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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Washington Mutual, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[WASHINGTON MUTUAL LOGO]
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
MARCH 21, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Washington Mutual
shareholders that will be held on Tuesday, April 17, 2001, at 2:00 p.m., in
Ballroom 6E of the Washington State Convention and Trade Center, 900 Convention
Place at Ninth Avenue and Pike Street, Seattle, Washington. I look forward to
greeting as many of our shareholders as possible.
As set forth in the attached Proxy Statement, the meeting will be held to
consider the election of directors, proposed amendments to the Equity Incentive
Plan and Bonus and Incentive Plan for Executive Officers and Senior Management,
and the ratification of the appointment of the independent auditors for 2001.
Please read the attached Proxy Statement carefully for information on the
matters shareholders are being asked to consider and vote on.
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 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.
Sincerely,
/s/ Kerry K. Killinger
Kerry K. Killinger
Chairman, President and Chief
Executive Officer
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WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 2001
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To the Shareholders of Washington Mutual, Inc.:
The Annual Meeting of Shareholders of Washington Mutual, Inc. will be held
on Tuesday, April 17, 2001, at 2:00 p.m., in Ballroom 6E of the Washington State
Convention and Trade Center, 900 Convention Place at Ninth Avenue and Pike
Street, Seattle, Washington, for the following purposes:
1. To elect five directors for a term of three years and one director for a
term of one year;
2. To amend the Company's Equity Incentive Plan;
3. To amend the Company's Bonus and Incentive Plan for Executive Officers
and Senior Management;
4. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors for 2001; and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
YOUR BOARD OF DIRECTORS URGES SHAREHOLDERS TO VOTE FOR ITEMS 1, 2, 3 AND 4.
All of these proposals are more fully described in the Proxy Statement
which follows. Shareholders of record at the close of business on March 2, 2001,
will be entitled to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ William L. Lynch
William L. Lynch
Secretary
March 21, 2001
IMPORTANT
Whether or not you expect to attend 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 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.
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CONTENTS
PAGE
----
Proxy Statement...................................................... 1
General Information for Shareholders................................. 1
ITEM 1. Election of Directors....................................... 2
Principal Holders of Common Stock.................................... 7
Security Ownership of Directors and Executive Officers............... 8
Executive Compensation............................................... 10
Pension Plans and Agreements......................................... 13
Certain Relationships and Related Transactions....................... 15
Report of the Compensation and Stock Option Committee................ 16
Report of the Audit Committee........................................ 20
Principal Accountant's Fees.......................................... 20
Performance Graph.................................................... 21
Section 16(a) Beneficial Ownership Reporting Compliance.............. 22
ITEM 2. Amendment of the Company's Equity Incentive Plan............ 22
ITEM 3. Amendment of the Company's Bonus and Incentive Plan for
Executive Officers and Senior Management.................... 25
ITEM 4. Ratification of Appointment of Independent Auditors......... 28
Annual Report........................................................ 28
Shareholder Proposals for the 2002 Annual Meeting.................... 29
Other Matters........................................................ 29
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WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
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PROXY STATEMENT
FOR 2001 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 17, 2001
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THE BOARD OF DIRECTORS IS SOLICITING PROXIES TO BE VOTED AT THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 17, 2001, AT 2:00 P.M., AND AT ANY ADJOURNMENTS
THEREOF, FOR THE PURPOSES SET FORTH IN THE ATTACHED NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS. THE COMPANY ANTICIPATES THAT THE NOTICE, THIS PROXY STATEMENT AND
THE FORM OF PROXY ENCLOSED WILL FIRST BE SENT TO ITS SHAREHOLDERS ON OR ABOUT
MARCH 21, 2001.
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WHO CAN VOTE HOW YOU CAN VOTE
Only shareholders of record at the close of business on If you hold your shares as a shareholder of record, you
March 2, 2001 will be entitled to vote at the Annual Meeting. can vote in person at the Annual Meeting or you can vote
As of March 2, 2001, the Company had 583,802,776 shares of via the internet, by telephone or by mail as instructed
Common Stock ("Common Stock") outstanding (including by the enclosed proxy card. Whichever method you use,
12,000,000 shares of Common Stock held in escrow) and the proxies identified on the back of the proxy card
2,000,000 Premium Income Equity Securities ("PIES") out- will vote the shares of which you are the shareholder of
standing. Each share of Common Stock is entitled to one vote record in accordance with your instructions. If you
per share and each PIES (by virtue of the share of Series H submit a proxy card without giving specific voting
Preferred Stock pledged to secure the obligations comprising instructions, the proxies will vote the shares as
each PIES) is entitled to one-tenth vote per PIES for each of recommended by the Board of Directors.
the items properly presented at the Annual Meeting.
If you own your shares through a brokerage account or in
WHAT YOU ARE VOTING ON another nominee form, you must provide instructions to
the broker or nominee as to how your shares should be
You are voting on: voted. Your broker or nominee will generally provide you
with the appropriate forms at the time you receive this
- The election of five directors for a term of three Proxy Statement and the annual report. If you own your
years (Anne V. Farrell, Stephen E. Frank, Enrique Her- shares through a brokerage account or nominee, you
nandez, Jr., Mary E. Pugh and William D. Schulte) and cannot vote in person at the Annual Meeting unless you
one director for a term of one year (William P. receive a proxy from the broker or the nominee.
Gerberding).
HOW YOU MAY REVOKE OR CHANGE YOUR VOTE
- The amendment of the Company's Equity Incentive Plan.
If you are the record owner of your shares, you may
- The amendment of the Company's Bonus and Incentive Plan revoke your proxy at any time before it is voted at the
for Executive Officers and Senior Management. Annual Meeting (1) by submitting a new proxy card, (2)
by delivering written notice to the Secretary of the
- The ratification of the appointment of Deloitte & Company before April 17, 2001, stating that you are
Touche LLP as independent auditors for 2001. revoking your proxy, or (3) by attending the Annual
Meeting and voting your shares in person. Attendance at
VOTES REQUIRED/VOTING PROCEDURES the Annual Meeting will not, in itself, constitute
revocation of your proxy.
Under Washington law, any shareholder action at a meet-
ing requires that a quorum exist with respect to that action. COSTS OF SOLICITATION
A quorum for the actions to be taken at the Annual Meeting
will consist of a majority of the outstanding shares of The Company will bear the cost of preparing, printing
Common Stock entitled to vote, present in person or by proxy and mailing material in connection with this
at the Annual Meeting. Shareholders of record who are present solicitation of proxies. In addition to mailing
at the Annual Meeting in person or by proxy and who abstain, material, officers and regular employees of the Company
including brokers holding customers' shares of record who may, without being additionally compensated, solicit
cause abstentions to be recorded at the Annual Meeting, are proxies personally and by mail, telephone, telegram or
considered shareholders who are present and entitled to vote, facsimile. The Company will reimburse banks and brokers
and will count toward the quorum. for their reasonable out-of-pocket expenses related to
forwarding proxy material to beneficial owners of stock
If a quorum exists at the Annual Meeting, each action or otherwise in connection with this solicitation. The
proposed will be approved if the number of votes cast in Company has retained Georgeson Shareholder
favor of the proposed action exceeds the number of votes cast Communications Inc. to assist in the solicitation at a
against it. Consequently, abstentions and broker non-votes cost of approximately $10,000, plus reasonable
will have no impact on any of the proposals set forth in the out-of-pocket expenses.
Notice of Annual Meeting.
WHO WILL COUNT THE VOTE
WASHINGTON MUTUAL PLANS
Proxies and ballots will be received and tabulated by
If you are a participant in the Equity Incentive Plan, Automated Data Processing.
the Retirement Savings and Investment Plan ("RSIP"), the Em-
ployees' Stock Purchase Program or the Pioneer Savings Bank
Employee Stock Ownership Plan and Trust, you may direct the
trustee or plan administrator how to vote the number of
shares allocated to your account. The enclosed proxy
indicates any Common Stock allocated to your account.
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ITEM 1. ELECTION OF DIRECTORS
NOMINEES
The Board of Directors of Washington Mutual currently consists of 18
directors, who are divided into three classes. The members of each class
ordinarily serve three-year terms, with one class elected annually. The Board of
Directors has nominated each of the following persons for election as a director
to serve a three-year term expiring at the Company's Annual Meeting of
Shareholders in the year indicated above such person's name, except that Mr.
Gerberding has been nominated to serve a one-year term since he will be retiring
at the Annual Meeting of Shareholders following the year in which he reaches age
72:
TERM ENDING 2002
William P. Gerberding
TERM ENDING 2004
Anne V. Farrell
Stephen E. Frank
Enrique Hernandez, Jr.
Mary E. Pugh
William D. Schulte
Each of the nominees has indicated that he or she is willing and able to
serve as a director. If any nominee becomes unable or unwilling to serve, the
accompanying proxy may be voted for the election of such other person as shall
be designated by the Planning and Nominating Committee of the Board of
Directors. Unless instructions to the contrary are specified in a proxy properly
voted and returned through available channels, the proxies will be voted in
favor of the six nominees listed above.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE NOMINEES.
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DIRECTORS
The following table sets forth information regarding each of the Company's
directors, including all nominees for election as a director. John W. Ellis, a
current director, will retire at the Annual Meeting. Except as otherwise
indicated, each director has been engaged in the principal occupation described
below for at least five years.
COMPANY EXPIRATION OF
NAME AGE DIRECTOR SINCE TERM AS DIRECTOR
---- --- -------------- ----------------
Douglas P. Beighle..................... 68 1989 2003
David Bonderman........................ 58 1997 2002
J. Taylor Crandall..................... 47 1997 2003
Roger H. Eigsti........................ 58 1992 2002
John W. Ellis.......................... 72 1970 2001
Anne V. Farrell........................ 65 1994 2001
Stephen E. Frank....................... 59 1997 2001
William P. Gerberding.................. 71 1979 2001
Enrique Hernandez, Jr. ................ 45 1997 2001
Kerry K. Killinger..................... 51 1988 2003
Phillip D. Matthews.................... 62 1998 2002
Michael K. Murphy...................... 64 1985 2003
Mary E. Pugh........................... 41 1999 2002
William G. Reed, Jr. .................. 62 1970 2002
Elizabeth A. Sanders................... 55 1998 2003
William D. Schulte..................... 68 1998 2001
James H. Stever........................ 57 1991 2002
Willis B. Wood, Jr. ................... 66 1997 2003
Mr. Beighle has been a consultant to The Boeing Company since 1997. From
1981 through 1997, he held various positions at Boeing, including Senior Vice
President of The Boeing Company from 1986 to 1997. Mr. Beighle serves as a
director of Puget Sound Energy, Inc. and Simpson Investment Company.
Mr. Bonderman has been Managing Director of Texas Pacific Group since 1992.
He is a director of Bell & Howell Company, Inc., Continental Airlines, Inc.,
Co-Star Realty Information, Inc., Denbury Resources Inc., Magellan Health
Services, Inc., Oxford Health Plans, Inc., Paradyne Networks, Inc., Ryanair,
Ltd. and SCG Holding Corporation & Semiconductor Components Group, LLC.
Mr. Crandall has been Chief Operating Officer and Vice President of
Keystone, Inc. since August 1998, and Managing Partner of Oak Hill Capital
Management, Inc., since October 1998. In addition, Mr. Crandall was a Vice
President and director of National Re Holdings Corp. from 1989 until 1997 and
served as Treasurer of that company until 1990. Mr. Crandall is a director of
Bell & Howell Company, Inc., Specialty Foods, Inc., Sunterra Corporation and US
Oncology, Inc.
Mr. Eigsti served as Chairman and Chief Executive Officer of SAFECO
Corporation from May 1993 until his retirement in December 2000. Mr. Eigsti also
served as SAFECO's President from May 1989 until August 1996, Chief Operating
Officer from May 1989 until January 1992, and Executive Vice President and Chief
Financial Officer from February 1985 until May 1989.
Mr. Ellis is a director of The Baseball Club of Seattle, L.P. He served as
its Chairman and Chief Executive Officer from 1992 through 1999. In addition,
Mr. Ellis served at Puget Sound Energy, Inc. as Chairman from 1988 until 1993
and as Chief Executive Officer from 1970 until 1993. Mr. Ellis is a director of
Associated Electric & Gas Insurance Service Ltd., Puget Sound Energy, SAFECO
Corporation and UTILX Corporation and Chairman Emeritus of the Seattle Mariners
Baseball Club.
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Mrs. Farrell has served as President and Chief Executive Officer of The
Seattle Foundation, a charitable and educational corporate foundation, since
1984. Mrs. Farrell also serves as a trustee of the registered investment
companies that comprise the WM Group of Funds. The investment adviser to the
funds is an indirect wholly owned subsidiary of Washington Mutual.
Mr. Frank has served as Chairman, President and Chief Executive Officer of
Southern California Edison, the largest subsidiary of Edison International,
since June 1995. He also serves as a director of both Southern California Edison
and Edison International. Mr. Frank was the President, Chief Operating Officer
and a director of Florida Power and Light Company from August 1990 until June
1995. From 1988 until 1990, he was Executive Vice President and Chief Financial
Officer of TRW, Inc. Mr. Frank is a director of Aegis Insurance Services, Inc.,
LNR Property Corporation and UNOVA, Inc.
Mr. Gerberding serves as a director of SAFECO Corporation and is a member
of the board of directors of the Seattle Opera. Mr. Gerberding served as
President of the University of Washington from 1979 through 1995.
Mr. Hernandez has been Chairman, Chief Executive Officer and President of
Inter-Con Security Systems since 1984. He is also a co-founder and has been
principal partner since 1988 of Interspan Communications, a television broadcast
company serving Spanish-speaking audiences. Prior to becoming President of
Inter-Con, he served as Vice President and Assistant General Counsel from 1984
to 1985 and as Executive Vice President from 1985 to 1986. Mr. Hernandez serves
as a director of McDonald's Corporation, Nordstrom, Inc. and Tribune Company.
Mr. Killinger has been Chairman, President and Chief Executive Officer of
Washington Mutual since 1991. 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 has served as a director of the Federal Home Loan Bank of
Seattle since 1995 and a director of Simpson Investment Company since 1997.
Mr. Matthews is Chairman of the Executive Committee and Lead Director of
Wolverine World Wide, Inc. and served as its Chairman from 1993 through 1996. He
is also Chairman of the Board of Sizzler International, Inc. Mr. Matthews was
Chairman and Chief Executive Officer of The Reliable Company from 1992 to 1997.
Mr. Murphy is President and Chief Executive Officer of CPM Development
Corporation, the parent company of Central Pre-Mix Concrete Company and Inland
Asphalt Company. Mr. Murphy also serves as a trustee of the registered
investment companies that comprise the WM Group of Funds. The investment adviser
to the funds is an indirect wholly owned subsidiary of Washington Mutual.
Ms. Pugh is founder and President of Pugh Capital Management, Inc., a fixed
income money management company. Prior to establishing Pugh Capital in 1991, Ms.
Pugh served in a number of positions at Washington Mutual, including Senior Vice
President of the Portfolio Management Division of Washington Mutual Bank from
1989 to 1991. Ms. Pugh is a director and executive committee member of the
Greater Seattle Chamber of Commerce, Chair of the Community Development
Roundtable and a director of the Seattle branch of the Federal Reserve Bank of
San Francisco.
Mr. Reed is Chairman of the Board of SAFECO Corporation and a director of
Simpson Investment Company, the holding company for Simpson Paper Company and
Simpson Timber Company. He was Chairman of Simpson Investment Company from 1971
to 1996. Mr. Reed also serves as a director of Microsoft Corporation, PACCAR,
Inc. and The Seattle Times.
