Webster Financial DEF 14A 2007
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Webster Financial Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
March 9, 2007
To the Shareholders of
Webster Financial Corporation:
You are cordially invited to attend the Webster Financial Corporation Annual Meeting of Shareholders to be held on Thursday, April 26, 2007 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702.
At the Annual Meeting, you will be asked: (i) to elect three directors to serve for three-year terms; (ii) to amend Websters 1992 Stock Option Plan; (iii) to ratify the appointment of KPMG LLP as the independent registered public accounting firm of Webster for the year ending December 31, 2007; and (iv) to transact any other business that properly comes before the Annual Meeting or any adjournments of the meeting.
The Board of Directors unanimously recommends that you vote FOR the election of all the Boards nominees for election as directors and FOR each of the other proposals listed above. We encourage you to read the accompanying Proxy Statement, which provides information regarding Webster and the matters to be voted on at the Annual Meeting. Also enclosed is our 2006 Annual Report.
It is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you may vote your common shares via a toll-free telephone number or on the Internet or you may complete, date, sign and return the enclosed proxy card in the enclosed postage paid envelope. If you attend the meeting and prefer to vote in person, you may do so.
James C. Smith
Chairman and Chief Executive Officer
TABLE OF CONTENTS
WEBSTER FINANCIAL CORPORATION
145 Bank Street
Waterbury, Connecticut 06702
To the Shareholders of
Webster Financial Corporation:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the Annual Meeting) of Webster Financial Corporation (Webster) will be held on Thursday, April 26, 2007 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702, for the following purposes:
The Board of Directors has fixed the close of business on February 22, 2007 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Only shareholders of record at the close of business on that date will be entitled to notice of and to vote at the Annual Meeting or any adjournments thereof.
By order of the Board of Directors
James C. Smith
Chairman and Chief Executive Officer
March 9, 2007
IT IS IMPORTANT THAT YOU VOTE PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR COMMON SHARES VIA THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD, THE INTERNET OR BY MAIL.
WEBSTER FINANCIAL CORPORATION
145 Bank Street
Waterbury, Connecticut 06702
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2007
This Proxy Statement (the Proxy Statement) is being furnished to the shareholders of Webster Financial Corporation, a Delaware corporation (Webster or the Corporation), as part of the solicitation of proxies by its Board of Directors from holders of its outstanding shares of Common Stock, par value $.01 per share (the Common Stock), for use at the Annual Meeting of Shareholders of Webster to be held on Thursday, April 26, 2007 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702 (the Annual Meeting) and at any adjournments thereof. The Proxy Statement, together with the enclosed proxy card, is being mailed to shareholders of Webster on or about March 9, 2007.
The Annual Meeting has been called for the following purposes: (i) to elect three directors to serve for three-year terms (Proposal 1); (ii) to amend Websters 1992 Stock Option Plan to increase the number of shares of Common Stock available for issuance thereunder by 1.6 million shares (Proposal 2); (iii) to ratify the appointment by the Board of Directors of the firm of KPMG LLP as the independent registered public accounting firm of Webster for the year ending December 31, 2007 (Proposal 3); and (iv) to transact any other business that properly comes before the Annual Meeting or any adjournments thereof.
If you vote using the enclosed proxy card, your shares will be voted in accordance with the instructions indicated. Executed but unmarked proxies will be voted FOR the election of the Boards nominees as directors, FOR amendment of Websters 1992 Stock Option Plan and FOR the ratification of the appointment of Websters independent registered public accounting firm. Except for procedural matters incident to the conduct of the Annual Meeting, the Board of Directors does not know of any matters other than those described in the Notice of Annual Meeting that are to come before the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy on such matters as determined by a majority of the Board of Directors. The proxies confer discretionary authority to vote on any matter of which Webster did not have notice at least 30 days prior to the date of the Annual Meeting.
The presence of a shareholder at the Annual Meeting will not automatically revoke that shareholders proxy. A shareholder may, however, revoke a proxy at any time before it is voted: (i) by delivering either a written notice of revocation of the proxy or a duly executed proxy bearing a later date to Mark S. Lyon, Assistant Secretary, Webster Financial Corporation, 145 Bank Street, Waterbury, Connecticut 06702; (ii) by re-voting by telephone or on the Internet; or (iii) by attending the Annual Meeting and voting in person.
The cost of soliciting proxies for the Annual Meeting will be borne by Webster. In addition to use of the mails, proxies may be solicited personally or by telephone or telecopy by directors, officers and employees, who will not be specially compensated for such activities. Webster also will request persons, firms and companies holding shares in their names or in the name of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from those beneficial owners and will reimburse those holders for their reasonable expenses incurred in that connection. Webster also has retained Morrow & Co., Inc., a proxy soliciting firm, to assist in the solicitation of proxies at a fee of $7,000, plus reimbursement of certain out-of-pocket expenses.
Who Can Vote. The securities which can be voted at the Annual Meeting consist of shares of Common Stock of Webster with each share entitling its owner to one vote on all matters properly presented at the Annual Meeting. There is no cumulative voting of shares. The Board of Directors has fixed the close of business on February 22, 2007 as the record date for the determination of shareholders of Webster entitled to notice of and to vote at the Annual Meeting. On the record date, there were 10,932 holders of record of the 56,515,026 shares of Common Stock then outstanding and eligible to be voted at the Annual Meeting.
Voting. If your Common Stock is held by a broker, bank or other nominee (i.e., in street name), you should receive instructions from that person or entity that you must follow in order to have your shares of Common Stock voted. If you hold your Common Stock in your own name and not through a broker or another nominee, you may vote your shares of Common Stock:
Whichever of these methods you select to transmit your instructions, the proxy holders will vote your Common Stock in accordance with your instructions. If you give a proxy without specific voting instructions, your proxy will be voted by the proxy holders as recommended by the Board of Directors.
Vote by Telephone. If you hold your Common Stock in your own name and not through your broker or another nominee, you can vote your shares of Common Stock by telephone by dialing the toll-free telephone number printed on your proxy card. Telephone voting is available 24 hours a day until 11:59 p.m., Eastern Time, on April 25, 2007. Easy-to-follow voice prompts allow you to vote your shares of Common Stock and confirm that your instructions have been properly recorded. If you vote by telephone, you do not need to return your proxy card.
Vote by Internet. If you hold your Common Stock in your own name and not through your broker or another nominee, you can choose to vote via the Internet. The website for Internet voting is printed on your proxy card. Internet voting is available 24 hours a day until 11:59 p.m., Eastern Time, on April 25, 2007. As with telephone voting, you will be given the opportunity to confirm that your instructions have been properly recorded. If you vote via the Internet, you do not need to return your proxy card.
Vote by Mail. You can vote by mail by signing, dating and returning the enclosed proxy card in the enclosed postage paid envelope.
The presence, in person or by proxy, of at least one-third of the total number of outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Assuming the presence of a quorum at the Annual Meeting, directors will be elected by a majority of the votes cast by shares present in person or represented by proxy and entitled to vote. The affirmative vote of the majority of the votes cast is required to amend Websters 1992 Stock Option Plan and to ratify the appointment of Websters independent registered public accounting firm. Shareholders votes will be tabulated by the persons appointed by the Board of Directors to act as inspectors of election for the Annual Meeting. Abstentions and broker non-votes will be treated as shares that are present, or represented, and entitled to vote for purposes of determining the presence of a quorum at the Annual Meeting. Broker non-votes will not be counted as a vote cast on any matter presented at the Annual Meeting. Abstentions will not be counted in determining the number of votes cast in connection with any matter presented at the Annual Meeting.
Electronic Delivery of Proxy Materials. As a shareholder, you have the option of electing to receive future proxy materials (including annual reports) online over the Internet. This online service provides savings to Webster by eliminating printing, mailing, processing and postage costs associated with hard copy distribution. You may enroll for this service on the Internet after you vote your shares in accordance with the instructions for Internet voting set forth on the enclosed proxy card. You may also enroll for electronic delivery of future Webster proxy materials at any time on the Corporations website at www.wbst.com. Under Electronic Enrollment, select the Click Here To Enroll link. Then select the box indicating your appropriate form of share ownership, and follow the instructions for electronic delivery enrollment. In the future, you will receive an email message, at the address you provided while enrolling, informing you that the Webster proxy materials are available to be viewed online on the Internet. Follow the instructions to view the materials and vote your shares. Your enrollment in electronic delivery of Webster proxy materials will remain in effect until revoked by you.
Annual Report on Form 10-K. Webster is required to file an annual report on Form 10-K for its 2006 fiscal year with the Securities and Exchange Commission (SEC). Shareholders may obtain, free of charge, a copy of the Form 10-K by writing to Mark S. Lyon, Assistant Secretary, Webster Financial Corporation, 145 Bank Street, Waterbury, Connecticut 06702. Our annual report on Form 10-K is available on the Corporations website, www.wbst.com.
At the Annual Meeting, three directors will be elected to serve for three-year terms. Unless otherwise specified on the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy for the election as directors of the persons named below as nominees. The Board of Directors believes that the nominees will stand for election and will serve if elected as directors. If, however, any person nominated by the Board fails to stand for election or is unable to accept election, the proxies will be voted for the election of such other person as the Board of Directors may recommend. Assuming the presence of a quorum at the Annual Meeting, directors will be elected by a majority of the votes cast by shares present in person or represented by proxy and entitled to vote at the Annual Meeting. There are no cumulative voting rights in the election of directors.
In October 2006, the Board of Directors approved an amendment to Websters Bylaws to require directors to be elected by the majority of the votes cast with respect to such director in uncontested elections (number of shares voted for a director must exceed the number of votes cast against that director). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. In addition, under Websters Bylaws, incumbent directors nominated for reelection are required, as a condition to such nomination, to submit a conditional letter of resignation. In the event an incumbent nominee for director fails to receive a majority of the votes cast at an annual meeting, the Nominating and Corporate Governance Committee will consider the resignation and make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Nominating and Corporate Governance Committees recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Boards decision.
Under the terms of the May 2004 acquisition of FIRSTFED AMERICA BANCORP, Webster invited Robert F. Stoico, the former Chairman and Chief Executive Officer of FIRSTFED, to serve as a member of the Board of the Corporation for a term expiring in 2007. In addition, Mr. Stoicos term as a director of Webster Bank also expires in 2007. The Board of Directors greatly appreciates the service and contributions of Mr. Stoico to the success of Webster.
