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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant To
Section 14(a) of
The Securities Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
WASHINGTON MUTUAL, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee not required. |
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Fee computed on table
below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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transaction computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and state how it was determined): |
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SEC 1913 (04-05) |
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Persons who are to respond to the
collection of information contained in this form are not required to
respond unless the form displays a currently valid OMB control number. |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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1201 Third Avenue, Suite 1601
Seattle, Washington 98101
March 17, 2006
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Washington Mutual, Inc. shareholders that will be held in the S.
Mark Taper Foundation Auditorium on Tuesday, April 18,
2006, at 1:30 p.m., local time, at Benaroya Hall,
200 University Street, Seattle, Washington 98101. The
meeting will be webcast on the Washington Mutual website at
www.wamu.com/ir. I look forward to greeting as many of
our shareholders as possible at the Annual Meeting.
As set forth in the attached Proxy Statement, the meeting will
be held to consider the following matters:
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the election of six directors; |
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the ratification of the appointment of Washington Mutuals
independent auditors for 2006; |
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the approval of the Amended and Restated 2003 Equity Incentive
Plan which, among other things, increases the number of shares
of common stock that may be subject to awards made under the
plan; |
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the approval of the Washington Mutual, Inc. Executive Incentive
Compensation Plan; |
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a Company proposal to declassify the Washington Mutual Board of
Directors and establish annual director elections; |
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a shareholder proposal that is expected to be presented at the
meeting; and |
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to transact such other business as may properly come before the
meeting and any postponement(s) or adjournment(s). |
Please read the attached Proxy Statement carefully for
information about the matters upon which shareholders are being
asked to consider and vote. In addition to these specific
matters, there will be a report on the progress of Washington
Mutual and an opportunity to ask questions of general interest
to shareholders.
Your vote is important. Whether or not you attend the meeting in
person, I urge you to promptly vote your proxy as soon as
possible via the Internet, by telephone or by mail using the
enclosed postage-paid reply envelope. If you decide to attend
the meeting and vote in person, you will, of course, have that
opportunity.
Thank you for your continued support of Washington Mutual, and
again, I look forward to seeing you at the Annual Meeting.
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Sincerely, |
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Kerry Killinger |
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Chairman and Chief Executive Officer |
WASHINGTON MUTUAL, INC.
1201 Third Avenue, Suite 1601
Seattle, Washington 98101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 18, 2006
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Meeting Date:
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Tuesday, April 18, 2006 |
Meeting Time:
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1:30 p.m. (local time) |
Location: |
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S. Mark Taper Foundation Auditorium
Benaroya Hall
200 University Street
Seattle, Washington 98101 |
Record Date:
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February 24, 2006 |
Agenda:
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To elect six directors, five for three-year terms and one for a
one-year term; |
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To ratify the appointment of Deloitte & Touche LLP as the
independent auditors of Washington Mutual, Inc. (the
Company) for 2006; |
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To approve the Amended and Restated 2003 Equity Incentive Plan
which, among other things, increases the number of shares of
Company common stock that may be subject to awards made under
the plan; |
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To approve the Washington Mutual, Inc. Executive Incentive
Compensation Plan; |
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To approve a Company proposal to amend the Companys
Articles of Incorporation (as amended) to declassify the Board
of Directors and require annual elections for all Company
directors commencing with the Companys 2007 Annual Meeting
of Shareholders; |
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To consider a shareholder proposal regarding disclosure of the
Companys political contributions if it is properly
presented by the shareholder proponent at the meeting; and |
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To transact such other business as may properly come before the
meeting or any adjournments or postponements. |
The Board of Directors urges shareholders to vote FOR
Items 1, 2, 3, 4, and 5, and AGAINST Item 6.
All of these items are more fully described in the Proxy
Statement that follows. Shareholders of record at the close of
business on the Record Date will be entitled to vote at the
Annual Meeting and any adjournments thereof.
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By order of the Board of Directors, |
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William L. Lynch |
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Secretary |
Seattle, Washington
March 17, 2006
IMPORTANT
Whether
or not you expect to attend the Annual Meeting in person, we
urge you to vote your proxy at your earliest convenience via the
Internet, by telephone or by mail using the enclosed
postage-paid reply envelope. This will ensure the presence of a
quorum at the Annual Meeting and will save Washington Mutual the
expense of additional solicitation. Sending in your proxy will
not prevent you from voting your shares in person at the Annual
Meeting if you desire to do so. Your proxy is revocable at your
option in the manner described in the Proxy Statement.
Table of Contents
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Item 2. Ratification of the
Appointment of Independent Auditors
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Item 3. Approval of the
Washington Mutual, Inc. Amended and Restated 2003 EIP
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Item 4. Approval of the
Washington Mutual, Inc. Executive Incentive Compensation Plan
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Item 5. Company Proposal to
Declassify Washington Mutuals Board of Directors
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Item 6. Shareholder
Proposal Relating to Washington Mutuals Political
Contributions
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Appendix A |
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Appendix B |
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Appendix C |
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WASHINGTON MUTUAL, INC.
1201 Third Avenue, Suite 1601
Seattle, Washington 98101
PROXY STATEMENT
For 2006 Annual Meeting of Shareholders
To Be Held on Tuesday, April 18, 2006
The board of directors (the Board of
Directors or the Board) of
Washington Mutual, Inc. (Washington Mutual or
the Company) is soliciting proxies to be
voted at the Annual Meeting of Shareholders on April 18,
2006, at 1:30 p.m. (the Annual Meeting),
and at any adjournments or postponements thereof, for the
purposes set forth in the attached Notice of Annual Meeting of
Shareholders. The Notice, this Proxy Statement and the form of
proxy enclosed are first being sent to shareholders on or about
March 17, 2006.
Questions and Answers about these Proxy Materials and the
Annual Meeting:
Question: Why am I receiving these
materials?
Answer: The Board of Directors is providing these proxy
materials to you in connection with Washington Mutuals
Annual Meeting of Shareholders, to be held on April 18,
2006. As a shareholder, you are invited to attend the Annual
Meeting, and are entitled to, and requested to vote on the items
of business described in this Proxy Statement.
Question: What information is contained in
this Proxy Statement?
Answer: This information relates to the proposals to be
voted on at the Annual Meeting, the voting process, compensation
of the Companys directors and most highly paid executives,
and certain other required information.
Question: Who is soliciting my vote pursuant
to this Proxy Statement?
Answer: The Board of Directors is soliciting your vote at
the 2006 Annual Meeting.
Question: Who is entitled to vote?
Answer: Only shareholders of record at the close of
business on February 24, 2006 will be entitled to vote at
the Annual Meeting.
Question: How many shares are eligible to be
voted?
Answer: As of the record date of February 24, 2006,
the Company had 991,987,122 shares of common stock
(Common Stock) outstanding (including
6,000,000 shares of Common Stock held in escrow). Each
outstanding share of Common Stock will entitle its holder to one
vote on each of the six directors to be elected and one vote on
each other matter to be voted on at the Annual Meeting.
Question: What am I voting on?
Answer: You are voting on the following matters:
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The election of six directors. The Companys nominees are
Kerry K. Killinger, Thomas C. Leppert, Charles M.
Lillis, Michael K. Murphy, Orin C. Smith and Regina
Montoya. |
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Ratification of the appointment by the Boards Audit
Committee of Deloitte & Touche LLP as the Companys
independent auditors for 2006. |
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Approval of the Amended and Restated 2003 Equity Incentive Plan
which, among other things, increases the number of shares of
Common Stock that may be made subject to Plan awards by an
additional 65,000,000 shares. |
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Approval of the Washington Mutual, Inc. Executive Incentive
Compensation Plan. |
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Approval of a Company proposal to amend the Companys
Articles of Incorporation (as amended) to declassify the Board
of Directors and establish annual elections, whereby all
directors would stand for re- election annually. |
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To consider a shareholder proposal regarding disclosure of the
Companys political contributions and related practices, if
the proposal is properly presented at the meeting by the
shareholder proponent. |
Question: How does the Board recommend that I
vote?
Answer: The Board recommends that you vote
FOR each director nominee, FOR the
ratification of the Audit Committees appointment of
Deloitte & Touche as independent auditors, FOR
approval of the Amended and Restated 2003 Equity Incentive Plan,
FOR approval of the Executive Incentive Compensation
Plan, FOR approval of the Company proposal to
declassify the Board, and AGAINST the shareholder
proposal.
Question: How many votes are required to hold the
Annual Meeting and what are the voting procedures?
Answer: Quorum Requirement: Washington law
provides that any shareholder action at a meeting requires that
a quorum exist with respect to that action. A quorum for the
actions to be taken at the Annual Meeting will consist of a
majority of all of the outstanding shares of Common Stock that
are entitled to vote at the Annual Meeting. Therefore, at the
Annual Meeting, the presence, in person or by proxy, of the
holders of at least 495,993,562 shares of Common Stock will be
required to establish a quorum. Shareholders of record who are
present at the Annual Meeting in person or by proxy and who
abstain are considered shareholders who are present and entitled
to vote, and will count towards the establishment of a quorum.
This will include brokers holding customers shares of
record who cause abstentions to be recorded at the Annual
Meeting.
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Required Votes: Each outstanding share of Common Stock is
entitled to one vote on each proposal at the Annual Meeting. |
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Election of Directors: If there is a quorum at the Annual
Meeting, the six nominees who receive the greatest number of
votes cast for directors will be elected. There is no cumulative
voting for Company directors. |
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Ratification of Independent Auditors, Approval of the Amended
and Restated 2003 Equity Incentive Plan, Approval of the
Executive Incentive Compensation Plan and Approval of the
Shareholder Proposal: If there is a quorum, each of these
actions will be approved if the number of votes cast in favor of
the proposed action exceeds the number of votes cast against it. |
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Approval of the Company Proposal to Declassify the Board:
If there is a quorum at the Annual Meeting, this action will be
approved if votes representing a majority of the outstanding
shares of Company Common Stock vote to approve the proposal. |
Abstentions and broker non-votes will have no impact on the
election of directors or the approval of the other proposed
actions at the meeting, other than the approval of the Company
proposal to declassify the Board. Abstentions and broker
non-votes will have the same effect as votes against the
proposal to declassify the Board because approval of that
proposal requires the affirmative vote of a majority of the
Companys outstanding shares entitled to vote.
Question: How may I cast my vote?
Answer: If you are the shareholder of record: You
may vote by one of the following four methods (as instructed on
the enclosed proxy card):
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in person at the Annual Meeting, |
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via the Internet, |
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by telephone, or |
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by mail. |
Whichever method you use, the proxies identified on the proxy
card will vote the shares of which you are the shareholder of
record in accordance with your instructions. If you submit a
proxy card without giving specific voting instructions, the
proxies will vote the shares as recommended by the Board of
Directors.
If you own your shares in street name, that is,
through a brokerage account or in another nominee form: You
must provide instructions to the broker or nominee as to how
your shares should be voted. Your broker or nominee will usually
provide you with the appropriate instruction forms at the time
you receive this Proxy Statement and the Companys Summary
Annual Report. If you own your shares in this manner, you cannot
vote in person at the Annual Meeting unless you receive a proxy
to do so from the broker or the nominee, and you bring the proxy
to the Annual Meeting.
If you are a participant in the WaMu Savings Plan (the
Plan): You have the right to direct Fidelity
Management Trust Company (Fidelity), as
trustee of the Plan, regarding how to vote the shares of Company
Common Stock attributable to your individual account under the
Plan. The enclosed proxy card can be used as a direction form to
provide voting directions to Fidelity. Fidelity will vote shares
of Common Stock attributable to participant accounts as directed
by such participants. Fidelity will not vote shares of Common
Stock attributable to participant accounts for which it does not
receive participant direction by April 13, 2006.
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Question: How may I cast my vote over the
Internet and by telephone?
Answer: Voting over the Internet: If you are a
shareholder of record, you may use the Internet to transmit your
vote up until 11:59 P.M. Eastern Time April 17, 2006.
Visit www.proxyvote.com and have your proxy card in hand
when you access the website and follow the instructions to
obtain your records and to create an electronic voting
instruction form.
Voting by Telephone: If you are a shareholder of record,
you may call 1-800-690-6903 and use any touch-tone telephone to
transmit your vote up until 11:59 P.M. Eastern Time
April 17, 2006. Have your proxy card in hand when you call
and then follow the instructions.
If you hold your shares in street name, that is
through a broker, bank or other nominee, that institution will
instruct you as to how your shares may be voted by proxy,
including whether telephone or Internet voting options are
available.
Question: How may I revoke or change my
vote?
Answer: If you are the record owner of your shares, you
may revoke your proxy at any time before it is voted at the
Annual Meeting by:
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submitting a new proxy card, |
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delivering written notice to the Corporate Secretary of the
Company prior to April 18, 2006, stating that you are
revoking your proxy, or |
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attending the Annual Meeting and voting your shares in person. |
Please note that attendance at the Annual Meeting will not, in
itself, constitute revocation of your proxy.
Question: Who is paying for the costs of this
proxy solicitation?
Answer: The Company will bear the cost of preparing,
printing and mailing the materials in connection with this
solicitation of proxies. In addition to mailing these materials,
officers and regular employees of the Company may, without being
additionally compensated, solicit proxies personally and by
mail, telephone, facsimile or electronic communication. The
Company will reimburse banks and brokers for their reasonable
out-of-pocket expenses related to forwarding proxy materials to
beneficial owners of stock or otherwise in connection with this
solicitation. The Company has retained Georgeson Shareholder
Communications Inc. to assist in the solicitation at a cost of
approximately $10,000, plus payment of reasonable out-of-pocket
expenses incurred by Georgeson.
Question: Who will count the votes?
Answer: Automated Data Processing, Inc., the
Companys inspector of elections for the Annual Meeting,
will receive and tabulate the ballots and voting instruction
forms.
Question: What happens if the Annual Meeting
is postponed or adjourned?
Answer: Your proxy will still be effective and may be
voted at the rescheduled meeting. You will still be able to
change or revoke your proxy until it is voted.
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INFORMATION ABOUT THE MEETING
The Annual Meeting will be held at 1:30 p.m. (local time)
on Tuesday, April 18, 2006, at the S. Mark Taper
Foundation Auditorium at Benaroya Hall, 200 University
Street, Seattle, Washington 98101. Listening devices will be
available at the Annual Meeting for shareholders with impaired
hearing.
The Company plans to webcast the Annual Meeting. The webcast may
be accessed on the Washington Mutual website at
www.wamu.com/ir during the Annual Meeting and for
30 days after the meeting.
ITEM 1. ELECTION OF DIRECTORS
Board Nominees
The Board of Directors has nominated each of the following
persons for election as a Company director. Each of the
nominees, except for Ms. Montoya, is currently a director
of the Company and each has indicated that he or she is willing
and able to serve as a director. Biographical and other
information on each of the nominees and other current directors
of the Company appears beginning on page 5 of this Proxy
Statement.
Kerry K. Killinger
Thomas C. Leppert
Charles M. Lillis
Regina Montoya
Michael K. Murphy
Orin C. Smith
The Companys Articles of Incorporation currently provide
that the number of directors will be fixed by the Companys
Bylaws and divided into three classes. The Bylaws of the Company
currently fix the size of the Board of Directors at
14 directors. The Company currently has 13 directors
and if each of the six nominees are elected, it will continue to
have 13 directors. The Company expects that the Board will
amend the Bylaws at its next scheduled meeting to reduce the
number of Board seats to 13. If they are re-elected at the
Annual Meeting, the nominees, except for Ms. Montoya, would
be elected to serve three-year terms to expire at the 2009
Annual Meeting and until their successors are elected and
qualified. Under the current classification of the Board,
Ms. Montoya would be elected to serve a one-year term to
expire at the 2007 Annual Meeting.
If shareholders approve the Companys
Proposal Item 5 to declassify the Board of Directors
by amending the Companys Articles of Incorporation to
provide for one-year director terms and annual director
elections beginning at the 2007 Annual Meeting, all Company
directors will be subject to re-election for one-year terms in
2007. Each director will then stand for re-election every year
thereafter.
If any nominee becomes unable or unwilling to serve, which is
not anticipated, the accompanying proxy may be voted for the
election of such other person as shall be designated by the
Governance Committee of the Board of Directors. Proxies granted
may not be voted for a greater number of nominees than the six
named above. Unless instructions to the contrary are specified
in a proxy properly voted and returned through available
channels, the proxies will be voted FOR each of
the nominees listed above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS
VOTE FOR EACH OF THE NOMINEES.
Current Directors
Below is information regarding each of the Companys
current directors, including five of the director nominees.
Except as otherwise indicated, each Company director has been
engaged in the principal occupation described below for at least
five years.
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Anne V. Farrell
Director since 1994
Current term expires 2007
Mrs. Farrell, age 70, served as President and Chief
Executive Officer of The Seattle Foundation, a charitable and
educational corporate foundation, from 1984 until 2003, and
currently serves as its President Emeritus. Mrs. Farrell
also serves as a trustee of the registered investment companies
that comprise the WM Group of Funds. The investment advisor to
the funds is an indirect wholly-owned subsidiary of Washington
Mutual. She also serves as a director of Recreational Equipment,
Inc. (R.E.I.). |
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Stephen E. Frank
Director since 1997
Current term expires 2007
Mr. Frank, age 64, is a director of Aegis Insurance
Services, Inc., Puget Energy, Inc., Intermec, Inc. and Northrup
Grumman Corporation. On January 1, 2002, Mr. Frank
retired as Chairman, President and Chief Executive Officer of
Southern California Edison, the largest subsidiary of Edison
International, a power company, where he had served since June
1995. From 1990 until 1995, Mr. Frank served as the
President, Chief Operating Officer and a director of Florida
Power & Light Company. Prior to that, he served as an
Executive Vice President and Chief Financial Officer of TRW,
Inc. and the Vice President, Controller and Treasurer of GTE
Corporation. |
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Kerry K. Killinger
Director since 1988
Current term expires 2006
Mr. Killinger, age 56, has been Chairman and Chief
Executive Officer of Washington Mutual since 1991, and was
President until 2005. Mr. Killinger became President and a
director in 1988, Chief Executive Officer in 1990 and Chairman
of the Board of Directors in 1991. Mr. Killinger also
serves as a director of Safeco Corporation and Green Diamond
Resource Company. |
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Thomas C. Leppert
Director since 2005
Current term expires 2006
Mr. Leppert, age 51, has been the Chairman and Chief
Executive Officer since September 1999 of The Turner
Corporation, one of the nations largest general
construction companies with headquarters in Dallas, Texas.
Before joining Turner, Mr. Leppert served as the Trustee of
the Estate of James Campbell from 1998-1999. From 1996 through
1997, Mr. Leppert served as the Vice Chairman of the Bank
of Hawaii and Pacific Century Financial Corp. Mr. Leppert
began his career with McKinsey & Company and was later
elected a Principal, where he specialized in the financial
services industry. In 1984, he was appointed by President Reagan
as a White House Fellow and was assigned to the Department of
the Treasury and White House staff, where he worked primarily on
banking, finance and international trade issues. |
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Charles M. Lillis
Director since 2005
Current term expires 2006
Mr. Lillis, age 64, is a co-founder and principal of
LoneTree Partners, a private equity investing group with
headquarters in Denver, Colorado. He is also a Managing Partner
of Castle Pines Capital, a provider of channel finance
solutions, with headquarters in Denver Colorado. Mr. Lillis
served as the Chairman of the Board and Chief Executive Officer
of MediaOne Group, Inc. from its inception in 1995 through the
acquisition of MediaOne by AT&T Corp., which was completed
in 2000. Mr. Lillis is a director of SUPERVALU Inc.,
Williams Companies, Medco Health Solutions, and SomaLogic Inc. |
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Phillip D. Matthews
Director since 1998
Current term expires 2008
Mr. Matthews, age 67, served as Chairman of Worldwide
Restaurant Concepts, Inc. from 1996 through 2005. He currently
is lead director of Wolverine World Wide, Inc., a footwear
company, and served as its Chairman from 1993 through 1996. From
1981 to 1991, he was owner and Chief Executive Officer of Bell
Helmets, Inc. and prior to that he was Executive Vice President
and Chief Financial Officer of Dart Industries and its
successor, Dart and Kraft, Inc. He is also a director of Panda
Management Corp., Panda Express and Trojan Battery Company. |
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Michael K. Murphy
Director since 1985
Current term expires 2006
Mr. Murphy, age 69, is former Chairman and Chief
Executive Officer of CPM Development Corporation, a construction
materials manufacturer and the parent company of Central Pre-Mix
Concrete Company and Inland Asphalt Company. Until the fourth
quarter of 2005, Mr. Murphy also served as a trustee of the
registered investment companies that comprise the WM Group of
Funds. The investment advisor to the funds is an indirect
wholly-owned subsidiary of Washington Mutual. |
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Margaret Osmer McQuade
Director since 2002
Current term expires 2007
Ms. Osmer McQuade, age 67, has been President of
Qualitas International, an international consulting firm, since
1993. She also serves as a director of River Capital
International LLC. |
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Mary E. Pugh
Director since 1999
Current term expires 2008
Ms. Pugh, age 46, is founder, President and Chief
Executive Officer of Pugh Capital Management, Inc. a fixed
income money management company. Ms. Pugh is a trustee of
The Seattle Foundation. |
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William G. Reed, Jr.
Director since 1970
Current term expires 2008
Mr. Reed, age 67, was Chairman of Simpson Timber Company
and Simpson Investment Company from 1971 to 1996. He serves as a
director for Green Diamond Resource Company, PACCAR Inc., Safeco
Corporation and The Seattle Times. He was Chairman of the Board
of Safeco Corporation, a property and casualty insurance
company, from January 2001 through December 2002 and lead
independent director from 2002 through 2004. Mr. Reed chose
not to stand for re-election as a director of Microsoft
Corporation in 2004 after serving for 17 years. |
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Orin C. Smith
Director since 2005
Current term expires 2006
Mr. Smith, age 63, was President and Chief Executive
Officer of Starbucks Corporation, a coffee retailer, from June
2000 until March 31, 2005. From June 1994 to May 2000,
Mr. Smith served as Starbucks President and Chief
Operating Officer, and from March 1990 to June 1994, he was
Starbucks Vice President and Chief Financial Officer and
later its Executive Vice President and Chief Financial Officer.
Mr. Smith also serves on the board of directors of NIKE,
Inc. and The Walt Disney Company. |
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James H. Stever
Director since 1991
Current term expires 2008
Mr. Stever, age 62, retired as Executive Vice
President Public Policy of US WEST, Inc., a
telecommunications company, on December 31, 1996, a
position he had held since January 1996. He was Executive Vice
President Public Policy and Human Resources of US
WEST, Inc. from November 1994 to January 1996, and Executive
Vice President Public Policy of US WEST, Inc. and US
WEST Communication, Inc. from 1993 until 1994. He was
President Public Policy of US WEST Communications,
Inc. from 1990 until 1993 and President Business
Division from 1988 until 1990. |
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Willis B. Wood, Jr.
Director since 1997
Current term expires 2006
Mr. Wood, age 71, retired as Chairman, Chief
Executive Officer and director of Pacific Enterprises, the
holding company of Southern California Gas Company, in 1998.
Mr. Wood had served in various positions, including as
executive officer of Pacific Enterprises subsidiaries,
since 1960. Mr. Wood was chairman of the American
Automobile Association (AAA) until 2005 and is a director of the
Automobile Club of Southern California.
Mr. Wood has decided not to stand for re-election to the Board
at the Annual Meeting. Mr. Wood would have become subject
to the Companys director retirement policy in 2006. |
7
Additional Director Nominee
Below is information regarding the Companys additional
director nominee for election to the Board at the Annual Meeting.
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Regina Montoya
Regina Montoya, age 52, has been the Chief Executive
Officer of Washington D.C.-based New America Alliance
(NAA) since September 2005, and her responsibilities
include developing strategic and tactical plans to fulfill the
NAAs mission of promoting the advancement of the Latino
community with a focus on economic empowerment. From 1996 until
2005, Ms. Montoya was the Founder and President of
WORKRules, a Texas-based workforce training and media and
community relations company, and from August 2002 until February
2005, Ms. Montoya was the Southwest Regional Director for
AARP. A Harvard-trained attorney, Ms. Montoya has served in
the White House as an Assistant to the President and Director of
the Office of Intergovernmental Affairs. |
8
Corporate Governance
Washington Mutual values strong corporate governance principles
and adheres to the highest ethical standards. These principles
and standards, along with Washington Mutuals core values
of fairness, caring, human, dynamic and driven, assist the
Company in achieving its corporate mission. To foster strong
corporate governance and business ethics, the Board of Directors
continues to take many steps to strengthen and enhance the
Companys corporate governance practices and principles.
The Company has adopted Corporate Governance Guidelines to
achieve the following goals:
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to promote the effective functioning of the Board; |
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to ensure that the Company conducts its business in accordance
with the highest legal and ethical standards; and |
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to enhance shareholder value. |
The following is a summary of some of the most significant
governance principles as embodied in the Companys
Corporate Governance Guidelines, and the Companys current
practices with respect to many other aspects of strong corporate
governance. The full text of the Companys Corporate
Governance Guidelines is available on the Companys website
at www.wamu.com/ir. Shareholders may also obtain a
written copy of the guidelines at no cost by writing the Company
at 1201 Third Avenue, Seattle, Washington, 98101, Attention:
Investor Relations Department, WMT 2140, or by calling
(206) 461-3187.
The Governance Committee of the Board of Directors administers
the Corporate Governance Guidelines, reviews performance under
the guidelines and the content of the guidelines annually and,
when appropriate, recommends updates and revisions to the Board
of Directors.
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Board of Directors
Independence |
The Company currently has 13 directors. The Corporate Governance
Guidelines require that the Board consist predominantly of
non-management directors. This means directors who are not
currently, and have not been, employees of the Company during
the most recent three years. Currently, the Chief Executive
Officer is the only director who is a member of the
Companys management.
The Corporate Governance Guidelines also require that a
substantial majority of the Board consist of independent
directors. A director is independent for this purpose when the
Board affirmatively determines that he or she has no material
relationship with the Company, other than as a director. This
determination is made in accordance with the Corporate
Governance Guidelines, which are consistent with the applicable
rules of the New York Stock Exchange (NYSE)
and federal securities laws.
The Governance Committee is responsible for reviewing with the
Board annually the appropriate criteria and standards for
determining director independence consistent with all applicable
legal requirements, including the NYSE rules and applicable
Securities and Exchange Commission (SEC)
rules and regulations. In accordance with applicable NYSE rules,
the Company has established categories of immaterial
relationships that are deemed not to have any bearing on a
directors independence. Accordingly, the Corporate
Governance Guidelines provide that a Company director will not
be considered to lack independence solely as a result of any of
the following relationships:
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if currently or at any time during the preceding three years the
director was an employee or executive officer of, or a member of
his or her immediate family was an employee or an executive
officer of another company that makes payments to or receives
payments from the Company for property or services in an amount
which is less than $1 million and less than two
percent (2%) of the annual consolidated gross revenues of the
other company, determined for the most recent completed fiscal
year; |
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if currently or at any time during the preceding three years the
director or a member of his or her immediate family was a
director of another company that makes payments to or receives
payments from the Company for property or services in an amount
which is less than the greater of $1 million and
two percent (2%) of the annual consolidated gross
revenues of the other company, determined for the most recent
completed fiscal year; |
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if the director or a member of his or her immediate family is an
executive officer of another company which is indebted to the
Company, or to which the Company is indebted, and the total
amount of indebtedness |
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either of them owes to the other is less than
one percent (1%) of the total consolidated assets of
the other company; |
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if the director or a member of his or her immediate family
serves as an officer, director or trustee of a tax exempt
organization, and the Companys discretionary contributions
to the organization are no greater than the greater of $250,000
or one percent (1%) of that organizations total
annual consolidated gross revenues (determined for the most
recent completed fiscal year). The Companys automatic
matching of employee charitable contributions will not be
included in the amount of the Companys contributions for
this purpose; |
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if the director or a member of his or her immediate family
serves as a non-employee director of another company (and has
not been determined by such other company to be
non-independent), on whose board one or more other Washington
Mutual directors sit as non-employee directors; or |
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if the director or a member of his or her immediate family
maintains one or more deposit accounts with the Company,
provided that there is no obligation or requirement to maintain
the existence of such accounts and such accounts exist on terms
and conditions that are no more favorable than those offered to
the general public. |
In February 2006 (and March 2006 with respect to
Ms. Montoya), the Board determined that Ms. Montoya
and all of the Companys current directors, other than
Messrs. Wood, Leppert, Murphy and Killinger,
Mrs. Farrell and Ms. Pugh, are independent in
accordance with the Corporate Governance Guidelines because they
have no relationships with the Company that are outside of the
categorical standards listed above. The Board further determined
that Messrs. Wood, Leppert and Murphy have the following
relationships with the Company that are not material
relationships and therefore that Messrs. Wood, Leppert and
Murphy are independent directors:
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During 2005, Mr. Wood had a below market rate home loan to
which the Company succeeded when it acquired Great Western
Financial Corporation in 1997 (see page 32 of this Proxy
Statement). Mr. Wood satisfied the balance of this loan in
full in August 2005. The Board found this to be an immaterial
relationship because the loan is no longer outstanding and was
initially made by Great Western Financial Corporation and not
the Company. Furthermore, pursuant to the terms of the loan, the
Company was not able to demand prepayment of the loan or modify
its terms unless the loan was in default. Mr. Wood is
leaving the Board on April 18, 2006. |
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Mr. Leppert is the Chairman and Chief Executive Officer of
The Turner Corporation, a leading general builder in the United
States (Turner). The Company has engaged
Turner for general contracting services on several projects
during the past three years. The Board has found this
relationship to be an immaterial relationship because the
amounts paid by the Company to Turner for these services are
well below 0.05% of Turners consolidated gross revenues
for years during which the services were provided, and each of
these construction jobs commenced prior to
Mr. Lepperts election to the Companys Board. |
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Until November 2005, Mr. Murphy served as a trustee of the
registered investment companies that comprise the WM Group
of Funds (the Funds). The investment advisor
to the Funds is WM Advisors, Inc., an indirect wholly-owned
subsidiary of the Company. The Funds paid Mr. Murphy
trustee fees during each of the past three years. The Funds have
paid WM Advisors fees for investment advisory shareholder
services during each of the past three years. The Board has
found this relationship to be an immaterial relationship because
the Funds are not affiliated with the Company, Mr. Murphy
was not an employee of the Funds, but rather was a member of the
Funds board of trustees substantially comprised of
trustees found to be independent, and the amount of fees paid by
the Funds to WM Advisors was substantially less than 2% of
the Funds total group managed assets. |
The Board has found that Mr. Killinger, Mrs. Farrell
and Ms. Pugh are not independent because of the following:
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Mr. Killinger is an executive officer of the Company. |
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Mrs. Farrell was the President and Chief Executive Officer
of The Seattle Foundation at a time when Mr. Killinger was
a member of its executive committee, the committee that
determined Mrs. Farrells compensation. In accordance
with the Companys Corporate Governance Guidelines and
applicable NYSE rules, the Board will reconsider
Mrs. Farrells independence during 2006, after the
third anniversary of her termination of employment with
The Seattle Foundation. |
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Ms. Pugh is the founder and President of Pugh Capital
Management, a company with which Washington Mutual transacted
business in 2005 and prior years. The Board has determined that
this relationship is a material relationship. It is more fully
discussed in Related Transactions and Other Matters
on page 32 of this Proxy Statement. |
The Board also determined in February 2006 that all of the
members of the Companys Audit Committee are independent in
accordance with the Corporate Governance Guidelines and
applicable SEC rules and regulations.
