on the voting form, or via the Internet at the web site shown on the voting
form. A proxy card or a voting instruction card from the 401(k) Plan Trustee may
be voted only by mail or by telephone.
Votes submitted via the Internet or by telephone must be received by 11:59
p.m., Eastern Standard Time, on May 14, 2003. Votes submitted to the 401(k) Plan
Trustee must be received by May 12, 2003. Voting by returning a paper proxy, via
the Internet or by telephone will not affect your right to vote in person should
you decide to attend the Annual Meeting. However, if your shares are held
through a bank, broker or the 401(k) Plan and you wish to vote those shares in
person at the Annual Meeting, you must in advance of the Annual Meeting, obtain
a legal proxy from your bank, broker or the 401(k) Plan Trustee.
How do proxies work?
Sallie Mae's Board of Directors is requesting your proxy. Giving the Board
your proxy means that you authorize representatives of the Board to vote your
shares at the Annual Meeting in the manner you specify. If you sign and return
the enclosed proxy card or voting instruction form but do not specify how to
vote, the Board of Directors will vote your shares in favor of all of the
director nominees named in this proxy statement, amendment of the Certificate of
Incorporation and ratification of PricewaterhouseCoopers LLP, as independent
auditor. Giving the Board your proxy also means that you authorize their
representatives to vote on any other matter presented at the Annual Meeting in
such manner
1
as they determine best. The Corporation does not know of any other matters to be
presented at the Annual Meeting as of the date of this proxy statement. If you
own shares through the 401(k) Plan, however, and do not vote your plan shares,
the Trustee will vote your plan shares in the same proportion as other plan
shares have been voted.
Can I change my vote?
A shareholder whose ownership is recorded directly has the power to change
or revoke a proxy prior to its exercise by voting in person at the Annual
Meeting, by giving written notice to the Corporate Secretary or by giving a
later dated proxy prior to the meeting. A shareholder whose shares are owned
beneficially through a bank, broker, or the 401(k) Plan must contact that entity
to change or revoke a previously given proxy.
CORPORATE PERFORMANCE
The Corporation's annual report to shareholders for 2002 is included in
the mailing with this proxy statement and Form 10-K. We urge you to read it
carefully.
The following graph compares the yearly percentage change in the
Corporation's cumulative total shareholder return on its common stock to that of
Standard & Poor's 500 Stock Index and Standard & Poor's 500 Diversified
Financial Services Index. The graph assumes a base investment of $100 at
December 31, 1997 and reinvestment of dividends through December 31, 2002.
SLM CORPORATION
FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
[The following was represented as a line chart in the printed material.]
Base
Company/Index Year 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
- ------------------------------------------------------------------------------------------------------------
SLM CORPORATION $100.00 $122.39 $109.26 $178.50 $222.62 $277.57
S&P 500 DIV FINANCIAL SERVICES(1)(2) 100.00 122.15 161.35 204.24 179.11 141.62
S&P 500 INDEX(2) 100.00 128.52 155.53 141.36 124.63 97.16
(1) Companies included in Standard & Poor's Diversified Financial Services
Index: American Express, Bear Stearns, Charles Schwab Corporation,
Citigroup Inc, Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation, Franklin Resources Inc., Goldman Sachs Group, Janus
Capital Group, JP Morgan Chase & Co, Lehman Brothers, Merrill Lynch &
Company, Moody's Corporation, Morgan Stanley, Principal Financial Group,
SLM Corporation, State Street Corporation, and T. Rowe Price.
(2) Source: Bloomberg Comparative Return Table
2
STOCK OWNERSHIP
Sallie Mae encourages stock ownership by its directors, officers and
employees to align their interests with those of shareholders. We believe this
policy sharply focuses directors and the workforce on economic performance and
long-term strategic initiatives that will enhance shareholder returns.
To support our ownership policy, the Corporation:
o compensates non-employee directors only in the form of options on
the Corporation's common stock;
o requires that a portion of any annual bonus paid to any officer be
in the form of Sallie Mae stock;
o grants stock options to all employees; and
o established a share ownership policy for senior officers, which is
explained in the Executive Compensation section of this proxy
statement.
In order to reinforce the importance of sustained, long-term shareholder
returns, some of these arrangements have share ownership retention requirements
or incentives.
The following table provides information regarding shares owned by each
director and nominee to the Board of Directors and for each executive officer of
the Corporation named in the Summary Compensation Table in this proxy statement
at February 28, 2003.
Total Total Percent
Economic Vested Beneficial of
Shares(1) Ownership(2) Options(3) Ownership(4) Class
------------------------------------------------------------
Directors
Charles L. Daley(5) 31,021 124,980 156,001 *
William M. Diefenderfer, III 13,698 52,305 66,003 *
Thomas J. Fitzpatrick 426,046 526,486 302,323 728,369 *
Edward A. Fox(5) 174,244 163,097 337,341 *
Diane Suitt Gilleland 32,950 108,872 141,822 *
Earl A. Goode 13,343 20,000 33,343 *
Ann Torre Grant 6,174 103,438 109,612 *
Ronald F. Hunt(5) 51,505 107,189 158,694 *
Benjamin J. Lambert, III 31,434 65,957 97,391 *
Albert L. Lord(5) 579,694 680,134 738,586 1,318,280 *
Barry A. Munitz 43,379 71,538 114,917 *
A. Alexander Porter, Jr.(5) 174,685 194,000 368,685 *
Wolfgang Schoellkopf(5) 40,000 51,257 91,257 *
Steven L. Shapiro 36,944 128,848 165,792 *
Barry Lawson Williams 4,527 51,361 55,888 *
Executive Officers
Albert L. Lord 579,694 680,134 738,586 1,318,280 *
Thomas J. Fitzpatrick 426,046 526,486 302,323 728,369 *
C.E. Andrews 10,000 0 10,000 *
Marianne M. Keler(5) 116,103 377,529 493,632 *
Robert R. Levine 143,361 260,242 403,603
June M. McCormack 80,440 167,358 247,798 *
John F. Remondi 126,406 280,733 407,139 *
John F. Whorley, Jr 67,553 0 67,553 *
Directors and Executive Officers as a Group 2,203,507 3,369,613 5,573,120 3.67%
* Less than one percent
(1) Shares held directly or indirectly by the individual or by the individual
and his or her spouse, including shares credited to Corporation-sponsored
retirement plans.
(2) Total of column 1 plus 100,440 unvested restricted stock units each
granted to Mr. Lord and Mr. Fitzpatrick which includes 440 units
accumulated through dividend reinvestment under the terms of their
employment agreements, which are described later in this proxy statement.
(3) Shares that may be acquired within 60 days through the exercise of stock
options.
(4) Total of columns 1 and 3. Except as otherwise indicated and subject to
community property laws, each owner has sole voting and sole investment
power with respect to the shares listed.
(5) Mr. Daley's share ownership includes 875 shares held through a limited
partnership, in which he owns a 50% interest. Mr. Fox's share ownership
includes 14,000 shares held in a charitable remainder trust. Mr. Hunt's
share ownership
3
includes 525 shares held solely in his wife's name. Mr. Lord's share
ownership includes 700 shares held solely in his wife's name. Mr. Porter's
share ownership includes 172,000 shares over which he shares investment
and voting control. Mr. Schoellkopf's share ownership includes 5,000
shares held through a limited partnership of which he is the sole general
partner. Ms. Keler's share ownership includes 209 shares owned by her son.
PROPOSAL 1--ELECTION OF DIRECTORS
Shareholders are asked to elect 15 directors to serve on the Board for a
one-year term or until their successors are elected or appointed.
Upon the recommendation of the Nominations and Governance Committee of the
Board, the Board has nominated each of the current directors for reelection.
Nominees
Biographical information about each nominee is set forth below. Board
service with the Corporation's predecessor entity and current subsidiary, the
Student Loan Marketing Association or GSE, is included.
The Board of Directors recommends a vote FOR the election of the 15
nominees named below. Proxies will be so voted unless shareholders specify a
contrary choice on their proxy card.
Name and Age Position, Principal Occupation, Business Experience
Service as a Director And Directorships
- --------------------------------------------------------------------------------------------------------------------------
Charles L. Daley Director, Executive Vice President and Secretary
70
TEB Associates, Inc.
Director since o Director, Executive Vice President and Secretary, TEB Associates, Inc., a real
July 5, 1995 estate finance company - 1992 to present
o Executive Vice President and Chief Operating Officer, First Peoples Financial
Corporation - 1987 to 1992
o Executive Vice President and Chief Operating Officer, First Peoples Bank of New
Jersey - 1984 to 1992
William M. Diefenderfer, III Vice Chairman and Co-Founder
57 enumerate Solutions, Inc.