The Board of Directors currently consists of 11 members, and is divided into three classes, which are composed of four, four and three directors, respectively. The term of office of one class of directors expires in each year, and their successors are elected for terms of up to three years and until their successors are elected and qualified. Effective upon the Annual Meeting, the Board of Directors has been set at 10 members, divided into three classes of four, three and three directors, respectively.
Information as to Nominees and Other Directors
The following table sets forth the names of the Board of Directors nominees for election as directors and the current directors of Webster. Also set forth is certain other information with respect to each such persons age at December 31, 2006, the periods during which such person has served as a director of Webster and positions currently held with Webster and its wholly owned subsidiary, Webster Bank, National Association (Webster Bank).
Joel S. Becker is Chairman, President and Chief Executive Officer of Torrington Supply Co., Inc., a Waterbury, Connecticut based wholesale distributor of plumbing, heating, and industrial pipe valve and fitting supplies to contractors and industry. Mr. Becker is Chairman of the Compensation Committee and a member of the Executive Committee and the Nominating and Corporate Governance Committee.
William T. Bromage is President, Chief Operating Officer and a director of Webster and Webster Bank and Vice Chairman of Webster Bank. Mr. Bromage was elected President in April 2000 and Chief Operating Officer in January 2002. From September 1999 to April 2000, he served as Senior Executive Vice President, Business Banking and Corporate Development of Webster and Webster Bank. Mr. Bromage serves on the boards of MetroHartford Alliance, Connecticut Public Broadcasting and Junior Achievement of Southwest New England.
George T. Carpenter has been President and Treasurer of S. Carpenter Construction Co. and Carpenter Realty Co. since 1977, which firms are headquartered in Bristol, Connecticut. Mr. Carpenter is a director of the Barnes Group, Inc. (NYSE: B), a publicly held company headquartered in Bristol, Connecticut engaged in the manufacture of springs and aircraft parts and distribution of automobile parts. Mr. Carpenter is a member of the Compensation Committee and the Risk Committee.
John J. Crawford is President of Strategem, LLC, a New Haven, Connecticut based company which provides consulting services to the business and not-for-profit community on business and financial strategies. Mr. Crawford served as President, Chief Executive Officer and a director of Aristotle Corporation, a New Haven, Connecticut based education training company, from October 1992 through December 2002. Mr. Crawford continued to serve on the Board of Directors of Aristotle Corporation until August 31, 2005. From 1994 until December 2000, he served as President and Chief Executive Officer of the South Central Connecticut Regional Water Authority, New Haven, Connecticut. Mr. Crawford is Lead Director, Chairman of the Nominating and Corporate Governance Committee, and a member of the Executive Committee and the Compensation Committee.
Robert A. Finkenzeller is President of Eyelet Crafters, Inc., a Waterbury, Connecticut based company that manufactures deep drawn metal parts for the cosmetics, writing instrument and drapery hardware fields. Mr. Finkenzeller has held this position since 1990. Mr. Finkenzeller is a member of the Audit Committee and the Compensation Committee.
Roger A. Gelfenbien was the Managing Partner in Andersen Consultings (now Accenture) Hartford, Connecticut office from 1989 until his retirement in 1999. His experience with Andersen Consulting included participation on engagements for several State of Connecticut agencies, local governments, insurance companies and banks. He served as Chairman of the University of Connecticut Board of Trustees from July 1997 to June 2003 and participated in the development of UConn 2000, a major state-funded capital program with the purpose of revitalizing the University and its main campus. Mr. Gelfenbien is a member of the board of trustees of The Phoenix Edge Series Fund and USAllianz Variable Insurance Product Trust. Mr. Gelfenbien is a member of the Audit Committee and the Nominating and Corporate Governance Committee.
C. Michael Jacobi is President of Stable House, LLC, a private Middlebury, Connecticut based company engaged in residential real estate development. Mr. Jacobi served from June 2001 to May 2005 as President, Chief Executive Officer and a Director of Katy Industries, Inc., a public company headquartered in Middlebury, Connecticut engaged in the design, manufacture and distribution of maintenance and electrical products. Mr. Jacobi is a certified public accountant. He is a member of the board of directors of Corrections Corporation of America (CCA), a publicly held company headquartered in Nashville, Tennessee engaged in the ownership and management of prisons for federal, state and local governments, is a member of the board of directors of Sturm Ruger & Co., Inc. (NYSE: RGR), a publicly held company headquartered in Southport, Connecticut engaged in the design, manufacture and distribution of consumer products and is a member of the board of directors of Kohlberg Capital Corporation (KCAP), a publicly held company headquartered in New York, New York making loans to and investing in equity positions in middle market companies. He is Chairman of the Audit Committee and a member of the Executive Committee and the Risk Committee.
Laurence C. Morse is the co-founder and Chief Executive Officer of Fairview Capital Partners, Inc., in Farmington, Connecticut, an investment management firm established in 1994 that oversees venture capital funds, some of which invest capital in venture capital partnerships and similar investment vehicles that provide capital primarily to minority-controlled companies. Mr. Morse is a director of the Princeton University Investment Company
and is a former director and chairman of The National Association of Investment Companies, a private, not-for-profit trade association that represents 52 private equity and specialty finance investment firms. He is Chairman of the Risk Committee and is a member of the Audit Committee and the Executive Committee.
Karen R. Osar is Executive Vice President and Chief Financial Officer of Chemtura Corporation, a specialty chemicals company headquartered in Middlebury, Connecticut. From 1999 to June 2004, Ms. Osar served as Senior Vice President and Chief Financial Officer of Mead Westvaco Corporation. She is a director of the Bank of New York Hamilton Mutual Funds. Ms. Osar is a member of the Risk Committee.
James C. Smith is Chairman, Chief Executive Officer and a director of Webster and Webster Bank, having been elected Chief Executive Officer in 1987 and Chairman in 1995. Mr. Smith joined Webster Bank in 1975, and was elected President, Chief Operating Officer and a director of Webster Bank in 1982 and of Webster in 1986. Mr. Smith served as President of Webster and Webster Bank until April 2000. Mr. Smith is a member of the Federal Advisory Council, which advises the deliberations of the Federal Reserve Board of Governors. He is a member of the executive committee of the Connecticut Bankers Association and is a former member of the board of directors of the American Bankers Association (ABA) and the Federal Home Loan Bank of Boston. He is a director of MacDermid, Incorporated (NYSE: MRD), and the Palace Theater and St. Marys Hospital in Waterbury, Connecticut. Mr. Smith is Chairman of the Executive Committee.
Robert F. Stoico was Chairman and Chief Executive Officer of Webster Bank, Massachusetts and Rhode Island Region until his retirement in 2005. Mr. Stoico served as Chairman, President and Chief Executive Officer of FIRSTFED AMERICA BANCORP, located in Swansea, Massachusetts from 1996 until May 2004, when it was acquired by Webster. He was President and Chief Executive Officer of First Federal Savings Bank of America from 1977 until May 2004. Mr. Stoico is a certified public accountant. Over his career Mr. Stoico has served in many roles within the banking industry and is active in many community and civic affairs.
The Board of Directors recommends that shareholders vote FOR the election of all of its director nominees.
The business and affairs of Webster are managed under the direction of the Board of Directors. Members of the Board are kept informed of Websters business through discussions with the Chairman of the Board and Websters other executive officers, by reviewing materials provided to them and by participating in meetings and strategic planning sessions of the Board and its committees. The Board is also kept apprised by the Chairman of the Board and management of continuing educational programs on corporate governance and fiduciary duties and responsibilities. In addition, new directors of Webster participate in an orientation program which is designed to familiarize them with Websters business and operations, and with their duties as directors under applicable laws and regulations. Each member of the Board also serves as a director of Webster Bank.
Webster believes in the importance of sound and effective corporate governance. Over the years Webster has forged an explicit link between its corporate culture and corporate governance by identifying its core values, communicating them and living them every day. With uncompromising commitment to its core principles, Webster continues to add value for its customers, shareholders, employees and the communities it serves. The Board has adopted corporate governance practices and policies which the Board and senior management believe promote this philosophy.
Pursuant to the New York Stock Exchange (NYSE) listing standards, Webster is required to have a majority of independent directors on its Board of Directors. In addition, the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee must be composed solely of independent directors. The NYSE listing standards define specific relationships that would disqualify a director from being independent and further require that for a director to qualify as independent, the board of directors must affirmatively determine that the director has no material relationship with the Corporation.
The Board of Directors, with the assistance of the Nominating and Corporate Governance Committee, conducted an evaluation of director independence, based primarily on a review of the responses of the directors and executive officers to questions regarding employment and compensation history, affiliations and family and other relationships, including those relationships described under Compensation Committee Interlocks and Insider Participation and Certain Relationships on page 37 of this Proxy Statement, and on discussions with the Board of Directors.
As a result of this evaluation, the Board of Directors affirmatively determined that each of Messrs. Becker, Carpenter, Crawford, Finkenzeller, Gelfenbien, Jacobi, Morse and Ms. Osar is an independent director for purposes of Section 303A of the Listed Company Manual of the NYSE and applicable SEC rules and regulations. In connection with this evaluation, the Board considered that in addition to Webster providing lending and other financial services to directors, their immediate family members, and their affiliated organizations in the ordinary course of business, some directors and their affiliated entities provide services to Webster in the ordinary course of business. In particular, the Board considered the following relationships:
The amounts paid by Webster to Carpenter Realty did not exceed the thresholds contained in the NYSE rules regarding independence and the Board determined that this transaction was not material to either Webster or Carpenter
Realty and would not impair Mr. Carpenters independence. The Board considered that C. Michael Jacobis son Gregory is an employee of Webster Bank. Mr. Jacobis sons employment position with Webster Bank does not violate the independence standards contained in the NYSE rules and the Board determined that this relationship is not material and would not impair Mr. Jacobis independence, in part because Mr. Jacobis son is not an executive officer of Webster and his compensation and benefits were established in accordance with the compensation policies and practices applicable to Webster employees in comparable positions. The Board determined that the amount contributed by Webster Bank to the St. Martin de Porres Academy was not material to either Webster or the St. Martin de Porres Academy and would not impair Mr. Crawfords independence.