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Responsibilities of the
Board of Directors |
In addition to each directors basic duties of care and
loyalty, the Board of Directors has separate and specific
obligations enumerated in the Corporate Governance Guidelines.
Among other things, these obligations require directors to
effectively monitor managements capabilities,
compensation, leadership and performance, without undermining
managements ability to successfully operate the business.
In addition, the Board and the Boards committees have the
authority to retain and establish the fees of outside legal,
accounting or other advisors, as necessary, to carry out their
responsibilities.
Directors are expected to avoid any action, position or interest
that conflicts with an interest of the Company, or gives the
appearance of a conflict. As a result, directors must disclose
all business relationships with the Company and with any other
person doing business with the Company to the entire Board and
to recuse themselves from discussions and decisions affecting
those relationships. The Company periodically solicits
information from directors in order to monitor potential
conflicts of interest and to confirm director independence.
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Communication With
Directors |
Individuals may submit communications to the Board, the
Boards executive session presiding director, or to the
non-management directors as a group by sending the
communications in writing to the following address: Washington
Mutual, Inc., 1201 Third Avenue, WMT 1706, Seattle,
Washington 98101. All correspondence should indicate
whether it is addressed to the Board of Directors,
the Presiding Director, or the Non-Management
Directors. The Board has unanimously approved a process
that is outlined in the Corporate Governance Guidelines, whereby
the Companys Corporate Secretary, or his designee, will
review and forward correspondence to the appropriate directors.
The Secretary, or his designee, also forwards copies of the
correspondence to other persons within the Company for handling
and response, as necessary based upon the subject matter of the
communication.
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Director Education and
Evaluation |
All directors are expected to be knowledgeable about the Company
and its industry and to understand their duties and
responsibilities as directors. This knowledge may be gained from
attendance at Board meetings; periodic director training
sessions; regular meetings with Company management; reading of
appropriate industry, corporate governance and directorship
literature; and attendance at educational seminars. The Company
frequently conducts in-house director education programs on
relevant topics. In addition, directors are encouraged to attend
education sessions provided by third party groups, and they are
reimbursed for their reasonable costs of attendance. In 2005,
the Company conducted in-house director education sessions on
four occasions.
All new directors are required to attend orientation sessions
conducted by management and educational programs intended to
satisfy the special qualification requirements for membership on
committees of the Board.
The Board, acting through the Governance Committee, annually
evaluates the effectiveness of the Board collectively, and the
performance of each standing Board committee. The Governance
Committee determines the appropriate means for this evaluation,
which may include surveying the Board and committee membership.
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Director Nomination
Process |
The Governance Committee is responsible for reviewing with the
Board annually the appropriate skills and characteristics
required of Board members, and for selecting, evaluating and
recommending nominees for election by the Companys
shareholders. The Governance Committee may use one or more third
party search firms to assist in this purpose. An executive
search firm engaged by the Governance Committee assisted the
Committee in identifying recent new directors,
Messrs. Leppert and Smith, and current nominee,
Ms. Montoya. A current Company non-management director
assisted the Committee in identifying Mr. Lillis.
11
The following are the General Criteria for Nomination to the
Board, as adopted by the Board. These General Criteria set forth
the traits, abilities and experience that, at a minimum, the
Board looks for in determining candidates for election to the
Board:
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Directors should possess personal and professional ethics,
integrity and values, and be committed to representing the
long-term interests of the Companys shareholders and other
constituencies. |
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Directors should have reputations, both personal and
professional, consistent with the image and reputation of
Washington Mutual. |
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Each director should have relevant experience and expertise and
be able to add value and offer advice and guidance to the Chief
Executive Officer based on that experience and expertise. |
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Other important factors to be considered in seeking directors
include current knowledge and contacts in the Companys
industry and other industries relevant to the Companys
business, ability to work with others as an effective group and
ability to commit adequate time as a director. |
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A substantial majority of directors on the Board should be
independent, not only as that term may be legally
defined, but also without the appearance of any conflict in
serving as a director. In addition, directors should be
independent of any particular constituency and be able to
represent the interests of the Companys shareholders and
other constituencies. |
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Each director should have the ability to exercise sound business
judgment. |
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Directors should be selected so that the Board of Directors is a
diverse body reflecting gender, ethnic background, professional
experience, current responsibilities and community involvement. |
The Chair of the Governance Committee may authorize the Chairman
of the Board or any other representative of the Board, speaking
on behalf of the Board, to extend invitations to new director
candidates to join the Board. The Board is responsible for
making interim appointments of directors to fill Board
vacancies, including those created by the resignation or
retirement of directors in accordance with the Companys
Bylaws.
Company shareholders may propose director candidates for
consideration by the Governance Committee by submitting the
individuals name and qualifications to the Secretary of
the Company at 1201 Third Avenue, WMT 1706, Seattle,
WA 98101. The Governance Committee will consider all
director candidates properly submitted by Company shareholders
in accordance with the Companys Corporate Governance
Guidelines. Shareholders who wish to nominate candidates for
election to the Board at the Annual Meeting of Shareholders must
follow the procedures outlined in Shareholder Proposals
for the 2007 Annual Meeting set forth on page 58
of this Proxy Statement.
A Company director who reaches the age of 72 must tender his or
her resignation to the Chairman of the Board before the next
occurring annual meeting of shareholders. The Chairman will
refer the resignation to the Boards Governance Committee
for review. The Board will decide, in light of the circumstances
and the recommendation of the Governance Committee, the date at
which the resignation will become effective. A vacancy created
by a directors retirement may be filled by a majority of
the remaining directors in accordance with the Companys
Bylaws. A director so appointed to fill the vacancy will serve
until the first annual meeting of shareholders following that
directors appointment to the Board, at which time, he or
she may be nominated for re-election by the Companys
shareholders. In addition, the Company requires that directors
tender their resignation when their present position or job
responsibility changes significantly. The Board then decides, in
light of the circumstances and the recommendation of the
Governance Committee, whether to accept such resignation.
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Board Meetings and Executive
Sessions |
The Board of Directors currently holds eight full Board meetings
each year. Directors are encouraged to attend each meeting in
person. Management provides all directors with an agenda and
appropriate written materials sufficiently in advance of the
meetings to permit meaningful review. Any director may submit
topics or request changes to the preliminary agenda as he or she
deems appropriate in order to ensure that the interests and
needs of non-management directors are appropriately addressed.
To ensure active and effective participation, directors are
expected to arrive at each Board and committee meeting having
reviewed and analyzed the materials for the meeting.
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All Company non-management directors generally meet in executive
session at every regularly scheduled Board meeting, both with
and without the Chief Executive Officer present. All directors
who are determined to be independent meet in executive session
once per year. The non-management directors will annually select
one of their own to be the presiding director at executive
sessions. In December 2005, Mr. Frank was selected as the
presiding director at all executive sessions.
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Director Attendance at
Company Annual Meetings |
All directors are encouraged to attend every Company annual
meeting of shareholders. To facilitate director availability at
the time of the annual meeting, the Company typically schedules
Board and Board committee meetings on the day of and the day
before the annual meeting. All Washington Mutual directors
attended the annual meeting of shareholders held on
April 19, 2005.
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Director Contact with
Management |
All directors are invited to contact the Chief Executive Officer
at any time to discuss any aspect of the Companys
business. In addition, there generally are frequent
opportunities for directors to meet with other members of the
management team.
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Investment Expectations of
Directors and Executives and Senior Employees |
Non-employee directors are expected to maintain stock ownership
in the Company in an amount that is meaningful and which should
have a value of at least three times the annual director cash
retainer. For new directors, this may be achieved over a
three-year period.
To encourage executives and other senior officers to hold
Company stock, the Companys Human Resources Committee
recently adopted stock ownership guidelines that apply to those
positions. The target ownership guidelines are as follows:
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Chief Executive Officer (CEO)
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Stock ownership with a value of at least 10 times base
salary. |
Other Executives and
Certain Senior Officers
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Stock ownership with a value of at least 3 or 4 times base
salary, depending on position level. |
For purposes of the above guidelines, stock ownership includes
shares of Common Stock held outright, Common Stock held in the
Companys 401(k) Plan, phantom stock held in the
Companys Deferred Compensation Plan, and unvested shares
of restricted stock. The Human Resources Committee receives a
report at each meeting indicating the stock ownership of each
executive and other senior officer, and the Governance Committee
receives a report at each meeting indicating the stock ownership
of each non-employee director.
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Code of Ethics for Senior
Financial Officers and Code of Conduct |
The Company has implemented a Code of Ethics applicable to the
Companys CEO, President, Chief Financial Officer,
Principal Accounting Officer, and other senior financial
officers of the Company and a Company Code of Conduct applicable
to all Company officers, employees and directors. The Code of
Ethics provides fundamental ethical principles to which these
senior financial officers are expected to adhere. The Code of
Conduct operates as a tool to help Washington Mutual officers,
employees and directors understand and adhere to the high
ethical standards required for employment by, or association
with, the Company. Both the Code of Ethics and the Code of
Conduct are available on the Companys Investor Relations
website at www.wamu.com/ir. Shareholders may also obtain
written copies at no cost by writing the Company at
1201 Third Avenue, Seattle, Washington 98101, Attention:
Investor Relations Department, WMT 2140, or by calling
(206) 461-3187.
Any future changes or amendments to the Companys Code of
Ethics or Code of Conduct and any waiver that applies to one of
the Companys senior financial officers or a member of the
Companys Board of Directors will be posted to the
Companys Investor Relations website.
Board Meetings and Attendance
During 2005, the Companys Board of Directors met eight
times. Except for Mr. Leppert, each director attended at
least 75% of the aggregate of the total number of meetings of
the Board and the total number of all meetings held by
committees on which he or she served. Mr. Leppert was
elected to the Board in September 2005 and he was absent from
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two committee meetings out of six total Board and committee
meetings, all of which had been scheduled before he joined the
Companys Board.
Committees of the Board of Directors
A description of the general functions of each Board committee
and the composition of each committee is below.
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Committees |
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2005 Meetings and General Committee Functions |
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AUDIT
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Meetings in 2005: 9 |
Stephen E. Frank (Chair)
Thomas C. Leppert
Phillip D. Matthews
Michael K. Murphy
William G. Reed, Jr.
Orin C. Smith
Willis B. Wood, Jr. |
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- Assists with the oversight of the
integrity of the Companys financial reporting process and
financial statements and systems of internal
controls; - Assists with the oversight
of the Companys compliance with legal and regulatory
requirements; - Selects and retains
the independent auditor, and reviews its qualifications,
independence and performance;
and - Selects the general auditor, and
assists with the oversight of the performance of the
Companys internal audit function. |
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HUMAN RESOURCES
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Meetings in 2005: 4 |
James H. Stever (Chair)
Stephen E. Frank
Charles M. Lillis
Phillip D. Matthews
Margaret Osmer McQuade
Willis B. Wood, Jr. |
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- Develops and administers the
Companys executive and senior officer compensation
programs and oversees the Companys talent management
process for senior
management; - Establishes and
administers annual and long- term incentive compensation plans
for executives and senior
management; - Oversees the
administration of the Companys officer and employee
benefit plans and any associated plan trust funds;
and - Annually evaluates the Chief
Executive Officers performance and sets the Chief
Executive Officers compensation level based on such
evaluation. |
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GOVERNANCE
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Meetings in 2005: 5 |
William G. Reed, Jr. (Chair)
Thomas C. Leppert
Phillip D. Matthews
Margaret Osmer McQuade
Orin C. Smith
James H. Stever
Willis B. Wood, Jr. |
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- Develops and recommends to the Board of
Directors governance guidelines and principles for the Company
and takes a leadership role in shaping the corporate governance
of the Company; - Identifies
individuals qualified to become directors and recommends to the
Board candidates for directorship;
and - Reviews and makes
recommendations to the Board concerning the strategic planning
process of the Company developed by management. |
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Committees |
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2005 Meetings and General Committee Functions |
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FINANCE
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Meetings in 2005: 5 |
Mary E. Pugh (Chair)
Anne V. Farrell
Stephen E. Frank
Charles M. Lillis
Margaret Osmer McQuade
Michael K. Murphy
William G. Reed, Jr. |
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- Monitors investments and dispositions
of loans and financial instruments, and significant purchases
and dispositions of real property acquired by Washington Mutual
(excluding the Companys premises or other real property
acquired for use by the Company);
and - Monitors the development and
administration of policies that govern the Companys
acquisition, retention and disposition of investments, and makes
recommendations with respect to such policies. |
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CORPORATE DEVELOPMENT
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Meetings in 2005: 1 |
Kerry K. Killinger (Chair)
Stephen E. Frank
Charles M. Lillis
James H. Stever
Willis B. Wood, Jr. |
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- Reviews, on a case-by-case basis, with
Washington Mutuals management, all transactions not in the
ordinary course of business;
and - Oversees stock issuances by the
Company. |
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CORPORATE RELATIONS
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Meetings in 2005: 3 |
Anne V. Farrell (Chair)
Thomas C. Leppert
Michael K. Murphy
Mary E. Pugh
James H. Stever |
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Monitors the Companys charitable giving and community
service activities, including implementation of its ten-year
$375 billion Community Commitment initiated in 2001. |
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Committee Independence and
Additional Information |
The Audit Committee, Governance Committee and the Human
Resources Committee are currently composed entirely of
independent directors, as defined by the
Companys Corporate Governance Guidelines and applicable
NYSE and SEC rules and regulations. Each of the Companys
committees has a written charter, which may be obtained on
Washington Mutuals website at www.wamu.com/ir.
Shareholders may also obtain written copies of the charters at
no cost by writing the Company at 1201 Third Avenue,
Seattle, Washington 98101, Attention: Investor Relations
Department, WMT 2140, or by calling
(206) 461-3187.
The chair of each committee is responsible for establishing
committee agendas. The agenda, meeting materials and the minutes
of each committee meeting are furnished in advance to all
directors, and each committee chair reports on his or her
committees activities to the full Board.
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Audit Committee Financial
Expertise |
The Board determined in February 2006 that Mr. Frank
qualifies as a Company audit committee financial
expert, as defined by the rules and regulations of the
SEC. The Board further determined that each member of the Audit
Committee is financially literate and has accounting or related
financial management expertise, as such qualifications are
defined pursuant to the rules of the NYSE.
Compensation of Directors
In establishing the compensation of its non-employee directors,
Washington Mutual seeks to provide total compensation that is
competitive, fair, aligned with shareholder return and business
results, and likely to facilitate long-term ownership of
Washington Mutual stock. The compensation is also intended to
assist the Company in attracting and
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retaining qualified directors. Washington Mutual does not pay
director compensation to its directors who are also employees of
the Company.
Non-employee directors receive the following compensation for
their service on the Board of Directors and its committees:
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an annual cash retainer of $60,000; |
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$750 for attendance at each purely telephonic Board meeting or
committee meeting; |
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$1,500 for attendance in person or by telephone at each other
Board meeting or committee meeting; |
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an annual retainer of $10,000 to the chair of each of the
Finance, Human Resources and Governance Committees; |
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an annual retainer of $7,500 to the chair of the Corporate
Relations Committee; |
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an annual retainer of $15,000 to the chair of the Audit
Committee; and |
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an annual cash retainer of $5,000 for the non-management
director who is selected to be the presiding director at
executive sessions of the Board. |
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Each Corporate Development Committee member receives an annual
cash retainer of $6,000 in lieu of any fees for committee
meeting attendance. |
Directors who resign or retire from the Board receive a prorated
portion of the applicable cash retainers based upon their
service to the Board and committees during the year. The Company
directly pays or reimburses all directors for parking, travel
and accommodation expenses in connection with attendance at
Board and committee meetings. In addition, the Company provides
the directors with parking at the Companys headquarters in
Seattle. Spouses of Company directors may occasionally accompany
the directors on flights to Company Board meetings on Company
leased air transportation where there are no incremental costs
to the Company.
Each non-employee director is eligible for an annual grant of
either options to purchase Common Stock or shares of restricted
stock issued from the Washington Mutual, Inc. 2003 Equity
Incentive Plan, as recommended by the Governance Committee. In
January 2006, the Company granted each non-employee director an
option to purchase 3,333 shares of Common Stock and issued each
non-employee director 1,616 shares of restricted stock. The
director options have an exercise price of $43.33, which was
equal to the fair market value of one share of Common Stock on
the date of grant, and the options and restricted stock vest on
the first anniversary of the date of grant, subject to earlier
vesting on termination of service in certain circumstances.
Shares of director restricted stock accrue regularly declared
Company dividends in the form of additional shares of restricted
stock.
|
|
|
Deferred Compensation
Plan |
The Company offers certain highly compensated employees,
including the Company directors, a Deferred Compensation Plan
(the DCP). The DCP allows eligible directors
to defer their fees and retainers payable for their service on
the Board and Board committees. DCP account balances are
credited with earnings based on a participants selection
of one or more of the following methods: (1) interest
method (credits interest at a rate equal to the rate at which
junior unsecured debt would be issued); (2) phantom stock
method (tracks Washington Mutual Stock); (3) a Standard
& Poors 500 index mutual fund return; (4) a Morgan
Stanley Capital International (MSCI) U.S.
Small Cap 1750 index mutual fund return; or (5) an MSCI
Europe and Pacific Region index mutual fund return. During 2005,
the interest rate on DCP account balances in the interest method
slightly exceeded 120% of the applicable federal long-term rate
(the AFR). As a result, during 2005, the
following non-employee directors accrued interest above 120% of
the AFR in the following amounts: Mr. Leppert: $58.62;
Mr. Murphy: $312.04; Mr. Reed: $253.04 and
Mr. Smith: $3.34. At the time of deferral, each participant
elects the payment commencement date, the earnings accrual
method, and the form of payment. Available forms of payment are
either lump sum or, if the participants balance exceeds
$100,000, installment payments for a period of up to ten years.
The Company does not match any amounts deferred pursuant to the
DCP.
16
|
|
|
Director Compensation
Pursuant to Assumed Plans |
Messrs. Frank and Wood are entitled to certain retirement
benefits under an unfunded directors retirement plan for
which Washington Mutual has assumed responsibility as successor
to Great Western Financial Corporation
(GWFC). Upon termination of service on
GWFCs board of directors, each eligible director became
entitled under the plan to an annual retirement benefit equal to
the sum of the annual retainer previously paid to members of the
GWFC board plus twelve times the monthly meeting fee, both as in
effect at the time of the directors termination. Benefits
are payable for a period equal to the number of years that the
eligible director served as a GWFC director and will be provided
to the surviving spouse or other designated beneficiary
following an eligible directors death. Washington Mutual
has purchased company-owned cost-recovery life insurance on the
lives of the participants in the plan. Pursuant to the plan,
Messrs. Frank and Wood are each entitled to receive
quarterly payments of $11,650. Mr. Frank is entitled to
receive these payments until October 2008 and
Mr. Woods payments end in October 2011. Accordingly,
in 2005 each of these directors received payments aggregating
$46,600 pursuant to the plan.
Messrs. Frank and Wood also have vested balances in an
unfunded deferred compensation plan for certain former directors
of GWFC for which Washington Mutual has assumed responsibility
as successor to GWFC. No additional compensation may be deferred
under this plan. Washington Mutual has purchased company-owned
cost-recovery life insurance on the lives of the participants in
the plan. Interest accrues on fund balances outstanding pursuant
to the plan at enhanced rates. Those interest amounts exceeded
120% of the AFR compounded annually by $3,382 and $3,833,
respectively, for Messrs. Frank and Wood during 2005.
Mr. Wood is leaving the Board on April 18, 2006.
PRINCIPAL HOLDERS OF COMMON STOCK
This table shows information regarding beneficial ownership of
Common Stock by the only entities known by the Company to have
owned more than 5% of the outstanding shares of Common Stock on
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Shares of Common | |
|
|
Name and Address of |
|
Stock Beneficially | |
|
|
Beneficial Owner |
|
Owned | |
|
Percent of Class | |
|
|
| |
|
| |
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071 |
|
|
102,376,450(1 |
) |
|
|
10.30% |
|
Barclays Global Investors, NA
45 Fremont Street
San Francisco, CA 94105 |
|
|
61,592,203(2 |
) |
|
|
6.20 |
|
|
|
(1) |
Based solely on a review of the Schedule 13G/A filed by
Capital Research and Management Company
(Capital) with the SEC on February 10,
2006. As reported on the Schedule 13G/A, Capital is an
investment advisor registered under the Investment Advisors Act
of 1940 and has sole voting power with respect to
23,020,550 shares and sole dispositive power with respect
to 102,376,450 shares. |
|
(2) |
Based solely on a review of the Schedule 13G filed by
Barclays Global Investors, NA with the SEC on January 27,
2006. As reported in the Schedule 13G, Barclays holds the
shares in trust accounts for the economic benefit of the
beneficiaries of those accounts and has sole voting power with
respect to 53,998,910 shares and sole dispositive power
with respect to 61,592,203 shares. |
17
SECURITY OWNERSHIP OF DIRECTORS
AND EXECUTIVE OFFICERS
This table and the accompanying footnotes provide a summary of
the beneficial ownership of the Common Stock as of
February 20, 2006, by (i) the directors, (ii) the
Companys Chief Executive Officer, (iii) the other
current executive officers and the former executive officer
named in the Summary Compensation Table set forth herein, and
(iv) all current directors and executive officers as a
group. The following summary is based on information furnished
by the respective directors and officers.
Each listed person individually owns less than 1% of the
outstanding shares and voting power of the Common Stock of the
Company, and the Companys directors and executive officers
as a group hold approximately 1.03%. Except as indicated in the
footnotes to the table below, each person has sole voting and
investment power with respect to the shares he or she
beneficially owns.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
Total | |
|
|
Common | |
|
Options | |
|
Beneficial | |
|
Phantom | |
|
Stock-Based | |
Name |
|
Stock(1) | |
|
Exercisable(2) | |
|
Ownership(3) | |
|
Stock(4) | |
|
Ownership(5) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
A | |
|
B | |
|
C | |
|
D | |
|
E | |
Thomas W. Casey
|
|
|
180,044 |
(6) |
|
|
480,834 |
|
|
|
660,878 |
|
|
|
|
|
|
|
660,878 |
|
Craig J.
Chapman(7)
|
|
|
21,146 |
(8) |
|
|
656,251 |
|
|
|
677,397 |
|
|
|
27,344 |
|
|
|
704,741 |
|
Anne V. Farrell
|
|
|
14,798 |
(9) |
|
|
45,250 |
|
|
|
60,048 |
|
|
|
2,782 |
|
|
|
62,830 |
|
Stephen E. Frank
|
|
|
28,000 |
(10) |
|
|
48,063 |
|
|
|
76,063 |
|
|
|
2,782 |
|
|
|
78,845 |
|
Kerry K. Killinger
|
|
|
1,384,374 |
(11) |
|
|
5,476,713 |
|
|
|
6,861,087 |
|
|
|
458,410 |
|
|
|
7,319,497 |
|
Thomas C. Leppert
|
|
|
1,635 |
(12) |
|
|
|
|
|
|
1,635 |
|
|
|
357 |
|
|
|
1,992 |
|
Charles M. Lillis
|
|
|
5,635 |
(13) |
|
|
|
|
|
|
5,635 |
|
|
|
847 |
|
|
|
6,482 |
|
Phillip D. Matthews
|
|
|
23,607 |
(14) |
|
|
50,415 |
|
|
|
74,022 |
|
|
|
2,782 |
|
|
|
76,804 |
|
Regina Montoya
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael K. Murphy
|
|
|
26,518 |
(15) |
|
|
45,250 |
|
|
|
71,768 |
|
|
|
9,024 |
|
|
|
80,792 |
|
Margaret Osmer McQuade
|
|
|
24,123 |
(16) |
|
|
17,685 |
|
|
|
41,808 |
|
|
|
16,716 |
|
|
|
58,524 |
|
Mary E. Pugh
|
|
|
5,917 |
(17) |
|
|
34,000 |
|
|
|
39,917 |
|
|
|
2,782 |
|
|
|
42,699 |
|
William G. Reed, Jr
|
|
|
175,370 |
(18) |
|
|
5,000 |
|
|
|
180,370 |
|
|
|
22,041 |
|
|
|
202,411 |
|
Stephen J. Rotella
|
|
|
332,570 |
(19) |
|
|
81,833 |
|
|
|
414,403 |
|
|
|
|
|
|
|
414,403 |
|
David C. Schneider
|
|
|
47,516 |
(20) |
|
|
|
|
|
|
47,516 |
|
|
|
|
|
|
|
47,516 |
|
Orin C. Smith
|
|
|
1,635 |
(21) |
|
|
|
|
|
|
1,635 |
|
|
|
350 |
|
|
|
1,985 |
|
James H. Stever
|
|
|
34,848 |
(22) |
|
|
45,250 |
|
|
|
80,098 |
|
|
|
2,782 |
|
|
|
82,880 |
|
Willis B. Wood,
Jr(23)
|
|
|
27,897 |
(24) |
|
|
48,063 |
|
|
|
75,960 |
|
|
|
14,942 |
|
|
|
90,903 |
|
All directors and current executive officers as a group (24
persons)(25)
|
|
|
2,864,202 |
|
|
|
7,660,328 |
|
|
|
10,524,530 |
|
|
|
566,689 |
|
|
|
11,091,219 |
|
|
|
(1) |
All fractional shares in this table have been rounded to the
closest whole share. |
|
(2) |
In accordance with applicable SEC rules, only options that are
exercisable within 60 days after February 20, 2006 are
included in this column. |
|
(3) |
The amounts in this column are derived by adding shares and
options listed in columns A and B of the table. |
|
(4) |
This column includes shares of phantom stock attributable to the
account of the executive or director based on such
individuals deferral of compensation into the
Companys Deferred Compensation Plan. These shares are not
shares of Common Stock and confer no voting rights. |
|
(5) |
The amounts contained in this column are derived by adding the
amounts in columns C and D of the table. |
|
(6) |
Includes 158,808 shares of restricted stock. |
|
(7) |
Mr. Chapmans employment with the Company terminated
on February 1, 2006. The information contained in this
table for Mr. Chapman was provided by Mr. Chapman to
the Company as of February 20, 2006. |
|
(8) |
Includes 41 shares held in the WaMu Savings Plan (the
401(K) Plan). |
|
(9) |
All shares are held jointly with Mrs. Farrells
spouse, includes 3,236 shares of restricted stock. |
18
|
|
(10) |
Includes 3,235 shares of restricted stock. |
|
(11) |
Includes 54,155 shares held by a grantor retained annuity
trust, and 345,567 shares of restricted stock. |
|
(12) |
Includes 1,635 shares of restricted stock. |
|
(13) |
Includes 1,635 shares of restricted stock. |
|
(14) |
Includes 10,000 shares held in the Matthews Family
Trust and 2,875 shares of restricted stock. |
|
(15) |
Includes 4,280 shares held jointly with
Mr. Murphys spouse and 3,236 shares of
restricted stock. |
|
(16) |
Includes 1,635 shares of restricted stock. |
|
(17) |
Includes 2,630 shares of restricted stock. |
|
(18) |
Includes 3,236 shares of restricted stock. |
|
(19) |
Includes 239,059 shares of restricted stock. |
|
(20) |
Includes 46,250 shares of restricted stock |
|
(21) |
Includes 1,635 shares of restricted stock. |
|
(22) |
Includes 3,236 shares of restricted stock. Also includes
1,800 shares held in the Stever Family Foundation, of which
Mr. Stever is the President. He shares investment and/or
voting power for the foundations shares. |
|
(23) |
Mr. Wood is leaving the Board on April 18, 2006. |
|
(24) |
Includes 3,236 shares of restricted stock. |
|
(25) |
Does not include Mr. Chapman who was not an employee of the
Company on February 20, 2006. Includes 2,264 shares
held in the 401(k) Plan, 3,705 shares in personal
retirement accounts and 1,307,963 shares of restricted
stock. |
19
EXECUTIVE COMPENSATION
Summary Compensation Table
This table shows all compensation paid for the three years ended
December 31, 2005, by the Company to its Chief Executive
Officer and its other four most highly paid executive officers
for 2005 (collectively, the Named Executive
Officers). Annual Compensation includes amounts
deferred at the Named Executive Officers election.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation | |
|
Long-Term Compensation | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
Number of | |
|
|
|
|
|
|
|
|
|
|
Securities | |
|
|
|
|
|
|
|
|
Restricted | |
|
Underlying | |
|
|
|
|
|
|
|
|
Other Annual | |
|
Stock | |
|
Options | |
|
LTIP | |
|
All Other | |
Name and Principal Position |
|
Year | |
|
Salary($) | |
|
Bonus($) | |
|
Compensation($)(1) | |
|
Awards($)(2) | |
|
Granted(3) | |
|
Payouts($)(4) | |
|
Compensation($)(5) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Kerry K. Killinger
|
|
|
2005 |
|
|
$ |
1,000,000 |
|
|
$ |
3,555,000 |
|
|
$ |
119,112 |
|
|
$ |
5,337,878 |
|
|
|
268,000 |
|
|
$ |
3,476,608 |
|
|
$ |
230,973 |
|
|
Chairman and Chief Executive Officer |
|
|
2004 |
|
|
|
1,000,000 |
|
|
|
1,926,000 |
|
|
|
105,494 |
|
|
|
|
|
|
|
|
|
|
|
8,935,416 |
|
|
|
314,893 |
|
|
|
|
2003 |
|
|
|
1,000,000 |
|
|
|
2,943,000 |
|
|
|
76,025 |
|
|
|
|
|
|
|
760,000 |
|
|
|
|
|
|
|
825,520 |
|
|
Stephen J. Rotella
|
|
|
2005 |
|
|
|
879,808 |
|
|
|
5,496,057 |
(7) |
|
|
222,024 |
|
|
|
10,576,275 |
|
|
|
245,500 |
|
|
|
|
|
|
|
|
|
|
President and Chief Operating
Officer(6) |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas W. Casey
|
|
|
2005 |
|
|
|
600,000 |
|
|
|
1,303,548 |
|
|
|
19,526 |
|
|
|
1,809,450 |
|
|
|
90,900 |
|
|
|
502,204 |
|
|
|
42,794 |
|
|
Executive Vice President and |
|
|
2004 |
|
|
|
575,005 |
|
|
|
449,400 |
|
|
|
18,240 |
|
|
|
|
|
|
|
|
|
|
|
857,859 |
|
|
|
49,538 |
|
|
Chief Financial Officer |
|
|
2003 |
|
|
|
550,021 |
|
|
|
1,387,650 |
|
|
|
1,200,640 |
|
|
|
|
|
|
|
230,000 |
|
|
|
101,414 |
|
|
|
2,750 |
|
|
Craig J. Chapman
|
|
|
2005 |
|
|
|
600,000 |
|
|
|
1,303,500 |
|
|
|
19,805 |
|
|
|
1,809,450 |
|
|
|
90,900 |
|
|
|
482,893 |
|
|
|
49,748 |
|
|
Former President, Commercial
Group(8) |
|
|
2004 |
|
|
|
525,005 |
|
|
|
417,300 |
|
|
|
18,273 |
|
|
|
|
|
|
|
|
|
|
|
1,180,161 |
|
|
|
54,793 |
|
|
|
|
2003 |
|
|
|
500,019 |
|
|
|
588,600 |
|
|
|
18,396 |
|
|
|
|
|
|
|
230,000 |
|
|
|
|
|
|
|
48,785 |
|
|
David C. Schneider
|
|
|
2005 |
|
|
|
237,169 |
|
|
|
1,492,914 |
(10) |
|
|
198,605 |
|
|
|
380,139 |
|
|
|
31,780 |
|
|
|
|
|
|
|
|
|
|
President, Home Loans
Group(9) |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Other Annual Compensation. For 2005, this column includes
the following other annual compensation and the
aggregate incremental cost to the Company of providing the
following perquisites previously approved by the Human Resources
Committee of the Board: |
|
|
|
|
|
Mr. Killinger:
$62,375 for his personal use of Company air transportation and a
$32,938 payment for related taxes; $10,000 for tax and financial
planning services; $10,000 automobile allowance; $3,300 in
parking payments and $499 in interest above 120% of the AFR paid
on his balance in the DCP;
|
|
|
|
Mr. Rotella:
$204,207 in moving and relocation expenses (including a payment
for related taxes of $64,036); $10,000 for tax and financial
planning services; $4,792 automobile allowance and $3,025 in
parking payments;
|
|
|
|
Mr. Casey:
$10,000 for tax and financial planning services; $5,000
automobile allowance; $3,300 in parking payments and $1,226 in
interest above 120% of the AFR paid on his balance in the DCP;
|
|
|
|
Mr. Chapman:
$10,000 for tax and financial planning services; $5,000
automobile allowance; $3,300 in parking payments and $1,505 in
interest above 120% of the AFR paid on his balance in the DCP;
and
|
|
|
|
Mr. Schneider:
$189,019 in moving and relocation expenses (including a payment
for related taxes of $14,223); $5,900 for tax and financial
planning services; $2,311 automobile allowance and $1,375 in
parking payments.
|
|
|
(2) |
Restricted Stock. This columns reflects the value (as of
the date of issuance), of shares of restricted stock issued by
the Company to the Named Executive Officers. For
Messrs. Killinger, Rotella, Casey and Chapman, this amount
includes shares of restricted stock issued on January 28, 2005,
as part of the Companys annual equity compensation awards.