Ms. Sanders is founder and Principal of The Sanders Partnership, an
executive management and leadership consulting firm. Prior to 1990, she served
as a Vice President and General Manager of Nordstrom, Inc. She is also a
director of Advantica Restaurant Group, Inc., Wal-Mart Stores, Inc., WellPoint
Health Networks Inc. and Wolverine World Wide, Inc.
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Mr. Schulte served in various positions with KPMG from 1961 until his
retirement in 1990, including Managing Partner and member of the firm's
management committee from 1979 to 1986 and Vice Chairman and member of the board
of directors from 1986 until 1990. Mr. Schulte is a director of Parsons
Corporation.
Mr. Stever retired as Executive Vice President -- Public Policy of U S
WEST, Inc. on December 31, 1996, which position he had held since January 1996.
He was Executive Vice President -- Public Policy and Human Resources of U S
WEST, Inc. from November 1994 to January 1996 and was Executive Vice
President -- Public Policy of U S WEST, Inc. and U S WEST Communications, Inc.
from 1993 until 1994. He was President -- Public Policy of U S WEST
Communications, Inc. from 1990 until 1993 and President -- Business Division
from 1988 until 1990.
Mr. Wood retired as Chairman, Chief Executive Officer and director of
Pacific Enterprises, the holding company of Southern California Gas Company in
1998. Mr. Wood served in various positions, including as executive officer of
Pacific Enterprises' subsidiaries since 1960. Mr. Wood is a director of American
Automobile Association (AAA) and the Automobile Club of Southern California.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of Washington Mutual has an Audit Committee, a
Compensation and Stock Option Committee (the "Compensation Committee"), a Loan
and Investment Committee, a Corporate Development Committee, a Corporate
Relations Committee and a Planning and Nominating Committee.
The Audit Committee's function is to meet with management, the internal
auditors and the independent auditors to review and evaluate the Company's
audited financial statements and to monitor and oversee the Company's internal
control system, its accounting and financial reporting process, its audit
function and its compliance with applicable laws and regulations. This Committee
currently consists of Messrs. Beighle (Chair), Eigsti, Frank, Hernandez, Reed
and Schulte.
The Compensation Committee reviews and approves compensation policies for
all employees; develops, approves and administers the salaries, bonuses and
equity compensation of all executive and senior officers of Washington Mutual
and its subsidiaries; reviews compensation programs and practices for the Chief
Executive Officer; and has supervisory control over the administration of
Washington Mutual's compensation, stock option and other equity incentive plans,
its pension and retirement plans and its other benefit plans and programs. This
Committee currently consists of Messrs. Ellis (Chair), Beighle, Bonderman,
Stever and Wood and Ms. Sanders.
The Loan and Investment Committee has supervisory control over all
investments in, and dispositions of, securities and loans, all purchases of real
estate and dispositions of property acquired by Washington Mutual (excluding the
Company's premises or other real property acquired for use by the Company). This
Committee currently consists of Messrs. Murphy (Chair), Crandall, Eigsti, Frank,
Killinger (ex officio member), Matthews and Schulte and Ms. Pugh.
The Corporate Development Committee was formed in December 1997 to review,
on a case-by-case basis, with Washington Mutual's management all potential
acquisitions presented to it. This Committee currently consists of Messrs.
Killinger (Chair), Beighle, Bonderman, Ellis and Wood.
The Corporate Relations Committee was formed in December 1997 to monitor
the Company's charitable giving and community service activities, including
implementation of its ten-year $120 billion commitment to community
reinvestment. This Committee currently consists of Mrs. Farrell (Chair), Messrs.
Gerberding, Killinger (ex officio member), Murphy and Wood and Ms. Pugh and Ms.
Sanders.
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The Planning and Nominating Committee monitors Washington Mutual's
operating and financial condition, reviews and approves Washington Mutual's
strategic and operational plans and programs and assists the Board of Directors
in policymaking functions. The Committee also recommends persons to fill
vacancies on the Board of Directors and reviews the structure and operation of
the Board of Directors. Pursuant to the Company's Bylaws, the Committee
considers shareholder-recommended nominees for the Board of Directors, provided
that such shareholder nominations must be submitted to the Company's Secretary
not less than 90 days in advance of the mailing of the Proxy Statement as based
on the prior year's mailing date. This Committee currently consists of Messrs.
Reed (Chair), Ellis, Gerberding, Hernandez, Killinger (ex officio member),
Matthews and Stever and Mrs. Farrell.
During 2000, the Company's Board of Directors met ten times. Each director,
except Mr. Bonderman, attended at least 75% of the aggregate of the total number
of meetings of the Board of Directors and the total number of all meetings held
by committees on which he or she served.
COMPENSATION OF DIRECTORS
Non-employee directors are compensated for their service on the Board of
Directors and any committees on which they serve. Effective January 1, 2001,
each non-employee director is paid an annual retainer fee of $35,000. Each
director also receives $750 for attendance at purely telephonic board meetings
and $1,500 for attendance in person or by telephone at other board meetings. In
addition, directors who serve on committees receive $600 for attendance at
purely telephonic committee meetings and $1,200 for attendance in person or by
telephone at other committee meetings, plus travel and accommodation expenses,
except that Corporate Development Committee members receive an annual fee of
$6,000 in lieu of any fees for committee meeting attendance. The Chairman of the
Audit Committee receives an additional annual fee of $7,000; the Chairman of the
Compensation Committee receives an additional annual fee of $5,000; the Chairman
of the Loan and Investment Committee receives an additional annual fee of
$5,000; the Chairman of the Corporate Relations Committee receives an additional
annual fee of $3,000; and the Chairman of the Planning and Nominating Committee
receives an additional annual fee of $3,000. Mr. Killinger receives no
compensation as a director.
Pursuant to the Washington Mutual 1994 Stock Option Plan Amended and
Restated as of February 15, 2000 (the "1994 Stock Option Plan"), in December of
each year each non-employee director receives a grant of options to purchase
4,000 shares of Common Stock at an exercise price equal to the fair market value
of the Common Stock on the date of grant. All such options vest on the first
anniversary of the grant.
Messrs. Frank, Hernandez and Wood have residential loans outstanding with a
non-bank subsidiary of Washington Mutual. All such loans were made by Great
Western Financial Corporation ("GWFC") prior to the merger of GWFC with a
subsidiary of the Company in July 1997 (the "Great Western Merger") pursuant to
the Great Western Home Loan Program (the "GW Home Loan Program") described in
this Proxy Statement under "Certain Relationships and Related
Transactions -- Indebtedness of Management." Interest on those loans is
generally at monthly adjustable rates equal to the cost of funds of Washington
Mutual Bank, FA ("WMBFA"), a wholly owned subsidiary of Washington Mutual, plus
0.25%. This rate was approximately 0.82% below that on similar loans made to the
general public in 2000. The economic benefit of preferential loans under the GW
Home Loan Program to Messrs. Frank, Hernandez and Wood in 2000 was,
respectively, $8,226, $17,646 and $8,431.
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Messrs. Frank, Hernandez and Wood are entitled to certain retirement
benefits under an unfunded directors' retirement plan for which Washington
Mutual has assumed responsibility as successor to GWFC. Upon termination of
service on GWFC's 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 director's
termination. Benefits are payable for a period equal to the number of years that
the eligible director served as a director and will be provided to the surviving
spouse or other designated beneficiary following an eligible director's death.
Washington Mutual has purchased company-owned cost-recovery life insurance on
the lives of the participants in the plan. Messrs. Frank and Hernandez are
entitled to receive quarterly payments of $11,650 under the plan until October
2008 and Mr. Wood is entitled to receive such payments until October 2011.
Accordingly, in 2000 each of the three directors received payments aggregating
$46,600 under the plan.
Messrs. Matthews and Schulte are entitled to certain retirement benefits
under an unfunded directors' retirement plan for which Washington Mutual has
assumed responsibility as successor to H.F. Ahmanson & Company ("Ahmanson").
Upon termination of service on Ahmanson's Board of Directors, each eligible
director became entitled under the plan to an annual retirement benefit equal to
the director's pay during the twelve month period immediately preceding
retirement from such Board. Benefits are payable for a period equal to the
number of years that the eligible director served as an Ahmanson director and
will be provided to the surviving spouse or other designated beneficiary
following an eligible director's death. Washington Mutual has purchased company-
owned cost-recovery life insurance on the lives of the participants in the plan.
Messrs. Matthews and Schulte began receiving monthly payments of $2,000 under
the plan beginning April 1, 1999. Messrs. Matthews and Schulte are entitled to
receive this benefit through May 2002 and September 2006, respectively.
Messrs. Frank, Hernandez and Wood 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.
Interest accrues on fund balances under the plan at enhanced rates. Those
interest amounts exceeded 120% of the applicable federal long-term rate
compounded annually by $2,395, $2,408 and $2,714, respectively, for Messrs.
Frank, Hernandez and Wood during 2000.
PRINCIPAL HOLDERS OF COMMON STOCK
The Company knows of no person that owned more than 5% of the outstanding
shares of the Company's Common Stock as of March 2, 2001.
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table and accompanying footnotes provide a summary of the
beneficial ownership of the Common Stock as of March 2, 2001, by (i) directors,
(ii) the Company's Chief Executive Officer, (iii) the other executive officers
named in the executive 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 of the individuals listed below owns less than 1% of the outstanding
shares and voting power of the Common Stock of the Company, except that the
Company's directors and executive officers as a group hold approximately 1.97%.
In most cases, each individual has sole voting and investment power with respect
to the shares he or she beneficially owns. Where that is not the case, voting
and investment power is clarified in a footnote.
SHARES OF SHARES OF OPTIONS
NAME COMMON STOCK(1) RESTRICTED STOCK(2) EXERCISABLE(3) TOTAL
---- --------------- ------------------- -------------- ----------
Douglas P. Beighle...... 22,279 885 16,000 39,164
David Bonderman......... 2,945,720(4) 885 11,500 2,958,105
J. Taylor Crandall...... 2,474,189(5) 885 11,500 2,486,574
Craig S. Davis.......... 28,945(6) 20,677 215,384 265,006
Roger H. Eigsti......... 20,000 885 16,000 36,885
John W. Ellis........... 43,475(7) 885 16,000 60,360
Anne V. Farrell......... 6,000(8) 885 14,500 21,385
Stephen E. Frank........ 2,800 885 26,875 30,560
William P. Gerberding... 6,051(9) 885 16,000 22,936
Enrique Hernandez,
Jr. .................. 675 885 26,875 28,435
Kerry K. Killinger...... 1,219,701(10) 84,679 1,337,831 2,642,211
William A. Longbrake.... 484,166(11) 23,146 252,834 760,146
Phillip D. Matthews..... 5,000 686 14,943 20,629
Michael K. Murphy....... 13,050(12) 885 16,000 29,935
Deanna W. Oppenheimer... 58,103(13) 22,528 265,070 345,701
Mary E. Pugh............ 1,739 552 4,000 6,291
William G. Reed, Jr. ... 76,562(14) 885 16,000 93,447
Elizabeth A. Sanders.... 11,670(15) 686 12,040 24,396
William D. Schulte...... 4,200 686 33,880 38,766
James H. Stever......... 14,200(16) 885 16,000 31,085
Craig E. Tall........... 278,162(17) 23,578 293,836 595,576
Willis B. Wood, Jr...... 8,999 885 26,875 36,759
All directors and
executive officers as
a group (27
persons).............. 7,957,184(18) 250,939 3,283,751 11,491,874
- ---------------
(1) All fractional shares have been rounded up to the next highest share.
(2) All restricted stock included is subject to divestiture.
(3) All options included are exercisable within 60 days after March 2, 2001.
(4) Includes 383,275 shares held in escrow for the benefit of Keystone Holdings
Partners, L.P. ("KH Partners") and its transferees pursuant to the merger
agreement dated July 21, 1996, as amended November 1, 1996, by and among
Washington Mutual, KH Partners, Keystone Holdings, Inc. and certain of its
subsidiaries (the "Keystone Merger Agreement"). KH Partners has distributed
voting rights over such shares to its partners in accordance with their
sharing percentages, and Mr. Bonderman, as a limited partner of KH
Partners, may be deemed to be the beneficial owner of 383,275 shares as to
which voting rights have been distributed to him. In
8
13
addition, Mr. Bonderman is the president and sole shareholder of KH Group
Management, Inc. ("KH Group") which is the direct beneficial owner of
547,215 shares of Common Stock. This number includes 91,428 shares held in
escrow pursuant to the Keystone Merger Agreement. KH Group, as a limited
partner of KH Partners, may be deemed to be the beneficial owner of such
91,428 shares, as to which voting rights have been distributed to it.
Finally, Mr. Bonderman is the president and sole shareholder of Bondo, FTW,
Inc., which is the direct beneficial owner of 103,479 shares of Common
Stock.
(5) Includes 83,142 litigation escrow shares held for the benefit of KH
Partners and its transferees, as to which voting rights have been
distributed to Mr. Crandall in accordance with his sharing percentage as a
limited partner of KH Partners. Includes 21,183 shares held by Acadia MGP,
Inc. ("Acadia MGP") and 1,558,336 litigation escrow shares held for the
benefit of KH Partners and its transferees, as to which voting rights have
been distributed to Acadia Partners, L.P. ("Acadia") in accordance with its
sharing percentage as a limited partner of KH Partners. Mr. Crandall is the
president and sole shareholder of Acadia MGP, which is the managing general
partner of Acadia FW Partners, L.P., which in turn is the sole general
partner of Acadia. Mr. Crandall disclaims beneficial ownership of any
shares owned by Acadia in excess of the greater of Mr. Crandall's direct
and indirect interest in the profits or capital account of Acadia.
(6) Includes 20,023 shares held in the Davis Family Trust and 4,488 shares held
in the RSIP.
(7) Includes 2,250 shares held in trust for the benefit of Mr. Ellis's
grandchildren.
(8) Includes 3,000 shares held jointly with Mrs. Farrell's spouse.
(9) Includes 2,632 shares held jointly with Mr. Gerberding's spouse.
(10) Includes 1,732 shares held in the RSIP.
(11) Includes 9,907 shares held directly by Mr. Longbrake's spouse, 5,013 shares
held directly by Mr. Longbrake's daughter, 5,013 shares held directly by
Mr. Longbrake's son, 20,350 shares held in a family foundation and 3,036
shares held in trust for the benefit of Mr. Longbrake's children.
(12) Includes 2,250 shares held jointly with Mr. Murphy's spouse.
(13) Includes 5,230 shares held in the RSIP.
(14) All shares are held jointly with Mr. Reed's spouse.
(15) Includes 1,680 shares held jointly with Ms. Sanders' spouse.
(16) Includes 1,200 shares held in the Stever Family Foundation, of which Mr.
Stever is the President, and 7,500 shares held jointly with Mr. Stever's
spouse.
(17) Includes 1,000 shares held directly by Mr. Tall's spouse and 55,040 shares
held in the RSIP.