Mr. Smith and Mr. Bromage are not considered independent because they are executive officers of Webster and Webster Bank. Mr. Stoico is not considered independent because he was an executive officer of Webster Bank within the last three years.
In keeping with Websters Corporate Governance Policy, in 2006 the Board of Directors held 2 meetings that were limited to independent directors. Websters Corporate Governance Policy provides that the Board of Directors shall appoint an independent director to serve as the lead director of the Board of Directors for a one-year term, or until a successor is appointed. The lead director presides over the executive sessions of outside directors and assists and advises the Chairman of the Board. During fiscal year 2006, Mr. Crawford served as the lead director.
During 2006, Webster held 12 meetings of its Board of Directors. Each incumbent director attended at least 75 percent of the aggregate of (i) the total number of meetings held by the Board of Directors during the period that the individual served and (ii) the total number of meetings held by all committees of the Board on which the individual served during the period that the individual served.
Committees of the Board of Directors; Code of Business Conduct and Ethics and Corporate Governance Guidelines
The Board of Directors has established five standing committees. The standing committees are the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, the Executive Committee and the Risk Committee. The Board of Directors has adopted a charter for each of these committees, as well as corporate governance guidelines that address the make-up and functioning of the Board of Directors and qualification guidelines for board members. The Board of Directors has also adopted a code of business conduct and ethics (the Code of Conduct) that applies to all employees, officers and directors. Each employee, officer and director participates in an annual training session that focuses on topics covered by our code of business conduct and ethics. The training reinforces our core values and our commitment to full compliance with applicable laws and regulations. You can find links to these materials on the Corporations website at: www.wbst.com.
You can also obtain a printed copy of any of the materials referred to above, without charge, by contacting us at the following address:
Webster Financial Corporation
145 Bank Street
Waterbury, Connecticut 06702
Attn: Harriet Munrett Wolfe, Esq.
Executive Vice President, General Counsel and Secretary
The Board of Directors has determined that all of the Directors who serve on the Audit, Compensation, and Nominating and Corporate Governance committees are independent for purposes of Section 303A of the Listed Company Manual of the NYSE. In addition, all of the Directors who serve on the Risk Committee are independent.
The Board of Directors has appointed an Audit Committee that oversees the Corporations financial reporting process, the system of internal financial and accounting controls, the audit process, and compliance with applicable laws and regulations. The Audit Committee reviews the Corporations annual financial statements, including managements discussion and analysis, and regulatory examination findings. The Audit Committee recommends the appointment of an independent registered public accounting firm and is responsible for the oversight of such firm. A copy of the Audit Committees charter is available on the Corporations website at: www.wbst.com. During 2006, the Audit Committee held 8 meetings. The members of the Audit Committee currently are Messrs. Jacobi (Chairman), Finkenzeller, Gelfenbien and Morse. Each of the members of the Audit Committee meets the independence requirements of the rules of the NYSE and applicable rules and regulations of the SEC. The Board of Directors has determined that each of the members of the Audit Committee is financially literate and independent for purposes of current NYSE listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and that Mr. Jacobi is an audit committee financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K.
The Board of Directors has appointed a Compensation Committee. Each of the members of the Compensation Committee meets the independence requirements of the rules of the NYSE, and also serves as the Compensation Committee of the Corporations subsidiary, Webster Bank. The members of the Compensation Committee currently are Joel S. Becker (Chairman), George T. Carpenter, John J. Crawford and Robert A. Finkenzeller. A copy of the Compensation Committees charter is available on the Corporations website at: www.wbst.com.
Pursuant to the Compensation Committees charter, among other responsibilities, the Committee is charged with annually reviewing and making recommendations to the non-employee members of the Board of Directors with respect to the following elements of compensation paid to the CEO and other executive officers: (i) annual base salary, (ii) annual bonus arrangements, (iii) any long-term incentive compensation, (iv) any employment agreements, severance arrangements, and change in control and similar agreements/provisions, and, any amendments, supplements or waivers to the foregoing agreements, and (v) any perquisites, special or supplemental benefits.
All recommendations of the Committee regarding the compensation of executive officers are subject to approval by the non-employee members of the Board of Directors, which has ultimate responsibility over such matters, except that the Committee has the authority to approve the compensation offered to newly hired or newly appointed employees for or in executive officer positions, other than CEO, COO or CFO, including base salary, annual bonus, long-term incentive bonus and employee benefits, without such compensation offer being subject to approval by the non-employee members of the Board of Directors.
During 2006, the Compensation Committee held 5 meetings. The Executive Vice President of Human Resources serves as secretary to the Committee and provides reports at each meeting on Websters employment policies and practices and provides recommendations to the Committee regarding the amount and form of executive compensation and benefits. Compensation Committee meetings are attended by Websters CEO, COO, and CFO; however, they do not participate in portions of meetings where their own compensation and benefits are discussed.
In carrying out its responsibilities, the Compensation Committee engages an outside compensation consultant to provide an independent analysis of Websters executive compensation program and practices and to assist the Committee in making recommendations. The Committee has the authority to hire and fire the consultant and determine the nature and scope of the consultants assignments. During the first half of 2006, the Committee engaged Mercer HR Consulting as outside compensation consultant. At the July 24, 2006 Compensation Committee meeting, the Committee terminated its relationship with Mercer HR Consulting and engaged Hewitt Associates.
The Compensation Committee engaged Hewitt to offer perspectives on annual pay and performance reviews, current executive compensation trends and compensation programs currently in place at Webster. Hewitt also reviewed the Committees decision-making process, Websters executive talent and business strategies, and the competitive landscape. At the direction of the Compensation Committee, Hewitt worked with Websters management to develop for the Committee proposals regarding executive compensation programs and arrangements, in particular the current Annual Incentive Program and the freezing of Supplemental Retirement Plan benefits. The Committee weighs the consultants perspective as part of its decision making process, and in turn may ask the consultant to communicate the
Committees preferences, perspectives, and decision-making parameters to management. The Committee communicates compensation decisions directly to management.
The Board of Directors has appointed an Executive Committee that has responsibility for overseeing managements monitoring of security issues. It also serves as the loan committee and the exploratory committee for mergers and acquisitions. During 2006, the Executive Committee held 3 meetings. The members of the Executive Committee are Messrs. Becker, Crawford, Jacobi, Morse and Smith (Chairman).
Nominating and Corporate Governance Committee
The Board of Directors has appointed a Nominating and Corporate Governance Committee that has overall responsibility for recommending corporate governance process and board operations for the Corporation. The Nominating and Corporate Governance Committee identifies director candidates, reviews the qualifications and experience of each person considered as a nominee for election or reelection as a director, and recommends director nominees to fill vacancies on the Board and for approval by the Board of Directors and the shareholders. A copy of the Nominating and Corporate Governance Committees charter is available on the Corporations website at: www.wbst.com. During 2006, the Nominating and Corporate Governance Committee held 3 meetings. The members of the Nominating and Corporate Governance Committee are Messrs. Becker, Crawford (Chairman) and Gelfenbien.
The Board of Directors has appointed a Risk Committee whose primary function is to assist the Board in fulfilling its oversight responsibilities regarding the Corporations enterprise risk management, receiving information regarding the Corporations policies, procedures and practices relating to risk, and discussing material regulatory issues, compliance matters, and emerging risks to the Corporation. During 2006, the Risk Committee held 7 meetings. The members of the Risk Committee are Messrs. Carpenter, Jacobi, Morse (Chairman) and Ms. Osar.
The Board of Directors believes that it should be composed of directors with diverse experience in business and in areas that are relevant to the Corporation, and that directors should, at a minimum, possess the highest personal and professional ethics, integrity, and values, and be committed to representing the long-term interests of the shareholders. Directors should also have an objective perspective and practical wisdom, and should be willing and able to devote the required amount of time to Websters business.
When considering candidates for the Board of Directors, the Nominating and Corporate Governance Committee takes into account a number of factors, including the following:
When seeking candidates for director, the Nominating and Corporate Governance Committee may solicit suggestions from incumbent directors, management or others, including third party search firms. The Committee will review the qualifications and experience of each candidate. If the Committee believes a candidate would be a valuable addition to the Board, it will recommend to the full Board that candidates election.
Websters Bylaws also permit shareholders eligible to vote at the Annual Meeting to make nominations for directors, but only if such nominations are made pursuant to timely notice in writing to the Secretary of Webster. To be timely, notice must be delivered to, or mailed to and received at, the principal executive offices of Webster not less than 30 days nor more than 90 days prior to the date of the meeting, provided that at least 45 days notice or prior public
disclosure of the date of the Annual Meeting is given or made to shareholders. If less than 45 days notice or prior public disclosure of the date of the Annual Meeting is given or made to shareholders, notice by the shareholder to be timely must be received by Webster not later than the close of business on the 15th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made. Public disclosure of the date of the Annual Meeting was made by the issuance of a press release on February 14, 2007 and by filing a Current Report on Form 8-K under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission on February 14, 2007. The Nominating and Corporate Governance Committee will consider candidates for director suggested by shareholders applying the criteria for candidates described above and considering the additional information required by Article III, Section 13 of Websters Bylaws, which must be set forth in a shareholders notice of nomination. Section 13 of Websters Bylaws requires that the notice include: (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Webster which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations or proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving notice (i) the name and address, as they appear on Websters books, of such shareholder and (ii) the class and number of shares of Webster which are beneficially owned by such shareholder. In considering any nominees for directors recommended by a shareholder, the Nominating and Corporate Governance Committee considers, among other things, the same factors set forth above.
Compensation of Directors
The following table summarizes the compensation paid to Websters non-employee directors during 2006. Beyond these and other standard arrangements described below, no other compensation was paid to any such director.
Webster uses a combination of cash, restricted stock and stock options to attract and retain qualified candidates to serve on the Board. Webster targets director compensation to be at the median for its Peer Group, with the opportunity to earn significantly more based on Websters total shareholder return. All directors receive an annual retainer for their overall role. The remaining compensation opportunity varies for each director based on committee memberships and roles, as well as attendance at meetings. Stock ownership guidelines have been established for directors to closely align directors interests with those of Websters shareholders.