These shares of restricted stock vest in three equal annual
installments beginning on the first anniversary of the issuance
date. All holders of these shares of restricted stock (including
the Named Executive Officers) receive regularly declared cash
dividends payable on the stock when dividends are paid to other
Company shareholders. During 2005, such cash dividends were paid
to Named Executive Officers in the following amounts:
Mr. Killinger: $252,225, Mr. Rotella: $71,250,
Mr. Casey: $85,500 and Mr. Chapman: $85,500. |
|
|
|
For Mr. Rotella, Mr. Casey and Mr. Schneider,
this column also includes the value of shares of restricted
stock issued in connection with the commencement of their
employment with the Company. On January 10, 2005, Mr.
Rotella was issued 220,000 shares of restricted stock (valued on
the date of issuance at $9,068,400), 40% of which vested on
July 31, 2005, and another 35% vested on January 31,
2006; the remaining 25% will vest on January 31, 2010. On
October 21, 2002, Mr. Casey was issued 14,148 shares
of restricted stock which vests annually in five equal
installments beginning on March 31, 2003. On
August 15, 2005, Mr. Schneider was issued 8,991 shares
of restricted stock which vests in three equal annual
installments beginning on the first anniversary of the issuance
date. The shares issued to Messrs. Rotella, Casey and
Schneider upon commencement of employment accrue regularly
declared Company dividends in the form of additional shares of
restricted stock. |
20
|
|
|
As of December 31, 2005, the
Named Executive Officers held shares of restricted stock
(including the performance restricted stock described in
Long Term Incentive Plan Awards in 2005 on
page 23 of this Proxy Statement) with the following values,
calculated using the closing price of the Common Stock on the
last trading day of the year, December 30, 2005:
|
|
|
|
|
|
Mr. Killinger:
289,692 shares valued at $12,601,588.
|
|
|
|
Mr. Rotella:
280,236 shares valued at $12,190,270.
|
|
|
|
Mr. Casey:
129,920 shares valued at $5,651,520.
|
|
|
|
Mr. Chapman:
123,471 shares valued at $5,371,004.
|
|
|
|
Mr. Schneider:
33,362 shares valued at $1,451,223.
|
|
|
|
During 2005, the following Named
Executive Officers had shares of restricted stock vest as
follows:
|
|
|
|
|
|
Mr. Casey:
3,116 shares vested on March 31, 2005, with a market value
on such date of $123,082.
|
|
|
|
Mr. Rotella:
90,983 shares vested on July 31, 2005, with a market value
on such date of $3,866,551.
|
|
|
(3) |
This column reflects the number of options granted to the Named
Executive Officers during the given calendar year. In 2004, the
Company changed its prior practice to grant stock options to
employees (including the Named Executive Officers) during
January of each year, rather than during December of the prior
year. |
|
(4) |
The amounts shown in this column for each Named Executive
Officer for 2005 represent the value as of the issuance date of
April 12, 2005 of shares of Company Common Stock issued in
satisfaction of the performance share awards made in calendar
year 2001 for the three-year performance period which ended on
December 31, 2004. Performance share awards are contingent
performance awards paid out in cash or Common Stock at the end
of a three-year period based upon the Companys performance
on key financial metrics over the three-year period compared to
the performance of a peer group in the S&P Financial Index.
This program is more fully discussed in Long Term
Incentive Plan Awards in 2005 on page 23 of this
Proxy Statement. The value reported includes regularly declared
dividends that accrued during the performance period prior to
issuance, which were paid out in additional shares of Common
Stock. The Companys performance on the applicable key
financial metrics of total shareholder return, return on common
equity and earnings per share growth over the three-year period
which ended on December 31, 2004 was at the 55th percentile
of the applicable peer group. This resulted in a payout of 87.5%
of the target share amounts. |
|
(5) |
The amounts shown in this column for 2005 include the following: |
|
|
|
|
(a) |
Company matching contributions under the Companys 401(k)
Plan during 2005 of $8,400 for each Named Executive Officer,
other than Messrs. Rotella and Schneider, who were not eligible
for matching in 2005. |
|
|
(b) |
Amounts credited to the accounts of each Named Executive Officer
during 2005 pursuant to the Companys Supplemental Employee
Retirement Plan (the SERP) as follows:
Mr. Killinger: $222,573; Mr. Rotella: $0;
Mr. Casey: $34,394; Mr. Chapman: $41,348 and
Mr. Schneider: $0. The SERP is a nonqualified,
noncontributory deferred compensation plan designed to provide
certain executives with benefits they would have otherwise
received under the Companys Pension Plan but for certain
restrictions set forth in the Internal Revenue Code of 1986, as
amended, on the amount of compensation that may be considered as
eligible compensation pursuant to the Pension Plan. See the
discussion of the SERP beginning on page 25 of this Proxy
Statement. |
|
|
(6) |
Mr. Rotella became an employee of the Company in January
2005. |
|
(7) |
This amount includes a signing bonus in the amount of $2,600,000. |
|
(8) |
Mr. Chapmans employment with the Company terminated
on February 1, 2006. |
|
(9) |
Mr. Schneider became an employee of the Company in July
2005. |
|
|
(10) |
This amount includes a signing bonus in the amount of $500,000
and a relocation bonus in the amount of $500,000. |
21
Grants of Stock Options in 2005
This table shows all stock option grants during 2005 to the
Named Executive Officers. The options listed below were granted
to Messrs. Killinger, Rotella, Casey and Chapman on
January 21, 2005, and to Mr. Schneider on
August 15, 2005.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable | |
|
|
|
|
|
|
|
|
|
|
Value at Assumed | |
|
|
|
|
|
|
|
|
|
|
Annual Rates of Stock | |
|
|
Number of | |
|
Percent of | |
|
|
|
|
|
Price Appreciation for | |
|
|
Securities | |
|
Total Options | |
|
|
|
|
|
Ten-Year Option | |
|
|
Underlying | |
|
Granted to | |
|
Exercise | |
|
|
|
Term(2) | |
|
|
Options | |
|
Employees in | |
|
Price Per | |
|
Expiration | |
|
| |
Name |
|
Granted(1) | |
|
Fiscal Year(%) | |
|
Share($) | |
|
Date | |
|
5%($) | |
|
10%($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Kerry K. Killinger
|
|
|
268,000 |
|
|
|
3.14 |
% |
|
|
$42.17 |
|
|
|
1/21/2015 |
|
|
|
$7,107,490 |
|
|
|
$18,011,776 |
|
Stephen J. Rotella
|
|
|
245,500 |
|
|
|
2.88 |
|
|
|
42.17 |
|
|
|
1/21/2015 |
|
|
|
6,510,779 |
|
|
|
16,499,593 |
|
Thomas W. Casey
|
|
|
90,900 |
|
|
|
1.06 |
|
|
|
42.17 |
|
|
|
1/21/2015 |
|
|
|
2,410,712 |
|
|
|
6,109,218 |
|
Craig J. Chapman
|
|
|
90,900 |
|
|
|
1.06 |
|
|
|
42.17 |
|
|
|
1/21/2015 |
|
|
|
2,410,712 |
|
|
|
6,109,218 |
|
David C. Schneider
|
|
|
31,780 |
|
|
|
0.37 |
|
|
|
41.71 |
|
|
|
8/15/2015 |
|
|
|
833,627 |
|
|
|
2,112,575 |
|
|
|
(1) |
All options reflected in this table were granted to the
respective Named Executive Officer pursuant to the 2003 Equity
Incentive Plan. These options have terms of ten years, subject
to earlier termination upon termination of employment. These
options vest over three years in equal annual installments
beginning one year after the date of the grant. |
|
(2) |
These assumed rates of appreciation are provided in order to
comply with the requirements of the Securities and Exchange
Commission and do not represent the Companys expectation
as to the actual rate of appreciation of the Common Stock. These
gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were
granted over the full option term. The actual value of the
options will depend on the performance of the Common Stock and
may be greater or less than the amounts shown. |
Aggregated Option Exercises in 2005 and Year-End Option
Values
This table shows stock option exercises during 2005 by each of
the Named Executive Officers and the value of their unexercised
options at December 31, 2005.
|
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|
|
Number of Securities | |
|
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|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
Shares | |
|
|
|
Options at | |
|
In-the-Money Options | |
|
|
Acquired | |
|
Value | |
|
Fiscal Year-End(#) | |
|
Fiscal Year-End($)(2) | |
|
|
on | |
|
Realized | |
|
| |
|
| |
Name |
|
Exercise(#) | |
|
($)(1) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Kerry K. Killinger
|
|
|
168,855 |
|
|
|
$5,380,987 |
|
|
|
5,604,273 |
|
|
|
521,334 |
|
|
|
$83,283,474 |
|
|
|
$1,362,176 |
|
Stephen J. Rotella
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,500 |
|
|
|
|
|
|
|
326,515 |
|
Thomas W. Casey
|
|
|
|
|
|
|
|
|
|
|
450,535 |
|
|
|
167,567 |
|
|
|
2,856,486 |
|
|
|
425,265 |
|
Craig J. Chapman
|
|
|
|
|
|
|
|
|
|
|
757,593 |
|
|
|
167,567 |
|
|
|
6,648,468 |
|
|
|
425,265 |
|
David C. Schneider
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,780 |
|
|
|
|
|
|
|
56,886 |
|
|
|
(1) |
The value realized is the difference between the fair market
value of the underlying stock at the time of exercise and the
exercise price. |
|
(2) |
Amounts are calculated using as the stock price the closing
price of the Common Stock on the last trading day of the year,
December 30, 2005, which was $43.50. There is no guarantee
that, if and when these options are exercised, they will have
this value. |
22
Long-Term Incentive Plan Awards in 2005
In 2005, the Company made two types of long-term incentive plan
awards to the Named Executive Officers consisting of performance
share awards and performance restricted stock awards. This table
shows all performance share awards and performance restricted
stock awards made by the Company to the Named Executive Officers
in 2005.
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Performance | |
|
|
|
|
|
|
|
|
Number of | |
|
or Other | |
|
|
|
|
Shares, Units | |
|
Period Until | |
|
Contingent Future Payouts | |
|
|
or Other | |
|
Maturation or | |
|
| |
Name |
|
Rights(#) | |
|
Payout | |
|
Threshold(#) | |
|
Target(#) | |
|
Maximum(#) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Kerry K. Killinger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Share Awards
|
|
|
97,000 |
|
|
|
2005-2007 |
|
|
|
24,250 |
|
|
|
97,000 |
|
|
|
242,500 |
|
|
- Performance Restricted Stock
|
|
|
150,000 |
|
|
|
2005-2009 |
|
|
|
90,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
Stephen J. Rotella
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Share Awards
|
|
|
49,300 |
|
|
|
2005-2007 |
|
|
|
12,325 |
|
|
|
49,300 |
|
|
|
123,250 |
|
|
- Performance Restricted Stock
|
|
|
100,000 |
|
|
|
2005-2009 |
|
|
|
60,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
Thomas W. Casey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Share Awards
|
|
|
32,900 |
|
|
|
2005-2007 |
|
|
|
8,225 |
|
|
|
32,900 |
|
|
|
82,250 |
|
|
- Performance Restricted Stock
|
|
|
75,000 |
|
|
|
2005-2009 |
|
|
|
45,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
Craig J.
Chapman(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Share Awards
|
|
|
32,900 |
|
|
|
2005-2007 |
|
|
|
8,225 |
|
|
|
32,900 |
|
|
|
82,250 |
|
|
- Performance Restricted Stock
|
|
|
75,000 |
|
|
|
2005-2009 |
|
|
|
45,000 |
|
|
|
75,000 |
|
|
|
75,000 |
|
David C. Schneider
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Share Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Performance Restricted Stock
|
|
|
23,976 |
|
|
|
2005-2009 |
|
|
|
14,386 |
|
|
|
23,976 |
|
|
|
23,976 |
|
|
|
(1) |
All of Mr. Chapmans performance share awards and
performance restricted stock awarded in 2005 and described in
this table were forfeited when Mr. Chapmans employment
terminated on February 1, 2006. |
Performance share awards are contingent performance awards paid
out at the Companys discretion in cash or shares of
Washington Mutual Common Stock at the end of a three-year period
only if the Company achieves specified performance goals. For
the most recently established performance period which ends on
December 31, 2007, the performance share program will
measure three-year:
|
|
|
|
- |
total shareholder return versus peers, |
|
|
- |
return on equity versus peers and |
|
|
- |
earnings per share growth versus peers. |
Each metric is equally weighted. The peer group consists of
financial services companies that comprise the S&P Financial
Index. This is the same group that the Company uses for its
total shareholder return Performance Graph on page 39 of
this Proxy Statement. The awards, which may be paid in cash or
Common Stock at the end of the three-year cycle, will range from
zero to 250% of the contingent award. The target payout is at
the 60th percentile of the peer group companies, and is payable
at 100% of the contingent award. The threshold payout is at the
30th percentile of the peer group companies, and payable at 25%
of the contingent award. There is no payout for performance
below the 30th percentile of peer group companies. If the
performance share awards are paid in Common Stock, they will
earn dividend equivalents, that will be accrued in the form of
additional performance shares paid in Common Stock when and to
the extent the related performance shares are paid.
|
|
|
Performance Restricted Stock |
Performance restricted stock awards are shares of
performance-based Company restricted stock. The Company issued
shares of performance restricted stock to
Messrs. Killinger, Rotella, Casey and Chapman on
January 28, 2005 and to Mr. Schneider on
August 15, 2005. As restricted stock, the performance
restricted stock may not be sold or transferred unless and until
it vests, at which time all restrictions will lapse for the
number of shares that vest. The shares are aligned with the
Companys five-year strategic plan and they vest at the end
of 2009 depending on the Companys achievement of certain
return on tangible common equity (ROTCE)
targets for the performance period. In September 2005, the
original
23
awards of January 2005 were reformed in light of the
Companys acquisition of Providian Financial Corporation to
change the beginning of the performance period from
January 1, 2005 to July 1, 2005, and to use a
variation of return on equity to determine vesting. The maximum
number of shares that will vest is 100% of the target number of
shares (plus shares accrued as regularly declared dividends) and
the threshold number of shares that will vest is 60% of the
target shares, in both cases depending on the Companys
achieved ROTCE for the performance period. If the Company does
not achieve the ROTCE target that results in a 60% payout, then
none of the shares will vest. Regularly declared Company
dividends are accrued on the shares of performance restricted
stock in the form of additional shares of performance restricted
stock. As of December 31, 2005, the Named Executive
Officers accrued the following number of shares of additional
performance restricted stock on their target number of shares as
regularly declared Company dividends: Mr. Killinger:
6,941 shares; Mr. Rotella: 4,628 shares;
Mr. Casey: 3,471 shares; Mr. Chapman:
3,471 shares and Mr. Schneider: 287 shares.
24
PENSION PLANS AND OTHER PLANS AND AGREEMENTS
Cash Balance Pension Plan and Supplemental Employees
Retirement Plan
Pursuant to the terms of the WaMu Pension Plan (the
Pension Plan), participants receive benefit
credit accruals as a percentage of eligible compensation and
interest accruals on current and prior benefit accruals. The
current benefit accrual rate is based on years of service as
follows:
|
|
|
|
- |
for benefit service less than five years, the benefit credit is
4.0%; |
|
|
- |
for benefit service from five to less than ten years, the
benefit credit is 5.0%; |
|
|
- |
for benefit service from ten to less than fifteen years, the
benefit credit is 6.0%; |
|
|
- |
for benefit service from fifteen to less than twenty years, the
benefit credit is 7.0%; and |
|
|
- |
for twenty years or more of benefit service, the benefit credit
is 8.0%. |
Eligible compensation includes base salary, incentive payments,
bonuses and overtime. The Pension Plan credits interest on all
cash balance benefit accruals at the annual rate quoted at the
beginning of each year for the average annual yield on U.S.
government securities of a constant maturity of 30 years
for all business days for the prior November. The Pension Plan
credits benefit accruals each pay period and interest on a daily
basis. The interest credit rate for 2005 was 4.89%.
In general, all employees become eligible to participate in the
Pension Plan beginning with the quarter following completion of
one year of service with Washington Mutual during which they
work a minimum of 1,000 hours. An employees balance in the
Pension Plan becomes vested at a graduated rate after two years
of service, with full vesting after five years of active
service. The Pension Plan cash balance benefit for eligible
employees of the Company who commence employment after
December 31, 2005 vests after five-years of service with no
graduated vesting. There are no employee contributions to the
Pension Plan.
Upon termination, participants may elect to receive a lump-sum
distribution of their vested balances or an annuitized payment
from the Pension Plans trust fund. The Pension Plan
complies with the Employee Retirement Income Security Act of
1974, as amended (ERISA).
The following is an estimate of annual benefits payable upon
retirement at normal retirement age to each of the Named
Executive Officers in accordance with the Pension Plan, assuming
each individual elected to receive an annuitized payment from
the Pension Plan. For estimate purposes only, these projections
are based on an interest crediting rate of 6.0%. The projections
are not subject to any deduction for Social Security or other
offset amounts.
|
|
|
|
|
|
|
Estimated Annual | |
|
|
Benefits at 65 Years | |
Name |
|
of Age | |
|
|
| |
Kerry K. Killinger
|
|
$ |
59,503 |
|
Stephen J.
Rotella(1)
|
|
|
18,735 |
|
Thomas W. Casey
|
|
|
58,593 |
|
Craig J.
Chapman(2)
|
|
|
13,157 |
|
David C.
Schneider(3)
|
|
|
63,468 |
|
|
|
(1) |
Mr. Rotella became an employee of the Company in January
2005. This projection assumes that Mr. Rotella will enter
the Pension Plan on his April 1, 2006 eligibility date. |
|
(2) |
Mr. Chapmans employment with the Company terminated
on February 1, 2006. |
|
(3) |
Mr. Schneider became an employee of the Company in July
2005. This projection assumes that Mr. Schneider will enter
the Pension Plan on his October 1, 2006 eligibility date. |
Because the Internal Revenue Code of 1986, as amended (the
Code) imposes restrictions on the amount of
compensation that may be considered as eligible compensation
pursuant to the Pension Plan, the Company also provides certain
highly compensated employees, including the Named Executive
Officers, with a Supplemental Employees Retirement Plan
(the SERP). The SERP is designed to provide
participants with a benefit credit equal to the benefit credit
they would have received under the Pension Plan (between 4% and
8%, depending on their years of service) had
25
their eligible compensation under the Pension Plan not been
limited by applicable restrictions contained in the Code. In
addition, the balance in each participants account vests
over a five-year period and is credited with earnings at an
annual rate equal to the rate for
30-year constant
maturities treasuries. Upon a participants termination of
service to the Company, benefits are paid in a lump sum, except
that any participant with an account balance in excess of
$100,000 may elect to receive annual installment payments over a
period of up to ten years.
The Named Executive Officers would have been eligible to receive
the following lump sum payments pursuant to the Pension Plan and
the SERP had their service to the Company terminated on
December 31, 2005, and had they elected to receive their
aggregate balances in the form of a lump sum payment:
Mr. Killinger: $2,770,046; Mr. Rotella: $0;
Mr. Casey: $31,030; Mr. Chapman: $250,507 and
Mr. Schneider: $0. These lump sum payments would be in lieu
of any annual installment payments pursuant to the Pension Plan
and the SERP.
Executive Target Retirement Income Plan
In 2004 the Company established the Executive Target Retirement
Income Plan (the ETRIP) to provide retirement
benefits to the Companys executive officers, including the
Named Executive Officers. For Company executive officers, the
ETRIP replaced the Companys Supplemental Executive
Retirement Accumulation Plan (the SERAP),
discussed below. The ETRIP is designed to provide a market
competitive retirement benefit for participants. The ETRIP
provides supplemental retirement benefits that, as a lump sum,
are equal to 6.5 times a participants average base salary
and bonus (during his or her last five years) reduced
proportionally for executive service of less than twenty-five
years. This benefit is offset by vested balances in the SERP,
SERAP, Pension Plan, and the Company contributions to the WaMu
Savings Plan. Benefits vest ratably over five years, counting
only executive service on or after January 1, 2004. Upon a
change-in-control of the Company, each participant receives an
additional two or three years of service credit, depending on
the participants existing change-in-control agreement with
the Company. In addition, a successor companys ability to
amend the ETRIP after a change-in-control is strictly
prohibited, except to provide for additional offsets for any
retirement plans adopted after a change-in-control. Upon
termination of employment, each participant receives a lump sum
payment equal to his or her balance, except that any participant
with a balance in excess of $500,000 may make an election to
receive annual installments over a period of up to twenty years.
The Named Executive Officers would have been eligible to receive
the following lump sum payments pursuant to the ETRIP had their
service to the Company terminated on January 1, 2006, and
had they elected to receive their balances in the form of a lump
sum payment: Mr. Killinger: $2,132,705; Mr. Rotella:
$0; Mr. Casey: $392,088; Mr. Chapman: $502,552 and
Mr. Schneider: $0. These lump sum payments would be in lieu
of any annual installment payments pursuant to the ETRIP.
Supplemental Executive Retirement Accumulation Plan
The Company provides certain highly compensated employees, not
including the Named Executive Officers or other executive
officers of the Company, with the SERAP. Prior to 2004, Company
executive officers, including the Named Executive Officers, were
eligible to participate in the SERAP. Currently, the Named
Executive Officers maintain their existing SERAP account
balances, which continue to receive interest credits, but not
further benefit accruals. Pursuant to the SERAP, participants
receive benefit credits of 1% for each year of Company executive
service, with a minimum of 3% and a maximum of 12%. Participants
also receive an interest credit based on the rate that would
have been paid on unsecured junior debt of the Company (if any)
with a ten-year maturity. If the Company did not issue any
unsecured junior debt for the year, then the comparable rate for
peer institutions is used. Upon termination of a
participants service to the Company, the participant will
receive a lump sum payment equal to his or her account balance,
except that any participant with an account balance in excess of
$100,000 may elect to receive annual installment payments over a
period of up to ten years. The Named Executive Officers would
have been eligible to receive the following lump sum payments
pursuant to the SERAP had their service to the Company
terminated on December 31, 2005, and had they elected to
receive their balances in the form of a lump sum payment:
Mr. Killinger: $2,546,824; Mr. Rotella: $0;
Mr. Casey: $0; Mr. Chapman: $0 and Mr. Schneider:
$0. These lump sum payments would be in lieu of any annual
installment payments pursuant to the SERAP.
Deferred Compensation Plan
The Company offers certain highly compensated employees,
including the Named Executive Officers and Company directors, a
Deferred Compensation Plan (the DCP). The DCP
allows eligible employees and directors to defer some or all of
their Company compensation until a selected date or event.
Eligible employees may elect to defer regular pay, bonuses,
gains on exercise of nonqualified stock options, compensation
related to the lapse of restrictions on restricted
26
stock, and issuance of Common Stock in satisfaction of
performance share awards. Company directors may defer their fees
and retainers payable for their service on the Board and Board
committees. DCP account balances are credited with earnings
based on a participants selection of one or more of the
following methods: (1) interest method (credits interest at
a rate equal to the rate at which junior unsecured debt would be
issued); (2) phantom stock method (tracks Washington Mutual
Common Stock); (3) a Standard & Poors 500
index mutual fund return; (4) a Morgan Stanley Capital
International (MSCI) U.S. Small
Cap 1750 index mutual fund return; or (5) an MSCI
Europe and Pacific Region index mutual fund return. At the time
of deferral, each participant elects the payment commencement
date, the earnings accrual method, and the form of payment.
Available forms of payment are either lump sum or, if the
participants balance exceeds $100,000, installment
payments for a period of up to ten years. The Company does
not match any amounts deferred pursuant to the DCP.
As of December 31, 2005, the Named Executive Officers had
accumulated balances in the Deferred Compensation Plan as
follows: Mr. Killinger: $20,846,494; Mr. Rotella:
$5,391,974; Mr. Casey: $1,496,622; Mr. Chapman:
$4,756,537 and Mr. Schneider: $0. These balances reflect
deferral of compensation previously earned by each Named
Executive Officer, plus earnings accrued pursuant to the
crediting method selected by the participant. In accordance with
applicable SEC rules, compensation deferred into the DCP was
reported by the Company as compensation to the Named Executive
Officer for the year earned.
Incentive Target Replacement Options
The Company offers an Incentive Target Replacement Options
(ITRO) program to certain highly compensated
employees. The ITRO program allows participants to convert a
portion of their annual target bonus opportunity into a grant of
fair market value non-qualified stock options. Pursuant to the
program, participants may exchange either 10%, 20% or 33% of
their target annual bonus opportunity for ITRO options and their
target bonus opportunity for the year will be reduced by the
same amount. Once the election is made, it is irrevocable. To
partially compensate for the additional risk of stock options,
the 2006 exchange rate for exchanging annual bonus for ITRO
options is set at 1.5 to 1. This means the recipient
receives $1.50 of economic value in stock options for each $1.00
of bonus opportunity exchanged. The economic value is determined
using a modified Black-Scholes option pricing methodology. The
ITRO options vest 100% on the first anniversary of the date of
grant and may be exercised over a ten-year period from the date
of grant. None of the Named Executive Officers elected to
participate in the ITRO program in 2005 or 2006.
Stock Option Expensing and Prohibition Against Re-Pricings
Effective January 1, 2003, and in accordance with the
transitional guidance of the Financial Accounting Standards
Board, Washington Mutual elected to prospectively apply the fair
value method of accounting for stock-based awards granted after
December 31, 2002.
The Company did not reduce the exercise price of any outstanding
stock options during 2005. The Washington Mutual 2003 Equity
Incentive Plan expressly prohibits such stock option re-pricings
under any circumstances.