(18) Includes 74,002 shares held in the RSIP.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation received from the Company
for the three fiscal years ended December 31, 2000, by the Company's Chief
Executive Officer and the four most highly paid executive officers (other than
the Chief Executive Officer) who were serving as executive officers at the end
of 2000 (collectively, the "Named Executive Officers"). Annual Compensation
includes amounts deferred at the Named Executive Officer's election.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
--------------------------------- -----------------------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
COMPEN- OPTIONS LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) GRANTED(#)(2) PAYOUTS($)(3) SATION($)(4)
--------------------------- ---- --------- --------- --------- ------------- ------------- ------------
Kerry K. Killinger............ 2000 1,000,000 2,461,000 0 520,000 $1,151,545 $369,140
Chairman, President and 1999 1,000,000 1,550,700 0 390,000 -- 241,140
Chief Executive Officer 1998 900,000 738,000 0 220,500 -- 214,247
Craig E. Tall................. 2000 460,000 695,500 0 135,000 321,841 112,641
Vice Chair, Corporate 1999 440,000 456,210 0 110,000 -- 82,823
Development and 1998 400,000 246,000 0 67,500 -- 62,923
Specialty Finance Group
Craig S. Davis................ 2000 450,000 695,500 0 135,000 265,635 62,983
President, Home Loans 1999 430,000 465,210 0 110,000 -- 39,241
and Insurance Services 1998 390,000 246,000 0 67,500 -- 34,895(5)
Group
Deanna W. Oppenheimer......... 2000 450,000 695,500 0 135,000 300,870 90,945
President, Banking and 1999 430,000 465,210 0 110,000 -- 63,204
Financial Services Group 1998 390,000 246,000 0 67,500 -- 52,357
William A. Longbrake.......... 2000 430,000 695,500 0 135,000 297,360 89,706
Vice Chair and Chief 1999 410,000 465,210 0 110,000 -- 79,491
Financial Officer 1998 380,000 246,000 0 67,500 -- 61,751
- ---------------
(1) In previous years, the Named Executive Officers were awarded restricted
stock. These awards have vesting provisions based on either performance
criteria or length of service. The number and value of the aggregate
restricted stock holdings of each of the Named Executive Officers, based on
the value of the Common Stock as of the close of trading on December 29,
2000, is set forth in the table below. Such holdings include restricted
stock awards previously reported as long-term incentive plan awards and
shares acquired through the reinvestment of dividends thereon, but exclude
shares with respect to which restrictions have lapsed. All fractional shares
have been rounded up to the next highest share.
NUMBER VALUE AT
NAME OF SHARES DECEMBER 29, 2000
---- --------- -----------------
Kerry K. Killinger................................ 84,162 $4,465,840
Craig E. Tall..................................... 23,433 1,243,430
Craig S. Davis.................................... 20,550 1,090,411
Deanna W. Oppenheimer............................. 22,390 1,188,064
William A. Longbrake.............................. 23,004 1,220,640
(2) The options shown in this column as 2000 compensation were granted on
December 21, 1999.
(3) The amounts shown in this column represent the value, as of March 31, 2000,
of shares of restricted stock on which restrictions based upon achievement
of performance-based criteria have lapsed.
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(4) The amounts shown in this column include the following:
(a) Profit sharing and Company matching contributions under the Company's
RSIP during fiscal 2000 of $9,900 for each of Messrs. Killinger, Tall,
Davis and Longbrake and Ms. Oppenheimer.
(b) Allocations under the Company's Supplemental Employee Retirement Plan
(the "SERP") during fiscal 2000 of $218,660, $61,580, $53,083, $40,445
and $60,764 to the accounts of Messrs. Killinger, Tall, Davis and
Longbrake and Ms. Oppenheimer, respectively. The SERP is a nonqualified,
non-contributory plan of deferred compensation to provide benefits that
exceed certain limits imposed by federal tax laws on benefit accruals
under the Company's Cash Balance Pension Plan and the RSIP.
(c) Allocations under the Supplemental Executive Retirement Accumulation Plan
(the "SERAP") during fiscal 2000 of $140,580, $41,161, $39,361 and
$20,281 to the accounts of Messrs. Killinger, Tall, Longbrake and Ms.
Oppenheimer, respectively. The SERAP is an unfunded plan of deferred
compensation to provide retirement benefits for certain executive
employees of the Company and its affiliates. The Company's Compensation
Committee determines the level of benefits under the SERAP.
(5) Includes, in addition to amounts set forth in note 2 to this Summary
Compensation Table, $1,516 in 1998, of interest paid in excess of 120% of
the applicable federal long-term rate compounded annually on the balance of
funds in an unfunded deferred compensation plan for certain former employees
of American Savings Bank, F.A. ("ASB"). ASB became a subsidiary of the
Company upon the merger of Keystone Holdings, Inc. with and into Washington
Mutual on December 20, 1996 pursuant to the Keystone Merger Agreement and is
now WMBFA. No additional compensation may be deferred under this plan.
GRANTS OF STOCK OPTIONS IN 2000
The following table sets forth information on stock option grants during
fiscal 2000 to the Named Executive Officers. The options set forth in the table
below were granted on December 19, 2000 as a part of each recipient's 2001
compensation.
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE APPRECIATION FOR
SECURITIES TOTAL OPTIONS TEN YEAR OPTION TERM(2)
UNDERLYING GRANTED TO EXERCISE -----------------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE ($) ($)
---- ---------- ------------- --------- ---------- ------------- -------------
Kerry K. Killinger......... 530,000 10.3695 50.125 12/19/10 17,139,029 43,027,103
Craig E. Tall.............. 140,000 2.7391 50.125 12/19/10 4,527,291 11,365,650
Craig S. Davis............. 140,000 2.7391 50.125 12/19/10 4,527,291 11,365,660
Deanna W. Oppenheimer...... 140,000 2.7391 50.125 12/19/10 4,527,291 11,365,650
William A. Longbrake....... 140,000 2.7391 50.125 12/19/10 4,527,291 11,365,650
- ---------------
(1) Each of the options reflected in this table was granted to the respective
Named Executive Officer pursuant to the 1994 Stock Option Plan. The exercise
price of each option is equal to the fair market value of Common Stock on
the date of grant. The options vest over three years.
(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 Company's 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.
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AGGREGATE OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
The following table sets forth information on the exercise of stock options
during fiscal 2000 by each of the Named Executive Officers and the value of
unexercised options at December 29, 2000.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
Kerry K. Killinger......... 202,500 3,302,350 1,337,831 1,006,666 35,279,713 13,757,899
Craig E. Tall.............. -- -- 293,836 266,666 6,449,237 3,637,695
Craig S. Davis............. -- -- 215,834 266,666 4,012,771 3,637,695
Deanna W. Oppenheimer...... 3,336 86,472 265,070 266,666 5,650,138 3,637,695
William A. Longbrake....... 23,000 78,791 252,834 266,666 4,943,916 3,637,695
- ---------------
(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 based on the fair market value of Washington Mutual Common Stock
on the last trading day of the year, December 29, 2000, which was $53.0625.
There is no guarantee that, if and when these options are exercised, they
will have this value.
LONG-TERM INCENTIVE PLAN AWARDS IN 2000
The table below sets forth information with respect to performance shares
granted to the Named Executive Officers in 2000.
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD UNTIL CONTINGENT FUTURE PAYOUTS
UNITS OR OTHER MATURATION OR -------------------------------------
NAME RIGHTS (#) PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
---- ----------------- ------------------ ------------ --------- ----------
Kerry K. Killinger......... 53,000 2001-2003 13,250 53,000 132,500
Craig E. Tall.............. 14,000 2001-2003 3,500 14,000 35,000
Craig S. Davis............. 14,000 2001-2003 3,500 14,000 35,000
Deanna W. Oppenheimer...... 14,000 2001-2003 3,500 14,000 35,000
William A. Longbrake....... 14,000 2001-2003 3,500 14,000 35,000
Performance shares are contingent awards of Washington Mutual stock that
are paid out at the end of a three-year period only if the Company achieves
specified performance goals. The performance shares will be paid in Washington
Mutual stock and will earn dividend equivalents, which will be accrued in the
form of additional performance shares and paid in Washington Mutual stock when
and to the extent the related performance shares are paid. Performance shares
may be deferred under the Company's Deferred Compensation Plan.
For the 2001-2003 cycle, the performance share program will measure equally
three-year total shareholder return versus peers, return on common equity versus
peers and earnings per share growth versus peers. The total number of shares of
Washington Mutual stock delivered at the end of the three-year cycle will range
from zero to 250% of the contingent grant, with a target payout at the 60th
percentile.
The performance shares granted in 2000 for the 2001 - 2003 cycle were
granted contingent on shareholder approval of amendments to the Company's Equity
Incentive Plan described in this Proxy Statement under "Item 2. Amendment of the
Company's Equity Incentive Plan." Shareholder approval at this Annual Meeting of
the proposed amendments to the Equity Incentive Plan would satisfy this
contingency.
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PENSION PLANS AND AGREEMENTS
CASH BALANCE PENSION PLAN
Pursuant to the terms of the Cash Balance Pension Plan (the "Pension
Plan"), participants annually receive benefit accruals based upon eligible
compensation and interest credits on current and prior benefit accruals. The
crediting rate is based on years of service with Washington Mutual. Effective
January 1, 2000, for service up to four years, the benefit credit is 2.5%; for
service from five to nine years, the benefit credit is 3%; for service from ten
to fourteen years, the benefit credit is 4%; for service from fifteen to
nineteen years, the benefit credit is 5%; for twenty years or more, the benefit
credit is 6%. Eligible cash compensation includes base salary, incentive
payments, bonuses and overtime. The Pension Plan annually credits interest on
all benefit accruals at the rate quoted for the yield on U.S. government
securities adjusted to a constant maturity of 30 years at the beginning of each
Pension Plan year. The Pension Plan also credits benefit accruals (based on
years of service) each pay period. Interest credits are allocated daily to
participant accounts. The interest credit rate for 2000 was 6.15%. Participants
may elect to receive, at the time of termination, a lump sum distribution of
their vested balances or an annuitized payment from the Pension Plan's Trust
Fund. The Pension Plan complies with the Employee Retirement Income Security Act
of 1974 (ERISA). 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 employee's 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. There are no employee contributions to the Pension Plan.
The following is an estimate of annual benefits payable upon retirement at
normal retirement age to each of the Named Executive Officers under the Pension
Plan. These projections are based on an interest crediting rate of 6.5% and are
not subject to any deduction for Social Security or other offset amounts.
ESTIMATED ANNUAL
NAME BENEFITS AT 65 YEARS OF AGE($)
---- ------------------------------
Kerry K. Killinger................................ 56,931
Craig E. Tall..................................... 37,910
Craig S. Davis.................................... 35,188
Deanna W. Oppenheimer............................. 81,827
William A. Longbrake.............................. 14,906
EMPLOYMENT, TERMINATION AND CHANGE IN CONTROL AGREEMENTS
Employment Agreements. 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 or her sole discretion terminates the respective
agreement in accordance with its terms.
Under the employment agreements, the annual salary of the Named Executive
Officer is determined by the Compensation Committee of the Board of Directors.
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 Cause are defined in the
individual employment agreements), the Named Executive Officer will be paid
three times his or her total annual compensation including the greater of salary
and target bonus for the calendar year in which the termination occurs (if
established before the termination) or 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), but excluding the value of grants of
stock options or restricted stock. In addition, all of the Named Executive
Officer's outstanding, unvested options will immediately vest and become
exercisable, and, subject to prior approval of the
13
18
Compensation Committee, restrictions on all or certain grants of the Named
Executive Officer's restricted stock will immediately lapse. Pursuant to this
provision of the employment agreements, the Compensation Committee has
determined that, upon a Change in Control, the restrictions on the Named
Executive Officers' 1996 and 1997 performance-based restricted stock grants will
lapse, in whole or in part, based on Washington Mutual's achievement of certain
targeted levels of cumulative return on common equity (ROCE) through a specified
date on or before the effective date of the Change in Control. Mr. Killinger's
agreement provides that he also shall be entitled to such cash payments and
equity acceleration (the "Severance Payment") if he is terminated other than for
Cause (as defined in Mr. Killinger's agreement), whether or not a Change in
Control has occurred.
Under the terms of the agreements, if the Severance Payment constitutes a
"parachute payment" under Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), the agreement provides for payment of 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.
Pursuant to his 1982 employment agreement, Mr. Killinger entered into a
deferred bonus arrangement with Washington Mutual pursuant to which certain
deferred bonus amounts and accrued interest thereon are payable to Mr. Killinger
upon death, resignation or retirement. As of December 29, 2000, the accrued
benefits under such arrangement totaled $181,663.
Equity Incentive Plan. Unless otherwise specified in an employment
agreement or by the Compensation 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 Company's
shareholders receive cash, stock or other property in 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.
Bonus and Incentive Plan for Executive Officers and Senior
Management. Unless otherwise specified by the Compensation Committee in its
establishment of bonus criteria for a given bonus measurement period, if the
Company or its affiliates consummates one or more acquisitions that,
individually or in the aggregate, constitute a Triggering Acquisition, the bonus
measurement period will be terminated early and pro-rated bonuses will be paid
based on the degree of attainment of the performance goals during the shortened
bonus measurement period. A Triggering Acquisition is an acquisition in which
the acquired entity's operating earnings for the four calendar quarters before
the acquisition is equal to 10% or more of the pro-forma operating earnings for
the combined entities for the same period.
1994 Stock Option Plan. Unless otherwise specified in an employment
agreement or by the Compensation 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 Company's
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 an acquiring company.
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19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
In 2000 the Company paid approximately $115,208 to Pugh Capital Management,
Inc. for investment advisory services. Ms. Mary E. Pugh, a director of the
Company, is the President of Pugh Capital.
In December 2000 the Company entered into a professional services agreement
with Columbia Hospitality, Inc. ("CHI"), a property management company, for it
to provide project management services for the development of a Company employee
training center. Mr. John Oppenheimer, the husband of Ms. Deanna W. Oppenheimer,
President, Banking and Financial Services Group, is an owner of CHI. The
contract expires in December 2002. The Company will pay CHI a fee of $18,000 per
month during the term of the contract. In addition, CHI will receive an
administrative fee of 5% of the costs of any subcontractors retained by CHI.
INDEBTEDNESS OF MANAGEMENT
Except as set forth in the table below, no executive officer or director of
the Company was indebted to the Company or its subsidiaries at any time since
the beginning of 2000 in an amount in excess of $60,000. In each case Washington
Mutual or one of its subsidiaries is the lender for a residential loan secured
by a deed of trust or mortgage on the respective residence of the executive
officer or director.
LARGEST
AMOUNT INDEBTEDNESS CURRENT
OF INDEBTEDNESS NATURE OF OUTSTANDING AT INTEREST
NAME AND POSITION DURING 2000($) INDEBTEDNESS MARCH 2, 2000($) RATE(%)
----------------- --------------- ------------ ---------------- --------
Stephen E. Frank......................... 1,004,226 Residential(1) 987,637 5.6309
Director
Enrique Hernandez, Jr. .................. 831,785 Residential(1) 814,060 5.6309
Director 1,322,489 Residential(1) 1,298,397 5.6309
Willis B. Wood, Jr. ..................... 658,726 Residential(1) 642,627 5.6309
Director 370,467 Residential(1) 362,868 5.6309
- ---------------
(1) Interest on the loans is payable at monthly adjustable rates equal to
WMBFA's cost of funds plus 0.25%. The rates were approximately 0.82% below
similar loans to the public during 2000. The loans were made by GWFC prior
to the Great Western Merger, to Messrs. Frank, Hernandez and Wood as
directors of GWFC pursuant to the GW Home Loan Program. 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. Executive officers and directors
that had loans outstanding under the GW Home Loan Program at the time of the
Great Western 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 Home Loan Program following a change
in control. At Washington Mutual's request, GWFC stopped approving
applications for the GW Home Loan Program prior to the Great Western Merger.
Washington Mutual currently does not make any loans to directors.