During 2006, each non-employee director of Webster received an annual retainer valued at $32,000, $7,000 in cash plus 534 shares of Webster Common Stock pursuant to the 2001 Directors Retainer Fees Plan, which provides for the payment of annual retainer fees to non-employee directors in shares of Common Stock as adopted by shareholders at the 2001 Annual Meeting (the Fees Plan). Under the Fees Plan, each non-employee director is granted shares of Common Stock for a portion (currently $25,000) of their annual retainer determined by the average four quarter value as of the grant date. The average four quarter value is based on the average of the closing prices of Common Stock at the end of the four calendar quarters preceding the grant date, which is the date of each annual meeting of shareholders. Shares of Common Stock granted under the Fees Plan are subject to vesting requirements and other substantial risks of forfeiture.
In addition, non-employee directors of Webster received non-qualified stock options to purchase 4,618 shares of Webster Common Stock. Based upon a Black-Scholes value of $12.72 per share when the options were granted in April 2006, the estimated value of the stock options granted to each non-employee director of Webster would be $58,741.
In addition, except as set forth below, effective April 20, 2006, each non-employee director received $1,500 for each Webster or Webster Bank Board meeting attended, $1,250 for each committee meeting attended, and $750 for each telephonic Webster or Webster Bank Board meeting called by either Webster or Webster Bank, with the exception of the Risk Committee whose members received $1,250 for telephonic meetings. Each non-employee director of both Webster and Webster Bank received a total of $2,000 for separate board meetings of Webster and Webster Bank that were held on the same day. Webster also reimburses directors for reasonable travel expenses incurred in connection with attending off-site board meetings (including the travel expenses of spouses if they are specifically invited to attend).
In 2006, the Lead Director received an annual retainer of $20,000, which includes his fee as Chairman of the Nominating and Corporate Governance Committee. The Chairman of the Audit Committee received an annual retainer of $15,000, and the Chairman of the Compensation Committee and the Chairman of the Risk Committee received annual retainers of $7,500.
Non-employee directors of Webster receive no other additional compensation for serving as directors or committee members of Webster Bank. Employee directors of Webster receive no additional compensation for serving as directors or committee members of Webster or its subsidiaries.
Directors are eligible to participate in Webster Banks nonqualified deferred compensation plan. Under the terms of the plan, executive officer participants may elect to defer up to 25% of their base pay and up to 100% of their bonuses. Director participants may elect to defer up to 100% of their cash directors fees. Deferral accounts are indexed to net rates of return in mutual fund portfolios chosen by each participant. (Participants had the opportunity to make an irrevocable election to have money that they deferred prior to 2004, continue to accrue monthly interest based on the ten year Treasury rate plus 100 basis points.) Deferred amounts are credited by Fidelity Investments to accounts for each participant. Such accounts, plus accrued interest, are payable upon death, disability, termination of service or a specified date that is at least five years from the year of deferral. Distribution elections may be paid in a lump sum or in ten annual installments, except in the case of disability, where lump sum distribution is required.
The Board of Directors of Webster established stock ownership guidelines for non-employee directors to closely align non-employee directors interests with those of the Corporations shareholders. The guidelines require non-employee directors to own Webster Common Stock with a market value equal to at least $100,000. Non-employee directors who do not meet the guidelines agree to hold all long-term incentives which include vested restricted stock and exercised stock options (net of exercise price and taxes) until they achieve the required ownership threshold of Webster Common Stock.
The Corporations shareholders and other interested persons who want to communicate with the Board of Directors, any individual Director, the Lead Director, the non-management Directors as a group or any other group of Directors, can write to:
[Name of Director or Directors]
c/o Lead Director of the Board of Directors
Webster Financial Corporation
P.O. Box 1074
170 Orange Street
New Haven, Connecticut 06504
All communications received (except for communications that are primarily commercial in nature or relate to an improper or irrelevant topic) will be forwarded to the intended recipient(s) or the full Board, as appropriate.
Webster typically schedules a meeting of the Board of Directors in conjunction with the annual meeting and expects that the Board of Directors will attend the annual meeting, absent a valid reason, such as a previously scheduled conflict. Last year all of the individuals then serving as directors, with the exception of Mr. Stoico, attended the annual meeting.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth information regarding the named executive officers of Webster Financial Corporation at December 31, 2006.
Provided below is biographical information for each of Websters named executive officers, other than Messrs. Bromage and Smith. For information regarding Messrs. Bromage and Smith, see Election of Directors Information as to Nominees and Other Directors.
Gerald P. Plush is Executive Vice President and Chief Financial Officer of Webster and Webster Bank. Prior to joining Webster in July 2006, Mr. Plush was employed at MBNA America in Wilmington, Delaware. In his most recent position with MBNA, he was Senior Executive Vice President and Managing Director of Corporate Development and Acquisitions. Prior to this position, Mr. Plush was Senior Executive Vice President and Chief Financial Officer of MBNAs North American Operations, and prior to that he was Senior Executive Vice President and Chief Financial Officer of U.S. Credit Card. Mr. Plush serves on the board of directors of Ronald McDonald House of Delaware and the board of trustees for Upland Country Day School in Kennett Square, Pennsylvania.
Joseph J. Savage is Executive Vice President of Webster and Executive Vice President, Commercial Banking for Webster Bank. He joined Webster in April 2002. Prior to joining Webster, Mr. Savage was Executive Vice President of the Communications and Energy Banking Group for CoBank in Denver, Colorado from 1996 to April 2002. Mr. Savage is a director of the Connecticut Business & Industry Association.
Scott M. McBrair is Executive Vice President of Webster and Executive Vice President, Retail Banking of Webster Bank. Prior to joining Webster in April 2005, Mr. McBrair was employed at Chicagos Bank One Corporation, which was acquired by JP Morgan Chase in 2004. In his most recent position with Chase, he was Executive Vice President and Region Executive and served as National Director-New Branches.
William J. Healy is the former Executive Vice President and Chief Financial Officer of Webster and Webster Bank, positions he held from March 2001 until his retirement in August 2006. Prior to joining Webster, Mr. Healy was the Executive Vice President and Chief Financial Officer for Summit Bancorp, a bank holding company in Princeton, New Jersey.
The Compensation Committee met with management to review and discuss the Compensation Discussion and Analysis disclosures that follow. Based on such review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Corporations Form 10-K for its 2006 fiscal year, and the Board has approved that recommendation.
Joel S. Becker (Chairman)
George T. Carpenter
John J. Crawford
Robert A. Finkenzeller
Compensation Discussion and Analysis
Websters compensation program for its named executive officers is designed to accomplish three principal objectives. Webster believes these objectives provide a strong link between the named executive officers total earnings opportunity and the Corporations short and long-term performance. Websters principal compensation objectives consist of the following:
Websters Compensation Committee annually reviews and makes recommendations to the non-employee members of the Board of Directors with respect to each element of compensation paid to the named executive officers. In formulating these recommendations, the total compensation for each named executive officer is reviewed each year by the Committee against the compensation practices of a group of peer companies. These peer companies for compensation purposes are identical to the investor peer group referenced in the investor presentations to assess Websters relative performance. The primary reason for choosing this particular peer group is that Webster became a commercial bank in 2004 and this group reflects a comparable commercial banking business model.
The peer group consists of 20 publicly traded commercial banks with assets ranging from $10 billion to $43 billion. At the time of the Committees annual compensation review, in June 2006, the median assets of the peer group were $16 billion and the median market cap was $3.6 billion versus Webster assets of $17.8 billion and market cap of $2.5 billion. The companies in the peer group are:
The Compensation Committee supplemented the compensation data from the peer group with third-party compensation survey data supplied by Mercer HR Consulting, the compensation consultant retained by the Committee for purposes of the 2006 annual review of compensation programs. The supplemental data included data for positions comparable to the named executive officers from the finance/banking industry with assets of approximately $20 billion.
The Compensation Committee also reviews the compensation practices of three additional banks that have either a similar business model as Webster and/or operate in the northeast region, but are not used in the peer group due to size, charter or pending acquisition. These companies are TD Banknorth (pending acquisition), Peoples Bank (charter), and NewAlliance Bancshares (size and charter). Data for these companies were presented as additional reference points only and are not included in the peer group statistical analysis.
Based on this review, the Compensation Committee determined to target the total compensation paid to the named executive officers in 2006 to the median total compensation of the peer group. While the Committee targeted the median, it also determined that actual pay could vary between the 25th percentile and the 75th percentile of the peer group based on corporate and individual performance, particularly given the emphasis on performance-based compensation.
Compensation paid to the named executive officers in fiscal year 2006 consisted of base salary, annual cash incentive, long-term equity incentives (awards of stock options and restricted stock), participation in Webster retirement plans, and perquisites. While each of these elements has a separate purpose and may have a different relative value to the total, as discussed below, a significant portion of the total compensation package is highly
dependent on Websters financial success. For 2006, the mix of base salary, target annual cash incentive, and target long-term equity incentives is represented in the following table:
1 Mr. Healy retired on August 25, 2006.
Base Salary. Webster believes base salaries should serve the dual purpose of attracting and retaining the named executive officers as well as guaranteeing them a competitive level of base compensation. The amount of base salary relative to total target compensation for each named executive officer ranges from 26.7% to 41.7%. The named executive officers, with the exception of Mr. Plush, received merit increases in 2006 representing 3.5% of base salary. After thoroughly reviewing compensation data of the peer group, the Compensation Committee granted market adjustments to the base salaries of the named executive officers ranging from 3.7% to 9.8%. Mr. Plush did not receive a salary increase because he was hired in July 2006. The Compensation Committee implemented the merit increase and the subsequent market adjustment in response to a reasoned evaluation of total compensation levels among the peer group.
Annual Incentive Compensation. The non-employee members of the Board of Directors each year implement an annual incentive compensation plan for the named executive officers. In the case of Mr. Smith and Mr. Bromage, the annual incentive plan is structured pursuant to Websters Qualified Performance Based Compensation Plan, which provides each of Mr. Smith and Mr. Bromage the opportunity to earn a bonus based on Websters strategic and financial performance and progress. In no event may the annual incentive exceed 2% of the Corporations income before taxes.