Employment, Termination and Change in Control Agreements
|
|
|
Agreements with Named
Executive Officers |
Washington Mutual has entered into a separate employment
agreement with each of the Named Executive Officers for a term
that continues until either the Board of Directors in its sole
discretion or the Named Executive Officer in his sole discretion
terminates the respective agreement in accordance with its
terms. Each agreement provides the following:
|
|
|
|
- |
The annual compensation of the Named Executive Officer is
determined by the Board of Directors Human Resources
Committee. |
|
|
- |
Upon termination for any reason upon or within three years after
a Change in Control, or upon resignation for Good Cause upon or
within three years after a Change in Control (as Change in
Control and Good |
27
|
|
|
|
|
Cause are defined in the individual agreements), the Named
Executive Officer will be paid the following (the
Severance Payments): |
|
|
|
|
|
An amount equal to three times his
total Annual Compensation, which is determined to include the
greater of:
|
|
|
|
|
- |
salary and target bonus for the calendar year in which the
termination occurs (if established before the termination) or |
|
|
- |
an amount equal to his salary and actual bonus for the prior
calendar year (annualized if the Named Executive Officer was not
employed by the Company for the entire calendar year). |
|
|
- |
In either case, Annual Compensation excludes the value of grants
of stock options and restricted stock, perquisites and other
similar non-plan benefits, and includes all other items of
compensation, including contributions made or anticipated to
have been made on the Named Executive Officers behalf
pursuant to the Companys benefit plans for the calendar
year in which termination occurs. |
|
|
|
|
|
All the Named Executive
Officers outstanding, unvested options will immediately
vest and become exercisable.
|
|
|
|
Subject to prior approval of the
Human Resources Committee, restrictions on all or certain grants
of the Named Executive Officers restricted stock will
immediately lapse.
|
|
|
|
If any of the Severance Payments
constitute a parachute payment under
Section 280G of the Code, the Company will pay an
additional amount (the Gross-Up Payment) to
the Named Executive Officer within a specified period of time.
|
|
|
|
|
- |
The Gross-Up Payment would be equal to the amount necessary to
cause the net amount retained by the Named Executive Officer,
after subtracting the parachute excise tax imposed by
Section 4999 of the Code (the Excise
Tax) and any federal, state and local income taxes,
FICA tax and Excise Tax on the Gross-Up Payment, to be equal to
the net amount the Named Executive Officer would have retained
had no Excise Tax been imposed and no Gross-Up Payment been paid. |
In addition, the respective agreements for Mr. Killinger
and Mr. Rotella contain all of the above provisions and
further provide as follows:
|
|
|
|
- |
Mr. Killinger will at all times retain the title of either
Chief Executive Officer or President, unless he agrees
otherwise, and he will be entitled to the Severance Payments if
he is terminated by the Company other than for Cause (as defined
in the agreement), whether or not a Change in Control has
occurred. |
|
|
- |
Mr. Rotella was given the title of President and Chief
Operating Officer. He will retain the title of either President
or Chief Operating Officer at all times, unless he agrees
otherwise. Mr. Rotellas starting annual base salary
was $900,000 and his Leadership Bonus Plan annualized bonus
target for 2005 was $2,500,000. In addition, the Company paid
Mr. Rotella a one-time signing bonus of $2,600,000. |
|
|
- |
Mr. Rotella received 220,000 shares of restricted
stock, 40% of which vested on July 31, 2005, another 35% of
which vested on January 31, 2006, and 25% of which vests on
January 31, 2010. |
|
|
- |
Mr. Rotella will be also entitled to the Severance Payments
if he is terminated by the Company other than for Cause, whether
or not a Change in Control has occurred. Upon such termination,
however, Mr. Rotellas payment will equal two times
his Annual Compensation, rather than three. In addition, to
obtain the benefits described above, Mr. Rotella will be
required to execute the Companys form Separation
Agreement, which, among other things, contains non-competition
and non-solicitation provisions. |
Pursuant to his 1982 employment agreement with a predecessor
company, Mr. Killinger entered into a deferred bonus
arrangement continued by the Company pursuant to which certain
deferred bonus amounts and accrued interest thereon are payable
to Mr. Killinger upon death, resignation or retirement. As
of December 31, 2005, the accrued benefits under such
arrangement totaled $285,661.
28
In December 2004 Washington Mutual entered into an Executive
Management Agreement with Craig J. Chapman, the
Companys former President, Commercial Group, whose
employment with the Company terminated on February 1, 2006.
Pursuant to the agreement and upon Mr. Chapmans
employment termination:
|
|
|
|
|
The Company paid Mr. Chapman
a lump sum payment in the amount of $2,300,000.
|
|
|
|
All of Mr. Chapmans
unvested stock options that were granted prior to
January 1, 2005 vested as of January 31, 2006. All of
his vested options will remain exercisable until the earlier of
January 31, 2007 or the expiration of the options
ten-year term.
|
|
|
|
All sale and transfer restrictions
on Mr. Chapmans shares of Company restricted stock
granted prior to January 1, 2005 lapsed.
|
|
|
|
All restrictions on performance
shares awarded to Mr. Chapman prior to January 1, 2005
will continue to lapse according to the applicable schedule for
payment established at the time the awards were made.
|
Washington Mutual delivered an employment offer letter to David
C. Schneider on June 29, 2005. Pursuant to the terms of the
letter:
|
|
|
|
- |
Mr. Schneider became an at-will employee of the Company on
July 18, 2005 and was given the title of Executive Vice
President and President, Home Loans. Mr. Schneiders
starting annual base salary was $600,000 and his Leadership
Bonus Plan annualized bonus target was established at 150% of
his base salary (and pro-rated for 2005 according to his start
date). In addition, the Company paid Mr. Schneider a
one-time signing bonus of $500,000 and a one-time relocation
bonus of $500,000. |
|
|
- |
Mr. Schneider received the following awards pursuant to the
Companys 2003 Equity Incentive Plan: |
|
|
|
|
|
An option to purchase
31,780 shares of Company Common Stock with an exercise
price of $41.71 per share. The option vests in three equal
annual installments, beginning on the first anniversary of the
grant date, subject to Mr. Schneiders continued
employment by the Company. The option has an exercise price
equal to the market closing price of one share of the
Companys Common Stock on the day before the grant date.
|
|
|
|
8,991 shares of Company
restricted stock with sale and transfer restrictions that will
lapse in three equal annual installments starting on the first
anniversary of the date of issuance.
|
|
|
|
23,976 shares of Company
performance restricted stock with sale and transfer restrictions
that will lapse on December 31, 2009, provided that the
Company satisfies applicable performance criteria.
|
Certain Provisions Contained in Company Compensation
Plans
2003 Equity Incentive
Plan
The Human Resources Committee of the Companys Board of
Directors administers this plan. Subject to the terms of the
plan, the HR Committee determines the types of awards to be made
under the plan, establishes the terms and conditions for each
award, and approves the forms of agreements to be used. Unless
otherwise specified in an employment agreement or by the HR
Committee in establishing an award, in the event of a merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation of the Company as a result of
which the Companys shareholders receive cash, stock or
other property in exchange for their stock: (i) all options
will vest, unless the Company elects to convert the options into
options to purchase stock of the acquiring company; and
(ii) the restrictions and forfeiture provisions on all
outstanding shares of Company restricted stock will lapse to the
same extent that vesting of outstanding options accelerates.
Equity Incentive
Plan
The Human Resources Committee administers this plan, pursuant to
which the Company has previously granted awards of restricted
stock. Subject to the terms of the plan, the Human Resources
Committee determined the number of shares to be granted under
the plan, established the terms and conditions for each award,
and approved the forms of agreements to be used. Unless
otherwise specified in an employment agreement or by the Human
Resources Committee in establishing an award, in the event of a
merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation of the Company as a
result of which the Companys shareholders receive cash,
stock or other property in
29
exchange for their stock, all awards will vest, except that an
award of restricted stock based on length of service with the
Company will not vest if the award is converted into restricted
stock of the acquiring company. In the event of termination of
an individuals employment before age 60 for any reason
(including death or disability), all of his or her unvested
restricted stock or stock units will be forfeited without
compensation, unless otherwise specified in the award agreement
or determined by the Human Resources Committee.
Leadership Bonus
Program
Unless otherwise specified by the Human Resources Committee,
employees who voluntarily separate from the Company prior to the
end of the plan year, or who involuntarily separate from the
Company for performance reasons prior to the end of the plan
year, are not eligible for a bonus payout. Employees who
voluntarily separate after the end of the plan year remain
eligible for a bonus payout for the completed plan year.
Employees who separate prior to the end of the plan year due to
a reduction in work force, or due to death, permanent disability
or approved retirement, are generally eligible for a bonus
payout based on earned salary through the date of separation or
termination of active employment.
1994 Stock Option
Plan
The Human Resources Committee administers this plan, pursuant to
which the Company has previously granted stock options. Subject
to the terms of the plan, the Human Resources Committee
determined the types of awards to be made under the plan,
established the terms and conditions for each award, and
approved the forms of agreements to be used. Unless otherwise
specified in an employment agreement or by the Human Resources
Committee in establishing an award, in the event of a merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation of the Company as a result of
which the Companys shareholders receive cash, stock or
other property in exchange for their stock, all options will
vest, unless the Company elects to convert the options into
options to purchase stock of the acquiring company. Unless
otherwise specified in the award agreement or determined by the
Human Resources Committee, the individual will have the
following periods to exercise his or her vested options in the
event of termination of service to the Company for any reason
(other than in connection with a change in control):
(i) ninety days after termination for reasons other than
approved retirement; (ii) five years after termination by
reason of approved retirement after age 55 with ten years
service as an employee; and (iii) five years after
termination by reason of approved retirement after age 55 with
five years service as a director. If the termination is by
reason of an approved retirement after age 65 (or age 72 for
directors), then all of the individuals unvested options
shall become vested for the applicable period set forth above.
Performance Share
Award Program
Unless otherwise specified by the Human Resources Committee, if
a participant in the Performance Shares Award Program
voluntarily terminates his or her employment with the Company
during a performance period, the entire performance share award
for that period is forfeited. If employment ends due to an
approved retirement, the participant continues to participate in
all in-progress performance cycles and receives the award at the
end of each cycle based on full-cycle performance. If a
participant moves to a non-eligible position during an
in-progress performance cycle the award will be calculated based
on full-cycle performance and the final payment prorated to the
job change date. Upon the occurrence of a change in control of
the Company, the participant will receive a pro rata award
payment as soon as reasonably possible following the date of the
change in control based on performance measured as close as
practical to the date of the change in control.
30
Equity Compensation Plans Information
The following table sets forth information regarding the Common
Stock that may be issued upon the exercise of options, warrants
and other rights granted to employees, directors or consultants
under all of the Companys existing equity compensation
plans, as of December 31, 2005.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
|
|
Number of | |
|
|
|
Number of securities | |
|
|
securities to be | |
|
Weighted-average | |
|
remaining available | |
|
|
issued upon | |
|
exercise price of | |
|
for issuance under | |
|
|
exercise of | |
|
outstanding | |
|
equity compensation | |
|
|
outstanding | |
|
options, warrants | |
|
plans (excluding | |
|
|
options, warrants | |
|
and rights | |
|
securities reflected | |
Plan Category |
|
and rights | |
|
(in dollars) | |
|
in column (a)) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
36,862,106 |
|
|
$ |
35.86 |
|
|
|
26,918,887 |
(2)(3)(4) |
Equity compensation plans not approved by security holders
|
|
|
4,869,410 |
(1) |
|
|
36.59 |
(1) |
|
|
4,142,476 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,731,516 |
|
|
|
35.94 |
|
|
|
31,061,363 |
|
|
|
(1) |
Represents WAMU Shares Stock Option Plan grants approved by the
Companys Board of Directors. Does not include stock
options that were assumed in connection with the Companys
acquisition of certain companies. The assumed options are for
the purchase of 8,217,386 shares of Common Stock and have a
weighted-average exercise price of $51.98 per share. In the
event that any assumed option is not exercised, no further
option to purchase shares of Common Stock will be issued in
place of such unexercised option. |
|
(2) |
Includes 2,333,097 shares of Common Stock remaining available
for purchase under the Companys Amended and Restated 2002
Employee Stock Purchase Plan and 22,948,093 shares of Common
Stock remaining available for issuance under the 2003 Equity
Incentive Plan (2003 EIP). |
|
(3) |
The 2003 EIP provides that each of the Companys
nonemployee directors may receive stock grants or awards at the
recommendation of the Governance Committee. |
|
(4) |
Under the Companys 2003 EIP, the Company may grant
restricted stock or stock units, including performance shares. |
|
(5) |
Includes shares cancelled and available for issuance under the
WAMU Shares Stock Option Plans. |
Non-Shareholder Approved Plans
WAMU Shares Stock Option
Plans
From time to time, the Board of Directors approves grants of
nonqualified stock options to certain groups of employees. The
grants have been made pursuant to a series of plans,
collectively known as WAMU Shares. In 1997, the
Board of Directors approved a plan under which eligible
employees were granted nonqualified options to purchase the
Companys Common Stock. On December 15, 1998, the
Board adopted a new plan to grant additional nonqualified stock
options to eligible employees (1999 WAMU
Shares). On February 13, 2001, the Board adopted
a third plan and granted nonqualified options to eligible
employees (2001 WAMU Shares). On
September 17, 2002, the Board amended the 2001 WAMU Shares
Plan to provide for an additional grant of nonqualified options
to eligible employees effective September 3, 2002. The
aggregate number of shares authorized by the Board of Directors
for grants under the WAMU Shares Plans was 14,511,900. On
October 16, 2002, the Board amended the 1999 WAMU Shares
and the 2001 WAMU Shares plans to allow grants to a broader
group of employees, including management, so that some of the
authorized but unissued options could be granted to eligible
employees as part of the annual grant in December 2002.
Generally, eligible full-time and part-time employees on the
award dates were granted options to purchase shares of
Washington Mutual Common Stock. The exercise price for all
grants is the fair market value of Washington Mutuals
Common Stock on designated dates, and all options vest one to
three years after the award date and expire five to ten years
from the award date.
31
RELATED TRANSACTIONS AND OTHER MATTERS
Transactions With Directors
In 2005, the Company paid $208,561 to Pugh Capital Management,
Inc. for investment advisory services. Mary E. Pugh, a director
of the Company, is the founder and President of Pugh Capital
Management, Inc., a Seattle-based fixed income money management
company. The Human Resources Committee, on behalf of the Board,
reviews the performance of her firm, with respect to the
provided services. The Company expects to continue this
relationship on substantially similar terms in 2006.
Indebtedness of Management
No Company executive officer or director was indebted to the
Company or its subsidiaries in an amount greater than $60,000 at
any time since the beginning of 2005, except as set forth below.
In each exception below, Washington Mutual or one of its
subsidiaries is the lender for a residential loan secured by a
deed of trust or mortgage on the respective residence of the
executive officer (or immediate relative) or director.
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Largest | |
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|
Amount of | |
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|
|
Indebtedness | |
|
Current | |
|
|
Indebtedness | |
|
Nature of | |
|
Outstanding at | |
|
Interest | |
Name and Position |
|
During 2005 | |
|
Indebtedness | |
|
January 31, 2006 | |
|
Rate (%) | |
|
|
| |
|
| |
|
| |
|
| |
Willis B. Wood, Jr
|
|
|
$545,236.19 |
|
|
|
Residential (1 |
) |
|
|
$0 |
|
|
|
n/a |
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Mr. Wood satisfied this loan in full in August 2005.
Interest on the loan was payable at monthly adjustable rates
equal to Washington Mutual Banks (WMB)
cost of funds plus 0.25%. The rate was approximately 1.065%
below similar loans to the public during 2005. The loan was made
by Great Western Financial Corporation (GWFC)
under a GWFC home loan program (the GW
Program), to Mr. Wood, who was a director of
GWFC. Under the GW Home Loan Program, employees, officers
and directors of GWFC and its affiliates were able to obtain
loans in amounts up to 90% of the appraised value of their
primary and secondary residences. Washington Mutual had no
control over GWFC when the loan was made prior to the merger of
GWFC into a subsidiary of the Company on July 1, 1997 (the
GW Merger). Executive officers and directors
who had loans outstanding under the GW Program at the time
of the GW Merger were entitled to continue their
participation because all participants were protected against
adverse amendments to the terms of existing loans or suspensions
of the GW Program following a change in control. Washington
Mutual has not made any loans under the GW Program since
the GW Merger. Washington Mutual currently does not make
any loans to directors, except for credit cards which are
available on the same terms as are generally available to the
public. |
Fay L. Chapman and Benson Porter, executive officers of the
Company, also had Washington Mutual home loans outstanding in
2005. In addition, a member of Mr. Porters immediate
family and several members of the immediate family of John
Woods, the Companys Controller, had Washington Mutual home
loans outstanding in 2005. Each of these loans (i) were
made in the ordinary course of business, (ii) on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other Washington Mutual customers, and
(iii) did not involve more than the normal risk of
collectability or present other unfavorable features.
Ms. Chapman and Mr. Porter obtained their loans prior
to becoming executive officers of the Company.
Legal Proceedings Involving Directors and Executive
Officers
On November 29, 2005, a derivative shareholder lawsuit was
filed in Washington State Superior Court purportedly asserting
claims for the benefit of the Company. The case was removed to
federal court, where it is now pending. Lee Family
Investments, by and through its Trustee W.B. Lee,
Derivatively and on behalf of Nominal Defendant Washington
Mutual, Inc. v. Killinger et al.,
No. CV05-2121C
(W.D. Wa., Filed Nov. 29, 2005) (the
Derivative Action). The defendants in the
Derivative Action include Messrs. Killinger and Casey, and
Messrs. Frank, Matthews, Murphy, Reed, Stever and Wood, and
Mss. Farrell, Pugh and Osmer McQuade, those of the
Companys current directors who were directors at any time
from April 15, 2003, through June 2004. The allegations in
the Derivative Action mirror those in the case currently pending
against the Company and a number of its officers in the
U.S. District Court for the Western
32
Division of Washington. South Ferry L.P. #2 v.
Killinger et al.,
No. CV04-1599C
(W.D. Wa., Filed Jul. 19, 2004) (the
Securities Action). The Securities Action
alleges violations of Section 10(b) of the Securities
Exchange Act of 1934 (the Exchange Act),
Rule 10b-5
thereunder and Section 20(a) of the Exchange Act by the
defendants in various public statements in which the defendants
purportedly made misrepresentations and failed to disclose
material facts concerning, among other things, alleged internal
systems problems and hedging issues. The Derivative Action
further seeks relief based on claims that the independent
director defendants failed to respond to and failed to respond
in light of the misrepresentations alleged in the Securities
Action and that the filing of that action has caused the Company
to expend sums to defend itself and the individual defendants
and to conduct internal investigations related to the underlying
claims. By stipulation of the parties, the court has ordered the
Derivative Action stayed pending the outcome of the Securities
Action. Any party may lift the stay on 30 days notice
to the others, and the court could choose to do so at any time
as well. Pursuant to and as required by the provisions of the
Companys current Articles of Incorporation and Bylaws, the
Company has indemnified and is providing a defense for the
defendants in the Derivative Action.
33
REPORT OF THE HUMAN RESOURCES COMMITTEE
ON EXECUTIVE COMPENSATION
Overview
As part of its duties, the Human Resources Committee of the
Board of Directors develops and administers Washington
Mutuals compensation programs and annual and long-term
incentive compensation plans for executive and senior officers.
As part of the Human Resources Committees long-term
incentive compensation strategy, it establishes specific grants
of stock options and awards of restricted stock and performance
shares for executive and senior officers.
The compensation program for Washington Mutuals executive
and senior officers for 2005 consisted of a combination of the
following components:
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|
- |
base salary; |
|
|
- |
cash bonus awards primarily under the Companys Leadership
Bonus Program; |
|
|
- |
grants of stock options and awards of restricted stock and
performance shares under the Companys 2003 Equity
Incentive Plan; |
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|
- |
benefits under the Companys Executive Target Retirement
Income Plan and Supplemental Employees Retirement Plan; |
|
|
- |
participation in retirement and other benefit programs generally
available to employees; and |
|
|
- |
certain additional perquisites that vary with the level of
responsibility. |
The Human Resources Committee also established the 2005
compensation program for the Companys Chief Executive
Officer, including annual and long-term incentive compensation
awards.
The Human Resources Committee is comprised of independent
directors, none of whom is or has been an employee of Washington
Mutual. The Human Resources Committee utilized an outside
compensation consultant to assist it in its deliberations.
Compensation Policy
In determining the compensation for a particular executive or
senior officer, the Human Resources Committee was guided by the
following objectives:
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Attracting and retaining highly qualified officers by
maintaining competitive compensation packages for officers; |
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Motivating those officers to achieve and maintain superior
performance levels; |
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Maintaining compensation packages that are equitable relative to
efforts, skills and responsibilities of the officer when
compared to other positions in Washington Mutual; and |
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Making a significant portion of each officers total
compensation package at risk and dependent on Company
performance and creation of long-term shareholder value. |
The Human Resources Committee believes that total compensation
for executive and senior officers should be sufficiently
competitive with compensation paid by financial institutions of
similar size, with lines of business, geographic dispersion and
marketplace position similar to Washington Mutual, so that the
Company can attract and retain qualified officers who will
contribute to Washington Mutuals long-term success. The
outside compensation consultant provided relevant information
and market survey data for use by the Human Resources Committee
in its deliberations.
Compensation payments in excess of $1 million to the
Companys five most highly compensated executive officers
may be subject to a limitation on deductibility under
Section 162(m) of the Code. Certain performance-based
compensation is not subject to the limitation on deductibility.
It is intended that compensation in excess of $1 million
paid to the Companys Named Executive Officers be
performance based and deductible under Section 162(m) of
the Code. From time to time, certain elements of executive
compensation may be paid that are not deductible under
Section 162(m) when aggregated with other non-performance
based compensation. Stock option grants under the 2003 Equity
Incentive Plan, cash bonuses granted under the Leadership Bonus
Plan, and performance share awards are intended when granted or
34
awarded to qualify for the performance based exception to the
$1 million limitation on deductibility of compensation
payments. The Human Resources Committee nevertheless retains the
discretion to provide nondeductible compensation to reward
performance as it determines appropriate.
To assist the Committee in establishing compensation, long-term
incentives, and other benefits, the Human Resources Committee
receives and reviews reports that summarize each executive and
senior officers total compensation. The reports are
provided at each regular meeting of the committee. Having
reviewed the total compensation of the executives and senior
officers, the Committee believes that the total compensation is
fair and appropriate.
Salaries
In its January, 2005 meeting, the Human Resources Committee set
2005 base salary levels for the executive officers. The approved
2005 base salary levels for the executive officers were based
primarily on the market data provided by the outside
compensation consultant and the performance of each executive
officer during the previous year. The base salary and target
bonus components are generally intended to be at the median of
the applicable market base salary and bonus. The Human Resources
Committee determined the closest comparable position in the
market data and then adjusted the recommended target based on
specific job responsibilities within the Company and the
individual performance review. The market data included a
portion of the companies included in the Performance Graph
included on page 39 of this Proxy Statement, as well as
certain other financial services companies.
The Human Resources Committee evaluated the individual
performance of the executive officers (other than the Chief
Executive Officer whose salary was determined as set forth on
page 37) based on performance reviews conducted by the
Chief Executive Officer. In evaluating each executive officer,
the Human Resources Committee qualitatively reviewed the scope
of responsibilities of the position held by the officer and the
officers experience and performance on the job, which is
based on an assessment of the officers management skills,
judgment, application of knowledge and information, and support
of corporate values and priorities.
The 2006 salaries set by the Human Resources Committee for the
Named Executive Officers (other than Mr. Chapman who is no
longer an employee of the Company) are as follows:
Mr. Killinger: $1,000,000, Mr. Rotella: $900,000,
Mr. Casey: $620,000 and Mr. Schneider: $620,000.
Annual Cash Bonus Awards
In determining target bonuses for executive officers, the Human
Resources Committee first considers market survey data provided
by the outside consultant. The target bonus and base salary
together are generally intended to be at the median of market
salary and bonus level for each position. Where no equivalent
market data are available, the target bonus opportunity is set
by considering the significance of the position to the Company.
Pursuant to the bonus plan, executive officers receive a
percentage of their target bonuses based on the Companys
achievement of established business goals that are believed to
be long-term determinants of shareholder value. For 2005, 40% of
the target bonus depended on Washington Mutuals achieving
its goal for non-interest expense, 35% on achievement of
earnings per share goals, 15% on achievement of customer service
goals, and 10% on achievement of regulatory compliance goals. To
measure the achievement of customer service goals, the Committee
uses a customer satisfaction rating system designed by an
outside consultant that measures performance against
best-in-class
benchmarks. To measure the achievement of compliance goals, the
Committee uses a three-part index based on the Companys
Compliance Exam (60% weight), the Community Reinvestment Act
(CRA) performance (30% weight), and Home Mortgage Disclosure Act
(HMDA) data quality (10% weight). No bonuses would have
been paid if the established thresholds were not met. Executive
officers could have received up to 150% of their target bonus if
Washington Mutual exceeded its business targets. For purposes of
measuring non-interest expense, the Committee excluded
extraordinary expenses related to the acquisition of Providian
Financial Corporation. For 2005, the bonus component
achievements exceeded the targets resulting in a payout at
118.5% of target for executive officers.
The 2006 target bonus amounts set by the Human Resources
Committee for the Named Executive Officers (other than
Mr. Chapman who is no longer an employee of the Company)
are as follows: Mr. Killinger: $3,500,000,
Mr. Rotella: $2,700,000, Mr. Casey: $1,165,000 and
Mr. Schneider: $930,000. The actual bonus amounts paid to
one or more of the Named Executive Officers for 2006 may be paid
pursuant to the Executive Incentive Compensation Plan if it is
approved by the Company shareholders at the Annual Meeting (see
page 51 of this Proxy Statement).
35
Equity
In an effort to provide executives and senior officers with
incentives that are directly linked to the enhancement of
long-term shareholder value, the Human Resources Committee uses
three primary equity vehicles stock options,
restricted stock, and performance shares. Equity awards are
designed to position executives and senior officers in the 75th
percentile of market long-term incentive levels when performance
targets are met. The Human Resources Committee varies the level,
mix, and terms of equity awards based on the Companys
objectives as well as market survey data. In addition, the
Companys executives and senior officers were given an
opportunity to choose from among the following mixes of
performance shares, restricted stock, and stock options:
Percent of Equity Award in
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Performance Shares | |
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Restricted Stock | |
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Stock Options | |
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Option 1
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30% |
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25% |
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45% |
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Option 2
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30% |
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35% |
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35% |
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Option 3
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30% |
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45% |
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25% |
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Performance shares are performance-based equity awards for all
recipients.
To encourage executives and senior officers to hold Company
stock, the Human Resources Committee has adopted stock ownership
guidelines. The target ownership guidelines are as follows:
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CEO
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10 times base salary |
Other Executives and
Certain Senior Officers |
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3 or 4 times base salary depending on position level |
For purposes of the guidelines, stock ownership includes shares
held outright, shares held in the Companys 401(k) Plan,
phantom shares in the Companys Deferred Compensation Plan,
and unvested shares of restricted stock. The Committee receives
a report at each meeting indicating the stock ownership of each
executive and senior officer. As of December 31, 2005, all
of the executive and senior officers were in compliance with the
applicable ownership guidelines (including applicable grace
periods).
Stock Options
In its January 2006 meeting, the Human Resources Committee
granted stock options to the executives and senior officers
under the 2003 Equity Incentive Plan. The Human Resources
Committee selected the executive officers who received stock
options and determined the number of shares subject to each
option. The size of the individual option grant was generally
intended to reflect the officers position within
Washington Mutual, his or her performance and contributions to
the Company, an evaluation of competitive market data and the
officers election with respect to the relative proportion
of stock options to restricted stock. The Human Resources
Committee granted 2006 stock options to the Named Executive
Officers (other than Mr. Chapman who is no longer an
employee of the Company), in the following amounts:
Mr. Killinger: 458,900 shares, Mr. Rotella: 233,300
shares, Mr. Casey: 111,100 shares and Mr. Schneider:
58,300 shares.
In addition to such grants, and to further encourage and
facilitate stock ownership by executives, the Company offered
executive officers a program whereby they may exchange a portion
of the upcoming years target cash bonus award for a grant
of stock options. To partially compensate for the additional
risk of stock options the Committee, based in part on advice
from outside compensation consultants offered, the executives
were offered a stock option grant with a binomial value equal to
1.5 times the dollar amount of the foregone bonus opportunity.
Restricted Stock
In its January 2006 meeting, the Human Resources Committee
awarded restricted stock to its executives and senior officers
under the 2003 Equity Incentive Plan. Subject to exceptions
approved by the Human Resources Committee, generally the
restrictions lapse over a three-year period, one third each year
after the date of the award. For certain senior officers who may
be subject to Code §162(m), the restrictions will only
lapse each year if certain performance goals have been met. The
number of restricted shares awarded was intended to reflect the
officers position within Washington Mutual, his or her
performance and contributions to the Company, an evaluation of
competitive market data and the officers election with
respect to the relative proportion of restricted stock to stock
options. In January 2005, certain executives and senior officers
were awarded performance-based restricted stock that vests on
December 31, 2009. In September 2005, the original awards
of January 2005 were reformed in light of the Companys
acquisition of Providian
36
Financial Corporation to change the beginning of the performance
period from January 1, 2005 to July 1, 2005, and to
use a variation of return on equity to determine vesting. The
Human Resources Committee issued 2006 restricted stock shares to
the Named Executive Officers (other than Mr. Chapman who is
no longer an employee of the Company), in the following amounts:
Mr. Killinger: 98,300 shares, Mr. Rotella: 50,000
shares, Mr. Casey: 42,900 shares and Mr. Schneider:
12,500 shares.
Performance Shares
In January 2006, the Committee made performance share awards
designed to focus executives on and reward them for attaining
specified long-term performance goals aligned with increasing
shareholder value. Performance share awards are awards of
restricted stock units that are paid out at the end of a
three-year period only if the Company achieves specified
performance goals. The awards may be paid in cash or stock, at
the discretion of the Human Resources Committee. The Human
Resources Committee made 2006 performance share awards to the
Named Executive Officers (other than Mr. Chapman who is no
longer an employee of the Company), in the following amounts:
Mr. Killinger: 92,400 shares, Mr. Rotella: 47,000
shares, Mr. Casey: 31,300 shares and Mr. Schneider:
11,700 shares.
For the 2006-2008 performance cycle, the program will measure
three-year total shareholder return versus peers; return on
equity versus peers; and EPS growth versus peers, with each
measure weighted equally. The peer group consists of financial
services companies that comprise the S&P Financial Index.
This is the same group that the Company uses for its total
shareholder return Performance Graph on page 39 of this
Proxy Statement.