o Vice Chairman and Co-Founder, enumerate Solutions, Inc., a technology company -
Director since 2000 to present
August 8, 1997 o Partner, Diefenderfer, Hoover & Wood, a law firm, Pittsburgh, PA - 1991 to present
o Treasurer and Chief Financial Officer, Icarus Aircraft, Inc. - 1992 to 1996
o Deputy Director of the Office of Management and Budget - 1989 to 1991
o Other Activities: Student Loan Marketing Association (Director)
Thomas J. Fitzpatrick President and Chief Operating Officer
54 SLM Corporation
o President and Chief Operating Officer, SLM Corporation - 2001 to present,
Director since President and Chief Marketing and Administrative Officer - 2000 to 2001, Executive
July 31, 2000 Vice President - 1998 to 2000
and from July 1997 to o President and Chief Executive Officer, Equity One, Inc. - 1989 to 1998
May 1999 o President, Commercial Credit Co. - 1988 to 1989
o President and Chief Operating Officer, Manufacturers Hanover Consumer Services -
1983 to 1988
o Chief Financial Officer, Manufacturers Hanover Consumer Services - 1978 to 1983
o Other Activities: M.A. Bruder & Sons Incorporated (Director)
4
Name and Age Position, Principal Occupation, Business Experience
Service as a Director And Directorships
- --------------------------------------------------------------------------------------------------------------------------
Edward A. Fox Chairman of the Board
66 SLM Corporation
o Chairman, SLM Corporation - 1997 to present
Director since o Dean, Amos Tuck School of Business Administration, Dartmouth College - 1990 to
July 31, 1997 1994
o President and Chief Executive Officer, Student Loan Marketing Association - 1973
to 1990
o Other Directorships: Delphi Financial Group
o Other Activities: Greenwich Capital Holdings, Inc. (Director); American Ballet
Theatre (Vice Chairman); University of Maine system (Trustee)
Diane Suitt Gilleland Deputy Director
56 Illinois Board of Higher Education
o Deputy Director, Illinois Board of Higher Education - 1999 to present
Director since o Senior Associate, Institute for Higher Education Policy - 1998 to 1999
March 25, 1994 o Senior Fellow, American Council on Education, Washington, DC - 1997
o Director, Arkansas Department of Higher Education - 1990 to 1997
o Chief Finance Officer, Arkansas Higher Education - 1986 to 1990
Earl A. Goode Chairman
62 Indiana Sports Corporation
o Director, USA Funds, Inc. - 1994 to 2000
o President, GTE Information Services and GTE Directories Corporation - 1994 to
Director since 2000, President, GTE Telephone Operations North and East - 1990 to 1994, President,
July 31, 2000 GTE Telephone Company of the Southwest - 1988 to 1990
o Other Activities: Georgetown College Foundation (Director)
Ann Torre Grant Strategic and Financial Consultant
45 o Strategic and Financial Consultant - 1998 to present
o Executive Vice President, Chief Financial Officer and Treasurer, NHP Incorporated
Director since - 1995 to 1997
July 31, 1997 o Vice President and Treasurer, USAirways - 1991 to 1995, various finance
positions - 1988 to 1991
o Other Directorships: Franklin Mutual Series, Allied Capital Corporation
Ronald F. Hunt Attorney and Private Investor
59 o Attorney and Private Investor - 1990 to present
o Executive Vice President and General Counsel, Student Loan Marketing Association
Director since - 1984 to 1990, various officer positions - 1973 to 1984
July 5, 1995 o Other Activities: Student Loan Marketing Association (Vice Chairman); enumerate
Solutions, Inc. (Director); National Student Clearinghouse (Chairman); Warren Wilson
College Board of Trustees
Benjamin J. Lambert, III Senator
66 Commonwealth of Virginia
o Senator, Commonwealth of Virginia - 1986 to present
Director since o Self-employed, Optometrist - 1962 to present
July 5, 1995 o Other Directorships: Dominion Resources, Inc.
o Other Activities: Consolidated Bank & Trust Company (Director); Board of Trustees
of Virginia Union University (Secretary); Virginia Commonwealth University Health
Systems Authority Board (Secretary)
5
Name and Age Position, Principal Occupation, Business Experience
Service as a Director And Directorships
- --------------------------------------------------------------------------------------------------------------------------
Albert L. Lord Vice Chairman and Chief Executive Officer
57 SLM Corporation
o Vice Chairman and Chief Executive Officer, SLM Corporation - 1997 to present
Director since o President and principal shareholder, LCL Ltd. - 1994 to 1997
July 5, 1995 o Executive Vice President and Chief Operating Officer, Student Loan Marketing
Association - 1990 to 1994, various officer positions - 1981 to 1990
o Other Directorships: SS&C Technologies, Inc.; Bearing Point, Inc.
o Other Activities: Student Loan Marketing Association (Director), The National
Academy Foundation (Director)
Barry A. Munitz President and Chief Executive Officer
61 The J. Paul Getty Trust
o President and Chief Executive Officer, The J. Paul Getty Trust - 1997 to present
Director since o Chancellor and Chief Executive Officer, California State University System - 1991
July 31, 1997 to 1997
o Other Directorships: KB Home; LeapFrog Enterprises, Inc.
o Other Activities: Princeton University (Trustee); the American Academy of Arts
and Sciences (Fellow); Los Angeles' KCET Public Television Station (Member, Executive
Committee); Seattle Art Museum (Trustee)
A. Alexander Porter, Jr. Founder and Partner
64 Porter, Felleman Inc.
o Founder and Partner, Porter, Felleman Inc., an investment management company -
Director since 1976 to present
July 5, 1995 o Lead Independent Director, SLM Corporation - 1997 to present
o Other Activities: Distribution Technology, Inc. (Founder and Director); Davidson
College (Trustee); The John Simon Guggenheim Memorial Foundation (Trustee); Queens
University of Charlotte, North Carolina (Trustee); American Ballet Theatre (Trustee)
Wolfgang Schoellkopf General Partner
70 PMW Capital Management, L.L.C
o General Partner, PMW Capital Management, L.L.C. - 1996 to present
Director since o Chairman, Bank Austria Cayman Islands Limited - 2001 to present
July 31, 1997 o Chief Executive Officer, Bank Austria Group's U.S. operations - 2000 to 2001
o Partner, Ramius Capital Group - 1997 to 1998
o Vice Chairman and Chief Financial Officer, First Fidelity Bancorporation - 1990
to 1996
o Executive Vice President and Treasurer, The Chase Manhattan Bank - 1979 to 1988, various
officer positions - 1963 to 1988
o Other Activities: Bank Austria Cayman Islands Limited (Chairman); Inner-City
Scholarship Fund (Director); Marymount University (Director)
Steven L. Shapiro Certified Public Accountant and Personal Financial Specialist
62 Alloy, Silverstein, Shapiro, Adams, Mulford, Clealese, Wilson & Co.
o Chairman, Alloy, Silverstein, Shapiro, Adams, Mulford, Cicalese, Wilson & Co., an
Director since accounting firm - Chairman since 1995, various positions - 1960 to present
July 5, 1995 o Other Activities: MetLife Bank (Director); Rutgers University (Member, Executive
Advisory Council); American Institute of Certified Public Accountants (Member); New
Jersey and Pennsylvania Societies of CPAs (Member), West Jersey Health and Hospital
Foundation Board (Trustee)
6
Name and Age Position, Principal Occupation, Business Experience
Service as a Director And Directorships
- --------------------------------------------------------------------------------------------------------------------------
Barry L. Williams President
58 Williams Pacific Ventures, Inc.
o President, Williams Pacific Ventures, Inc., a consulting and investment business
Director since - 1987 to present
July 31, 2000 o Director, USA Funds, Inc. - 1995 to 2000
o Interim President and CEO, the American Management Association International -
2000 to 2001
o Bechtel Group, Managing Principal of Bechtel Investments, Inc. - 1979 to 1987
o Other Directorships: PG&E Corporation, R. H. Donnelly & Company, Northwestern
Mutual Life Insurance Company, CH2M Hill, Newhall Land & Farming Company, Synavant
Inc., Simpson Manufacturing Co., Inc.,
o Other Activities: Kaiser-Permanente (Director), National Parks Foundation (Director),
American Conservatory Theater (Trustee), American Management Association (Trustee)
CORPORATE GOVERNANCE
Board Governance Guidelines
The Board's governance has been guided by a set of principles initially
adopted in 1997. The Board's current guidelines are published at
www.salliemae.com under "About Us, SLM Corp. Board." Among other matters, the
guidelines include the following:
o A majority of the members of the Board must be independent
directors, as defined in the Corporation's By-laws.
o Directors stand for re-election every year.
o The Board has established the position of Lead Independent Director,
which is currently held by Mr. Porter.
o The Board meets in executive session, without the presence of
management or the CEO, at the end of each regularly scheduled Board
meeting. The Chairman of the Board presides over the executive
sessions.
o Board compensation is solely in the form of stock or other
equity-linked compensation.
o The Board undertakes an annual self-review, consisting primarily of
individual Committee evaluations.
o Board members have open communications with all members of
management.
Meetings of the Board and its Committees
During 2002, the Board of Directors met six times. Each of the incumbent
directors attended at least 75 percent of the total number of meetings of the
Board and committees on which they serve.
The Board uses committees to assist it in the performance of its duties.
Each committee has a charter approved by the Board, which sets forth the
respective committee's functions and responsibilities. Shareholders may obtain a
copy of a committee charter by contacting the Corporate Secretary or from our
website at "About Us, SLM Corp. Board." The standing committees of the Board are
the Audit Committee, the Compensation and Personnel Committee, the Finance
Committee, the Nominations and Governance Committee, the Executive Committee and
the Preferred Stock Committee. All of the Committees, except the Executive
Committee, are comprised entirely of non-management directors. The purposes of
the Audit, Compensation and Personnel, and Nominations and Governance
Committees, their current members, and the number of meetings held during 2002
are set forth below.
Audit Committee. The Audit Committee assists the Board in fulfilling its
responsibilities by providing oversight relating to (1) audit review and
financial reporting functions, (2) assessment and management of certain business
risks, including financial, operational, litigation and regulating risks (3)
adequacy of internal controls and the integrity of reporting and information
systems, and (4) establishment of an effective audit function.
The Audit Committee charter is attached to this proxy as Exhibit A.
Each member of the Audit Committee is an "independent director" as defined
in the Corporation's By-laws and by the New York Stock Exchange. The current
membership of the Audit Committee, which held twelve meetings in 2002, is as
follows: Ann Torre Grant, Chairman; Barry L. Williams, Vice Chairman; Charles L.
Daley; Ronald F. Hunt; A. Alexander Porter, Jr.; and Steven L. Shapiro.
Compensation and Personnel Committee. The Compensation and Personnel
Committee assists the Board in fulfilling its responsibilities relating to human
resources, compensation and benefit matters concerning the Corporation.
7
The Committee makes recommendations to the Board as to compensation and other
benefits for members of the Board, reviews annually the performance of the CEO
and the executive officers of the Corporation and establishes compensation terms
for such individuals, and generally oversees the programs and policies of the
Corporation relating to compensation and the development and retention of
capable management and succession planning for the Corporation's leadership.