In connection with the annual incentive compensation plan, the Compensation Committee sets a target annual cash incentive compensation expressed as a percentage of base salary. The Committee then sets performance thresholds, targets, and maximums based on financial and non-financial metrics. After the end of the year, the Compensation Committee evaluates the extent to which the metrics have been achieved. This evaluation results in a percentage rating for achievement of the performance metrics ranging from 0% to 200%. The percentage so determined is applied to the target annual incentive compensation. Below threshold performance results in no bonus being paid.
For 2006, the annual cash incentive targets for the named executive officers were determined by the Compensation Committee after reviewing peer group data and are represented in the following table:
For annual incentive awards to Mr. Smith, Mr. Bromage and Mr. Plush, the financial metrics are based 100% on corporate results, because they have the greatest ability to influence the financial results of the Corporation overall. Mr. Plush, who was recently hired in July 2006, was guaranteed an annual incentive award for 2006 at his time of hire of $250,000. Beginning in 2007, the CFO will have the same corporate metrics as the CEO and COO.
With respect to Mr. Savage and Mr. McBrair, the financial metrics are based 30% on corporate results and 70% on their respective business performance. This provides for Mr. Savage and Mr. McBrair to be aligned with the financial results of the Corporation while being rewarded primarily for the performance of the business units for which they have responsibility and therefore the greatest ability to impact results. For Mr. Savage, this means 70% of his target bonus award for 2006 was based on Commercial Banking Business results. For Mr. McBrair, 70% of his target bonus award for 2006 was based on Retail Banking business results.
Mr. Healy retired from his role as CFO in August 2006. As reported in an 8-K filed on August 28, 2006, the Board approved the payment to Mr. Healy of a pro rata portion of any annual incentive that he would have earned in 2006, pro rated based on eight months of service in the fiscal year. The Board made the decision to recommend that Mr. Healy receive pro-rated annual incentive compensation to recognize his accomplishments during the portion of the year in which he served as CFO.
For the purpose of determining Websters financial performance in 2006, the Committee set goals primarily based on two corporate performance metrics, with the weightings attributable to achievement of each:
With respect to the metrics above, threshold for corporate performance is 90% of target and results in 50% of target incentive. Superior corporate performance is 110% of target and results in a maximum 200% of target incentive. Below threshold corporate performance results in no bonus being paid. These metrics were selected because the consistent year-to-year achievement of these goals is believed to result in long-term shareholder value.
Webster did not meet its financial plan for 2006, and thus all annual incentives paid to the named executive officers (as well as other executive officers of the Corporation) were below target. Pursuant to the annual incentive plan, the Compensation Committee has the discretion to adjust the net income calculation and to award up to an additional 10% of target bonus based on the performance achieved against annual strategic initiatives. In choosing to exercise its discretion, the Compensation Committee awarded 9% out of the allowable 10% for a total award of 75% of target for corporate results. The Compensation Committee noted that Webster had made significant progress in pursuit of certain of its strategic and financial objectives over the course of 2006. As such, Webster:
Based on the total performance of the Corporation, and in particular the strategic and financial objectives above, using the performance measures above, the Compensation Committee awarded annual cash incentives as follows:
Long-Term Incentive Compensation. Webster grants long-term equity awards, consisting of stock options and restricted stock awards, to emphasize long-term results and align the named executive officers and the shareholders interests. Each named executive officers long-term incentive compensation has a targeted value ranging from 75% to 175% of base salary. For 2006, the annual long-term incentive targets for the named executive officers were determined by the Compensation Committee after reviewing peer group data. They are represented in the following table:
Webster targets a long-term incentive mix of 50% stock options and 50% restricted stock. This mix is designed to encourage the creation of long-term value for shareholders. It is also a powerful employee retention tool and it encourages stock ownership. Furthermore, all restricted stock awarded to Mr. Smith, Mr. Bromage, and Mr. Plush (other than the restricted stock granted to Mr. Plush at the time of his employment) is performance-based rather than time-based to strongly align these individuals compensation value with shareholders interests. Webster continues to review whether performance-based restricted stock should replace time-vested restricted stock for the other named executive officers. All of Websters long-term equity awards are granted pursuant to the 1992 Amended and Restated Stock Option Plan.
Stock Options. Webster believes stock options are inherently performance-based, meaning they increase in value as the Corporations stock price increases. Thus, options support its objective of providing performance-based compensation while at the same time providing an opportunity for its named executive officers to acquire or increase a proprietary interest in Webster. Stock options are normally granted each year as a component of long-term compensation with the size of the grants generally tied to the named executive officers responsibility level, base salary and performance. The Compensation Committee does not consider the number of options outstanding and held by the named executive officer when determining the options to be awarded in the current year. The number of options is determined as 50% of the long-term equity target above divided by the Black-Scholes value of the average price of Webster stock for the preceding 12 months (for the 2006 grant, $11.5341). All options granted to the named executive officers are subject to a four-year service-based vesting requirement, with 25% vesting on each anniversary of the grant.
Webster has an established practice of awarding stock options annually at a meeting date determined at the beginning of the year. It has been Websters long-standing practice to grant equity awards at the December meeting of the Board of Directors. The grant date of any annual equity award is the date of the meeting at which the award was approved by the Compensation Committee or Board of Directors, as applicable, and in accordance with the terms of the Amended and Restated 1992 Stock Option Plan the grant price is the closing price of Websters Common Stock on the NYSE on the trading day preceding the meeting. The executive officers, including the named executive officers, do not have any role in choosing the grant date for stock option awards or any other terms of the stock option awards.
Restricted Stock. The purpose of Websters restricted stock awards is to attract and retain the named executive officers and to motivate such executives by providing them with an immediate ownership stake in Webster. Webster believes restricted stock is a powerful retention device, as the shares are not conveyed to the executive until vesting restrictions have been satisfied. Except as described under the Performance Shares discussion of the next paragraph, all restricted stock awards to the named executive officers have a three-year service-based cliff vesting requirement. The number of restricted shares is determined as 50% of the long-term equity target above divided by the average price of Webster stock for the 12 months preceding the grant date (for the 2006 grant, $47.47).
Performance Shares. As part of the annual long-term incentive compensation package, the 50% portion of restricted stock awarded to Messrs. Smith, Bromage, and Plush is performance-based, based on service during and achievement of performance criteria over a three-year performance period. Thus, in lieu of 50% service-based restricted stock, these named executive officers receive 50% of their long-term incentive awards as performance-based restricted stock. This allows Webster to reinforce its primary objective of rewarding the named executive officers for superior performance. It also allows this equity grant to qualify as deductible compensation under 162(m).
Performance shares have been awarded to Mr. Smith and Mr. Bromage in the past, but the new CFO, Mr. Plush, received performance shares for the first time in the annual grant of December 2006. The restricted shares, with a target value equal to 50% of the long-term incentive award, are 100% performance-based and are tied to Websters total shareholder return versus a blended peer group consisting of companies in the S&P Midcap 400 Financial Services Subset Index and the KBW 50 Index. The total shareholder return measure was selected because it best reflects the value Webster provides to the shareholders. This blend of companies was chosen because it represents a stable mix of size and type of financial institutions that best compare with Webster. Also, a list of these companies is readily available in a published index and it represents a large enough group to be relevant over the three-year measurement period.
At the December 2006 meetings, the Board of Directors granted the performance share awards and the Compensation Committee approved the performance measures. For the 2006 grant, based on performance for the three-year performance period starting January 1, 2007, the number of shares to become vested will be determined by the following performance criteria:
If the minimum threshold performance level is not achieved, the award will be forfeited in its entirety. In addition, the Compensation Committee has the discretion to interpolate the actual number of shares earned pursuant to the performance award if the actual performance achieved is between the threshold and superior performance levels. For example, performance at the 47th percentile could result in an award of 90% of target.
Executive Stock Ownership. Webster endorses the position that stock ownership by management is beneficial in aligning the interests of management and shareholders. Executive Stock Ownership Guidelines are established to enhance shareholder value and focus each executives attention on the long-term success of the Corporation.
Webster adopted formal stock ownership guidelines for all of the executive officers, including the named executive officers, in 2004. Mr. Plush, Mr. Savage and Mr. McBrair must own Webster Common Stock (which includes restricted stock) with a value of at least three times their base salaries, or $1,200,000, $930,000 and $930,000, respectively. Mr. Bromage, the COO, must own Webster Common Stock with a value of four times his base salary, or $2,040,000. The CEO, Mr. Smith, must own Webster Common Stock with a value of five times his base salary, or $4,250,000. Once achieved, ownership of the guideline amount must be maintained for as long as the executive is subject to the stock ownership guidelines. Even if stock ownership guidelines have been achieved, named executive officers are required, pursuant to the guidelines, to continue to hold all net vested restricted stock and net shares of Common Stock delivered after exercising stock options for a minimum of one year. Named executive officers who do not meet the guidelines further agree to hold Common Stock acquired pursuant to long-term incentive awards until they achieve their respective ownership thresholds. As of December 31, 2006, Mr. Smith, Mr. Bromage, and Mr. Savage have met the stock ownership guidelines. The Compensation Committee believes the other named executive officers are making satisfactory progress to the achievement of these goals.
Pension Plan. Webster Bank maintains a defined benefit pension plan (the Pension Plan) for eligible employees of the Bank and affiliated companies that have adopted the plan. The plan was adopted in 1954. Employees are eligible to participate upon attaining age 21 and completing one year of service. A participant becomes 100% vested in the benefits of the plan upon completion of five years of service. Benefits are funded solely by contributions made by Webster Bank. Under statutory limitations, annual compensation in excess of $225,000 (subject to cost of living increases) may not be used in calculation of retirement benefits and annual pension benefits are currently subject to a maximum of $180,000 (subject to cost of living increases).
In October 2006, the Board of Directors approved closure of the Pension Plan to all employees hired, or rehired, after December 31, 2006. Webster will also stop accruals under the plan for all employees hired before such date, including accruals under the nonqualified supplemental retirement plan (as discussed below) available to the named executive officers, on December 31, 2007. In place of the Pension Plan, Webster will offer an enhanced defined contribution 401(k) plan and transition credits for current employees who will be at least 35 years of age as of January 1, 2008 to help offset a reduction in benefits due to the discontinuation of pension accruals. After a careful review of the retirement plans, competitive practices and national trends, the Board of Directors decided to strategically shift the focus to a single defined contribution retirement plan that is more reflective of the retirement practices being implemented across the nation and, the Board believes, more suited to attract and retain a qualified, motivated workforce in todays mobile economy. The portability of the benefit is highly attractive to potential and existing employees. In addition, the change in retirement plans is intended to stabilize and clarify the funding costs associated with Websters retirement plans pursuant to a defined contribution plan and away from the financial volatility inherent in the defined benefit pension plan, while continuing to provide a market competitive benefit.