Other Benefits and Perquisites
Executives and senior officers also participate in the
Companys Deferred Compensation Plan, Supplemental
Employees Retirement Plan, and either the Supplemental
Executive Retirement Accumulation Plan or the Executive Target
Retirement Income Plan. Summaries of the terms of each of these
plans can be found in this Proxy Statement beginning at
page 25. In addition, executives and senior managers
receive an automobile allowance of $5,000 per year (except that
the Chief Executive Officers allowance is $10,000 per
year), company paid parking in the amount of $3,300 per year and
a tax and financial planning allowance in the amount of $10,000
per year.
Pursuant to a policy established and administered by the Human
Resources Committee, the CEO is permitted a limited number of
hours of personal use of the Companys interest in a jet.
In addition, the CEO receives a payment designed to compensate
him for the taxes related to use of the aircraft.
CEO Compensation
Compensation for Washington Mutuals Chief Executive
Officer, Mr. Killinger, was determined based on the same
general policies and criteria as the compensation for other
executive officers. Mr. Killingers base salary and
target bonus for 2005 were approved by the Human Resources
Committee at its January 2005 meeting. In making its
determination, the Human Resources Committee reviewed the
outside compensation consultants market survey data and
considered the financial and operating results of Washington
Mutual in fiscal 2004 and the Companys 2005 financial and
business plans. Based on the factors set out in Annual
Cash Bonus Awards, Mr. Killingers bonus for
2005 was calculated in the same manner as described above for
the other executive officers.
In evaluating Mr. Killingers 2005 performance, the
Human Resources Committee used both quantitative and qualitative
criteria. They included achievement of the Companys
non-interest expense and earnings per share goals; strong asset
quality; improvements in customer service and compliance; and
growth in assets. In addition, the Human Resource Committee
considered various qualitative measures of
Mr. Killingers performance, such as his recruitment
and development of the executive team and identification and
development of executive talent.
37
In determining Mr. Killingers stock options,
restricted stock and performance share grants, the Human
Resources Committee reviewed the market survey data and other
information provided by the outside consultant. Based on these
considerations, as compensation for 2006, Mr. Killinger was
awarded an option to purchase 458,900 shares and was awarded
92,400 target performance shares for the 2005-2008 performance
cycle as well as 98,300 shares of restricted stock. The Human
Resources Committee concluded that the compensation awarded to
Mr. Killinger properly reflects his 2005 performance.
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HUMAN RESOURCES COMMITTEE |
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James H. Stever, Chair |
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Stephen E. Frank |
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Charles Lillis |
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Margaret Osmer McQuade |
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Phillip Matthews |
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Willis B. Wood, Jr. |
38
PERFORMANCE GRAPH
The following two graphs compare the cumulative total
shareholder return (stock price appreciation plus reinvested
dividends) on Washington Mutual Common Stock against the
cumulative total shareholder return of the S&P 500 Composite
Index and the S&P Financial Index since December 31,
2000 and since Washington Mutual first became a publicly traded
company on March 11, 1983, respectively. The graphs assume
that $100 was invested on December 31, 2000 and
March 11, 1983, respectively in each of the Companys
Common Stock, the S&P 500 Composite Index and the S&P
Financial Index and that all dividends were reinvested.
Management of Washington Mutual cautions that the stock price
performance shown in the graphs below should not be considered
indicative of potential future stock price performance.
Comparison of Cumulative Total Return
Among the Common Stock of Washington Mutual,
the S&P 500 Composite Index,
and the S&P Financial Index
39
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder,
Washington Mutuals directors and executive officers and
any beneficial owners of more than 10% of any registered class
of Washington Mutual equity securities, are required to file
reports of their ownership, and any changes in that ownership,
with the SEC. Based solely on its review of copies of these
reports and on written representations from such reporting
persons, Washington Mutual believes that during 2005, all such
persons filed all ownership reports and reported all
transactions on a timely basis, except as otherwise noted below:
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Ø |
Debora Horvaths election to have shares of restricted
stock withheld to satisfy her tax obligations when the shares
vested was reported one day late. |
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Ø |
A sale of 1,000 shares by Michael Amato was reported two days
late. |
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Ø |
A deferral of director fees into the Companys Deferred
Compensation Plan by former director, Douglas Beighle, was
reported late due to an administrative error. |
ITEM 2. RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
Deloitte & Touche LLP currently serves as the
Companys independent auditors and has conducted the audit
of the Companys accounts for 2005. The Sarbanes-Oxley Act
of 2002 (SOX) requires the Audit Committee to
be directly responsible for the appointment, compensation and
oversight of the audit work of the independent auditors. In
February 2006, the Audit Committee appointed Deloitte &
Touche LLP to serve as independent auditors to conduct an
audit of the Companys accounts for 2006.
Ratification of Independent Auditors
Selection of the Companys independent auditor is not
required to be submitted to a vote of the shareholders of the
Company for ratification. However, the Board of Directors is
submitting this matter to the shareholders as a matter of good
corporate practice. If the shareholders fail to ratify the
selection, the Audit Committee will reconsider whether to retain
Deloitte & Touche LLP. After doing so, it may
retain that firm or another without
re-submitting the
matter to the Companys shareholders. Even if the
shareholders ratify the appointment of Deloitte &
Touche LLP, the Audit Committee may, in its discretion,
direct the appointment of different independent auditors at any
time during the year if it determines that such a change would
be in the best interests of the Company and the shareholders.
Representatives of Deloitte & Touche LLP will be
present at the Annual Meeting of Shareholders, with the
opportunity to make a statement if so desired, and will be
available to respond to appropriate questions submitted to the
Secretary of Washington Mutual in advance of the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS
VOTE FOR THE RATIFICATION OF APPOINTMENT OF
DELOITTE & TOUCHE LLP
AS THE COMPANYS INDEPENDENT AUDITORS.
PRINCIPAL ACCOUNTANTS FEES
Aggregate fees billed to the Company for professional services
performed for the Company by Deloitte &
Touche LLP, the member firms of Deloitte Touche Tohmatsu
and their respective affiliates (collectively, the
Deloitte Entities) for the years ended
December 31, 2005 and 2004 were as follows:
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Year Ended | |
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2005 | |
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2004 | |
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Audit Fees
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$8,715,000 |
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$7,790,000 |
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Audit-Related Fees
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1,359,000 |
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1,657,000 |
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Tax Fees
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614,000 |
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1,168,000 |
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All Other Fees
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5,000 |
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361,000 |
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Total Fees
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$10,693,000 |
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$10,976,000 |
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40
Audit Fees related to the audit of the Companys annual
financial statements for the years ended December 31, 2005
and 2004, and for the reviews of the financial statements
included in the Companys Quarterly Reports on
Form 10-Q for
those years. Audit fees also included fees for services that
generally can only be provided by the Companys independent
auditor. These services included comfort letters, statutory
audits, attest services, and consent filings.
Audit-Related Fees for each of 2005 and 2004 included fees for:
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assistance related to mortgage securitizations and other
securities offerings, |
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Ø |
assistance in applying financial accounting principles, |
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Ø |
internal control related services (including assistance with SOX
Section 404 compliance), and |
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Ø |
review of certain agreed upon procedures. |
Audit-Related Fees for 2004 also included fees for:
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Ø |
audits of employee benefit plans and trust entities, |
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Ø |
successor auditor reviews, and |
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Ø |
performance of due diligence procedures related to loans. |
Tax Fees in each of 2005 and 2004 consisted of tax compliance
services including preparation of original and amended tax
returns, assistance with Internal Revenue Service exams and
appeals, and due diligence assistance with mergers and
acquisitions. Tax compliance services in 2004 also included
services related to enterprise zone credit determinations. Tax
Fees also included tax consulting fees for tax credits and
mergers and acquisitions tax advice in 2004. Tax consulting fees
were $11,000 in 2004.
All Other Fees consisted of fees for an on-line accounting
reference tool in 2005 and consulting fees for strategic
sourcing of key vendor relationships in 2004.
Audit Committee Pre-Approval Policy
The Companys Audit Committee believes that maintaining the
independence of the Company from its independent auditors is
critical to the integrity of the Companys financial
statements. The Audit Committee has adopted a Policy Regarding
the Approval of Audit and Non-Audit Services Provided by the
Independent Auditor (the Pre-Approval
Policy), which requires that services performed for
the Company by the independent auditor must be pre-approved by
the Audit Committee, or a designated member thereof. The
Pre-Approval Policy, among other things, also contains a list of
non-audit services that the Companys independent auditor
is prohibited from providing. In determining whether to approve
services to be performed by the independent auditor, the Audit
Committee considers the independent auditors knowledge of
the Company and whether another firm can provide similar
services to the Company.
In 2005, 100% of Audit-Related Fees, Tax Fees and All Other Fees
were approved by the Audit Committee.
To further the independence of the Company from its independent
auditor, the Audit Committee also adopted a policy in February
2003 requiring that fees paid by the Company to its independent
auditor that are considered All Other Fees (i.e. fees for
services that are not Audit, Audit-Related or Tax-Related) shall
be less than the aggregate amount of Audit Fees, Audit-Related
Fees and Tax Fees paid to its independent auditor. This policy
also strongly discourages the Companys use of its
independent auditor for non-audit services, and is intended to
limit the amount of non-audit services performed by the
independent auditor. On a quarterly basis, the Audit Committee
reviews summaries of previously approved services or categories
of services performed by the independent auditor and the fees
therefor, a list of non-audit services to be approved by the
Audit Committee, and a current projection, presented in a manner
consistent with the proxy statement disclosure requirements, of
the estimated annual fees to be paid to the independent auditor.
The Company was in compliance with this policy in 2005.
41
REPORT OF THE AUDIT COMMITTEE
The Companys Audit Committee is composed of seven
directors who have been found by the Board of Directors to be
both independent and financially literate as required by the
listing standards of the NYSE. In addition, the Board has
determined that Mr. Frank is an Audit Committee Financial
Expert under the rules of the SEC. The Audit Committee operates
under a written charter adopted by the Board of Directors.
The purpose of the Audit Committee is to assist the Board of
Directors in its general oversight of the Company. The primary
responsibilities of the Audit Committee are to oversee and
monitor the integrity of the Companys financial reporting
process, financial statements and systems of internal controls;
the Companys compliance with legal and regulatory
requirements; the independent auditors qualifications,
independence and performance; and the performance of the
Companys internal audit function. The Audit Committee is
responsible for the selection, retention, supervision and
termination of (1) the general auditor, including reviewing
the adequacy of the authority, responsibilities and functions of
the Companys internal audit department, and (2) the
independent auditor, including resolving disagreements between
management and the independent auditor. The general auditor and
the independent auditor report directly to the Audit Committee.
The Audit Committee is not responsible for conducting reviews of
auditing or accounting procedures. Management has primary
responsibility for preparing the Companys financial
statements and for the Companys financial reporting
process. The Companys independent auditor is responsible
for auditing and reporting on the conformity of the
Companys consolidated financial statements to accounting
principles generally accepted in the United States,
managements assessment of the effectiveness of the
Companys internal control over financial reporting and the
effectiveness of the Companys internal control over
financial reporting. The Audit Committee serves a board-level
oversight role in which it provides advice, counsel and
direction to management and the independent auditor on the basis
of the information it receives, discussions with the independent
auditor and the experience of the Audit Committees members
in business, financial and accounting matters.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed
and discussed the consolidated financial statements with
management;
2. The Audit Committee has
discussed with the independent auditors the matters required to
be discussed by SAS 61 (Codification of Statements on
Auditing Standard, AU Section 380), as may be modified or
supplemented;
3. The Audit Committee has received
the written disclosures and the letter from the Companys
independent auditor required by Independence Standards Board
Standard No. 1 (Independence Standards Board Standard
No. 1, Independence Discussions with Audit
Committees), as may be modified or supplemented, and has
discussed with the independent auditors that firms
independence; and
4. Based on the review and
discussions referred to in paragraphs 1 through 3 above,
the Audit Committee recommended to the Board of Directors that
the audited consolidated financial statements be included in the
Companys Annual Report on
Form 10-K for the
year ended December 31, 2005 for filing with the SEC.
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AUDIT COMMITTEE |
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Stephen E. Frank, Chair |
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Thomas C. Leppert |
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Phillip D. Matthews |
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Michael K. Murphy |
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William G. Reed, Jr. |
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Orin C. Smith |
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Willis B. Wood, Jr. |
42
ITEM 3. APPROVAL OF
THE WASHINGTON MUTUAL, INC.
AMENDED AND RESTATED
2003 EQUITY INCENTIVE PLAN
On February 21, 2006, the Board of Directors unanimously
adopted an amendment and restatement of the 2003 EIP (the
Restated EIP), subject to approval by the
Companys shareholders at the 2006 Annual Meeting. The
Board believes that the Restated EIP will promote the long term
interest of the Company and its shareholders by strengthening
the Companys ability to attract, motivate and retain
employees, officers, directors, consultants, agents, advisors
and independent contractors and by providing additional
incentive for those persons through stock ownership and other
incentives to improve operations, increase profits and
strengthen the mutuality of interest between those persons and
the Companys shareholders. The 2003 EIP was originally
adopted by the Board of Directors on February 18, 2003, and
approved by the Companys shareholders on April 15,
2003.
Description of Proposed Changes to the Plan
The following are the primary changes that are being proposed in
the Restated EIP:
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increasing the number of shares of Common Stock that may be
subject to awards made under the 2003 EIP by an additional
65,000,000 shares; |
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Ø |
adding a share counting formula to the 2003 EIP pursuant to
which each share to be issued under equity awards that are not
options or stock appreciation rights counts as two shares
against the number of total shares available for awards under
the 2003 EIP, and each share to be issued under awards that are
options or stock appreciation rights counts as one share against
the total shares available for awards under the 2003 EIP; |
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Ø |
adding a provision such that shares subject to options and stock
appreciation rights granted under the Restated EIP that are not
issued upon the net settlement or net exercise of such options
or stock appreciation rights, as well as shares that are
delivered to or retained by the Company to pay the exercise
price or withholding taxes related to options or stock
appreciation rights and shares repurchased on the open market
with the proceeds of option exercises, are not available for
additional grants under the Restated EIP; |
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Ø |
increasing the personal limit on the number of shares that may
be subject to awards in any year by an additional
2,000,000 shares to 7,000,000 shares; |
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Ø |
increasing the limit on the number of shares that may be subject
to awards under the Restated EIP (other than options and stock
appreciation rights) that either contain no restrictions or are
subject to restrictions and/or vesting based solely on
continuous employment or services for a period of less than
three years to 10,000,000 shares (from
4,350,000 shares); and |
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Ø |
expanding the categories of performance criteria that may be
used under the Restated EIP. |
The other material features of the Restated EIP generally remain
the same as under the terms of the 2003 EIP previously approved
by the shareholders. However, the Restated EIP makes certain
additional changes to the terms of the 2003 EIP in order to
clarify specified matters and to ensure the Companys
continued compliance with the Code. In order for the Restated
EIP to take effect, it must be approved by shareholders at the
2006 Annual Meeting.
Section 162(m) of the Code
The Board of Directors believes that it is in the best interests
of the Company and its shareholders to continue to provide for
an equity incentive plan under which stock-based compensation
awards made to the Companys executive officers can qualify
for deductibility by the Company for federal income tax
purposes. Accordingly, the 2003 EIP has been (and in the
Restated EIP remains) structured in a manner such that awards
under it can satisfy the requirements for
performance-based compensation within the meaning of
Section 162(m) of the Code
(Section 162(m)). In general, under
Section 162(m), in order for the Company to be able to
deduct compensation in excess of $1 million paid in any one
year to the Companys Chief Executive Officer or any of the
Companys four other most highly compensated executive
officers, such compensation must qualify as
performance-based. One of the requirements of
performance-based compensation for purposes of
Section 162(m) is that the material terms of the
performance goals under which
43
compensation may be paid be disclosed to and approved by the
Companys shareholders. For purposes of Section 162(m)
the material terms include (i) the employees eligible to
receive compensation, (ii) a description of the business
criteria on which the performance goal is based and
(iii) the maximum amount of compensation that can be paid
to an employee under the performance goal. With respect to
awards of restricted stock, stock units, performance shares,
performance units and other awards under the 2003 EIP, each of
these aspects is discussed below, and shareholder approval of
the Restated EIP will be deemed to constitute approval of each
of these aspects of the 2003 EIP for purposes of the approval
requirements of Section 162(m).
Summary of the Restated EIP
The following summary of the material terms of the 2003 EIP, as
amended and restated by the Restated EIP, is qualified in its
entirety by reference to the full text of the Restated EIP. A
copy of the Restated EIP is attached as Appendix A
to this Proxy Statement and is incorporated herein by reference.
In the case of any inconsistency between this summary and the
Restated EIP, the Restated EIP document will govern. Please
refer to Appendix A for more detailed information.
Administration.
The Restated EIP will be administered by the Human Resources
Committee of the Board of Directors, except that, with respect
to non-employee directors, the Restated EIP will be administered
by the Boards Governance Committee. The Human Resources
Committee has delegated to the Executive Vice President of Human
Resources the authority to grant options to eligible employees
within certain prescribed limits set forth in the Restated EIP.
Subject to the provisions of the Restated EIP, the plan
administrator has the power to:
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select the eligible persons to whom awards may from time to time
be granted under the Restated EIP; |
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determine the type or types of award to be granted to each
participant under the Restated EIP; |
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determine the number of shares of Common Stock to be covered by
each award granted under the Restated EIP; |
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determine the terms and conditions of any award granted under
the Restated EIP; |
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prescribe, approve and amend the forms of agreements for use
under the Restated EIP (which need not be identical); |
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determine whether, to what extent and under what circumstances
awards may be settled in cash, shares of Common Stock or other
property or canceled or suspended; |
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establish and certify the extent of satisfaction of any
performance goals or other conditions applicable to the grant,
vesting or ability to retain an award; |
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determine whether, to what extent and under what circumstances
cash, shares of Common Stock, other property and other amounts
payable with respect to an award shall be deferred either
automatically or at the election of the participant; |
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determine whether, to what extent adjustments are required under
the Restated EIP; |
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interpret and administer the Restated EIP and any instrument or
agreement entered into under the Restated EIP; |
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establish, amend and rescind such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the Restated EIP; and |
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make any other determination and take any other action that the
Human Resources Committee deems necessary or desirable for
administration of the Restated EIP. |
Eligibility.
All of Washington Mutuals approximately 60,000 employees,
officers and directors, and certain consultants, agents,
advisors and independent contractors are eligible to receive
awards under the Restated EIP.
44
Shares Subject to the Restated EIP.
Subject to adjustment in the event of stock splits, stock
dividends and the like, if the Restated EIP is approved by
shareholders, the maximum number of shares of Common Stock that
may be subject to awards made under the Restated EIP would be:
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94,035,000 shares, plus |
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additional shares consisting of any authorized shares not issued
or subject to outstanding awards under the Companys Equity
Incentive Plan and the 1994 Stock Option Plan (the
Prior Plans) as of April 15, 2003 (the
date the 2003 EIP was originally approved by the Companys
shareholders) and any shares subject to outstanding awards under
the Prior Plans as of that date that cease for any reason to be
subject to such awards (other than by reason of exercise or
settlement to the extent they are exercised for or settled in
vested and nonforfeitable shares), up to an aggregate maximum of
120,745,000 shares. |
The maximum number of shares that may be subject to awards made
under the Restated EIP that have no restrictions or have
restrictions based solely on service for less than three years
is 10,000,000, except that shares issuable under stock options,
stock appreciation rights and other awards where the grant,
issuance, vesting or forfeiture of the award is contingent upon
performance criteria and shares issued under an award by reason
of a change in control or a participants death, retirement
or disability do not count against this limit.
In the event, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of
shares, recapitalization, merger, consolidation, distribution to
shareholders other than a normal cash dividend, or other change
in the Companys corporate or capital structure affects the
number or kind of securities of the Company outstanding or
results in new, different or additional securities of the
Company or any other company being received by the holders of
shares of Common Stock, then the Committee can make adjustments
it determines appropriate in the maximum number and kind of
securities available for issuance under the Restated EIP
(including adjustments in the limits on the number and kind of
securities subject to various awards as set forth in the
Restated EIP) and in the number and kind of securities that are
subject to any outstanding award and the per share price of such
securities, without any change in the aggregate price to be paid
therefor. Such adjustments may be designed to comply with
Section 424 of the Code or may be designed to treat the
shares of Common Stock available under the Restated EIP and
subject to awards as if they were all outstanding on the record
date for such event or transaction or to increase the number of
such shares to reflect a deemed reinvestment in shares of Common
Stock of the amount distributed to the Companys security
holders.
Share Formula.
Each share of Common Stock issued under awards other than
options or stock appreciation rights counts against the total
number of shares that may be subject to awards made under the
Restated EIP as two shares. Shares of Common Stock issued under
options or stock appreciation rights count against the total
number of shares that may be subject to awards made under the
Restated EIP on a share-for-share basis.
Share Counting Provisions.
Shares subject to awards under the Restated EIP that lapse,
expire, terminate or are canceled prior to issuance will again
be available for issuance under the Restated EIP. However,
shares subject to awards under the Restated EIP that are not
issued upon the net settlement or net exercise of options or
stock appreciation rights, and shares that are delivered to or
retained by the Company to pay the exercise price or withholding
taxes related to awards and shares repurchased on the open
market with the proceeds of option exercises, will not be
available for additional grants under the Restated EIP.
Types of Awards. The following types of awards may be
granted under the Restated EIP:
Stock Options
Incentive stock options, or ISOs, and nonqualified stock
options, or NSOs, to purchase shares of Common Stock may be
granted under the Restated EIP. The aggregate fair market value
of ISOs first exercisable in any one year by any participant may
not exceed the maximum limitation in Section 422 of the
Code. The exercise price for shares purchased under an option is
determined by the plan administrator, but will not be less than
the fair market value of the Common Stock on the date the option
is granted. The maximum term of an option is established by the
plan administrator, and will be no longer than ten years from
the date the option is granted. The plan administrator also
establishes the time at which, or the installments in which, an
option will vest and become exercisable. The exercise price for
shares purchased under an
45
option can be paid in a form or a combination of forms
acceptable to the Company, which forms may include cash, check
or wire transfer, tendering of shares of Common Stock already
owned by a participant provided that the shares have been held
for the minimum period required by applicable accounting rules
to avoid a charge to the Companys earnings for financial
reporting purposes or were not required from the Company as
compensation, cashless exercise (to the extent permitted by law)
and such other consideration as the plan administrator may
permit in its sole discretion. In no event will the plan
administrator, without shareholder approval, cancel any
outstanding option for the purpose of reissuing the option to
the holder thereof at a lower exercise price or reduce the
exercise price of an outstanding option, in each case, other
than in connection with a change in the Companys
capitalization.
Stock Appreciation Rights
Upon the exercise of a stock appreciation right, or SAR, the
holder is entitled to receive payment in an amount equal to the
excess of the fair market value of the Common Stock on the date
of exercise over the grant price of the SAR. An SAR may be
granted in tandem with an option or alone
(freestanding). The grant price of a tandem SAR will
be equal to the exercise price of the related option, and the
grant price of a freestanding SAR will be equal to the fair
market value of the Common Stock on the date the SAR is granted.
The plan administrator may determine the terms and conditions
upon which SARs may be exercised, provided that the term of a
freestanding SAR will be no longer than ten years and in the
case of a tandem SAR, the term will not exceed the term of the
related option. The tandem SARs may be exercised for all or part
of the shares subject to the related option upon the surrender
of the right to exercise the equivalent portion of the related
option, but only with respect to the shares for which the
related option is then exercisable. In no event will the plan
administrator, without shareholder approval, cancel any
outstanding stock appreciation right for the purpose of
reissuing the stock appreciation right to the holder thereof at
a lower grant price or reduce the grant price of an outstanding
stock appreciation right, in each case, other than in connection
with a change in the Companys capitalization.
Restricted Stock and Stock Units
The plan administrator may grant restricted stock and stock
units on such terms and conditions and subject to such
repurchase or forfeiture restrictions, if any, as the plan
administrator may determine in its sole discretion. Stock units
are paid in cash, shares of Common Stock or a combination of
cash and shares of Common Stock, as determined by the plan
administrator in its sole discretion. If the plan administrator
so determines, holders of restricted stock or stock units may be
credited with dividends paid with respect to the underlying
shares or dividend equivalents, subject to any restrictions
established by the plan administrator in its discretion.
Performance Shares and Performance Units
The plan administrator may grant awards of performance shares or
performance units and designate the persons to whom such awards
will be granted, the number of performance shares or performance
units to be granted and the terms and conditions of each award.
Performance shares entitle the holder to a payment in the form
of shares of Common Stock upon the attainment of performance
goals and other terms and conditions specified by the plan
administrator. The number of shares issued under an award of
performance shares may be adjusted on the basis of such further
considerations as may be determined by the plan administrator,
except that the plan administrator may not increase the number
of shares earned upon satisfaction of performance goals with
respect to any award that is intended to qualify as
performance-based compensation under
Section 162(m). The plan administrator may, in its
discretion, make a cash payment equal to the fair market value
of the Common Stock otherwise required to be issued to a holder
of a performance share award.
Performance units entitle the holder to a payment in cash upon
the attainment of performance goals and other terms and
conditions specified by the plan administrator. The amount to be
paid under an award of performance units may be adjusted on the
basis of such further considerations as may be determined by the
plan administrator, except that the plan administrator may not
increase the amount earned under an award of performance units
that is intended to qualify as performance-based
compensation under Section 162(m) and the maximum amount
earned from performance units in any calendar year that are
intended to qualify as performance-based
compensation under Section 162(m) by any individual may not
exceed $1 million. The plan administrator may, in its
discretion, substitute shares of Common Stock for the cash
payment otherwise required to be made to a holder of a
performance unit award.
Other Stock or Cash-Based Awards
Subject to the terms and conditions of the Restated EIP and such
other terms and conditions as it deems appropriate, the plan
administrator may grant other incentives payable in cash or
shares of Common Stock as it determines to be in the best
interests of the Company.
46
Nonassignability of Awards.
No award or interest in an award made under the Restated EIP may
be sold, assigned, pledged or transferred or made subject to
attachment or similar proceedings otherwise than by will or by
the applicable laws of descent and distribution, except that a
participant may designate, on a form approved by the Company,
one or more beneficiaries to exercise an award or receive
payment under an award after the participants death and
except that the plan administrator may, in its sole discretion,
permit a participant to assign or transfer an award to the
extent permitted by Section 422 of the Code.
Amendment and Termination.
The Board of Directors or the plan administrator may amend,
suspend or terminate the Restated EIP or any portion of the
Restated EIP as it deems advisable at any time, except that, to
the extent required by law, regulation or stock exchange rule,
shareholder approval will be required for any amendment to the
Restated EIP.
Term.
Unless earlier terminated by the Board of Directors or the plan
administrator, the Restated EIP will terminate on April 15,
2013, ten years from the date the 2003 EIP was originally
approved by shareholders.
Performance-Based Compensation Under Section 162(m).
The plan administrator may establish performance criteria and
levels of achievement versus such criteria that shall determine
the number of shares of Common Stock to be granted, retained,
vested, issued or issuable under or in settlement of or the
amount payable pursuant to an award, which criteria may be based
on Qualifying Performance Criteria (as described
below) or other standards of financial performance and/or
personal performance evaluations. In addition, the plan
administrator may specify that an award or portion of an award
is intended to satisfy the requirements for
performance-based compensation under
Section 162(m), provided that the performance criteria for
any portion of an award that is intended by the plan
administrator to satisfy the requirements for
performance-based compensation under
Section 162(m) shall be a measure based on one or more
Qualifying Performance Criteria selected by the plan
administrator and specified at the time the award is granted.
Qualifying Performance Criteria will be any one or more of the
following performance criteria, either individually,
alternatively or in any combination, applied to either the
Company as a whole or to a business unit or related company,
either individually, alternatively or in any combination, and
measured either annually or cumulatively over a period of years,
on an absolute basis or relative to a pre-established target, to
a previous years results or to a designated comparison
group, in each case as specified by the plan administrator in
the award:
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return on average common shareholders equity; |
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return on average equity; |
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return on tangible equity; |
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total shareholder return; |
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stock price appreciation; |
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efficiency ratio (including other expense as a percentage of
other income plus net interest income); |
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net operating expense (including other income less other
expense); |
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non-interest expense; |
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earnings per diluted share of Common Stock; |
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operating earnings (including earnings before
transaction-related expense) per diluted share of Common Stock; |
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net operating earnings (including earnings less
transaction-related expense) per diluted share of Common Stock; |
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return on average assets; |
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ratio of nonperforming to performing assets; |
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return on an investment in an affiliate; |
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net interest income; |
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net interest margin; |
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ratio of common equity to total assets; |
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regulatory compliance metrics; and |
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customer service metrics. |
Unless otherwise provided by the plan administrator at the time
an award is granted, to the extent consistent with
Section 162(m), the plan administrator will adjust any
evaluation of performance under Qualifying Performance Criteria
to exclude any of the following events that occurs during a
performance period:
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extraordinary, unusual and/or nonrecurring items of gain or loss; |
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gains or losses on the disposition of a business; |
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changes in tax or accounting regulations or laws; |
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the effects of a merger or acquisition; or |
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the effects of charges for restructurings or discontinued
operations; |
all of which must be identified in the audited financial
statements, including footnotes, or the Managements
Discussion and Analysis section of the Companys annual
report on Form 10-K.
Individual Award Limit. No individual may receive awards
under the Restated EIP during any one calendar year that relate
to more than 7,000,000 shares, subject to adjustment in the
event of stock splits, stock dividends and the like.
Change in Control.
Except as otherwise provided in an award agreement or in any
other written agreement between the Company and a participant
and unless the plan administrator elects one of the alternatives
discussed below, in the event of a company transaction (defined
below), each outstanding option and/or stock appreciation right
will terminate. However, immediately prior to a company
transaction, all options and/or stock appreciation rights will
fully vest and each holder will have the right to exercise his
or her options and/or and stock appreciation rights.
Notwithstanding the foregoing the plan administrator may elect
to (i) cancel options and/or stock appreciation rights in
exchange for cash or (ii) provide that options and/or stock
appreciation rights will be assumed or replaced with substitute
awards by a successor company.
In the event of a company transaction, except as otherwise
provided in an award agreement or in any other written agreement
between the Company and a participant, the vesting of shares
subject to restricted stock and/or the vesting of any stock
units that is based on continuous service with the Company will
be waived or deemed satisfied and the forfeiture provisions to
which such restricted stock is subject will lapse, if and to the
same extent that the vesting of options accelerates. If unvested
options and/or stock appreciation rights are to be assumed or
substituted by a successor company without acceleration upon a
company transaction, the terms and conditions of the restricted
stock and/or stock units will continue with respect to shares of
the successor company that are issued in exchange for or upon
settlement of the restricted stock and/or stock unit award.
The term company transaction is generally defined as
the consummation of either (i) a merger or consolidation of
the Company with or into another company or (ii) a sale,
lease, exchange or other transfer of all or substantially all of
Companys then outstanding securities or all or
substantially all the Companys assets. A company
transaction does not include a transaction with a related
party.
U.S. Federal Income Tax Consequences.
The following briefly describes the U.S. federal income tax
consequences of the Restated EIP generally applicable to
participants and to the Company.
Stock Options:
Nonqualified Stock Options. A participant will not
recognize taxable income upon the grant of an NSO. Upon the
exercise of an NSO, a participant will recognize taxable
ordinary income equal to the difference between the fair market
48
value of the shares on the date of exercise and the option
exercise price. When a participant sells the shares, the
participant will have short-term or long-term capital gain or
loss, as the case may be, equal to the difference between the
amount the participant received from the sale and the tax basis
of the shares sold. The tax basis of the shares generally will
be equal to the greater of the fair market value of the shares
on the exercise date or the option exercise price.
Incentive Stock Options. A participant will not recognize
taxable income upon the grant of an ISO. If a participant
exercises an ISO during employment or within three months after
his or her employment ends (12 months in the case of
disability), the participant will not recognize taxable income
at the time of exercise (although the participant generally will
have taxable income for alternative minimum tax purposes at that
time as if the option were an NSO). If a participant sells or
exchanges the shares after the later of (i) one year from
the date the participant exercised the option and (ii) two
years from the grant date of the option, the participant will
recognize long-term capital gain or loss equal to the difference
between the amount the participant received in the sale or
exchange and the option exercise price. If a participant
disposes of the shares before these holding period requirements
are satisfied, the disposition will constitute a disqualifying
disposition, and the participant generally will recognize
taxable ordinary income in the year of disposition equal to the
excess, as of the date of exercise of the option, of the fair
market value of the shares received over the option exercise
price (or, if less, the excess of the amount realized on the
sale of the shares over the option exercise price).
Additionally, the participant will have long-term or short-term
capital gain or loss, as the case may be, equal to the
difference between the amount the participant received upon
disposition of the shares and the option exercise price
increased by the amount of ordinary income, if any, the
participant recognized.
With respect to both NSOs and ISOs, special rules apply if a
participant uses shares already held by the participant to pay
the exercise price or if the shares received upon exercise of
the option are subject to a substantial risk of forfeiture by
the participant.
Stock Appreciation Rights:
A participant will not recognize taxable income upon the grant
of an SAR. Upon the exercise of an SAR, a participant will
recognize taxable ordinary income equal to the difference
between the fair market value of the underlying shares on the
date of exercise and the grant price of the SAR.
Restricted Stock:
Upon receipt of restricted stock, a participant generally will
recognize taxable ordinary income when the shares cease to be
subject to restrictions in an amount equal to the fair market
value of the shares at such time. However, no later than
30 days after a participant receives the restricted stock,
the participant may elect to recognize taxable ordinary income
in an amount equal to the fair market value of the shares at the
time of receipt. Provided that the election is made in a timely
manner, when the restrictions on the shares lapse, the
participant will not recognize any additional income. If the
participant forfeits the shares to the Company (e.g., upon the
participants termination prior to expiration of the
restriction period), the participant may not claim a deduction
with respect to the income recognized as a result of the
election. Dividends paid with respect to shares of restricted
stock generally will be taxable as ordinary income to the
participant at the time the dividends are received.
Stock Units, Performance Shares and Performance Units:
A participant will not recognize taxable income upon the grant
of a stock unit, performance share or performance unit. Upon the
distribution of cash or shares to a participant pursuant to the
terms of a stock unit, performance share or performance unit,
the participant will recognize taxable ordinary income equal to
the amount of any cash and/or the fair market value of any
shares received.
Other Stock or Cash-Based Awards: The tax consequences of
other stock or cash-based awards will depend on the specific
terms of each award.
Tax Consequences to the Company: In the foregoing cases,
the Company generally will be entitled to a deduction at the
same time and in the same amount as a participant recognizes
ordinary income, subject to the limitations imposed under
Section 162(m).
49
Tax Withholding:
The Company may require a participant to pay to the Company the
amount of any taxes that it is required to withhold with respect
to the grant, vesting or exercise of any award granted under the
Restated EIP. The Company is not required to issue any shares of
Common Stock under the Restated EIP until such obligations are
satisfied. The plan administrator may permit or require a
participant to satisfy any tax withholding obligation by paying
cash, surrendering shares of Common Stock the participant
already owns, having the Company withhold an amount from any
cash amounts otherwise due from the Company to the participant
or having the Company withhold shares of Common Stock that would
otherwise be issued to the participant.
Other Information:
On January 31, 2006, (i) 24,244,190 shares were
covered by options granted under the 2003 EIP, at exercise
prices ranging from $37.05 to $46.35 per share;
(ii) 11,373,932 shares were subject to unvested awards of
restricted stock and performance share awards granted under the
2003 EIP; and (iii) 10,611,385 shares remained available to
support additional awards of stock options under the 2003 EIP,
and 2,141,530 shares remained available to support
additional awards under the 2003 EIP that are not stock options.
The closing price of the Common Stock, as reported on the NYSE
on January 31, 2006 was $42.32 per share.
Information about options granted in 2005 under the 2003 EIP to
the Chief Executive Officer and the four other most highly
compensated Company executive officers can be found in the table
under the heading Grants of Stock Options in 2005 on
page 22 of this Proxy Statement. In 2005, options covering
1,001,859 shares were granted to the then current Company
executive officers as a group under the 2003 EIP; options
covering 60,000 shares were granted to the then current Company
non-employee directors as a group under the 2003 EIP and options
covering 7,474,848 shares were granted under the 2003 EIP to all
employees (excluding executive officers) as a group.
Additional information about the 2003 EIP and other plans
pursuant to which awards in the form of shares of the
Companys Common Stock may be made to directors and
employees in exchange for goods or services, including plans
that were not required to be approved by shareholders but
excluding plans assumed in mergers, is provided under
Equity Compensation Plans Information on
page 30 of this Proxy Statement.
No information can be provided with respect to options or awards
that may be granted in the future under the Restated EIP. Such
awards are within the discretion of the Human Resources
Committee and the Governance Committee, and neither has
determined future awards or who might receive them.
Vote Required
The affirmative vote of a majority of the shares voted in person
or by proxy at the Annual Meeting is required for approval of
the Restated EIP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR
APPROVAL OF THE AMENDED AND RESTATED 2003 EQUITY INCENTIVE
PLAN
50
ITEM 4. APPROVAL OF THE
WASHINGTON MUTUAL, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Introduction
On February 17, 2006, the Human Resources Committee,
approved and adopted the Executive Incentive Compensation Plan
(the EICP) to govern the award and payment of
annual bonuses to certain Company executives, and directed that
the EICP be submitted to the Companys shareholders for
approval so that payments under the EICP can qualify for
deductibility by the Company for federal income tax purposes.
The purpose of the EICP is to provide a framework that is
consistent with Section 162(m) of the Code under which the
Company can operate certain executive bonus programs. The bonus
programs are designed to enhance the Companys ability to
attract and retain qualified executives and to provide financial
performance incentives to those executives.
Since 2001, bonuses for Company executives have been paid
pursuant to the Leadership Bonus Plan. Those bonuses could
qualify as deductible under Section 162(m) of the Code
because the performance criteria selected by the Boards
Human Resources Committee were chosen from among the criteria
set forth in the Bonus and Incentive Plan for Executive Officers
and Senior Management (the Bonus and Incentive
Plan) that was approved by shareholders at the 2001
Annual Meeting. Under Section 162(m), shareholder approved
incentive compensation plans must be approved by shareholders at
least every five years if they permit the Human Resources
Committee to change the targets from time to time. If approved
by shareholders, the proposed EICP replaces the Bonus and
Incentive Plan for the eligible executive officers and will
satisfy the Code requirement for shareholder approval of the
performance criteria for purposes of Section 162(m). If the
EICP is not approved by shareholders, the EICP shall be null and
void and of no further force and effect, and participants will
not be paid any amounts under the EICP. In such event, the
Committee will determine whether to make any alternative
compensation arrangements with respect to the participants
(which may include paying compensation that is not tax
deductible). Absent a shareholder approved plan none of the
bonuses paid to covered executives will be deductible under Code
Section 162(m) to the extent that total compensation paid
to any of them, excluding compensation that qualifies as
performance-based compensation, exceeds
$1 million for the fiscal year.
The EICP is designed so that bonus or other payments will
qualify as performance-based compensation within the
meaning of Section 162(m) of the Code. The Board believes
that it is in the best interests of the Company and its
shareholders to ensure that the Company has a shareholder
approved plan under which bonuses paid to its executive officers
can be deductible by the Company for federal income tax
purposes. Generally, Section 162(m) prevents a company from
receiving a federal income tax deduction for compensation paid
to a Named Executive Officer (that is, the persons
named in the Summary Compensation Table as determined under SEC
rules) who was employed by the Company on the last day of its
fiscal year if such compensation is in excess of $1 million
for the fiscal year. However, compensation that is
performance-based under Section 162(m) does not
count against the $1 million limitation. To qualify as
performance-based compensation for purposes of
Section 162(m) of the Code, the Companys shareholders
must approve the material terms of the plan under which
compensation may be paid, including (i) the performance
goal, (ii) the employees eligible to receive compensation,
(iii) the description of the business criteria on which the
performance goal is based and (iv) the formula used to
calculate the maximum amount of compensation that can be paid to
an employee under the performance goal. Each of these aspects of
the EICP is discussed below.
A summary of the material features of the EICP follows and is
qualified in its entirety by reference to the full text of the
EICP. A copy of the EICP is attached to this Proxy Statement as
Appendix B, and is incorporated herein by reference.
In the case of any inconsistency between this summary and the
EICP, the EICP document will govern. Please refer to
Appendix B for more detailed information.
Administration
The EICP will be administered by the Human Resources Committee
(the Committee) of the Board of Directors,
which consists of two or more outside directors as
such term is defined under Section 162(m). The Company
believes that each of the directors serving on the Committee
currently qualifies as an outside director. The
Committee has complete authority to make any and all decisions
regarding the administration of the EICP, including interpreting
the terms of the EICP, selecting the participants to whom awards
may from time to time be paid, determining the terms and
conditions of awards made under the EICP, determining whether
payments under the EICP are to be made in cash or in shares,
whether such payments may be deferred by participants, and
making any other determination and taking any other
51
action that the Committee deems necessary or desirable for
administration of the EICP. The Committee may delegate various
functions to an individual member, a subcommittee, certain
officers of the Company, or committees comprised of officers of
the Company to the extent such delegation is not inconsistent
with Section 162(m).
Eligibility
Each executive officer of the Company who is employed by the
Company or one of its affiliates on the last day of the
Companys fiscal year or of any other performance period
established by the Committee is automatically a participant in
the EICP. As of the end of 2005, 15 executive officers
would have qualified to be a participant in the EICP. The
Committee may designate other officers as participants under the
EICP and may otherwise pay bonuses to persons who are not
selected to receive awards under the EICP. However, participants
do not automatically receive bonuses under the EICP, except to
the extent that the Committee selects the participant to
actually be paid a bonus and determines the amount of such bonus.
Business Criteria and Maximum Amount of Compensation
Payable under the EICP
Not later than 90 days after the commencement of each
fiscal year of the Company (or, if earlier, the expiration of
25% of a performance period), the Committee will designate in
writing one or more performance periods (which may overlap or
run concurrently) and will affirm the applicability of the
EICPs formula for determining the maximum incentive award
for each participant for such performance period(s), as well as
any date(s) on which the incentive awards will be paid. Under
the EICP, the Committee may establish any performance period
provided that any such performance period may not be less than
one year or more than five years in length. As in the
past, the Company expects that the Committee will establish
annual target bonus amounts for each participant under the EICP.
The maximum incentive award payable to the CEO and any other
participants under the EICP with respect to a given performance
period is 0.5% of the Companys Net Income (as defined in
the EICP) for that period. The EICP defines Net
Income to mean the Companys after-tax income on a
consolidated basis as reported in the Companys income
statement for the applicable performance period, prior to
accrual of any amounts for payment under the EICP for the
performance period, and adjusted to eliminate the effects of
charges for restructurings, discontinued operations,
extraordinary items and all items of gain, loss or expense
determined to be extraordinary or unusual in nature or
infrequent in occurrence, related to the disposal of a segment
of a business, or related to a change in accounting principle,
all as determined in accordance with standards established by
Opinion No. 30 of the Accounting Principles Board (or other
applicable or successor accounting provisions), and the
cumulative effect of accounting changes, in each case as
determined in accordance with generally accepted accounting
principles or identified in the Companys financial
statements or notes to the financial statements.
Certification and Determination of Awards
After the conclusion of each performance period, the Committee
will certify in writing the amount of Net Income for purposes of
the EICP and the amount of the maximum incentive award,
calculated as described above, for each executive officer who is
subject to Section 162(m). The selection of participants to
whom amounts under the EICP will actually be paid and the amount
of such bonus actually paid to a participant, including zero,
will be as determined by the Committee in its sole discretion,
and will be based on such factors that the Committee determines
(which may include annual bonus targets and objective
performance criteria other than Net Income or subjective
evaluations), provided that the actual amount paid to a
participant under the EICP will not exceed the maximum incentive
award with respect to such participant.
Payment of Awards
Following the Committees determination of awards to be
paid to participants, such awards will be paid in cash, or in
the Committees discretion, in shares of the Companys
Common Stock under a shareholder-approved plan of the Company to
the extent provided in such plan, or any combination thereof.
The Committee may establish and approve a program that allows
participants to elect to defer the payment of any award.
Non-Exclusivity
Nothing contained in the EICP prevents the Board from adopting
other or additional compensation arrangements that provide for
bonuses or other forms of compensation for the Companys
executive officers, directors or other employees, whether or not
shareholders approve the EICP. However, such other or additional
compensation arrangements will not be designed to provide EICP
participants all or part of the compensation they would receive
under the EICP regardless of
52
whether the performance goal is attained. Such other
arrangements may or may not qualify for deductibility under
Section 162(m) and may be either applicable only for
specific executives, directors or employees or may be generally
applicable.
Duration and Amendment
The Board may, from time to time, alter, amend, suspend or
terminate the EICP as it deems advisable, subject to any
requirement for shareholder approval imposed by applicable law,
including Section 162(m).
Federal Income Tax Consequences
The following is a brief description of the material federal
income tax consequences associated with payments under the EICP.
State, local and foreign tax consequences may differ, and tax
laws may be amended or interpreted differently during the term
of the EICP. Under current federal income tax law, an EICP
participant will be taxed at ordinary income rates on the cash
portion of an award in the year in which such cash is received
and on the value of any shares of the Companys Common
Stock in the year in which such shares were acquired by the
participant, unless such cash or shares are subject to further
vesting requirements, deferral under a Company plan, or a
substantial risk of forfeiture. If a participant elects to defer
a portion of the bonus or to receive it in some form other than
cash (if such alternatives are made available by the Committee),
income recognition may be deferred. Generally, and subject to
Section 162(m), the Company will receive a federal income
tax deduction equal to the income recognized by the
participants. Subject to shareholder approval of the EICP, the
failure of any aspect of the EICP to satisfy Section 162(m)
shall not void any action taken by the Committee under the EICP.
New EICP Benefits
The Committee has designated 2006 as a performance period for
which awards may be paid under the EICP, subject to shareholder
approval of the EICP. Such bonuses, if any, paid to the
participants for 2006 and awards payable for any subsequent
performance periods are, as described above, subject to the
discretion of the Committee and therefore are not determinable
at this time. It is currently contemplated that any compensation
paid to the Companys executive officers that is in excess
of $1 million for 2006 and for any subsequent years would
not be deductible under Section 162(m) to the extent that
it exceeds the $1 million limit, unless such compensation
is deferred pursuant to the Companys compensation programs
or paid under another shareholder-approved plan of the Company
and otherwise satisfies the conditions for
performance-based compensation or other exemptions
under Section 162(m).
Vote Required
The affirmative vote of a majority of the shares voted in person
or by proxy at the Annual Meeting is required for approval of
the EICP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE
APPROVAL OF THE EXECUTIVE INCENTIVE COMPENSATION PLAN
53
ITEM 5. COMPANY PROPOSAL
TO DECLASSIFY THE COMPANYS
BOARD OF DIRECTORS
Washington Mutual values strong corporate governance principles.
Accordingly, the Companys Governance Committee and Board
of Directors have examined the advantages and disadvantages of
maintaining a classified Board with three classes of directors
elected every three years. After careful consideration and
consultation with outside advisors, and in light of evolving
corporate governance best practices and investor sentiment, and
upon the recommendation of the Governance Committee, the Board
has adopted and now recommends shareholder approval of a
proposal to amend Article IV of the Companys Amended
and Restated Articles of Incorporation (the
Articles) to eliminate the classification of
the Companys Board of Directors. Currently, this article
divides the Board of Directors into three classes, with the
directors in each class standing for election at every third
annual meeting of shareholders. As proposed to be amended, this
provision would provide instead for the annual election of all
directors. The Board has unanimously adopted a resolution
approving a declassification amendment to the Articles, which
will provide for the annual election of all directors beginning
in 2007. The Board recommends that the Companys
shareholders approve that amendment at the 2006 Annual Meeting.
The proposed amendment to the Articles requires the approval by
a majority of all outstanding shares of Company Common Stock. If
the amendment to the Articles is approved, all directors would
be elected to one-year terms commencing with the Companys
2007 Annual Meeting. In order to facilitate the transition from
classified three-year terms to one-year terms for all directors,
each director whose current term would not otherwise expire at
the 2007 Annual Meeting will tender his or her resignation
effective immediately prior to the 2007 Annual Meeting, such
that all of the directors will be voted on for election to
one-year terms at that annual meeting. Pursuant to the
Companys Bylaws, the Board has set the current number of
directors at 14, which the Proposal would not change. The Board,
however, expects to reduce the number of Board seats to 13 at
its next scheduled meeting, and it will retain the authority to
change that number in the future and to appoint directors to
fill any Board vacancies, including any that result from an
increase in the size of the Board.
Classified boards have been widely adopted and have a long
history in corporate law. Proponents of classified boards
believe that they provide continuity and stability to the board,
facilitate a long-term outlook by the board and enhance the
independence of non-employee directors. However, classified
boards of directors also may be viewed as reducing the
accountability of directors to shareholders, because they limit
the ability of shareholders to evaluate and to elect each
director annually. In fact, many investors and experts now
believe that corporate governance best practices include annual
director elections because they can increase the accountability
of directors.
The Companys Board believes that the election of directors
is an important means for shareholders to influence corporate
governance policies and for the Board to reiterate its
commitment to good corporate governance and accountability to
shareholders. Based upon its analysis of this important issue
and upon the recommendation of the Governance Committee, the
Board has determined that adopting a resolution approving an
amendment to the Articles, which will provide for the annual
election of all directors, is in the best interests of the
Company and its shareholders at this time.
Amendment to Articles of Incorporation
If the amendment to Article IV of the Articles is adopted
pursuant to this Proposal, that section would read in its
entirety as follows:
ARTICLE IV
BOARD OF DIRECTORS
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The Company shall be managed by a Board of Directors. The number
of directors shall be stated in the Companys Bylaws,
provided, however, that such number shall not be less than five
(5). The directors elected at any annual meeting of shareholders
prior to the 2007 annual meeting of the Companys
shareholders, shall be classified into three classes of elected
directors designated as Class 1, Class 2, and
Class 3 directors. Each class shall contain one-third of
the total number of directors, as near as may be. The terms of
the Class 1 directors shall expire at the first annual
shareholders meeting after their election. The terms of
the Class 2 directors shall expire at the second annual
shareholders meeting after their election. The terms of
the Class 3 directors shall |
54
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expire at the third annual shareholders meeting after
their election. At each annual meeting of the Companys
shareholders from and after the Companys annual meeting of
shareholders to be held in 2007, the directors shall be elected
for terms lasting until the next annual meeting of shareholders
following their election, and until their successors are elected
and qualified, subject to their earlier death, resignation or
removal. A vacancy on the Board of Directors may be filled by
the Board in accordance with the applicable provisions of the
Companys Bylaws. A director elected to fill a vacancy
shall be elected for a term of office continuing only until the
next election of directors by shareholders. |
Appendix C shows the changes to the relevant
portions of Article IV of the Articles resulting from the
proposed amendment, with deletions indicated by strike-outs and
additions indicated by underlining. If approved, this Proposal
will become effective upon the filing of Articles of Amendment
with the Secretary of State of the State of Washington. The
Company would make such a filing promptly after approval of the
Proposal at the Annual Meeting and at the same time would
implement a conforming amendment to the Companys Bylaws.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE COMPANYS PROPOSAL TO AMEND THE ARTICLES OF
INCORPORATION
TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS.
55
ITEM 6. SHAREHOLDER PROPOSAL
RELATING TO DISCLOSURE OF THE COMPANYS
POLITICAL CONTRIBUTIONS
Harrington Investments, Inc. of 1001 2nd Street,
Suite 325, Napa, California 94559 and Progressive
Investment Management and Nancy Cleminshaw of 721 NW Ninth
Avenue, Suite 250, Portland, Oregon 97209
co-sponsored the
following shareholder proposal and supporting statement. As of
November 2005, Harrington through its clients owns over
24,000 shares of Company Common Stock, Progressive through
its clients owns over 45,000 shares and Ms. Cleminshaw
was the beneficial owner of 348 shares. The proposal and
supporting statement are quoted verbatim below.
Shareholder Resolution
Resolved, that the shareholders of Washington Mutual,
Inc., (Company) hereby request that the Company
provide a report, updated semi-annually, disclosing the
Companys:
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Policies and procedures for political contributions (both direct
and indirect) made with corporate funds. |
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2. |
Monetary and non-monetary contributions to political candidates,
political parties, political committees and other entities
organized and operating under 26 USC Sec. 527 of the Internal
Revenue Code including the following: |
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a. |
An accounting of the Companys funds contributed to any of
the persons or organizations described above. |
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b. |
Identification of the person or persons in the Company who
participated in making the decisions to contribute. |
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c. |
The internal guidelines or policies, if any, governing the
Companys political contributions. |
This report shall be presented to the board of directors
audit committee or other relevant oversight committee, and
posted on the companys website to reduce costs to
shareholders.
Stockholder Supporting Statements
As long-term shareholders of Washington Mutual, we support
policies that apply transparency and accountability to corporate
political giving. In our view, such disclosure is consistent
with public policy in regard to public company disclosure.
Company executives exercise wide discretion over the use of
corporate resources for political purposes. In
2003-04, the last fully
reported election cycle, Washington Mutual contributed at least
$56,000. (The Center for Public Integrity:
http://www.publicintegrity.org/527/db.aspx?act=main)
Relying only on the limited data available from the Federal
Election Commission and the Internal Revenue Service, the Center
for Public Integrity, a leading campaign finance watchdog
organization, provides an incomplete picture of the
Companys political donations. Complete disclosure by the
company is necessary for the companys Board and its
shareholders to be able to fully evaluate the political use of
corporate assets.
Although the
Bi-Partisan Campaign
Reform Act of 2002 prohibits corporate contributions to
political parties at the federal level, it allows companies to
contribute to independent political committees, also known as
527s.
Absent a system of accountability, corporate executives will be
free to use the Companys assets for political objectives
that are not shared by and may be inimical to the interests of
the Company and its shareholders. There is currently no single
source of information that provides the information sought by
this resolution. That is why we urge your support for this
critical governance reform.
The Board unanimously recommends that shareholders vote
against this proposal for the following reasons:
Federal law restricts corporations (such as Washington Mutual,
Inc.) from making political contributions at the federal level
and federal savings associations (such as Washington Mutual
Bank) from making political contributions at the federal, state,
and local levels. Because of these restrictions, the
Companys political contributions have been relatively
56
insignificant given the Companys size and the depth of its
business. As noted in the proponents proposal, the
Companys recent annual political contributions have been
in the thousands of dollars during years when the Companys
total assets have exceeded $300 billion. In addition,
political contributions made by the Company are disclosed
publicly to the extent required by applicable state and local
laws.
While the Company pays for the administrative costs of operating
its political action committees (PACS),
contributions made by Company PACs are funded through voluntary
contributions made by the Companys directors and
management officials, not by Company funds. All federal and
state contributions made from such PACs are disclosed publicly
to the extent required by applicable federal and state laws.
In recent years, the Company has not made it a practice to
contribute to independent political organizations, commonly
referred to as Section 527 groups. If the Company were to
make such contributions in the future, they would be subject to
the disclosure requirements imposed by the Internal Revenue
Service.
Because of the relative insignificance of the amounts of Company
contributions and the public disclosure requirements already
associated with political contributions under federal, state and
local laws, the Board believes that the shareholders
proposed disclosure requirements are unnecessary and are not in
the best interest of the Companys shareholders. In fact,
the Board is concerned that the cost to the Company of complying
with the proposed new reporting requirements could exceed the
amount of the Companys insignificant political
contributions. Accordingly, the Board recommends that
shareholders vote against this proposal.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST
THE
SHAREHOLDER PROPOSAL RELATING TO THE
COMPANYS POLITICAL CONTRIBUTIONS
57
ANNUAL REPORT
The Companys Annual Report on
Form 10-K for the
year ended December 31, 2005, including financial
statements and schedules, and the Companys 2005 Summary
Annual Report were mailed to shareholders with this Proxy
Statement. Additional copies of the Annual Report on
Form 10-K for the
year ended December 31, 2005 and the 2005 Summary Annual
Report may be obtained without charge by writing to Investor
Relations, Washington Mutual, Inc., 1201 Third Avenue,
Suite 2140, Seattle, Washington 98101. This Proxy
Statement and the Companys Annual Report on
Form 10-K for the
year ended December 31, 2005, are also available at the
Companys website, www.wamu.com/ir and from the SEC
at its website, www.sec.gov.
The SEC has adopted rules that permit companies and
intermediaries, such as brokers, to satisfy delivery
requirements for proxy statements with respect to two or more
shareholders sharing the same address by delivering a single
proxy statement addressed to those shareholders. This process,
which is commonly referred to as householding,
potentially provides extra convenience for shareholders and cost
savings for companies. The Company and some brokers household
proxy materials, delivering a single proxy statement to multiple
shareholders sharing an address unless contrary instructions
have been received from the affected shareholders. Once you have
received notice from your broker or the Company that they or the
Company will be householding materials to your address,
householding will continue until you are notified otherwise or
until you revoke your consent. If, at any time, you no longer
wish to participate in householding and would prefer to receive
a separate proxy statement, or if you are receiving multiple
copies of the proxy statement and wish to receive only one,
please notify your broker if your shares are held in a brokerage
account or the Companys agent, ADP, if you hold registered
shares. You can notify ADP by sending a written request to: ADP,
Householding Department, 51 Mercedes Way, Edgewood, NY 11717, or
by calling ADP at
(800) 542-1061.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING
Under the rules of the SEC and the Companys Bylaws,
shareholder proposals that meet certain conditions may be
included in the Proxy Statement and Form of Proxy for a
particular annual meeting if they are presented to the Company
in accordance with the following:
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Shareholders that intend to
present a proposal at the Companys 2007 Annual Meeting of
Shareholders must give notice of the proposal to the Company no
later than November 17, 2006 to be considered timely under the
Companys Bylaws and for inclusion of such proposal in the
Proxy Statement and Form of Proxy relating to that meeting.
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If the date of the 2007 Annual
Meeting is earlier than March 19, 2007 or later than
May 18, 2007, notice of a proposal must be received by
Washington Mutual a reasonable time before the Company begins to
print and mail its proxy materials to be considered for
inclusion in the Proxy Statement and Form of Proxy relating to
that meeting, otherwise such proposal must be received by
Washington Mutual not less than 45 days nor more than
75 days prior to such meeting to be considered timely.
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Pursuant to Rule 14a-4(c)(1)
promulgated under the Securities Exchange Act of 1934, as
amended, the proxies designated by Washington Mutual for the
2007 Annual Meeting will have discretionary authority to vote
with respect to any proposal that is determined to be untimely.
In addition, the Companys Bylaws provide that any matter
to be presented at the 2007 Annual Meeting must be proper
business to be transacted at the Annual Meeting or a proper
nomination to be decided on at the Annual Meeting and must have
been properly brought before such meeting pursuant to the Bylaws.
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Receipt by Washington Mutual of
any proposal from a qualified shareholder in a timely manner
will not guarantee its inclusion in the proxy materials or its
presentation at the 2007 Annual Meeting because there are other
relevant requirements in the SECs proxy rules.
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The Secretary of the Company must
receive shareholder proposals or nominations in writing at the
executive offices of the Company at 1201 Third Avenue, WMT 1706,
Seattle, Washington 98101, Attention: Secretary.
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OTHER MATTERS
As of the date of this Proxy Statement, management knows of no
matters that will be presented for consideration at the Annual
Meeting other than the proposals set forth in this Proxy
Statement. If any other matters properly come before the Annual
Meeting, it is intended that the shares represented by proxies
will be voted in accordance with the judgment of the persons
voting such proxies.
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By Order of the Board of Directors, |
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William L. Lynch |
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Secretary |
March 17, 2006
59
APPENDIX A
WASHINGTON MUTUAL, INC.
AMENDED AND RESTATED
2003 EQUITY INCENTIVE PLAN
SECTION 1. PURPOSES OF THE
PLAN
The purposes of the Washington Mutual, Inc. 2003 Equity
Incentive Plan (the Plan) are (a) to promote
the long-term interests of Washington Mutual, Inc. (the
Company) and its shareholders by strengthening the
Companys ability to attract, motivate and retain
employees, officers, directors, consultants, agents, advisors
and independent contractors and (b) to provide additional
incentive for those persons through stock ownership and other
incentives to improve operations, increase profits and
strengthen the mutuality of interest between those persons and
the Companys shareholders.