Each member of the Committee is an "independent director" as defined by
the Corporation's By-laws and under Section 162(m) of the Internal Revenue Code.
The current membership of the Compensation and Personnel Committee, which held
nine meetings in 2002, is as follows: William M. Diefenderfer, III, Chairman;
Earl A. Goode, Vice Chairman; Diane Suitt Gilleland; Benjamin J. Lambert, III;
Barry A. Munitz; and Wolfgang Schoellkopf.
Nominations and Governance Committee. The Nominations and Governance
Committee assists the Board in establishing appropriate standards for the
governance of the Corporation, the operations of the Board and the
qualifications of directors, as well as proposing candidates for Board
membership. The Committee reviews the composition, diversity and operation of
the Board, and considers the performance and contributions of individual
directors and the Board as a whole. The Committee considers nominees for
election to the Corporation's Board of Directors at the Annual Meeting of
shareholders. Shareholders may recommend candidates for nomination to the
Corporation's Board by sending their recommendation to the Corporate Secretary.
Each member of the Nominations and Governance Committee is an "independent
director" as defined in the Corporation's By-laws. The current membership of the
Nominations and Governance Committee, which held five meetings in 2002, is as
follows: Diane Suitt Gilleland, Chairman; Steven L. Shapiro, Vice Chairman;
Charles L. Daley; Ronald F. Hunt; Benjamin J. Lambert, III; and Barry A. Munitz.
Certain Relationships
Except for Mr. Lord and Mr. Fitzpatrick, no nominee is a current officer
of the Corporation or any of its subsidiaries. Mr. Fox and Mr. Hunt were
formerly officers of the GSE longer than 10 years ago. There are no family
relationships among the nominees and the executive officers of the Corporation.
During 2002, Thomas J. Fitzpatrick, III, a son of Mr. Fitzpatrick, was employed
by a Corporation subsidiary as an educational account executive and received a
base salary of $30,000 and commissions of $77,422 totaling $107,422 for his
services during the year.
Director Compensation
Since 1997, the Board of Directors has been compensated solely in the form
of options granted on the Corporation's common stock. The Board believes that an
all-equity compensation plan, which includes significant stock ownership, best
aligns director and shareholder interests.
In January 2003, for service in 2003, Mr. Fox, as Chairman, received an
option grant covering 12,750 shares of the Corporation's common stock, Mr.
Porter, as the lead independent director, received an option grant covering
10,625 shares, and other non-employee directors received an option grant
covering 8,500 shares. These options vest upon the later of: 1) the
Corporation's common stock reaching a closing price of $126.72 (a 20 percent
increase over the grant price--the fair market value on the date of grant of
$105.60 per share) for five trading days; or 2) separation from service from the
Board, whichever occurs first. The options also vest on the fifth anniversary of
their grant date. The options are forfeited if the optionee is not elected to
the Board at the May 15, 2003 meeting.
Directors are eligible to receive replacement options upon the exercise of
vested options for options granted through 2002. Options granted in 2003 are not
eligible for replacement options. Replacement options are explained in the
Executive Compensation section of this proxy statement. In 2002, this program
resulted in options covering 13,166 options being granted to Mr. Daley; 7,972
options being granted to Mr. Diefenderfer; 19,515 options being granted to Mr.
Fox; 28,903 options being granted to Mr. Hunt; 29,903 options being granted to
Dr. Lambert; 16,227 options being granted to Dr. Munitz; and 53,047 options
being granted to Mr. Schoellkopf.
Directors are eligible to participate in the Corporation's matching gift
program. Under the matching gift program the Corporation contributes three
dollars for each dollar contributed by a director to post-secondary educational
institutions, up to a total contribution by the Corporation of $100,000 per
year. The Corporation contributes two dollars for each dollar contributed to a
primary or secondary educational institution, a civic, community, health or
human service organization, up to a total contribution by the Corporation of
$25,000 per year. The Corporation contributes one dollar for each dollar
contributed to an arts or cultural organization, the United Way, or a federated
campaign, up to a total contribution by the Corporation of $10,000 per year.
Notwithstanding the above limits for each category, aggregate matching
contributions by the Corporation are limited to $100,000 per director in any
single plan year.
The Corporation's non-employee directors are provided with $50,000 of life
insurance, are reimbursed for their and their spouses' expenses incurred in
connection with attending Board meetings, are covered by a travel insurance plan
8
while traveling on corporate business and may receive a $1,500 per diem payment
for additional work. No such payments were made to directors in 2002. Mr. Lord
and Mr. Fitzpatrick are eligible for the director's matching gift program
described above. Neither Mr. Lord nor Mr. Fitzpatrick received any other
separate compensation for their service on the Board in 2002. Neither Mr. Lord
nor Mr. Fitzpatrick were recipients of the 2003 option grants described above.
Non-employee directors who serve on the Board of the GSE are separately
compensated for that service. Mr. Diefenderfer and Mr. Hunt each were
compensated $10,000 and Ms. Gilleland was compensated $6,000 for attending GSE
Board meetings in 2002.
EXECUTIVE COMPENSATION
This section includes (1) a report by the Compensation and Personnel
Committee (the "Compensation Committee" or "Committee") regarding the
Corporation's executive compensation policy; (2) a summary presentation of 2002
executive compensation in tabular form; (3) a summary of 2002 stock option
grants to Named Executive Officers; (4) a valuation of option exercises during
the year and remaining option holdings for Named Executive Officers; and (5)
descriptions of pension plan benefits, certain employment arrangements and
related transactions.
Report of the Compensation and Personnel Committee on Executive Compensation
The Compensation Committee of the Board of Directors develops a
comprehensive compensation policy for senior management and establishes plans
and programs to implement the policy. The Committee annually reviews the
performance of the CEO and senior management team and, after consultation with
the Board, establishes compensation terms for these individuals.
The Committee utilizes the services of an independent compensation
consulting firm in establishing both executive and director compensation. No
member of the Committee is a former or current officer or employee of the
Corporation or any of its subsidiaries, and all Committee members are
independent, as defined in the Corporation's By-laws.
Compensation Policy. The Corporation's executive compensation policy is
based on a belief that compensation that promotes long-term management stock
ownership and is tied to corporate performance and sustained share price will
enhance shareholder value. To implement this policy, the Committee strives to
strike a balance between fixed compensation in the form of base salary, and "at
risk" compensation, in the forms of annual bonuses based on the attainment of
corporate and individual goals, and longer-term, stock-based awards.
A goal of the Committee is to offer a total compensation potential that is
competitive with that offered at peer companies. The Committee believes that the
Corporation's most direct competitors for executive talent are not necessarily
the companies that would be included in a peer group of similarly sized
financial services companies established to compare shareholder returns. Thus,
the compensation peer group is not the same as the peer group index in the
Comparison of Five Year Cumulative Total Return graph included in this proxy
statement. The peer group for compensation purposes includes banks, transaction
processing institutions, insurance companies and other GSEs with workforce size,
revenues, assets and market value within a range above and below the
Corporation's levels. The group is reviewed annually and changes are made as
appropriate to reflect changes in the industry, such as mergers and
acquisitions.
The total compensation package at the Corporation is designed to attract
and to retain executive officers who are entrepreneurial and desire a "risk and
reward" compensation structure that is based on ownership and performance
principles.
To further promote the principle of executives as owners, the Corporation
adopted stock ownership guidelines in January 1999. Ownership levels, which are
expected to be achieved over a three-year period, are:
Stock Ownership as a
Position Multiple of Base Salary
-------- -----------------------
CEO 10 x salary
President 10 x salary
Executive Vice President 10 x salary
Senior Vice President 7 x salary
Unvested performance stock and unexercised options, whether vested or not,
are not counted in calculating stock ownership.
As of February 28, 2003, 17 of the Corporation's 19 senior officers,
including all of the officers who have been with the Corporation three years or
more, have achieved compliance with their ownership guidelines.
9
Employment Agreements. In January 2002, the Corporation entered into
executive employment agreements with Messrs. Lord and Fitzpatrick. These
agreements are designed to promote our long-term performance and succession
planning goals and are summarized in the Employment Agreement section of this
proxy, beginning on page 15.
Base Salary. In establishing salaries, the Committee reviewed the salaries
of executives at peer companies in positions that the Committee considered to be
comparable to their particular executive position. Messrs. Lord and
Fitzpatrick's base salaries for 2002 were fixed in their employment agreements
and did not increase from 2001. Mr. Lord's base salary was significantly below
the 25th lowest percentile for salaries paid to chief executive officers at the
Corporation's peer companies. Mr. Fitzpatrick's base salary for 2002 was
significantly below the 50th percentile. Base salaries for other senior officers
did not increase from 2001 to 2002, as well, and their salaries remained below
the 25th percentile. Accordingly, a significant portion of each executive
officer's cash compensation is subject to the achievement of goals as set forth
in the Corporation's annual performance bonus program.
Performance Bonuses. The Compensation Committee believes that executive
officer annual bonuses should be tied to satisfaction of specified performance
criteria. For 2002, the Compensation Committee established a bonus program under
the shareholder-approved Management Incentive Plan, under which bonuses could be
earned based on corporate performance and individual performance. The terms of
the program establish the maximum bonus amount that may be earned in any one
year. The Committee may use its discretion to reduce payments below that amount.
The corporate performance goals were set by the Committee in January 2002,
after consideration by the Board of the 2002 business plan. The goals, which
were set as "stretch" targets and were directly related to key components of the
2002 business plan, involved specific levels of: "core cash" earnings per share
growth; fee income growth; preferred channel loan origination growth; and
operating expense control. ("Core cash" earnings are defined in the
Corporation's annual report to shareholders). The corporate goals were
communicated to all officers during the first quarter of 2002, and status
reports of corporate achievement towards the goals were provided throughout the
year to both the Committee and the officer group. The Corporation's performance
exceeded the earnings per share growth and expense control targets, but failed
to achieve the other two stretch targets. Bonus payouts reflected this overall
corporate performance, as well as an officer's individual achievements.