Supplemental Retirement Plan. The Board of Directors adopted a nonqualified Supplemental Retirement Plan (the Supplemental Plan) in 1990 for certain management and other highly compensated employees, including the named executive officers, who were also participants in the Pension Plan. The purpose of the Supplemental Plan is to provide these individuals with supplemental retirement benefits equal to the benefits that are not otherwise available due to the statutory compensation and deferral limitations. In place of the pension restoration formula in the Supplemental Plan, Mr. Smith and Mr. Bromage receive a replacement benefit at age 65 equal to 60% of their highest five year average compensation, reduced by benefits from the Pension Plan, Social Security, and prior employer pension plans. To attract and retain talent, this provides the named executive officers with a market-competitive benefit that they could get elsewhere. As discussed above, the Board of Directors determined in 2006 to freeze supplemental
pension benefits for plan participants as of December 31, 2007. Thus, service and compensation after this date will not be used in calculating a named executive officers benefit from this plan.
401(k) Plan. Webster Bank also maintains a defined contribution 401(k) Plan for eligible employees of Webster Bank and those affiliated companies that have adopted the Plan. The 401(k) Plan was adopted in 1990. Employees are eligible to participate in the 401(k) Plan upon attaining age 21 and completing three months of service. Eligible employees may contribute up to 25% of their pay into the plan on a pre-tax basis. Highly Compensated Employees, including the named executive officers, are limited to contributing no more than 9% of their pay up to statutory limits ($15,500 in 2007, but subject to future cost of living increases). The Bank matches the employees contributions on a dollar for dollar basis for the first 2% of pay the employee contributes, and fifty cents on the dollar for the next 6% of pay the employee contributes. A three year vesting schedule applies to matching contributions. Employees who are age 50 or older by the last day of the year may contribute an additional $5,000 (subject to future cost of living increases) to the plan if they first contribute the maximum allowed. All contributions to the plan must pass various discrimination tests.
At the same time that the Pension Plan benefit accruals were frozen, the Board of Directors made the following changes to the 401(k) Plan. These changes are designed to position Webster to remain competitive and grow in the future, to allow Webster to attract and retain talented employees by providing them with portability, ownership and freedom to make investment decisions, and to provide a higher level of company contributions and automatic savings features to help employees maximize their retirement savings and achieve their retirement income goals.
These changes were made effective January 1, 2008 to coincide with freezing accruals under the pension plan.
Supplemental Matching Contributions. In addition to the supplemental retirement benefits, the nonqualified Supplemental Plan adopted in 1990 provides supplemental 401(k) matching contributions. This plan provides each named executive officer, as well as other executive vice presidents, with an annual supplemental matching contribution equal to the matching contribution that would have been received by the officer in the qualified 401(k) plan if there were no IRS compensation or deferral limits, less the maximum matching contribution actually received.
Beginning January 1, 2008, the Supplemental Plan will be coordinated with the changes made to the 401(k) Plan. As a result, the Supplemental Plan will provide enhanced benefits replicating benefits under the 401(k) Plan without regard to contribution limits. In addition, Mr. Smith and Mr. Bromage will receive, beginning in 2008, an additional supplemental contribution equal to 25.5% of compensation and 45.4% of compensation, respectively. These contributions continue through each executives normal retirement age (65). The purpose of the additional supplemental contributions for Mr. Smith and Mr. Bromage is to reduce the negative impact of freezing their pension replacement benefits to approximately the same relative level as the average negative impact of freezing the pension restoration benefits of other senior executives.
Non-Qualified Deferred Compensation. The executive officers, including each of the named executive officers, and directors are eligible to participate in the Webster Bank nonqualified deferred compensation plan. The plan was adopted by the Board of Directors on December 7, 1987 in order to allow certain employees at the senior vice
president level and above to defer a portion of their compensation because they face statutory limits under the qualified plan. This is a cost-effective method of providing additional cash flow to the Corporation while offering a market-competitive benefit to the named executive officers.
Perquisites. Webster provides executive perquisites that the Committee believes are reasonably consistent with its overall compensation program and are attractive components of the total pay package in hiring and retaining executives in key positions. These perquisites are described in footnote 5 following the Summary Compensation Table.
Webster intends for all incentive compensation paid to the named executive officers to be fully deductible for federal income tax purposes. Section 162(m) of the Code disallows publicly traded companies from receiving a tax deduction on compensation paid to executive officers in excess of $1 million unless, among other things, the compensation meets the requirements for performance-based compensation. In structuring the compensation programs and in determining executive compensation, the Committee takes into consideration the deductibility limit for compensation and the performance-based requirements of Section 162(m).
To further reinforce this objective, the Committee approved performance-based restricted shares in lieu of service-based restricted stock for the Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer so that all of the equity compensation may qualify as deductible compensation under 162(m). To the extent that previous grants of restricted stock would cause either of these executives to exceed the $1 million limit, they have deferred and will defer receipt of the excess shares as long as they are employed by Webster.
The following tables contain certain compensation information for the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers who were serving as executive officers on December 31, 2006 (the named executive officers) as well as directors:
Summary Compensation Table
Salary, bonus, incentive payments and other compensation amounts to Websters named executive officers are summarized in the following table. The table reflects total salary, bonus, and non-equity incentive plan awards paid to Messrs. Smith, Bromage, Plush, Savage, McBrair, and Healy representing 48%, 44%, 82%, 64%, 38%, and 78% of their respective total compensation.
Grants of Plan-Based Awards
The following table sets forth all non-equity incentive plan and equity incentive plan awards made to the named executive officers during the fiscal year ended December 31, 2006.
Webster has no employment agreements with the named executive officers. They are covered by the same severance as the other executives except under the Change in Control Agreements. The non-change-in-control executive severance plan is described on page 36 of this Proxy Statement.
Webster has entered into a Change in Control Agreement with each named executive officer. These agreements become effective upon the consummation of a change in control, at which point the agreements have a three year term. Once effective, the agreements require the executive to be paid an annual base salary equal to the annualized highest monthly salary in the twelve months preceding the effective date, an annual bonus at least equal to the highest bonus paid in the last three fiscal years prior to the effective date, incentive, savings and retirement programs and welfare benefits no less favorable in the aggregate than provided prior to the Effective Date. In addition, the agreements provide for expense reimbursement, fringe benefits, office and staff support and vacation benefits at the most favorable level provided to the executives during the 120-day period preceding the change in control. The principal terms with respect to potential payments and other benefits upon certain terminations or a change in control are summarized below under Potential Payments upon Termination or Change in Control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth outstanding option awards and unvested stock awards held by Websters named executive officers as of December 31, 2006.
1 The vesting date of each option is listed in the table below by expiration date:
The following table sets forth information with respect to each of the named executive officers concerning the exercise of stock options and the vesting of stock during the fiscal year ended December 31, 2006.
The following table shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under each of the Pension Plan and the Supplemental Retirement Plan as of December 31, 2006. The accumulated benefit value is based
upon the benefit that is payable at the executives Normal Retirement Age (65) and payable in the normal annuity form (life annuity with no death benefit).
Webster Bank adopted a defined benefit pension plan (the Pension Plan) on December 28, 1954. The Bank maintains the Pension Plan for eligible employees of Webster Bank and affiliated companies that have adopted the Plan. The Pension Plan is a qualified plan under the Internal Revenue Code of 1986, as amended (the Code), and complies with the requirements of the Employee Retirement Income Security Act of 1974, as amended. All employees hired before January 1, 2007 are eligible to participate in the Pension Plan upon attaining age 21 and completing one year of service. As a result of an amendment adopted by the Board of Directors in 2006, employees hired, or rehired, after December 31, 2006 are not eligible to join the Pension Plan.
Benefits under the Pension Plan are funded solely by contributions made by Webster Bank. Under the Pension Plans benefit formula, a participants monthly normal retirement benefit will equal the sum of: (a) his or her accrued benefit as of December 31, 1986 (adjusted through August 31, 1996 to reflect certain future increases in compensation), plus (b) the sum of 2% of the participants monthly compensation for each year of credited service beginning on or after January 1, 1987 through August 31, 2004, plus (c) the sum of 1.25% of the participants monthly compensation if the participant has less than 10 years of credited service at the beginning of the year, or 1.50% of the participants monthly compensation if the participant has 10 or more years of credited service at the beginning of the year, for each year of credited service beginning on or after September 1, 2004. In general, benefits may not be based on more than 30 years of credited service. The normal form of benefit is a life annuity for the participants lifetime. A Pension Plan participant becomes 100% vested in the benefits under the Pension Plan upon completion of five years of service. Benefit payments to a participant or beneficiary may commence upon a participants early retirement date (age 55), normal retirement date (age 65), deferred retirement date or death. Participants may elect to receive their benefits in one of several optional forms, including a lump sum or periodic payments during the participants lifetime or during the lifetime of the participant and his or her surviving spouse or designated beneficiary. The lump sum option has been eliminated for benefits earned after January 26, 1998.
The 2006 amendment adopted by the Board of Directors stopped additional benefit accruals for service earned and compensation paid after December 31, 2007. Thus, a participants benefit will be frozen as of the end of 2007.
The Board of Directors of Webster Bank adopted a nonqualified supplemental retirement plan (the Supplemental Plan) in 1990, which was amended and restated effective January 1, 2003 for certain management and other highly compensated employees who are also participants in the Pension. The Supplemental Plan provides supplemental pension benefits that are not currently available because annual compensation in excess of $225,000 (subject to cost of living increases) may not be used in the calculation of retirement benefits under the Code and because annual pension benefits are currently subject to a maximum of $180,000 (subject to cost of living increases). Annual compensation for both the qualified plan and the Supplemental Plan is defined as base pay, overtime, commissions, and bonuses (including bonuses for which the participant has deferred to a future year).
In place of the pension formula in the Supplemental Plan, Mr. Smith and Mr. Bromage receive a benefit at age 65 equal to 60% of the average of the highest compensation during five consecutive calendar years, reduced by benefits from the Pension Plan, Social Security, and the pension plan of prior employers. It is also reduced in the event of retirement before age 65. Benefits under the Supplemental Plan are payable in monthly installments. As with the qualified Pension Plan, pension benefits in the Supplemental Plan will be frozen as of December 31, 2007. Thus, service and compensation after this date will not be used in calculating an executives benefit from this plan.
The assumptions used to determine the present value of the accumulated benefits for purposes of the Pension Benefits table consisted of a 5.90% interest rate for the qualified plan, a 5.75% interest rate for the non-qualified supplemental retirement plan, and the RP2000 Mortality Table.
The following table shows the contributions to, the earnings of, and the distributions from each named executive officers account under the Corporations nonqualified deferred compensation plans for the fiscal year ended December 31, 2006.
Executive officers are eligible to participate in Webster Banks nonqualified deferred compensation plan. Under the terms of the plan, executive officer participants may elect to defer up to 25% of their base pay and up to 100% of their bonuses. None of the named executive officers contributed to the nonqualified deferred compensation plan in 2006. As described in more detail above in the Compensation Disclosure and Analysis, certain executive officers also are eligible for employer contributions to be credited to a deferred compensation account. The amounts credited to these accounts accrue monthly interest based on the ten year Treasury rate plus 100 basis points. Furthermore, in 2005, Mr. Smith and Mr. Bromage elected to defer restricted stock that otherwise would have been payable in 2006. These amounts are treated as invested in Webster Common Stock, and receive non-preferential dividend equivalent credits at the same time and in the same amount as dividends are credited on the Webster Common Stock. All deferred compensation accounts are payable upon death, disability, termination of service or a specified date that is at least five years from the year of deferral. Distribution elections may be paid in a lump sum or in ten annual installments, except in the case of disability, where lump sum distribution is required.
Potential Payments on Termination or Change in Control
Change in Control Agreements
Pursuant to the Change in Control Agreements between Webster and each of the named executive officers, each executive is eligible to receive payments and other benefits, subject to the conditions described below, in the event the executive is terminated during the three year period following a change in control. A change in control is defined by the agreements as:
Payments and Benefits. The circumstances in which and the estimated amounts to be paid to the named executive officers under the Change in Control Agreements are as follows:
In addition, if the payments or benefits provided to an executive officer would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (relating to excess parachute payments), Webster will pay to the executive officer a gross-up amount sufficient (after all taxes) to pay such excise tax (including interest and penalties with respect to any such taxes). However, if the payments and distributions do not exceed 110% of the maximum amount that could be paid to the executive officer such that no excise tax would be imposed, no gross-up payment will be made and the payments and distributions will be reduced to such maximum amount.
Assuming a December 31, 2006 termination event, the aggregate value of the payments and benefits to which each named executive officer would be entitled in the event of termination other than for Cause, Death or Disability, or in the event the executive terminates employment for Good Cause would be as follows:
Equity Compensation in the Event of a Change in Control
In the event of a change in control (as defined above under the Change in Control Agreements), all equity awards granted under the Option Plan that are outstanding immediately prior to the change in control shall become fully vested and exercisable upon the change in control.
Assuming a December 31, 2006 change in control, the value of all equity awards that would vest and become exercisable for each named executive officer would be as follows:
Employment Agreements for Named Executive Officers
The named executive officers voluntarily gave up their employment agreements without additional compensation in 2005.
Non-Change-in-Control Executive Severance Plan
Under the Corporations Non-Competition Agreements with each named executive officer, if the Corporation terminates a named executive officer without Cause (and under circumstances in which payment would not be due under the Change in Control Agreements) severance benefits become payable. The executives severance benefits for involuntary termination without Cause are (a) a lump sum payment equal to the sum of (x) the executive officers then current annual base salary and (y) the prorated amount of any target bonus to be paid pursuant to Websters annual incentive compensation plan during the then current fiscal year, and (b) subject to certain limitations, continued medical and dental coverage for the shorter of one year or until the executive officer accepts other employment on a substantially full time basis if earlier. The executives receipt of the foregoing severance payments and benefits are conditioned upon the executive entering into a general release and waiver in favor of the Corporation, and in consideration of the payment the executive agrees to a one-year non-competition and non-solicitation covenant.
Pursuant to the Option Plan, in the event an executive is terminated by Webster without Cause, and the termination occurs prior to the full vesting and exercisability of an executives option to purchase shares of Common Stock, the portion of the executives stock award considered vested and/or exercisable shall be pro rated based upon the number of months lapsed since the applicable grant date.
Assuming a termination other than for Cause occurred as of December 31, 2006, the amounts estimated to be paid to each of the named executives under the Executive Severance Policy and the Option Plan would be as follows:
The members of the Compensation Committee are Messrs. Becker (Chairman), Carpenter, Crawford and Finkenzeller. No person who served as a member of the Compensation Committee during 2006 was a current or former officer or employee of Webster or any of its subsidiaries or, except as disclosed below, engaged in certain transactions with Webster required to be disclosed by regulations of the SEC. Additionally, there were no compensation committee interlocks during 2006, which generally means that no executive officer of Webster served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or member of the Compensation Committee of Webster.
From time to time, Webster Bank makes loans to its directors and executive officers and related persons and entities for the financing of homes, as well as home improvement, consumer and commercial loans. It is the belief of management that these loans are made in the ordinary course of business, are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and neither involve more than normal risk of collectibility nor present other unfavorable features.
George T. Carpenter, a director of Webster and Webster Bank, is the President and Treasurer of Carpenter Realty Co. (Carpenter Realty) and S. Carpenter Construction Co. (Carpenter Construction). During fiscal year 1998, Webster Bank entered into a fifteen year lease for office space with Carpenter Realty and the amount paid to Carpenter Construction for rent and reimbursement of real estate taxes in 2006 totaled $75,477. Webster Bank entered into a lease with Carpenter Realty effective March 1, 2000 for storage and work space, and the amount paid for rent and reimbursement of real estate taxes in 2006 totaled $14,908.
Gregory Jacobi, son of C. Michael Jacobi, a director of Webster and Webster Bank, is employed by Webster Bank as a VP-IT Senior Manager. During fiscal year 2006, Webster Bank paid Gregory Jacobi a base salary of $126,914, a bonus of $25,300 and a grant of 425 shares of restricted stock.
For a description of loans made to Webster Banks directors, executive officers and related persons and entities, see Compensation Committee Interlocks and Insider Participation.
Pursuant to Websters Code of Conduct, any transactions between Webster and a Webster affiliate, director, employee, an immediate family member of a Webster director or employee or business entities in which a Webster director or employee or an immediate family member of a Webster director employee is an officer, director and/or controlling shareholder must be conducted at arms length. Any consideration paid or received by Webster in such a transaction must be on terms no less favorable than terms available to an unaffiliated third party under similar
circumstances. Any interest of a director or officer in such transactions that do not require prior Board approval shall be reported to the Board of Directors at least annually.
The Corporations Audit Committee currently has four members, Messrs. Jacobi (Chairman), Finkenzeller, Gelfenbien, and Morse. As of the date of the Proxy Statement, each of the Committee members is an independent director under the New York Stock Exchange rules. The Audit Committees responsibilities are described in a written charter that was adopted by the Corporations Board of Directors.
The Audit Committee has reviewed and discussed the Corporations audited financial statements for the fiscal year ended December 31, 2006 with Websters management. The Audit Committee has discussed with KPMG LLP, the Corporations independent registered public accounting firm, the matters required to be discussed by SAS No. 61, Communication with Audit Committees. The Audit Committee has received the written disclosures from KPMG LLP required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and has discussed with KPMG LLP the independence of KPMG LLP. Based on the review and discussions described in this paragraph, the Audit Committee recommended to Websters Board of Directors that the Corporations audited financial statements for the year ended December 31, 2006 be included in the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for filing with the Securities and Exchange Commission.
C. Michael Jacobi (Chairman)
Robert A. Finkenzeller
Roger A. Gelfenbien
Laurence C. Morse
The following table sets forth information as of February 1, 2007 with respect to the amount of Webster Common Stock beneficially owned by each director of Webster, each nominee for election as a director, each of the named executive officers and by all directors and executive officers of Webster as a group.
The following table sets forth information as of February 14, 2007 with respect to the beneficial ownership of Common Stock by any person or group as defined in Section 13(d)(3) of the Exchange Act who is known to the Corporation to be the beneficial owner of more than five percent of the Common Stock.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Websters directors, certain officers and persons who own more than 10 percent of its Common Stock to file with the Securities and Exchange Commission initial reports of ownership of Websters equity securities and to file subsequent reports when there are changes in such ownership. Based on a review of reports submitted to Webster, the Corporation believes that during the fiscal year ended December 31, 2006, all Section 16(a) filing requirements applicable to Websters directors, officers and more than 10% owners were complied with on a timely basis.
This section provides a summary of the terms of the Webster Financial Corporation 1992 Stock Option Plan (the 1992 Stock Option Plan or the Plan) and the proposal to amend the Plan. The Board of Directors established the 1992 Stock Option Plan in 1992, and the shareholders approved the Plan at the 1992 annual meeting. The Plan was amended by the shareholders of the Corporation in 1994, 1996 and 1998 and was amended and restated in its entirety in April 2001, in January 2005 and again in October 2006. The Board of Directors believes the 1992 Stock Option Plan is vital to attract and retain the best talent in this competitive marketplace.
The Board of Directors has voted to amend the 1992 Stock Option Plan, subject to shareholder approval at the Annual Meeting, to increase the total number of shares authorized for issuance under the 1992 Stock Option Plan by 1,600,000 shares, from 6,661,000 shares (of which 3,466,217 were outstanding as of February 1, 2007) to 8,261,000 shares. Of the proposed increase of 1.6 million shares, no more than an aggregate 600,000 of such shares may be issued as restricted stock or performance-based stock. Accordingly, Webster hereby submits to a vote of the shareholders, approval of the increase in shares under the Plan as just described, and approval of the award limitations and performance criteria under the Plan as applied to such shares.