SECTION 2. DEFINITIONS
As used in the Plan:
Acquisition Price means the fair market value
of the securities, cash or other property, or any combination
thereof, receivable upon the occurrence of a Company Transaction
in respect of a share of Common Stock.
Award means any Option, Stock Appreciation
Right, Restricted Stock, Stock Unit, Performance Share,
Performance Unit, dividend equivalent, cash-based award or other
incentive payable in cash or in shares of Common Stock as may be
designated by the Committee from time to time under the Plan.
Board means the Board of Directors of the
Company.
Cause, unless otherwise defined in the
instrument evidencing the Award or in a written employment,
services or other agreement between the Participant and the
Company or a Related Company, means (a) conviction of any
felony or a misdemeanor involving moral turpitude (including
forgery, fraud, theft or embezzlement), or conviction or entry
into a pretrial diversion or similar program in connection with
prosecution for an offense involving dishonesty, breach of trust
or money laundering, or (b) dishonesty, fraud, theft of
property of the Company or a Related Company, willful
destruction of property of the Company or a Related Company,
physical attack on an employee, customer, agent or director of
the Company or a Related Company, willful malfeasance in the
performance of duties or willful misconduct materially injurious
to the Company or a Related Company, in each case as determined
by the chief human resources officer of the Company or other
person performing that function or, in the case of directors and
executive officers, the Committee, whose determinations shall be
conclusive and binding.
Code means the Internal Revenue Code of 1986,
as amended from time to time.
Committee has the meaning set forth in
Section 3.1.
Common Stock means the common stock, no par
value, of the Company.
Company means Washington Mutual, Inc., a
Washington corporation.
Company Transaction, unless otherwise defined
in the instrument evidencing the Award or in a written
employment, services or other agreement between the Participant
and the Company or a Related Company, means consummation of
either
(a) a merger or consolidation of
the Company with or into any other company or other
entity or
(b) a sale, lease, exchange or
other transfer in one transaction or a series of related
transactions undertaken with a common purpose of all or
substantially all of the Companys then outstanding
securities or all or substantially all of the Companys
assets;
provided, however, that a Company Transaction shall not include
a Related Party Transaction.
Covered Employee means a covered
employee as that term is defined in Section 162(m)(3)
of the Code, or any successor provision.
Disability, unless otherwise defined by the
Committee or in the instrument evidencing the Award or in a
written employment, services or other agreement between the
Participant and the Company or a Related Company, means a mental
A-1
or physical impairment of the Participant that is expected to
result in death or that has lasted or is expected to last for a
continuous period of 12 months or more and that causes the
Participant to be unable to perform his or her material duties
for the Company or a Related Company and to be engaged in any
substantial gainful activity, in each case as determined by the
chief human resources officer of the Company or other person
performing that function or, in the case of directors and
executive officers, the Committee, whose determinations shall be
conclusive and binding.
Effective Date has the meaning set forth in
Section 18.
Exchange Act means the Securities Exchange
Act of 1934, as amended from time to time.
Extraordinary Items means
(a) extraordinary, unusual and/or nonrecurring items of
gain or loss, (b) gains or losses on the disposition of a
business, (c) changes in tax or accounting regulations or
laws, (d) the effects of a merger or acquisition, or
(e) the effects of charges for restructurings or
discontinued operations, all of which must be identified in the
audited financial statements, including footnotes, or the
Managements Discussion and Analysis section of the
Companys annual report.
Fair Market Value means the closing price for
the Common Stock on the New York Stock Exchange during regular
session trading for a single trading day as reported for such
day in The Wall Street Journal or such other source the
Committee deems reliable. The applicable trading day for
determining Fair Market Value (a) in connection with the
grant of Awards shall be the trading day immediately preceding
the Grant Date and (b) otherwise shall be as determined by
the Committee in its sole discretion. If no reported price for
the Common Stock exists for the applicable trading day, then
such price on the last preceding date for which such price
exists shall be determinative of Fair Market Value.
Grant Date means the date on which the
Committee completes the corporate action authorizing the grant
of an Award or such later date specified by the Committee,
provided that conditions to the exercisability or vesting of
Awards shall not defer the Grant Date.
Incentive Stock Option means an Option
granted with the intention that it qualify as an incentive
stock option as that term is defined in Section 422
of the Code or any successor provision.
Nonemployee Director has the meaning set
forth in
Rule 16b-3
promulgated under the Exchange Act, or any successor definition
adopted by the Securities and Exchange Commission.
Nonqualified Stock Option means an Option
other than an Incentive Stock Option.
Option means a right to purchase Common Stock
granted under Section 7.
Participant means any eligible person set
forth in Section 5 to whom an Award is granted.
Performance Criteria has the meaning set
forth in Section 11.1.
Performance Share has the meaning set forth
in Section 10.1.
Performance Unit has the meaning set forth in
Section 10.2.
Plan means the Washington Mutual, Inc. 2003
Equity Incentive Plan, as amended and restated.
Related Company means any entity that is
directly or indirectly controlled by the Company or any entity
in which the Company has a significant equity interest, as
determined by the Committee.
Related Party Transaction means (a) a
merger or consolidation of the Company in which the holders of
the outstanding voting securities of the Company immediately
prior to the merger or consolidation hold at least a majority of
the outstanding voting securities of the Successor Company
immediately after the merger or consolidation; (b) a sale,
lease, exchange or other transfer of all or substantially all of
the Companys assets to a majority-owned subsidiary
company; (c) a transaction undertaken for the principal
purpose of restructuring the capital of the Company, including
but not limited to, reincorporating the Company in a different
jurisdiction or creating a holding company, so long as,
immediately after the transaction, at least a majority of the
outstanding securities of the Successor Company are held by
holders of the outstanding voting securities of the Company
immediately prior to the transaction; or (d) a corporate
dissolution or liquidation.
Restricted Stock means an Award of shares of
Common Stock granted under Section 9, the rights of
ownership of which may be subject to restrictions prescribed by
the Committee.
Retirement, unless otherwise defined by the
Committee or in the instrument evidencing the Award or in a
written employment, services or other agreement between the
Participant and the Company or a Related Company, means
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Termination of Service on or after the date the Participant
reaches age 55 and has served, as applicable, either
(a) ten years as an employee of the Company or a Related
Company or (b) five years as a member of the Board.
Termination of Service for Cause shall not be considered
Retirement regardless of the Participants age or years of
service.
Securities Act means the Securities Act of
1933, as amended from time to time.
Stock Appreciation Right has the meaning set
forth in Section 8.1.
Stock Unit means an Award granted under
Section 9 denominated in units of Common Stock.
Successor Company means the surviving
company, the successor company or its parent, as applicable, in
connection with a Company Transaction.
Termination of Service, means a termination
of employment or service relationship with the Company or a
Related Company for any reason, whether voluntary or
involuntary, including by reason of death, Disability or
Retirement. Any question as to whether and when there has been a
Termination of Service for the purposes of an Award (including
with respect to Company-approved leaves of absence or a
Participants working less than full-time) and the cause of
such Termination of Service shall be determined by the chief
human resources officer of the Company or other person
performing that function or, in the case of directors and
executive officers, the Committee, whose determinations shall be
conclusive and binding. Transfer of a Participants
employment or service relationship between Related Companies, or
between the Company and any Related Company, shall not be
considered a Termination of Service for purposes of an Award.
Service as a member of the Board shall constitute continued
employment with respect to Awards granted to a Participant while
he or she served as an employee, and service as an employee of
the Company or any Related Company shall constitute continued
employment with respect to Awards granted to a Participant while
he or she served as a member of the Board. Unless the Committee
determines otherwise, a Termination of Service shall be deemed
to occur if the Participants employment or service
relationship is with an entity that has ceased to be a Related
Company.
SECTION 3. ADMINISTRATION
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3.1 |
Administration of the Plan |
The Plan shall be administered by the Human Resources Committee
of the Board, or any successor thereto; provided, however, that
with respect to Nonemployee Directors, the Plan shall be
administered by the Governance Committee of the Board, or any
successor thereto. Notwithstanding the foregoing, the Board may
delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different
committees consisting of two or more members of the Board,
subject to such limitations as the Board deems appropriate.
Members of any committee shall serve for such term as the Board
may determine, subject to removal by the Board at any time. To
the extent consistent with applicable law, the Board or the
Human Resources Committee may authorize one or more senior
executive officers of the Company to grant Awards to designated
classes of eligible persons, within limits specifically
prescribed by the Board or the Human Resources Committee, as
applicable; provided, however, that no such officer shall have
or obtain authority to grant Awards to himself or herself or to
any person subject to the reporting requirements of
Section 16 of the Exchange Act. All references in the Plan
to the Committee shall be, as applicable, to the
Human Resources Committee, the Governance Committee, or any
other committee or officer to whom the Board or the Human
Resources Committee has delegated authority to administer the
Plan.
Notwithstanding the foregoing, the chief human resources officer
of the Company or other person performing that function shall be
authorized, in addition to the Committee, to determine the
effect on the vesting of an Award of a Company-approved leave of
absence or a Participants working less than full-time.
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3.2 |
Administration and Interpretation by Committee |
Except for the terms and conditions explicitly set forth in the
Plan, the Committee shall have full power and exclusive
authority, subject to such orders or resolutions not
inconsistent with the provisions of the Plan as may from time to
time be adopted by the Board, to (a) select the eligible
persons as set forth in Section 5 to whom Awards may from
time to time be granted under the Plan; (b) determine the
type or types of Award to be granted to each Participant under
the Plan; (c) determine the number of shares of Common
Stock to be covered by each Award granted under the Plan;
(d) determine the terms and conditions of any Award granted
under the Plan; (e) prescribe, approve and amend the forms
of agreements for use under the Plan (which need not be
identical); (f) determine whether, to what extent and under
what circumstances Awards may be settled in cash, shares of
Common Stock or other property or canceled or suspended;
(g) establish and
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certify the extent of satisfaction of any performance goals or
other conditions applicable to the grant, vesting or ability to
retain an Award (h) determine whether, to what extent and
under what circumstances cash, shares of Common Stock, other
property and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
Participant; (i) determine whether, to what extent
adjustments are required pursuant to Section 15;
(j) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (k) establish, amend
and rescind such rules and regulations and appoint such agents
as it shall deem appropriate for the proper administration of
the Plan; and (l) make any other determination and take any
other action that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee shall be
final, conclusive and binding on all persons, including the
Company, any Participant, any shareholder and any eligible
person. The Committee shall consider such factors as it deems
relevant, in its sole and absolute discretion, to making such
decisions, determinations and interpretations including, without
limitation, the recommendations or advice of any officer or
other employee of the Company and such attorneys, consultants
and accountants as it may select. A majority of the members of
the Committee may determine its actions and fix the time and
place of its meetings.
SECTION 4. STOCK SUBJECT TO
THE PLAN
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4.1 |
Authorized Number of Shares |
Subject to adjustment from time to time as provided in
Section 15.1, the maximum number of shares of Common Stock
available for issuance under the Plan shall be
(a) 94,035,000 shares plus
(b) (i) any authorized shares
not issued or subject to outstanding awards under the
Companys Equity Incentive Plan and the 1994 Stock Option
Plan (the Prior Plans) as of the Effective Date and
(ii) any shares subject to outstanding awards under the
Prior Plans as of the Effective Date that on or after the
Effective Date cease for any reason to be subject to such awards
(other than by reason of exercise or settlement of the awards to
the extent they are exercised for or settled in vested and
nonforfeitable shares), up to an aggregate maximum of
120,745,000 shares;
provided that any shares of Common Stock granted under Options
or Stock Appreciation Rights shall be counted against this limit
on a one-for-one basis and any shares of Common Stock granted as
Awards other than Options or Stock Appreciation Rights shall be
counted against this limit as two (2) shares for every one
(1) share subject to such Award.
(a) Shares of Common Stock covered
by an Award shall not be counted as used unless and until they
are actually issued and delivered to a Participant.
Notwithstanding the foregoing, shares of Common Stock subject to
an Award may not again be made available for issuance under the
Plan if such shares are: (i) shares that were subject to a
stock-settled Stock Appreciation Right and were not issued upon
the net settlement or net exercise of such Stock Appreciation
Right, (ii) shares used to pay the exercise price of an
Option, (iii) shares delivered to or withheld by the
Company to pay the withholding taxes related an Option or a
Stock Appreciation Right, or (iv) shares repurchased on the
open market with the proceeds of an Option exercise. Shares of
Common Stock subject to Awards that have been canceled, expired,
forfeited or otherwise not issued under an Award shall not count
as shares issued under this Plan and shall again be available
for issuance under the Plan. All shares issued under the Plan
may be either authorized and unissued shares or issued shares
reacquired by the Company.
(b) The Committee shall have the
authority to grant Awards as an alternative to or as the form of
payment for grants or rights earned or due under other
compensation plans or arrangements of the Company.
(c) Notwithstanding the foregoing,
the maximum number of shares that may be issued upon the
exercise of Incentive Stock Options shall be
94,035,000 shares, subject to adjustment as provided in
Section 15.1.
(a) Subject to adjustment as
provided in Section 15.1, no Participant shall be eligible
to receive in any one calendar year Awards relating to more than
7,000,000 shares of Common Stock.
(b) Subject to adjustment as
provided in Section 15.1, the maximum aggregate number of
shares of Common Stock that may be issued pursuant to Awards
(other than Options or Stock Appreciation Rights) that either
contain no restrictions or are subject to restrictions and/or
vesting based solely on continuous employment or services for
less than three years
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(except in the event of a Company Transaction or where
Termination of Service occurs by reason of death, Retirement, or
Disability) shall not exceed 10,000,000.
SECTION 5. ELIGIBILITY
An Award may be granted to any employee, officer or director of
the Company or a Related Company whom the Committee from time to
time selects. An Award may also be granted to any consultant,
agent, advisor or independent contractor who renders bona fide
services to the Company or any Related Company that (a) are
not in connection with the offer and sale of the Companys
securities in a capital-raising transaction and (b) do not
directly or indirectly promote or maintain a market for the
Companys securities.
SECTION 6. AWARDS
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6.1 |
Form and Grant of Awards |
The Committee shall have the authority, in its sole discretion,
to determine the type or types of Awards to be granted under the
Plan. Such Awards may be granted either alone, in addition to or
in tandem with any other type of Award.
Awards granted under the Plan shall be evidenced by a written
instrument that shall contain such terms, conditions,
limitations and restrictions (which need not be identical) as
the Committee shall deem advisable and are not inconsistent with
the Plan.
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6.3 |
Ten Percent Limitation on Ownership |
Unless requisite approvals are obtained from the primary federal
regulator(s) of the Companys banking subsidiary or
subsidiaries, no person shall be eligible to receive any Award
that, if exercised (in the case of Options) or otherwise settled
in shares of Common Stock, would result in such person holding
beneficially or of record in excess of 10% of the outstanding
voting stock of the Company.
The Committee may permit or require a Participant to defer
receipt of the payment of any Award. If any such deferral
election is permitted or required, the Committee, in its sole
discretion, shall establish rules and procedures for such
payment deferrals, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including
converting such credits to deferred stock unit equivalents.
Notwithstanding anything herein to the contrary, in no event
will any deferral of the delivery of shares of Common Stock or
any other payment with respect to any Award be allowed if the
Committee determines, in its sole discretion, that the deferral
would result in the imposition of the additional tax under
Section 409A(a)(1)(B) of the Code.
SECTION 7. OPTIONS
The Committee may grant Options designated as Incentive Stock
Options or Nonqualified Stock Options.
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7.2 |
Option Exercise Price |
The exercise price for shares purchased under an Option shall be
as determined by the Committee, but shall not be less than the
Fair Market Value of the Common Stock for the Grant Date, except
in the case of substitute awards issued by the Company in
connection with a Company Transaction or a Related Company
Transaction. In no event shall the Committee, without
stockholder approval, cancel any outstanding Option for the
purpose of reissuing the Option to the Participant at a lower
exercise price or reduce the exercise price of an outstanding
Option, in each case, other than in connection with a change in
the Companys capitalization (as described in
Section 15).
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Subject to earlier termination in accordance with the terms of
the Plan and the instrument evidencing the Option, the maximum
term of an Option shall be as established for that Option by the
Committee, which in no event shall exceed ten years from the
Grant Date.
The Committee shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments
in which, the Option shall vest and become exercisable, any of
which provisions may be waived or modified by the Committee at
any time. To the extent an Option has vested and become
exercisable, the Option may be exercised in whole or from time
to time in part by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance
with procedures established by the Committee, setting forth the
number of shares with respect to which the Option is being
exercised, the restrictions imposed on the shares purchased
under such exercise agreement, if any, and such representations
and agreements as may be required by the Committee, accompanied
by payment in full as described in Section 7.5. An Option
may be exercised only for whole shares and may not be exercised
for less than a reasonable number of shares at any one time, as
determined by the Committee.
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7.5 |
Payment of Exercise Price |
The exercise price for shares purchased under an Option shall be
paid in full to the Company by delivery of consideration equal
to the product of the Option exercise price and the number of
shares purchased. Such consideration must be paid before the
Company will issue the shares being purchased and must be in a
form or a combination of forms acceptable to the Committee for
that purchase, which forms may include
(a) cash;
(b) check or wire transfer;
(c) tendering (either actually or
by attestation) shares of Common Stock already owned by the
Participant, provided that the shares have been held for the
minimum period required by applicable accounting rules to avoid
a charge to the Companys earnings for financial reporting
purposes or were not acquired directly or indirectly from the
Company;
(d) to the extent permitted by
applicable law, delivery of a properly executed exercise notice,
together with irrevocable instructions to a brokerage firm
designated by the Company to deliver promptly to the Company the
aggregate amount of sale or loan proceeds to pay the Option
exercise price and any withholding tax obligations that may
arise in connection with the exercise, all in accordance with
the regulations of the Federal Reserve Board; or
(e) such other consideration as the
Committee may permit in its sole discretion.
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7.6 |
Post-Termination Exercises |
The Committee shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise,
after a Termination of Service, any of which provisions may be
waived or modified by the Committee at any time.
A Participants change in status from an employee to a
consultant, agent, advisor or independent contractor, or a
change in status from a consultant, agent, advisor or
independent contractor to an employee, shall not be considered a
Termination of Service for purposes of this Section 7.
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7.7 |
Incentive Stock Options |
The terms of any Incentive Stock Options shall comply in all
respects with the provisions of Section 422 of the Code, or
any successor provision, and any regulations promulgated
thereunder. Individuals who are not employees of the Company or
one of its parent or subsidiary corporations (as such terms are
defined for purposes of Section 422 of the Code) may not be
granted Incentive Stock Options. To the extent that the
aggregate Fair Market Value of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time
by a Participant during any calendar year exceeds $100,000 or,
if different, the maximum limitation in effect at the time of
grant under the Code (the Fair Market Value being determined as
of the Grant Date for the Option), such portion in excess of
$100,000 shall be treated as Nonqualified Stock Options. This
provision shall be applied by taking Incentive Stock Options
into account in the order in which they were granted.
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SECTION 8. STOCK
APPRECIATION RIGHTS
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8.1 |
Grant of Stock Appreciation Rights |
The Committee may grant stock appreciation rights (Stock
Appreciation Rights or SARs) to Participants
at any time. An SAR may be granted in tandem with an Option or
alone (freestanding). The grant price of a tandem
SAR shall be equal to the exercise price of the related Option,
and the grant price of a freestanding SAR shall be at least
equal to the Fair Market Value of the Common Stock for the Grant
Date. In no event shall the Committee, without stockholder
approval, cancel any outstanding SAR for the purpose of
reissuing the SAR to the Participant at a lower grant price or
reduce the exercise price of an outstanding SAR, in each case,
other than in connection with a change in the Companys
capitalization (as described in Section 15). An SAR may be
exercised upon such terms and conditions and for the term as the
Committee may determine, in its sole discretion; provided,
however, that, subject to earlier termination in accordance with
the terms of the Plan and the instrument evidencing the SAR, the
term of a freestanding SAR shall be as established for that SAR
by the Committee, which in no event shall exceed ten years, and
in the case of a tandem SAR, (a) the term shall not exceed
the term of the related Option and (b) the tandem SAR may
be exercised for all or part of the shares subject to the
related Option upon the surrender of the right to exercise the
equivalent portion of the related Option, except that the tandem
SAR may be exercised only with respect to the shares for which
its related Option is then exercisable.
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8.2 |
Payment of SAR Amount |
Upon the exercise of an SAR, a Participant shall be entitled to
receive payment from the Company in an amount determined by
multiplying: (a) the difference between the Fair Market
Value of the Common Stock for the date of exercise over the
grant price by (b) the number of shares with respect to
which the SAR is exercised. At the discretion of the Committee,
the payment upon exercise of an SAR may be in cash, in shares of
Common Stock of equivalent value, in some combination thereof or
in any other manner approved by the Committee in its sole
discretion.
SECTION 9. RESTRICTED STOCK
AND STOCK UNITS
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9.1 |
Grant of Restricted Stock and Stock Units |
The Committee may grant Restricted Stock and Stock Units on such
terms and conditions and subject to such repurchase or
forfeiture restrictions, if any (which may be based on
continuous service with the Company or a Related Company or the
achievement of any of the Performance Criteria set forth in
Section 11.1), as the Committee shall determine in its sole
discretion, which terms, conditions and restrictions shall be
set forth in the instrument evidencing the Award.
Upon the satisfaction of any terms, conditions and restrictions
prescribed with respect to Restricted Stock or Stock Units, or
upon a Participants release from any terms, conditions and
restrictions of Restricted Stock or Stock Units, as determined
by the Committee, and subject to the provisions of
Section 13, (a) the shares of Restricted Stock covered
by each Award of Restricted Stock shall become freely
transferable by the Participant and (b) Stock Units shall
be paid in cash, shares of Common Stock or a combination of cash
and shares of Common Stock as the Committee shall determine in
its sole discretion.
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9.3 |
Dividends and Distributions |
Participants holding shares of Restricted Stock or Stock Units
may, if the Committee so determines, be credited with dividends
paid with respect to the underlying shares or dividend
equivalents while they are so held in a manner determined by the
Committee in its sole discretion. The Committee may apply any
restrictions to the dividends or dividend equivalents that the
Committee deems appropriate. The Committee, in its sole
discretion, may determine the form of payment of dividends or
dividend equivalents, including cash, shares of Common Stock,
Restricted Stock or Stock Units.
Unless otherwise determined by the Committee, Participants
holding shares of Restricted Stock granted hereunder may
exercise full voting rights with respect to those shares during
the period of restriction. Participants shall have no
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voting rights with respect to shares of Common Stock underlying
Stock Units unless and until such shares are reflected as issued
and outstanding shares on the Companys stock ledger.
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9.5 |
Waiver of Restrictions |
Subject to Section 11.2, the Committee, in its sole
discretion, may waive the repurchase or forfeiture period and
any other terms, conditions or restrictions on any Restricted
Stock or Stock Unit under such circumstances and subject to such
terms and conditions as the Committee shall deem appropriate.
SECTION 10. PERFORMANCE
SHARES AND PERFORMANCE UNITS
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10.1 |
Grant of Performance Shares |
The Committee may grant Awards of performance shares
(Performance Shares) and designate the Participants
to whom Performance Shares are to be awarded and determine the
number of Performance Shares, the length of the performance
period and the other terms and conditions of each such Award.
Each Award of Performance Shares shall entitle the Participant
to a payment in the form of shares of Common Stock upon the
attainment of performance goals and other terms and conditions
specified by the Committee. Notwithstanding satisfaction of any
performance goals, the number of shares issued under an Award of
Performance Shares may be adjusted on the basis of such further
consideration as the Committee shall determine, in its sole
discretion. However, the Committee may not, in any event,
increase the number of shares earned upon satisfaction of any
performance goal by any Covered Employee. The Committee, in its
discretion, may make a cash payment equal to the Fair Market
Value of the Common Stock otherwise required to be issued to a
Participant pursuant to an Award of Performance Shares.
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10.2 |
Grant of Performance Units |
The Committee may grant Awards of performance units
(Performance Units) and designate the Participants
to whom Performance Units are to be awarded and determine the
number of Performance Units and the terms and conditions of each
such Award. Performance Units shall entitle the Participant to a
payment in cash upon the attainment of performance goals and
other terms and conditions specified by the Committee.
Notwithstanding the satisfaction of any performance goals, the
amount to be paid under an Award of Performance Units may be
adjusted on the basis of such further consideration as the
Committee shall determine, in its sole discretion. However, the
Committee may not, in any event, increase the amount earned
under Performance Unit Awards upon satisfaction of any
performance goal by any Covered Employee, and the maximum amount
earned by such Covered Employee in any calendar year may not
exceed $1,000,000. The Committee, in its discretion, may
substitute actual shares of Common Stock for the cash payment
otherwise required to be made to a Participant pursuant to a
Performance Unit.
SECTION 11. PERFORMANCE
GOALS
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11.1 |
Awards Subject to Performance Goals |
The Committee may establish performance criteria and level of
achievement versus such criteria that shall determine the number
of shares of Common Stock to be granted, retained, vested,
issued or issuable under or in settlement of or the amount
payable pursuant to an Award of Restricted Stock, Stock Units,
Performance Shares, Performance Units and other Awards made
pursuant to the Plan, which criteria may be based on Performance
Criteria (as defined below) or other standards of financial
performance and/or personal performance evaluations. In
addition, the Committee may specify that such an Award or a
portion of such an Award is intended to satisfy the requirements
for performance-based compensation under
Section 162(m) of the Code, provided that the performance
criteria for such Award or portion of such Award that is
intended by the Committee to satisfy the requirements for
performance-based compensation under
Section 162(m) of the Code shall be a measure based on one
or more Performance Criteria selected by the Committee and
specified at the time the Award is granted.
For purposes of this Plan, the term Performance
Criteria shall mean any one or more of the following
performance criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to
a business unit or Related Company, either individually,
alternatively or in any combination, and measured either
annually or cumulatively over a period of years, on an absolute
basis or relative to a pre-established target, to previous
years results or to a designated comparison group, in each
case as specified by the Committee: return on average common
shareholders
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equity; return on average equity; return on tangible equity;
total shareholder return; stock price appreciation; efficiency
ratio (including other expense as a percentage of other income
plus net interest income); net operating expense (including
other income less other expense); non-interest expense; earnings
per diluted share of Common Stock; operating earnings (including
earnings before transaction-related expense) per diluted share
of Common Stock; net operating earnings (including earnings less
transaction-related expense) per diluted share of Common Stock;
return on average assets; ratio of nonperforming to performing
assets; return on an investment in an affiliate; net interest
income; net interest margin; ratio of common equity to total
assets; regulatory compliance metrics; and customer service
metrics.
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11.2 |
Use and Calculation of Performance Criteria |
Unless otherwise provided by the Committee at the time an Award
is granted, to the extent consistent with Section 162(m) of
the Code, Performance Criteria shall exclude Extraordinary
Items. Performance criteria shall be established by the
Committee and shall be derived from the Companys audited
financial statements, including footnotes, or the
Managements Discussion and Analysis section of the
Companys annual report. The Committee shall certify the
extent to which any Performance Criteria has been satisfied, and
the amount payable as a result thereof, prior to payment,
settlement or vesting of any Award that is intended to satisfy
the requirements for performance-based compensation
under Section 162(m) of the Code. Notwithstanding
satisfaction of any performance goals, the number of shares of
Common Stock issued under or the amount paid under an Award may
be reduced by the Committee on the basis of such further
considerations as the Committee in its sole discretion shall
determine. The Committee may not in any event increase the
amount of compensation payable to a Covered Employee upon the
satisfaction of any Performance Criteria.
SECTION 12. OTHER STOCK OR
CASH-BASED AWARDS
In addition to the Awards described in Sections 7
through 10, and subject to the terms of the Plan, the
Committee may grant other incentives payable in cash or in
shares of Common Stock under the Plan as it determines to be in
the best interests of the Company and subject to such other
terms and conditions as it deems appropriate.
SECTION 13. WITHHOLDING
The Company may require the Participant to pay to the Company
the amount of any taxes that the Company is required by
applicable federal, state, local or foreign law to withhold with
respect to the grant, vesting, exercise or settlement of an
Award. The Company shall not be required to issue any shares of
Common Stock under the Plan, make any payment or to recognize
the transfer or disposition of shares of Common Stock issued
under the Plan until such obligations are satisfied.
The Committee may permit or require a Participant to satisfy all
or part of his or her tax withholding obligations by
(a) paying cash to the Company, (b) having the Company
withhold an amount from any cash amounts otherwise due or to
become due from the Company to the Participant, (c) having
the Company withhold a number of shares of Common Stock that
would otherwise be issued to the Participant (or become vested
in the case of Restricted Stock), having a Fair Market Value
sufficient to meet the tax withholding obligations, or
(d) surrendering a number of shares of Common Stock the
Participant already owns, having a Fair Market Value sufficient
to meet the tax withholding obligations.
SECTION 14. ASSIGNABILITY
No Award or interest in an Award may be sold, assigned, pledged
(as collateral for a loan or as security for the performance of
an obligation or for any other purpose) or transferred by the
Participant or made subject to attachment or similar proceedings
otherwise than by will or by the applicable laws of descent and
distribution, except to the extent a Participant designates one
or more beneficiaries on a Company-approved form who may
exercise the Award or receive payment under the Award after the
Participants death. During a Participants lifetime,
an Award may be exercised only by the Participant.
Notwithstanding the foregoing and to the extent permitted by
Section 422 of the Code, the Committee, in its sole
discretion, may permit a Participant to assign or transfer an
Award; provided, however, that any Award so assigned or
transferred shall be subject to all the terms and conditions of
the Plan and the instrument evidencing the Award.
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SECTION 15. ADJUSTMENTS
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15.1 |
Adjustment of Shares |
In the event, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of
shares, recapitalization, merger, consolidation, distribution to
shareholders other than a normal cash dividend, or other change
in the Companys corporate or capital structure
(a) affects the number or kind of securities of the Company
outstanding or (b) results in new, different or additional
securities of the Company or any other company being received by
the holders of shares of Common Stock, then the Committee shall
make appropriate adjustments in (i) the maximum number and
kind of securities available for issuance under the Plan;
(ii) the maximum number and kind of securities issuable as
Incentive Stock Options as set forth in Section 4.2;
(iii) the maximum number and kind of securities that may be
issued to an individual in any one calendar year as set forth in
Section 4.3; and (iv) the number and kind of
securities that are subject to any outstanding Award and the per
share price of such securities, without any change in the
aggregate price to be paid therefor.
Adjustments pursuant to this Section 15.1 may be designed
to comply with Section 424 of the Code or may be designed
to treat the shares of Common Stock available under the Plan and
subject to Awards as if they were all outstanding on the record
date for such event or transaction or to increase the number of
such shares to reflect a deemed reinvestment in shares of Common
Stock of the amount distributed to the Companys
securityholders. Notwithstanding the foregoing, the issuance by
the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or
property, or for labor or services rendered, either upon direct
sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall
not affect, and no adjustment by reason thereof shall be made
with respect to, outstanding Awards. Also notwithstanding the
foregoing, a dissolution or liquidation of the Company or a
Company Transaction shall not be governed by this
Section 15.1 but shall be governed by Sections 15.2
and 15.3, respectively.
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15.2 |
Dissolution or Liquidation |
To the extent not previously exercised or settled, and unless
otherwise determined by the Committee in its sole discretion,
Options and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company. To the extent a
forfeiture provision or repurchase right applicable to an Award
has not been waived by the Committee, the Award shall be
forfeited immediately prior to the consummation of the
dissolution or liquidation.
15.3.1 Options
and Stock Appreciation Rights
In the event of a Company Transaction, except as otherwise
provided in the instrument evidencing an Option or SAR or in any
other written agreement between a Participant and the Company or
a Related Company, each outstanding Option and/or SAR shall
terminate, provided that, immediately prior to any such Company
Transaction, the vesting of all Options and/or SARs held by a
Participant shall accelerate and the Participant shall have the
right to exercise his or her Options and/or SARs in whole or in
part whether or not the vesting requirements set forth in the
instrument evidencing the Option or SAR have been satisfied.
Notwithstanding the foregoing, the Committee, in its sole
discretion, may instead provide that a Participants
outstanding Options and/or SARs shall terminate upon occurrence
of such Company Transaction and that each such Participant shall
receive, in exchange therefor, a cash payment equal to the
amount (if any) by which (a) the Acquisition Price
multiplied by the number of shares of Common Stock subject to
such outstanding Options and/or SARs (whether or not then
exercisable) exceeds (b) the aggregate exercise price for
such Options and/or SARs. Also notwithstanding the foregoing,
the Committee, in its sole discretion, may instead provide that
Options and/or SARs shall be assumed or that an equivalent
option or right shall be substituted by a Successor Company, in
which case the amount and exercise price of such assumed or
substituted options shall be determined by adjusting the amount
and exercise price of the Options and/or SAR in the same
proportion as used for determining the number of shares of stock
of the Successor Company the holders of shares of Common Stock
receive in such Company Transaction, and the vesting schedule
set forth in the instrument evidencing the Option and/or SAR
shall continue to apply to the assumed or substituted options.
15.3.2 Restricted
Stock and Stock Units
In the event of a Company Transaction, except as otherwise
provided in the instrument evidencing the Award and unless
otherwise provided in any written agreement between a
Participant and the Company or a Related Company, the vesting of
shares subject to Restricted Stock and/or the vesting of any
Stock Units that are based on continuous service
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with the Company or a Related Company shall accelerate, and the
forfeiture provisions to which such shares are subject shall
lapse, if and to the same extent that the vesting of outstanding
Options and/or SARs accelerates in connection with the Company
Transaction. If unvested Options and/or SARs are to be assumed
or substituted by a Successor Company without acceleration upon
the occurrence of a Company Transaction, the terms and
conditions of the foregoing Awards shall continue with respect
to shares of the Successor Company that may be issued in
exchange or upon settlement of such Awards, and the number of
shares subject to such assumed or substituted restricted stock
and/or stock unit awards shall be adjusted in the same manner as
provided in Section 15.3.1 for Options and SARs.
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15.4 |
Further Adjustment of Awards |
Subject to Sections 15.2 and 15.3, the Committee shall have
the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation, dissolution or
change in control of the Company, as defined by the Committee,
to take such further action as it determines to be necessary or
advisable with respect to Awards. Such authorized action may
include (but shall not be limited to) establishing, amending or
waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, lifting of
restrictions and other modifications, and the Committee may take
such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants.
The Committee may take such action before or after granting
Awards to which the action relates and before or after any
public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation, dissolution or
change in control that is the reason for such action.
The grant of Awards shall in no way affect the Companys
right to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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15.6 |
No Fractional Shares |
In the event of any adjustment in the number of shares covered
by any Award, each such Award shall cover only the number of
full shares resulting from such adjustment.
SECTION 16. AMENDMENT AND
TERMINATION
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16.1 |
Amendment, Suspension or Termination of the Plan |
The Board or the Human Resources Committee of the Board may
amend, suspend or terminate the Plan or any portion of the Plan
at any time and in such respects as it shall deem advisable;
provided, however, that, to the extent required by applicable
law, regulation or stock exchange rule, shareholder approval
shall be required for any amendment to the Plan.
Unless sooner terminated as provided herein, the Plan shall
terminate ten years from the Effective Date. Notwithstanding the
foregoing, no Incentive Stock Options may be granted more than
ten years after the earlier of (a) the adoption of the Plan
by the Board and (b) the Effective Date.
After the Plan is terminated, no future Awards may be granted,
but Awards previously granted shall remain outstanding in
accordance with their applicable terms and conditions and the
Plans terms and conditions.
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16.3 |
Consent of Participant |
The amendment, suspension or termination of the Plan or a
portion thereof or the amendment of an outstanding Award shall
not, without the Participants consent, materially and
adversely affect any rights under any Award theretofore granted
to the Participant under the Plan. Any change or adjustment to
an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to
constitute a modification that would cause such
Incentive Stock Option to fail to continue to qualify as an
Incentive Stock Option. Notwithstanding the foregoing, any
adjustments made pursuant to Sections 15.1 through 15.3
shall not be subject to these restrictions.
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SECTION 17. GENERAL
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17.1 |
No Individual Rights |
No individual or Participant shall have any claim to be granted
any Award under the Plan, and the Company has no obligation for
uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the
Plan shall be deemed to constitute an employment contract or
confer or be deemed to confer on any Participant any right to
continue in the employ of, or to continue any other relationship
with, the Company or any Related Company or limit in any way the
right of the Company or any Related Company to terminate a
Participants employment or other relationship at any time,
with or without Cause.
Notwithstanding any other provision of the Plan, the Company
shall have no obligation to issue or deliver any shares of
Common Stock under the Plan or make any other distribution of
benefits under the Plan unless, in the opinion of the
Companys counsel, such issuance, delivery or distribution
would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act or the laws
of any state or foreign jurisdiction) and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to
register for offering or resale or to qualify for exemption
under the Securities Act, or to register or qualify under the
laws of any state or foreign jurisdiction, any shares of Common
Stock, security or interest in a security paid or issued under,
or created by, the Plan, or to continue in effect any such
registrations or qualifications if made. The Company may issue
certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for
compliance by the Company with federal, state and foreign
securities laws. The Company may also require such other action
or agreement by the Participants as may from time to time be
necessary to comply with applicable securities laws.
To the extent the Plan or any instrument evidencing an Award
provides for issuance of stock certificates to reflect the
issuance of shares of Common Stock, the issuance may be effected
on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
Each person who is or shall have been a member of the Board, or
a Committee appointed by the Board, or an officer of the Company
to whom authority was delegated in accordance with
Section 3 shall be indemnified and held harmless by the
Company against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit or
proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid
by him or her in settlement thereof, with the Companys
approval, or paid by him or her in satisfaction of any judgment
in any such claim, action, suit or proceeding against him or
her; provided that he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or
her own behalf, unless such loss, cost, liability or expense is
a result of his or her own willful misconduct or except as
expressly provided by statute.
The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be
entitled under the Companys articles of incorporation or
bylaws, as a matter of law, or otherwise, or of any power that
the Company may have to indemnify them or hold them harmless.
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17.4 |
No Rights as a Shareholder |
Unless otherwise provided by the Committee or in the instrument
evidencing the Award or in any other written agreement between a
Participant and the Company or a Related Company, no Option or
Award denominated in units shall entitle the Participant to any
cash dividend, voting or other right of a shareholder unless and
until the date of issuance under the Plan of the shares that are
the subject of such Award.
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17.5 |
Compliance With Laws and Regulations |
Notwithstanding anything in the Plan to the contrary, the
Committee, in its sole discretion, may bifurcate the Plan so as
to restrict, limit or condition the use of any provision of the
Plan to Participants who are officers or directors subject to
Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the
provisions of the Plan, any Option granted as an Incentive Stock
Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an incentive stock option
within the meaning of Section 422 of the Code.
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17.6 |
Participants in Other Countries |
The Committee shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or
desirable to comply with provisions of the laws of other
countries in which the Company or any Related Company may
operate to ensure the viability of the benefits from Awards
granted to Participants employed in such countries, to comply
with applicable foreign laws and to meet the objectives of the
Plan.
The Plan is intended to constitute an unfunded plan.
Nothing contained herein shall require the Company to segregate
any monies or other property, or shares of Common Stock, or to
create any trusts, or to make any special deposits for any
immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of
a general unsecured creditor of the Company.
All obligations of the Company under the Plan with respect to
Awards shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all
or substantially all the business and/or assets of the Company.
If any provision of the Plan or any Award is determined to be
invalid, illegal or unenforceable in any jurisdiction, or as to
any person, or would disqualify the Plan or any Award under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or,
if it cannot be so construed or deemed amended without, in the
Committees determination, materially altering the intent
of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, person or Award, and the remainder of the
Plan and any such Award shall remain in full force and effect.
The Plan, all Awards granted thereunder and all determinations
made and actions taken pursuant hereto, to the extent not
otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving
effect to principles of conflicts of law.
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17.11 |
Conditions and Restrictions Upon Securities Subject to
Awards |
The Committee may provide that the shares of Common Stock issued
upon exercise of an Option or Stock Appreciation Right or
otherwise subject to or issued under an Award shall be subject
to such further agreements, restrictions, conditions or
limitations as the Committee in its discretion may specify prior
to the exercise of such Option or Stock Appreciation Right or
the grant, vesting or settlement of such Award. Without limiting
the foregoing, such restrictions may address the timing and
manner of any resales by the Participant or other subsequent
transfers by the Participant of any shares of Common Stock
issued under an Award, including without limitation
(i) restrictions under an insider trading policy or
pursuant to applicable law, (ii) restrictions designed to
delay and/or coordinate the timing and manner of sales by
Participant and holders of other Company equity compensation
arrangements, (iii) restrictions as to the use of a
specified brokerage firm for such resales or other transfers and
(iv) provisions requiring shares to be sold on the open
market or to the Company in order to satisfy tax withholding or
other obligations.
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SECTION 18. EFFECTIVE
DATE
The Plan shall become effective (the Effective Date)
immediately following shareholder approval of the Plan.
Originally adopted by the Board on February 18, 2003,
and approved by the Companys shareholders on
April 15, 2003.
Amended and restated by the Board on February 21, 2006,
and approved, as amended and restated, by the Companys
shareholders on
April , 2006.
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PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
SUMMARY PAGE
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Date of |
Date of Board |
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Section/Effect |
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Shareholder |
Action |
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Action |
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of Amendment |
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Approval |
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February 18, 2003
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Initial Plan Adoption |
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April 15, 2003 |
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February 21, 2006
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Amendment and Restatement |
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April , 2006 |
A-15
APPENDIX B
WASHINGTON MUTUAL, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
Washington Mutual, Inc. (the Company), a Washington
corporation, hereby establishes and adopts the following
Executive Incentive Compensation Plan (the Plan) to
provide incentive awards that are intended to qualify as
performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as
amended.
The purposes of the Plan are to provide incentive and financial
rewards to executive officers of the Company and its Affiliates
who, because of the extent of their responsibilities, can make
significant contributions to the Companys success by their
ability, industry, loyalty and exceptional services.
2.1. Affiliate
shall mean any corporation, partnership or other organization of
which the Company owns or controls, directly or indirectly, not
less than 50% of the total combined voting power of all classes
of stock or other equity interests.
2.2. Award shall
mean any amount granted to a Participant under the Plan.
2.3. Board shall
mean the board of directors of the Company.
2.4. Certification
shall have the meaning set forth in Section 4.2.
2.5. Code shall
mean the Internal Revenue Code of 1986 of the United States of
America, as amended from time to time, and any successor thereto.
2.6. Committee
shall mean the Human Resources Committee of the Board or any
subcommittee thereof formed by the Human Resources Committee for
the purpose of acting as the Committee hereunder. For purposes
of satisfying the requirements of Section 162(m) of the
Code and the regulations thereunder, the Committee is intended
to consist solely of outside directors as such term
is defined in Section 162(m) of the Code.
2.7. Covered
Executive shall mean each executive officer of the
Company who is employed by the Company or an Affiliate as of the
last day of a Performance Period.
2.8. Disability
means any physical or mental condition of a Participant that in
the opinion of the Committee renders the Participant incapable
of continuing to be an employee of the Company and its
Affiliates.
2.9. Maximum Incentive
Award shall mean a payment in an amount equal to .5%,
in the case of the Companys Chief Executive Officer and in
the case of each other Participant, of the Companys Net
Income for a given Performance Period.
2.10. Net Income
shall mean the Companys after-tax income on a consolidated
basis as reported in the Companys income statement for the
applicable Performance Period, prior to accrual of any amounts
for payment under this Plan for the Performance Period, adjusted
to eliminate the effects of charges for restructurings,
discontinued operations, extraordinary items and all items of
gain, loss or expense determined to be extraordinary or unusual
in nature or infrequent in occurrence or related to the disposal
of a segment or a business or related to a change in accounting
principle all as determined in accordance with standards
established by opinion No. 30 of the Accounting Principles
Board (APA Opinion No. 30) or other applicable or successor
accounting provisions, as well as the cumulative effect of
accounting changes, in each case as determined in accordance
with generally accepted accounting principles or identified in
the Companys financial statements or notes to the
financial statements.
2.11. Participant
shall mean each Covered Executive and each other employee of the
Company or an Affiliate who is selected for participation in the
Plan pursuant to Section 3.1.
2.12. Performance
Period shall mean the Companys fiscal year or
such other period that the Committee, in its sole discretion,
may establish, provided any such Performance Period shall not be
less than one year or more than five years in length.
B-1
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3. |
ELIGIBILITY AND ADMINISTRATION |
3.1. Eligibility. The
individuals eligible to participate in the Plan shall be each
Covered Executive and, to the extent selected by the Committee,
any other executive officer or employee of the Company or an
Affiliate (each, a Participant). An
individuals status as a Participant does not entitle the
Participant to any payment under an Award except to the extent
determined by the Committee in its discretion pursuant to the
Plan.
3.2. Administration.
(a) The Plan shall be administered
by the Committee. The Committee shall have full power and
authority, subject to the provisions of the Plan and subject to
such orders or resolutions not inconsistent with the provisions
of the Plan as may from time to time be adopted by the Board,
to: (i) select the Participants to whom Awards may from
time to time be paid hereunder; (ii) determine the terms
and conditions, not inconsistent with the provisions of the
Plan, of each Award; (iii) determine the time when Awards
will be granted and paid and the Performance Period to which
they relate; (iv) affirm the formula for determining the
Maximum Incentive Award payable for each Participant in respect
of Performance Periods and certify as to the calculation of Net
Income and the amount of the Maximum Incentive Award payable for
each Participant in respect of Performance Periods;
(v) determine whether payment of Incentive Awards may be
deferred by Participants as provided in Section 4.3;
(vi) interpret and administer the Plan and any instrument
or agreement entered into in connection with the Plan;
(vii) correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Award in the manner and to
the extent that the Committee shall deem desirable to carry it
into effect; (viii) establish such rules and regulations
and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (ix) make any other
determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan.
(b) Decisions of the Committee
shall be final, conclusive and binding on all persons or
entities, including the Company, any Affiliate, any Participant
and any person claiming any benefit or right under an Award or
under the Plan.
(c) To the extent not inconsistent
with applicable law or the rules and regulations of the New York
Stock Exchange, any other national securities exchange or the
NASDAQ National Market on which the Companys securities
are listed or qualified for trading, including the applicable
provisions of Section 162(m) of the Code, the Committee may
delegate to one or more officers of the Company or a committee
of officers the authority to take actions on its behalf pursuant
to the Plan.
4.1. Performance Period. Not
later than the earlier of (i) 90 days after the
commencement of each fiscal year of the Company and
(ii) the expiration of 25% of the Performance Period, the
Committee shall, in writing, designate one or more Performance
Periods and shall affirm the applicability of the Plans
formula for determining the Maximum Incentive Award for each
Participant for such Performance Period(s).
4.2. Certification. At such
time as it shall determine appropriate following the conclusion
of each Performance Period, the Committee shall certify, in
writing, the amount of the Maximum Incentive Award for each
Participant for such Performance Period (the
Certification).
4.3. Payment of Awards. The
selection of Participants to whom Awards shall actually be paid
and the amount of the Award actually paid to a Participant shall
be such amount as determined by the Committee in its sole
discretion, including zero, provided that the actual Award shall
not exceed the Maximum Incentive Award with respect to such
Participant. The actual amount of the Award determined by the
Committee for a Performance Period shall be paid in cash or, to
the extent provided in such plan, share awards under a
shareholder-approved stock plan of the Company to each
Participant at such time as determined by the Committee in its
sole discretion following the end of the applicable Performance
Period, and may be deferred under a program or plan approved by
the Committee subject to the terms and conditions of such
program or plan (and in all events consistent with the
applicable requirements of Section 409A of the Code). The
payment of Awards that are not deferred pursuant to the
preceding sentence shall be made in the calendar year following
the fiscal year in which the applicable Performance Period ends.
4.4. Commencement or Termination
of Employment. If a Participant obtains such status during a
Performance Period (whether through promotion or commencement of
employment) or if a person who otherwise would have been a
Participant dies, retires or is Disabled, or if the
persons employment is otherwise terminated, during a
Performance Period (except for cause, as determined by the
Committee in its sole discretion), the Award payable to such a
Participant may, in
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the discretion of the Committee, be proportionately reduced
based on the period of actual employment during the applicable
Performance Period.
5.1. Amendment and Termination
of the Plan. The Board may, from time to time, alter, amend,
suspend or terminate the Plan as it shall deem advisable,
subject to any requirement for stockholder approval imposed by
applicable law, including Section 162(m) of the Code. No
amendments to, or termination of, the Plan shall in any way
impair the rights of a Participant under any Award previously
granted without such Participants consent.
5.2. Section 162(m) of the
Code. Unless otherwise determined by the Committee, the
provisions of this Plan shall be administered and interpreted in
accordance with Section 162(m) of the Code to ensure the
deductibility by the Company of the payment of Awards. Subject
to shareholder approval of the Plan, the failure of any aspect
of the Plan to satisfy Section 162(m) shall not void any
action taken by the Committee under the Plan.
5.3. Tax Withholding. The
Company or an Affiliate shall have the right to make all
payments or distributions pursuant to the Plan to a Participant,
net of any applicable federal, state and local taxes required to
be paid or withheld. The Company or an Affiliate shall have the
right to withhold from wages, Awards or other amounts otherwise
payable to such Participant such withholding taxes as may be
required by law, or to otherwise require the Participant to pay
such withholding taxes. If the Participant shall fail to make
such tax payments as are required, the Company or an Affiliate
shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to
such Participant or to take such other action as may be
necessary to satisfy such withholding obligations.
5.4. Right of Discharge
Reserved; Claims to Awards. Absent action by the Committee,
nothing in this Plan shall provide any Participant a right to
receive any Award or payment under the Plan with respect to a
Performance Period. Nothing in the Plan nor the grant of an
Award hereunder shall confer upon any Participant the right to
continue in the employment of the Company or an Affiliate or
affect any right that the Company or an Affiliate may have to
terminate the employment of (or to demote or to exclude from
future Awards under the Plan) any such Participant at any time
for any reason. Except as specifically provided by the
Committee, the Company shall not be liable for the loss of
existing or potential profit from an Award granted in the event
of the termination of employment of any Participant. No
Participant shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment
of Participants under the Plan.
5.5. Nature of Payments. All
Awards made pursuant to the Plan are in consideration of
services performed or to be performed for the Company or an
Affiliate, division or business unit of the Company. Any income
or gain realized pursuant to Awards under the Plan constitute a
special incentive payment to the Participant and shall only be
taken into account, to the extent permissible under applicable
law, as compensation for purposes of any of the employee benefit
plans of the Company or an Affiliate if the plan provides
otherwise or the Committee or Board so determines.
5.6. Other Plans. Nothing
contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable
only in specific cases.
5.7. Severability. If any
provision of the Plan shall be held unlawful or otherwise
invalid or unenforceable in whole or in part by a court of
competent jurisdiction, such provision shall (a) be deemed
limited to the extent that such court of competent jurisdiction
deems it lawful, valid and/or enforceable and as so limited
shall remain in full force and effect, and (b) not affect
any other provision of the Plan or part thereof, each of which
shall remain in full force and effect. If the making of any
payment or the provision of any other benefit required under the
Plan shall be held unlawful or otherwise invalid or
unenforceable by a court of competent jurisdiction, such
unlawfulness, invalidity or unenforceability shall not prevent
any other payment or benefit from being made or provided under
the Plan, and if the making of any payment in full or the
provision of any other benefit required under the Plan in full
would be unlawful or otherwise invalid or unenforceable, then
such unlawfulness, invalidity or unenforceability shall not
prevent such payment or benefit from being made or provided in
part, to the extent that it would not be unlawful, invalid or
unenforceable, and the maximum payment or benefit that would not
be unlawful, invalid or unenforceable shall be made or provided
under the Plan.
5.8. Construction. As used
in the Plan, the words include and
including, and variations thereof, shall not
be deemed to be terms of limitation, but rather shall be deemed
to be followed by the words without
limitation.
5.9. Unfunded Status of the
Plan. The Plan is intended to constitute an unfunded plan
for incentive compensation and deferred compensation. With
respect to any payments not yet made to a Participant by the
Company, nothing
B-3
contained herein shall give any such Participant any rights that
are greater than those of a general creditor of the Company.
5.10. Governing Law. The
Plan and all determinations made and actions taken thereunder,
to the extent not otherwise governed by the Code or the laws of
the United States, shall be governed by the laws of the State of
Washington, without reference to principles of conflict of laws
that might result in the application of the laws of another
jurisdiction, and shall be construed accordingly.
5.11. Resolution of
Disputes. In the event a Participant or person claiming a
right under an Award or the Plan believes that a decision by the
Committee with respect to such person or Award was arbitrary or
capricious, the person may request arbitration with respect to
such decision. The review by the arbitrator shall be limited to
determining whether the Participant or other person has proven
that the Committees decision was arbitrary or capricious.
This arbitration shall be the sole and exclusive review
permitted of the Committees decision. Participants and
persons claiming rights under an Award or the Plan explicitly
waive any right to judicial review. Notice of demand for
arbitration shall be made in writing to the Committee within
thirty (30) days after the applicable decision by the
Committee. The arbitrator shall be selected by those members of
the Board of Directors who are neither members of the
Compensation Committee of the Board of Directors nor employees
of the Company or any Affiliate. If there are no such members of
the Board of Directors, the arbitrator shall be selected by the
Board of Directors. Such arbitrator shall be neutral within the
meaning of the Commercial Rules of Dispute Resolution of the
American Arbitration Association; provided, however, that the
arbitration shall not be administered by the American
Arbitration Association. Any challenge to the neutrality of the
arbitrator shall be resolved by the arbitrator whose decision
shall be final and conclusive. The arbitration shall be
administered and conducted by the arbitrator pursuant to the
Commercial Rules of Dispute Resolution of the American
Arbitration Association. Each side shall bear its own fees and
expenses, including its own attorneys fees, and each side
shall bear one half of the arbitrators fees and expenses.
The decision of the arbitrator on the issue(s) presented for
arbitration shall be final and conclusive and may be enforced in
any court of competent jurisdiction.
5.12. Effective Date of
Plan. The Plan shall be effective on the date of the
approval of the Plan by the holders of the then outstanding
securities of the Company entitled to vote generally in the
election of directors. The Plan shall be null and void and of no
effect if the foregoing condition is not fulfilled.
5.13. Headings. The headings
in the Plan are for convenience of reference only, and are not
intended to narrow, limit or affect the substance or
interpretation of the provisions contained herein.
B-4
APPENDIX C
PROPOSED CHANGES TO ARTICLE IV OF
THE COMPANY ARTICLES OF INCORPORATION (AS AMENDED)
ARTICLE IV
BOARD OF DIRECTORS
The Company shall be managed by a Board of Directors. The number
of directors shall be stated in the Companys Bylaws,
provided, however, that such number shall not be less than five
(5). The directors elected at any annual meeting of
shareholders prior to the 2007 annual meeting of the
Companys shareholders, shall be classified into
There shall be three classes of elected
directors designated as Class 1, Class 2, and
Class 3 directors. Each class shall contain one-third of
the total number of directors, as near as may be. The terms of
the Class 1 directors shall expire at the first annual
shareholders meeting after their election. The terms of
the Class 2 directors shall expire at the second annual
shareholders meeting after their election. The terms of
the Class 3 directors shall expire at the third annual
shareholders meeting after their election. At each
annual meeting of the Companys shareholders from and after
the Companys annual meeting of shareholders to be held in
2007, the directors shall be elected for terms lasting until the
next annual meeting of shareholders following their election,
and until their successors are elected and qualified, subject to
their earlier death, resignation or removal. At each
annual shareholders meeting held thereafter, directors
shall be chosen for a term of three years to succeed those whose
terms expire. A vacancy on the Board of Directors may
be filled by the Board in accordance with the applicable
provisions of the Companys Bylaws. A director elected to
fill a vacancy shall be elected for a term of office continuing
only until the next election of directors by shareholders.
C-1
1201 THIRD AVENUE, SEATTLE, WA 98101
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 18, 2006 at 1:30 p.m.
S. Mark Taper Foundation Auditorium
Benaroya Hall
200 University Street
Seattle, Washington
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
WASHINGTON MUTUAL, INC.
The undersigned shareholder(s) of Washington Mutual, Inc. (the
Company) hereby appoints William L. Lynch and Fay L. Chapman, and
each of them, as proxies, each with the power of substitution to
represent and to vote, as designated on the reverse side, all the shares of Common Stock held of record by the undersigned on
February 24, 2006, at the Annual Meeting of Shareholders of the
Company to be held at 1:30 p.m., Tuesday, April 18, 2006, and at
any and all adjournments thereof. Each share of Common Stock is
entitled to one vote per share on each of the items properly
presented at the Annual Meeting.
If you are a participant in the WaMu Savings Plan (the Plan), you
have the right to direct Fidelity Management Trust Company
(Fidelity), as trustee of the Plan, regarding how to vote the shares of Company Common Stock attributable to your individual
account under the Plan, and the enclosed proxy card also acts
as a direction form to provide voting directions to Fidelity.
Fidelity will vote shares of Common Stock attributable to
participant accounts as directed by such participants. Fidelity
will not vote shares of Common Stock attributable to participant
accounts for which it does not receive participant direction by
April 13, 2006.
Shares represented by all properly executed proxies will be voted
in accordance with instructions appearing on the proxy and in the
discretion of the proxy holders as to any other matter that may
properly come before the Annual Meeting of Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE IN ITEM 1 AND FOR ITEMS 2, 3, 4
and 5, and AGAINST ITEM 6. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED
FOR EACH NOMINEE IN ITEM 1 AND FOR ITEMS 2, 3, 4 and 5, and AGAINST ITEM 6, AND IN THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OF SHAREHOLDERS.
(Continued and to be signed on the reverse side)
VOTE BY INTERNET www.proxyvote.com
Use the Internet to transmit your
voting instructions and for electronic
delivery of information up until 11:59
P.M. Eastern Time April 17, 2006. Have
your proxy card in hand when you access
the web site and follow the
instructions to obtain your records and
to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE
SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs
incurred by Washington Mutual, Inc. in
mailing proxy materials, you can
consent to receiving all future proxy
statements, proxy cards and annual
reports electronically via e-mail or
the Internet. To sign up for electronic
delivery, please follow the
instructions above to vote using the
Internet and, when prompted, indicate
that you agree to receive or access
shareholder communications
electronically in future years.
VOTE BY PHONE 1-800-690-6903
Use any touch-tone telephone to
transmit your voting instructions up
until 11:59 P.M. Eastern Time April 17,
2006. Have your proxy card in hand
when you call and then follow the
instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the postage-paid envelope
we have provided or return it to
Washington Mutual, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: x
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Vote on
Proposals |
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FOR
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AGAINST
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ABSTAIN |
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The Board of Directors recommends
that you vote FOR the following Proposals 2, 3, 4 and 5: |
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For All
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Withhold
For All
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Company proposal to ratify the
appointment of Deloitte & Touche LLP as the
Companys independent auditors for 2006 |
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1. Election of Directors: |
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(Instructions: To withhold
authority to vote for any
individual nominee(s), mark For
All Except and write the
nominee(s) name(s) on the line
below.
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For
All Except
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To approve the Washington Mutual, Inc.
Amended and Restated 2003 Equity
Incentive Plan, including an increase in
the number of shares that may be subject
to awards made thereunder
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The
Board of Directors recommends that you vote FOR all nominees.
Nominees (Terms will expire in
2009):
01 Kerry K. Killinger
02 Thomas C. Leppert
03 Charles M. Lillis
04 Michael K. Murphy
05 Orin C. Smith
Nominee
(Term will expire in 2007)
06 Regina Montoya
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To approve the Washington Mutual, Inc.
Executive Incentive Compensation Plan
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To approve the Company proposal to
amend the Washington Mutual, Inc. Articles
of Incorporation (as amended) to declassify
the Board of Directors and establish annual
elections for all Company directors
commencing with the 2007 annual meeting,
rather than the current staggered
three-year terms
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The Board of Directors recommends
that you vote AGAINST the following Proposal 6: |
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Shareholder proposal relating to
disclosure of the Companys political
contributions
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HOUSEHOLDING ELECTION - Please indicate if you consent to receive certain future
investor communications in a single package per household.
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YES |
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HOUSEHOLDING ELECTION
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→
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(Please sign as name(s) appear on this
proxy and date this proxy. If a joint
account, each joint owner must sign.
If signing for a corporation or
partnership or as agent, attorney or
fiduciary, indicate the capacity in
which you are signing.)
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Signature (Joint Owners)
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Date |