Mr. Lord's individual performance was evaluated by the Committee in
consultation with the full Board. Among the factors considered by the Committee
in awarding Mr. Lord's individual performance-based bonus were: control of
operating costs; solid growth in the student loan portion of the business,
including effective implementation of a loan consolidation strategy; new
business development, primarily in the areas of debt collection and consumer
lending; and the Corporation's funding strategy and capital management,
particularly with regard to the acceleration of the pace of the "wind-down" of
the Student Loan Marketing Association.
The Compensation Committee approved other executive officer performance
bonuses, as recommended by Mr. Lord, based on their individual performance and
on relative compensation levels within the executive officer ranks. Consistent
with the Compensation Committee's preference for equity-oriented compensation, a
minimum of 40 percent of each executive officer's annual bonus was awarded in
the form of Sallie Mae common stock.
Stock Options and Stock-Based Compensation. Since 1997, a centerpiece of
the Corporation's compensation program for all employees has been stock-based
compensation. The Compensation Committee believes that stock options and various
forms of restricted stock provide an appropriate incentive to promote long-term
stable growth while aligning employees' interests with those of shareholders.
The Committee also believes that the Corporation's strong, sustained share
performance is attributable to this important component of its compensation
program.
In January 2002, the Compensation Committee granted options to Messrs.
Lord and Fitzpatrick under the terms of their employment agreements. Other
members of the senior management team were granted options, as well. Awards made
to Named Executive Officers are disclosed in the 2002 Option Grant Table on page
13 of this proxy statement. In January 2003, the Committee determined to
significantly reduce option awards to senior management, and in some cases,
eliminate them altogether (other than the commitments made to Messrs. Lord and
Fitzpatrick under their employment agreements), in consideration of shareholder
dilution concerns and share ownership positions of the senior management team as
a whole, which have achieved a level that the Committee believes effectively
links their interests with that of shareholders.
A description of the options granted to Messrs. Lord and Fitzpatrick is
included in the Employment Agreement section of this proxy on page 15. Options
granted in 2002 to others in senior management vest upon the stock price
reaching 120 percent of the grant price, but no earlier than 12 months from
their grant date. These options also vest on the eighth anniversary of their
grant date, or upon a change in control of the Corporation. If options vest upon
a change in control and, as a result, an executive becomes subject to excise
taxes, the Corporation will make certain tax gross-up payments on behalf of the
executive.
10
In 1999, the Corporation established a replacement option program to
assist executive officers in meeting their share ownership targets. The program
also applies to Board members. Under the replacement program, officers and
directors have been eligible to receive new options upon their exercise of
vested options in an amount equal to the number of shares needed to pay the
exercise price for the original option. Replacement options carry an exercise
price equal to the fair market value of the Corporation's common stock on the
date of their grant and vest one year from the grant date. The term of
replacement options equals the remaining term of the underlying options. The
options granted to Messrs. Lord and Fitzpatrick in 2002 are not eligible for
"replacement options." Further, the Committee determined that, with the
exception of newly hired or promoted officers, options granted to other officers
in 2003 would not be eligible for replacement options.
Perquisites. The Committee undertook a review of executive perquisites
and, in particular, examined the personal use by executives of company-owned or
leased property, the use of sports tickets and private club memberships. The
Committee determined that perquisites provided to executives are few and
appropriate; the personal use of company-owned or leased property by executives
is insignificant; and the Corporation complied with its policy with respect to
personal use of company-owned or leased property, in that executives reimbursed
the Corporation for such use or included the value of such use in taxable
compensation.
Section 162(m). Section 162(m) of the Internal Revenue Code limits to $1
million the deductibility of compensation paid to each of the Corporation's five
Named Executive Officers, unless the compensation satisfies one of the
exceptions set forth in the Code, which includes an exception for
"performance-based compensation." The Compensation Committee generally attempts
to have significant aspects of performance-based compensation that it awards
qualify under Section 162(m), although it recognizes that situations may arise
where other considerations may prevail over obtaining such qualification. The
Compensation Committee believes that the compensation the Corporation's Named
Executive Officers received in 2002 will not be subject to the $1 million
limitation.
Compensation and Personnel Committee
William M. Diefenderfer, III, Chairman
Earl A. Goode, Vice Chairman
Diane Suitt Gilleland
Benjamin J. Lambert, III
Barry A. Munitz
Wolfgang Schoellkopf
11
Summary Compensation Table
The tables below set forth compensation information for the Corporation's
Chief Executive Officer and the Corporation's next four most highly compensated
executive officers employed by the Corporation at the end of the 2002 fiscal
year (collectively, the "Named Executive Officers") for 2002 and for prior
years, up to two, in which the individuals served as executive officers.
Annual Compensation Long-Term Compensation
----------------------------- ----------------------------
Securities
Name and Principal Stock Based Underlying All other
Position Year Salary Bonus(1) Awards($) Options Compensation(2)
---- ------ -------- ---------- --------- ---------------
Albert L. Lord 2002 $750,000 $1,500,000 $4,300,000(3) 1,153,317(4) $44,000
Chief Executive Officer 2001 $750,000 $2,250,000 $ 0 749,895(4) $45,000
And Vice Chairman 2000 $650,000 $3,000,000 $1,571,875(3) 463,691(4) $39,000
Thomas J. Fitzpatrick 2002 $550,000 $1,200,000 $4,300,000(5) 732,252(4) $32,000
President and Chief 2001 $550,000 $1,550,000 $ 435,427(5) 743,776(4) $33,000
Operating Officer 2000 $500,000 $2,500,000 $2,153,125(5) 200,000(4) $30,000
Marianne Keler 2002 $300,000 $ 550,000 $ 0 158,802(4) $17,000
Executive Vice President 2001 $300,000 $ 550,000 $ 0 230,878(4) $18,000
2000 $250,000 $ 550,000 $ 0 50,000 $15,000
Robert Levine 2002 $350,000 $ 350,000 $ 0 75,000 $20,000
Executive Vice President 2001 $350,000 $ 450,000 $ 0 311,404(4) $21,300
2000 $275,000 $ 600,000 $ 0 100,000 $16,800
June M. McCormack 2002 $300,000 $ 350,000 $ 0 100,000 $17,000
Executive Vice President 2001 $282,692 $ 550,000 $ 643,089(6) 67,358(4) $10,200
- ----------
(1) Bonus is the amount earned for the year indicated and is typically paid in
the following year. At least 40 percent of bonuses are paid in SLM common
stock.
(2) Employer matching contributions under the Sallie Mae 401(k) Savings Plan
and the Sallie Mae Supplemental 401(k) Savings Plan.
(3) Amounts are the market value of 50,000 shares granted on January 24, 2002
and 25,000 shares granted on January 25, 2001 as restricted stock units
(RSUs). The RSUs granted in 2002 were granted under Mr. Lord's employment
agreement and vest on December 31, 2004. If vested, these RSUs are
converted into stock in the year following Mr. Lord's termination from the
Corporation as CEO. The RSUs granted in 2001 are compensation for service
successfully performed in 2000; however, the Compensation Committee placed
restrictions on the RSUs as a retention tool. All of the RSUs were
forfeitable by Mr. Lord if he voluntarily left employment prior to January
25, 2002, and one-half of the RSUs were forfeitable if Mr. Lord
voluntarily left employment on or after January 25, 2002, but prior to
January 25, 2003. The value of all unvested RSUs as of December 31, 2002
was $6,491,250.
(4) Includes options granted under the replacement option program.
(5) Amounts are the market value of 50,000 shares granted as RSUs on January
24, 2002, 3,976 shares granted on January 25, 2001, and 2,727 shares
granted on January 27, 2000. The RSUs granted in 2002 were granted under
Mr. Fitzpatrick's employment agreement and vest on December 31, 2006. If
vested, these RSUs are converted into stock in the year following Mr.
Fitzpatrick termination from the Corporation. The shares granted in 2001
and 2000 were forfeitable if: 1) Mr. Fitzpatrick failed to invest 100% of
the annual bonus to which the award relates in Sallie Mae stock for 12
months, or 2) Mr. Fitzpatrick voluntarily terminated his employment during
this 12-month period. The amount reported for 2000 also includes the
market value of 50,000 shares of performance stock granted on July 31,
2000, which have vested or will vest upon the achievement of corporate
performance goals. As of December 31, 2002, a total of 57,802 shares of
all the shares reported in this column remained unvested with a market
value of $6,003,315.
12
(6) Amount is the market value of 10,000 shares of performance stock granted
on January 1, 2001. As of December 31, 2002, 1,200 shares remained
unvested with a market value of $124,632.
Perquisites provided were less than $50,000. Perquisites included a
medical insurance benefit of $3,000, a financial planning benefit of $4,000, and
reimbursement for spouses' travel expenses incurred in connection with attending
Board meetings.