Ms. Fay L. Chapman, Mr. William W. Ehrlich, Mr. William A. Longbrake and
Mr. Robert H. Miles, executive officers of the Company, and Mary E. Pugh, a
director of the Company, also have home loans that were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features. Washington Mutual currently does not make
any loans to members of the Officers' Executive Committee which consists of Mr.
Killinger, Ms. Chapman, Mr. Davis, Mr. Ehrlich, Mr. Steven P. Freimuth, Mr.
Longbrake, Ms. Oppenheimer, Mr. Tall and Ms. S. Liane Wilson. (Mr. Miles is not
a member of this Committee.) Each of Ms. Chapman, Mr. Ehrlich and Mr. Longbrake
received his or her loan prior to becoming a member of the Committee.
15
20
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
OVERVIEW
As part of its duties, the Compensation and Stock Option Committee of the
Board of Directors develops and administers Washington Mutual's executive and
senior officer compensation programs and establishes and administers annual and
long-term incentive compensation plans for executive and senior management. As
part of the Compensation Committee's long-term incentive compensation strategy,
it establishes specific awards of stock options and performance shares for
executive and senior officers. The Compensation Committee also makes
recommendations to the Board of Directors with respect to the compensation
program for the Company's Chief Executive Officer, including annual and
long-term incentive compensation awards.
The compensation program for Washington Mutual's executive and senior
officers for 2000 consisted of a combination of base salary; cash bonus awards
primarily granted under the Company's Bonus and Incentive Plan for Executive
Officers and Senior Management (the "Bonus Plan"); option grants under the
Company's 1994 Stock Option Plan; awards under the Company's Supplemental
Executive Retirement Accumulation Plan; participation in investment, retirement
and other benefit programs generally available to employees; and certain
additional perquisites that vary with the level of responsibility. The
Compensation Committee has also implemented a new performance share program for
executive and senior officers, pursuant to which it has awarded grants for a
three-year cycle ending in December 2003.
The Compensation Committee is comprised of independent directors, none of
whom is or has been an employee of Washington Mutual. The Compensation Committee
hires and utilizes an independent compensation consultant to assist it in its
deliberations.
COMPENSATION POLICY
In determining the compensation for a particular executive or senior
officer, the Compensation Committee is guided by the following objectives:
- Attracting and retaining highly qualified officers by maintaining
competitive compensation packages for officers;
- Motivating those officers to achieve and maintain superior performance
levels;
- Maintaining compensation packages that are equitable relative to efforts,
skills and responsibilities of the officer when compared to other
positions in Washington Mutual; and
- Making a significant portion of each officer's total compensation package
at risk and dependent on Company performance and creation of long-term
shareholder value.
The Compensation 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 market place position similar to Washington Mutual, so that the
Company can attract and retain qualified officers who will contribute to
Washington Mutual's long-term success. The independent compensation consultant
provides such information and market survey data for use by the Compensation
Committee in its deliberations.
Compensation payments in excess of $1 million to the Company's five most
highly compensated executive officers are 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. Stock option
grants under the 1994 Stock Option Plan, cash bonuses granted under the Bonus
Plan and performance share awards made under the Equity Incentive Plan are
intended to qualify for the performance-based exception to the $1 million
limitation on deductibility of compensation payments. The Compensation Committee
nevertheless retains the discretion to provide nondeductible compensation to
reward performance that increases the long-term value of the Company.
16
21
SALARY
The Compensation Committee evaluates the individual performance of the
executive officers based on performance reviews conducted by the Chief Executive
Officer. In evaluating an executive officer, the Compensation Committee performs
a qualitative review of the significance of the position held by the officer and
the officer's experience and contribution. This review is based on an assessment
of the officer's management skills, judgment, application of knowledge and
information, and support of corporate values and priorities.
The Compensation Committee sets base salary levels for the executive
officers and recommends to the Board of Directors a base salary level for the
Chief Executive Officer. Salary levels for the executive officers are based
primarily on the market data provided by the outside compensation consultant and
the performance of each executive officer for the previous year. The
Compensation Committee determines the closest comparable position in the market
data and then adjusts the recommended target based on specific job
responsibilities within the Company and the individual performance review. The
market data includes a portion of the companies included in the Performance
Graph on page 21 of this Proxy Statement, as well as certain other financial
services companies. The base salary component is intended to be at the median of
the applicable market salaries.
ANNUAL CASH BONUS AWARD
Each year, in its determination of bonuses for executive officers, the
Compensation Committee first identifies a target bonus based on the market
survey data provided by the outside consultant. The target bonus is positioned
at the median of market levels for each position. For the year 2000, the target
bonus opportunity was also modified by the significance of the position to the
Company.
Executive officers are entitled to receive a percentage of the target bonus
based on the Company's achievement of established business goals that are
long-term determinants of shareholder value. For 2000, 30% of the target bonus
depended on Washington Mutual achieving its goal for Earnings Per Share (EPS),
30% depended on achieving its goal for operating efficiency and 40% depended on
achieving its goal on control of net expense. No bonus would have been paid if
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 2000, the bonus component achievements were slightly over target
resulting in a payout at 107% of target.
For 2001, the Compensation Committee has adopted business goals for the
Bonus Plan that base 50% of the target bonus on EPS, 40% on control of net
expense and 10% on achieving customer service goals.
STOCK OPTIONS
Awards of stock options under the 1994 Stock Option Plan are designed to
provide long-term incentives for executive and senior officers that are directly
linked to the enhancement of long-term shareholder value. The Compensation
Committee selects the executive officers who will receive stock options and
determines the number of shares subject to each option. The size of the
individual option grant is generally intended to reflect the officer's position
within Washington Mutual, his or her performance and contributions to the
Company and an evaluation of competitive market data.
In addition to such grants, and to further encourage and facilitate stock
ownership by executives, the Compensation Committee has instituted a new program
to permit executives to exchange a portion of the upcoming year's target annual
cash bonus award for a grant of stock options. Under this program, in December
of each year executives can elect to replace up to one-
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third of their next year's target bonus opportunity with stock options. To help
compensate for the additional risk of the stock options, the executive will
receive a stock option grant with a Black-Scholes value equal to 1.5 times the
dollar amount of the foregone bonus opportunity.
PERFORMANCE SHARES
In 2000, the Compensation Committee implemented a new performance-based
long-term incentive compensation program designed to focus executives on and
reward them for attaining specified long-term performance goals aligned with
increasing shareholder value. Under this program, executives are awarded
performance shares, which are contingent awards of Washington Mutual stock that
are paid out at the end of a three-year period only if the Company achieves
specified performance goals. It is intended that a new three-year performance
cycle will begin every year.
The performance share program will allow for flexibility in establishing
performance measures for each three-year period. For the initial 2001-2003
performance cycle, the program will measure three-year
- Total shareholder return versus peers (one-third of the award);
- Return on common equity (ROCE) versus peers (one-third of the award); and
- Earnings per share (EPS) growth versus peers (one-third of the award).
The peer group will consist 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 21 of this Proxy Statement.
Performance goals for subsequent cycles will be established by the
Compensation Committee in its sole discretion. The size of each executive's
performance share award is equal to 10% of the number of shares subject to the
executive's annual option grant for that year.
For the 2001-2003 cycle, a target award will be earned for total
shareholder return, ROCE and EPS growth at the 60th percentile of the peer group
(60% of peers performed below the Company). The maximum award of 2.5 times the
target will be achieved if Washington Mutual's performance is at the 90th
percentile or above, as compared to its peers. No payout will be made if
Washington Mutual's performance is at less than the 30th percentile of the peer
group. Performance shares awarded to the Named Executive Officers in 2000 for
the 2001 - 2003 performance cycle are set forth in the Long-Term Incentive Plan
Awards in 2000 table on page 12.
Vested performance shares will be paid out in Washington Mutual stock.
Dividend equivalents are accrued as additional performance shares and are paid
out in Washington Mutual stock at the same time as the related performance
shares. Shares may be withheld to pay ordinary income taxes due at the time of
payout. Performance shares may be deferred under the Company's Deferred
Compensation Plan. To implement the new performance share program, the Board of
Directors has approved and is submitting for shareholder approval amendments to
the Company's Equity Incentive Plan that will increase the number of shares
authorized for issuance under the plan, permit the award of performance shares
under the plan and expand the list of business criteria upon which
performance-based awards may be based. See "Item 2. Amendment of the Company's
Equity Incentive Plan" on page 22. The performance shares granted in 2000 for
the 2001 - 2003 performance cycle were granted contingent on shareholder
approval of the amendments to the Company's Equity Incentive Plan.
In previous years, a significant element of the Company's long-term
incentive compensation program consisted of single awards of performance-based
restricted stock, typically granted upon hiring or promotion, that vested over a
five-year period. The last of these awards were granted in 1997 and will be
fully vested in early 2002. The Compensation Committee believes that the new
performance share program will more effectively promote the Company's overall
philosophy by
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providing a continuous retention incentive based on performance goals that can
be adjusted if appropriate for each new three-year performance cycle to meet
changing circumstances.
CEO COMPENSATION
Compensation for Washington Mutual's Chief Executive Officer, Mr.
Killinger, was determined based on the same general policies and criteria as the
compensation for other executive officers. Mr. Killinger's base salary and
target bonus for 2000 were approved by the Board of Directors at its December
1999 meeting on the recommendation of the Compensation Committee. In making its
recommendation, the Compensation Committee reviewed the outside compensation
consultant's market survey data and considered the financial and operating
results of Washington Mutual in fiscal 1999 and the Company's 2000 financial and
business plans. Based on the factors set out in "Annual Cash Bonus Award," Mr.
Killinger's bonus for 2000 was calculated in the same manner as described above
for the other executive officers.
In evaluating Mr. Killinger's 2000 performance, the Compensation Committee
used both quantitative and qualitative criteria, such as record earnings of
$1.90 billion, which is indicative of creation of shareholder value; capital
strength, as evidenced by the continued qualification of all the Company's
banking subsidiaries as "well capitalized"; strong asset quality; operating
efficiency; growth in assets to $194.72 billion; the resulting size and quality
of the organization, and in particular, the expansion of the franchise as a
result of mergers and acquisitions; Mr. Killinger's leadership of the Company
and his industry and community leadership. The Compensation Committee's
assessment of Mr. Killinger's performance was reviewed with the Board of
Directors.
In determining the size of Mr. Killinger's option and performance grants,
the Compensation Committee reviewed the market survey data and other information
provided by the outside consultant. Based on these considerations, as
compensation for 2000, Mr. Killinger was awarded an option to purchase 520,000
shares. The Compensation Committee concluded that Mr. Killinger's performance in
2000 fully supported the total compensation awarded.
COMPENSATION AND STOCK OPTION
COMMITTEE
John W. Ellis, Chairman
Douglas P. Beighle
David Bonderman
Elizabeth A. Sanders
James H. Stever
Willis B. Wood, Jr.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of six independent directors, each of whom
is independent under the listing standards of The New York Stock Exchange. The
Audit Committee operates under a written charter adopted by the Company's Board
of Directors. A copy of the charter is attached as Appendix A.
The primary responsibilities of the Audit Committee are to review and
evaluate the Company's audited financial statements and to monitor and oversee
the Company's internal control system, its accounting and financial reporting
process, its audit function and its compliance with applicable laws and
regulations.
The Committee has reviewed and discussed the consolidated financial
statements with management and has discussed with the independent accountants
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
The Audit Committee has also received the written disclosures and the
letter from the Company's independent accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The Committee has discussed with the independent accountants that firm's
independence. The Audit Committee has considered whether the provision of
non-audit services is compatible with maintaining the principal accountant's
independence.
Based upon the Committee's discussions and review described above, the
Committee recommended that the Board of Directors include the audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000 filed with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Douglas P. Beighle, Chairman
Roger H. Eigsti
Stephen E. Frank
Enrique Hernandez, Jr.
William G. Reed, Jr.
William D. Schulte
PRINCIPAL ACCOUNTANT'S FEES
AUDIT FEES
The aggregate fees billed to the Company by Deloitte & Touche LLP, the
member firms of Deloitte Touche Tohmatsu and their respective affiliates
(collectively, "Deloitte"), for professional services rendered for the audit of
the Company's annual financial statements for the fiscal year ended December 31,
2000 and the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for that fiscal year were $2.9 million.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by Deloitte for professional services rendered
for information technology services relating to financial information systems
design and implementation for the fiscal year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by Deloitte for services rendered to the Company,
other than the services described above under "Audit Fees" and "Financial
Information Systems Design and Implementation Fees," for the fiscal year ended
December 31, 2000 were $7.5 million.
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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 return of the S&P 500 Composite Index and the
S&P Financial Index since 1995 and since Washington Mutual first became a
publicly traded company on March 11, 1983, respectively. The graphs assume that
$100 was invested on, respectively, December 31, 1995 and March 11, 1983 in each
of the Company 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
[PERFORMANCE GRAPH]
WASHINGTON MUTUAL
INC. S&P FINANCIAL INDEX S&P 500 COMP-LTD
----------------- ------------------- ----------------
Base Period Dec 95 100.00 100.00 100.00
Dec 96 154.07 135.17 122.96
Dec 97 231.07 200.20 163.98
Dec 98 212.61 223.07 210.85
Dec 99 147.10 231.92 255.21
Dec 00 313.10 292.40 231.98
[PERFORMANCE GRAPH]
WASHINGTON MUTUAL
INC. S&P FINANCIAL INDEX S&P 500 INDEX
----------------- ------------------- -------------
Mar 83 100.00 100.00 100.00
Dec 83 106.00 99.18 111.35
Dec 84 92.99 108.49 118.28
Dec 85 137.02 154.64 155.70
Dec 86 281.20 167.02 184.69
Dec 87 263.99 139.02 194.26
Dec 88 268.61 164.23 226.31
Dec 89 365.43 217.79 297.80
Dec 90 245.10 171.14 288.51
Dec 91 698.89 257.65 376.04
Dec 92 1066.19 317.68 404.66
Dec 93 1172.34 352.94 445.45
Dec 94 848.84 340.45 451.33
Dec 95 1505.11 524.37 620.93
Dec 96 2318.95 708.78 763.50
Dec 97 3477.91 1049.76 1019.22
Dec 98 3200.05 1169.69 1309.21
Dec 99 2213.97 1216.13 1584.69
Dec 00 4712.56 1533.26 1440.41
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act, and the regulations
thereunder, Washington Mutual's directors, executive officers and 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 Securities and Exchange Commission. Based solely on its
review of copies of these reports and on written representations from such
reporting persons, Washington Mutual believes that during fiscal year 2000, all
such persons filed all ownership reports and reported all transactions on a
timely basis, except that based upon information provided by the Company, all of
the directors misreported their grant of 4,000 options as 3,000 options on a
Form 5, subsequently reported on an amended Form 5.
ITEM 2. AMENDMENT OF THE COMPANY'S EQUITY INCENTIVE PLAN
The shareholders are being asked to approve amendments to the Company's
Equity Incentive Plan (the "Equity Plan," previously named the Restricted Stock
Plan) that will increase the maximum number of shares authorized for issuance
under the Equity Plan and permit the granting of awards denominated in units of
Washington Mutual stock. The shareholders are also being asked to approve, as
amended, the business criteria on which performance-based awards may be granted
under the Equity Plan.
The Equity Plan permits awards of restricted stock, or awards denominated
in units of stock, with or without performance-based vesting restrictions. All
employees, officers, directors, consultants and advisors of the Company and its
affiliates are eligible to receive awards under the Equity Plan.
The purpose of the Equity Plan is to increase shareholder value by aligning
the selected participants' interests with those of the Company, its affiliates
and its shareholders through increased stock ownership, by assisting the Company
in attracting, retaining and motivating the best available talent for the
successful conduct of its business and, in some cases, by providing a
performance incentive by conditioning the vesting of awards on the achievement
of specified business goals. The Equity Plan is structured to allow the
Compensation Committee broad discretion in selecting criteria for the vesting of
awards granted under the Equity Plan.
The Company is seeking shareholder approval of an increase in the total
number of shares authorized for issuance under the Equity Plan by 10 million to
permit the funding under the Equity Plan of the Company's new performance share
program, which is described in the Report of the Compensation and Stock Option
Committee on page 16 and in the Long-Term Incentive Plan Awards in 2000 table on
page 12. Also to permit implementation of the performance share program under
the Equity Plan, the Company is seeking shareholder approval of an amendment to
permit the issuance of awards denominated in units of stock, such as the
performance shares. Currently the Equity Plan permits only the issuance of
restricted stock awards.
The Equity Plan authorizes a maximum of 2,075,122 shares of stock to be
issued under the Equity Plan. The proposed amendment would increase the maximum
number to 12,075,122.
The Company believes it is appropriate to make a distinction between
performance-based restricted stock or stock unit awards and time-vested awards
because of their differing impacts on shareholder value. In the case of
performance-based awards such as the performance shares, no value is transferred
to the holder unless performance goals that enhance the value of the Company for
all shareholders are achieved. Accordingly, the Equity Plan as proposed to be
amended limits to
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6,000,000 the number of shares that can be issued subject to awards that vest
solely based on continuous service.
The Board of Directors believes the business criteria currently specified
in the Equity Plan on which performance-based vesting may be based are
insufficient to accomplish certain of the purposes of the performance share
program. The Board therefore is seeking shareholder approval of the expanded
list of criteria that is set forth below.
DESCRIPTION OF THE EQUITY PLAN
The following is a summary of certain important features of the amended
Equity Plan, which is qualified in its entirety by reference to the full text of
the Equity Plan, as amended, which is published in this Proxy Statement as
Appendix B.
Purpose. The principal purpose of the Equity Plan is described above. A
further purpose is to allow the grant of performance-based awards that qualify
as "performance-based compensation" under Section 162(m) of the Code, thereby
allowing the Company to deduct certain compensation amounts that it would not
otherwise be able to deduct for federal income tax purposes.
Administration. The Compensation Committee administers the Equity Plan. The
Compensation Committee is composed entirely of outside directors and, therefore,
is intended to qualify as an independent compensation committee for purposes of
Section 162(m) of the Code. The Compensation Committee selects the persons to
whom awards are made, the number of shares subject to awards and other terms and
conditions of the awards.
Eligibility. All employees, officers, directors, consultants and advisors
of the Company and its affiliates are eligible to participate in the Equity
Plan.
Shares Available for Award. Subject to adjustment from time to time for
stock dividends, stock splits and other events as provided in the Equity Plan,
the maximum aggregate number of shares of stock that may be issued pursuant to
the Equity Plan is 12,075,122, and the maximum aggregate number of shares that
may be issued subject to awards that vest based solely on continuous service is
6,000,000. Also subject to adjustment as provided in the Equity Plan, the
maximum aggregate number of shares of stock with respect to which awards may be
granted under the Equity Plan to any participant in any calendar year is
225,000.
BUSINESS CRITERIA ON WHICH PERFORMANCE-BASED RESTRICTIONS MAY BE BASED
The Compensation Committee is authorized to grant performance-based awards
under the Equity Plan. Such awards are intended to qualify as performance-based
compensation under Section 162(m) of the Code. The vesting of such awards is
based on the Company's achievement of established business goals that are
long-term determinants of shareholder value. In establishing performance-based
restrictions on awards under the Equity Plan, the Compensation Committee may
select only from business criteria specified in the Equity Plan that have been
approved by the shareholders. If the shareholders approve the amended Equity
Plan, the Compensation Committee will be empowered under the Equity Plan to
select from the following expanded list of business criteria in establishing
business goals, where such goals may be stated in absolute terms or relative to
comparison companies, as the Compensation Committee may determine, in its sole
discretion:
- Return on average common equity;
- Return on average equity;
- Total shareholder return;
- Stock price appreciation;
- Efficiency ratio (other expense as a percentage of other income plus net
interest income), either before or after amortization of intangible
assets (goodwill);
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- Net operating expense (other income less other expense), either before or
after amortization of intangible assets (goodwill);
- Earnings per diluted share of common stock;
- Operating earnings (earnings before transaction-related expense) per
diluted share of common stock, either before or after amortization of
intangible assets (goodwill);
- Return on average assets;
- Ratio of nonperforming assets to total assets;
- Return on an investment in an affiliate;
- Net interest income;
- Net interest margin; and
- Ratio of common equity to total assets.
In selecting any business criteria other than earnings per diluted share of
common stock, the Compensation Committee may elect to exclude amortization of
intangible assets (goodwill), or to exclude depreciation and amortization. All
business criteria other than earnings per diluted share of common stock are
deemed to exclude transaction-related expense unless otherwise determined by the
Compensation Committee in selecting the business criteria for a particular
award.
ADDITIONAL TERMS AND CONDITIONS OF THE EQUITY PLAN
Effect of Certain Transactions. Unless otherwise specified in an employment
agreement or by the Compensation Committee in establishing an award, in the
event of a merger, consolidation or other Event (as defined in the Equity
Incentive Plan) in which the Company's shareholders receive cash, stock or other
property in 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.
General Restrictions. Participants are not permitted to (i) sell, transfer,
pledge (as collateral for a loan or as security for the performance of an
obligation or for any other purpose) or assign awards granted under the Equity
Plan, (ii) receive cash payment of any dividends or distributions made in
respect of awards, or (iii) receive a stock certificate representing stock,
until in each case, the awards have vested as stated in the participant's award
agreement. For awards of restricted stock, subject only to these restrictions, a
participant otherwise enjoys all the rights of a shareholder of common stock,
including the right to vote shares of restricted stock.
Retirement. In the event of a participant's retirement from the Company or
an affiliate or a participant's death or permanent disability after the
participant has attained age 60, all remaining restrictions on such
participant's restricted stock that relate solely to the participant's length of
service with the Company or an affiliate automatically are waived. Other
restrictions (such as performance-based restrictions in awards intended to
qualify as performance-based compensation under Section 162(m) of the Code)
generally are not affected.
Bifurcation. The Compensation Committee has full discretion to bifurcate
the Equity Plan, so as to restrict, limit or condition the use of certain
provisions of the Equity Plan by participants who are "covered employees" under
Section 162(m) of the Code, without so restricting, limiting or conditioning the
Equity Plan with respect to other participants.
Amendment and Termination. The Compensation Committee may amend or
terminate the Equity Plan at any time. However, any amendment that would have a
material adverse effect on the
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rights of a participant under an outstanding award is not valid with respect to
such award without the participant's consent. The Compensation Committee may not
increase the aggregate number of shares that may be awarded under the Equity
Plan or the maximum number of shares with respect to which any participant may
be granted awards in any calendar year without approval of the holders of a
majority of the shares of common stock of the Company present at a meeting of
shareholders at which such approval is sought.
SHAREHOLDER APPROVAL
For shareholders to approve the proposed amendments to the Equity Plan, a
quorum must exist at this Annual Meeting, and the number of votes cast in favor
must exceed the number of votes cast against such amendments.
If these amendments are not approved by the shareholders, the Equity Plan,
without regard for such amendments, will continue to be used. Unless
instructions to the contrary are specified in a proxy properly voted and
returned through available channels, the proxies will be voted for the approval
of these amendments to the Equity Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE AMENDMENTS TO
THE EQUITY PLAN.
ITEM 3. AMENDMENT OF THE COMPANY'S BONUS AND INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The shareholders are being asked to approve an amendment to the Company's
Bonus and Incentive Plan for Executive Officers and Senior Management (the
"Bonus Plan") that will add certain additional business criteria on which bonus
performance goals may be based. The amendment is proposed to be effective
retroactive to January 1, 2001. These matters are described in more detail
below.
The Bonus Plan provides for the payment of cash bonuses based on the
Company's achievement of established business goals that are long-term
determinants of shareholder value. The Company's executive and senior management
are eligible for bonuses under the Bonus Plan.
The purpose of the Bonus Plan is to increase shareholder value by providing
a performance incentive to the Company's management, aligning management's
interests with those of the Company, its affiliates and its shareholders by
providing compensation based on the achievement of specified business goals, and
assisting the Company in attracting, retaining and motivating the best available
talent for the successful conduct of its business. The Bonus Plan is structured
to allow the Compensation Committee broad discretion in selecting appropriate
target bonus amounts and business goals to accomplish these purposes. The Board
of Directors believes the current approved business criteria are insufficient to
accomplish these purposes.
A further purpose of the Bonus Plan is to provide cash compensation that
qualifies as "performance-based compensation" under Section 162(m) of the Code,
thereby allowing the Company to deduct certain compensation amounts that it
would not otherwise be able to deduct for federal income tax purposes. To allow
this goal to be attained for certain bonus payments under the Bonus Plan based
upon Company performance in 2001, the Board is asking the shareholders to
approve the amendment effective retroactive to January 1, 2001.
DESCRIPTION OF THE BONUS PLAN
The following is a summary of certain important features of the amended
Bonus Plan, which is qualified in its entirety by reference to the full text of
the Bonus Plan, as amended, which is published in this Proxy Statement as
Appendix C.
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Administration. The Compensation Committee administers the Bonus Plan. The
Compensation Committee is composed of two or more outside directors and,
therefore, is intended to qualify as an independent compensation committee for
purposes of Section 162(m) of the Code. For each bonus measurement period
(determined by the Compensation Committee but generally the calendar year) the
Compensation Committee selects the participants from among the members of
executive and senior management. The Compensation Committee also determines the
business criteria, performance goals and bonus formula (generally including a
target bonus amount for each participant) that will be used to determine the
cash bonus amount, if any, earned by each participant for the bonus measurement
period. The Compensation Committee makes these determinations no later than 90
days after the beginning of the bonus measurement period, on or before 25% of
the measurement period has elapsed and while the outcome is substantially
uncertain. The Compensation Committee also determines the bonus amount to be
paid to each participant based on the attainment of the previously established
performance goals. The Compensation Committee's determinations are final and
binding on all participants.
Eligibility. All members of the Company's executive and senior management
are eligible to be selected for participation. For purposes of the Bonus Plan,
the members of executive and senior management are defined as all officers with
the rank of senior vice president or above of the Company, an affiliate or an
established division within an affiliate. The Compensation Committee has the
discretion to determine which eligible employees will participate in the Bonus
Plan for any bonus measurement period.
Maximum Potential Bonus. The maximum bonus that may be paid to any
participant in any calendar year under the Bonus Plan is $5,000,000.
BUSINESS CRITERIA ON WHICH PERFORMANCE GOALS MAY BE BASED
Bonus amounts earned under the Bonus Plan are determined based on the
Company's achievement, over the bonus measurement period, of established
business goals that are long-term determinants of shareholder value. In
establishing bonus terms under the Bonus Plan for any given bonus measurement
period, the Compensation Committee may select only from business criteria
specified in the Bonus Plan that have been approved by the shareholders. If the
shareholders approve the amendment to the Bonus Plan, the Compensation Committee
will be empowered under the Bonus Plan to select from the following expanded
list of business criteria:
- Return on average common equity;
- Return on average equity;
- Efficiency ratio (other expense as a percentage of other income plus net
interest income), either before or after amortization of intangible
assets (goodwill);
- Net operating expense (other income less other expense), either before or
after amortization of intangible assets (goodwill);
- Earnings per diluted share of common stock;
- Operating earnings (earnings before transaction-related expense) per
diluted share of common stock, either before or after amortization of
intangible assets (goodwill);
- Return on average assets;
- Ratio of nonperforming assets to total assets; and
- Customer service.
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In selecting any business criteria other than earnings per diluted share of
common stock, the Compensation Committee may elect to exclude amortization of
intangible assets (goodwill), or to exclude depreciation and amortization. All
business criteria other than earnings per diluted share of common stock are
deemed to exclude transaction-related expense unless otherwise determined by the
Compensation Committee in selecting the business criteria for a particular bonus
measurement period.
In establishing certain portions of the bonus terms for executive and
senior management for 2001, the Compensation Committee used one business
criterion -- customer service goals -- that is not specified in the existing
Bonus Plan and has not been approved by the shareholders. The Board of Directors
proposes to retroactively include this criterion in the Bonus Plan for 2001, and
to this end the proposed effective date of the amendment is January 1, 2001. If
the shareholders do not approve the amendment, the portion of bonuses that is
awarded based on customer service goals will be deemed to have been awarded
outside of the Bonus Plan, pursuant to the Compensation Committee's authority to
grant bonuses outside of the Bonus Plan based on criteria it determines. Those
bonuses deemed awarded outside of the Bonus Plan may not be deductible by the
Company under Section 162(m) of the Code.
ADDITIONAL TERMS AND CONDITIONS OF THE BONUS PLAN
Requirement of Continued Employment. In general, an eligible employee must
be continuously employed by the Company for the entire bonus measurement period
to be a participant. However, if the employment of a participant terminates by
reason of the death, disability, voluntary termination after age 62 or
termination of employment upon a change in control (as such term is defined in
the relevant employee's employment agreement), the participant will receive a
pro rata portion of the bonus which would have been payable. In addition, the
Compensation Committee may include an eligible employee hired after the
commencement of a bonus measurement period for the remaining portion of the
bonus period.
Impact of Certain Acquisitions. Unless otherwise specified by the
Compensation Committee in its establishment of bonus criteria for a given bonus
measurement period, if the Company or its affiliates consummate one or more
acquisitions that, individually or in the aggregate, constitute a Triggering
Acquisition, the bonus measurement period will be terminated early and pro-rated
bonuses will be paid based on the degree of attainment of the performance goals
during the shortened bonus measurement period. A Triggering Acquisition is an
acquisition in which the acquired entity's operating earnings for the four
calendar quarters before the acquisition is equal to 10% or more of the
pro-forma operating earnings for the combined entities for the same period.
Bonus Adjustments. The Compensation Committee may adjust actual bonuses for
a participant under the Bonus Plan to the extent that doing so will not cause
any part of that participant's bonus to become nondeductible to the Company.
Amendment and Termination. The Compensation Committee may amend or
terminate the Bonus Plan on a prospective basis at any time. The Compensation
Committee may not, however, amend or terminate the Bonus Plan so as to increase,
reduce or eliminate bonuses payable under the Bonus Plan retroactively. The
Compensation Committee also does not have the power to amend the Bonus Plan in
any fashion that would cause the Bonus Plan to fail to qualify as performance-
based compensation with respect to any "covered employee" under Section 162(m)
of the Code.
SHAREHOLDER APPROVAL
For shareholders to approve the proposed amendments to the Bonus Plan, a
quorum must exist at the Annual Meeting and the number of votes cast in favor
must exceed the number of votes cast against such amendments.
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32
If these amendments are not approved by the shareholders, the Bonus Plan
will continue to be used without regard for such amendments. Unless instructions
to the contrary are specified in a proxy properly voted and returned through
available channels, the proxies will be voted for the approval of these
amendments to the Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE AMENDMENTS TO
THE BONUS PLAN.
ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors requests that the shareholders ratify its selection
of Deloitte & Touche LLP as the independent auditors for the Company for the
current fiscal year. In the event that ratification of this selection of
independent auditors is not obtained, the Board of Directors will review its
future selection of auditors.
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.
SHAREHOLDER APPROVAL
For shareholders to ratify the appointment of Deloitte & Touche LLP as the
independent auditors for the Company for the current fiscal year, the number of
votes cast in favor must exceed the number of votes cast against such
ratification.
Unless instructions to the contrary are specified in a proxy properly voted
and returned through available channels, the proxies will be voted in favor of
ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditor for the current fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
"FOR" RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT AUDITORS.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000, including financial statements and schedules, together with the
Company's 2000 Summary Annual Report, was mailed to shareholders with this Proxy
Statement. ADDITIONAL COPIES OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2000 AND THE 2000 SUMMARY ANNUAL REPORT MAY BE OBTAINED
WITHOUT CHARGE BY WRITING TO INVESTOR RELATIONS, WASHINGTON MUTUAL, INC., 1201
THIRD AVENUE, 21ST FLOOR, SEATTLE, WASHINGTON 98101. This Proxy Statement and
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, are also available from the Securities and Exchange Commission over the
Internet at its website, http:// www.sec.gov.
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SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
According to the Company's Bylaws, the Company must receive nominations for
the election of directors or shareholder proposals for any new business to be
taken up at the Company's 2002 Annual Meeting of Shareholders by November 20,
2001, to consider them for inclusion in the Company's 2002 proxy statement and
form of proxy. The Secretary of the Company must receive any such nominations or
shareholder proposals in writing at the executive offices by that date. The
Company's address for these purposes is 1201 Third Avenue, Suite 1706, Seattle,
Washington 98101, Attention: Secretary.
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.
By Order of the Board of Directors,
/s/ WILLIAM L. LYNCH
William L. Lynch
Secretary
March 21, 2001
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APPENDIX A
WASHINGTON MUTUAL, INC.
AUDIT COMMITTEE CHARTER
MISSION:
The mission of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Washington Mutual, Inc. (the "Company") shall be to:
- Monitor the integrity of the Company's financial reporting process,
systems of internal controls, and legal compliance.
- Advise the Board as to selection and retention of the Company's
independent auditor.
- Serve as the Board's primary liaison to the independent auditor and
internal auditors.
- Oversee the independence and performance of the independent auditor.
- Oversee management's responses to audit and examination findings.
COMPOSITION:
The Committee shall be composed of three or more directors, as determined
by the Board, each of whom shall meet the independence and financial literacy
requirements of the New York Stock Exchange, and at least one of whom shall have
accounting or related financial management expertise, as the board of directors
interprets such qualification in its business judgment. In the absence of a
member designated by the Board to serve as chair, the members of the Committee
may appoint from among their number a person to preside at their meetings.
RESPONSIBILITIES:
The Committee shall have the following responsibilities:
- Recommend to the Board the selection of the independent auditor, evaluate
the independent auditor and, where appropriate, recommend the replacement
of the independent auditor; with the understanding that the independent
auditor shall be ultimately accountable to the Committee and to the Board
and that the Board and the Committee have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the
independent auditor (and to propose, in any proxy statement, that
shareholders ratify the appointment of the independent auditor).
- Evaluate the written disclosures and the letter that the independent
auditor submits to the Committee regarding the auditor's independence in
accordance with Independence Standards Board Standard No. 1, discuss such
reports with the auditor and, if so determined by the Committee in
response to such reports, recommend that the Board take appropriate
action to satisfy itself as to the independence of the auditor.
- Discuss with the independent auditor the matters required to be discussed
by SAS 61 -- Communication with Audit Committee.
- Meet with management and the independent auditor to review and discuss
the annual financial statements and the report of the independent auditor
thereon and, to the extent the independent auditor or management brings
any such matters to the attention of the Committee, to discuss
significant issues encountered in the course of the audit work, including
restrictions on the scope of activities, access to required information
or the adequacy of internal controls.
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35
- Review the management letter delivered by the independent auditor in
connection with the audit.
- Following such reviews and discussions, if so determined by the
Committee, recommend to the Board that the annual financial statements be
included in the Company's annual report.
- Meet quarterly with management and the independent auditor to review and
discuss the quarterly financial statements.
- Meet at least once each year in separate executive sessions with
management, the General Auditor, and the independent auditor to discuss
matters that the Committee or either of these groups believes could
significantly affect the financial statements and should be discussed
privately.
- Have such meetings with management as the Committee deems appropriate to
discuss significant financial risk exposures facing the Company and to
discuss the steps that management has taken to monitor and control such
exposures.
- Review significant changes to the Company's accounting principles and
practices proposed by the independent auditor, the internal auditor, or
management.
- Review the selection and performance of the senior internal auditing
officer, and, where appropriate, recommend the replacement of this
officer.
- Review the adequacy of the authority, responsibilities and functions of
the Company's Internal Audit Department, including internal audit plans,
budget, and the scope and results of internal audits.
- Consult with the Company's general counsel concerning legal and
regulatory matters that may have a significant impact on the Company's
financial statements, compliance policies or programs.
- Conduct or authorize such inquiries into matters within the Committee's
scope of responsibility as the Committee deems appropriate.
- As the Committee deems appropriate, retain independent counsel and other
professionals to assist the Committee.
- Provide minutes of Committee meetings to the Board, and report to the
Board on any significant matters arising from the Committee's work.
- At least annually, review and reassess this charter and, if appropriate,
recommend proposed changes to the Board.
- Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
It is not the responsibility of the Committee to plan or conduct audits, or
to determine whether the Company's financial statements are complete and
accurate or in accordance with generally accepted accounting principles. It is
not the responsibility of the Committee to conduct inquiries, to resolve
disagreements, if any, between management and the independent auditor, or to
assure compliance with laws, regulations or company compliance policies or
programs.
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36
APPENDIX B
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- --------------------------------------------------------------------------------
WASHINGTON MUTUAL
EQUITY INCENTIVE PLAN
AS AMENDED AND RESTATED AS OF JANUARY 16, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
37
TABLE OF CONTENTS
ARTICLE 1. PURPOSE OF THE PLAN
ARTICLE 2. DEFINITIONS
PAGE
----
2.1 Affiliate................................................... 1
2.2 Agreement................................................... 1
2.3 Award....................................................... 1
2.4 Board....................................................... 1
2.5 Code........................................................ 1
2.6 Committee................................................... 1
2.7 Company..................................................... 1
2.8 Exchange Act................................................ 1
2.9 Grant Date.................................................. 2
2.10 Participant................................................. 2
2.11 Plan........................................................ 2
2.12 Restricted Stock............................................ 2
2.13 Stock....................................................... 2
2.14 Stock Units................................................. 2
2.15 Unrestricted Stock.......................................... 2
ARTICLE 3. ADMINISTRATION
3.1 Administration of Plan...................................... 2
3.2 Authority to Grant Awards................................... 2
3.3 Participants' Accounts...................................... 2
3.4 Transfer of Unrestricted Stock.............................. 2
3.5 Discretionary Authority of Committee........................ 3
3.6 Persons Subject to Section 162(m)........................... 4
3.7 Shareholder Rights.......................................... 4
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation............................................... 4
4.2 Limitations on Grants....................................... 4
ARTICLE 5. STOCK SUBJECT TO PLAN
5.1 Maximum Number of Shares.................................... 4
ARTICLE 6. RESTRICTIONS AND FORFEITURES
6.1 General Restrictions........................................ 5
6.2 Termination of Employment................................... 5
6.3 Retirement.................................................. 5
6.4 Lapse of Restrictions -- General............................ 5
6.5 Employee Status............................................. 6
6.6 Performance-Based Grants.................................... 6
6.7 Surrender of Restricted Stock............................... 7
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PAGE
----
ARTICLE 7. ADJUSTMENT UPON CORPORATE CHANGES
7.1 Adjustments to Shares....................................... 8
7.2 Substitution of Awards on Merger or Acquisition............. 8
7.3 Effect of Certain Transactions.............................. 8
7.4 No Preemptive Rights........................................ 8
ARTICLE 8. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
8.1 General..................................................... 9
8.2 Representations by Participants............................. 9
ARTICLE 9. TAXES
9.1 Immediate Taxation.......................................... 9
9.2 Deferred Taxation........................................... 9
ARTICLE 10. GENERAL PROVISIONS
10.1 Effect on Employment........................................ 10
10.2 Unfunded Plan............................................... 10
10.3 Rules of Construction....................................... 10
10.4 Governing Law............................................... 10
10.5 Compliance With Section'16 of the Exchange Act.............. 10
10.6 Amendment................................................... 10
10.7 Effective Date of Plan...................................... 10
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WASHINGTON MUTUAL EQUITY INCENTIVE PLAN
AS AMENDED AND RESTATED AS OF JANUARY 16, 2001
ARTICLE 1.
PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company, to
provide a performance incentive and to align the interests of the Participants
with the interests of the Company, its Affiliates and its shareholders through
increased stock ownership by the Participants. It is intended that Participants
may acquire or increase their proprietary interests in the Company and that
Participant employees will be encouraged to remain in the employ of the Company
or of its Affiliates.
The Plan was established January 1, 1986 as the WM Financial, Inc.
Restricted Stock Plan. Washington Mutual Savings Bank, the prior Plan sponsor,
amended the Plan by a First Amendment, effective as of July 1, 1987, a Second
Amendment, effective as of March 31, 1988, a Third Amendment, effective as of
June 30, 1991, a Fourth Amendment, effective as of June 18, 1991, and a Fifth
Amendment, effective as of October 20, 1992.
By action of the respective boards of directors of Washington Mutual
Savings Bank and the Company, the Company became the sponsor of the Plan,
effective November 29, 1994, after which the Company adopted an amendment and
restatement of the Plan, effective November 29, 1994, that incorporated all
material provisions of the Plan prior to such date and amended the Plan in
certain respects.
The Company amended and restated the Plan, effective February 18, 1997, and
amended the Amended and Restated Plan twice in 1999. The Company amended and
restated the Plan effective January 18, 2000. Finally, the Plan was amended by
action of the Board of Directors on January 16, 2001, subject to approval by the
shareholders of the Company.
The Board approved this restatement of the Plan to incorporate all such
amendments.
ARTICLE 2.
DEFINITIONS
2.1 Affiliate. A "parent corporation," as defined in section 424(e) of the
Code, or "subsidiary corporation," as defined in section 424(f) of the Code, of
the Company.
2.2 Agreement. A written agreement (including any amendment or supplement
thereto) between the Company or an Affiliate and a Participant specifying the
terms and conditions of an Award granted to such Participant.
2.3 Award. An award under the Plan that is expressed as a stated number of
whole shares of Restricted Stock or denominated in Stock Units. An Award shall
be subject to the terms of an Agreement.
2.4 Board. The board of directors of the Company.
2.5 Code. The Internal Revenue Code of 1986, as amended.
2.6 Committee. A committee composed of two or more members of the Board
who are not officers or employees of the Company or an Affiliate, who are
otherwise qualified as Non-Employee Directors as defined under Rule
16b-3(b)(3)(i) of the Exchange Act, and who qualify as outside directors as
defined in Section 162(m) of the Code.
2.7 Company. Washington Mutual, Inc., successor to Washington Mutual
Savings Bank as Plan sponsor, and its successors.
2.8 Exchange Act. The Securities Exchange Act of 1934, as amended.
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40
2.9 Grant Date. The date that an Award is granted to a Participant
hereunder.
2.10 Participant. A person who is granted an Award hereunder. Members of
the Board, and employees, consultants and advisors of the Company or of an
Affiliate, are the only persons who are eligible to be Participants.
2.11 Plan. The Washington Mutual Equity Incentive Plan, as embodied herein
and as amended from time to time, and including all predecessor versions of the
Plan.
2.12 Restricted Stock. Stock that is awarded subject to restrictions
hereunder and has not become Unrestricted Stock in accordance with Article 6.
2.13 Stock. The common stock of the Company.
2.14 Stock Units. An Award denominated in units of Stock that have not
vested in accordance with the terms of the Award.
2.15 Unrestricted Stock. Shares of Stock granted under the Plan that are
no longer subject to restrictions that constitute a substantial risk of
forfeiture, in accordance with Article 6, or shares of Stock paid in respect of
the vesting of an Award of Stock Units.
ARTICLE 3.
ADMINISTRATION
3.1 Administration of Plan. The Plan shall be administered by the
Committee. The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made or action taken by the Committee to administer the Plan shall be
final and conclusive. No member of the Committee shall be liable for any act
done in good faith with respect to the Plan or any Agreement or Award. The
Company shall bear all expenses of Plan administration.
3.2 Authority to Grant Awards. The Committee shall have authority to grant
Awards upon such terms as the Committee deems appropriate and that are not
inconsistent with the provisions of Articles 4 and 5 of the Plan. Such terms may
include restrictions on the transfer of all or any portion of the Stock or Stock
Units granted under an Award.
3.3 Participants' Accounts. The Committee shall establish and maintain
adequate records to disclose the names of the Participants and their respective
Awards, the restrictions thereon, the stock certificates related thereto, any
dividends or distributions payable or paid thereon, any votes taken with respect
thereto, and such other matters as may be relevant to the proper administration
of the Plan.
(a) Dividends and Distributions. All cash dividends and other cash
distributions paid in respect of an Award shall be credited to the account
of the Participant and invested in Stock or Stock Units pursuant to the
terms of the Company's general dividend reinvestment program for
shareholders of the Company. All such amounts and their proceeds shall be
subject to the same restrictions on the same basis as the underlying
Restricted Stock or Stock Units and shall be treated as Restricted Stock or
Stock Units for all purposes under the Plan.
(b) Forfeitures. Upon the occurrence of a forfeiture hereunder, all
shares of Restricted Stock or Stock Units subject to an Award (including
any Restricted Stock or Stock Units purchased with dividends paid on the
underlying Restricted Stock or Stock Units) shall be retained by the
Company or cancelled, as appropriate.
3.4 Transfer of Unrestricted Stock. The Company shall generally transfer
Unrestricted Stock to the Participant at an administratively feasible time after
the lapse of restrictions hereunder on an Award of Restricted Stock or the
vesting of an Award of Stock Units. Any fractional shares of Unrestricted Stock
shall be paid to the Participant in cash.
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41
(a) Termination of Employment. Upon the termination of employment for
any reason of a Participant who is an employee of the Company or an
Affiliate (including upon the Participant's death), or upon such a
Participant's retirement or permanent and total disability, the Company
shall deliver to the Participant (or his personal representative) all
Unrestricted Stock held for his account.
(b) Death of Participant. Each Participant shall have the right, at
any time, to designate any person or persons as his beneficiary or
beneficiaries (both principal as well as contingent) to whom all amounts
that are otherwise due hereunder after termination of employment shall be
paid upon his death. Each beneficiary designation shall become effective
only when filed in writing with the Committee during the Participant's
lifetime on a form acceptable to the Committee.
(1) If the Participant is married as of the date of filing a
beneficiary designation and names a principal beneficiary other than his
spouse, such designation shall not be effective unless the spouse
consents to the beneficiary designation in writing, witnessed by a
notary public.
(2) The filing of a new beneficiary designation form as provided
herein shall cancel all beneficiary designations previously filed. Any
finalized divorce or marriage (other than a common law marriage) of a
Participant subsequent to the date of filing a beneficiary designation
form, which divorce or marriage is communicated to the Committee in
writing, shall revoke any prior designation. As used herein "divorce"
includes a dissolution of a marriage or an annulment of a marriage.
(3) If all designated beneficiaries predecease a Participant or die
prior to complete distribution, the Committee shall make distributions
to the Participant's personal representative or executor. If a
Participant fails to designate a beneficiary as provided above, the
Committee shall make distributions to the Participant's personal
representative or executor.
3.5 Discretionary Authority of Committee. The Committee shall have full
discretionary power, subject to, and within the limits of, Articles 4 and 5 of
the Plan:
(a) To determine from time to time who of the eligible persons shall
be granted Awards, and the time or times when, and the number of shares of
Restricted Stock or Stock Units for which, an Award or Awards shall be
granted to such persons.
(b) To prescribe the other terms and provisions (which need not be
identical) of each Award granted under the Plan to eligible persons.
(c) To modify or amend any term or provision of any Award granted
under the Plan (including without limitation in the ways described in
Sections 3.5(f), (g) and (h) below), provided that the consent of the
holder thereof must be obtained for any modification or amendment that
reduces the benefits to the holder of the Award.
(d) To construe and interpret the Plan and Awards granted hereunder,
and to establish, amend, and revoke rules and regulations for
administration. The Committee, in the exercise of this power, may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any Award or Agreement, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective. In
exercising this power the Committee may retain counsel at the expense of
the Company. All decisions and determinations by the Committee in
exercising this power shall be final and binding upon the Company and the
Participants.
(e) To determine the duration and purposes of leaves of absence which
may be granted to a Participant without constituting a termination of his
or her employment for purposes of the Plan or an Agreement.
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42
(f) To accelerate the time at which the restrictions on Restricted
Stock granted under an Award will lapse, or the time at which Stock Units
will vest, or otherwise modify the restrictions on Awards in a manner
favorable to the Participant.
(g) To determine, for any group or class of Participants, that
restrictions on Awards shall lapse upon specified events occurring upon or
after a change in control of the Company or an Affiliate, subject to such
terms and limitations as the Committee may determine.
(h) To waive or modify the application of Section 6.2 (forfeiture of
Restricted Stock or Stock Units upon termination of employment) as to any
Award, in whole or in part.
(i) To authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Award previously granted
hereunder.
(j) To interpret the Plan and make any determinations that are
necessary or desirable in the administration of the Plan.
(k) To exercise such powers and to make all other determinations
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
3.6 Persons Subject to Section 162(m). Notwithstanding anything in the
Plan to the contrary, the Committee, in its absolute discretion, may bifurcate
the Plan so as to restrict, limit or condition the use of certain provisions of
the Plan by Participants who are officers subject to Section 162(m) of the Code,
without so restricting, limiting or conditioning the Plan with respect to other
Participants.
3.7 Shareholder Rights. Except as provided in Section 6.1, each
Participant shall have, with respect to Restricted Stock, all the rights of a
shareholder of Stock including the right to vote the shares.
ARTICLE 4.
ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation. The Committee may from time to time designate persons
to whom Awards are to be granted from among those who are eligible to become
Participants. Such designation shall specify the number of shares of Restricted
Stock or Stock Units subject to each Award. All Awards granted under the Plan
shall be evidenced by Agreements which shall be subject to applicable provisions
of the Plan or such other provisions as the Committee may adopt that are not
inconsistent with the Plan.
4.2 Limitations on Grants. Awards may be granted only to persons who are
eligible to be Participants. The maximum aggregate number of shares of Stock
with respect to which Awards may be granted to any Participant in any calendar
year under the Plan is 225,000. The maximum aggregate number of shares of
Restricted Stock subject to restrictions based solely on continuous employment
that may be issued under the Plan is 6,000,000.
ARTICLE 5.
STOCK SUBJECT TO PLAN
5.1 Maximum Number of Shares. The maximum aggregate number of shares of
Stock that may be issued pursuant to Awards under the Plan (including all
predecessors of the Plan) is 12,075,122 shares, subject to adjustments as
provided in Article 7 made after January 16, 2001.
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ARTICLE 6.
RESTRICTIONS AND FORFEITURES
6.1 General Restrictions. A Participant shall not be permitted (i) to
sell, transfer, pledge (as collateral for a loan or as security for the
performance of an obligation or for any other purpose) or assign shares of
Restricted Stock or Stock Units awarded (or purchased through dividend or
distribution reinvestment) under the Plan, (ii) to receive payment of any
dividends or distributions made in respect of Awards, or (iii) to receive a
stock certificate representing Awards, until, in each case, the restrictions
stated in the Participant's Agreement lapse.
6.2 Termination of Employment. Unless otherwise provided in the Agreement,
upon the termination of employment for any reason of a Participant who is an
employee of the Company or an Affiliate before the Participant has attained age
60 (including termination because of the death or permanent disability of the
Participant), all Restricted Stock or Stock Units shall be forfeited without
compensation to the Participant, unless otherwise determined by the Committee.
6.3 Retirement. In the event of a Participant's retirement from the
Company and its Affiliates or a Participant's death or permanent disability
after the Participant has attained age 60, all remaining restrictions on such
Participant's Restricted Stock that relate solely to the Participant's length of
service with the Company or an Affiliate shall automatically be waived.
Restrictions not related solely to the Participant's length of service with the
Company or an Affiliate (such as restrictions tied to the performance of the
Company) shall remain in effect unless otherwise determined by the Committee.
6.4 Lapse of Restrictions -- General. Each Award of Restricted Stock
granted to a Participant shall become Unrestricted Stock according to the terms
established by the Committee and specified in the Participant's Agreement. The
Committee is authorized but not required to subject an Award to the restrictions
described in Schedule A or Schedule B below by setting forth this determination
in the Participant's Agreement.
SCHEDULE A
YEARS OF CONTINUED EMPLOYMENT PERCENTAGE UNRESTRICTED
----------------------------- -----------------------
Less than 1.................................... 0%
1 but less than 2.............................. 20%
2 but less than 3.............................. 40%
3 but less than 4.............................. 60%
4 but less than 5.............................. 80%
5 or more...................................... 100%
SCHEDULE B
YEARS OF CONTINUED EMPLOYMENT PERCENTAGE UNRESTRICTED
----------------------------- -----------------------
Less than 3.................................... 0%
3 but less than 4.............................. 33.33%
4 but less than 5.............................. 66.67%
5 or more...................................... 100%
For purposes of Schedules A and B, unless otherwise determined by the
Committee and stated in the relevant Agreement, a Year of Continued Employment
shall be credited to a Participant with respect to each Award on each March 31,
beginning in the calendar year that follows the Grant Date of an Award, provided
that the Participant has been continuously employed by the Company or one of its
Affiliates since the Grant Date of the Award.
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44
The lapse of restrictions on Restricted Stock (including, if applicable,
the number of Years of Continued Employment) shall be calculated separately with
respect to each Award granted to a Participant.
6.5 Employee Status. As provided in Section 3.5(e), the Committee shall
determine the extent to which a leave of absence for military or government
service, illness, temporary disability, or other reasons shall be treated as
termination or interruption of employment for purposes of determining questions
of forfeiture and Years of Continued Employment for purposes of the lapse of
restrictions on Restricted Stock.
6.6 Performance-Based Grants. The Committee may provide in any Award for
the restrictions on Restricted Stock to lapse or the Stock Units to vest upon
the Company's attainment of performance-based goals established by the
Committee. Any such Award may, but need not be, granted under and pursuant to
the terms of this Section 6.6. In addition, the Committee may determine that any
performance-based Award granted by the Committee before the adoption of the Plan
shall be treated as if granted under this Section 6.6, provided that the Award
is modified so as to comply with the terms of this Section 6.6.
(a) Intent to Qualify Under Section 162(m). This Section 6.6 is
intended to qualify the Awards granted under it as performance-based
compensation under Section 162(m) of the Code. All Awards granted pursuant
to this Section 6.6 shall be construed in a manner consistent with that
intent.
(b) Shareholder Approval. As to Awards granted under this Section 6.6,
no restrictions on Awards may lapse or Awards vest until after the material
terms of the performance goals set out below are disclosed to and approved
by the Company's shareholders. To the extent necessary for Awards under
this Section 6.6 to qualify as performance-based compensation under Section
162(m) of the Code under then applicable law, the material terms of the
performance goals shall be disclosed to and reapproved by the shareholders
no later than the first shareholder meeting that occurs in the fifth year
following the year in which shareholders previously approved the
performance goals.
(c) Business Criteria on Which Performance Goals Shall be Based. The
lapse of restrictions on or vesting of Awards granted under this Section
6.6 shall be based on the Company's attainment of performance goals based
on one or more of the following business criteria, where such goals may be
stated in absolute terms or relative to comparison companies, as the
Committee shall determine, in its sole discretion:
- Return on average common equity.
- Return on average equity.
- Total shareholder return.
- Stock price appreciation.
- Efficiency ratio (other expense as a percentage of other income plus
net interest income), either before or after amortization of
intangible assets (goodwill).
- Net operating expense (other income less other expense), either before
or after amortization of intangible assets (goodwill).
- Earnings per diluted share of common stock.
- Operating earnings (earnings before transaction-related expense) per
diluted share of common stock, either before or after amortization of
intangible assets (goodwill).
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45
- Return on average assets.
- Ratio of nonperforming assets to total assets.
- Return on an investment in an affiliate.
- Net interest income.
- Net interest margin.
- Ratio of common equity to total assets.
These business criteria shall be construed consistent with the use of the
same terms in the Company's published financial statements. All business
criteria other than earnings per diluted share of common stock shall
exclude transaction-related expense unless otherwise determined by the
Committee in selecting the business criteria for a particular Award
pursuant to Section 6.6(d) below. In selecting any business criteria other
than earnings per diluted share of common stock, the Committee may elect,
pursuant to Section 6.6(d) below, to exclude amortization of intangible
assets (goodwill), or to exclude depreciation and amortization.
(d) Establishing Performance Goals. The Committee shall establish, for
each Award granted under this Section 6.6: (i) the measurement period(s) to
which the performance goals will be applied; (ii) the specific business
criterion or criteria, or combination thereof, that will be used; (iii) the
specific performance targets that will be used for the selected business
criterion or criteria; (iv) any special adjustments that will be applied in
calculating whether the performance targets have been met to factor out
extraordinary items; and (v) the formula for calculating the lapse of
restrictions in relation to the performance targets. These determinations
shall be set out in the Agreement for each Award. Except as otherwise
permitted under Section 162(m) of the Code, each Award under this Section
6.6 shall be granted no later than 90 days after the start of any
applicable measurement period, on or before the date that 25 percent of
each applicable measurement period has elapsed, and while the outcome is
substantially uncertain.
(e) Determination of Attainment of Performance Goals. The Committee
shall determine, pursuant to the performance goals and other elements
established pursuant to Section 6.6(d) above, whether the criteria for the
lapse of restrictions or vesting have been satisfied. The Committee's
determinations shall be final and binding on all Participants. These
determinations must be certified in writing before Stock is transferred to
the Participant. This requirement may be satisfied by a writing that sets
out the determinations made by the Committee that is signed on behalf of
the Committee by the Committee's secretary.
(f) Lapse of Restrictions Upon Death, Disability or Change of
Ownership or Control. Notwithstanding the other terms of this Section 6.6,
the performance-related criteria for the lapse of restrictions on an Award
made under this Section 6.6: (i) may lapse (A) as provided in Section 7.3,
or (B) upon a Participant's disability or upon a change of ownership or
control, to the extent so provided in any Agreement, employment agreement
or action of the Committee, and (ii) shall lapse upon the Participant's
death.
(g) Other Restrictions. In addition to the performance goals described
above, the Committee may determine to subject any Award granted under this
Section 6.6 to other, additional restrictions, including restrictions
requiring the Participant to remain in the employ of the Company or an
Affiliate for specified lengths of time.
6.7 Surrender of Restricted Stock. A Participant who also is a participant
in the Washington Mutual Deferred Compensation Plan for Directors and Certain
Highly Compensated Employees (the "DCP") may surrender to the Company all or a
portion of an Award pursuant to the terms and provisions of the DCP relating to
surrender of restricted stock in return for a contribution credit under the DCP.
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ARTICLE 7.
ADJUSTMENT UPON CORPORATE CHANGES
7.1 Adjustments to Shares. The maximum number and kind of shares of Stock
with respect to which Awards hereunder may be granted and which are the subject
of outstanding Awards shall be adjusted by way of increase or decrease as the
Committee determines (in its sole discretion) to be appropriate, in the event
that:
(a) the Company effects one or more stock dividends, stock splits,
reverse stock splits, subdivisions, consolidations or other similar events;
(b) the Company or an Affiliate engages in a transaction to which
Section 424 of the Code applies; or
(c) there occurs any other event which in the judgment of the
Committee necessitates such action.
Provided, however, that if an event described in paragraph (a) or (b) above
occurs, the Committee shall make adjustments to the limits on Awards specified
in Section 4.2 and in the limitation on aggregate Awards under Section 5.1 that
are proportionate to the modifications of the Stock that are on account of such
corporate changes.
7.2 Substitution of Awards on Merger or Acquisition. The Committee may
grant Awards in substitution for stock awards, stock options, stock appreciation
rights or similar awards held by an individual who becomes an employee of the
Company or an Affiliate in connection with a transaction to which Section 424(a)
of the Code applies. The terms of such substituted Awards shall be determined by
the Committee in its sole discretion, subject only to the limitations of Article
5.
7.3 Effect of Certain Transactions. Upon a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation of
the Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for their shares of Stock (an "Event"),
restrictions on any Award of Restricted Stock granted hereunder shall lapse and
any Award of Stock Units shall vest, whether or not the requirements for lapse
of restrictions or vesting set forth in any Agreement have been satisfied,
unless otherwise specifically stated in the Agreement. The foregoing
notwithstanding, an Event shall not cause restrictions on Restricted Stock
related solely to the Participant's length of service with the Company or any
Affiliate to lapse on any Awards that the Committee elects, before the Event, to
convert into restricted stock of an acquiring corporation. If the Committee so
elects to convert the Awards, the number of shares of such converted restricted
stock shall be determined by adjusting the amount and price of the Awards
granted hereunder in the same proportion as used for determining the number of
shares of stock of the acquiring corporation the holders of the Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization, and the schedule for lapse of restrictions set forth in the
Agreement shall continue to apply to the converted restricted stock. Nothing in
this Section 7.3 or elsewhere in the Plan shall authorize the Committee to take
any action contrary to any provision regarding lapse of restrictions that is
contained in any Agreement or employment agreement if the action would reduce
the benefits to the Participant, unless the Participant consents to the action.
7.4 No Preemptive Rights. 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.
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ARTICLE 8.
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
8.1 General. No Award shall be granted, no Stock shall be issued, and no
certificates for shares of Stock shall be delivered under the Plan except in
compliance with all federal and state laws and regulations (including, without
limitation, withholding tax requirements), federal and state securities laws and
regulations and the rules of all national securities exchanges or
self-regulatory organizations on which the Company's shares may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any certificate issued to evidence shares of Stock awarded hereunder
may bear such legends and statements as the Committee upon advice of counsel may
deem advisable to assure compliance with federal and state laws and regulations.
No Award shall be granted, no Stock shall be issued, and no certificate for
shares shall be delivered under the Plan until the Company has obtained such
consent or approval as the Committee may deem advisable from any regulatory
bodies having jurisdiction over such matters.
8.2 Representations by Participants. As a condition to receiving an Award,
the Company may require a Participant to represent and warrant at the time of
any such award that the shares are being held only for investment and without
any present intention to sell or distribute such shares, if, in the opinion of
counsel for the Company, such representation is required by any relevant
provision of the laws referred to in Section 8.1. At the option of the Company,
a stop transfer order against any shares of Stock may be placed on the official
stock books and records of the Company, and a legend indicating that the Stock
may not be pledged, sold or otherwise transferred unless an opinion of counsel
is provided (concurred in by counsel for the Company) and stating that such
transfer is not in violation of any applicable law or regulation may be stamped
on the stock certificate in order to assure exemption from registration. The
Committee may also require such other action or agreement by the Participants as
may from time to time be necessary to comply with the federal and state
securities laws. This provision shall not obligate the Company or any Affiliate
to undertake registration of Stock hereunder.
ARTICLE 9.
TAXES
9.1 Immediate Taxation. If an employee elects, pursuant to Section 83(b)
of the Code, to include in gross income for federal income tax purposes an
amount equal to the fair market value of Restricted Stock subject to an Award,
the employee shall make arrangements satisfactory to the Company to pay to the
Company or its Affiliate any federal, state or local taxes required to be
withheld with respect to such Stock. If an employee who makes such an election
fails to pay the necessary amounts to the Company or its Affiliate, the Company
or its Affiliate shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the employee any taxes of any kind
required by law to be withheld with respect to the Stock covered by the Award.
9.2 Deferred Taxation. If an election under Section 83(b) of the Code has
not been made, then at the time Restricted Stock becomes Unrestricted Stock or
an Award otherwise becomes taxable, the Participant shall, upon notification of
the amount due and prior to or concurrently with the delivery of the
certificates representing the shares of Stock to which the Participant is
entitled hereunder, pay to the Company or its Affiliate amounts necessary to
satisfy applicable federal, state and local withholding tax requirements or
shall otherwise make arrangements satisfactory to the Company for such
requirements. The Company or its Affiliate shall, to the extent permitted by
law, have the right to deduct from any payment of any kind otherwise due to the
employee any federal, state or local taxes of any kind required by law to be
withheld with respect to the Restricted Stock becoming Unrestricted Stock or an
Award otherwise becoming taxable.
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ARTICLE 10.
GENERAL PROVISIONS
10.1 Effect on Employment. Neither the adoption of the Plan, its
operation, nor any documents describing or referring to the Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or an Affiliate or in any way affect any right and power of the
Company or an Affiliate to terminate the employment of any employee at any time
with or without assigning a reason therefor.
10.2 Unfunded Plan. The Plan shall be unfunded, and the Company shall not
be required to segregate any assets that may at any time be represented by
grants under the Plan. Any liability of the Company to any person with respect
to any grant under the Plan shall be based solely upon contractual obligations
that may be created hereunder. No such obligation of the Company shall be deemed
to be secured by any pledge of, or other encumbrance on, any property of the
Company.
10.3 Rules of Construction. Headings are given to the articles and
sections of the Plan solely as a convenience to facilitate reference. The
masculine gender when used herein refers to both masculine and feminine. The
reference to any statute, regulation or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
10.4 Governing Law. The laws of the State of Washington shall apply to all
matters arising under the Plan, to the extent that federal law does not apply.
10.5 Compliance with Section 16 of the Exchange Act. With respect to
persons subject to Section 16 of the Exchange Act, transactions under the Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee.
10.6 Amendment. The Committee may amend or terminate the Plan at any time;
provided, however, an amendment that would have a material adverse effect on the
rights of a Participant under an outstanding Award is not valid with respect to
such Award without the Participant's consent. Provided further that the
shareholders of the Company must approve any amendment that changes the number
of shares in the aggregate which may be issued pursuant to Awards granted under
the Plan, the maximum number of shares with respect to which any Participant may
be granted Awards in any calendar year, or the maximum number of shares that may
be granted as Awards of Restricted Stock that are subject to restrictions based
solely on continuous employment, except pursuant to Article 7.
10.7 Effective Date of Plan. No Award under the terms of the Plan as
amended and restated as of January 16, 2001, will be effective unless and until
the amendments approved by the Board on January 16, 2001, are approved by
shareholders holding a majority of the Company's outstanding voting stock
present or represented by proxy and entitled to vote at the Company's next
annual shareholders' meeting, which is duly held, that occurs after January 16,
2001, the date that the Board authorized the Company to adopt the amendments to
the Plan which are being submitted to the shareholders in such annual
shareholders meeting. If such amendments are not so approved by the shareholders
of the Company, then the Plan as amended and restated as of January 16, 2001
shall be of no force or effect and the Plan as amended and restated as of
January 18, 2000 shall continue to govern.
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49
IN WITNESS WHEREOF, the Company has caused the Plan to be executed on this
the day of , 2001, but to be effective on January 16, 2001.
WASHINGTON MUTUAL, INC.
By:
Its:
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APPENDIX C
WASHINGTON MUTUAL
BONUS AND INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 20, 2001
The Directors' Compensation and Stock Option Committee (the "Compensation
Committee") of Washington Mutual, Inc. ("Washington Mutual") hereby adopts this
bonus and incentive plan, effective for bonus periods beginning on or after
January 1, 1999, subject to shareholder approval as described in Section 3.
1. Purpose. The purpose of this plan is to provide performance-based
incentive compensation in the form of cash bonuses to executive officers and
senior management of Washington Mutual and its affiliates. This plan is intended
to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code ("Section 162(m)").
2. Administration. This plan has been established by, and shall be
administered by, the Compensation Committee. The Compensation Committee is
composed solely of 2 or more outside directors as defined in Section 162(m) and,
therefore, qualifies as an independent compensation committee under Section
162(m).
3. Shareholder Approval. This plan shall be effective if, and only if,
Washington Mutual's shareholders, by a majority of the votes cast, approve the
material terms of the performance goals in this plan, specifically, the
employees eligible to receive bonuses under this plan; the business criteria on
which the performance goals may be based; and the maximum amount of compensation
that may be paid to any employee under this plan in any year. No bonuses will be
paid under this plan until after this approval is obtained. To the extent
necessary for this plan to qualify as performance-based compensation under
Section 162(m) or its successor under then applicable law, these material terms
of the performance goals shall be disclosed to and reapproved by the
shareholders no later than the first shareholder meeting that occurs in the
fifth year following the year in which shareholders previously approved the
performance goals.
4. Participants. For each bonus measurement period (which may but need not
be a calendar year), the Compensation Committee will choose, in its sole
discretion, those eligible employees who will participate in this bonus plan
during that measurement period and will be eligible to receive a bonus under
this plan for that measurement period.
(a) Eligible Employees. All members of senior management of Washington
Mutual and its affiliates are eligible to participate in this plan. For
purposes of this bonus plan, senior management is defined as any officer
with the rank of Senior Vice President or above of Washington Mutual, Inc.,
of any affiliate and of any established division within an affiliate.
(b) Employment Criteria. In general, to participate in this plan an
eligible employee must be continuously employed by Washington Mutual or an
affiliate for the entire measurement period. The foregoing notwithstanding:
(i) if an otherwise eligible employee joins Washington Mutual or an
affiliate during the measurement period, the Compensation Committee may, in
its discretion, add the employee to this plan for the partial measurement
period, and (ii) if the employment of an otherwise eligible employee ends
before the end of the measurement period because of death, disability,
voluntary termination of employment upon or after attaining age 62, or
termination of employment upon or after a Change in Control (as that term
is defined in the employee's Employment Agreement), the employee shall be
paid a pro-rata portion of the bonus, if any, that otherwise would have
been payable under this plan. If a participant is on unpaid leave status
for any portion of the measurement period, the Compensation Committee, in
its discretion, may reduce the participant's bonus on a pro-rata basis.
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All determinations related to eligibility or the pro-ration of any bonus
shall be made by the Compensation Committee pursuant to the above terms, and
those determinations shall be final and binding on all employees.
5. Business Criteria on Which Performance Goals Shall be Based. The payment
of bonuses under this plan shall be based on Washington Mutual's attainment of
performance goals based on one or more of the following business criteria:
- Return on average common equity.
- Return on average equity.
- Efficiency ratio (other expense as a percentage of other income plus net
interest income), either before or after amortization of intangible
assets (goodwill).
- Net operating expense (other income less other expense), either before or
after amortization of intangible assets (goodwill).
- Earnings per diluted share of common stock.
- Operating earnings (earnings before transaction-related expense) per
diluted share of common stock, either before or after amortization of
intangible assets (goodwill).
- Return on average assets.
- Ratio of nonperforming assets to total assets.
- Customer Service.
These business criteria shall be construed consistent with the use of the
same terms in Washington Mutual's published financial statements. All business
criteria other than earnings per diluted share of common stock shall exclude
transaction-related expense unless otherwise determined by the Compensation
Committee in selecting the business criteria for a particular bonus measurement
period pursuant to Section 6 below. In selecting any business criteria other
than earnings per diluted share of common stock, the Compensation Committee may
elect, pursuant to Section 6 below, to exclude amortization of intangible assets
(goodwill), or to exclude depreciation and amortization.
6. Establishing Performance Goals. The Compensation Committee shall
establish, for each bonus measurement period: (a) the length of the bonus
measurement period, (b) the specific business criterion or criteria, or
combination thereof, that will be used; (c) the specific performance targets
that will be used for the selected business criterion or criteria; (d) any
special adjustments that will be applied in calculating whether the performance
targets have been met to factor out extraordinary items, (e) the formula for
calculating bonuses in relation to the performance targets; (f) the eligible
employees who will participate in the bonus plan for that measurement period;
and (g) if applicable, the target bonus amounts for each participant for the
measurement period. The Compensation Committee shall make these determinations
in writing no later than 90 days after the start of each measurement period, on
or before 25 percent of the measurement period has elapsed, and while the
outcome is substantially uncertain. Bonus payments to any one participant in any
one calendar year under this plan shall not exceed $5,000,000.
Unless otherwise specified by the Compensation Committee in its written
determinations establishing the bonus criteria for the particular bonus
measurement period, if Washington Mutual or its affiliates consummate one or
more acquisitions during the bonus measurement period that, individually or in
the aggregate, constitute a Triggering Acquisition, the bonus measurement period
shall end early, on the last day of the calendar quarter immediately before the
consummation of the first acquisition that constitutes a Triggering Acquisition
(either individually or when aggregated with
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52
prior acquisitions during the bonus measurement period), and pro-rated bonuses
shall be paid based on the degree of attainment of the performance goals during
the shortened bonus measurement period. For purposes of this paragraph, a
Triggering Acquisition means an acquisition (or combination of acquisitions) in
which the acquired entity's operating earnings (earnings before
transaction-related expense) for the four quarters completed immediately before
consummation of the acquisition is equal to 10% or more of the pro-forma
operating earnings for the same four quarters for the combination of Washington
Mutual and its affiliates and the acquired entity. (If either Washington Mutual
and its affiliates or the entity being acquired had consummated other
acquisitions during the four quarters in question, the calculation described in
the prior sentence shall be done using pro-forma earnings for each combined
entity.)
If an employee joins Washington Mutual or an affiliate during the
measurement period and becomes an eligible employee pursuant to Paragraph 4(b),
and if the employee is a "covered employee" within the meaning of Section 162(m)
(because the employee is the chief executive officer or is among the 4 highest
compensated officers for the year other than the chief executive officer), then
to the extent necessary for this plan to qualify as performance-based
compensation under Section 162(m) or its successor under then applicable law,
all relevant elements of the performance goals established pursuant to paragraph
6 of this plan for that employee must be established on or before the date on
which 25% of the time from the commencement of employment to the end of the
measurement period has elapsed and the outcome under the performance goals for
the measurement period must be substantially uncertain at the time those
elements are established.
7. Determination of Attainment of Performance Goals. The Compensation
Committee shall determine, pursuant to the performance goals and other elements
established pursuant to section 6 of this plan, the bonus amounts to be paid to
each employee for each measurement period. The Compensation Committee's
determinations shall be final and binding on all participants. These
determinations must be certified in writing before bonuses are paid, which
requirement may be satisfied by approved minutes of the Compensation Committee
meeting setting out the determinations made. The Compensation Committee shall
not have discretion to increase the amount of the bonus that would otherwise be
due upon attainment of the goals established pursuant to paragraph 6 of this
plan to any employee who is a "covered employee" within the meaning of Section
162(m) if increasing the bonus would cause the bonus or any part thereof to not
be deductible under the Internal Revenue Code.
8. Amendments. The Compensation Committee may not amend or terminate this
plan so as to increase, reduce or eliminate bonuses payable under this plan for
any given measurement period retroactively, that is, on any date later than 90
days after the start of the measurement period. The Compensation Committee may
amend or terminate this plan at any time on a prospective basis and/or in any
fashion that does not increase, reduce or eliminate bonuses retroactively. The
foregoing notwithstanding, the Compensation Committee shall not have the power
to amend this plan in any fashion that would cause the plan to fail to qualify
as performance-based compensation with respect to any "covered employee" as
defined under Section 162(m) or its successor. Without limiting the generality
of the foregoing, to the extent it would cause this plan to fail to qualify as
performance-based compensation with respect to any "covered employee" as defined
under Section 162(m) or its successor under then applicable law, the
Compensation Committee shall not have the power to change the material terms of
the performance goals unless (i) the modified performance goals are established
by the Compensation Committee no later than 90 days after the start of the
applicable measurement period, on or before 25 percent of the measurement period
has elapsed, and while the outcome is substantially uncertain and (ii) no
bonuses are paid under the modified performance goals until after the material
terms of the modified performance goals are disclosed to and approved by
Washington Mutual's shareholders.
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53
9. Effectiveness; Prior Plans Superseded. Upon shareholder approval as
described in Section 3, this plan shall be effective for bonus periods beginning
on or after January 1, 2001, and shall replace and supersede the Bonus and
Incentive Plan for Executive and Senior Management adopted effective January 1,
1999.
Executed effective as of February 20, 2001.
DIRECTORS' COMPENSATION &
STOCK OPTION COMMITTEE
By /s/ JOHN W. ELLIS
------------------------------------
John W. Ellis
Its: Chairman
4
54
[WASHINGTON MUTUAL LOGO]
1201 THIRD AVENUE, SEATTLE, WA 98101
PROXY FOR THE APRIL 17, 2001 ANNUAL MEETING OF SHAREHOLDERS
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 of the Company and all Premium
Income Equity Securities ("PIES") (by virtue of the share of Series H Preferred
Stock pledged to secure the obligations comprising each PIES) held of record by
the undersigned on March 2, 2001, at the Annual Meeting of Shareholders to be
held at 2:00 p.m., Tuesday, April 17, 2001, and at any and all adjournments
thereof. Each share of Common Stock is entitled to one vote per share and each
PIES is entitled to one-tenth vote per PIES for each of the items properly
presented at the Annual Meeting.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[WASHINGTON MUTUAL LOGO]
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 17, 2001
2:00 p.m.
Washington State Convention and Trade Center
900 Convention Place at 9th Avenue and Pike Street
Seattle, Washington
55
Please mark /X/
your votes as
indicated in
this example.
FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary below) listed below
1. ELECTION OF DIRECTORS: / / / /
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Nominee (Term will expire in 2002): William P. Gerberding
Nominees (Term will expire in 2004): Anne V. Farrell, Stephen E. Frank,
Enrique Hernandez, Jr., Mary E. Pugh,
William D. Schulte
2. APPROVAL OF AMENDMENTS TO WASHINGTON MUTUAL'S EQUITY INCENTIVE PLAN.
FOR AGAINST ABSTAIN
/ / / / / /
3. APPROVAL OF AMENDMENTS TO WASHINGTON MUTUAL'S BONUS AND INCENTIVE PLAN FOR
EXECUTIVE OFFICERS AND SENIOR MANAGEMENT.
FOR AGAINST ABSTAIN
/ / / / / /
4. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
/ / / / / /
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" ITEMS 1, 2, 3
AND 4. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR ITEMS
1, 2, 3 AND 4 AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER
THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF SHAREHOLDERS.
Signature(s)________________________________________________ Date _______, 2001
(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.)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -