<PAGE> 1
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))
[ ] Definitive Proxy Statement
[X] 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
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[Washington Mutual Logo]
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
MARCH 22, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Washington Mutual
shareholders which will be held in the S. Mark Taper Foundation Auditorium on
Tuesday, April 18, 2000, at 2:00 p.m., at Benaroya Hall, 200 University 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 1994 Stock Option
Plan, the Bonus and Incentive Plan for Executive Officers and Senior Management,
and the Restricted Stock Plan; three shareholder proposals (if they are properly
presented at the meeting); and the ratification of the appointment of the
independent auditors for 2000. 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 sign, date and promptly return your proxy in 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
<PAGE> 3
WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 18, 2000
------------------------------
To the Shareholders of Washington Mutual, Inc.:
The Annual Meeting of Shareholders of Washington Mutual, Inc. will be held
on Tuesday, April 18, 2000, at 2:00 p.m., in the S. Mark Taper Foundation
Auditorium at Benaroya Hall, 200 University Street, Seattle, Washington, for the
following purposes:
1. To elect one director for a term of two years; and elect six directors
for a term of three years;
2. To amend the Company's 1994 Stock Option Plan;
3. To amend the Company's Bonus and Incentive Plan for Executive Officers
and Senior Management;
4. To amend the Company's Restricted Stock Plan;
5. To ratify the appointment of Deloitte & Touche LLP as the independent
auditors for 2000;
6. To act upon three shareholder proposals (if they are properly presented
at the meeting); and
7. 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, 4 AND
5.
All of these proposals are more fully described in the Proxy Statement,
which follows. Shareholders of record at the close of business on March 3, 2000,
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 22, 2000
IMPORTANT
Whether or not you expect to attend in person, we urge you to sign, date
and return the enclosed proxy at your earliest convenience. This will ensure the
presence of a quorum at the Annual Meeting and will save Washington Mutual the
expense of additional solicitation. A postage-paid reply envelope is enclosed
for that purpose. Sending in your proxy will not prevent you from voting your
stock 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.
<PAGE> 4
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proxy Statement................................................... 1
General Information for Shareholders.............................. 1
ITEM 1. Election of Directors..................................... 2
Nominees................................................. 2
Directors................................................ 3
Information Regarding the Board of Directors and
Its Committees........................................... 5
Compensation of Directors................................ 6
Principal Holders of Common Stock................................. 7
Security Ownership of Directors and Executive Officers............ 8
Executive Compensation............................................ 10
Pension Plans and Agreements...................................... 12
Certain Relationships and Related Transactions.................... 14
Report of the Compensation and Stock Option Committee............. 15
Performance Graph................................................. 18
Section 16(a) Beneficial Ownership Reporting Compliance........... 19
ITEM 2. Amendment of the Company's Amended and Restated 1994 Stock
Option Plan..................................................... 19
ITEM 3. Amendment of the Company's Bonus and Incentive Plan for
Executive Officers and Senior Management........................ 22
ITEM 4. Amendment of the Company's Restricted Stock Plan.......... 25
ITEM 5. Ratification of Appointment of Independent Auditors....... 29
ITEM 6. Shareholder Proposal regarding nominations of Board
candidates...................................................... 29
ITEM 7. Shareholder Proposal regarding disclosure of executive
compensation consultants........................................ 31
ITEM 8. Shareholder Proposal regarding hiring of proxy advisory
firm by shareholder vote........................................ 32
Annual Report..................................................... 34
Shareholder Proposals for the 2001 Annual Meeting................. 34
Other Matters..................................................... 35
</TABLE>
i
<PAGE> 5
WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE, SUITE 1500
SEATTLE, WASHINGTON 98101
------------------------------
PROXY STATEMENT
FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, APRIL 18, 2000
------------------------------
THE BOARD OF DIRECTORS IS SOLICITING PROXIES TO BE VOTED AT THE ANNUAL
MEETING OF SHAREHOLDERS ON APRIL 18, 2000, AT 2 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 22, 2000.
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<TABLE>
<S> <C>
WHO CAN VOTE HOW YOU CAN VOTE
Only shareholders of record at the close of If you hold your shares as a shareholder of record,
business on March 3, 2000 will be entitled to vote you can vote in person at the Annual Meeting or you
at the Annual Meeting. As of March 3, 2000, the can vote by mail. The enclosed proxy card contains
Company had 558,327,194 shares of Common Stock instructions for voting by mail. Whichever method you
outstanding (including 12,000,000 shares of Common use, the proxies identified on the back of the proxy
Stock held in escrow). Each share of Common Stock card will vote the shares of which you are the
is entitled to one vote for each of the items shareholder of record in accordance with your
properly presented at the Annual Meeting. instructions. If you submit a proxy card without
giving specific voting instructions, the proxies will
WHAT AM I VOTING ON vote those shares as recommended by the Board of
Directors.
You are voting on:
- The election of one director for a term of If you own your shares through a brokerage account
two years and six directors for a term of or in another nominee form, you must provide
three years. The Board of Directors' nominees instructions to the broker or nominee as to how your
are, respectively, Mary E. Pugh and Douglas shares should be voted. Your broker or nominee will
P. Beighle, J. Taylor Crandall, Kerry K. generally provide you with the appropriate forms at
Killinger, Michael K. Murphy, Elizabeth A. the time you receive this Proxy Statement and the
Sanders and Willis B. Wood, Jr. annual report. If you own your shares through a
brokerage account or nominee, you cannot vote in
- The amendment of the Company's 1994 Stock person at the Annual Meeting unless you receive a
Option Plan. proxy from the broker or the nominee.
- The amendment of the Company's Bonus and
Incentive Plan for Executive Officers and HOW YOU MAY REVOKE OR CHANGE YOUR VOTE
Senior Management.
If you are the record owner of your shares, you
- The amendment of the Company's Restricted may revoke your proxy at any time before it is voted
Stock Plan. at the Annual Meeting (1) by submitting a new proxy
card, (2) by delivering written notice to the
- The ratification of the appointment of Secretary of the Company before April 18, 2000,
Deloitte & Touche LLP as independent auditors stating that you are revoking your proxy, or (3) by
for 2000. attending the Annual Meeting and voting your shares
in person. Attendance at the Annual Meeting will not,
- The shareholder proposals described herein, in itself, constitute revocation of your proxy.
if properly introduced at the Annual Meeting.
COSTS OF SOLICITATION
VOTES REQUIRED/VOTING PROCEDURES
The Company will bear the cost of preparing,
Under Washington law, any shareholder action at printing and mailing material in connection with this
a meeting requires that a quorum exist with respect solicitation of proxies. In addition to mailing
to that action. A quorum for the actions to be material, officers and regular employees of the
taken at the Annual Meeting will consist of a Company may, without being additionally compensated,
majority of the outstanding shares of Common Stock solicit proxies personally and by mail, telephone,
entitled to vote, present in person or by proxy at telegram or facsimile. The Company will reimburse
the Annual Meeting. Shareholders of record who are banks and brokers for their reasonable out-of-pocket
present at the Annual Meeting in person or by proxy expenses related to forwarding proxy material to
and who abstain, including brokers holding beneficial owners of stock or otherwise in connection
customers' shares of record who cause abstentions with this solicitation. The Company has retained
to be recorded at the Annual Meeting, are Georgeson Shareholder Communications Inc. to assist
considered shareholders who are present and in the solicitation at a cost of approximately
entitled to vote, and will count toward the quorum. $10,000, plus reasonable out-of-pocket expenses.
If a quorum exists at the Annual Meeting, each WHO WILL COUNT THE VOTE
action proposed will be approved if the number of
votes cast in favor of the proposed action exceeds Proxies and ballots will be received and tabulated
the number of votes cast against it. Consequently, by ChaseMellon Shareholder Services, L.L.C., the
abstentions and broker non-votes will have no Company's transfer agent and the inspector of
impact on any of the proposals set forth in the elections for the Annual Meeting.
Notice of Annual Meeting.
WASHINGTON MUTUAL PLANS
If you are a participant in the Restricted
Stock Plan ("Restricted Stock Plan"), the
Retirement Savings and Investment Plan ("RSIP"),
the Employees' 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.
</TABLE>
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1
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ITEM 1. ELECTION OF DIRECTORS
The Board of Directors of Washington Mutual currently consists of 18
directors, who are divided into three classes. Mary E. Pugh was appointed as a
director, effective June 1, 1999, to fill a vacancy created by the retirement of
a director. Under Washington law, an appointee serves as a director only until
the next annual meeting. Ms. Pugh has been nominated for election to a different
class to cause the three classes of directors to be approximately equal in
number following the Annual Meeting. Otherwise, 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 two- or three-year term expiring at the Company's Annual Meeting of
Shareholders in the year indicated above such person's name:
TERM ENDING 2002
Mary E. Pugh
TERM ENDING 2003
Douglas P. Beighle
J. Taylor Crandall
Kerry K. Killinger
Michael K. Murphy
Elizabeth A. Sanders
Willis B. Wood, Jr.
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 properly
signed and returned proxy, the proxies will be voted in favor of the seven
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 nominee for
election as a director and each director whose term of office will continue
after the Annual Meeting. Except as otherwise indicated, each director has been
engaged in the principal occupation described below for at least five years.
<TABLE>
<CAPTION>
COMPANY EXPIRATION OF
NAME AGE DIRECTOR SINCE TERM AS DIRECTOR
---- --- -------------- ----------------
<S> <C> <C> <C>
Douglas P. Beighle....................... 67 1989 2000
David Bonderman.......................... 57 1997 2002
J. Taylor Crandall....................... 46 1997 2000
Roger H. Eigsti.......................... 57 1992 2002
John W. Ellis............................ 71 1970 2001
Anne V. Farrell.......................... 64 1994 2001
Stephen E. Frank......................... 58 1997 2001
William P. Gerberding.................... 70 1979 2001
Enrique Hernandez, Jr.................... 44 1997 2001
Kerry K. Killinger....................... 50 1988 2000
Phillip D. Matthews...................... 61 1998 2002
Michael K. Murphy........................ 63 1985 2000
Mary E. Pugh............................. 40 1999 2000
William G. Reed, Jr...................... 61 1970 2002
Elizabeth A. Sanders..................... 54 1998 2000
William D. Schulte....................... 67 1998 2001
James H. Stever.......................... 56 1991 2002
Willis B. Wood, Jr....................... 65 1997 2000
</TABLE>
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., Active Voice Corporation and Simpson
Investment Company.
Mr. Bonderman is a founding partner of Texas Pacific Group. He is a
director of Bell & Howell Company, Inc., Beringer Wine Estates, Continental
Airlines, Inc., Co-Star Realty Information, Inc., Denbury Resources Inc., Ducati
Motor Holdings, S.p.A., Magellan Health Services, Inc., Oxford Health Plans,
Inc., Paradyne Networks, Inc. and Ryanair Ltd.
Mr. Crandall has been Chief Operating Officer and Vice President of
Keystone, Inc. since August 1998, and Vice President of Oak Hill Capital
Management, Inc., since January 1999. 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 has served as the Chairman of SAFECO Corporation since May 1993
and Chief Executive Officer since January 1992. He served as its 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. Eigsti has been a director of SAFECO Corporation since
May 1988.
Mr. Ellis is Chairman Emeritus of The Baseball Club of Seattle, Inc. 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
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<PAGE> 8
Associated Electric & Gas Insurance Service Ltd., Puget Sound Energy, SAFECO
Corporation and UTILX Corporation.
Mrs. Farrell has served as the President and Chief Executive Officer of The
Seattle Foundation, a charitable and educational corporate foundation, since
1984. Mrs. Farrell is a director of Blue Cross of Washington and Alaska and
PREMERA. 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 for 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 also a director of the Electric
Power Research Institute, UNOVA, Inc. and Associated Electric & Gas Insurance
Services Limited.
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 the 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 the 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 and Nordstrom, Inc.
Mr. Killinger has been Chairman, President and Chief Executive Officer of
Washington Mutual since 1991. Mr. Killinger became President and a director in
1988, its Chief Executive Officer in 1990 and Chairman of its 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 the 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 the 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 Board and Executive Committee member of
the Greater Seattle Chamber of Commerce, Chair of the Community Development
Roundtable and a board member of the Seattle branch of the Federal Reserve Bank
of San Francisco.
Mr. Reed is a director of Simpson Investment Company, the holding company
for Simpson Paper Company and Simpson Timber Company, and was Chairman from 1971
to 1996. Mr. Reed also serves as a director of Microsoft Corporation, PACCAR,
Inc., SAFECO Corporation and The Seattle Times.
Ms. Sanders is the 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.
4
<PAGE> 9
Mr. Schulte served in various positions at KPMG from 1961-1990, including
Vice Chairman and director from 1984 until 1990. Mr. Schulte is a director of
Parsons Corporation and Vastar Resources, Inc.
Mr. Stever retired as the Executive Vice President -- Public Policy of U S
WEST, Inc. on December 31, 1996, which position he had held since January 1996.
He was the Executive Vice President -- Public Policy and Human Resources of U S
WEST, Inc. from November 1994 to January 1996 and was the 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 the Chairman, Chief Executive Officer and a director of
Pacific Enterprises, the holding company of Southern California Gas Company in
1998. Mr. Wood served in various positions, including as an executive officer of
Pacific Enterprises' subsidiaries since 1960. Mr. Wood is a director of 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, internal accounting controls and regulatory
examinations and to monitor the Company's compliance with laws, regulations and
corporate policy. The Committee currently consists of Messrs. Beighle
(Chairman), 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. The
Committee currently consists of Messrs. Ellis (Chairman), Beighle, Murphy,
Stever and Wood.
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). The
Committee currently consists of Messrs. Murphy (Chairman), Beighle, Bonderman,
Crandall, Eigsti, Frank, Killinger, Reed, Stever and Wood 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. The Committee currently consists of Messrs.
Killinger (Chairman), 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. The Committee currently consists of Mrs. Farrell (Chairman),
Messrs. Eigsti, Frank, Gerberding and Killinger and Ms. Sanders.
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. The
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<PAGE> 10
Committee currently consists of Messrs. Reed (Chairman), Crandall, Ellis,
Gerberding, Hernandez, Killinger and Matthews and Mrs. Farrell.
During 1999, the Company's Board of Directors met nine times. Each director
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, except that Mr. Crandall attended 70% of such meetings.
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, 2000,
each non-employee director is paid an annual retainer fee of $34,000, $10,000 of
which is distributed in restricted stock on a quarterly basis. Restrictions
lapse on such restricted stock grants on the earlier of March 31st of the year
in which a director reaches age 72 and a director's retirement from the Company,
and the restricted stock earns quarterly dividends which are reinvested. 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 $500 for attendance at
purely telephonic committee meetings and $1,000 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
$5,000 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 $4,000; the Chairman
of the Loan and Investment Committee receives an additional annual fee of
$4,000; 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 $2,000. Mr. Killinger receives no
compensation as a director.
On February 16, 1999, each non-employee director was given an automatic
grant of options to purchase 3,000 shares of Common Stock at an exercise price
of $40.4375, the fair market value of the underlying Common Stock on the date of
grant. If the shareholders approve the proposed amendments to the 1994 Stock
Option Plan (described in Item 2 below), an additional automatic grant of
options to purchase 4,000 shares of Common Stock will be deemed to have been
made on December 21, 1999, to each non-employee director, with an exercise price
of $25.4375, the fair market value of the underlying Common Stock on the date of
grant. If the proposed amendment is not approved, an automatic grant of 4,000
shares will instead be deemed to have been made on February 15, 2000, at an
exercise price of $22.6875, the fair market value of the underlying Common Stock
on that date. 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 "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 2.425% below that on similar
loans made to the general public in 1999. The economic benefit of preferential
loans under the GW Home Loan Program to Messrs. Frank, Hernandez and Wood in
1999 was, respectively, $24,850, $53,318 and $25,551.
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
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<PAGE> 11
$11,650 under the plan until October 2008 and Mr. Wood is entitled to receive
such payments until October 2011. Accordingly, in 1999 each of the three
directors received payments aggregating $46,600 under the plan.
Messrs. Matthews and Schulte and Ms. Sanders 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 and Ms. Sanders began
receiving monthly payments of $2,000 under the plan beginning April 1, 1999.
Messrs. Matthews and Schulte and Ms. Sanders are entitled to receive this
benefit through May 2002, September 2006 and November 2007, 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 $4,965, $4,993 and $5,627, respectively, for Messrs.
Frank, Hernandez and Wood.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information regarding beneficial ownership
of Common Stock by each person known to the Company to have owned more than 5%
of the outstanding shares of the Common Stock on December 31, 1999. The
following is based solely on statements filed with the Securities and Exchange
Commission (the "SEC") or other information that the Company believes to be
reliable. The named shareholder has sole voting and investment power with
respect to the shares shown, except as noted below.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------- ---------------------- ----------
<S> <C> <C>
Capital Research and Management Company........ 35,340,300(1) 6.1
</TABLE>
- ------------------------------
(1) Washington Mutual has obtained information concerning the Common Stock
beneficially owned by Capital Research and Management Company ("CRMC") as of
December 31, 1999 from a Schedule 13G dated February 10, 2000. According to
the Schedule 13G, CRMC disclaims beneficial ownership pursuant to Rule 13d-4
of the Exchange Act.
7
<PAGE> 12
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 3, 2000, 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 one percent 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 1.9%. 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.
<TABLE>
<CAPTION>
SHARES OF SHARES OF OPTIONS
NAME COMMON STOCK(1) RESTRICTED STOCK(2) EXERCISABLE(3) TOTAL
---- --------------- ------------------- -------------- ----------
<S> <C> <C> <C> <C>
Douglas P. Beighle........ 22,279 579 12,000 34,858
David Bonderman........... 2,945,720(4) 579 7,500 2,953,799
J. Taylor Crandall........ 2,474,189(5) 579 7,500 2,482,268
Craig S. Davis............ 16,280(6) 30,073 111,667 158,020
Roger H. Eigsti........... 20,000 579 12,000 32,579
John W. Ellis............. 43,475(7) 579 12,000 56,054
Anne V. Farrell........... 6,000(8) 579 10,500 17,079
Stephen E. Frank.......... 5,500 579 22,875 28,954
William P. Gerberding..... 6,051(9) 579 12,000 18,630
Enrique Hernandez, Jr..... 675 579 22,875 24,129
Kerry K. Killinger........ 957,458(10) 125,563 1,163,497 2,246,518
William A. Longbrake...... 467,770(11) 33,664 171,667 673,101
Phillip D. Matthews....... 3,000 386 10,943 14,329
Michael K. Murphy......... 13,050(12) 579 12,000 25,629
Deanna W. Oppenheimer..... 56,338(13) 33,198 164,239 253,775
Mary E. Pugh.............. 1,739 256 0 1,995
William G. Reed, Jr....... 76,562(14) 579 12,000 89,141
Elizabeth A. Sanders...... 11,730(15) 386 8,040 20,156
William D. Schulte........ 4,200 386 29,880 34,466
James H. Stever........... 13,700(16) 579 12,000 26,279
Craig E. Tall............. 334,241(17) 35,008 189,669 558,918
S. Liane Wilson........... 173,129(18) 34,839 248,541 456,509
Willis B. Wood, Jr........ 4,050 579 29,625 34,254
All directors and
executive officers as a
group (28 persons)...... 7,827,879(19) 371,741 2,474,335 10,673,955
</TABLE>
- ---------------
(1) All fractional shares have been rounded up to the next highest share.
(2) All restricted stock included is held in the Restricted Stock Plan and is
subject to divestiture.
(3) All options included are exercisable within 60 days after March 3, 2000.
(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. ("Keystone
Holdings") and certain of its subsidiaries (the "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
8
<PAGE> 13
shares as to which voting rights have been distributed to him. In 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 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 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. Also 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.
(6) Includes 10,000 shares held in the Davis Family Trust and 4,144 shares held
in the RSIP.
(7) Includes 2,250 shares held in trust for the benefit of Mr. Ellis'
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 1,675 shares held in the RSIP.
(11) Includes 9,921 shares held directly by Mr. Longbrake's spouse, 17,600
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 5,083 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, for which Mr.
Stever is the President, and 7,500 shares that are held jointly with Mr.
Stever's spouse.
(17) Includes 1,000 shares held directly by Mr. Tall's spouse and 57,262 shares
held in the RSIP.
(18) Includes 580 shares held in the RSIP.
(19) Includes 95,332 shares held in the RSIP.
9
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table and related notes set forth all compensation received
from the Company for the three fiscal years ended December 31, 1999, by the
Company's Chief Executive Officer and the five most highly paid executive
officers (other than the Chief Executive Officer) who were serving as executive
officers at the end of 1999 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
----------------------------------- ---------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
COMPEN- OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION GRANTED(#)(2) SATION(3)
--------------------------- ---- ---------- ---------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kerry K. Killinger.................. 1999 $1,000,000 $1,550,700 $ 0 390,000(4) $241,140
Chairman, President and 1998 900,000 738,000 0 220,500 214,247
Chief Executive Officer 1997 833,336 575,684 0 202,500 145,560
Craig E. Tall....................... 1999 440,000 465,210 0 110,000 82,823
Vice Chair, Corporate Development, 1998 400,000 246,000 0 67,500 62,923
Consumer Finance and Commercial 1997 333,874 197,473 0 60,000 48,452
Banking
Craig S. Davis...................... 1999 430,000 465,210 0 110,000 39,241
President, Mortgage Banking and 1998 390,000 246,000 0 67,500 34,895(5)
Financial Services Groups 1997 330,000 160,656 19,222(6) 30,000 14,131(5)
Deanna W. Oppenheimer............... 1999 430,000 465,210 0 110,000 63,204
President, Consumer Banking 1998 390,000 246,000 0 67,500 52,357
Group 1997 314,624 174,713 0 45,000 37,123
William A. Longbrake................ 1999 410,000 465,210 0 110,000 79,491
Vice Chair and Chief Financial 1998 380,000 246,000 0 67,500 61,751
Officer 1997 310,000 197,473 0 60,000 0
S. Liane Wilson..................... 1999 410,000 465,210 0 110,000 80,650
Vice Chair, Corporate Technology 1998 390,000 246,000 0 67,500 70,695
1997 316,672 197,473 0 60,000 46,154
</TABLE>
- ---------------
(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 31,
1999, is set forth in the table below. Such holdings include restricted
stock awards reported as long-term incentive plan awards and shares acquired
through the reinvestment of dividends, but exclude shares with respect to
which restrictions have lapsed. All fractional shares have been rounded up
to the next highest share.
<TABLE>
<CAPTION>
NUMBER VALUE AT
NAME OF SHARES DECEMBER 31, 1999
---- --------- -----------------
<S> <C> <C>
Kerry K. Killinger................................ 125,301 $3,211,220
Craig E. Tall..................................... 34,943 895,276
Craig S. Davis.................................... 28,935 769,084
Deanna W. Oppenheimer............................. 32,753 849,006
William A. Longbrake.............................. 33,273 860,934
S. Liane Wilson................................... 34,545 890,973
</TABLE>
(2) The options shown in this column as 1999 compensation were granted on
December 15, 1998.
(3) The amounts shown in this column include the following:
(a) Profit sharing and Company matching contributions under the Company's
RSIP during fiscal 1999 of $9,600 for each of Messrs. Killinger, Tall,
Davis and Longbrake and Ms. Oppenheimer and Ms. Wilson.
10
<PAGE> 15
(b) Allocations under the Company's Supplemental Employee Retirement Plan
(the "SERP") during fiscal 1999 of $113,485, $37,374, $29,641, $35,242,
$36,663, and $35,802 to the accounts of Messrs. Killinger, Tall, Davis
and Longbrake and Ms. Oppenheimer and Ms. Wilson, 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 (the
"Pension Plan") and the RSIP.
(c) Allocations under the Supplemental Executive Retirement Accumulation Plan
(the "SERAP") during fiscal 1999 of $118,055, $35,849, $34,649, $16,941,
and $35,248 to the accounts of Messrs. Killinger, Tall, Longbrake and Ms.
Oppenheimer and Ms. Wilson, respectively. The purpose of this plan is 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.
(4) Fifteen thousand of the options granted to Mr. Killinger as 1999
compensation are contingent upon shareholder approval of an increase in the
number of options that may be granted under the 1994 Stock Option Plan to
any participant in any calendar year. Shareholder approval at this Annual
Meeting of the proposed amendments to the 1994 Stock Option Plan would
satisfy this contingency.
(5) Includes, in addition to amounts set forth in note 2 to this Summary
Compensation Table, $3,516 and $1,516, in 1997 and 1998, respectively, 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 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.
(6) Includes reimbursement of relocation expenses of $14,147 paid pursuant to
Washington Mutual's relocation plan for which key managerial personnel
generally are eligible and full tax gross-up of $5,075 on such expenses.
GRANTS OF STOCK OPTIONS IN 1999
The following table sets forth information on stock option grants during
fiscal 1999 to the Named Executive Officers. The options set forth in the table
below were granted on December 21, 1999 as a part of recipient's 2000
compensation.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE APPRECIATION FOR
SECURITIES TOTAL OPTIONS TEN YEAR OPTION TERM(2)
UNDERLYING GRANTED TO EXERCISE -----------------------------
OPTIONS EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE ($) ($)
---- ---------- ------------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Kerry K. Killinger...... 520,000(3) 13.2 25.4375 12/21/09 8,318,700 21,081,216
Craig E. Tall........... 135,000 3.4 25.4375 12/21/09 2,159,663 5,473,008
Craig S. Davis.......... 135,000 3.4 25.4375 12/21/09 2,159,663 5,473,008
Deanna W. Oppenheimer... 135,000 3.4 25.4375 12/21/09 2,159,663 5,473,008
William A. Longbrake.... 135,000 3.4 25.4375 12/21/09 2,159,663 5,473,008
S. Liane Wilson......... 115,000 2.93 25.4375 12/21/09 1,839,713 4,662,192
</TABLE>
- ------------------------------
(1) Each of the options reflected in this table was granted to the respective
Named Executive Officer pursuant to the Washington Mutual Amended and
Restated 1994 Stock Option Plan ("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 have a 10-year term and vest over three
years.
(2) These assumed rates of appreciation are provided in order to comply with the
requirements of the SEC 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
11
<PAGE> 16
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.
(3) One hundred forty-five thousand of the options granted to Mr. Killinger in
1999 are contingent upon shareholder approval of an increase in the number
of options that may be granted under the 1994 Stock Option Plan to any
participant in any calendar year. Shareholder approval at this Annual
Meeting of the proposed amendments to the 1994 Stock Option Plan would
satisfy this contingency.
AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information on the exercise of stock options
during fiscal 1999 by each of the Named Executive Officers and the value of
unexercised options at December 31, 1999.
<TABLE>
<CAPTION>
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
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kerry K. Killinger......... 51,875 1,493,689 1,163,497 333,500 17,698,422 -0-
Craig E. Tall.............. 69,372 1,748,022 189,669 95,833 1,242,052 -0-
Craig S. Davis............. -- -- 111,667 95,833 -0- -0-
Deanna W. Oppenheimer...... 19,425 194,186 164,239 95,833 972,176 -0-
William A. Longbrake....... -- -- 171,667 95,833 776,250 -0-
S. Liane Wilson............ -- -- 248,541 95,833 2,765,365 -0-
</TABLE>
- ------------------------------
(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 31, 1999, which was $25.8750.
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. Through
December 31, 1994, the Pension Plan annually credited each participant with 3%
of total eligible cash compensation. Beginning January 1, 1995, 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. Effective October 1, 1995, 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. Effective October 1, 1998, the Pension Plan credits benefit
accruals (based on years of service) each pay period. Interest credits are
allocated daily to participant accounts. The interest credit rate for 1999 was
5.25%. 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.
12
<PAGE> 17
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 6.15% and are
not subject to any deduction for Social Security or other offset amounts.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
NAME BENEFITS AT 65 YEARS OF AGE($)
---- ------------------------------
<S> <C>
Kerry K. Killinger.................................. 57,118
Craig E. Tall....................................... 38,045
Craig S. Davis...................................... 21,674
Deanna W. Oppenheimer............................... 82,702
William A. Longbrake................................ 14,913
S. Liane Wilson..................................... 27,110
</TABLE>
EMPLOYMENT, TERMINATION AND CHANGE IN CONTROL 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,
which has set 2000 salaries at $1,000,000, $460,000, $450,000, $430,000,
$450,000 and $420,000, respectively, for Messrs. Killinger, Tall, Davis and
Longbrake, Ms. Oppenheimer and Ms. Wilson. 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
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 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 31, 1999, the accrued
benefits under such arrangement totaled $158,468.
13
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999 the Company paid $75,127 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 1999 the Company paid $153,425 to Columbia Resource Group ("CRG") an
event management and planning group, and Bell Harbor International Conference
Center, which is managed by CRG Hospitality, a property management company, for
coordinating Company conferences. Mr. John Oppenheimer, the husband of Ms.
Deanna Oppenheimer, President, Consumer Banking Group, is an owner of both CRG
and CRG Hospitality.
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 1999 in an amount in excess of $60,000. In each case Washington
Mutual or one of its subsidiaries is the lender for a residential loan secured
by a deed of trust or mortgage on the respective residence of the executive
officer or director.
<TABLE>
<CAPTION>
LARGEST
AMOUNT INDEBTEDNESS CURRENT
OF INDEBTEDNESS NATURE OF OUTSTANDING AT INTEREST
NAME AND POSITION DURING 1999($) INDEBTEDNESS MARCH 3, 2000($) RATE(%)
----------------- --------------- ------------ ---------------- --------
<S> <C> <C> <C> <C>
Stephen E. Frank 1,024,758 Residential(1) 1,004,226 5.0741
Director
Enrique Hernandez, Jr. 850,866 Residential(1) 830,470 5.0741
Director 1,347,849 Residential(1) 1,320,671 5.0741
Willis B. Wood, Jr. 675,535 Residential(1) 657,490 5.0741
Director 378,131 Residential(1) 369,901 5.0741
</TABLE>
- ------------------------------
(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 2.2% below
similar loans to the public during 1998. 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. Richard M. Levy and Mr.
William A. Longbrake, executive officers of the Company, and Stephen E. Frank
and Mary E. Pugh, directors 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 collectability 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. Wilson.
Each of Ms. Chapman, Mr. Ehrlich and Mr. Longbrake received their loans prior to
becoming members of this Committee, of which Mr. Levy is not a member.
14
<PAGE> 19
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The following Report of the Compensation Committee and the Performance
Graphs included in this Proxy Statement shall not be deemed to be incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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,
including awards of restricted stock and stock options. As part of the
Compensation Committee's long-term incentive compensation strategy, it
establishes specific awards of stock options and restricted stock for executive
and senior officers. The Compensation Committee also makes recommendations to
the Board of Directors with respect to the compensation program for the Chief
Executive Officer of Washington Mutual, including annual and long-term incentive
compensation plans.
The compensation program for Washington Mutual's executive and senior
officers for 1999 consisted of a combination of base salary, cash bonus awards
primarily 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. Certain newly hired senior officers
also received restricted stock awards under the Restricted Stock Plan.
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 Internal Revenue Code of 1986, as
amended (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
15
<PAGE> 20
the Bonus Plan and restricted stock awards made under Section 6.6 of the
Restricted Stock 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 non-deductible compensation to reward performance that increases the
long-term value of the Company.
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
qualitatively reviews the significance of the position held by the officer and
the officer's experience and contribution, which is based upon 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. The
recommendation of base salary levels for the executive officers is 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
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 salary 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 some percentage of the target
bonus based on the Company's achievement of established business goals that are
long-term determinants of shareholder value. For 1999, one-third of the target
bonus depended on Washington Mutual achieving its goal for return on common
equity ("ROCE"), one-third depended on achieving its goal for operating
efficiency and one-third depended upon achieving its goal on control of net
expense. No bonus would have been paid if established thresholds were not met
and executive officers could have received up to 150% of their target bonus if
Washington Mutual exceeded its business targets. For 1999, the bonus component
achievements were slightly over target resulting in a payout at 103.38% of
target.
For 2000, the Compensation Committee has adopted business goals for the
Bonus Plan that base 30% of the target bonus on Earnings Per Share ("EPS"), 30%
on operating efficiency and 40% on control of net expense.
RESTRICTED STOCK
The Compensation Committee did not make any grants of restricted stock to
executive officers in either 1998 or 1999; however, in 1996 and 1997
performance-based restricted stock grants were made to executive and senior
officers to provide long-term incentive in the creation of shareholder value and
to encourage the recipient to remain at Washington Mutual. The 1996 and 1997
grants have restrictions that begin to lapse in 2000. One-third of the shares'
restrictions will lapse in 2000, since the Company achieved during the relevant
time period certain targeted levels of cumulative ROCE, which the Compensation
Committee believes is an important element in creating shareholder value. An
additional one-third of the shares' restrictions will lapse in 2001 and all
restrictions lapse in 2002, if the Company achieves certain targeted levels of
cumulative ROCE.
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.
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<PAGE> 21
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 grants is generally intended to reflect the officer's
position within Washington Mutual and his or her performance and contributions
to the Company. In determining the size of the option grant, the Compensation
Committee also analyzes the value of the options using an option valuation
methodology.
CEO COMPENSATION
Compensation for Washington Mutual's Chief Executive Officer, Mr.
Killinger, was determined based upon the same general policies and criteria as
the compensation for other executive officers. Mr. Killinger's base salary and
target bonus for 1999 were approved by the Board at its December 1998 meeting
upon 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 1998 and the Company's 1999 financial and
business plans. Based on the factors set out in "Cash Bonus Award," Mr.
Killinger's bonus for 1999 was calculated in the same manner as described above
for the other executive officers.
In evaluating Mr. Killinger's 1999 performance, the Compensation Committee
used both quantitative and qualitative criteria, such as record earnings of
$1.82 billion, which is indicative of creation of shareholder value; capital
strength, as evidenced by the continued qualification of all of the Company's
banking subsidiaries as "well capitalized"; strong asset quality; operating
efficiency; growth in assets to $186.51 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 grant, the Compensation
Committee reviewed the market survey data and other information provided by the
outside consultant. Based on these considerations, as compensation for 1999, Mr.
Killinger was awarded an option to purchase 390,000 shares. The Compensation
Committee concluded that Mr. Killinger's performance in 1999 fully supported the
total compensation awarded.
COMPENSATION AND STOCK OPTION
COMMITTEE
John W. Ellis, Chairman
Douglas P. Beighle
Michael K. Murphy
James H. Stever
Willis B. Wood, Jr.
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<PAGE> 22
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 1994 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, 1994 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
<TABLE>
<CAPTION>
WASHINGTON MUTUAL
INC S&P FINANCIAL INDEX S&P 500 COMP-LTD
----------------- ------------------- ----------------
<S> <C> <C> <C>
Base Period Dec 94 100.00 100.00 100.00
Dec 95 177.31 154.37 137.58
Dec 96 273.19 208.66 169.17
Dec 97 409.73 309.05 225.60
Dec 98 376.99 344.36 290.08
Dec 99 260.82 358.03 351.12
</TABLE>
<TABLE>
<CAPTION>
WASHINGTON MUTUAL
INC S&P FINANCIAL INDEX S&P 500 INDEX
----------------- ------------------- -------------
<S> <C> <C> <C>
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
</TABLE>
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<PAGE> 23
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 SEC. 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 1999, such persons filed all ownership
reports and reported all transactions on a timely basis, except that Mrs. Anne
Farrell did not timely report one transaction, subsequently reported on a Form
5; Mr. David Bonderman did not timely report one transaction, subsequently
reported on an amended Form 5; and Mr. J. Taylor Crandall did not timely report
one transaction, subsequently reported on an amended Form 5.
ITEM 2. AMENDMENT OF THE WASHINGTON MUTUAL
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
The shareholders are being asked to approve amendments to the 1994 Stock
Option Plan that will (i) increase the number of shares reserved for issuance
thereunder by 12,000,000 shares of common stock to an aggregate of 30,000,000
shares, (ii) increase the maximum number of shares with respect to which options
may be granted to any participant in any calendar year from 375,000 shares to
1,500,000 shares, effective retroactive to December 15, 1998, (iii) extend the
duration of the 1994 Stock Option Plan to April 18, 2010, (iv) increase the
number of shares with respect to which options may be granted to non-employee
members of the Board in any calendar year from 3,000 to 4,000, effective as of
December 21, 1999 and (v) change the date on which nonqualified options are
granted automatically to non-employee members of the Board from the third
Tuesday in February to the third Tuesday in December, effective as of December
21, 1999, with the vesting date of such grants made in December being the third
Tuesday of the December following the year of grant.
The 1994 Stock Option Plan, as so amended, will continue to provide for
"incentive stock options" that qualify under Section 422 of the Code and options
not so qualified ("nonqualified options") to purchase common stock. Stock
options may be granted to employees, consultants and advisors of the Company or
its affiliates, and stock options to purchase 4,000 shares of stock are
automatically granted annually to non-employee members of the Board (such
increase from 3,000 shares subject to shareholder approval at this annual
meeting). It is expected that the majority of the common stock available under
the 1994 Stock Option Plan, as amended, would be granted to the Company's
executive and senior management.
The purpose of the 1994 Stock Option Plan is to increase shareholder value
by providing a performance incentive to those who receive stock options
thereunder ("participants"), aligning the participants' interests with those of
the Company, its affiliates and its shareholders through increased stock
ownership, and assisting the Company in attracting, retaining and motivating the
best available talent for the successful conduct of its business. The 1994 Stock
Option Plan is structured to allow the Compensation Committee broad discretion
in granting stock options in order to accomplish these purposes.
The Board of Directors believes the remaining shares under the 1994 Stock
Option Plan, and the current limitation on the number of stock options that may
be granted to a participant in a given calendar year, are insufficient to
accomplish these purposes. The Board further believes it is appropriate to make
the proposed increase in the number of shares with respect to which options may
be granted to a participant retroactive to December 15, 1998, thereby making
effective certain stock options that the Compensation Committee granted to Mr.
Killinger, subject to such shareholder approval, on December 15, 1998 and
December 21, 1999, that exceeded the current per-participant limit by 15,000
shares and 145,000 shares, respectively.
SUMMARY OF THE 1994 STOCK OPTION PLAN
The following description of the 1994 Stock Option Plan, as proposed to be
amended, is qualified in its entirety by and subject to the terms and conditions
of the 1994 Stock Option Plan itself. A copy of the 1994 Stock Option Plan
reflecting the proposed amendments may be obtained by sending a written request
to the Company's Secretary at the address listed on page 34 of this Proxy
Statement.
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<PAGE> 24
ADMINISTRATION
The Compensation Committee administers the 1994 Stock Option Plan. The
Compensation Committee is composed of two or more outside directors. The
Compensation Committee selects the persons to whom awards of stock options are
made, the number of shares underlying stock options awarded, the price at which
options may be exercised to purchase stock (provided that the exercise price is
equal to, or greater than, 100% of the fair market value of stock on the grant
date of the option), and other terms and conditions of the award of stock
options.
ELIGIBILITY
Employees, consultants and advisors of the Company and its affiliates are
eligible to participate in the 1994 Stock Option Plan. Members of the Company's
Board of Directors who are not employees of the Company or any of its affiliates
receive annual automatic grants of options to purchase 4,000 shares of stock.
The proposed amendments would change the date on which these automatic grants
are made to the third Tuesday in December and the vesting date for these grants
to the third Tuesday of the following December. Except with respect to these
automatic grants, the Compensation Committee has general discretion to determine
which eligible participants are to receive awards of stock options. Awards
granted under the 1994 Stock Option Plan are evidenced by agreements subject to
all applicable provisions of the 1994 Stock Option Plan.
SHARES AVAILABLE FOR GRANT
The maximum aggregate number of shares of stock that may be issued pursuant
to options granted under the 1994 Stock Option Plan, as amended, will be
30,000,000 shares, subject to increases and adjustments for stock dividends,
stock splits and other events as provided in the 1994 Stock Option Plan. Subject
to such increases and adjustments, after accounting for options granted under
the 1994 Stock Option Plan as of February 29, 2000, approximately 16,610,223
shares will be available for future grants under the 1994 Stock Option Plan.
ADDITIONAL TERMS AND CONDITIONS OF THE 1994 STOCK OPTION PLAN
Exercise Price. The price to be paid for shares of common stock upon
exercise of an option may not be less than the fair market value of such shares
on the grant date, determined in good faith by the Compensation Committee. The
exercise price of any incentive stock option granted to a participant owning
more than 10% of the outstanding shares of the Company may not be less than 110%
of such fair market value.
Limitation on Incentive Stock Options. The aggregate fair market value
(determined at the time the option is granted) of shares with respect to which
incentive stock options are exercisable for the first time during any calendar
year may not exceed $100,000. If this limit is exceeded, the excess options will
be treated as nonqualified options.
Method of Exercise. An option may be exercised in whole or in part at such
times and on such terms as are prescribed by the Compensation Committee in the
participant's option agreement. The exercise price may be paid by delivery to
the Company of cash or, unless prohibited by the Compensation Committee,
previously acquired shares of common stock of the Company, or other property
acceptable to the Compensation Committee. As long as the common stock is
registered with the SEC under the Exchange Act, and neither the Compensation
Committee nor applicable laws or regulations prohibit the practice, a
participant may make a cashless exercise of an option by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker
promptly to deliver to the Company the amount of sale or loan proceeds necessary
to pay the exercise price in compliance with Regulation T of the Federal Reserve
Board. Employees of the Company or its affiliates who exercise options must pay
or make arrangements to pay withholding tax requirements applicable to the
exercise of nonqualified options or the disqualifying disposition of common
stock acquired by the exercise of incentive stock options.
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<PAGE> 25
Exercise Period. Options granted to employees, consultants and advisors
become exercisable on the schedule specified in the participant's stock option
agreement prescribed by the Compensation Committee. Options granted
automatically to non-employee members of the Board become exercisable one year
after grant. No option may have a term for exercise that is longer than ten
years from the date of grant. Any incentive stock option granted to a
participant owning more than 10% of the outstanding shares of the Company must
terminate not later than five years from the date of grant. If a participant
ceases to be an employee, consultant, advisor or director of the Company or its
affiliates, unless otherwise specified by the Compensation Committee (in a
participant's option agreement or otherwise), and except as otherwise specified
in connection with a change in control under a properly authorized employment
agreement between the participant and the Company or an affiliate, the option
will terminate, subject to the participant's right, within 90 days after
termination of the relationship, to exercise options that had become exercisable
by the date of termination.
Acceleration of Vesting and Antidilution Adjustments. If the Company is
involved in a merger or acquisition or any of certain other corporate changes in
which its shareholders will receive cash, stock, or other property in exchange
for their shares of common stock, the options issued under the 1994 Stock Option
Plan will accelerate immediately before closing of the transaction, and the
participants will be entitled to exercise any vested or unvested options they
then hold, but all options will terminate upon the closing of such transaction;
provided, however, that in its discretion, the Compensation Committee instead
may elect to convert all unexercised options granted under the 1994 Stock Option
Plan into options to purchase stock of an acquiring institution on the same
vesting schedule as provided in the participant's option agreement and in the
same proportion as used for determining the number of shares of stock of the
acquiring corporation to be received by shareholders in the transaction.
Applicable accounting rules, however, may circumscribe the Compensation
Committee's discretion to convert options to acquire the Company's common stock
into options to acquire stock of an acquiring company. Further, the Company
generally maintains employment agreements with its officers of first vice
president rank and above that provide for the immediate vesting of all stock
options held by the officer under certain circumstances in connection with a
change in control. The 1994 Stock Option Plan prohibits the Compensation
Committee from taking any action contrary to any provision regarding vesting of
options contained in an option agreement or employment agreement if it would
result in a reduction of benefits to a participant without the participant's
consent.
Transferability of Options. An incentive stock option is transferable only
by will or by the laws of descent and distribution and may be exercised only by
the participant to whom it was granted, unless he or she is deceased.
Nonqualified stock options are transferable only (i) by will or by the laws of
descent and distribution, or (ii) to the extent not prohibited by the
Compensation Committee, to Immediate Family Members, partnerships comprised
solely of Immediate Family Members, and trusts established solely for the
benefit of Immediate Family Members.
Amendment and Termination. The Compensation Committee generally may amend
or terminate the 1994 Stock Option Plan at any time so long as the amendment
does not have a material adverse effect on the rights of a participant under an
outstanding stock option. Shareholder approval is required, however, for any
amendment that increases either the aggregate number of shares of stock that may
be issued pursuant to the exercise of options granted under the 1994 Stock
Option Plan or the maximum number of shares with respect to which any
participant may be granted options in any calendar year.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company believes that under present law, the following are the U.S.
federal income tax consequences generally applicable to options. The grant of an
option will create no tax consequences for a participant or the Company. A
participant will have no taxable income upon exercising an incentive stock
option (except that the alternative minimum tax may apply) except in certain
circumstances, and the Company will receive no deduction when an incentive stock
option is exercised except in certain circumstances. Upon exercising an option
other than an incentive stock option, a participant must recognize ordinary
income generally equal to the difference between the fair market value of the
shares on the date of exercise and the exercise price. The Company will be
entitled to a deduction for the same amount. The treatment to a
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<PAGE> 26
participant of a disposition of shares acquired through the exercise of an
option generally depends on how long the shares were held and on whether the
shares were acquired by exercising an incentive stock option or by exercising an
option other than an incentive stock option. Generally, there will be no tax
consequence to the Company in connection with a disposition of shares acquired
under an option, except that the Company may be entitled to a deduction in cases
in which shares acquired under an incentive stock option are disposed of before
the applicable incentive stock option holding periods have been satisfied.
Section 162(m) of the Code limits to $1,000,000 per person the amount that
the Company may deduct for compensation paid to its five most highly compensated
executive officers. Compensation that is considered to be "performance based"
under the Code is not subject to this limitation. The Company believes that
compensation expense resulting from its executive officers' exercise of stock
options granted under the 1994 Stock Option Plan qualifies as "performance-based
compensation" that is not subject to the deduction limitations of Section 162(m)
of the Code.
SHAREHOLDER APPROVAL
For shareholders to approve the amendments to the 1994 Stock Option Plan,
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 1994 Stock
Option Plan will continue to be used without regard for such amendments. Unless
instructions to the contrary are specified in a properly signed and returned
proxy, the proxies will be voted for the approval of these amendments to the
1994 Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDMENTS TO THE 1994 STOCK OPTION 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 amendments to the Bonus Plan
that will (i) increase the maximum bonus that may be paid thereunder to a
participant in one calendar year from $750,000 to $5,000,000, (ii) add certain
additional business criteria on which bonus performance goals may be based, and
(iii) reapprove the existing description of the employees eligible to receive
bonuses thereunder. The amendments are proposed to be effective retroactive to
January 1, 1999. 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 maximum bonus amount and 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 1999 and 2000, the Board is asking the shareholders
to approve these amendments effective retroactive to January 1, 1999.
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<PAGE> 27
SUMMARY OF THE BONUS PLAN
The following description of the Bonus Plan, as proposed to be amended, is
qualified in its entirety by and subject to the terms and conditions of the
Bonus Plan itself. A copy of the Bonus Plan reflecting the proposed amendments
may be obtained by sending a written request to the Company's Secretary at the
address listed on page 34 of this Proxy Statement.
ADMINISTRATION
The Compensation Committee administers the Bonus Plan. The Compensation
Committee is composed of two or more outside directors and, therefore, qualifies
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
If the shareholders approve these proposed amendments, the maximum bonus
that may be paid to any participant in any calendar year under the Bonus Plan
will be $5,000,000. The largest target bonus approved by the Compensation
Committee to be awarded with respect to the Company's performance in 2000 was
$2,300,000. If the shareholders do not approve these proposed amendments, future
bonus payments in excess of the $750,000 maximum currently specified in the
Bonus Plan, including any such payment made with respect to the Company's
performance in 2000, will be deemed to have been awarded outside of the Bonus
Plan, and as such may not be deductible by the Company under Section 162(m) of
the Code.
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 proposed amendments, the Compensation Committee will be
empowered under the Bonus Plan to select from the following expanded list of
business criteria:
- Return on average common stockholders' 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);
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<PAGE> 28
- 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);
- Operating earnings per diluted share of common stock before depreciation
and amortization;
- Return on average assets; and
- Ratio of nonperforming to performing 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 bonus
measurement period.
In establishing certain portions of the bonus terms for executive and
senior management for 1999 and 2000, the Compensation Committee used certain
business criteria -- earnings per diluted share of common stock and net
operating expense before goodwill amortization -- that are not specified in the
existing Bonus Plan and have not been approved by the shareholders. The Board of
Directors proposes to retroactively include these two criteria in the Bonus Plan
for 1999 and 2000, and to this end the proposed effective date of these
amendments is January 1, 1999. If the shareholders do not approve these
amendments, those portions of bonuses that are awarded based on earnings per
share and/or net operating expense criteria 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
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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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Section 162(m) of the Code limits to $1,000,000 per person the amount that
the Company may deduct for compensation paid to its five most highly compensated
executive officers. Compensation that is considered to be "performance based"
under the Code is not subject to this limitation. The Company believes that
bonuses paid to its executive officers under the Bonus Plan qualify as
"performance-based compensation" that is not subject to the deduction
limitations of 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.
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 properly signed and returned proxy, the
proxies will be voted for the approval of these amendments to the Bonus Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE AMENDMENTS TO
THE BONUS PLAN.
ITEM 4. AMENDMENT OF THE COMPANY'S RESTRICTED STOCK PLAN
The shareholders are being asked to approve amendments to the Restricted
Stock Plan that will (i) add certain additional business criteria on which the
lapse of restrictions on performance-based restricted stock may be based, (ii)
reapprove the existing description of the employees eligible to receive
restricted stock under the Restricted Stock Plan and (iii) reapprove the
existing maximum number of shares of restricted stock that may be granted to a
participant in one year. These matters are described in more detail below.
The Restricted Stock Plan permits grants of restricted stock, with or
without performance-based vesting restrictions. All employees, consultants and
advisors of the Company and its affiliates, and all members of the Board of
Directors, are eligible to receive restricted stock under the Restricted Stock
Plan.
The purpose of the Restricted Stock 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 lapse of restrictions on restricted
stock on the achievement of specified business goals. The Restricted Stock Plan
is structured to allow the Compensation Committee broad discretion in selecting
criteria for the lapse of restrictions on restricted stock.
The Board of Directors believes the business criteria currently specified
in the Restricted Stock Plan on which performance-based lapses of restrictions
may be based are insufficient to accomplish certain of these purposes. The Board
of Directors therefore believes the business criteria specified in the
Restricted Stock Plan should be expanded to include the criteria that are
proposed to be included in the Bonus Plan (discussed above).
SUMMARY OF THE RESTRICTED STOCK PLAN
The following description of the Restricted Stock Plan, as proposed to be
amended, is qualified in its entirety by and subject to the terms and conditions
of the Restricted Stock Plan itself. A copy of the Restricted Stock Plan
reflecting the proposed amendments may be obtained by sending a written request
to the Company's Secretary at the address listed on page 34 of this Proxy
Statement.
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PURPOSE
The principal purpose of the Restricted Stock Plan is described above. A
further purpose is to allow the grant of performance-based restricted stock 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.
ADMINISTRATION
The Compensation Committee administers the Restricted Stock Plan. The
Compensation Committee is composed entirely of outside directors and, therefore,
qualifies as an independent compensation committee for purposes of Section
162(m) of the Code. The Compensation Committee selects the persons to whom
awards of restricted stock are made, the number of shares of restricted stock
awarded and other terms and conditions of the award of restricted stock.
ELIGIBILITY
All members of the Company's Board of Directors and all employees,
consultants and advisors of the Company and its affiliates are eligible to
participate in the Restricted Stock Plan.
MAXIMUM AWARD
The maximum number of shares of common stock that may be awarded under the
Restricted Stock Plan to any participant in any calendar year is 225,000.
SHARES AVAILABLE FOR AWARD
The maximum aggregate number of shares of stock that may be issued pursuant
to the Restricted Stock Plan is 2,075,122, subject to increases and adjustments
for stock dividends, stock splits and other events as provided in the Restricted
Stock Plan.
BUSINESS CRITERIA ON WHICH PERFORMANCE-BASED RESTRICTIONS MAY BE BASED
The Compensation Committee is authorized to award performance-based
restricted stock under Section 6.6 of the Restricted Stock Plan. Such awards are
intended to qualify as performance-based compensation under Section 162(m) of
the Code. The lapse of restrictions on this performance-based restricted stock
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 Section 6.6 of the Restricted Stock Plan, the
Compensation Committee may select only from business criteria specified in
Section 6.6 of the Plan that have been approved by the shareholders. If the
shareholders approve the proposed amendments, the Compensation Committee will be
empowered under Section 6.6 of the Restricted Stock Plan to select from the
following expanded list of business criteria:
- Return on average common stockholders' 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);
- Net operating earnings (earnings before transaction-related expense)
either before or after amortization of intangible assets, of an
affiliate;
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- Return on average assets;
- Ratio of nonperforming to performing assets; and
- Return on investment in an affiliate.
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 grant
of restricted stock.
Each award of restricted stock under Section 6.6 of the Plan is granted no
later than 90 days after the start of the applicable measurement period, on or
before the date that 25% of that period has elapsed and while the outcome is
substantially uncertain.
ADDITIONAL TERMS AND CONDITIONS OF THE RESTRICTED STOCK PLAN
Lapse of Restrictions. The Compensation Committee has full discretion to
establish the schedule and terms under which restrictions associated with each
grant of restricted stock will lapse, including the authority to choose one of
two five-year schedules set out in the Restricted Stock Plan; to establish a
shorter or longer period for the lapsing of restrictions on any award; and to
impose performance-based goals that must be achieved for restrictions to lapse.
Except as otherwise required with respect to awards intended to qualify as
performance-based compensation under Section 162(m) of the Code, the
Compensation Committee also has full discretion to accelerate or otherwise
modify the basis upon which the restrictions on any award granted under the
Restricted Stock Plan or any predecessor plan will lapse, provided that the
consent of the participant must be obtained for any modification that reduces
the benefits to the participant.
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 shares of restricted stock
awarded (or purchased through dividend or distribution reinvestment) under the
Restricted Stock Plan, (ii) receive cash payment of any dividends or
distributions made in respect of restricted stock, or (iii) receive a stock
certificate representing restricted stock, until in each case, the restrictions
stated in the participant's agreement lapse. Subject only to these restrictions,
a participant otherwise enjoys all of 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 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 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 Restricted Stock Plan, so as to restrict, limit or condition the use of
certain provisions of the Restricted Stock Plan by participants who are "covered
employees" under Section 162(m) of the Code, without so restricting, limiting or
conditioning the Restricted Stock Plan with respect to other participants.
Amendment and Termination. The Compensation Committee may amend or
terminate the Restricted Stock Plan at any time. However, any 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. The Compensation Committee may not increase the aggregate
number of shares that may be awarded under the Restricted Stock 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.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Common stock awarded under the Restricted Stock Plan is generally taxable
to the recipient at the time that all of the restrictions on any portion of such
awards lapse, based upon the fair market value of such stock at the time of the
lapse. Alternatively, a recipient may make an election pursuant to Section 83(b)
of the Code within 30 days of the date of the award to elect to include in gross
income for the current taxable year the fair market value of such stock as of
the date of the award. Such election must be filed with the Internal Revenue
Service within 30 days of the date of the restricted stock grant. The Company
generally will be allowed a tax deduction for federal income tax purposes as a
compensation expense equal to the amount of ordinary income recognized by the
recipient of the restricted stock at the time the recipient recognizes taxable
ordinary income.
Section 162(m) of the Code limits to $1,000,000 per person the amount that
the Company may deduct for compensation paid to its five most highly compensated
executive officers. Compensation that is considered to be "performance based"
under the Code is not subject to this limitation. The Company believes that
compensation expense resulting from the lapse of restrictions on
performance-based restricted stock granted to its executive officers under
Section 6.6 of the Restricted Stock Plan qualifies as "performance-based
compensation" that is not subject to the deduction limitations of Section 162(m)
of the Code.
SHAREHOLDER APPROVAL
For shareholders to approve the proposed amendments to the Restricted Stock
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.
If these amendments are not approved by the shareholders, the Restricted
Stock Plan without regard for such amendments will continue to be used. Unless
instructions to the contrary are specified in a properly signed and returned
proxy, the proxies will be voted for the approval of these amendments to the
Restricted Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE AMENDMENTS TO
THE RESTRICTED STOCK PLAN.
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ITEM 5. 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 properly signed and
returned proxy, 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.
ITEM 6. SHAREHOLDER PROPOSAL
Mr. Bartlett Naylor, 1255 N. Buchanan, Arlington, Virginia 22205, owner of
840 shares of Common Stock, has given notice that he intends to present for
action at the Annual Meeting the following proposal:
"Resolved: The shareholders urge our company to take all
necessary steps to ensure that if the holders of three percent
of the outstanding shares of common stock nominate candidates
for the board of directors, the names, biographical sketches
and photographs of such candidates shall appear in the
company's proxy materials to the same extent that such
information is provided about the company's nominees, and the
company shall print the names of these nominees on its proxy
card and afford shareholders the same opportunity to vote for
or withhold support from these nominees as is provided for the
company's nominees.
"Supporting statement;
"Although our company's board appreciates the importance
of qualified people overseeing management, we believe that the
process for electing directors can be improved.
"Our company's practice is to nominate only one candidate
for each board seat, thus leaving shareholders no choice in
most director elections. Shareholders who oppose a candidate
have no easy way to do so unless they are willing to undertake
the considerable expense of running an independent candidate
for the board. The only other way to register dissent about a
given candidate is to withhold support for that nominee, but
that process rarely/never affects the outcome of director
elections.
"The current system thus provides no readily effective
way for shareholders to oppose a candidate that has failed to
attend board meetings; or serves on so many boards as to be
unable to supervise our company management diligently; or who
serves as a consultant to the company that could compromise
independence; or other problems.
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"Indeed, only in certain countries disparaged for their
governance deficiencies do ballots exclude all but the
incumbent administration's nominees.
"Our company should make it easier for shareholders to
have a choice when they elect directors. Competitive elections
are regarded as healthy and important in most arenas, and we
believe that the same can be said about choosing corporate
directors. An open process could create competition for seats
on the board and could encourage a discussion among
shareholders about why specific nominees are best qualified to
serve on the board.
"This proposal balances the interests of management and
shareholders. To the extent that the company believes that its
nominees are the best candidates, the company will have an
opportunity to make their case to the shareholders. And if the
incumbent directors are doing their job properly, we think it
is unlikely that a challenger will emerge. As an added
precaution, the proposal contains a safeguard against nuisance
candidates by requiring nominees to garner support from the
holders of three percent of outstanding shares. In our view,
such a threshold should assure that serious board candidates
are presented to the shareholders, who can then make their own
choice about what type of leadership they want for our board.
"We urge you to vote FOR this proposal."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "AGAINST" THE
ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
This proposal is not necessary to allow shareholders to oppose the Board's
nominees. The Company's Bylaws already provide the opportunity for any
shareholder to nominate candidates for the Board of Directors and the SEC's
proxy rules provide a mechanism for access to shareholders lists to enable
shareholders to solicit proxies for such candidates.
This proposal urges the Company to establish a mechanism that would enable
certain insurgent groups to run proxy contests at the Company's, and ultimately
at the shareholders', expense. The three percent stock ownership threshold
established in the proposal currently equates to approximately 17,000,000
shares. Any insurgent shareholder or group holding such a large number of shares
would undoubtedly have the financial means to bear the costs of a proxy contest.
Under this proposal, however, such an insurgent group would not be required to
pay the costs of publishing and distributing proxy materials, rather the Company
would. Management does not believe that it is in the best interests of the
shareholders to provide such an advantage to an insurgent group.
One of the primary responsibilities of a board of directors is to assure
the quality of membership on the board. The Company's Board of Directors takes
this responsibility seriously and has assigned to the Planning and Nominating
Committee of the Board the responsibility for evaluating candidates for the
Board. The Planning and Nominating Committee seeks to promote racial, gender and
geographic diversity in the Board's composition. The Board believes that the
current policies for selecting candidates for Board membership serve well in
attracting and retaining competent directors who enhance the value of the
Company.
SHAREHOLDER APPROVAL
For shareholders to approve the proposal set forth in this Item 6, the
number of votes cast in favor must exceed the number of votes cast against such
proposal. Under New York Stock Exchange Rules, brokers who hold shares for the
accounts of their clients do not have discretionary authority to vote such
shares with respect to the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS SHAREHOLDER
PROPOSAL, ITEM 6., AND YOUR PROXY WILL BE SO VOTED IF THE PROPOSAL IS PRESENTED
UNLESS YOU SPECIFY OTHERWISE.
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ITEM 7. SHAREHOLDER PROPOSAL
The AFL-CIO Staff Retirement Plan, 815 Sixteenth Street, N.W., Washington,
D.C. 20006, owner of 28,300 shares of Common Stock, has given notice that it
intends to present for action at the Annual Meeting the following proposal:
"RESOLVED: That the shareholders of Washington Mutual,
Inc. (the 'Company') urge the board of directors (the 'Board')
to disclose in a separate report to shareholders the Company's
relationships with executive compensation consultants or
firms. Specifically, the Company should, with respect to each
firm or consultant retained by the Company, the Board or Board
committee to advise on executive compensation policies or
plans (each, a 'Consultant'):
(1) disclose the name of such Consultant;
(2) identify the entity (e.g., the Company, the
Board) that retained the Consultant, and disclose whether
any member of the Company's senior management participated
in process of selecting or retaining the Consultant; and
(3) disclose whether the Consultant has provided, at
any time in the last five years, non-compensation-related
services to the Company or any affiliate of the Company,
including services provided by the Consultant through an
affiliate, and disclose the amount of fees received by the
Consultant or affiliate for such services.
"Supporting Statement
"To ensure that executive compensation is aligned with
the interests of shareholders, we believe compensation issues
should be decided by a committee of independent directors who
have access to unbiased advice and objective analyses and
data. While the Company notes in its 1999 proxy statement that
the Board's compensation committee utilizes an unnamed
compensation consultant to assist it in its deliberations, the
proxy does not disclose any information that would allow
shareholders to adequately assess whether consultants utilized
by the compensation committee or Board are sufficiently
independent to provide objective advice.
Questions have been raised about the independence of
compensation consultants. A New York Times article in November
1998 linked escalating executive pay to the fact that 'top
executives, rather than the board of directors, typically
control the hiring and firing of consultants who are brought
in to design pay packages . . . if the executives do not like
the opinions offered by their consultants, they can easily
replace them with others more willing to act as their
advocates before the board of directors.' A compensation
committee member was quoted in a recent study by Jay Lorsch as
stating that consultants are 'wedded to senior management,
because they see them as a client.'
"Compensation experts have noted that the independence of
compensation consultants may be compromised as a result of
additional business relationships. Graef Crystal, a leading
executive compensation expert, advocates that 'the
compensation committee of the board should have its own
compensation consultant, with that consultant and his firm
having no other contact with the particular company. Thus, if
you are a [consultant], you could perform actuarial work for a
company, and you could advise the CEO on his pay, but you
could not work as the consultant to the board of directors.
That role would go to someone else.'
"For these reasons, we believe that requiring disclosure
of the Company's relationships with its compensation
consultants will help ensure that executive compensation
decisions are rendered independently and in the interests of
shareholders."
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THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "AGAINST" THE
ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
The SEC has adopted detailed regulations requiring that numerous matters of
importance to investors be set forth in proxy statements. The SEC has never
adopted a regulation requiring disclosure of the information that this
Shareholder Proposal proposes for inclusion in an annual proxy statement. If the
SEC were of the opinion that such information is material for shareholders, the
SEC would require disclosure by regulation. Thus, all corporations subject to
the SEC's oversight would be subject to uniform disclosure rules.
Non-uniform disclosure may be misleading to investors. For example,
disclosure by the Company may imply that the relationship between the Company
and its consultants differs in some material respect from the relationships
between other companies and their consultants. This implication would be untrue.
For this reason, the Board of Directors believes that the Company should not
disclose the information that Shareholder Proposal, Item 7., proposes for
inclusion in an annual proxy statement, unless the SEC adopts a regulation
requiring such disclosure by other corporations.
SHAREHOLDER APPROVAL
For shareholders to approve the proposal set forth in this Item 7. The
number of votes cast in favor must exceed the number of votes cast against such
proposal. Under New York Stock Exchange Rules, brokers who hold shares for the
accounts of their clients do not have discretionary authority to vote such
shares with respect to the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS SHAREHOLDER
PROPOSAL, ITEM 7., AND YOUR PROXY WILL BE SO VOTED IF THE PROPOSAL IS PRESENTED
UNLESS YOU SPECIFY OTHERWISE.
ITEM 8. SHAREHOLDER PROPOSAL
Mr. Jerome Gabig, 1100 Oakmont Drive #1, Walnut Creek, California 94595,
owner of 1,079 shares of Common Stock, has given notice that he intends to
present for action at the Annual Meeting the following proposal:
"HIRE PROXY ADVISORY FIRM CHOSEN BY SHAREOWNER VOTE
"WHEREAS many shareowners lack the time and expertise to
make the best voting decisions, yet prefer not to always
follow management's recommendations because of management's
possible conflicts of interest;
"WHEREAS proxy advisory firms have established
reputations for giving sound independent advice to many
institutional investors on how to vote their shares;
"WHEREAS shareowners have a common interest in obtaining
sound independent advice, but often insufficient private
interest to justify paying for it individually (the
'free-rider' problem);
"THEREFORE BE IT RESOLVED that Washington Mutual
shareowners request the Board of Directors to hire a proxy
advisory firm for one year, to be chosen by shareowner vote.
Shareowners request the Board to take all necessary steps to
enact this resolution in time to hold the vote at the
year-2001 shareowner meeting, with the following features:
"To insulate advisor selection from influence by Company
management, any proxy advisory firm could put itself on the
ballot by paying an entry fee and declaring the price (no more
than $5,000) for its advisory service for the coming year. The
winning candidate is paid its declared price by the Company,
and expected to make voting recommendations freely available
to all Company shareowners for the subsequent year.
Fulfillment of that expectation would not be policed by
Company
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management, but rather by loss of reputation and future
business if performance is disappointing.
"The decision of whether to hire proxy advisory firms in
later years would be left open, and could be decided by future
shareowner votes.
"Supporting statement;
"This proposal can be expected to improve the return on
Washington Mutual stock by:
- enhancing management accountability to shareowners by
making professionally researched advice available to
all;
- effectively enfranchising individual investors for the
first time, ensuring that a majority of shares can be
voted independently of management's recommendations;
- encouraging greater competition among advisory firms to
serve shareowner interests;
- reducing the cost to shareowners of voting advice,
which is already being paid by pension funds on a
subscription basis. (The same advice will be bought as
a group purchase put to competitive bid, and will
generate a corporate tax deduction. Many investors are
also pension fund beneficiaries, so are already paying
the cost anyway.)
"Proxy advisory firm such as Proxy Monitor
(http://www.proxymonitor.com), Institutional Shareholder
Services (http://iss.cda.com), and Investor Responsibility
Research Center (http://www.irrc.org) are frequently cited in
the financial press. Examples are 'Venator Holders Are Urged
To Support Dissident Slate' (Wall Street Journal 07/06/1999)
and 'ISS's Influence Grows In Proxy, Option Matters' (Wall
Street Journal 11/10/1997).
"Articles discussing the company-pay system for proxy
advice are on the Corporate Monitoring website
(http://www.corpmon.com/publications.htm). These include
'Collective Action for Dispersed Shareowners' (Corporate
Governance International, September 1999) and 'The Internet
Will Drive Corporate Monitoring.' Further developments in
corporate governance that may follow from this proposal are
presented in 'The Corporate Monitoring Firm' (Corporate
Governance: An International Review, January 1999) and
'Corporate Monitoring: New Shareholder Power Tool' (Financial
Analysts Journal, September/October 1998)."
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "AGAINST" THE
ADOPTION OF THIS PROPOSAL FOR THE FOLLOWING REASONS:
According to Mr. Jerome Gabig's proposal, a proxy advisory firm could "put
itself on the ballot by paying an entry fee and declaring the price" for its
services. The proposal does not require that proxy advisory firms disclose any
other information about themselves. Their expertise, prior experience, quality
of work, reliability and reputation, and the type of work they would perform are
critical factors, which often are more important than fees. The proposal does
not provide any procedure by which the Company or shareholders may inquire about
these other factors in order to make a fully informed decision.
The proposal precludes management from screening applicants to determine
their qualifications and from limiting the number of firms that may take
advantage of the proposal. Any number of competing proxy advisory firms could
use the Company's proxy statement as a vehicle to solicit business for
themselves, if this proposal were adopted.
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Proxy advisory firms are not neutral evaluators of proposals put to
shareholders. Each firm has its own set of criteria by which proposals are
evaluated. Different advisory firms have arrived at different conclusions for
the same proposal. Shareholders may not have an opportunity to learn the
criteria employed by the advisory firms that nominate themselves, because Mr.
Gabig's proposal does not allow shareholders or management to probe into these
factors.
Mr. Gabig's proposal would also preclude management of the Company from
evaluating the advisory firm's recommendations or the process by which the
evaluations are made. Management does not believe that the absence of any checks
on the qualifications or recommendations of the proxy advisory firm is in the
interests of shareholders.
SHAREHOLDER APPROVAL
For shareholders to approve the proposal set forth in this Item 8. the
number of votes cast in favor must exceed the number of votes cast against such
proposal. Under New York Stock Exchange Rules, brokers who hold shares for the
accounts of their clients do not have discretionary authority to vote such
shares with respect to the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" THIS SHAREHOLDER
PROPOSAL, ITEM 8., AND YOUR PROXY WILL BE SO VOTED IF THE PROPOSAL IS PRESENTED
UNLESS YOU SPECIFY OTHERWISE.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999, including financial statements and schedules, together with the
Company's 1999 Summary Annual Report, was mailed to shareholders with this Proxy
Statement. ADDITIONAL COPIES OF THE 1999 SUMMARY ANNUAL REPORT AND ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO INVESTOR RELATIONS, WASHINGTON MUTUAL, INC., 1201 THIRD
AVENUE, 7TH FLOOR, SEATTLE, WASHINGTON 98101. This proxy statement and the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, are also available from the Securities and Exchange Commission over the
Internet at its website, http://www.sec.gov.
SHAREHOLDER PROPOSALS FOR 2001 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 2001 Annual Meeting of Shareholders by November 23,
2000, to consider them for inclusion in the Company's 2001 proxy statement and
form of proxy. Any such nominations or shareholder proposals must be received in
writing at the executive offices by the Secretary of the Company by that date.
The Company's address for these purposes is 1201 Third Avenue, Suite 1706,
Seattle, Washington 98101, Attention: Secretary.
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OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters that
will be presented for consideration at the Annual Meeting other than the
proposals set forth in this Proxy Statement. If any other matters properly come
before the Annual Meeting, it is intended that the shares represented by proxies
will be voted in accordance with the judgment of the persons voting such
proxies.
By Order of the Board of Directors,
/s/ WILLIAM L. LYNCH
William L. Lynch
Secretary
March 22, 2000
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[WASHINGTON MUTUAL LOGO]
1201 Third Avenue, Seattle, WA 98101
PROXY FOR THE APRIL 18, 2000 ANNUAL METING 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
held of record by the undersigned on March 3, 2000, at the Meeting of
Shareholders to be held at 2:00 p.m., Tuesday, April 18, 2000, and at any and
all adjournments thereof.
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
[WASHINGTON MUTUAL LOGO]
Annual Meeting of Shareholders
Tuesday, April 18, 2000
2:00 p.m.
Benaroya Hall
S. Mark Taper Foundation Auditorium
200 University Street
Seattle, Washington
<PAGE> 41
Please mark
your votes as [X]
recreated on
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): Mary E. Pugh
Nominees (Terms will expire in 2003): Douglas P. Beighle, J. Taylor
Crandall, Kerry K. Killinger, Michael K. Murphy, Elizabeth A. Sanders,
Willis B. Wood
FOR AGAINST ABSTAIN
2. APPROVAL OF AMENDMENTS TO WASHINGTON MUTUAL'S 1984 [ ] [ ] [ ]
STOCK OPTION 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. APPROVAL OF AMENDMENTS TO WASHINGTON MUTUAL'S [ ] [ ] [ ]
RESTRICTED STOCK PLAN.
FOR AGAINST ABSTAIN
5. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE [ ] [ ] [ ]
LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
6. SHAREHOLDER PROPOSAL REGARDING NOMINATIONS OF [ ] [ ] [ ]
BOARD CANDIDATES.
FOR AGAINST ABSTAIN
7. SHAREHOLDER PROPOSAL REGARDING DISCLOSURE OF [ ] [ ] [ ]
EXECUTIVE COMPENSATION CONSULTANTS.
FOR AGAINST ABSTAIN
8. SHAREHOLDER PROPOSAL REGARDING HIRING OF PROXY [ ] [ ] [ ]
ADVISORY FIRM BY SHAREHOLDER VOTE.
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 in 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, 4
AND 5 IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR ITEMS
1, 2, 3, 4 AND 5 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 "AGAINST" ITEMS 6, 7 AND 8.
Signature(s)_____________________________________________ Date ___________, 2000
(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 *
(STAR) BENAROYA HALL
PARKING
The Benaroya Hall parking garage
is located on 2nd Avenue just
beyond Union Street. 2nd Avenue is
one-way going south. Union Street
is one-way going west.
ADDITIONAL PARKING
[MAP OF SITE]
[ ] WASHINGTON MUTUAL TOWER
Entrance on Seneca Street
between 2nd and 3rd Avenues
* COBB GARAGE
Entrance on University Street
between 3rd and 4th Avenues
o PUGET sound PLAZA GARAGE [COMPASS]
Entrance on Union Street
between 4th and 3rd Avenues
Washington Mutual does not validate parking
<PAGE> 42
WASHINGTON MUTUAL
BONUS AND INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
As Amended and Restated Effective January 1, 1999
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.
1
<PAGE> 43
(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.
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 stockholders' 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).
Net operating earnings (earnings before transaction-related expense)
either before or after amortization of intangible assets of an
affiliate.
Return on average assets.
Ratio of nonperforming to performing assets.
2
<PAGE> 44
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 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
3
<PAGE> 45
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.
4
<PAGE> 46
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, 1999, and shall replace and supersede the Bonus and
Incentive Plan for Executive and Senior Management adopted effective January 1,
1996.
Executed this day of ________ 2000.
DIRECTORS' COMPENSATION & STOCK OPTION COMMITTEE
By____________________________________
John W. Ellis
Its Chairman
5
<PAGE> 47
WASHINGTON MUTUAL
1994 STOCK OPTION PLAN
AS AMENDED AND RESTATED AS OF FEBRUARY 15, 2000
<PAGE> 48
WASHINGTON MUTUAL AMENDED AND RESTATED
1994 STOCK OPTION PLAN
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS
<TABLE>
<S> <C>
1.1 Affiliate 1
1.2 Agreement 1
1.3 Board 1
1.4 Code 1
1.5 Committee 1
1.6 Company 1
1.7 Date of Exercise 1
1.8 Exchange Act 1
1.9 Fair Market Value 1
1.10 Incentive Option 1
1.11 Nonqualified Option 2
1.12 Option 2
1.13 Participant 2
1.14 Plan 2
1.15 Stock 2
1.16 Ten Percent Shareholder 2
ARTICLE 2. PURPOSE OF PLAN
ARTICLE 3. ADMINISTRATION
3.1 Administration of Plan 3
3.2 Authority to Grant Options 3
3.3 Discretionary Authority of Committee 3
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation 5
4.2 Limitations on Grants 5
4.3 Limitation on Incentive Options 5
4.4 Ten Percent Limitation on Ownership 5
4.5 Annual Grants to Nonemployee Board Members 5
</TABLE>
i
<PAGE> 49
ARTICLE 5. STOCK SUBJECT TO PLAN
<TABLE>
<S> <C>
5.1 Maximum Number of Shares 6
ARTICLE 6. EXERCISE OF OPTIONS
6.1 Exercise Price 6
6.2 Commencement of Right to Exercise 6
6.3 Maximum Exercise Period 6
6.4 Early Termination of Right to Exercise 6
6.5 Transferability 7
ARTICLE 7. METHOD OF EXERCISE
7.1 Exercise 7
7.2 Payment 7
7.3 Federal Withholding Tax Requirements 7
7.4 Shareholder Rights 8
ARTICLE 8. ADJUSTMENT UPON CORPORATE CHANGES
8.1 Adjustments to Shares 8
8.2 Substitution of Options on Merger or Acquisition 8
8.3 Effect of Certain Transactions 8
8.4 No Preemptive Rights 9
8.5 Fractional Shares 9
ARTICLE 9.
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
9.1 General 9
9.2 Representations by Participants 10
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
</TABLE>
ii
<PAGE> 50
<TABLE>
<S> <C>
10.6 Amendment 11
10.7 Time to Grant Incentive Options 11
10.8 Effective Date of Plan 11
</TABLE>
iii
<PAGE> 51
WASHINGTON MUTUAL AMENDED AND RESTATED
1994 STOCK OPTION PLAN
ARTICLE 1. DEFINITIONS
1.1 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.
1.2 Agreement. A written agreement (including any amendment or
supplement thereto) between the Company or Affiliate and a Participant
specifying the terms and conditions of an Option granted to such Participant.
1.3 Board. The board of directors of the Company.
1.4 Code. The Internal Revenue Code of 1986, as amended.
1.5 Committee. A committee with at least as many members as required by
Rule 16b-3 of the Exchange Act who are members of the Board.
1.6 Company. Washington Mutual, Inc., successor to Washington Mutual
Savings Bank as Plan sponsor, and its successors.
1.7 Date of Exercise. The later of the date that the Participant
delivers a written notice of exercise to the Company and the date that the
Option exercise price is received by the Company.
1.8 Exchange Act. The Securities Exchange Act of 1934, as amended.
1.9 Fair Market Value. On any given date, the applicable description
below:
(a) The closing price of the Stock as traded on the National
Association of Securities Dealers National Market System, as published
in The New York Times or The Wall Street Journal, on the business day
immediately preceding the date as of which Fair Market Value is being
determined.
(b) If the Stock is not traded as described in subparagraph (a),
Fair Market Value shall be the value determined in good faith by the
Committee or the Board.
1
<PAGE> 52
1.10 Incentive Option. An Option that is intended to qualify as an
"incentive stock option" within the meaning of section 422 of the Code. An
Incentive Option shall not be invalid for failure to qualify under section 422
of the Code, but shall be treated as a Nonqualified Option.
1.11 Nonqualified Option. An Option that is not an Incentive Option.
1.12 Option. The right that is granted hereunder to a Participant to
purchase from the Company a stated number of shares of Stock at the price set
forth in an Agreement. As used herein, an Option includes both Incentive Options
and Nonqualified Options.
1.13 Participant. A person who is awarded Options hereunder. All
employees, consultants and advisors of the Company or of an Affiliate are
eligible to become Participants. Members of the Board who are not employees of
the Company or its Affiliates are also eligible to become Participants to the
extent that they receive Options pursuant to grants specifically called for by
the terms of this Plan.
1.14 Plan. The Washington Mutual Amended and Restated 1994 Stock Option
Plan, as embodied herein and as amended from time to time, and including the
Washington Mutual 1994 Stock Option Plan, which is the predecessor version of
this Plan.
1.15 Stock. The common stock of the Company.
1.16 Ten Percent Shareholder. An individual who owns more than 10% of
the total combined voting power of all classes of stock of the Company or an
Affiliate at the time he or she is granted an Option. For the purpose of
determining if an individual is a Ten Percent Shareholder, he or she shall be
deemed to own any voting stock owned (directly or indirectly) by or for his or
her brothers and sisters (whether by whole or half blood), spouse, ancestors or
lineal descendants and shall be considered to own proportionately any voting
stock owned (directly or indirectly) by or for a corporation, partnership,
estate or trust of which such individual is a shareholder, partner or
beneficiary.
ARTICLE 2. PURPOSE OF 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, that
Participant employees will be encouraged to remain in the employ of the Company
or of its Affiliates, and that Participant consultants, advisors and board
members will be encouraged to maintain their relationships with the Company or
its Affiliates. The proceeds
2
<PAGE> 53
received by the Company from the sale of Stock pursuant to this Plan may be used
for general corporate purposes.
The Plan was originally established and maintained by Washington Mutual
Savings Bank as the Washington Mutual 1994 Stock Option Plan (the "Original
Plan"). By action of the respective boards of directors of Washington Mutual
Savings Bank and the Company, the Company became the sponsor of the Original
Plan, effective November 29, 1994, at which time common stock of the Company was
substituted for common stock of Washington Mutual Savings Bank. The Original
Plan was previously approved by the shareholders of Washington Mutual Savings
Bank, the prior sponsor of the Original Plan. The Company amended and restated
the Original Plan, effective as of February 17, 1998, and adopted several
amendments subsequent to such amendment and restatement.
The Plan was further amended on January 18 and February 15, 2000, subject
to shareholder approval.
The Board approved this restatement of the Plan to incorporate all such
amendments.
ARTICLE 3. ADMINISTRATION
3.1 Administration of Plan. The Plan shall be administered by the
Committee. The Committee shall have complete authority to (i) interpret all
provisions of this Plan; (ii) prescribe the form of any Agreement; (iii) adopt,
amend, and rescind rules for Plan administration; and (iv) make all
determinations it deems advisable for the administration of this Plan. 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 this Plan or any Agreement or Option. The Company shall
bear all expenses of Plan administration.
3.2 Authority to Grant Options. The Committee shall have authority to
grant Options upon such terms the Committee deems appropriate and that are not
inconsistent with the provisions of this Plan. Such terms may include conditions
on the exercise of all or any part of an Option.
3.3 Discretionary Authority of Committee. The Committee shall have full
discretionary power, subject to, and within the limits of, Articles 4, 5 and 6
of the Plan:
(a) To determine from time to time who of the eligible persons
shall be granted Options, and the time or times when, and the number of
shares for which, an Option or Options shall be granted to such persons.
3
<PAGE> 54
(b) To determine whether to grant Incentive Options, Nonqualified
Options, or both to eligible persons pursuant to the provisions of the
Plan.
(c) To prescribe the other terms and provisions (which need not
be identical) of each Option granted under the Plan to eligible persons.
(d) To modify or amend any term or provision of any Option
granted under the Plan, 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 Option.
(e) To construe and interpret the Plan and Options granted
hereunder (including the Agreements), 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 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.
(f) 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.
(g) To accelerate the time at which an Option may be exercised,
or otherwise modify the terms of an Option in a manner favorable to the
Participant.
(h) Subject to the maximum exercise period provided in Section
6.3, to extend the time within which any Participant must exercise any
Option, in whole or in part.
(i) Notwithstanding Section 6.3, to extend the exercise period of
an Option beyond the maximum exercise period provided in Section 6.3, in
whole or in part, if the Committee determines that a Participant will be
unable to exercise such Option within the maximum exercise period on
account of an unforeseeable hardship.
(j) To authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously
granted hereunder.
(k) To interpret the Plan and make any determinations that are
necessary or desirable in the administration of the Plan.
4
<PAGE> 55
(l) 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.
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS
4.1 Participation. The Committee may from time to time designate persons
to whom Options are to be granted from among those who are eligible to become
Participants. Such designation shall specify the number of shares of Stock
subject to each Option. All Options granted under this Plan shall be evidenced
by Agreements which shall designate such Option as either an Incentive Option or
Nonqualified Option, and which shall be subject to applicable provisions of this
Plan or such other provisions as the Committee may adopt that are not
inconsistent with Articles 4, 5 and 6 of the Plan.
4.2 Limitations on Grants. A nonemployee Board member is not eligible to
receive a grant of Options except as provided in Section 4.5. A person who is
not an employee of the Company or an Affiliate is not eligible to receive an
Incentive Option. The maximum number of shares of Stock with respect to which
Options may be granted to any Participant in any calendar year under the Plan is
one and one-half million (1,500,000) shares.
4.3 Limitation on Incentive Options. To the extent that the aggregate
Fair Market Value of Stock with respect to which Incentive Options are
exercisable for the first time by a Participant during any calendar year (under
all incentive stock option plans of the Company and its Affiliates) exceeds
$100,000 (the Fair Market Value being determined as of the date each Option was
granted), such Options shall be treated as Nonqualified Options. This provision
shall be applied by taking Incentive Options into account in the order in which
they were granted.
4.4 Ten Percent Limitation on Ownership. Unless requisite approvals are
obtained from the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision or other regulatory entities, no person shall be eligible to receive
or exercise any option which, if exercised, would result in his or her holding
beneficially or of record in excess of 10% of the outstanding voting stock of
the Company.
4.5 Annual Grants to Nonemployee Board Members.
(a) Grant Date. Nonqualified Options shall be granted
automatically each year to each individual who, on the third Tuesday of
February of each year, through February 1999, and the third Tuesday of
December each year, beginning in December 1999 (the "Eligibility Date"),
is a member of the Board and is not an employee of the Company or its
Affiliates.
5
<PAGE> 56
(b) Number of Shares; Exercise Price. On each Eligibility Date,
each nonemployee Board member described in Section 4.5(a) shall be
granted a Nonqualified Option to acquire 4,000 shares of Stock. The
exercise price for such Nonqualified Options shall be the Fair Market
Value of Stock on the respective Eligibility Dates.
(c) Exercisability. For purposes of determining the dates on
which Options can be exercised, each Nonqualified Option awarded under
this Section 4.5 shall be fully exercisable on the earlier to occur, if
at all, of (1) (i) for Options granted on a third Tuesday in February,
the third Tuesday in February after the year that the option was
granted, provided that the individual is still a member of the Board,
and (ii) for Options granted on a third Tuesday in December, the third
Tuesday in December after the year in which the option was granted,
provided that the individual is still a member of the Board, or (2) the
date of the individual's mandatory retirement from the Board (as defined
in the Company's bylaws).
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 the exercise of Options under this Plan
(including the predecessor of this Plan, the Original Plan) is thirty million
(30,000,000) shares, subject to adjustments as provided in Article 8.
5.2 Forfeitures. Except as provided in the next sentence, if any Option
granted hereunder expires, terminates or is canceled without having been
exercised in full, the unpurchased shares subject thereto shall not again be
available for issuance under this Plan. The foregoing shall not apply to Options
that expire before the expiration of their maximum exercise period in connection
with a Participant ceasing to be an employee, director, consultant or advisor of
the Company or its Affiliates.
ARTICLE 6. EXERCISE OF OPTIONS
6.1 Exercise Price. The exercise price of an Option shall be not less
than 100% of the Fair Market Value of a share of Stock on the date the Option is
granted. In the case of a Ten Percent Shareholder, however, the exercise price
of an Incentive Option shall not be less than 110% of the Fair Market Value of a
share of Stock on the date the Option is granted. If the exercise price of an
Option is changed after the date it is granted, such change shall be deemed to
be a termination of the existing Option and the issuance of a new Option.
6.2 Commencement of Right to Exercise. An Option shall first become
exercisable
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<PAGE> 57
on the date of grant if not otherwise specified; as may otherwise be specified
by the Committee (in the Agreement or otherwise); or as may be specified in
connection with a change in control under a properly authorized employment
agreement between the Participant and the Company or an Affiliate.
6.3 Maximum Exercise Period. The maximum period in which an Option may
be exercised shall be determined by the Committee on the date of grant except
that no Option shall be exercisable after the expiration of 10 years (five years
in the case of Incentive Options granted to a Ten Percent Shareholder) from the
date it was granted. The terms of any Option may provide that it is exercisable
for a shorter period.
6.4 Early Termination of Right to Exercise. Unless otherwise specified
by the Committee (in the Agreement or otherwise), and except as otherwise
specified in connection with a change in control under a properly authorized
employment agreement between the Participant and the Company or an Affiliate, if
the Participant for any reason ceases to be an employee, consultant, advisor or
director of the Company or an Affiliate, and the Participant does not thereupon
become an employee, consultant, advisor or director of the Company or an
Affiliate, the Participant shall have the right for 90 days after termination of
the relationship to exercise only the portion of the Participant's Options that
had become exercisable by the date of the termination, and thereafter the
Options shall terminate and cease to be exercisable.
6.5 Transferability. Any Incentive Option granted under this Plan shall
be transferable only by will or by the laws of descent and distribution and may
be exercised only by the Participant to whom it was granted, unless he or she is
deceased. Any Nonqualified Option granted under this Plan shall be transferable
only (a) by will or by the laws of descent and distribution, or (b) to the
extent not prohibited by the Committee, to Immediate Family Members,
partnerships in which the only partners are Immediate Family Members, or trusts
established solely for the benefit of Immediate Family Members. "Immediate
Family Members" are the grandparents, parents, aunts, uncles, spouse, brothers,
sisters, cousins, children, nieces, nephews, grandchildren and
great-grandchildren, and corresponding step relations, of the Participant who
holds the Nonqualified Option. No right or interest of a Participant in any
Option shall be liable for, or subject to, any lien, obligation or liability of
such Participant.
ARTICLE 7. METHOD OF EXERCISE
7.1 Exercise. An Option granted hereunder shall be deemed to have been
exercised on the Date of Exercise. Subject to the provisions of Articles 6 and 9
and any contrary provisions in the Agreement, an Option may be exercised in
whole or in part at such times and in compliance with such requirements as the
Committee shall determine.
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7.2 Payment. Unless otherwise provided by the Agreement, payment of the
Option price shall be made in cash or, unless prohibited by the Committee, Stock
that was acquired prior to the exercise of the Option, other consideration
acceptable to the Committee, or a combination thereof. As long as the Stock is
registered under the Exchange Act, and to the extent permitted by applicable
laws and regulations (including, but not limited to, federal tax and securities
laws and regulations) and not prohibited by the Committee, an Option may also be
exercised by delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price in compliance with
Regulation T (12 C.F.R. Part 220).
7.3 Federal Withholding Tax Requirements. Upon exercise of a
Nonqualified Option by a Participant who was an employee of the Company or an
Affiliate when the Option was issued, the Participant shall, upon notification
of the amount due and prior to or concurrently with the delivery of the
certificates representing the shares, pay to the Company 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 Participant shall likewise pay or make arrangements for any
withholding tax requirements that may apply or become applicable to any other
exercise of Options or disposition of Stock acquired by the exercise of Options.
Further, 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 any
Participant any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of Options or disposition of Stock
acquired by the exercise of Options.
7.4 Shareholder Rights. No Participant shall have any rights as a
stockholder with respect to shares subject to his or her Option prior to the
Date of Exercise of such Option.
ARTICLE 8. ADJUSTMENT UPON CORPORATE CHANGES
8.1 Adjustments to Shares. The maximum number and kind of shares of
Stock with respect to which Options hereunder may be granted and which are the
subject of outstanding Options 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(a) of the Code applies; or
(c) there occurs any other event which in the judgment of the
Committee necessitates such action.
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Provided, however, that if an event described in paragraph (a) or (b) above
occurs, the Committee shall make adjustments to the limits on Options specified
in Section 4.2, to the limitation on aggregate awards of Options under Section
5.1, and to the number of options to be awarded under Section 4.5 that are
proportionate to the modifications of the Stock that are on account of such
corporate changes.
8.2 Substitution of Options on Merger or Acquisition. The Committee may
grant Options 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 Options
shall be determined by the Committee in its sole discretion, subject only to the
limitations of Article 5.
8.3 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, any Option
granted hereunder shall terminate, provided that the Participant shall have the
right immediately prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to exercise his or
her Options in whole or in part whether or not the vesting requirements set
forth in any Agreement have been satisfied, unless the Committee elects to
convert all Options hereunder into options to purchase stock of an acquiring
corporation. If the Committee so elects to convert the Options, the amount and
price of such converted options shall be determined by adjusting the amount and
price of the Options 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 vesting schedule set
forth in the Agreement shall continue to apply to the converted options. Nothing
in this Section 8.3 or elsewhere in the Plan shall authorize the Committee to
take any action contrary to any provision regarding vesting of Options 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.
8.4 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 Options.
8.5 Fractional Shares. Only whole shares of Stock may be acquired
through the exercise of an Option. The Company will return to the Participant
any amount tendered in the
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exercise of an Option remaining after the maximum number of whole shares have
been purchased.
ARTICLE 9. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
9.1 General. No Option shall be exercisable, no Stock shall be issued,
no certificates for shares of Stock shall be delivered, and no payment shall be
made under this 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 for which an Option is exercised 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 Option shall be exercisable, no
Stock shall be issued, no certificate for shares shall be delivered and no
payment shall be made under this 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.
9.2 Representations by Participants. As a condition to the exercise of
an Option, the Company may require a Participant to represent and warrant at the
time of any such exercise that the shares are being purchased 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 9.1. 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 Options or Stock hereunder.
ARTICLE 10. GENERAL PROVISIONS
10.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this 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
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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 this Plan. Any liability of the Company to any person with respect
to any grant under this 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 this 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 this 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 this 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 this 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 this Plan at any
time; provided, however, an amendment that would have a material adverse effect
on the rights of a Participant under an outstanding Option is not valid with
respect to such Option without the Participant's consent, except as necessary
for Incentive Options to maintain qualification under the Code. Provided further
that the shareholders of the Company must approve any amendment that increases
either the aggregate number of shares of Stock that may be issued pursuant to
the exercise of Options granted under the Plan or the maximum number of shares
with respect to which any Participant may be granted Options in any calendar
year (other than any such increase made pursuant to Article 8), or that changes
the employees (or class of employees) eligible to receive Options.
10.7 Time to Grant Incentive Options. No Incentive Option may be granted
under this Amended and Restated Stock Option Plan more than ten years after the
date following December 21, 1999 on which this Amended and Restated 1994 Stock
Option Plan is approved by shareholders as provided in Section 10.8. Incentive
Options granted before the expiration of that ten year period shall remain valid
in accordance with their terms and the terms of this Plan. Any Option
purportedly granted under this Plan as an Incentive Option after the
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<PAGE> 62
expiration of that ten year period shall be treated as a Nonqualified Option but
shall otherwise remain valid in accordance with its terms and the terms of this
Plan.
10.8 Effective Date of Plan. This version of the Amended and Restated 1994
Stock Option Plan is subject to the condition subsequent that certain amendments
embodied therein 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 February 15, 2000, the date that the Board adopted such
amendments subject to shareholder approval. If such shareholder approval is not
given, this version of the Amended and Restated 1994 Stock Option Plan shall be
of no force or effect and the prior version of the Amended and Restated Plan, as
amended prior to January 18, 2000, shall continue to govern.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
this the _____ day of _______________, 2000, but to be effective on February 15,
2000.
WASHINGTON MUTUAL, INC.
By: ______________________________
M. Lynn Ryder
Its: Senior Vice President
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<PAGE> 63
WASHINGTON MUTUAL
RESTRICTED STOCK PLAN
As Amended and Restated as of January 18, 2000
<PAGE> 64
WASHINGTON MUTUAL RESTRICTED STOCK PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. PURPOSE OF PLAN 1
ARTICLE 2. DEFINITIONS 1
2.1 Affiliate 1
2.2 Agreement 1
2.3 Award 1
2.4 Board 2
2.5 Code 2
2.6 Committee 2
2.7 Company 2
2.8 Exchange Act 2
2.9 Grant Date 2
2.10 Participant 2
2.11 Plan 2
2.12 Restricted Stock 2
2.13 Stock 2
2.14 Unrestricted Stock 2
ARTICLE 3. ADMINISTRATION 2
3.1 Administration of Plan 2
3.2 Authority to Grant Awards 2
3.3 Participants' Accounts 3
3.4 Transfer of Unrestricted Stock 3
3.5 Discretionary Authority of Committee 4
3.6 Persons Subject to Section 162(m). 5
3.7 Shareholder Rights 5
ARTICLE 4. ELIGIBILITY AND LIMITATIONS ON GRANTS 5
4.1 Participation 5
4.2 Limitations on Grants 5
ARTICLE 5. STOCK SUBJECT TO PLAN 6
5.1 Maximum Number of Shares 6
ARTICLE 6. RESTRICTIONS AND FORFEITURES 6
6.1 General Restrictions 6
6.2 Termination of Employment 6
6.3 Retirement 6
6.4 Lapse of Restrictions - General 6
6.5 Employee Status 7
6.6 Performance-Based Grants 7
6.7 Surrender of Restricted Stock 10
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 7. ADJUSTMENT UPON CORPORATE CHANGES 10
7.1 Adjustments to Shares 10
7.2 Substitution of Awards on Merger or Acquisition 10
7.3 Effect of Certain Transactions 10
7.4 No Preemptive Rights 11
ARTICLE 8. COMPLIANCE WITH LAW AND 11
8.1 General 11
8.2 Representations by Participants 11
ARTICLE 9. TAXES 12
9.1 Immediate Taxation 12
9.2 Deferred Taxation 12
ARTICLE 10. GENERAL PROVISIONS 12
10.1 Effect on Employment 12
10.2 Unfunded Plan 12
10.3 Rules of Construction 12
10.4 Governing Law 13
10.5 Compliance With Section 16 of the Exchange Act 13
10.6 Amendment 13
10.7 Effective Date of Plan 13
</TABLE>
ii
<PAGE> 66
WASHINGTON MUTUAL RESTRICTED STOCK PLAN
As Amended and Restated as of January 18, 2000
ARTICLE 1. PURPOSE OF 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. Finally, the Plan was
amended by action of the Board of Directors on January 18, 2000, 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. An Award shall be subject to the terms of
an Agreement.
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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(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.
2.9 Grant Date. The date that an Award of Restricted Stock is granted to
a Participant hereunder.
2.10 Participant. A person who is awarded Restricted Stock 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 Restricted Stock Plan, as embodied
herein and as amended from time to time, and including all predecessor versions
of this 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 Unrestricted Stock. Shares of Stock granted under this Plan that
are no longer subject to restrictions that constitute a substantial risk of
forfeiture, in accordance with Article 6.
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 this 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
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Awards upon such terms as the Committee deems appropriate and that are not
inconsistent with the provisions of Articles 4 and 5 of this Plan. Such terms
may include restrictions on the transfer of all or any portion of the Stock
granted under an Award.
3.3 Participants' Accounts. The Committee shall establish and maintain
adequate records to disclose 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 this Plan.
(a) Dividends and Distributions. All cash dividends and other
cash distributions paid in respect of Restricted Stock shall be credited
to the account of the Participant and invested in Stock pursuant to 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
and shall be treated as Restricted Stock for all purposes under this
Plan.
(b) Forfeitures. Upon the occurrence of a forfeiture hereunder,
all shares of Restricted Stock subject to the Award (including any
Restricted Stock purchased with dividends paid on the underlying
Restricted Stock) shall be retained by the Company.
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. Any
fractional shares of Unrestricted Stock shall be paid to the Participant in
cash.
(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.
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(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 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.
(f) To accelerate the time at which the restrictions on
Restricted Stock granted under an Award will lapse, or otherwise modify
the restrictions on Restricted Stock in a manner favorable to the
Participant.
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(g) To determine, for any group or class of Participants, that
restrictions on Restricted Stock 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 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 subject to each Award. All Awards granted under this Plan shall be
evidenced by Agreements which shall be subject to applicable provisions of this
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 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.
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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 this Plan (including all
predecessors of this Plan) is two million seventy-five thousand one hundred
twenty-two (2,075,122) shares, subject to adjustments as provided in Article 7
made after January 18, 2000.
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 awarded (or purchased through dividend or distribution
reinvestment) under the Plan, (ii) to receive payment of any dividends or
distributions made in respect of Restricted Stock, or (iii) to receive a stock
certificate representing Restricted Stock, until, in each case, the restrictions
stated in the Participant's Agreement lapse.
6.2 Termination of Employment. 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 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.
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Schedule A
<TABLE>
Years of Continued Employment Percentage Unrestricted
<S> <C>
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%
</TABLE>
Schedule B
<TABLE>
Years of Continued Employment Percentage Unrestricted
<S> <C>
Less than 3 0%
3 but less than 4 33.33%
4 but less than 5 66.67%
5 or more 100%
</TABLE>
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.
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 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 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 this Amended and Restated 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.
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(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 Restricted Stock may become Unrestricted Stock 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 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:
Return on average common stockholders' 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).
Net 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 to performing assets.
Return on an investment in an affiliate.
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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 Award pursuant to Section 6.6(d) below. In
selecting any business criteria other than earnings per diluted share of
common stock, the Compensation 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 Compensation 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 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.
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6.7 Surrender of Restricted Stock. A Participant who also is a
participant in the Washington Mutual, Inc. 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.
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,
whether or not the requirements for lapse of restrictions set forth in any
Agreement have been satisfied, unless otherwise specifically stated in the
Agreement. The foregoing notwithstanding, an Event shall not cause restrictions
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
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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.
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 this 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 this 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
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<PAGE> 77
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,
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.
ARTICLE 10. GENERAL PROVISIONS
10.1 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this 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 this Plan. Any liability of the Company to any person with respect
to any grant under this 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 this
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<PAGE> 78
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 this 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 this 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 this 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 this 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 or the maximum number of shares with respect to which any
Participant may be granted Awards in any calendar year, 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 18, 2000, will be effective unless and until
the amendments approved by the Board on January 18, 2000, 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 18,
2000, 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 this version of the Plan shall be of no force or effect and
the Plan as amended and restated as of February 18, 1997, and amended prior to
January 18, 2000, shall continue to govern.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
this the ______ day of _____________, 2000, but to be effective on January 18,
2000.
WASHINGTON MUTUAL, INC.
By: _____________________________
M. Lynn Ryder
Its: Senior Vice President
13