2002 Option Grant Table
Number of Securities
Underlying % of Total
Options Granted Exercise Options
--------------- Price Granted to Grant Date
Grant Expiration And Market Employees in Present Value
Name Initial Replacement Date Date Price On Fiscal Year -------------
- ---- ------- ----------- ---- ---- Grant Date -----------
----------
Albert L. Lord......... 1,000,000 01/24/2002 01/24/2012 $86.00 10.98% $ 21,558,200
153,317 05/21/2002 01/15/2011 $97.81 1.68% $ 4,718,975
--------- ------- ------- ------------
1,000,000 153,317 12.66% $ 26,277,175
Thomas Fitzpatrick..... 600,000 01/24/2002 01/24/2012 $86.00 6.59% $ 12,934,920
132,252 01/23/2002 01/15/2011 $87.20 1.45% $ 3,699,115
--------- ------- ----- ------------
600,000 132,252 8.04% $ 16,634,035
Marianne Keler......... 100,000 01/24/2002 01/24/2012 $86.00 1.10% $ 2,155,820
36,760 02/11/2002 01/15/2011 $93.20 0.40% $ 1,079,634
22,042 02/11/2002 01/13/2010 $93.20 0.24% $ 647,369
--------- ------- ----- ------------
100,000 58,802 1.74% $ 3,882,823
Robert Levine.......... 75,000 01/24/2002 01/24/2012 $86.00 0.82% $ 1,616,865
--------- ------- -----
75,000 0 0.82% $ 1,616,865
June M. McCormack...... 100,000 01/24/2002 01/24/2012 $86.00 1.10% $ 2,155,820
--------- ------- ----- ------------
100,000 0 1.10% $ 2,155,820
"Grant Date Present Value" represents a hypothetical present value under
the Black-Scholes Option Pricing Model, calculated using the following
assumptions: a term representing the average expected holding period for options
granted under the particular program based on the average holding period over
the past four years, a risk-free interest rate based on the appropriate term
Treasury Yield ranging from 3.98% to 4.34%, a weighted average 5-year
historical dividend yield ranging from 1.14% to 1.17%, and annual stock price
volatility ranging from 31.36% to 34.91%.
Option vesting terms for "initial" option grants to Messrs. Lord and
Fitzpatrick are described in the Employment Agreement section on page 15. For
options granted to other Named Executive Officers, options vest upon the stock
price reaching 120 percent of the grant price for five trading days, but no
earlier than 12 months from their grant date. The options also vest on the
eighth anniversary of their grant date or upon a change in control of the
Corporation. If options vest upon a change in control and, as a result, an
executive becomes subject to excise taxes, the Corporation will make certain
gross-up payments on behalf of the executive. Replacement options vest one year
from their grant date. Except in the event of death, disability or involuntary
termination due to job abolishment, option vesting is contingent upon continued
employment through the vesting date.
13
2002 Option Exercises and Year-End Value Table
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at 12/31/02 at 12/31/02
Acquired Value --------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------
Albert L. Lord 250,000 $ 9,375,000.00 738,586 1,153,317 $27,327,072 $18,787,568
Thomas J. Fitzpatrick 573,705 $21,160,093.40 170,071 732,252 $ 4,881,569 $12,919,318
Marianne M. Keler 104,183 $ 4,220,260.00 218,727 158,802 $ 9,007,704 $ 2,412,829
Robert R. Levine 0 $ -- 321,352 75,000 $12,307,379 $ 1,339,500
June M. McCormack 0 $ -- 67,358 100,000 $ 1,691,568 $ 1,786,000
During the year, the Named Executive Officers who exercised stock options
retained all shares acquired from the exercise after selling only the number of
shares necessary to cover the cost of an exercise (including taxes). This
entitled the Named Executive Officers to grants of replacement options and
enabled them to increase their stock ownership positions, consistent with
corporate objectives. The table above sets forth information on the number and
the value of exercisable and unexercisable stock options held by the Named
Executive Officers as of the fiscal year-end, calculated by the difference
between the Corporation's fiscal year-end stock price, $103.86, and the option's
exercise price.
Pension Plan Benefits
Annual Normal Retirement Benefit
Calculated as a Single Life Annuity (age 62)
Years of Service
Final Average ------------------------------------------------------------
Compensation 15 20 25 30
- ------------ -- -- -- --
$ 500,000 $ 159,269 $212,359 $265,449 $318,539
750,000 241,769 322,359 402,949 483,539
1,000,000 324,269 432,359 540,449 648,539
1,250,000 406,769 542,359 677,949 813,539
1,500,000 489,269 652,359 815,449 978,539
1,750,000 571,769 762,359 952,949 1,143,539
2,000,000 654,269 872,359 1,090,449 1,308,539
2,250,000 736,769 982,359 1,227,949 1,473,539
2,500,000 819,269 1,092,359 1,365,449 1,638,539
2,750,000 901,769 1,202,359 1,502,949 1,803,539
3,000,000 984,269 1,312,359 1,640,449 1,968,539
Under the Corporation's regular and supplemental pension plans,
participants accrue benefits under a cash balance formula. Under the formula,
each participant has an account, for record keeping purposes only, to which
credits are allocated each payroll period based on a percentage of the
participant's compensation for the current pay period. The applicable percentage
is determined by the number of years of service the participant has with the
Corporation. If an individual participated in the Corporation's prior pension
plan as of September 30, 1999 and met certain age and service criteria, the
participant ("grandfathered participant") will receive the greater of the
benefits calculated under the prior plan, which uses a final average
compensation formula, or under the cash balance formula. Mr. Lord, Mr. Levine,
and Ms. Keler qualify as grandfathered participants. Through December 31, 2005,
Ms. McCormack's benefit accrues under a formula grandfathered in connection with
the Corporation's acquisition of USA Group that takes into account compensation
and age.
The Corporation's supplemental pension plan assures that designated
participants receive the full amount of benefits to which they would have been
entitled under the pension plan but for limits on compensation and benefit
levels imposed
14
by the Internal Revenue Code. For grandfathered participants, the amount of
compensation considered for the prior supplemental pension plan is the sum of
the individual's salary and annual bonus, up to 35% of the prior year's salary.
For all participants in the supplemental cash balance plan (effective October 1,
1999), the amount of compensation is the sum of salary and annual bonus.
The previous table illustrates the approximate annual pension that may be
payable to an employee in the higher salary classifications under the
Corporation's prior final average compensation plans, at age 62, as a single
life annuity. The benefit amounts shown are not subject to any deductions for
Social Security or other plan benefits. The credited years of service as of
December 31, 2002 for Mr. Lord is 17 years, 9 months; Mr. Fitzpatrick is 4
years, 4 months; Ms. Keler is 18 years, 0 months; Mr. Levine is 21 years, 10
months; and Ms. McCormack is 16 years, 9 months (includes service with USA
Group). The projected annual benefit payable upon retirement at age 62 under the
new cash balance plans for each of these individuals is: Mr. Lord - $420,000;
Mr. Fitzpatrick - $142,000; Ms. Keler - $245,000; Mr. Levine - $294,000; and Ms.
McCormack - $104,000. Mr. Fitzpatrick is entitled to additional retirement
payments under his employment agreement.
Employment Agreements
In January 2002, the Corporation entered into employment agreements with
Messrs. Lord and Fitzpatrick to secure their commitment to continued employment
with the Corporation. The terms of the agreements are consistent with the
Corporation's emphasis on "at risk" executive compensation, in that the parties
intend that current base salary and the parameters for annual cash bonuses will
not be changed during the term of the agreements and the potential value of
long-term incentives for the executives is tied to increases in the
Corporation's share price. In addition, to retain the executives' service and
promote their focus on sustained increases in the Corporation's share price, the
agreements defer the executives' ability to realize the benefit of certain
stock-based awards in some cases beyond the term of their employment,
notwithstanding that the awards may vest earlier.
The term of Mr. Lord's agreement is the three-year period ending December
31, 2004, subject to a one-year extension unless either Mr. Lord or the Board
elect not to extend the term. Under the agreement, Mr. Lord received 1,000,000
stock options in January 2002 (the "2002 Options") and received 500,000 options
in January 2003 (the "2003 Options"). The options are exercisable after
price-vesting, and time-vesting targets are met in any case on and after January
1, 2010 for the 2002 Options and January 1, 2011 for the 2003 Options. For each
one-third of an option grant, the price-vesting targets are a set percentage
increase over the fair market value of the options on the date of grant. The
percentage targets are a 25 percent increase, a 33 percent increase and a 50
percent increase, respectively, and must be sustained for five consecutive
trading days. For the 2002 Options, the price-vesting targets are: $107.50;
$114.38; and $129.00, and for the 2003 Options, the price-vesting targets are
$132.00; $140.45; and $158.40. The earliest vesting date for the 2002 Options is
June 1, 2005, and for the 2003 Options, January 1, 2006. To the extent not
forfeited or exercised, the options expire on the tenth anniversary of their
grant date. The options are not eligible for the Corporation's replacement
option program. Mr. Lord also received 50,000 restricted stock units in January
2002 and 50,000 restricted stock units in January 2003. Both sets of restricted
stock units vest on December 31, 2004, and delivery of the vested shares is
deferred until retirement or termination of employment. If Mr. Lord's employment
is terminated by the Corporation without cause, or by Mr. Lord for good reason,
the vesting of the options and restricted stock units is accelerated, and Mr.
Lord will receive a cash payment equal to his salary and three-year average
annual bonus multiplied by the lesser of three or the number of years remaining
in the term of the agreement. If his termination under either of these
conditions follows within 24 months of a change in control, Mr. Lord will
receive a cash payment equal to three times salary and three-year average annual
bonus. If any change in control occurs, regardless of whether a termination of
employment occurs, Mr. Lord's unvested stock options and restricted stock units
vest. Change in control payments are subject to being grossed-up for any excise
taxes payable by Mr. Lord and for taxes payable on the grossed-up amounts.
The agreement with Mr. Fitzpatrick is for the five-year period ending
December 31, 2006. Under the agreement, Mr. Fitzpatrick received 600,000 options
in 2002 (the "2002 Options") and 300,000 options in January 2003 (the "2003
Options"). The terms and conditions of the options granted or to be granted to
Mr. Fitzpatrick are generally the same as those granted or to be granted to Mr.
Lord. Mr. Fitzpatrick also received 50,000 restricted stock units in January
2002, 50,000 units in January 2003, and subject to continued employment will
receive 50,000 units in January 2004. All units vest on December 31, 2006, and
delivery of the vested shares is deferred until retirement or termination of
employment. Provisions regarding acceleration of vesting and delivery of shares
subject to restricted stock units, acceleration of exercisability of options,
termination of employment payments and change in control payments that apply to
Mr. Lord also generally apply to Mr. Fitzpatrick. An additional acceleration
event applies in the event Mr. Lord leaves as chief executive officer and Mr.
Fitzpatrick is not selected to succeed Mr. Lord as chief executive officer. Mr.
Fitzpatrick is also entitled to a supplemental retirement payment, which
generally assures him of an annual benefit of $250,000 if he works
15
continuously for the Corporation through age 60. This payment is offset by any
amounts paid under the Corporation's pension plan program.
The applicable agreements provide that Messrs. Lord and Fitzpatrick will
not compete with the Corporation or its affiliates for a period of at least two
years following termination of employment for any reason. The agreements provide
that Messrs. Lord and Fitzpatrick will be nominated for Board service for the
terms of their agreements.
Also, the Corporation assumed Ms. McCormack's employment agreement, as
amended, upon the Corporation's acquisition of USA Group in July 2000. The
agreement with Ms. McCormack ends on August 1, 2003. The agreement entitles her
to a minimum annual base salary of $225,000, and grants of 120,000 options
covering the Corporation's common stock and 60,000 shares of performance stock.
The options vested on June 14, 2001, 12 months after the grant date and after
achievement of price-vesting targets. The performance stock vests upon the
achievement of expense and revenue targets. If Ms. McCormack's employment is
terminated by the Corporation without cause or by Ms. McCormack for cause, as
those terms are defined in the agreement, Ms. McCormack is entitled to receive a
payment equal to twice her annual base salary.
Indebtedness
No loans were outstanding to any executive officers or directors during
2002.
Executive Officers
Biographical information about each executive officer is as follows:
Name and Age Position and Business Experience
- ----------------------------- -----------------------------------------------------------------------------------
Albert L. Lord o Vice Chairman and Chief Executive Officer, SLM Corporation - 1997 to
57 present
o President and principal shareholder of LCL, Ltd. - 1994 to 1997
o Executive Vice President and Chief Operating Officer, Student Loan Marketing
Association - 1990 to 1994, various officer positions - 1981 to 1990
Thomas J. Fitzpatrick o President and Chief Operating Officer, SLM Corporation - 2001 to
54 present, President and Chief Marketing and Administrative Officer - 2000 to
2001, Executive Vice President - 1998 to 2000
o President and Chief Executive Officer, Equity One, Inc. - 1989 to 1998
o President, Commercial Credit Co. - 1988 to 1989
o President and Chief Operating Officer, Manufacturers Hanover Consumer
Services - 1983 to 1988
o Chief Financial Officer, Manufacturers Hanover Consumer Services - 1978
to 1983
C.E. Andrews o Executive Vice President, SLM Corporation - February 2003 to present
51 o Global Managing Partner for Assurance and Business Advisory Services,
Arthur Andersen - 2002, Managing Partner, Mid-Atlantic Region - 2000 to 2002,
various positions with Arthur Andersen - 1974 to 2000
Marianne M. Keler o Executive Vice President and General Counsel, SLM Corporation - 2001 to
48 present, Senior Vice President and General Counsel - 1997 to 2001, other
legal positions - 1985 to 1997
o President, Student Loan Marketing Association - 2001 to present
o Attorney, Securities and Exchange Commission - 1982 to 1985
Robert R. Levine o Executive Vice President, SLM Corporation - 2000 to present, appointed
47 as an executive officer in 1998
o Vice President and Treasurer, Student Loan Marketing Association - 1990 to
1997, various finance positions 1981 to 1990
16
Name and Age Position and Business Experience
- ----------------------------- -----------------------------------------------------------------------------------
June M. McCormack o Executive Vice President, SLM Corporation - 2001 to present, Senior Vice
54 President - 2000 to 2001
o Executive Vice President, USA Group - 1997 to 2000
o Various officer positions, Student Loan Marketing Association - 1986 to
1997
o Various positions, CSX Corp. - 1979 to 1986
John F. Remondi o Executive Vice President, SLM Corporation - 2001 to Present, Senior Vice
40 President - 1999 to 2001
o Chief Financial Officer and Senior Vice President, Nellie Mae
Corporation - 1990 to 1999, Chief Financial Officer - 1988 to 1990
o Various finance positions, Bay Bank Boston - 1984 to 1988
John F. Whorley, Jr. o Executive Vice President, SLM Corporation - January 2003 to present,
41 Senior Vice President - 2000 to 2003
o Senior Vice President, USA Group - 1999 to 2000, various officer
positions 1995 to 1999
o Chief of Staff, U.S. Representative Bart Gordon - 1987 to 1993
PROPOSAL 2--AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION
The Board of Directors recommends that shareholders consider and vote in
favor of a proposal to amend the Corporation's Certificate of Incorporation (the
"Charter") to increase the authorized number of shares of common stock of the
Corporation. The primary purpose of this proposal is to enable the Corporation
to effect potential future stock splits and stock dividends as well as for
general corporate purposes described below. The proposed amendment would
increase the number of authorized shares of common stock from 375,000,000 shares
to 1,125,000,000 shares.
The text of the first sentence of Article 4 of the Charter, as it is
proposed to be amended, is as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is 1,145,000,000 shares of capital stock, consisting of
(i) 1,125,000,000 shares of common stock, par value $.20 per share (the
"Common Stock"), and (ii) 20,000,000 shares of preferred stock, par value
$.20 per share (the "Preferred Stock").
As of March 17, 2003, 151,641,590 shares were issued and outstanding out
of the currently authorized 375,000,000 shares and, after taking into account
shares reserved for issuance upon the exercise of the Corporation's stock
options and warrants, and shares reserved for equity forward transactions to
achieve favorable accounting treatment, approximately 134,566,425 shares of
common stock were available for issuance.
An increase in the amount of common stock authorized by the Corporation's
Charter is necessary for the Corporation to declare a three-for-one stock split
and it is the intention of the Board of Directors to take that action if this
amendment is approved. This planned stock split would be effected as a dividend
of 2 shares. Without approval of the proposed amendment to the Corporation's
Charter, the Corporation would not have sufficient authorized capital to declare
a stock split in the form of a dividend of 2 shares. Generally, stock splits are
intended to shift the market price range of common stock to a level that will
facilitate increased trading activity and will broaden the marketability of
common stock.
Approval of the proposed amendment will allow the Corporation to declare a
corresponding stock split in the form of a stock dividend while maintaining the
current ratio of issued-to-authorized shares of common stock, thereby
maintaining the same flexibility that currently exists for the Corporation to
use capital stock for future business and financial purposes. Authorized but
unissued shares of common stock may be used by the Corporation for any purpose
permitted under Delaware law, including to raise capital, to provide equity
incentives to employees and directors and to enter into strategic transactions
that the Board of Directors believes provide the potential for growth and
profit. Authorized but unissued shares of common stock may also be used to
oppose a hostile takeover attempt or to delay or prevent a change in control of
the Corporation, although the Corporation has no present intention to issue
shares for such purpose. The proposed amendment has been prompted by business
and financial considerations, and the Corporation is not aware of any threat of
takeover or change in control.
17
Under the proposed amendment, each of the newly authorized shares of
common stock will have the same rights and privileges as currently authorized
common stock. Adoption of the proposed amendment will not affect the rights of
the holders of currently outstanding common stock of the Corporation nor will it
change the par value of the common stock. The last increase in the number of
authorized shares of common stock was approved by stockholders in 2001.
The proposed amendment to increase the authorized number of shares of
common stock does not change the number of shares of preferred stock that the
Corporation is authorized to issue.
The Corporation's last stock dividend was in 1998, with a seven-for-two
split of the Corporation's common stock.
If the proposed amendment is adopted, it will become effective upon filing
a Certificate of Amendment to the Corporation's Charter with the Secretary of
State of the State of Delaware. However, if shareholders approve the proposed
amendment to the Corporation's Charter, the Board of Directors retains the
discretion under Delaware law to abandon and not implement the proposed
amendment to the Charter (and the proposed stock split) and the number of
authorized shares would accordingly remain at current levels.
The Corporation has been advised by tax counsel that a split in the form
of a stock dividend would result in no gain or loss or realization of taxable
income to the holders of common stock under existing federal tax law. Non-U.S.
stockholders should consult with their financial advisors regarding tax
treatment in other jurisdictions.
Required Vote
The affirmative vote of the holders of a majority of the shares of common
stock of the Corporation outstanding on March 17, 2003 is required to amend the
Charter. Unless marked to the contrary, proxies received will be voted FOR the
amendment to the Corporation's certificate of incorporation.
Board Recommendation
The Board of Directors of the Corporation recommends a vote FOR approval
to amend the Charter.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed and discussed with management and the
Corporation's independent auditors, PricewaterhouseCoopers LLP, the
Corporation's audited financial statements as of and for the year ended December
31, 2002. The Committee also discussed with PricewaterhouseCoopers LLP, the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants, and with and without
management present, discussed and reviewed the results of the independent
auditors' examination of the financial statements.
The Committee received and reviewed the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as amended, and has
discussed with the auditors the auditors' independence. The Committee discussed
with PricewaterhouseCoopers LLP relationships that may have an impact on their
objectivity and independence. The Committee considered whether the provision of
non-financial audit services was compatible with PricewaterhouseCoopers LLP's
independence in performing financial audit services.
Following the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2002.
Audit Committee
Ann Torre Grant, Chairman
Barry L. Williams, Vice Chairman
Charles L. Daley
Ronald F. Hunt
A. Alexander Porter, Jr.
Steven L. Shapiro
18
PROPOSAL 3--APPOINTMENT OF INDEPENDENT AUDITOR
The Corporation's independent financial auditor is selected by the Audit
Committee. On January 28, 2003, the Audit Committee appointed
PricewaterhouseCoopers LLP as the Corporation's independent financial auditor
for 2003, subject to ratification by the Corporation's shareholders.
PricewaterhouseCoopers LLP has served as auditor for the Corporation since May
16, 2002.
This proposal is put before the shareholders because the Board believes
that it is a good corporate practice to seek shareholder ratification of the
selection of the independent financial auditor. If the appointment of
PricewaterhouseCoopers LLP is not ratified, the Audit Committee will evaluate
the basis for the shareholders' vote when determining whether to continue the
firm's engagement.
Representatives of PricewaterhouseCoopers LLP are expected to attend the
Annual Meeting and to respond to appropriate questions from shareholders present
at the meeting, and will have an opportunity to make a statement if they desire
to do so.
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for the Corporation by
PricewaterhouseCoopers LLP and Arthur Andersen LLP as of and for the years ended
December 31, 2002 and 2001, respectively, were:
2002 2001
Audit $2,653,612 $1,950,866
Audit Related 2,170,878 935,942
Tax 1,530,840 3,278,169
All Other 481,891 1,990,930
---------- ----------
Total $6,837,221 $8,155,907
========== ==========
The Audit Fees were for professional services rendered for the audits of
the consolidated financial statements of the Corporation and statutory and
subsidiary audits, issuance of comfort letters, consents, income tax provision
procedures, and assistance with review of documents filed with the SEC.
The Audit Related fees were for assurance and other services related to
service provider compliance reports, trust servicing and administration reports,
employee benefit plan audits, due diligence related to mergers and acquisitions,
accounting consultations and audits in connection with acquisitions, internal
control reviews, attest services that are not required by statute or regulation,
and consultations concerning financial accounting and reporting standards.
Tax fees were for services related to tax compliance, tax planning, and
state tax assistance.
All Other Fees as of the year ended December 31, 2001, were for services
rendered for valuation services and other advisory services. There were no such
fees incurred in 2002.
19
Required Vote
The affirmative vote of the holders of a majority of the shares of common
stock present or represented and entitled to be voted at the Annual Meeting is
required to ratify the appointment of PricewaterhouseCoopers LLP. Unless marked
to the contrary, proxies received will be voted FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors for 2003.
Board Recommendation
The Board of Directors of the Corporation recommends a vote FOR the
ratification of the appointment of PricewaterhouseCoopers LLP as independent
auditors for 2003.
GENERAL INFORMATION
Shares Outstanding
At December 31, 2002, 152,579,596 of the Corporation's common stock par
value $.20 per share, were outstanding. At March 17, 2003, the record date,
151,641,590 shares of common stock were outstanding and eligible to be voted.
The common stock is listed on the New York Stock Exchange, under the symbol
"SLM."
Principal Shareholders
To the Corporation's knowledge, the following institutions were beneficial
owners of 5% or more of the Corporation's outstanding common stock on March 17,
2003. The holdings reported below are based solely on Schedules 13G filed with
the Securities and Exchange Commission as of December 31, 2002. The Corporation
is not aware of any other beneficial owner who became the beneficial owner of 5%
or more of the Corporation's common stock between December 31, 2002 and March
17, 2003.
Ownership
Percentage at
Name and Address of Beneficial Owner Shares(1) December 31, 2002
- --------------------------------------------------------------------------------
Capital Group International, Inc.(2) 12,253,590 8.0%
11100 Santa Monica Blvd.
Los Angeles, CA 90025
FMR Corp(3)
82 Devonshire Street 18,467,679 12.10%
Boston, MA 02109
Bank of America Corporation(4)
100 North Tryon Street 13,588,513 8.91%
Charlotte, NC 28255
Janus Capital Management LLC(5)
100 Fillmore Street 8,136,480 5.33%
Denver, CO 80206
(1) Except as indicated, each institution has sole investment power and has
sole power to vote with respect to the shares listed.
(2) Capital Guardian Trust Company, a subsidiary of Capital Group
International, Inc., beneficially owns 9,256,230 shares and has sole power
to vote 6,592,600 of these shares and dispose of 9,256,230 shares.
(3) Fidelity Management and Research Company, a wholly-owned subsidiary of FMR
Corp., beneficially owns 18,039,890 or 11.749% of the shares outstanding,
does not have investment power over any of the shares, but may vote all of
the shares. Fidelity Management Trust Company, a wholly-owned subsidiary
of FMR Corp., beneficially owns 426,452 or .278% of the shares
outstanding. FMR Corp. has sole power to vote 240,652 of these 426,452
shares. In addition, FMR Corp. beneficially owns 819 shares through
Strategic Advisors, Inc., a wholly-owned subsidiary with investment power
but no power to vote. Fidelity International Limited beneficially owns 518
of the shares included herein, over which it has sole voting power.
(4) Bank of America Corporation, with and through various entities,
beneficially owns 13,588,513 shares or 8.85% of the shares outstanding and
has shared investment power over all these shares and has shared power to
vote 11,778,108 of these shares. Bank of America Corporation does not have
sole investment power over, or the sole power to vote, any of these
shares.
20
(5) Janus Capital Management LLC, a registered investment adviser, filed a
Schedule 13G with the Securities and Exchange Commission on February 14,
2003.
Other Matters
As of the date of this proxy statement, there are no matters that the
Board of Directors intends to present for a vote at the Annual Meeting other
than the business items discussed in this proxy statement. In addition, the
Corporation has not been notified of any other business that is proposed to be
presented at the Annual Meeting. If other matters now unknown to the Board come
before the Annual Meeting, the accompanying proxy card confers discretionary
authority on the persons named on the proxy card to vote such proxies on any
such matters in accordance with their best judgment.
Solicitation Costs
All expenses in connection with the solicitation of the enclosed proxy
will be paid by the Corporation. In addition to solicitation by mail, officers,
directors, regular employees or other agents of the Corporation may solicit
proxies by telephone, telefax, personal calls, or other electronic means. The
Corporation will request banks, brokers, custodians and other nominees in whose
names shares are registered to furnish to beneficial owners of the Corporation's
common stock material related to the Annual Meeting, including the annual
report, this proxy statement and the proxy card to the beneficial owners of such
shares and, upon request, the Corporation will reimburse such registered holders
for their out-of-pocket and reasonable expenses in connection therewith.
Shareholder Proposals for 2004 Annual Meeting
A shareholder who intends to introduce a proposal for consideration at the
Corporation's year 2004 Annual Meeting, set for May 13, 2004, may seek to have
that proposal and a statement in support of the proposal included in the
Corporation's proxy statement if the proposal relates to a subject that is
permitted under U.S. Securities and Exchange Commission ("SEC") Rule 14a-8. To
qualify for this, the shareholder must submit the proposal and supporting
statement to the Corporation not later than December 8, 2003 and must satisfy
the other requirements of Rule 14a-8. The submission of a shareholder proposal
does not guarantee that it will be included in the Corporation's proxy
statement.
A shareholder may otherwise propose business for consideration or nominate
persons for election to the Board of Directors, in compliance with federal proxy
rules, applicable state law and other legal requirements and without seeking to
have the proposal included in the Corporation's proxy statement pursuant to Rule
14a-8. The Corporation's By-laws provide that any such proposals or nominations
for the Corporation's 2004 Annual Meeting must be received by the Corporation
after February 15, 2004 and on or before April 15, 2004. Any such notice must
satisfy the other requirements with respect to such proposals and nominations
contained in the Corporation's By-laws. If a shareholder fails to meet these
deadlines or fails to comply with the requirements of SEC Rule 14a-4, the
Corporation may exercise discretionary voting authority under proxies it
solicits to vote on any such proposal.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors to file reports on their holdings
of and transactions in the Corporation's common stock. To the Corporation's
knowledge, for the fiscal year 2002 all of the Corporation's executive officers
and directors timely filed all required reports under Section 16, except Mr.
Diefenderfer and Mr. Hunt each failed to timely file a report on a routine
benefit plan purchase transaction of 19 shares over which neither individual had
control.
Householding
The SEC recently approved a rule concerning the delivery of annual reports
and proxy statements. It permits a single set of these reports to be sent to any
household at which two or more shareholders reside if they appear to be members
of the same family. Each shareholder continues to receive a separate proxy card.
This procedure, referred to as householding, reduces the volume of duplicate
information shareholders receive and reduces mailing and printing expenses. A
number of brokerage firms have instituted householding. In accordance with a
notice sent earlier this year to certain beneficial shareholders who share a
single address, only one annual report and proxy statement will be sent to that
address unless any shareholder at such an address wishes to receive a separate
annual report or proxy statement in the future. A share holder may request a
separate copy of such materials by calling toll-free 1-888-810-5988.
21
Exhibit A
[LOGO]
SallieMae
SLM CORPORATION
AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
CHARTER
As authorized in the By-Laws and implemented by Resolution of the Board of
Directors, an Audit Committee has been established for the purpose of assisting
the Board in fulfilling its responsibilities and providing oversight relating to
(1) the assessment and management of certain business risks, including
financial, operational, litigation and regulatory risks; (2) the integrity of
the Corporation's financial reporting; (3) the Corporation's system of
disclosure controls and system of internal controls regarding financial,
accounting, legal compliance, and ethics; (4) the external auditor's
qualifications, independence and performance; (5) the performance of the
Corporation's internal audit function; (6) the Corporation's compliance with
legal and regulatory requirements and 6) preparation of the report of the
Committee for the Corporation's annual proxy statement, as required by the SEC.
The Audit Committee has unrestricted access to all information relating to
the Corporation and its subsidiaries, including documents and personnel.
Adequate resources are available for the Committee to fulfill its oversight
responsibilities. The Committee has the authority to obtain advice and
assistance from outside legal, accounting or other advisors, as it deems
necessary to carry out the purposes of the Committee.
Goals and Responsibilities of the Committee:
Selection of the External Auditor
o Subject to ratification of the Corporation's shareholders, be directly and
solely responsible for the appointment, compensation and oversight of the
external auditor.
Review of External Auditor/Financial Reporting
o At least annually, obtain and review a report by the external auditor
describing: the auditor's internal quality-control procedures; any
material issues raised by the most recent internal quality-control review,
or peer review, of the auditor, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the auditor, and
any steps taken to deal with any such issues. To assist the Committee in
assessing the auditor's independence, obtain and review a description of
all fees and relationships between the external auditor and the
Corporation. Based upon this report and the auditor's work throughout the
year, the Committee will review and evaluate the external auditor's
qualifications, performance and independence. The evaluation will assure
regular rotation of the lead audit partner as required by law.
o Discuss with management and the external auditors the Corporation's annual
audited financial statements and quarterly financial statements and
significant accounting, tax and reporting issues underlying those
statements, including the Corporation's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the quality of the accounting principles applied and judgements made
affecting the Corporation's financial statements. To this end, the
Committee will review: (a) major issues regarding accounting principles
and financial statement presentations, including any significant changes
in the Corporation's selection or application of accounting principles;
(b) analysis prepared by management and/or the external auditor setting
forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on the financial
statements; and (c) the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures on the financial statements of the
Corporation.
22
o Review with the external auditors, the scope and results of their
examination of the Corporation's financial statements and any difficulties
the auditor encounters in the course of its audit work, including any
written communications between the external auditor and management.
o Review and discuss the types of presentation and information to be
included in earnings press releases (in particular, the use of "pro-forma"
information) and financial information and earnings guidance provided to
analysts and rating agencies.
o Establish policies and procedures for the engagement of the external
auditor to provide non-audit services as permitted by applicable law.
Internal Audit
o Review with the internal auditor the scope of the annual operational audit
plan and receive, on a periodic basis, summary audit reports from
completed audits, progress reports on the annual audit plan and a status
report detailing actions taken, or to be taken, by management to address
outstanding issues or findings.
o Review with management, the external and internal auditors the adequacy
and effectiveness of the Corporation's internal control environment
including any significant deficiencies in internal controls and
significant changes in such controls, including appropriate review of
related party transactions. The Committee also will review the annual
attestation and reports of management and the external auditor on
management's evaluation of the Corporation's internal controls and
procedures for financial reporting. The Committee shall review and discuss
the Corporation's disclosure controls and procedures.
o Review with the external auditor the effectiveness of the internal audit
function.
Legal Compliance/Risk Management
o Review with management and the external and internal auditors, as
appropriate, the Code of Conduct, legal and regulatory compliance
measures, including compliance with the Corporation's Code of Conduct.
o Review with management significant pending or potential litigation against
the Corporation and its subsidiaries.
o Discuss the Corporation's risk management and risk assessment policy and
guidelines, including the adequacy and approval of insurance coverage.
o Establish a hiring policy for current and former employees of the external
auditor, consistent with applicable law.
o Establish procedures for the confidential, anonymous submission of
complaints by employees about accounting and auditing matters.
Other Responsibilities
o Maintain free and open communication between the Board of Directors,
management, and the external and internal auditors.
o Annually evaluate Committee effectiveness.
23
Meetings:
The Committee will meet at least four times a year and will report
regularly to the Board. Meetings will be attended by the external auditors and
the internal auditors responsible for the Corporation's audit function.
Periodically, the Committee will meet separately with management, the external
auditors and the internal auditors.
Membership:
The Board of Directors of the Corporation will designate at least three
directors to serve on the Audit Committee. The Committee membership will be
totally comprised of "independent" directors as provided in the listing
requirements of the New York Stock Exchange and applicable SEC rules and
regulations. . At least one member of the Committee will be a financial expert,
within the meaning of applicable SEC and NYSE rules and regulations. A Chairman
of the Committee will be appointed by the Board.
Charter Review:
On an annual basis, this charter will be reviewed by the Audit Committee
and the Nominations and Governance Committee. The full Board will revise this
charter as appropriate.
24
[LOGO]
SallieMae
SLM CORPORATION VOTE BY PHONE - 1-800-690-6903
11600 SALLIE MAE DRIVE, #V1260 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M.
RESTON, VA 20193 Eastern Time the day before the cut-off date or meeting date. Have your proxy card in
hand when you call. You will be prompted to enter your 12-digit Control Number which is
located below and then follow the simple instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we've
provided or return to SLM Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: SLMCR1 KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
================================================================================
SLM CORPORATION
The Board of Directors recommends a vote FOR
Items 1-3 to be voted upon at the Annual Meeting.
Vote On Directors
For Withhold For All To withhold authority to vote, mark
1. Nominees: All All Except "For All Except" and write the nominee's
01) CHARLES L. DALEY 09) BENJAMIN J. LAMBERT III number on the line below.
02) W.M. DIEFENDERFER III 10) ALBERT L. LORD |_| |_| |_|
03) THOMAS J. FITZPATRICK 11) BARRY A. MUNITZ
04) EDWARD A. FOX 12) A. ALEXANDER PORTER, JR. ----------------------------------------------
05) DIANE SUITT GILLELAND 13) WOLFGANG SCHOELLKOPF
06) EARL A. GOODE 14) STEVEN L. SHAPIRO
07) ANN TORRE GRANT 15) BARRY L. WILLIAMS
08) RONALD F. HUNT
Vote On Proposals For Against Abstain
|_| |_| |_|
2. Amend the Corporation's
Certificate of Incorporation to
increase the number of authorized
shares of common stock.
3. Ratify the Appointment of |_| |_| |_|
PricewaterhouseCoopers LLP as the
Corporation's independent
auditors.
(Please sign, date and return this proxy card in the enclosed envelope.)
If you wish to include comments and/or |_|
address changes, please mark this box
and write them on the back where
indicated.
Yes No
HOUSEHOLDING ELECTION - Please indicate
if you consent to receive certain future
investor communications in a single
package per household. |_| |_|
- ---------------------------------------------- ----------------------------------------------
- ---------------------------------------------- ----------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
================================================================================
- --------------------------------------------------------------------------------
================================================================================
SLM CORPORATION
Proxy solicited by the Board of Directors for Annual Meeting - May 15, 2003
Each of the undersigned, revoking all other proxies heretofore given,
hereby constitutes and appoints Albert L. Lord, A. Alexander Porter, Jr. and
Marianne M. Keler, and each of them individually, with full power of
substitution, as proxy or proxies to represent and vote all shares of Common
Stock, par value $.20 per share (the "Common Stock"), of SLM Corporation (the
"Company") owned by the undersigned at the Annual Meeting and any adjournments
or postponements thereof.
The shares represented hereby will be voted in accordance with the
directions given in this proxy. If not otherwise directed herein, shares
represented by this proxy will be voted FOR Item 1 (Election of Directors), FOR
Item 2 (Amend the Certificate of Incorporation) and FOR Item 3 (Ratification of
Appointment of Independent Auditors). If any other matters are properly brought
before the Annual Meeting, proxies will be voted on such matters as the proxies
named herein, in their sole discretion, may determine.
- --------------------------------------------------------------------------------
Address Changes/Comments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(If you noted any address Changes or Comments above,
please check the corresponding box on the reverse.)
================================================================================
[LOGO]
SallieMae
SLM CORPORATION VOTE BY PHONE - 1-800-690-6903
11600 SALLIE MAE DRIVE, #V1260 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M.
RESTON, VA 20193 Eastern Time the day before the cut-off date or meeting date. Have your instruction card
in hand when you call. You will be prompted to enter your 12-digit Control Number which
is located below and then follow the simple instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign and date your instruction card and return it in the postage-paid envelope
we've provided or return to SLM Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY
11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: SLMCR5 KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED.
================================================================================
SLM CORPORATION
The Board of Directors recommends a vote FOR
Items 1-3 to be voted upon at the Annual Meeting.
Vote On Directors
For Withhold For All To withhold authority to vote, mark
1. Nominees: All All Except "For All Except" and write the nominee's
01) CHARLES L. DALEY 09) BENJAMIN J. LAMBERT III number on the line below.
02) W.M. DIEFENDERFER III 10) ALBERT L. LORD |_| |_| |_|
03) THOMAS J. FITZPATRICK 11) BARRY A. MUNITZ
04) EDWARD A. FOX 12) A. ALEXANDER PORTER, JR. ----------------------------------------------
05) DIANE SUITT GILLELAND 13) WOLFGANG SCHOELLKOPF
06) EARL A. GOODE 14) STEVEN L. SHAPIRO
07) ANN TORRE GRANT 15) BARRY L. WILLIAMS
08) RONALD F. HUNT
Vote On Proposals For Against Abstain
|_| |_| |_|
2. Amend the Corporation's
Certificate of Incorporation to
increase the number of authorized
shares of common stock.
3. Ratify the Appointment of |_| |_| |_|
PricewaterhouseCoopers LLP as the
Corporation's independent
auditors.
(Please sign, date and return this proxy card in the enclosed envelope.)
If you wish to include comments and/or |_|
address changes, please mark this box
and write them on the back where
indicated.
Yes No
HOUSEHOLDING ELECTION - Please indicate
if you consent to receive certain future
investor communications in a single
package per household. |_| |_|
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Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
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SLM CORPORATION
Instruction Card Solicited by Fidelity Management Trust Company
Each of the undersigned, revoking all other proxies heretofore given,
hereby directs Fidelity Management Trust Company ("Fidelity") to constitute and
appoint Albert L. Lord, A. Alexander Porter, Jr. and Marianne M. Keler, and each
of them individually, with full power of substitution, as proxy or proxies to
represent and vote all shares of Common Stock, par value $.20 per share (the
"Common Stock"), of SLM Corporation (the "Company") credited to the account of
the undersigned at the Annual Meeting and any adjournments or postponements
thereof.
The shares represented hereby will be voted in accordance with the
directions given on this card. If no direction is made, if the card is not
signed, or if the card is not received by May 12, 2003, the shares credited to
your account will be voted in proportion to directions received by Fidelity.
Your directions will be treated confidentially by Fidelity.
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Address Changes/Comments:
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(If you noted any address Changes or Comments above,
please check the corresponding box on the reverse.)
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