The Board of Directors believes that equity compensation awards are an important tool to attract, retain and motivate highly qualified directors, officers and other key employees, to enable them to acquire a larger personal financial interest in the Corporation through the acquisition and ownership of Common Stock, and to encourage them to identify with shareholders through stock ownership. The number of individuals eligible to receive grants under the 1992 Stock Option Plan has increased significantly as a result of acquisitions made by the Corporation. As of February 1, 2007, 970,779 shares remain for future grants of incentive awards under the 1992 Stock Option Plan.
The following is a summary of the key terms of the 1992 Stock Option Plan.
The Board of Directors has concluded that it is advisable that the Corporation and its shareholders continue to have equity compensation awards available under the Plan as a means of attracting and retaining directors, officers and key employees. This objective is served by amending the 1992 Stock Option Plan to increase the number of available shares. Accordingly, the Board of Directors has voted to amend the 1992 Stock Option Plan, subject to shareholder approval at the Annual Meeting, to increase the total number of shares authorized for issuance under the Plan by 1,600,000 shares, from 6,661,000 to 8,261,000 shares. Of the 1,600,000 share increase, no more than an aggregate of 600,000 shares may be actually issued as restricted stock or performance-based stock.
By submitting the amendment for shareholder approval at the Annual Meeting, the Corporation intends to comply with the requirements pertaining to awards that are treated as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended ( the Code), to options qualifying as incentive stock options for federal income tax purposes and to the deduction for such purposes of the full amount to which the
Corporation is entitled with respect to options granted under the Plan (see Federal Income Tax Consequences of the 1992 Stock Option Plan below).
Description of the Plan
A description of the provisions of the 1992 Stock Option Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the 1992 Stock Option Plan, a copy of which is attached as Annex A to this Proxy Statement, and which has been updated to reflect the proposed amendment.
Administration. The Board of Directors has delegated administration of the 1992 Stock Option Plan to the Compensation Committee, which consists of at least three independent, outside directors appointed by the Board of Directors. The Compensation Committee has authority to grant and administer Incentive Awards made with respect to any eligible individuals, other than the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Corporation, including the authority to make subsequent modifications to any such awards consistent with the Plan and to establish performance criteria in connection with any such awards. The non-employee members of the Board of Directors shall make all final determinations concerning Incentive Awards granted to the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of the Corporation. In addition, the Board may delegate to any officer of the Corporation the power and authority to grant Incentive Awards under the Plan to any newly hired employee of the Corporation or any subsidiary, who is employed at a level below Executive Vice President (but not in excess of the aggregate maximum number of shares specified by the Board for such purpose at the time of delegation or the number of shares remaining available for issuance under the Plan).
Eligibility. The 1992 Stock Option Plan provides for the grant of options that are intended to qualify as incentive stock options under Section 422 of the Code and the regulations promulgated thereunder, as well as nonqualifying options, SARs, restricted stock and performance-based stock to eligible employees and directors of the Corporation and its subsidiaries (each a grantee).
Common Stock Reserved for Issuance under the Plan. The stock that may be issued pursuant to Incentive Awards granted under the Plan shall be shares of Common Stock, par value $.01 per share, of the Corporation, which shares may be treasury shares or authorized but unissued shares. The number of shares of Common Stock that may be issued pursuant to Incentive Awards granted under the Plan shall not exceed in the aggregate 8,261,000 shares, which number of shares is subject to adjustment upon changes in capitalization. If any Incentive Award expires, terminates, or is terminated for any reason before exercise or vesting in full, the shares of stock that were subject to the unexercised, forfeited, expired or terminated portion of such Incentive Award shall be available for future grants of Incentive Awards under the Plan. Liberal share counting is not permitted under the Plan, which means that no shares of Common Stock derived from any of the following circumstances may be added to the Plans reserve of shares: (i) shares tendered in payment of an option, (ii) shares withheld for taxes, (iii) shares repurchased by the Corporation using option proceeds, or (iv) SARs settled in Common Stock when only the shares delivered are counted against the Plan reserve.
Service Requirement. The following Incentive Awards will have a minimum one year service requirement: (1) all SARs awards, (2) options, restricted stock and performance-based stock awards granted from the 2.2 million additional shares approved by the shareholders at the Corporations 2003 annual meeting, and (3) if approved by shareholders at the Annual Meeting, options, restricted stock and performance-based stock awards granted from the 1.6 million additional shares proposed at the Annual Meeting.
Options. The option exercise price under the 1992 Stock Option Plan may not be less than the greater of par value or 100% of the fair market value of the Common Stock on the date of grant of the option (or 110% in the case of an incentive stock option granted to a grantee beneficially owning more than 10% of the outstanding Common Stock). The maximum option term is 10 years (or five years in the case of an incentive stock option granted to a grantee beneficially owning more than 10% of the outstanding Common Stock). Options may be exercised at any time after grant, except to the extent subject to the minimum one year service requirement described in the preceding paragraph or as otherwise provided in the particular award agreement. There is also a $100,000 limit on the value of stock (determined at the time of grant) covered by incentive stock options that first become exercisable by a grantee in any calendar year. No option may be granted after the expiration of the term of the 1992 Stock Option Plan on March 20, 2013. Options are non-transferable other than by reason of the death of the grantee, unless otherwise specified in the award agreement (for example, the Corporation may permit limited transfers of nonqualified options for the benefit of immediate family members of grantees to help with estate planning concerns).
Payment for shares purchased under the 1992 Stock Option Plan may be made either in cash or by exchanging shares of Common Stock of the Corporation with a fair market value equal to the total option exercise price and paying cash for any difference. Options may, if permitted by the particular award agreement, be exercised by directing that certificates for the shares purchased be delivered to a licensed broker as agent for the grantee, provided that the broker tenders to the Corporation cash or cash equivalents equal to the option exercise price plus the amount of any taxes that the Corporation may be required to withhold in connection with the exercise of the option.
No option granted under the 1992 Stock Option Plan may be amended or modified so as to reduce the option price of the option. No other action can be taken to reprice any option if such amendment, modification or other repricing would result in a charge against the earnings of the Corporation or any of its affiliates.
Stock Appreciation Rights. A SAR confers on the grantee to whom it is awarded the right to receive, upon exercise, the excess of (i) the fair market value of a share of Common Stock on the date of exercise over (ii) the grant price as determined in good faith by the Board. The grant price of the SAR shall be no less than the fair market value of a share of Common Stock on the date of grant. Each SAR shall be settled in whole shares of Common Stock, with any fractional share of Common Stock that would result from exercise of the SAR eliminated entirely.
Annual Limit on Awards of Options and SARs. The maximum number of shares that may be granted as options or SARs to any eligible employee of the Corporation or any subsidiary under the 1992 Stock Option Plan in any calendar year is 500,000 shares, subject to adjustments for changes in capitalization.
Restricted Stock. Restricted stock is shares of Common Stock awarded to a grantee, subject to forfeiture restrictions based on the grantees length of service or other non-performance-based criteria.
Performance-Based Stock. Performance-based stock is an Incentive Award granted to a grantee which is subject to the attainment of pre-established performance goals over a performance period of at least one year and up to ten years, the attainment of which would, subject to the terms of the Plan, entitle the grantee to receive unrestricted stock and/or restricted stock in a pre-determined amount or an amount determined pursuant to the performance criteria formulation. Performance-based stock awards granted to individuals who are covered employees under Section 162(m) of the Code, or who the Compensation Committee designates as likely to be covered in the future, will comply with the requirements of performance-based compensation under Section 162(m).
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Code limits publicly-held companies such as the Corporation to an annual deduction for federal income tax purposes of $1 million for compensation paid to their covered employees. For this purpose, covered employees are the Chief Executive Officer of the Corporation and the four highest compensated executive officers (other than the Chief Executive Officer). However, performance-based compensation is excluded from the $1 million limitation. The 1992 Stock Option Plan is designed to permit the Compensation Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).
To qualify as performance-based:
Under the Code, a director is an outside director of the Corporation if he or she is not a current employee of the Corporation; is not a former employee who receives compensation for prior services (other than under a qualified retirement plan); has not been an officer of the Corporation; and does not receive, directly or indirectly (including amounts paid to an entity that employs the director or in which the director has at least a five percent ownership interest), remuneration from the Corporation in any capacity other than as a director.
In the case of compensation attributable to stock options or SARs, the performance goal requirement (summarized in (1) above) is deemed satisfied, and the certification requirement (summarized in (4) above) is inapplicable, if: the grant or award is made by the Compensation Committee; the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to an employee; and under the terms of the option, the amount of compensation is based solely on an increase in the value of the Common Stock after the date of grant.
Performance Objectives for Performance-Based Stock Awards. The performance objectives for a performance-based stock award under the Plan must be established in writing by the Board of Directors or Compensation Committee before the 90th day after the beginning of any performance period applicable to such award and while the outcome is substantially uncertain, or at such other date as may be required or permitted for performance-based compensation under Code Section 162(m). Performance objectives are based on one or more of the following criteria of the Corporation:
Performance objectives may include positive results, maintaining the status quo or limiting economic loses. Upon attainment of the specified performance objectives (or, to the extent specified by the Board of Directors or Compensation Committee, partial attainment of such objectives), the grantee of a performance-based stock award will be entitled to receive the shares of stock and/or restricted stock specified in the grant (or the portion of such shares earned by partial attainment of the objectives, as applicable), except to the extent issuance of such shares of stock or restricted stock would constitute a violation of law.
Annual Limit on Restricted Stock and Performance-Based Stock Awards. The maximum number of shares that may be awarded as restricted stock or performance-based stock to any eligible employee of the Corporation or any subsidiary under the 1992 Stock Option Plan in any calendar year is 100,000 shares, subject to adjustments for changes in capitalization. In addition, of the 2.2 million shares approved by the shareholders at the Corporations 2003 annual meeting, no more than 220,000 shares may be actually issued as restricted stock or performance-based stock awards and, if approved by shareholders at the Annual Meeting, of the 1.6 million shares proposed at the Annual Meeting, no more than 600,000 shares may be actually issued as restricted stock or performance-based stock awards. The Board shall account for which restricted stock and performance-based awards were granted pursuant to such amendments in its sole and complete discretion.
Termination of Service or Employment. If a grantees employment with the Corporation or its subsidiaries terminates by reason of death or permanent and total disability: