Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
INDYMAC BANCORP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)
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(2)
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(3)
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computed pursuant to Exchange Act Rule 0-11 (set forth the
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
You are cordially invited to attend the Annual Meeting of
Stockholders of IndyMac Bancorp, Inc. (“Indymac”). The
meeting will be held on April 25, 2006, at 9:00 a.m.
at Indymac’s offices located at 3465 Foothill Boulevard,
Pasadena, California. The formal notice and proxy statement for
this meeting are attached to this letter.
Indymac delivered strong results in 2005. We achieved record
mortgage production, net revenues, net earnings, earnings per
share, and return on equity; all in spite of a flat mortgage
market, a flattening yield curve and intense competition, which
led to declining industry-wide mortgage banking margins.
Disciplined execution on our fundamental business strategies was
the driver of our success. In 2006, we will continue to execute
our hybrid thrift/mortgage banking model where we
opportunistically invest in and trade single-family mortgage
related assets, expand and refine our mortgage professionals
business, build a strong consumer franchise, expand our
specialty niche consumer lending products, establish new revenue
streams, and support the above with a strong meritocracy
culture, all with the goal to enhance our stockholder value.
We believe that our stockholders recognize our commitment to
building a strong, growing business and achieving our financial
goals. This focus on results is reflected in our annual returns
to stockholders. We have out-performed many of our peers with a
total stockholder return of 18% in 2005. On page 1, you can
see that over the past five years we out-performed the broader
market as illustrated by the Russell 1000 (the index represents
the largest 1,000 companies in the United States) as well
as the Russell 1000 Financial Services Index (the financial
services companies included in the top 1,000 companies in
the United States).
We hope you attend the Annual Meeting. Even if you currently
plan to attend the meeting, however, it is important that you
sign, date and return your enclosed proxy card, or submit your
voting instructions electronically or via telephone in the
manner described on the proxy card, as soon as possible. You may
still vote in person at the Annual Meeting if you desire by
withdrawing your proxy, but returning your proxy card now, or
submitting your voting instructions electronically or via
telephone, will assure that your vote is counted if your plans
change and you become unable to attend.
Your vote is important, regardless of the number of shares you
own. We urge you to indicate your approval by voting FOR each of
the matters indicated in the notice and described in the proxy
statement.
On behalf of the Board of Directors, I thank you for your
support.
The Annual Meeting of Stockholders (the “Annual
Meeting”) of IndyMac Bancorp, Inc. (“Indymac”)
will be held at Indymac’s offices located at 3465 East
Foothill Boulevard, Pasadena, California on April 25, 2006
at 9:00 a.m., local time, for the following purposes:
1.
To elect the Board of Directors for the ensuing year;
2.
To approve the IndyMac Bancorp, Inc. 2002 Incentive Plan, as
amended and restated;
3.
To ratify the appointment of Ernst & Young LLP as
Indymac’s independent auditors for the year ending
December 31, 2006; and
4.
To transact such other business as may properly come before the
meeting or any adjournment thereof.
The proposals described above are more fully described in the
accompanying proxy statement, which forms a part of this Notice.
Attendance Requirements
If you plan to attend the Annual Meeting, please notify the
undersigned at the address set forth above so that appropriate
preparations can be made. Please note that a picture
identification will be required for entry into the Annual
Meeting.
Record Date
The Board of Directors has fixed February 27, 2006 as the
record date for the Annual Meeting. Only stockholders 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 or
postponements of the Annual Meeting. A list of those
stockholders will be available for inspection at our offices
located at 888 East Walnut Street, Pasadena, California91101
commencing at least ten days before the Annual Meeting.
Proxy Card
Whether or not you plan to attend the Annual Meeting, please
sign, date and return the enclosed proxy card, or submit your
voting instructions electronically or via telephone in the
manner described on the enclosed proxy card. If you choose to
return the enclosed proxy card via United States mail, a return
envelope that requires no postage for mailing in the United
States is enclosed for this purpose. If you are present at the
Annual Meeting you may, if you wish, withdraw your proxy and
vote in person. Thank you for your interest and consideration of
the proposals listed above.
EACH VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE SIGN,
DATE AND COMPLETE THE ENCLOSED PROXY CARD AND MAIL IT IN THE
ENCLOSED RETURN ENVELOPE, OR SUBMIT YOUR VOTING INSTRUCTIONS
ELECTRONICALLY OR VIA TELEPHONE IN THE MANNER DESCRIBED ON THE
ENCLOSED PROXY CARD.
This Proxy Statement is furnished to stockholders of IndyMac
Bancorp, Inc. (“Indymac”) in connection with the
solicitation by the Board of Directors of Indymac of proxies to
be voted at the 2006 Annual Meeting of Stockholders (the
“Annual Meeting”) to be held at our offices located at
3465 East Foothill Boulevard, Pasadena, California on
April 25, 2006, at 9:00 a.m. or at any adjournment or
postponement of the Annual Meeting. We expect to mail the proxy
solicitation materials for the Annual Meeting on or about
March 14, 2006.
Proxy Solicitation
The principal solicitation of proxies for the Annual Meeting is
being made by mail. Officers, directors and employees of
Indymac, none of whom will receive additional compensation for
their assistance, may also solicit proxies by telephone or other
personal or electronic contact. Indymac has retained
Morrow & Co., Inc. to assist in the solicitation of
proxies for an estimated fee of $9,000 plus reimbursement of
expenses. Indymac will bear the cost of the solicitation of
proxies, including postage, printing and handling, and will
reimburse brokerage firms and other record holders of shares
beneficially owned by others for their reasonable expenses
incurred in forwarding solicitation material to beneficial
owners of shares.
Revocation of Proxy
A stockholder may revoke his or her proxy at any time before it
is voted by delivering a later dated, signed proxy or other
written notice of revocation to the Corporate Secretary of
Indymac. Any stockholder present at the Annual Meeting may also
withdraw his or her proxy and vote in person on each matter
brought before the Annual Meeting. All shares represented by
properly signed and returned proxies in the accompanying form,
unless revoked, will be voted in accordance with the
instructions given on the proxy. If no instructions are given,
the shares will be voted in favor of Proposals One, Two, and
Three described in this Proxy Statement.
Record Date
Only holders of shares of Indymac’s Common Stock, par value
$0.01 per share (the “Common Stock”), of record
at the close of business on the February 27, 2006 record
date for the Annual Meeting will be entitled to notice of and to
vote at the Annual Meeting or at any postponement or adjournment
thereof. On the record date, 64,651,423 shares of Common
Stock were outstanding. Stockholders will each be entitled to
one vote per share of Common Stock held by them.
(i)
Quorum Requirements
Votes cast in person or by proxy at the Annual Meeting will be
tabulated by the inspector of elections appointed for the
meeting. Pursuant to Indymac’s Bylaws and the Delaware
General Corporation Law (the “DGCL”), the presence of
the holders of shares representing a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting,
whether in person or by proxy, is necessary to constitute a
quorum for the transaction of business at the Annual Meeting.
Under the DGCL, abstentions and “broker non-votes”
(that is, proxies from brokers or nominees who have not received
instructions from the beneficial owners or other persons
entitled to vote with respect to a matter and for which the
brokers or nominees do not have the discretionary power to vote)
will be treated as present for purposes of determining the
presence of a quorum.
Vote Requirements
The election of each of the director nominees under
Proposal One and the approval of Proposal Three
require the affirmative vote of a majority of the shares of
Common Stock present or represented by proxy and entitled to
vote on the proposal at the Annual Meeting. Approval of
Proposal Two requires the affirmative vote of a majority of
the votes cast, provided that the total votes cast represent
over 50% of the shares entitled to vote on the proposal. For
purposes of determining approval of a matter presented at the
Annual Meeting, abstentions will be deemed present and entitled
to vote and will, therefore, have the same legal effect as a
vote “against” Proposals One and Three. Abstentions
are not considered “votes cast,” so they will be
disregarded when calculating the votes cast for and against
Proposal Two, and therefore, will have no legal effect with
respect to the vote on Proposal Two.
A broker non-vote will be deemed “not entitled to
vote” on the proposal for which the non-vote is indicated
and will, therefore, have no legal effect on the voting for
Proposals One and Three. Broker non-votes are not considered to
be “votes cast,” so they will be disregarded when
calculating the votes cast for and against Proposal Two
and, therefore, will have no legal effect with respect to the
vote on Proposal Two. Under rules adopted by the New York
Stock Exchange, brokers holding shares of Common Stock for the
accounts of their customers are entitled to vote on
Proposal Two only pursuant to instructions from the
beneficial owners of such shares.
RECEIVE YOUR ANNUAL REPORT AND
PROXY STATEMENT ON-LINE NEXT YEAR
You can save Indymac future postage and printing expense by
consenting to receive future annual reports and proxy statements
over the Internet instead of receiving paper copies in the mail.
Stockholders will be given the opportunity to consent to future
Internet delivery. You may consent to future Internet delivery
by so indicating in the space provided on the enclosed proxy
card. For some stockholders this option will only be available
if the brokerage firm, bank or other record holder of their
shares makes appropriate provision to obtain such consent, or if
they vote electronically by the Internet when they vote their
proxy this year.
If you are not given an opportunity to consent to Internet
delivery when you vote your proxy, contact the bank, broker or
other holder of record through which you hold your shares and
inquire about the availability of this means of delivery to you.
(ii)
If you consent, your account will be so noted and, when the
proxy statement for the 2007 Annual Meeting of Stockholders and
Indymac’s 2006 Annual Report become available, you will be
notified on how to access them on the Internet.
Stockholders who elected last year to receive their Indymac
materials via the Internet this year will be notified of the
Internet location of the materials at the same time the
materials are distributed to all other Indymac stockholders.
If you elect to receive your Indymac materials via the Internet,
you can still request paper copies free of charge by writing to
Investor Relations at IndyMac Bancorp, Inc., 888 East Walnut
Street, P.O. Box 7211, Pasadena, California91109-7137.
In addition, if you own Common Stock in more than one account,
such as individually and also jointly with your spouse, you may
receive more than one set of these proxy materials. To assist us
in saving money and to provide you with better shareholder
services, we encourage you to have all your accounts registered
in the same name and address.
The following chart compares the total stockholder returns
(stock price increase plus dividends) on our Common Stock from
December 31, 2000 through December 31, 2005 with the
total stockholder returns for the Russell 1000 Index, as the
broad market index, and the Russell 1000 Financial Services
Index, as the industry or line of business index. The graph
assumes that the value of the investment in our Common Stock and
each index was $100 on December 31, 2000 and that all
dividends were reinvested.
Assumes Dividends Reinvested Through Fiscal Year Ended
December 31, 2005
1
PRINCIPAL STOCKHOLDERS
As of February 14, 2006, the following entities were known
to Indymac to be the beneficial owners of more than 5% of
Indymac’s outstanding Common Stock. The following table
shows (1) the number of shares of Common Stock owned by
each such entity, and (2) the percentage of all outstanding
shares represented by such ownership (based upon the most
recently reported number of shares outstanding as of the date
the entity filed a Schedule 13G with the Securities and
Exchange Commission).
Based upon Schedule 13G filed January 30, 2006 with
the Securities and Exchange Commission.
(2)
Based upon Amendment No. 4 to Schedule 13G filed
February 13, 2006 with the Securities and Exchange
Commission.
(3)
Based upon Amendment No. 1 to Schedule 13G filed
February 14, 2006 with the Securities and Exchange
Commission.
(4)
Based upon Amendment No. 8 to Schedule 13G filed
February 9, 2006 with the Securities and Exchange
Commission. Capital Guardian Trust Company (“Capital
Guardian”) is a wholly owned subsidiary of Capital Group
International, Inc. (“Capital Group”) and the
4,357,890 shares beneficially owned by Capital Guardian are
included in those shown as beneficially owned by Capital Group.
Capital Group reports that it has no investment or voting power
with respect to any of the shares shown and that investment, and
in some cases, voting power with respect to the shares is held
by investment management company subsidiaries of Capital Group
on behalf of their respective clients. Capital Guardian is a
bank that is deemed the beneficial owner of
4,357,890 shares as a result of its service as investment
manager of various institutional accounts. It reports that it
has sole investment and, in some cases, voting power with
respect to the shares beneficially owned by it.
2
EXECUTIVE OFFICERS
The executive officers of Indymac are:
Officer
Name
Age
Office(1)
Since
Michael W. Perry
43
Chairman of the Board of Directors and Chief Executive Officer
Executive Vice President, Incubator and Mergers and Acquisitions
of Indymac Bank
2003
Terrence O. Hughes
47
Executive Vice President, General Counsel
2005
R. Patterson Jackson III
45
Executive Vice President of Indymac Bank and Chief Executive
Officer of Specialty Products
2003
Scott Keys
43
Executive Vice President, Chief Financial Officer
2002
Ruthann K. Melbourne
40
Executive Vice President, Chief Risk Officer
2003
John D. Olinski
46
Executive Vice President, Secondary Marketing and Retained Assets
1999
Frank Sillman
42
Executive Vice President of Indymac Bank and Chief Executive
Officer of Indymac Mortgage Bank
1997
Charles A. Williams
47
Executive Vice President, Chief Audit Executive
2001
(1)
Unless otherwise noted, each executive officer is an officer of
both Indymac and Indymac Bank.
Michael W. Perry is Chairman of the Board of Directors
and Chief Executive Officer of Indymac and IndyMac Bank, F.S.B.,
a wholly owned subsidiary of Indymac (“Indymac Bank”).
He has been a director of Indymac since October 1997 and served
as Vice Chairman of the Board of Directors of Indymac and
Indymac Bank from March 2000 until February 2003 when he was
appointed Chairman of the Board of Directors of Indymac and
Indymac Bank following the retirement of David S. Loeb, the
former Chairman of both Indymac and Indymac Bank. Mr. Perry
has been with Indymac since January 1993 and previously served
as President of Indymac from January 1997 to February 1999, and
Chief Operating Officer from January 1993 to January 1997.
Mr. Perry has direct responsibility for the management of
Indymac and its subsidiaries. From May 1987 to December 1992, he
served in various positions with Commerce Security Bank,
including as Senior Executive Vice President in charge of the
Mortgage Banking Division and as Chief Financial Officer. After
graduating with honors from California State University,
Sacramento, and prior to joining Commerce Security Bank,
Mr. Perry was an auditor and Certified Public Accountant
for a period of four years with KPMG Peat Marwick LLP.
Richard H. Wohl is President of Indymac Bank. He became a
director of Indymac Bank in July 2005. Mr. Wohl oversees
the primary business divisions of Indymac Bank in both its
thrift and mortgage banking segments. Mr. Wohl previously
served Indymac in several capacities, including as Chief
Executive Officer of Indymac Mortgage Bank from February 2000 to
July 2005, Chief Operating Officer in charge of various
financial and administrative functions from February 1999 to
February 2000, and as general counsel and secretary from April
1994 to February 1999. Prior to joining Indymac in April 1994,
Mr. Wohl practiced as an attorney with Morrison &
Foerster in Los
3
Angeles, California where he worked in the institutional lending
and corporate areas with a focus on mortgage banking.
Mr. Wohl graduated with distinction from Stanford
University and received a J.D. from Harvard Law School, where he
was an editor of the Harvard Law Review.
S. Blair Abernathy is Executive Vice President,
Chief Investment Officer of Indymac and Indymac Bank.
Mr. Abernathy is responsible for the whole loan and
mortgage-backed securities investment portfolio and the mortgage
conduit and corporate finance functions of Indymac and Indymac
Bank. Previously, Mr. Abernathy was responsible for the
hedging, trading, product development, risk-based pricing and
secondary marketing functions of Indymac Bank. Prior to joining
Indymac in February 1994, Mr. Abernathy managed the
accounting and investment functions of Commerce Security Bank, a
state chartered bank in Sacramento, California, as Senior Vice
President and Chief Financial Officer. From July 1988 to January
1993, Mr. Abernathy served as Vice President and Controller
of Sunrise Bancorp of California, a publicly traded bank holding
company with banking and mortgage banking subsidiaries.
Mr. Abernathy received a B.S. in Business Administration
from California State University, Sacramento where he graduated
with honors.
Ashwin Adarkar is Executive Vice President, Incubator and
Mergers and Acquisitions of Indymac Bank. Mr. Adarkar is
responsible for incubator businesses, mergers and acquisitions
and outsourcing. Mr. Adarkar previously served as Chief
Executive Officer of Indymac Consumer Bank. Prior to joining
Indymac Bank in September 2003, Mr. Adarkar was a partner
with McKinsey & Company, a management consulting firm,
where he led its Global Business Process Offshoring and
Outsourcing Practice, helping clients around the world in a
variety of industries move their back office operations to low
cost locations. He helped to open McKinsey’s offices in
India and spent five years serving clients in India and moving
McKinsey’s worldwide internal graphics and research
capability to India. He was also a leader of McKinsey’s
West Coast Financial Services and Health Care Practices. Prior
to joining McKinsey & Company in 1992, Mr. Adarkar
worked with Goldman Sachs & Co. in its Mortgage Finance
department. Mr. Adarkar received an M.S. in Industrial
Engineering and a B.A in Economics from Stanford University,
where he was elected to Phi Beta Kappa. He also received
an M.B.A. from Stanford University where he was an Arjay Miller
Scholar.
Terrence O. Hughes is Executive Vice President, General
Counsel of Indymac and Indymac Bank. Prior to joining Indymac in
July 2005, Mr. Hughes served as in-house counsel for over
15 years. For the last 11 years he served as General
Counsel for Raleigh Enterprises, in Santa Monica, California.
Mr. Hughes began his career as an attorney with
Morrison & Foerster in Los Angeles, California where
his emphasis was on secured lending, corporate, and financial
transactions. Mr. Hughes received a B.S. in Business/
Accounting, summa cum laude, from the University of Southern
California and a J.D. from Stanford University School of Law,
where he currently serves as a member of the Law School’s
Board of Visitors.
R. Patterson Jackson III is Executive Vice
President of Indymac Bank and Chief Executive Officer of
Specialty Products. Mr. Jackson is responsible for all
aspects of Indymac Bank’s home equity lines of credit or
HELOC initiative, including marketing and sales activities,
product development, origination, servicing operations, and
management of the HELOC portfolio. Mr. Jackson is also
Chairman of Financial Freedom Senior Funding Corporation, a
subsidiary of Indymac Bank that originates reverse mortgages.
Mr. Jackson joined Indymac Bank in December 2003 with
19 years of diversified senior management, marketing and
business development experience, including President and Chief
Operating Officer of Unitek Miyachi Corporation, a global,
diversified high-tech products
4
company based in Southern California, where he was employed from
May 1999 to November 2003. Prior to this, Mr. Jackson held
a number of senior level marketing positions with other
companies, including Director of Marketing and Business
Development of Intecolor Corporation, a division of Rockwell
Automation. Mr. Jackson received a B.S. in Business
Administration from the University of South Carolina and an
M.B.A. from Winthrop College, Graduate School of South Carolina.
Scott Keys is Executive Vice President, Chief Financial
Officer of Indymac and Indymac Bank. Mr. Keys is
responsible for financial and managerial accounting, financial
reporting, strategic and financial planning, investor relations
and tax. Prior to joining Indymac in March 2002, Mr. Keys
was a partner with Ernst & Young LLP in its Columbus,
Ohio office. He most recently served as the partner in charge of
the Ohio Valley Banking Practice for Ernst & Young LLP,
serving a number of regional banking companies and large
mortgage companies. Prior to becoming a partner with
Ernst & Young LLP in October 1999, Mr. Keys held
various professional staff positions with the firm in its
Columbus, Ohio and Los Angeles, California offices beginning in
September 1986. Mr. Keys is a Certified Public Accountant
and received a B.S. in Accounting from Loyola Marymount
University.
Ruthann K. Melbourne is Executive Vice President, Chief
Risk Officer of Indymac and Indymac Bank. Ms. Melbourne is
responsible for the corporate oversight and control of complex
retained assets and associated interest rate risk hedges and
management in the Corporate Accounting and Enterprise Risk
Management Divisions. Prior to joining Indymac in February 2003,
Ms. Melbourne was the Vice President in the Risk
Research & Model Review Group of J.P. Morgan
Chase & Co. in its New York office from July 2000 to
February 2003. Ms. Melbourne has over 16 years of
experience in due diligence audit, finance, risk management,
risk research, marketing and related information systems. In
addition, Ms. Melbourne has extensive experience with
credit/market risk methodology, mortgage servicing right
performance measurement, pricing/valuation model validation,
credit derivative pricing, securitization comfort level support
and interest rate and volatility term structure modeling.
Ms. Melbourne holds a B.S. in Physics from the University
of California, Santa Cruz, has an M.S. in Electrical Engineering
from the California Institute of Technology and also received
her Ph.D. in Finance from the University of Wisconsin.
John D. Olinski is Executive Vice President of Indymac
and Indymac Bank and is responsible for managing Indymac’s
Secondary Marketing and Retained Assets groups. Previous
responsibilities at Indymac include Director of Corporate
Finance/ Treasury, Chairman of the management Asset and
Liability Committee, and management of the Home Loan Servicing
operations. Prior to joining Indymac in April 1999,
Mr. Olinski was an equity analyst focusing on consumer
products for a regional investment bank. Mr. Olinski, who
is a Chartered Financial Analyst, has fifteen years of
commercial and merchant banking experience with Security Pacific
Merchant Bank, Sanwa Bank California (now Bank of the West) and
Lloyds Bank California. Mr. Olinski received a B.A. in
Management Science from the University of California,
San Diego and an M.B.A. in Finance and Accounting from the
University of Southern California.
Frank M. Sillman is Executive Vice President of Indymac
Bank and Chief Executive Officer of Indymac Mortgage Bank.
Mr. Sillman is responsible for the mortgage professionals
business, including wholesale, correspondent, secondary
marketing, retained assets and warehouse lending.
Mr. Sillman joined Indymac in 1997 as a Senior Vice
President, was promoted to Executive Vice President of Sales and
Marketing, Indymac Mortgage Bank in 2003 and became Chief
Executive Officer of the Mortgage Professionals Group of Indymac
Mortgage Bank in 2004. Prior to joining Indymac, he
5
founded two retail mortgage banking companies, TCM Mortgage and
American Home Credit. From mid-1986 to the end of 1992,
Mr. Sillman served as treasurer for Shearson Lehman
Mortgage. Mr. Sillman has 19 years of experience in
the mortgage banking industry. Mr. Sillman received his
bachelor’s degree from the University of California,
San Diego.
Charles A. Williams is Executive Vice President, Chief
Audit Executive of Indymac and Indymac Bank. Mr. Williams
joined Indymac in October 2001 with over 18 years of
related experience. Prior to joining Indymac, he was with
Deloitte & Touche’s Enterprise Risk Services Group
where he was a senior manager for the Pacific Southwest Region
Internal Audit Services practice for the financial services
industry. His clients included primarily banks, thrifts and
mortgage lenders, including large regional and national
entities. Prior to his position with Deloitte & Touche,
Mr. Williams spent over 11 years as the chief auditor
for Redlands Federal Bank, a federally regulated thrift
institution. Mr. Williams received a B.S. from Southern
Illinois University, majoring in Finance and Business Economics,
and an M.B.A. from Southern Illinois University specializing in
Finance. He is a Certified Internal Auditor and a Certified Risk
Professional.
6
SECURITY OWNERSHIP OF MANAGEMENT
The following table provides information concerning the
beneficial ownership of Common Stock by each director nominee,
including Indymac’s Chairman and Chief Executive Officer,
each of Indymac’s other four most highly compensated
executive officers, Indymac’s Chief Financial Officer and
all executive officers and directors as a group, as of
February 28, 2006. Except as otherwise indicated, all
persons listed below have sole voting power and dispositive
power with respect to their shares, except to the extent that
authority is shared by their spouses, and have record and
beneficial ownership of their shares.
Shares of
Common
Stock Owned
Percent
Name
Beneficially(1)
of Class
Michael W. Perry
2,522,516
(2)
3.9
%
Louis E. Caldera
59,488
*
Lyle E. Gramley
119,830
(3)
*
Hugh M. Grant
96,235
(4)
*
Patrick C. Haden
105,991
(5)
*
Terrance G. Hodel
24,059
*
Robert L. Hunt II
66,260
*
Senator John Seymour (ret.)
78,432
*
James R. Ukropina
43,752
*
Bruce G. Willison
2,500
*
Richard H. Wohl
900,000
1.4
S. Blair Abernathy
283,387
*
Ashwin Adarkar
90,847
*
Scott Keys
135,595
*
Frank M. Sillman
109,676
(6)
*
All directors and executive officers as a group (20 persons)
4,831,973
7.4
*
Less than one percent of class.
(1)
Includes shares that may be purchased through stock options
currently exercisable or exercisable within 60 days of
February 28, 2006 held by the following persons:
Mr. Perry, 2,308,086 shares; Mr. Caldera,
48,488 shares; Mr. Gramley, 43,396 shares;
Mr. Grant, 94,032 shares; Mr. Haden,
94,032 shares; Mr. Hodel, 13,707 shares;
Mr. Hunt, 66,260 shares; Mr. Seymour,
74,032 shares; Mr. Ukropina, 30,636 shares;
Mr. Wohl, 795,905 shares; Mr. Abernathy,
238,328 shares; Mr. Adarkar, 90,847 shares;
Mr. Keys, 135,595; Mr. Sillman, 97,294; and all
directors and executive officers as a group,
4,315,210 shares.
(2)
Includes 1,536 shares held in Mr. Perry’s 401(k)
account.
(3)
Includes 13,225 shares owned by Marlys Gramley, the wife of
Mr. Gramley.
(4)
Includes 64 shares acquired through dividend reinvestment.
(5)
Includes 5,562 shares owned by Cindy Haden, the wife of
Mr. Haden, and 348 shares acquired by Mr. and
Mrs. Haden through dividend reinvestment.
(6)
Includes 641 shares held in Mr. Sillman’s 401(k)
account and 6,000 shares owned by Michelle Minier, the wife
of Mr. Sillman.
7
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation
paid by Indymac and its subsidiaries for all services in all
capacities for the fiscal years ended December 31, 2005,
2004 and 2003 to its Chief Executive Officer, the next four most
highly compensated executive officers for 2005, and the Chief
Financial Officer (the “named executive officers”).
Summary Compensation Table
Long-Term
Compensation Awards
Annual Compensation
Securities
Restricted
Underlying
Other Annual
Stock
Options
All Other
Total
Name and Principal Position
Year
Salary(1)
Bonus(1)
Compensation(2)
Awards($)
(#)
Compensation(3)
Compensation(4)
Michael W. Perry(5)
2005
$
1,000,000
$
1,000,000
$
465,607
$
0
0
$
16,788
$
2,482,395
Chairman and Chief
2004
1,000,000
808,333
137,885
0
0
16,343
1,962,561
Executive Officer
2003
1,000,000
875,000
237,705
0
0
5,057,517
7,170,222
Richard H. Wohl(6)
2005
646,017
607,500
151,061
0
0
19,031
1,423,609
President,
2004
600,000
500,000
41,436
0
0
18,307
1,159,743
Indymac Bank
2003
604,625
466,074
54,519
0
0
1,532,553
2,657,771
S. Blair Abernathy
2005
570,788
504,349
90,144
201,710
(7)
24,230
15,369
1,566,508
Executive Vice President,
2004
450,000
368,297
17,265
0
20,126
14,939
1,022,377
Chief Investment Officer
2003
375,000
312,500
15,675
0
50,000
12,981
1,012,656
Ashwin Adarkar(8)
2005
360,000
506,311
81,247
0
58,493
6,300
1,398,405
Executive Vice President,
2004
365,000
477,216
19,821
0
7,026
447,715
1,369,754
Indymac Bank
2003
158,182
80,000
0
0
100,000
0
888,182
Scott Keys
2005
400,000
250,000
123,432
0
37,130
39,700
1,095,320
Executive Vice President,
2004
378,750
250,000
22,327
0
14,827
39,420
817,120
Chief Financial Officer
2003
318,750
181,500
19,402
0
50,000
37,313
853,465
Frank M. Sillman
2005
300,000
692,960
57,742
173,887
(7)
29,957
12,250
1,464,512
Executive Vice President,
2004
250,000
455,351
40,160
0
13,173
11,784
869,792
Indymac Bank
2003
193,750
250,000
35,094
0
18,443
8,955
598,359
(1)
Salary and bonus amounts deferred at the election of the named
executive officer to a subsequent year are included for the
fiscal year in which such amounts were earned.
(2)
Amounts shown for 2005 consist of the following, which are
valued at the aggregate incremental cost to Indymac:
Interest
Accrued on
Executive
Ten-Year
Reimbursement
Reimbursement
Deferred
Car
Medical
Financial and
Service
for Payment of
for Payment of
Name
Comp(A)
Allowance
Club Dues
Program
Tax Planning
Award(B)
Legal Fees(C)
Taxes(D)
Mr. Perry
$
401,215
$
13,200
$
21,487
$
3,750
$
15,028
$
0
$
0
$
10,927
Mr. Wohl
126,320
13,200
1,215
0
0
7,000
0
3,326
Mr. Abernathy
68,161
0
3,190
0
9,017
7,323
0
2,453
Mr. Adarkar
11,478
0
60,725
0
9,044
0
0
0
Mr. Keys
10,670
0
9,500
3,750
0
0
99,512
0
Mr. Sillman
53,992
0
0
3,750
0
0
0
0
(A)
Includes all interest accrued during 2005 on deferred
compensation and not just the amount accrued in excess of the
applicable federal rate, which is all that is currently required
to be disclosed.
(B)
The ten-year service award is provided to all employees of
Indymac who have completed ten years of service. The award is a
five-day trip to Hawaii for the employee
8
and a guest, including airfare,
hotel, car rental, a per diem for meals and expenses and payment
of related taxes.
(C)
Indymac reimbursed Mr. Keys for legal fees and expenses
incurred in connection with a matter related to his prior
employment. The matter was concluded in 2006 with no impact on
Mr. Keys.
(D)
Reimbursements of taxes were paid to Mr. Perry in
connection with the payment of his financial and tax planning
expenses and to Messrs. Wohl and Abernathy in connection
with their ten-year service awards.
(3) Amounts shown for 2005 consist of the following:
Term Life
Indymac
Insurance
Contribution
Pension Plan
Premiums Paid
to 401(k)
Loan
Actuarial Value
Name
by Indymac
Plan
Forgiveness(A)
Increase(B)
Mr. Perry
$
1,680
$
6,300
$
0
$
8,808
Mr. Wohl
1,053
6,300
0
11,678
Mr. Abernathy
0
6,300
0
9,069
Mr. Adarkar
0
6,300
0
0
Mr. Keys
0
3,468
30,000
6,232
Mr. Sillman
0
4,245
0
8,005
(A)
See the detailed discussion concerning this loan forgiveness in
Certain Transactions and Business Relationships.
(B)
See the detailed discussion concerning the pension plan in
Defined Benefit Pension Plan. Pension Plan Actuarial Values for
2004 and 2003 are voluntarily included in All Other Compensation
for Messrs. Perry, Wohl, Abernathy, Keys and Sillman for
the first time in this proxy statement. Amounts disclosed as All
Other Compensation for Messrs. Perry, Wohl and Abernathy in
previous years did not include these values. Accordingly, these
values will be higher than the values reported in previous proxy
statements.
(4)
Total Compensation is calculated as the sum of the columns in
this Summary Compensation Table, plus the value of stock option
awards. The following grant date fair values were used to value
the stock options granted to Messrs. Abernathy, Adarkar,
Keys and Sillman in 2005, 2004 and 2003. The grant date fair
values were computed in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards
No. 123 (“FAS 123”) applying the same
valuation model and assumptions as Indymac applies for financial
statement pro-forma footnote disclosure purposes.
9
Securities
Underlying
Grant Date
Name
Year
Options
Fair Value
Mr. Perry
2005
0
$
0
2004
0
0
2003
0
0
Mr. Wohl
2005
0
0
2004
0
0
2003
0
0
Mr. Abernathy
2005
24,230
184,148
2004
20,126
171,876
2003
50,000
296,500
Mr. Adarkar
2005
58,493
444,547
2004
7,026
60,002
2003
100,000
650,000
Mr. Keys
2005
37,130
282,188
2004
14,827
126,623
2003
50,000
296,500
Mr. Sillman
2005
29,957
227,673
2004
13,173
112,497
2003
18,443
110,560
(5)
Mr. Perry is Chairman of the Board and Chief Executive
Officer of Indymac. Mr. Perry is compensated as an
executive officer of Indymac pursuant to an employment agreement
entered into with Indymac on February 1, 2002. See
“Employment Agreements” and “Compensation
Committee Report on Executive Compensation”.
(6)
Mr. Wohl is President of Indymac Bank and a director of
Indymac Bank. Mr. Wohl is compensated as an executive
officer of Indymac Bank pursuant to an employment agreement
entered into with Indymac Bank on November 1, 2002. See
“Employment Agreements” and “Compensation
Committee Report on Executive Compensation”.
(7)
Restricted stock awards shown were granted on March 15,2005 at the election of each officer (in combination with a
stock option award) and are valued at $34.91, the closing price
of Common Stock on the grant date. The awards vest in full on
the third anniversary of the grant date. Dividends accrue on the
underlying shares, but will not be paid until the restricted
stock vests. The following table sets forth the aggregate
restricted stock holdings of named executive officers as of
December 31, 2005, dividends accrued on the restricted
stock during 2005, and the aggregate value of the restricted
stock as of December 31, 2005.
Number of
Shares
Dividends
Aggregate
Name
Granted
Accrued
Value(A)
Mr. Abernathy
5,778
$
6,934
225,458
Mr. Sillman
4,981
5,977
194,359
(A)
Restricted stock holdings are valued at $39.02, the closing
price of Common Stock as of December 31, 2005 (which is the
closing price of Common Stock on December 30, 2005 because
December 31, 2005 was not a business day).
(8)
Mr. Adarkar commenced working for Indymac Bank in September
2003, and the salary and bonus amounts for 2003 are for
September through December 2003.
10
Two additional employees of Indymac who are not executive
officers earned salary and bonus/commissions for 2005 that would
have qualified them for inclusion in the Summary Compensation
Table had they been executive officers. The two employees are
sales managers and earned cash compensation (salary and
bonus/commissions) of $1,144,454 and $1,040,883, respectively,
for 2005.
Stock Award Plans
General. Stock options have been granted to directors and
officers of Indymac and Indymac Bank pursuant to Indymac’s
two active stock award plans: the 2002 Incentive Plan, as
amended and restated (“2002 Plan”) and the 2000 Stock
Incentive Plan, as amended (“2000 Plan”). Both plans
were approved by the stockholders of Indymac. Additional stock
options were also granted to directors and executive officers of
Indymac under prior stock award plans that have since been
terminated. The termination of the prior plans did not affect
the validity of stock options granted thereunder, some of which
are currently outstanding. The stock award plans are
administered by the Management Development and Compensation
Committee of the Board of Directors, also referred to as the
Compensation Committee.
Stock Option Grants in Fiscal Year 2005
Individual Grants
Number of
% of Total
Securities
Options
Underlying
Granted to
Exercise
Grant Date
Options Granted
Employees in
Price
Expiration
Present
Name
(#)(1)
Fiscal Year
($/Share)(2)
Date
Value(3)
Michael W. Perry
0
0
%
$
—
—
$
—
Richard H. Wohl
0
0
—
—
—
S. Blair Abernathy
24,230
1.95
35.41
3/15/2015
184,148
Ashwin Adarkar
58,493
4.72
35.41
3/15/2015
444,547
Scott Keys
37,130
2.99
35.41
3/15/2015
282,188
Frank M. Sillman
29,957
2.42
35.41
3/15/2015
227,673
(1)
The stock options vest and become exercisable in three equal
annual installments beginning on March 15, 2006. All stock
options granted become immediately exercisable on the first
anniversary of a “Change in Control” as defined in the
2000 Plan and the 2002 Plan as applicable.
(2)
The exercise price of $35.41 represents the average of the high
and low sales prices for the Common Stock on the date of grant,
as published in the Western Edition of the Wall Street
Journal.
(3)
The grant date present value of the options ($7.60/share) was
calculated using a Black-Scholes single option-pricing model,
using the assumptions set forth below. No discounting was done
to account for non-transferability or vesting. The actual value,
if any, an option holder may realize will depend on the excess
of the stock price over the exercise price on the date the
option is exercised.
11
Assumptions
Expected Volatility
28.99
%
Risk Free Rate of Return
4.542
(A)
Expected Dividend Yield
4.07
Time to Exercise
5 years
(A)
Approximately equal to the weighted average of the ten-year
Treasury rate on the grant date.
The following table sets forth information with respect to
(1) stock options exercised by the named executive officers
during fiscal year 2005, and (2) the number and value of
unexercised stock options that were held by the named executive
officers as of December 31, 2005.
Aggregated Option Exercises in Fiscal Year 2005
and Fiscal Year End Option Values
Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money
Shares
Options at FY-End (#)
Options at FY-End ($)(2)
Acquired on
Value
Name
Exercise
Realized(1)
Exercisable
Unexercisable
Exercisable
Unexercisable
Michael W. Perry
491,654
$
13,441,149
2,108,086
400,000
$
37,025,304
$
5,721,000
Richard H. Wohl
200,000
5,754,827
700,000
300,000
11,983,000
5,554,500
S. Blair Abernathy
96,905
1,601,765
156,876
104,315
2,218,504
1,197,690
Ashwin Adarkar
0
0
69,008
96,511
1,101,514
775,013
Scott Keys
16,665
305,418
81,610
103,682
1,210,915
1,075,813
Frank M. Sillman
0
0
28,072
44,887
390,554
261,010
(1)
Value Realized represents the amount equal to the excess of the
fair market value of the shares at the time of exercise over the
exercise price of the options.
(2)
Represents the $39.02 closing price of the shares underlying the
options as of December 31, 2005, less the exercise price of
the options.
The following table sets forth additional information with
respect to outstanding equity awards held by the named executive
officers as of December 31, 2005.
Outstanding Equity Awards
Number of Securities
Value of Unexercised
Underlying Unexercised
In-the-Money Options
Outstanding
Market Value
Options at FY-End (#)
at FY-End ($)(3)
Unvested
Market Value
Unvested
of Unvested
Stock
of Unvested
Shares or Units
Shares or
Name
Exercisable(1)
Unexercisable(2)
Exercisable
Unexercisable
Held(4)
Stock Held(5)
Granted(6)
Units Held(7)
Michael W. Perry
2,108,086
400,000
$
37,025,304
$
5,721,000
0
$
0
0
$
0
Richard H. Wohl
700,000
300,000
11,983,000
5,554,000
0
0
0
0
S. Blair Abernathy
156,876
104,315
2,218,504
1,197,690
5,778
225,458
4,416
172,312
Ashwin Adarkar
69,008
96,511
1,101,514
775,013
0
0
4,409
172,039
Scott Keys
81,610
103,682
1,210,915
1,075,813
0
0
2,565
100,086
Frank M. Sillman
28,072
44,887
390,554
261,010
4,981
194,359
0
0
12
(1)
Expiration dates of exercisable options are as follows:
Name
2/3/2010
2/5/2011
3/15/2012
5/1/2012
12/2/2012
3/4/2013
4/11/2013
9/15/2013
3/15/2014
Mr. Perry
508,086
800,000
0
800,000
0
0
0
0
0
Mr. Wohl
0
400,000
0
0
300,000
0
0
0
0
Mr. Abernathy
0
150,000
0
0
0
168
0
0
6,708
Mr. Adarkar
0
0
0
0
0
0
0
66,666
2,342
Mr. Keys
0
0
60,000
0
0
16,668
0
0
4,942
Mr. Sillman
0
0
0
15,876
0
4,491
3,314
0
4,391
(2)
Expiration dates of unexercisable options are as follows:
Name
2/3/2010
2/5/2011
3/15/2012
5/1/2012
12/2/2012
3/4/2013
4/11/2013
9/15/2013
3/15/2014
3/15/2015
Mr. Perry
0
200,000
0
200,000
0
0
0
0
0
0
Mr. Wohl
0
100,000
0
0
200,000
0
0
0
0
0
Mr. Abernathy
0
50,000
0
0
0
16,667
0
0
13,418
24,230
Mr. Adarkar
0
0
0
0
0
0
0
33,334
4,684
58,493
Mr. Keys
0
0
40,000
0
0
16,667
0
0
9,885
37,130
Mr. Sillman
0
0
0
0
0
4,491
1,657
0
8,782
29,957
(3)
Represents the $39.02 closing price of the shares underlying the
options as of December 31, 2005, less the exercise price of
the options.
(4)
Represents unvested restricted stock grants. Grants to
Messrs. Abernathy and Sillman vest 100% on March 15,2008.
(5)
Represents the $39.02 closing price of Common Stock as of
December 31, 2005 multiplied by the number of unvested
shares.
(6)
Represents performance units (target) granted in 2004
pursuant to the Long Term Incentive Plan.
(7)
Represents the $39.02 closing price of Common Stock as of
December 31, 2005 multiplied by the number of outstanding
performance units.
The following table shows aggregate information, as of
December 31, 2005, with respect to compensation plans under
which equity securities of Indymac are authorized for issuance.
Equity Compensation Plan Information
Number of Securities
Remaining Available
for Future Issuance
Number of Securities
Under Equity
to be Issued Upon
Weighted-Average
Compensation Plans
Exercise of
Exercise Price of
(Excluding Securities
Outstanding Options,
Outstanding Options,
Reflected in First
Warrants and Rights
Warrants and Rights
Column(1))
Equity Compensation Plans Approved by Security Holders
7,851,820
$
24.8207
1,896,490
Equity Compensation Plans Not Approved by Security Holders
0
0
0
Total
7,851,820
$
24.8207
1,896,490
(1)
Includes shares of Common Stock available for future grants
under Indymac’s 2000 Plan and 2002 Plan. As of
December 31, 2005, up to 233,458 shares may be issued
under the 2000 Plan, of which 6,585 shares may be issued as
restricted stock or other stock awards, and up to
13
1,663,032 shares may be
issued under the 2002 Plan of which 393,052 shares may be
issued as restricted stock or other stock awards. No dividend
equivalent rights or dividends are attached or associated with
any outstanding options, warrants or rights under the 2000 Plan
and the 2002 Plan.
Long Term Incentive Plan. In 2004, Indymac established a
Cash Incentive Award Program to enhance long-term incentive
compensation for key executives of Indymac and its subsidiaries.
Payout of these incentives is based upon the achievement of
corporate performance goals over a three-year
vesting/performance period. The results of performance criteria
are certified by the Compensation Committee at the end of the
three-year period. The Cash Incentive Award Program is a subplan
of the 2002 Plan and will be settled at the end of the
performance period in cash. The Compensation Committee, which
administers the program, (1) determines the participating
executives and sets each of their award targets, and
(2) establishes a matrix which describes the percentage of
the target award to be paid, and or granted, at the end of each
three year performance period, after the results of the
performance criteria have been certified. The target award is
expressed as a number of “performance units” and
normally will be equal to the number of shares of Common Stock
having a fair market value on the grant/award date equal to 50%
of the annual cash incentive bonus earned by a participant for
performance in the prior fiscal year. The target award for each
participant may not be less than 25%, or more than 75%, of that
participant’s target cash incentive for the prior fiscal
year. The awards are intended to be qualified performance-based
compensation under Section 162(m) of the Internal Revenue
Code. No awards were granted pursuant to the Cash Incentive
Award Program in 2005, and no further awards will be granted
pursuant to this program. To replace this long-term incentive
compensation, key executives of Indymac and its subsidiaries
will receive other forms of equity compensation.
Defined Benefit Pension Plan
The following table illustrates annual pension benefits under
Indymac’s Defined Benefit Pension Plan (the “Pension
Plan”) for participants retiring in 2005 at age 65
payable in the form of a straight (single) life annuity
under various levels of compensation and years of service. The
pension benefits in the table are not subject to deduction for
Social Security or other offset amounts. Effective
January 1, 2003, the Pension Plan was partially frozen so
that persons becoming employees as of and following that date
are not eligible to participate in the Pension Plan. As of
December 31, 2005, there were 1,923 participants in the
Pension Plan.
Pension Plan Table
Final Five-Year
Years of Service
Average Annual
Compensation(1)
5
10
15
20
25
30
35
$
125,000
$
8,000
$
16,000
$
24,500
$
35,100
$
45,100
$
52,600
$
60,100
150,000
9,900
19,700
30,200
43,400
55,700
65,100
74,500
175,000
11,700
23,500
36,000
51,600
66,400
77,600
88,900
210,000
12,800
25,600
39,200
56,200
72,300
84,600
96,900
(1)
As a result of a limitation under Internal Revenue Code
Section 401(a), annual compensation in excess of $210,000
is not taken into account in calculating benefits under the
Pension Plan.
14
The compensation used for Pension Plan purposes is the amount
shown in the Salary column of the Summary Compensation Table,
subject to the $210,000 limitation under the Code. Benefits are
100% vested after five years of service. A participant would
become fully vested in his or her accrued normal retirement
benefit regardless of the participant’s length of service
if the participant’s employment is terminated by Indymac
other than for “Cause” within a two-year period
following a “Change in Control” (as both terms are
defined in the Pension Plan).
The following table sets forth the current years of credited
service and potential annual benefits that are payable to each
named executive officer under the Pension Plan, except for
Mr. Adarkar, who is not eligible to participate in the
Pension Plan. The dollar amounts included in the table assume
that each officer continues to earn the same amount of
compensation reported in the Summary Compensation Table for 2005
until his normal retirement age and early retirement age,
respectively, subject to the statutory compensation maximum of
$210,000. Indymac does not maintain any other tax-qualified
defined benefit plans or supplemental employee retirement plans.
Potential Annual Pension Benefits
Number of
Estimated Early
Years
Normal
Estimated Normal
Early
Retirement
Credited
Retirement
Retirement Annual
Retirement
Annual
Name
Service (#)
Age (#)
Benefit ($)
Age (#)
Benefit ($)
Michael W. Perry
12
65
$
89,634
55
$
31,635
Richard H. Wohl
11
65
74,455
55
23,932
S. Blair Abernathy
11
65
84,361
55
28,999
Scott Keys
3
65
65,907
55
19,772
Frank M. Sillman
8
65
81,573
55
27,630
Employment Agreements
Chairman of the Board and
Chief Executive Officer
Mr. Perry has an employment agreement with Indymac that was
executed in February 2002 and is effective until
December 31, 2006. Under the agreement, Mr. Perry
agreed to serve as Indymac’s Chief Executive Officer and as
Chairman of the Board of Indymac and Indymac Bank. The material
terms of Mr. Perry’s employment agreement are as
follows:
Non-Qualified
Targeted Annual
Maximum
Deferred
Annual Base
Incentive
Annual Incentive
Compensation
Salary(1)
Compensation(2)
Compensation(2)
Stock Awards(3)
Plan Credit(4)
$
1,000,000
$
500,000
$
1,000,000
1,000,000 shares
$
5,000,000
500,000 shares
(1)
Amount listed was for the first year of Mr. Perry’s
employment agreement and has been subject to annual review and
increase in the discretion of the Compensation Committee.
Mr. Perry’s current annual base salary is $1,000,000.
(2)
Mr. Perry’s targeted annual incentive compensation is
set at 50% of his base salary, with his maximum annual incentive
compensation set at 100% of his base salary, depending upon
attainment of financial and strategic objectives that are
established by the Compensation Committee after consultation
with Mr. Perry.
15
(3)
Mr. Perry was granted an option in May 2002 to
purchase 1 million shares of Common Stock at an
exercise price equal to the fair market value of the Common
Stock on the grant date. The option has a ten-year term and
becomes exercisable in equal installments over a five-year
period or earlier in the event of Mr. Perry’s death or
disability or the termination of his employment by Indymac
without Cause or by Mr. Perry for Good Reason. If there is
a Change in Control, the portion of the option that is not
exercisable would become exercisable one year after the Change
in Control if Mr. Perry is still employed by Indymac on
that date. Mr. Perry was also granted a performance-based
option under the agreement in May 2002 to
purchase 500,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the
grant date. This performance-based option was cancelled at
Mr. Perry’s request in August 2002 to ensure the
availability of sufficient shares of Common Stock for future
grants of options to other officers and employees of Indymac.
Mr. Perry did not receive another stock option grant or any
other compensation in lieu of the cancelled option.
(4)
Mr. Perry received a $5 million credit to his Indymac
non-qualified deferred compensation plan account effective
January 1, 2003. The $5 million credit is derived from
a payment owed to Mr. Perry under the terms of his prior
employment agreement upon its expiration in February 2003. In
lieu of making such payment, the Compensation Committee and
Board of Directors negotiated to credit the amount to
Mr. Perry’s deferred compensation plan account. The
credit vests equally over four years commencing on
December 31, 2003, or earlier if before such date he is
terminated by Indymac other than for Cause, he resigns for Good
Reason or there is a Change in Control (each as defined in the
employment agreement).
Under the employment agreement, Mr. Perry would be entitled
to a severance payment equal to 2.5 times the total of his then
current annual base salary and target bonus if he is terminated
without Cause or if he resigns for Good Reason. In either such
event, Mr. Perry’s stock options would become
exercisable for a period of twelve months. He would also be
entitled to a prorated portion of his annual bonus based on
Indymac’s actual performance up to the date of termination
in the year in which the termination takes place, and to
continued health and welfare benefits for himself and his family
for two years or until he obtains comparable benefits through
other employment.
If there is a Change in Control and Mr. Perry is terminated
other than for Cause or resigns for Good Reason within two years
thereafter, or if he is terminated without Cause in anticipation
of a Change in Control at the initiation of the acquiring party,
he would be entitled to a payment equal to three times his then
current annual base salary and target bonus. In addition, all of
Mr. Perry’s outstanding stock options (including
unvested stock options) would become exercisable for a period of
twelve months, and he would be entitled to continued health and
welfare benefits for himself and his family for a period of
three years or until he obtains comparable benefits through
other employment. Upon a Change in Control, Mr. Perry would
also be entitled to receive an additional payment to compensate
for any increased excise, income or payroll taxes payable by him.
The employment agreement also provides that Mr. Perry will
not compete with Indymac or its subsidiaries in specified
respects, or solicit any of their customers or business, for a
period of one year from the date his employment terminates if it
terminates before the agreement expires.
16
The following table sets forth the amount of cash compensation,
the value of accelerated stock awards (valued at fair value as
of December 31, 2005), and the full cost of the
continuation of health benefits payable to Mr. Perry in the
event of his resignation, disability, death (which includes a
term life insurance benefit), termination without Cause,
termination for Cause, termination for Good Reason and a Change
in Control, assuming termination of employment occurred on
December 31, 2005 and, for a Change in Control, that the
Change in Control occurred two years prior to December 31,2005. In the event that any of the payments are subject to
federal excise taxes under the “golden parachute”
provisions of the tax code, Indymac is required to pay
Mr. Perry a
gross-up for any such
excise taxes plus any additional excise, income or payroll taxes
owed on the gross-up
payment. These gross-up
amounts are not reflected in the table below.
Termination
Without
Termination for
Change in
Name
Resignation
Disability
Death
Cause
Good Reason
Control
Michael W. Perry
$
0
$
7,736,799
$
9,750,698
$
10,736,799
$
10,736,799
$
11,750,698
Other Named Executive
Officers
The material terms of the employment agreements with
Messrs. Wohl, Abernathy, Adarkar, Keys and Sillman,
respectively, are as follows:
Targeted
Maximum
Non-Qualified
Guaranteed
Annual
Annual
Annual
Deferred
Minimum
Base
Incentive
Incentive
Compensation
Annual Cash
Expiration
Date of
Salary
Compensation
Compensation
Stock Award
Plan Credit
Compensation
Date of
Name
Agreement
(1)
(2)
(2)
(3)
(4)
(5)
Agreement
Richard H. Wohl
11/01/02
$
650,000
$
500,000
$
650,000
500,000 shares
$
1,500,000
$
N/A
12/31/07
S. Blair Abernathy
09/01/02
627,000
368,297
N/A
Per Policy
N/A
783,750
12/31/06
Ashwin Adarkar
09/01/03
360,000
477,216
N/A
Per Policy
N/A
N/A
08/31/06
Scott Keys
02/28/02
450,000
250,000
N/A
Per Policy
N/A
562,500
12/31/06
Frank M. Sillman
10/15/03
300,000
500,000
N/A
Per Policy
N/A
375,000
12/31/06
(1)
Amounts listed are 2005 annual base salaries. The initial base
salary amount included in each executive officer’s
employment agreement has been subject to annual review for
increase by the Chief Executive Officer and the Compensation
Committee.
(2)
Amounts listed are 2005 targeted annual incentive compensation.
The initial targeted annual incentive compensation included in
each executive officer’s employment agreement has been
subject to annual review for increase by the Chief Executive
Officer and the Compensation Committee. For
Messrs. Abernathy, Adarkar and Keys, the 2005 targeted
annual incentive compensation was based on 2004 actual annual
incentive compensation paid. For Mr. Sillman, the 2005
targeted annual incentive compensation was based on 2004 actual
annual incentive compensation paid, plus an additional amount
determined by Messrs. Wohl and Perry. For Mr. Wohl,
the 2005 targeted annual incentive compensation was based on
2004 actual incentive compensation paid, with his maximum annual
incentive compensation set at 100% of his base salary, depending
upon attainment of financial and operational objectives that are
established by the Compensation Committee after consultation
with the Chief Executive Officer.
(3)
Messrs. Abernathy, Adarkar, Keys and Sillman are eligible
for an annual stock award as determined by the Compensation
Committee pursuant to Indymac’s Stock Incentive
Compensation Policy. Mr. Wohl was granted an option in
December 2002 to purchase 500,000 shares of
17
Common Stock. The stock option
vests in equal parts on the first five anniversaries of the
grant date. All stock awards granted are subject to the terms of
the 2000 Plan or 2002 Plan.
(4)
Mr. Wohl received a $1.5 million credit to his account
in Indymac’s non-qualified deferred compensation plan,
effective as of January 1, 2003. The $1.5 million
credit is derived from a payment owed to Mr. Wohl under the
terms of his prior employment agreement upon its expiration in
February 2003. In lieu of making such payment, the Compensation
Committee and Board of Directors negotiated to credit the amount
to Mr. Wohl’s deferred compensation plan account. The
credit vests equally over five years commencing on
December 31, 2003, or upon earlier termination of his
employment, other than for Cause or voluntary termination
without Good Reason, or upon a Change in Control of Indymac
(each as defined in the employment agreement).
(5)
For each fiscal year ending during the term of
Messrs. Abernathy’s, Keys’ and Sillman’s
respective employment agreements, each executive officer is
guaranteed to receive minimum annual cash compensation equal to
125% of his base salary for such fiscal year. For this purpose,
annual cash compensation includes each executive officer’s
base salary for the fiscal year and any incentive compensation
award applicable to such fiscal year. The amounts listed are the
guaranteed minimum annual cash compensation amounts based on the
current annual base salary amounts also included in the table.
In consideration of an agreement from each of Messrs. Wohl,
Abernathy, Adarkar, Keys and Sillman not to compete with Indymac
Bank for a period of one year after termination of employment,
and an agreement from each of Messrs. Adarkar, Keys and
Sillman not to solicit customers, business or employees of
Indymac for a period of one year after termination of
employment, Indymac Bank has agreed to continue to employ
Messrs. Wohl, Abernathy, Adarkar, Keys and Sillman, to
provide the compensation and benefits described in their
respective employment agreements, and to provide certain
severance payments upon termination of employment for reasons
other than for (a) Cause for Mr. Wohl; and
(b) Poor Performance or Cause for Messrs. Abernathy,
Adarkar, Keys and Sillman, each as defined in their respective
employment agreements.
The severance amounts that each of Messrs. Wohl, Abernathy,
Adarkar, Keys and Sillman would receive upon termination,
assuming termination of employment occurred on December 31,2005, and for a Change in Control, assuming that the Change in
Control occurred two years prior to December 31, 2005, are
set forth below (including the fair value of accelerated stock
awards valued as of December 31, 2005 and the full cost of
the continuation of health benefits payable to each executive
officer). In the event that any of the severance payments are
subject to federal excise taxes under the “golden
parachute” provisions of the tax code, Indymac is required
to pay the executives a
gross-up for any such
excise taxes plus any excise, income or payroll taxes owed on
the payment of the
gross-up for the excise
taxes. These gross-up
amounts are not reflected in the table below.
Termination
Termination
Termination
Without
for Poor
for Good
Change in
Name
Resignation
Disability
Death
Cause
Performance
Reason
Control
Richard Wohl(1)
$
0
$
6,223,299
$
8,823,299
$
6,044,299
$
N/A
$
8,088,299
$
8,088,299
S. Blair Abernathy(2)
0
1,747,243
3,001,243
2,693,822
783,750
N/A
2,262,698
Ashwin Adarkar(3)
0
901,384
1,506,017
1,117,753
240,000
N/A
1,492,622
Scott Keys(4)
0
1,311,602
2,211,602
1,818,311
562,500
N/A
1,400,000
Frank Sillman(5)
0
604,475
1,204,475
922,811
375,000
N/A
1,985,920
18
(1)
Mr. Wohl’s severance payment other than for Cause
would equal the sum of (a) his annual base salary through
the last day of employment, (b) a single cash payment equal
to two times his then current annual base salary rate and
targeted annual incentive compensation rate, plus a pro rata
bonus for the year in which he is terminated, the amount of
which will be determined in the sole discretion of Indymac
Bank’s Board of Directors, and (c) the additional
benefits described in his employment agreement for two years
following the date of termination. The amount indicated in the
event of death includes a term life insurance benefit. The
amount indicated in the event of a Change in Control is for a
termination within one year following a Change in Control, and
the payout is the same as for a termination for Good Reason.
(2)
Mr. Abernathy’s severance payment in the event of
termination other than for Cause or Poor Performance would equal
the sum of (a) his annual base salary through the last day
of employment, (b) a single cash payment equal to two times
the guaranteed minimum annual compensation under his employment
agreement, provided that if the termination occurs within two
years of a change in control, as declared by the Board of
Directors, and during the term of the officer’s employment
agreement, then the single cash payment will be equal to two
times the officer’s total compensation (base salary plus
bonus) for the fiscal year preceding the date of termination,
and (c) the additional benefits described in his employment
agreement for one year following the date of termination.
Mr. Abernathy’s severance payment in the event of
termination for Poor Performance would equal the sum of
(a) his annual base salary through the last day of
employment, and (b) a single cash payment equal to the
guaranteed minimum annual compensation under his employment
agreement.
(3)
Mr. Adarkar’s severance payment in the event of
termination other than for Cause or Poor Performance would equal
the sum of (a) his base salary through the last day of
employment, and continuation of his base salary for the lesser
of one year or the number of months remaining in the term of his
employment agreement, (b) his incentive compensation award
for the year of termination prorated to the last day of
employment, and (c) the additional benefits described in
his employment agreement for one year following the date of
termination. If the termination occurs within two years of a
change in control (as defined in his employment agreement),
Mr. Adarkar’s continuation of base salary will be
increased by 100% and his incentive compensation award will be
increased by 100%. Mr. Adarkar’s severance payment in
the event of termination for Poor Performance would equal the
sum of (a) his annual base salary through the last day of
employment, (b) continuation of his base salary, reduced by
50%, for the lesser of one year or the number of months
remaining in the term of the employment agreement, and
(c) his incentive compensation award for the year of
termination prorated to the last day of employment.
(4)
Mr. Keys’ severance payment in the event of
termination other than for Cause or Poor Performance would equal
the sum of (a) his annual base salary through the last day
of employment, (b) a single cash payment equal to two times
the guaranteed minimum annual compensation under his employment
agreement, provided that if the termination occurs within two
years of a change in control, as declared by the Board of
Directors, and during the term of the officer’s employment
agreement, then the single cash payment will be equal to two
times the officer’s total compensation (base salary plus
bonus) for the fiscal year preceding the date of termination,
and (c) the additional benefits described in his employment
agreement for one year following the date of termination.
Mr. Keys’ severance payment in the event of
termination for Poor Performance would equal the sum of
(a) his annual base salary through the last day of
19
employment, and (b) a single
cash payment equal to the guaranteed minimum annual compensation
under his employment agreement.
(5)
Mr. Sillman’s severance payment in the event of
termination other than for Cause or Poor Performance would equal
the sum of (a) his annual base salary through the last day
of employment, (b) a single cash payment equal to two times
the guaranteed minimum annual compensation under his employment
agreement, provided that if the termination occurs within two
years of a change in control, as declared by the Board of
Directors, and during the term of the officer’s employment
agreement, then the single cash payment will be equal to two
times the officer’s total compensation (base salary plus
bonus) for the fiscal year preceding the date of termination,
and (c) the additional benefits described in his employment
agreement for one year following the date of termination.
Mr. Sillman’s severance payment in the event of
termination for Poor Performance would equal the sum of
(a) his annual base salary through the last day of
employment, and (b) a single cash payment equal to the
guaranteed minimum annual compensation under his employment
agreement.
Deferred Compensation Plan
During fiscal year 2005, directors and certain officers and
employees of Indymac and Indymac Bank were eligible to
participate in Indymac’s Deferred Compensation Plan. Under
the deferred compensation plan, employee participants were
allowed to defer up to 25% of base salary and up to 100% of
total cash bonus or commissions, and non-employee director
participants were allowed to defer up to 50% of director fees
and 100% of restricted stock.
Under the Deferred Compensation Plan, participants must defer at
least an annual minimum amount of $2,000 for a number of years
designated by each participant. Participants may choose a
short-term payout, with a minimum deferral period of five years,
a retirement payout, with either a lump sum paid out at
retirement, or annual payments over five years, ten years,
15 years or 20 years following retirement. This
initial election is irrevocable. However, under the retirement
election, participants may elect at least one year prior to
retirement to further defer the payment at least five years
following the original payment date elected. If a participant is
terminated prior to the payout date(s) elected, at the sole
discretion of Indymac’s Employee Benefits Fiduciary
Committee, the participant will receive either a lump sum
distribution or monthly installments for up to 15 years,
depending on the account balance on the termination date.
At the discretion of Indymac and Indymac Bank, each employer may
match a percentage of participant deferrals. However, Indymac
suspended the employer match starting in 2003. Participants vest
in the employer match amounts in 20% increments for each year of
service completed, with participants being fully vested after
five years of service.
For fiscal year 2005, the Deferred Compensation Plan provided a
return of 5.90%. The rate of return provided by the Deferred
Compensation Plan is reset by Indymac Bank on an annual basis
and is based on an estimate of the required rate of return for
long-term senior unsecured debt of Indymac Bank. For fiscal year
2005, eligible participants included the top 5% of the most
highly compensated employees of Indymac Bank and its
subsidiaries and affiliates, in addition to all senior vice
presidents and above and the directors of Indymac and Indymac
Bank.
20
The following table sets forth certain information concerning
the contributions, earnings, withdrawals/distributions and
balance under Indymac’s Deferred Compensation Plan for the
named executive officers. Indymac does not maintain any other
nonqualified defined contribution plan.
Aggregate
Executive
Registrant
Aggregate
Balance at
Contributions in
Contributions
Earnings in
Aggregate
Last
Last Fiscal Year
in Last Fiscal
Last Fiscal
Withdrawals/
FY-End
Name
($)(1)
Year($)
Year ($)(2)
Distributions ($)(3)
($)(4)
Michael W. Perry
$
0
$
0
$
401,215
$
283,601
$
6,991,401
Richard H. Wohl
0
0
126,320
0
2,204,963
S. Blair Abernathy
364,749
0
68,161
164,466
1,386,727
Ashwin Adarkar
253,155
0
11,478
0
365,232
Scott Keys
20,000
0
10,670
0
207,916
Frank M. Sillman
346,480
0
53,992
0
1,103,578
(1)
Amounts reported are included in the Bonus column of the Summary
Compensation Table for 2005 for Messrs. Adarkar, Keys and
Sillman, and are included in the Salary and Bonus columns of the
Summary Compensation Table for 2005 for Mr. Abernathy
($112,575 in the Salary column and $252,174 in the Bonus column).
(2)
Amounts reported are included in the Other Annual Compensation
column of the Summary Compensation Table for 2005. See
footnote 2 to the Summary Compensation Table.
(3)
Amounts reported were included as compensation to
Messrs. Perry and Abernathy in the Summary Compensation
Table for previous years.
(4)
Aggregate Balance equals each officer’s vested balance
except for Messrs. Perry, Wohl and Keys, who had vested
balances at December 31, 2005 of $5,465,954, $1,472,748 and
$155,498, respectively.
Compensation Committee Report on Executive Compensation
General
Compensation for the executive officers of Indymac is
administered under the direction of the Management Development
and Compensation Committee of the Board of Directors, also
referred to as the Compensation Committee. The Compensation
Committee is currently composed of Messrs. Ukropina,
Caldera and Seymour. Each committee member is a non-employee,
independent director of Indymac.
Indymac’s executive compensation program generally consists
of three main components:
•
base compensation;
•
annual cash incentive compensation; and
•
equity-based compensation to provide long-term incentives for
performance and to align executive officer and stockholder
interests.
Indymac’s philosophy regarding executive compensation is
that it should attract, motivate and retain the executives
needed in order to maximize the creation of long-term
stockholder value. The
21
factors historically used by the Compensation Committee to
assess compensation of executive officers include:
•
the responsibilities of the executive officers with Indymac;
•
the achievement of individual business objectives established
within 90 days of the beginning of each fiscal year;
•
the business unit and overall performance of Indymac, including
earnings per share for the applicable fiscal year and the
percentage change in earnings per share from the prior fiscal
year;
•
the amount, form and timing of prior compensation
amounts; and
•
compensation levels of executives with comparable positions in a
peer group of financial services companies.
The Compensation Committee consults with outside compensation
consultants and reviews market survey data as deemed appropriate
in its assessment of executive compensation. The Compensation
Committee reviewed and approved the total compensation paid to
Mr. Perry for 2005, including base salary, cash incentive
compensation, deferred compensation, perquisites, and reimbursed
and company paid expenses, and determined the total amount to be
reasonable. The Compensation Committee also reviewed and
approved the base salary and cash incentive compensation paid to
Messrs. Wohl, Abernathy, Adarkar, Keys and Sillman for 2005
and determined the amounts to be reasonable.
The Compensation Committee of the Board of Directors has adopted
stock ownership requirements for Indymac’s executive
officers. The requirements specify that Indymac’s Chief
Executive Officer, with tenure of more than five years, is
expected to own Common Stock (including 70% of the net value of
vested stock options) with a value equal to five times his
annual base salary. All other executive officers of Indymac are
expected to own Common Stock (including 70% of the net value of
vested stock options) with a value equal to two times each of
their base salaries if their tenure is five or more years and
equal to each of their base salaries if their tenure is more
than three years but less than five years. Although these stock
ownership requirements do not mandate the purchase of Common
Stock, any executive officer who has not met the ownership
requirements is expected to refrain from selling any Common
Stock until he or she has met the ownership requirements.
Currently all of the executive officers, including
Mr. Perry, meet or exceed these requirements.
Compensation of
Mr. Perry
During 2005, compensation for Mr. Perry was determined
pursuant to his employment agreement executed in February 2002.
Mr. Perry’s employment agreement provides that
Mr. Perry is eligible for annual incentive compensation of
up to 100% of his base salary, with target annual incentive
compensation of at least 50% of his base salary, depending upon
the attainment of financial, strategic and regulatory objectives
established by the Compensation Committee in consultation with
Mr. Perry. For 2005, Mr. Perry’s incentive
compensation was based upon a financial matrix relating to
Indymac’s earnings per share and return on equity, subject
to adjustment based on the Compensation Committee’s
assessment of Mr. Perry’s accomplishment of specific
strategic and regulatory criteria
22
that were established by the Compensation Committee in the first
quarter of 2005. In connection with the Compensation
Committee’s review of Mr. Perry’s incentive
compensation for 2005, it also reviewed Mr. Perry’s
total compensation as set forth in the tally sheet set forth
below. Based on its review of Mr. Perry’s incentive
compensation criteria and his total compensation set forth
below, the Compensation Committee awarded Mr. Perry
incentive compensation in the amount of $1,000,000 for 2005.
Component
Amount Earned/Granted
Description
Base Salary
$1,000,000
Based on current employment agreement.
Annual Cash Incentive
Target: $1,000,000 Earned: $1,000,000
Based on three components: 1) matrix based on 2005 Earnings Per
Share and Return on Equity, 2) CAMELS rating or material
weakness (can only lower amount determined by matrix), 3)
strategic adjustment based on criteria such as development of a
succession plan, leadership, quality of earnings, quality and
effectiveness of enterprise risk management, and quality of
relationships with regulatory agencies (can only lower amount
determined by matrix).
Stock Options
Number Granted: 1,000,000 Exercise Price: $25.02 Vesting: 20% per year starting 12/31/02 Grant Value: $8,290,000
Grant in May 2002 pursuant to employment agreement and intended
to cover term of agreement. Grant value based on options granted
times Black-Scholes value of options on grant date ($8.29/share)
Restricted Stock
None
Performance Shares
Number Granted: 500,000 Exercise Price: $25.02 Vesting: 100% on seventh anniversary of
grant date (05/01/09). Accelerated upon achievement of stated
share price targets. Grant Value: $4,145,000
Performance-based option granted under Mr. Perry’s
employment agreement in May 2002 to purchase 500,000 shares of
Common Stock at an exercise price equal to the fair market value
of the Common Stock on the grant date. This performance-based
option was cancelled at Mr. Perry’s request in August
2002 to ensure the availability of sufficient shares of
Common Stock for future grants of options to other officers and
employees of Indymac. Mr. Perry did not receive another
stock option grant or any other compensation in lieu of the
cancelled option.
23
Component
Amount Earned/Granted
Description
Deferred Compensation
Executive Contributions: $0 Company Match: $0 Interest Earned: $401,215 Accumulated Executive Contributions:
$1,322,918 Accumulated Company Match: $181,172 Accumulated Interest Earned: $1,412,589 Accumulated Special Company
Contribution: $5,000,000
During fiscal year 2005, employee participants were allowed to
defer up to 25% of base salary and up to 100% of total cash
bonus or commissions. For fiscal year 2005, neither Indymac nor
Indymac Bank provided an employer match, and the Deferred
Compensation Plan provided a return of 5.90%. The rate of return
provided by the Deferred Compensation Plan is reset by Indymac
Bank on an annual basis and is based on an estimate of the
required rate of return for long-term senior unsecured debt of
Indymac Bank. As of December 31, 2005, 75% of
Mr. Perry’s Special Company Contribution is vested.
Supplemental Retirement
Benefit
None
401(K) Plan
Company Match: $6,300
Executive Perquisites
Car Allowance: $13,200 Club Dues: $21,487 Executive Medical Program: $3,750 Financial & Tax Planning: $15,028 Term Life Insurance Premiums: $1,680
Reimbursement of Taxes
Financial & Tax Planning: $10,927
Severance Associated with Change-in- Control
2002 Option Grant of 1,000,000 shares (and any other equity
grant) will fully vest on the first anniversary of Change in
Control (if not already vested)
$6,000,000
If terminated within two years after a Change in Control other
than for Cause, Disability or Good Reason, severance presently
would be a $6,000,000 lump sum amount based on three times sum
of base salary and higher of target bonus on termination date or
at time of Change in Control.
Pro rated bonus for year terminated. Immediate vesting of outstanding equity
grants; exercisable until earlier of 12 months following
termination date or full-term expiration date. Immediate vesting of amounts in deferred
compensation plan, payable in accordance with distribution
election. Health & welfare benefits for CEO and
family based on what was being provided prior to termination
date for three years following termination date.
24
Component
Amount Earned/Granted
Description
Severance Associated with Termination “For Cause”
No severance
Severance Associated with Termination “Not For Cause”
or “Good Reason”
$5,000,000
2.5 times sum of base salary and target annual bonus in effect
on termination date.
Pro rated bonus for year terminated.
Immediate vesting of outstanding equity grants; exercisable
until earlier of 12 months following termination date or
full-term expiration date.
Immediate vesting of amounts in deferred compensation plan,
payable in accordance with distribution election.
Health & welfare benefits for CEO and family based on what
was being provided prior to termination date for two years
following termination date.
Post Retirement Package
None
Total Package For 2005
$2,473,587
Total package for 2005 includes 2005 total compensation. It
does not include the 2002 stock option grant, the accumulated
deferred compensation balances or the severance amounts noted
under the various termination scenarios.
Compensation of Other Named Executive Officers
Compensation for 2005 for Mr. Wohl was determined pursuant
to the terms of his employment agreement. For 2005,
Mr. Wohl’s cash incentive compensation was based upon
specific objective performance metrics of Indymac Bank
established by the Compensation Committee in the first quarter
of 2005. For 2005, Mr. Wohl’s cash incentive
compensation was based upon net income and return on equity of
the businesses Mr. Wohl manages. Based on its review of
these criteria, the Compensation Committee awarded Mr. Wohl
cash incentive compensation in the amount of $607,500 for 2005.
Compensation for 2005 for Mr. Abernathy was determined
pursuant to the terms of his employment agreement. For 2005,
Mr. Abernathy’s cash incentive compensation was based
primarily upon specific objective performance metrics of Indymac
Bank established by the Compensation Committee in the first
quarter of 2005. For 2005, those performance metrics were based
on the net income and return on equity of the businesses
Mr. Abernathy manages. Based on these criteria,
Mr. Abernathy received cash inventive compensation in the
amount of $329,165 for 2005. An additional portion of
Mr. Abernathy’s cash incentive compensation was based
upon other specific performance measures related to his areas of
responsibility, and he was awarded supplemental cash incentive
compensation in the amount of $175,184 for 2005 in connection
with these measures.
Compensation for 2005 for Messrs. Adarkar, Keys and Sillman
was determined pursuant to the terms of their respective
employment agreements. Messrs. Adarkar’s, Keys’
and Sillman’s incentive compensation of $506,311, $250,000
and $692,960, respectively, was based upon specific performance
25
measures related to each officer’s area of responsibility
and determined in accordance with the terms of his employment
agreement.
Stock Awards
Messrs. Perry and Wohl did not receive stock awards during
2005 and have not received any stock awards since 2002. The
Compensation Committee granted stock awards to
Messrs. Abernathy, Adarkar, Keys and Sillman pursuant to
Indymac’s 2002 Plan and the terms of their employment
agreements. In accordance with the annual stock award grant
terms of their respective employment agreements, the
Compensation Committee took into account each executive’s
performance and the performance of Indymac in meeting earnings
per share goals. Based upon the foregoing, each of
Messrs. Abernathy, Adarkar, Keys and Sillman were granted
an option to purchase 24,230; 58,493; 37,130; and
29,957 shares of Common Stock, respectively. Additionally,
in connection with the 2005 annual stock award grant, each of
the executive officers of Indymac was allowed to elect to
receive a restricted stock grant in lieu of a stock option for a
portion of each officer’s annual stock award. Pursuant to
this election, Messrs. Abernathy and Sillman elected to
receive a portion of their respective annual stock awards in
restricted stock, and each of them received a grant of
restricted stock for 5,778 and 4,981 shares of Common
Stock, respectively. The stock options vest in equal parts on
the first three anniversaries of their respective grant dates,
and the restricted stock vests on the third anniversary of the
grant date.
Deductibility of
Compensation
Section 162(m) of the Code limits the corporate deduction
for compensation paid to the executive officers named in the
Summary Compensation Table to $1 million unless the amount
by which such compensation exceeds the $1 million threshold
is based upon performance goals that are subject to stockholder
approval (“performance-based compensation”).
Messrs. Perry, Wohl and Abernathy each received cash
compensation in excess of $1 million in 2005. The
Compensation Committee believes that all incentive compensation
paid to Messrs. Perry and Wohl qualifies as
performance-based compensation. A portion of the incentive
compensation paid to Mr. Abernathy (including the amounts
attributable to new corporate responsibilities he assumed during
the latter half of 2005) does not qualify as performance-based
compensation. Accordingly, $75,137, the amount of
Mr. Abernathy’s total compensation in excess of
$1 million for 2005, is not deductible by Indymac.
The Compensation Committee’s policy on deductibility is
generally to develop compensation plans that provide for the
payment of compensation that is tax deductible to Indymac, while
recognizing that the legitimate interests of Indymac and its
stockholders may at times be better served by compensation
arrangements that may not be fully deductible.
The Compensation Committee
James R. Ukropina, Chairman
Louis E. Caldera
Senator John Seymour (ret.)
26
Compensation Committee Interlocks and Insider
Participation
During 2005, Messrs. Caldera, Seymour and Ukropina served
as members of the Compensation Committee. No member of the
Compensation Committee was, during the year, an officer or
employee of Indymac, nor was any member of the Compensation
Committee formerly an officer of Indymac. In addition, no
executive officer of Indymac served during 2005 as a member of
the compensation committee or board of directors of another
entity, one of whose executive officers served on the
Compensation Committee or as a member of the compensation
committee of another entity, one of whose executive officers
served on the Board of Directors of Indymac.
Certain Transactions and Business Relationships
From time to time, certain directors and executive officers of
Indymac and its subsidiaries, and family members of such
persons, were indebted to Indymac Bank as customers in
connection with mortgage loans and other extensions of credit by
Indymac Bank. These transactions were in the ordinary course of
business and were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated persons, except that
for some loan products interest rates charged were the same as
the lowest interest rates charged other persons or were more
favorable to directors and executive officers of Indymac and its
subsidiaries than to other persons. None of these loans have
involved more than the normal risk of collectibility or
presented other unfavorable features. In addition, directors,
officers and employees of Indymac and its subsidiaries are
entitled to receive certain discounts or waivers of fees or
commissions for certain products and services offered by Indymac
Bank.
Indymac has a special loan program for senior officers to assist
them in relocating to the Pasadena area. For senior officers who
are eligible for the program, Indymac will extend a second
mortgage loan in an amount up to $500,000, secured by the senior
officer’s home. Pursuant to the terms of the loan, no
interest or principal is due unless the senior officer’s
employment is terminated for any reason, at which point the
interest rate is modified and interest and principal payments
are calculated to ensure payment in full on the maturity date.
Each loan is forgiven over a four or five year period, with 25%
or 20%, as applicable, being forgiven on each of the first four
or five anniversaries of the origination date. In compliance
with the Sarbanes-Oxley Act of 2002, which prohibits loans from
Indymac to executive officers, this loan program is no longer
offered to Indymac’s executive officers. Indymac extended
loans to executive officers under this program prior to the
enactment of the Sarbanes-Oxley Act of 2002, and pursuant to the
grandfather provisions of such law, these loans may remain
outstanding (so long as they are not modified) until maturity.
The total amount of loans outstanding under this loan program as
of December 31, 2005 was $1,398,126.
Indymac also had a special loan program to assist senior
officers with initiation fees for country club memberships to be
used for business purposes. The loan program was discontinued in
July 2002. Pursuant to the terms of the outstanding loans, the
loans bear no interest and no principal is due unless the senior
officer’s employment is terminated or he/she relinquishes
the membership, at which point, the lesser of the value of the
membership or the entire principal amount is due and payable.
Indymac extended loans to executive officers under this program
prior to the enactment of the Sarbanes-Oxley Act of 2002, and
pursuant to the grandfather provisions of such law, these loans
may remain outstanding (so long as they are not modified) until
maturity. The total amount of loans outstanding under this loan
program as of December 31, 2005 was $287,788.
27
The following table sets forth information concerning loans
outstanding to Indymac executive officers under the two loan
programs described above.
The loan is currently at a 0% interest rate and is being
forgiven over a five-year period that will end in February 2007.
Stated interest on the loan is 9.625%, and in the event
Mr. Keys’ employment is terminated, interest
sufficient to ensure payment of all interest and principal by
the maturity date will be applied.
During 2005, certain family members of Messrs. Perry, Haden
and Sillman worked for Indymac or one of its subsidiaries or
affiliates as set forth in the following table. None of
Messrs. Perry’s and Haden’s family members
resided in their respective households during the year. Neither
Mr. Perry nor Mr. Sillman was involved in the direct
management of their respective family members. Indymac’s
general policy is to hire employees based on each
employee’s qualifications for the position for which the
employee is considered regardless of the employee’s
relationship to directors, officers or employees of Indymac and
its subsidiaries and affiliates. Additionally, Indymac
compensates all employees in accordance with the compensation
parameters established for each position, with increases based
solely on merit.
Total Cash
Officer/Director
Family Member
Title
Salary
Bonus
Commission
Other
Compensation
Mike Perry
Bob Perry
Independent Building
$
0
$
0
$
0
$
66,040
$
66,040
(father)(1)
Inspector
Roger Perry
Lending Officer for
75,850
0
224,786
0
300,636
(brother)
Home Builder Division
Jeanne Telvig Moe
Business Development
36,000
0
115,922
0
151,922
(sister-in-law)
Manager for the Mortgage Professionals Group
Annie Welch
First Vice President,
120,000
110,934
0
0
230,934
(cousin)
Operations, for Home Construction Lending
Frank Sillman
Michelle Minier
Executive Vice
298,909
435,000
0
0
733,909
(wife)
President, Centralized Mortgage Operations
Patrick Haden
Natalie Haden
Customer Specialist
9,920
0
2,750
0
12,670
(daughter)(2)
for the Mortgage Professionals Account Development Group
(1)
Mr. Perry is an independent building inspector who is hired
by Indymac Bank’s Homebuilder division from time to time at
standard market rates to inspect properties that secure Indymac
Bank construction loans. Indymac Bank was reimbursed for the
indicated amount through fees paid by the subject borrowers.
(2)
Ms. Haden terminated her employment as of June 1, 2005.
Under Section 16(a) of the Securities Exchange Act of 1934
Indymac’s directors and executive officers are required to
report their ownership of and transactions in Common Stock to
the Securities and Exchange Commission and the New York Stock
Exchange. Copies of these reports are also required to be
supplied to Indymac. Specific dates for filing these reports
have been established by the Securities and Exchange Commission,
and Indymac is required to report in this Proxy Statement any
failure of its directors and executive officers to file by the
relevant due date any of these reports during 2005. Based solely
on its review of the copies of the reports prepared or received
by it, Indymac believes that all such filing requirements were
satisfied, except that Mr. Sillman reported shares held in
his Indymac 401(k) Plan account late, as a result of an error by
Indymac.
CORPORATE GOVERNANCE
General
Indymac adopted formal corporate governance standards in January
2002 and the Nominating and Governance Committee of the Board of
Directors reviews those standards annually to ensure they
incorporate recent corporate governance developments and
generally meet the corporate governance needs of Indymac. You
may obtain the Board of Directors’ Guidelines for Corporate
Governance Issues and the charters of each of the Board’s
committees, including the Audit Committee, Enterprise Risk
Management Committee, Management Development and Compensation
Committee, Nominating and Governance Committee and Strategic and
Financial Planning Committee by accessing the “Corporate
Governance” subsection of the “Investors” section
of www.IndymacBank.com, or by writing to Indymac’s
Corporate Secretary at IndyMac Bancorp, Inc., 888 East Walnut
Street, Pasadena, California91101. The Audit Committee’s
recently revised charter is also attached to this Proxy
Statement as Annex A.
As of February 28, 2006, Institutional Shareholder
Services, Inc. ranked Indymac’s governance at the
99th percentile of its industry group and at the
92nd percentile of the S&P 400 group, meaning that
Indymac outperformed 99% of the companies in the bank group and
92% of the companies in the S&P 400 Index.
Director Independence and Presiding Director
The Nominating and Governance Committee of the Board of
Directors has adopted criteria and procedures for evaluating the
independence of Indymac’s directors based on the listing
standards of the New York Stock Exchange. Pursuant to these
procedures, the Board undertook its annual review of director
independence in January 2006. During this review, the Board
considered relationships and transactions during the past three
years between each director or any member of his or her
immediate family and Indymac and its subsidiaries and
affiliates, including those reported under “Certain
Transactions and Business Relationships”. The purpose of
the review was to determine whether any such relationships or
transactions were inconsistent with a determination that the
director is independent.
Based on the review, the Board of Directors affirmatively
determined that Messrs. Caldera, Gramley, Grant, Haden,
Hodel, Hunt, Seymour and Willison, constituting all of the
directors nominated for election at the Annual Meeting other
than Mr. Perry, Indymac’s Chairman of the
29
Board and Chief Executive Officer, are independent of Indymac
and its management under the criteria established by the
Nominating and Governance Committee of the Board, which equals
89% of the Board-elect.
The Board of Directors’ Guidelines for Corporate Governance
Issues require the Board to appoint a presiding director who is
an independent director and is to be selected from among the
Chairmen of the Audit Committee, the Compensation Committee and
the Nominating and Governance Committee. The Board appointed
Mr. Grant, Chairman of the Audit Committee, to the
presiding director position to serve until Indymac’s 2006
Annual Meeting. As presiding director, Mr. Grant chairs the
executive sessions of the Board meetings, in which the Board
meets without the Chairman and Chief Executive Officer and other
officers of Indymac. The Board of Directors met in executive
session at seven of its nine meetings in 2005.
Communicating with the Presiding Director and the Board
You may communicate with the presiding director or the Board as
a group by writing to Presiding Director, IndyMac Bancorp, Inc.,
888 East Walnut Street, Pasadena, California91101.
Communications to specific non-management directors may be
submitted to the attention of the Corporate Secretary at the
same address. The Corporate Secretary will regularly forward to
the Board a summary or copies of all such correspondence that,
in the opinion of the Corporate Secretary, relates to the
functions of the Board or committees thereof or that she
otherwise determines requires their attention. Directors may at
any time request copies of any correspondence so summarized.
Alternatively, a director may request that all correspondence
addressed to him or her be forwarded to him or her. Concerns
relating to accounting, internal controls or auditing matters
may be communicated in this manner, or may be submitted via the
Accounting/ Audit link under the “Contact Us” section
of www.IndymacBank.com. These concerns are immediately brought
to the attention of Indymac’s internal audit department and
handled in accordance with procedures established by the Audit
Committee with respect to such matters.
Audit Committee Financial Experts
Pursuant to the applicable rules of the Securities and Exchange
Commission, the Board undertook a review of the qualifications
and expertise of the Audit Committee members in January 2006.
Based on this review, the Board of Directors has determined that
Messrs. Grant, Hunt and Ukropina, all of the members of the
Audit Committee, are “audit committee financial
experts,” as defined by the Securities and Exchange
Commission rules.
Consideration of Stockholder Candidates and Selection
Criteria
The Nominating and Governance Committee will consider candidates
recommended by stockholders of Indymac for nomination for
election to the Board of Directors at Indymac’s Annual
Meeting. A stockholder who wishes to recommend a candidate for
nomination to the Board of Directors must submit such
recommendation to the Corporate Secretary of Indymac in
accordance with the Nominating and Governance Committee’s
Policy and Guidelines on Director Candidates Recommended by
Stockholders, which requires such notice be delivered to and
received no later than one hundred twenty (120) days prior
to the anniversary date of the mailing of the proxy statement in
30
connection with the previous year’s annual meeting. All
such recommendations will be forwarded by the Corporate
Secretary to the chairman of the Nominating and Governance
Committee.
All stockholder recommendations of candidates for nomination for
election to Indymac’s Board must be in writing and must set
forth as to each director candidate recommended the following:
(1) name, age, business address and residence address of
the individual; (2) the principal occupation or employment
of the individual during the five-year period preceding the date
of the recommendation; (3) the class and number of shares
of capital stock of Indymac that are owned beneficially or of
record by the individual; (4) any other information
relating to the individual that would be required to be included
in a proxy statement prepared in connection with the
solicitation of proxies for an election of directors pursuant to
applicable law and regulations. Certain information as to the
stockholder providing the recommendation must be included, such
as, the name and address of the stockholder and the class and
number of shares of capital stock of Indymac which are owned
beneficially or of record by the stockholder. Each
recommendation must be accompanied by the written consent of
each individual recommended, which must include a statement that
if the individual were to be nominated and elected the
individual would serve as a director of Indymac and permission
to investigate the individual for purposes of considering the
individual as a director nominee.
The Nominating and Governance Committee will consider
prospective nominees for the Board of Directors based on the
need for additional Board members to fill vacancies or to expand
the size of the Board. Once the Nominating and Governance
Committee has identified a prospective nominee, the Committee
makes an initial determination as to whether to conduct a full
evaluation of the candidate. This initial determination is based
on whatever information is provided to the Committee with the
recommendation of the prospective candidate, as well as the
Committee’s own knowledge of the prospective candidate,
which may be supplemented by inquiries to the stockholder making
the recommendation. The Committee then evaluates the prospective
nominee against the standards and qualifications set forth in
Indymac’s Guidelines for Corporate Governance Issues,
including relevant experience, industry expertise, intelligence,
independence, diversity of background and outside commitments.
Stockholders may also make nominations of persons for election
to the Board of Directors at the annual meeting in accordance
with the Bylaws of Indymac, if the stockholder provides notice
of such nomination to the Corporate Secretary (1) not less
than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders and (2) in the form required by the Bylaws of
Indymac. No stockholder nominations of persons for election to
the Board of Directors were received in connection with the 2005
Annual Meeting.
Director and Executive Officer Stock Ownership Policies
The Nominating and Governance Committee and the Compensation
Committee of the Board of Directors have adopted stock ownership
requirements for Indymac’s directors and executive
officers. The requirements specify that directors who have
served on the Board for at least three years are expected to own
Common Stock (including 70% of the net value of vested stock
options) with a value equal to three times the annual Board
retainer fee. Indymac’s Chief Executive Officer, with
tenure of more than five years, is expected to own Common Stock
(including 70% of the net value of vested stock options) with a
value equal to five times his annual base salary. All other
executive officers of Indymac are expected to own Common Stock
(including 70% of the net value of vested stock options)
31
with a value equal to two times each of their base salaries if
their tenure is five or more years and equal to each of their
base salaries if their tenure is more than three years but less
than five years. Although these stock ownership requirements do
not mandate the purchase of Common Stock, any director or
executive officer who has not met the ownership requirements is
expected to refrain from selling any Common Stock until he or
she has met the ownership requirements. Currently all of the
directors, including Mr. Perry, in his capacity as Chief
Executive Officer, meet or exceed these requirements.
Code of Business Conduct and Ethics
Indymac has a Code of Business Conduct and Ethics that is
applicable to all employees, officers and directors of Indymac,
including the principal executive officer, the principal
financial officer and the principal accounting officer. You may
obtain the Code of Business Conduct and Ethics by accessing the
“Corporate Governance” subsection of the
“Investors” section of www.IndymacBank.com, or free of
charge by writing to Indymac’s Corporate Secretary at
IndyMac Bancorp, Inc., 888 East Walnut Street, Pasadena,
California91101. Indymac intends to post amendments to or
waivers from the Code of Business Conduct and Ethics (to the
extent applicable to Indymac’s principal executive officer,
principal financial officer or principal accounting officer) at
this location on its website.
32
AUDIT COMMITTEE MATTERS
Audit Committee Report
Management is responsible for Indymac’s internal controls
and the financial reporting process. The independent auditors
are responsible for performing an independent audit of
Indymac’s consolidated financial statements in accordance
with the standards of the Public Company Accounting Oversight
Board and to issue a report thereon. The Audit Committee’s
responsibility is to monitor and oversee these processes, but
the Audit Committee is not responsible for preparing
Indymac’s financial statements or auditing those financial
statements, which are the responsibilities of management and the
independent auditors, respectively.
The Audit Committee has reviewed with Ernst & Young
LLP, who, as Indymac’s independent auditors, are
responsible for expressing an opinion on the conformity of the
audited financial statements with generally accepted accounting
principles, Ernst & Young LLP’s judgment as to the
quality, not just the acceptability, of Indymac’s
accounting principles and such other matters as are required to
be discussed with the Audit Committee under generally accepted
auditing standards. The Audit Committee has also discussed with
Indymac’s internal auditors and Ernst & Young LLP
the overall scope and plans for their respective audits. The
Audit Committee meets separately with the internal auditors and
the independent auditors (without management present) to discuss
the results of their examinations, their evaluations of
Indymac’s internal controls and the overall quality of
Indymac’s financial reporting.
In the context of the foregoing, the Audit Committee has
reviewed the audited consolidated financial statements of
Indymac for the fiscal year ended December 31, 2005 with
management. In connection with that review, management
represented to the Audit Committee that Indymac’s
consolidated financial statements were prepared in accordance
with generally accepted accounting principles.
The Audit Committee has reviewed management’s report on its
assessment of internal controls over financial reporting, as
required under the Sarbanes-Oxley Act of 2002 and the FDIC
Improvement Act of 1991. In its report, management provided a
positive assertion that internal controls over financial
reporting were in place and operating effectively as of
December 31, 2005. The Audit Committee also has reviewed
with Ernst & Young LLP its attestation report on
management’s assertions.
The Audit Committee has discussed the consolidated financial
statements with Ernst & Young LLP and it also has
discussed with Ernst & Young LLP the matters required
to be discussed by the Statement on Auditing Standards
No. 61 (Communication with Audit Committees) and the New
York Stock Exchange rules relating to the conduct of the audit.
The Audit Committee also has received written disclosures and a
letter from Ernst & Young LLP regarding its
independence from Indymac as required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit
Committees), has discussed with Ernst & Young LLP the
independence of the firm, and has considered all of the above
communications as well as all audit, audit-related and non-audit
services provided by Ernst & Young LLP. In reliance
upon the foregoing, the Audit Committee has determined that
Ernst & Young LLP are independent auditors with respect
to Indymac within the meaning of the federal securities laws and
the rules and regulations thereunder and Rule 3600T of the
Public Company Accounting Oversight Board, which designates as
interim independence standards
33
Rule 101 of the American Institute of Certified Public
Accountants’ Code of Professional Conduct and Standards
Nos. 1, 2 and 3 of the Independence Standards Board. In
connection with Ernst & Young LLP’s audit of
Indymac’s consolidated financial statements, Indymac
entered into an engagement agreement with Ernst & Young
LLP, which set forth the terms by which Ernst & Young
LLP will perform audit services for Indymac. That agreement is
subject to alternative dispute resolution procedures and Indymac
is required not to seek punitive damages if it were to assert a
claim against Ernst & Young LLP.
All three members of the Audit Committee have been determined by
the Board of Directors of Indymac to be independent directors
and financial experts as more fully described in “Corporate
Governance”. The oversight and other responsibilities of
the Audit Committee are described in the Audit Committee’s
recently revised Charter, which is attached to this Proxy
Statement as Annex A.
In reliance upon the above materials and discussions, the Audit
Committee has recommended to the Board of Directors that the
audited financial statements be included in Indymac’s
Annual Report on
Form 10-K for the
fiscal year ended December 31, 2005.
The Audit Committee
Hugh M. Grant, Chairman
Robert L. Hunt II
James R. Ukropina
Fees of Principal Accountants
The Audit Committee, in its capacity as a committee of the
Indymac Board of Directors, is directly responsible for the
appointment, compensation, retention and oversight of
Indymac’s independent auditors. The Audit Committee is
required to approve all engagements with the independent
auditors, including both audit services and non-audit services
prior to such services being rendered. The Audit Committee has
delegated to the Audit Committee Chairman the ability to
pre-approve non-audit service engagements with the independent
auditors involving fees of up to $100,000 per engagement.
Any such services pre-approved by the Chairman are to be
reported at the next full Audit Committee meeting. In approving
such non-audit services, the Audit Committee (or Chairman when
applicable) considers whether the proposed services are
prohibited under current law or regulations. The Audit Committee
(or Chairman when applicable) must, in order to approve the
proposed non-audit services, also be of the opinion that the
proposed services, both individually and collectively with all
other provided services, will not impair the independence of the
independent auditors relative to the financial statement audit
opinion discussed above. The Audit Committee also receives
assurances from the independent auditors for every proposed
engagement that the independent auditors believe that the
proposed engagement is not a prohibited service under applicable
laws and regulations and that the proposed service will not
impair the auditors’ independence relative to their audit
opinion regarding Indymac’s financial statements.
34
The following table sets forth the aggregate fees agreed upon
with and/or billed to Indymac for the fiscal years ended
December 31, 2005 and 2004 by Ernst & Young LLP.
Type of Fee
2005
2004
Audit Fees(1)
$
1,597,000
$
1,510,000
Audit Related Fees(2)(3)
310,000
720,000
Tax Fees(2)(4)
320,000
284,000
All Other Fees(2)(5)
0
234,000
(1)
Includes the fees for the audit of Indymac’s annual
financial statements and the review of the financial statements
included in Indymac’s
Form 10-Qs for the
fiscal year.
(2)
The Audit Committee has considered whether the provision of the
services relating to these fees is compatible with maintaining
the auditors’ independence. None of the services relating
to these fees were rendered pursuant to a waiver of the
Committee’s pre-approval procedures.
(3)
Includes fees for accounting consultations, due diligence for
securitizations, acquisitions and other transactions, and audits
of the employee benefit plans.
(4)
Includes fees relating to implementation of a payroll company
tax strategy, state tax planning and other tax-related strategic
initiatives, as well as the preparation of tax returns.
(5)
Includes fees for all services not included in the other three
categories listed. The fees in 2004 were primarily related to IT
risk assessment services.
PROPOSAL ONE
ELECTION OF DIRECTORS
Indymac currently has ten directors. All of them, except for
Mr. Ukropina, are nominees for election as directors to
serve until the next annual meeting and until their successors
are elected and have qualified. Mr. Ukropina has announced
his retirement from the Board effective on the day of the annual
meeting. Following the annual meeting, Indymac will have nine
directors. Mr. Willison, who was appointed to the Board of
Directors after the last election of directors, was initially
recommended to the Nominating and Governance Committee of the
Board by Mr. Perry, the Chairman and Chief Executive
Officer of Indymac. In the absence of contrary instructions, it
is the intention of the proxy holder named in the accompanying
proxy card to vote for the nominees listed below. If any nominee
becomes unavailable to serve for any reason, an event the Board
of Directors does not anticipate, the proxies solicited hereby
will be voted for election of the person, if any, designated by
the Board of Directors to replace that nominee. Pursuant to the
terms of Mr. Perry’s employment agreement, if
Mr. Perry is not elected to the Board of Directors and
appointed Chairman, he may terminate his employment agreement
for Good Reason with Indymac.
Director Nominees
The following persons have been nominated to serve as directors
of Indymac for the ensuing year, each of whom has agreed to
serve as director until the next annual meeting if elected:
Michael W. Perry, age 43, is Chairman of the Board
of Directors and Chief Executive Officer of Indymac and Indymac
Bank. He has been a director of Indymac since October 1997 and
served as Vice Chairman of the Board of Directors of Indymac and
Indymac Bank from March 2000 until
35
February 2003 when he was appointed Chairman of the Board of
Directors of Indymac and Indymac Bank following the retirement
of David S. Loeb, the former Chairman of both Indymac and
Indymac Bank. Mr. Perry has been with Indymac since January
1993 and previously served as President of Indymac from January
1997 to February 1999, and Chief Operating Officer from January
1993 to January 1997. Mr. Perry has direct responsibility
for the management of Indymac and its subsidiaries. From May
1987 to December 1992, he served in various positions with
Commerce Security Bank, including as Senior Executive Vice
President in charge of the Mortgage Banking Division and as
Chief Financial Officer. After graduating with honors from
California State University, Sacramento, and prior to joining
Commerce Security Bank, Mr. Perry was an auditor and
Certified Public Accountant for a period of four years with KPMG
Peat Marwick LLP.
Louis E. Caldera, age 49, has been a director of
Indymac since May 2002. He is also a director of Indymac Bank.
Since August 2003, Mr. Caldera has served as President of
the University of New Mexico and as a Professor of Law. Prior to
this appointment, commencing in 2001, Mr. Caldera served as
Vice Chancellor for University Advancement of The California
State University System. Mr. Caldera held two appointed
posts in the Clinton administration — Secretary of the
Army from 1998 to 2001 and Managing Director and Chief Operating
Officer of the Corporation for National and Community Service
from 1997 to 1998. Mr. Caldera served three terms in the
California State Assembly, from 1992 to 1997, representing the
46th District. Prior to his election to the Assembly, he
worked as a deputy county counsel for the County of Los Angeles
and as an attorney in private practice, including at the law
firm of O’Melveny & Myers LLP. He currently serves
on the Board of Directors of Belo Corporation and Southwest
Airlines Co. Mr. Caldera received a B.S. from the United
States Military Academy, an M.B.A. from Harvard Business School
and a J.D. from Harvard Law School.
Lyle E. Gramley, age 79, has been a director of
Indymac since January 1993. He is also a director of Indymac
Bank. Mr. Gramley is a former member of the Board of
Governors of the Federal Reserve System. From September 1985
through May 2002, he was employed by the Mortgage Bankers
Association of America as its chief economist and as a
consulting economist. During that period he also was
self-employed as an economic consultant. Since June 2002,
Mr. Gramley has been a Senior Economic Advisor with the
Stanford Washington Research Group. He serves on the Board of
Trustees of the following mutual funds distributed by Dreyfus
Service Corporation: Cash Management, Cash Management Plus,
Inc., Government Cash Management, Treasury Cash Management,
Treasury Prime Cash Management, Tax Exempt Cash Management,
Municipal Cash Management Plus and New York Municipal Cash
Management.
Hugh M. Grant, age 69, has been a director of
Indymac since May 2000. He is also a director of Indymac Bank.
Since 1996, Mr. Grant has been a business consultant. Prior
to 1996, he spent approximately 38 years with
Ernst & Young LLP (including service with Arthur
Young & Company before its 1989 merger with
Ernst & Whinney) where, among other things, he was
Vice-Chairman and Regional Managing Partner-Western United
States. He is a Director and Chairman of the Audit Committee of
Tetra Tech, Inc. Mr. Grant also serves on the Board of
Directors and as Chairman of the Audit Committee of Inglewood
Park Cemetery. Mr. Grant received a B.S. in Business, with
distinction, from the University of Kansas.
Patrick C. Haden, age 53, has been a director of
Indymac since March 2000. He is also a director of Indymac Bank.
Mr. Haden has been a general partner of Riordan,
Lewis & Haden, a
36
private equity investment firm, since 1987. Mr. Haden
serves on the Board of Directors of Tetra Tech, Inc. and TCW
Convertible Securities Fund, Inc. He serves on the Compensation
Committee and the Audit Committee of the Board of Directors of
Tetra Tech, Inc. and serves on the Audit Committee of TCW
Convertible Securities Fund, Inc. Mr. Haden graduated Magna
Cum Laude, Phi Beta Kappa from the University of Southern
California and was awarded a Rhodes Scholarship to study
Economics at Oxford University in England. Mr. Haden
received a J.D. from Loyola Law School.
Terrance G. Hodel, age 63, has been a director of
Indymac since July 2003. He is also a director of Indymac Bank.
Mr. Hodel most recently served as Chief Executive Officer
of Paymap, Inc. from 2001 to May 2003. Prior to that,
Mr. Hodel held the position of President and Chief
Operating Officer of North American Mortgage Company, from 1992
to 1997 when the company was acquired by Dime Bancorp, Inc.
Prior to his service at North American Mortgage Company,
Mr. Hodel served as President and Chief Executive Officer
of IMCO Realty Services, a large mortgage banking company, from
1985 to 1992, and was President and Chief Executive Officer of
Wells Fargo Mortgage Company from 1979 to 1985. Mr. Hodel
serves on the Board of Trustees of Marin Academy and Pomona
College, and he served on the Board of Directors of Luther
Burbank Savings until the end of 2005. Mr. Hodel received
an M.B.A. from Stanford University.
Robert L. Hunt II, age 55, has been a director
of Indymac since November 2001. Mr. Hunt is also a director
of Indymac Bank. Mr. Hunt held the position of President
and Chief Operating Officer of Coast Savings Financial, Inc. and
its subsidiary, Coast Federal Bank, from 1991 to 1998 when Coast
was acquired by H.F. Ahmanson & Company, the holding
company for Home Savings of America. From 1998 to 2003,
Mr. Hunt served as a trustee for the Coast Federal
Contingent Payments Rights Litigation Trust, a publicly traded
entity that was spun off by Coast Federal at the time of its
acquisition. He served as Chief Financial Officer and Executive
Vice President of Coast Federal Bank from 1983 to 1991. Prior to
his service at Coast Federal Bank, Mr. Hunt held the
position of Vice President and Controller of Fidelity Federal
Savings and Loan from 1980 to 1983 and was an audit manager at
the public accounting firm of KPMG Peat Marwick where he served
from 1972 to 1980. Mr. Hunt is a graduate of the University
of Southern California.
Senator John Seymour (ret.), age 68, has been a
director of Indymac since April 2004 and he has been a director
of Indymac Bank since July 2000. He served as a California State
Senator from 1982 to 1991 and as a United States Senator from
1991 to 1992 as a late-term replacement for California’s
newly elected Governor. Senator Seymour is a housing and
governmental consultant. He was the Chief Executive Officer of
the Southern California Housing Development Corporation and
currently serves on the Board of Directors of Orange Coast
Title Insurance. Mr. Seymour previously served on the
Boards of Directors of Los Angeles Federal Savings Bank, Irvine
Apartment Communities, Inco Homes and Countrywide Financial
Services. He also has served the City of Anaheim, California as
Mayor and as a member of the City Council. Senator Seymour was
President and Chief Executive Officer of Seymour Realty and
Investment Company from 1964 to 1982. He received a B.S. in
Business and Finance from the University of California, Los
Angeles.
Bruce G. Willison, age 57, became a director of
Indymac in July 2005. He is also a director of Indymac Bank.
Mr. Willison is the Dean Emeritus and Professor of
Management of the John E. Anderson Graduate School of Management
at the University of California, Los Angeles. From 1999 to 2005
he was the Dean of the John E. Anderson Graduate School of
Management. He was previously the President and Chief Operating
Officer of H.F. Ahmanson and Company. Prior to that
37
Mr. Willison served as the Vice Chairman of First
Interstate Bancorp. Concurrently, Mr. Willison served as
the Chairman, President and Chief Executive Officer for First
Interstate Bank of California. Prior to his 18 year tenure
with First Interstate, Mr. Willison spent six years as a
Vice President for Bank of America NT&SA. He currently
serves as a corporate director for HealthNet, Inc., Homestore,
Inc. and Sun America Inc.’s Fund Complex. He also
serves on numerous community boards. Mr. Willison received
a degree in Economics from the University of California, Los
Angeles, and an M.B.A. in Finance from the University of
Southern California. He served as a Lieutenant in the United
Stated Navy from 1970 to 1972.
Vote Required; Board Recommendation
The affirmative vote of a majority of the shares of Common Stock
present in person or by proxy and entitled to vote on this
matter at the Annual Meeting will be required to elect each of
the director nominees.
The Board of Directors recommends that stockholders
vote FOR each of the nominees. Proxies solicited by the
Board of Directors will be so voted unless the stockholder
specifies otherwise.
Board Meetings, Committees and Attendance
The Board of Directors held nine meetings, in person or by
telephone, during 2005. Each Board member is expected to
dedicate sufficient time, energy and attention to ensure the
diligent performance of his or her duties. In 2005, each Board
member attended 100% of the meetings of the Board and Committee
of which he was a member, except for Mr. Caldera who
attended 88% of such meetings. It is estimated that during 2005
on average each Board member spent approximately 170 hours
in Board and Committee meetings and in preparation time for
those meetings. In addition to attendance at Board and Committee
meetings, each member of the Board is expected to attend each
Annual Meeting of Stockholders and all members of the Board
attended the 2005 Annual Meeting of Stockholders.
38
The Committees of the Board of Directors are as follows:
Board
Committee
Members
Responsibilities and Meetings Held
Audit Committee(1)
Mr. Grant, Chairman
Mr. Hunt
Mr. Ukropina
The primary purpose of this Committee is to assist the Board in
fulfilling its oversight responsibilities with respect to the
integrity of Indymac’s financial statements, reports and
other financial information provided by Indymac to its
stockholders and others. In addition, the Committee, among other
responsibilities, reviews Indymac’s compliance with legal
and regulatory requirements (in concert with other committees),
the independent auditor’s qualifications, performance and
independence, and the performance of Indymac’s internal
audit function. The Committee monitors Indymac’s audit,
accounting and financial reporting processes and system of
internal controls. A copy of the Audit Committee Charter is
attached to this Proxy Statement as Annex A. The Committee
held six meetings in 2005.
Enterprise Risk
Management Committee
Mr. Hunt,
Chairman
Mr. Gramley
Mr. Hodel
Mr. Willison
The primary purpose of this Committee is to ensure the
establishment of company-wide risk management policies and
strategies governing key risk factors related to capital
adequacy, asset quality, management, earnings, liquidity, and
sensitivity to market risk. The Committee also oversees certain
regulatory matters. The Committee held four meetings in 2005.
Management
Development and
Compensation
Committee
(Compensation
Committee)
Mr. Ukropina,
Chairman
Mr. Caldera
Mr. Seymour
(All are
non-employee,
independent
directors)
This Committee establishes, reviews and monitors Indymac’s
compensation philosophy and practices in order to assist the
Board in the discharge of its responsibilities relating to
(a) the fair and competitive compensation of the Chief
Executive Officer and other key executives, (b) orderly
succession planning related to the Chief Executive Officer and
President of the Bank, (c) the pension and employee welfare
plans of Indymac, including overseeing management’s
administration of Indymac’s defined benefit pension plan
and deferred compensation plan, and (d) the creation of a
corporate environment where ethical behavior is the standard.
The Compensation Committee also administers Indymac’s stock
award plans. The Committee held ten meetings in 2005.
(1)
In the opinion of the Board of Directors of Indymac, all current
members of the Audit Committee are independent directors as
required and defined by the New York Stock Exchange (see the
further discussion regarding director independence and audit
committee financial experts in “Corporate Governance”
and “Audit Committee Matters”).
39
Board
Committee
Members
Responsibilities and Meetings Held
Nominating and
Governance
Committee
Mr. Seymour,
Chairman
Mr. Caldera
Mr. Ukropina
(All are independent
as required by the
New York Stock
Exchange)
This Committee sets guidelines for corporate governance and
monitors the governance of Indymac to assure that Indymac has a
“best practices” corporate governance program.
Specifically the Committee reviews and recommends to the Board
of Directors, among other things, nominees for election as
directors at each Annual Meeting, membership of the committees
of the Board and matters relating to the evaluation,
performance, compensation and independence of Board members. The
Committee considers candidates for the Board of Directors
suggested by its members and other Board members, with input
from the Chief Executive Officer. The Committee also is
authorized to retain a third- party executive search firm to
identify candidates for the Board of Directors from time to
time. The Committee will consider candidates for the Board that
are recommended by stockholders of Indymac as further discussed
in “Corporate Governance”. The Committee held seven
meetings in 2005.
Strategic and
Financial
Planning
Committee
Mr. Haden,
Chairman
Mr. Gramley
Mr. Grant
Mr. Hodel
Mr. Hunt
Mr. Willison
This Committee assists the Board in fulfilling its oversight
responsibilities with respect to defining Indymac’s
mission, vision and long-term and annual strategic and financial
plan. The Committee reviews and makes recommendations to the
Board regarding Indymac’s overall business foundation,
financial and non-financial objectives, the scope of business in
which it competes, its source of competitive advantage, and
significant decisions made by the Chief Executive Officer in key
strategic areas. The Committee held four meetings in 2005.
Indymac Bank Board
Each member of the Indymac Board of Directors also serves as a
director of Indymac Bank, Indymac’s principal operating
subsidiary. The Indymac Bank Board of Directors also has two
independent directors and one executive officer-director who do
not serve on the Indymac Board of Directors. The Indymac and
Indymac Bank Board of Directors meetings are held concurrently.
The following are the persons who serve as directors of Indymac
Bank only:
Lydia H. Kennard, age 51, has been a director of
Indymac Bank since May 2002. Ms. Kennard is Executive
Director of Los Angeles World Airports (“LAWA”).
Previously, she served as Executive Director of LAWA from August
1999 to November 2003. She joined LAWA in 1994 as Deputy
Executive Director for Design and Construction. From December
2003 until October 2005, she was Chairman of KDG Development
Construction Consulting (“KDG”), a Los Angeles-based
firm specializing in land-use planning, development, programming
and construction management for public and private sector
clients and a Consultant for the Marson Group. She also serves
on the Boards of Directors of Intermec, Inc. (formerly Unova,
Inc.) and AMB Property Corporation. Ms. Kennard received a
B.A. from Stanford University, a Masters from the Massachusetts
Institute of Technology and a J.D. from Harvard Law School.
Stuart A. Gabriel, age 52, has been a director of
Indymac Bank since September of 2004. Mr. Gabriel is a
Director and the Lusk Chair in Real Estate, Lusk Center for Real
Estate, and Professor of Finance and Business Economics, Policy,
Planning and Development in the Marshall School of Business and
the School of Policy, Planning and Development of the University
of Southern California. He also is Co-Director of the USC Ross
Minority Program in Real Estate Finance and
40
Development. During 1997-1999, Mr. Gabriel served as Deputy
Dean at the USC Marshall School of Business. In 2004, he was
elected as President of the American Real Estate and Urban
Economics Association. Mr. Gabriel serves on the editorial
boards of Real Estate Economics, Journal of Real Estate
Finance and Economics, Journal of Housing Economics, Journal of
Housing Research, Housing Policy Debate, Real Estate Finance,
and Journal of Real Estate Research. He also is a Fellow of
the Homer Hoyt Institute for Advanced Real Estate Studies.
Mr. Gabriel serves as a consultant to numerous corporate
and governmental entities and is a Director of KBS REIT. Prior
to joining the USC faculty in 1990, Mr. Gabriel served on
the economics staff of the Federal Reserve Board in
Washington, D.C. In recent years, he also has been a
Visiting Scholar at the Federal Reserve Bank of
San Francisco. Mr. Gabriel received a Ph.D. in
Economics from the University of California, Berkeley.
Richard H. Wohl, age 47, is President of Indymac
Bank. He became a director of Indymac Bank in July 2005.
Mr. Wohl oversees the primary business divisions of Indymac
Bank in both its thrift and mortgage banking segments.
Mr. Wohl previously served Indymac in several capacities,
including as Chief Executive Officer of Indymac Mortgage Bank
from February 2000 to July 2005, Chief Operating Officer in
charge of various financial and administrative functions from
February 1999 to February 2000, and as general counsel and
secretary from April 1994 to February 1999. Prior to joining
Indymac in April 1994, Mr. Wohl practiced as an attorney
with Morrison & Foerster in Los Angeles, California
where he worked in the institutional lending and corporate areas
with a focus on mortgage banking. Mr. Wohl graduated with
distinction from Stanford University and received a J.D. from
Harvard Law School, where he was an editor of the Harvard Law
Review.
In addition to the Committees of the Indymac Board of Directors
referenced above, the Indymac Bank Board also has a Compliance
and Technology Committee as follows:
Board
Committee
Members
Responsibilities and Meetings Held
Compliance and
Technology Committee
Ms. Kennard,
Chair
Mr. Gabriel
Mr. Haden
The primary purpose of this Committee is to assist the Board in
its oversight of the Bank’s compliance with all consumer
regulatory, fair lending and compliance laws and regulations. In
addition, this Committee also provides strategic oversight of
Indymac Bank’s information technology and security
activities. The Committee held five meetings in 2005.
Director Compensation
In January 2006, the Board of Directors revised the Board
Compensation Policy upon the recommendation of its Nominating
and Governance Committee. Prior to making such recommendation,
the Nominating and Governance Committee received the advice of
an executive compensation consulting firm. Among other things,
this revision:
•
increases the annual cash retainer to $75,000;
•
eliminates board meeting attendance fees;
•
provides that non-employee directors will receive both
non-qualified stock options and restricted stock awards, rather
than having the election to choose one or the other;
•
eliminates Indymac’s Director Emeritus Plan for directors
joining the board after December 31, 2005; and
41
•
increases the stock ownership requirements for non-employee
directors to three times the annual board retainer fee.
The following table describes the cash compensation provided
under the old policy in 2005 and the cash compensation to be
paid under the revised policy starting in 2006. Assuming the
same Board structure and number of meetings as in 2005, the
Board expects that the revisions made would result in a $2,500
increase in cash compensation for each director in 2006.
Director Cash Compensation(1)
Description
2005
2006
Annual retainer (all non-employee directors)
$50,000 annually
$75,000 annually
Additional retainer for Audit Committee members
$20,000 annually
$20,000 annually
Additional retainer for the Presiding Director
$20,000 annually
$20,000 annually
Meeting fees for Board meetings
$2,500 per meeting
No board meeting fees
Meeting fees for Committee Chairs (for each meeting chaired in a
calendar year)
$2,500 per meeting
$2,500 per meeting
Meeting fees for committee members (after the
4th committee
meeting attended in a calendar year)
$2,500 per meeting
$2,500 per meeting
Fees for attendance at other qualifying board-related functions
(as determined by the Chair of the Nominating and Governance
Committee)
$2,500 per day
$2,500 per day
(1)
See also the description of the Director Emeritus program
included in this section.
For 2005, each non-employee director received an automatic
annual grant of a nonqualified stock option to purchase a number
of shares of Common Stock equal to 0.025% of the issued and
outstanding shares of such Common Stock as of the end of the
preceding fiscal year (excluding treasury shares), but in no
event less than 7,500 shares. Alternatively, each
non-employee director could elect to receive shares of
restricted Common Stock of equal value to the nonqualified stock
option. Starting in fiscal year 2006, each non-employee director
will receive, on an annual basis:
•
A non-qualified stock option to purchase a number of shares of
Common Stock equal to 0.0125% of the issued and outstanding
shares of such Common Stock as of the end of the preceding
fiscal year (excluding treasury shares), but in no event less
than 3,750 shares; and
•
A number of shares of restricted Common Stock having a fair
market value equal to the value of such option, determined using
the same valuation method as then used by Indymac for financial
reporting purposes.
As in the past, options and restricted stock will be granted
automatically on the same date that annual grants of equity
incentive awards are made to employees. If a non-employee
director is elected within six months following the annual grant
date, he or she will receive options for the number of shares
covered by the most recent annual director grant. If a
non-employee director is elected more than six months following
the most recent annual grant date, but before the next annual
grant date, he or she will receive options for one-half the
number of shares covered by the most recent annual director
grant. The number of shares of restricted stock granted to such
non-employee directors will be determined according to the value
of the option grant, as described above.
42
Options will have an exercise price equal to the fair market
value of Common Stock on the date of grant, will vest on the
first anniversary of the grant date, and will expire on the
latest date permitted under the 2002 Plan (the latest date
permitted is currently the tenth anniversary of the grant date
but will be the seventh anniversary of the grant date if the
amendment and restatement of the 2002 Plan is approved by
stockholders as described in Proposal Two), or earlier in
the event of a non-employee director’s termination of
service.
Restricted stock currently vests in equal annual installments
over a three-year period, and any dividends on such shares will
accrue and vest at the same time. If the amendment and
restatement to the 2002 Plan is approved, the Board may consider
reducing the vesting period to one year for future grants.
Vesting for options and restricted stock will accelerate in full
upon a change in control of Indymac, a non-employee
director’s death or disability, or a non-employee
director’s failure to be renominated or reelected to the
board after five years of service as a director, provided that
the director remains on the board until his or her normal term
expires.
Beginning in 2006, each non-employee director who has served on
the board for at least three years will be expected to own
Common Stock with a value equal to $225,000, which is equal to
three times his or her base annual retainer fee. The value of
vested options (net of tax), as determined by Indymac, will be
counted towards the ownership requirements. Any non-employee
director failing to meet these ownership guidelines will not be
required to purchase stock in the open market in order to meet
these requirements but will be prohibited from selling shares
until he or she becomes compliant.
The following table sets forth total compensation paid to
non-employee directors for 2005.
Non-Stock
Incentive
Fees Earned
Plan
All Other
or \ Paid in
Stock Awards
Option Awards
Compensation
Compensation
Name
Total($)
Cash ($)(1)
($)(2)
($)(2)
($)
($)(3)
Louis E. Caldera
$
217,470
$
95,000
$
0
$
117,792
$
0
$
4,678
Lyle E. Gramley
231,867
82,500
0
117,792
0
31,575
(4)
Hugh M. Grant
264,625
145,833
0
117,792
0
1,000
Patrick C. Haden
212,070
92,500
0
117,792
0
1,778
Terrance G. Hodel
214,423
92,500
117,792
0
0
4,131
Robert L. Hunt II
238,792
120,000
0
117,792
0
1,000
Senator John Seymour (ret.)
238,792
120,000
0
117,792
0
1,000
James R. Ukropina
289,494
169,164
117,792
0
0
2,538
Bruce G. Willison
186,599
40,000
0
145,381
0
1,218
(1)
Fee amount deferred at the election of the director to a
subsequent year are included in amount reported.
(2)
Amounts are grant date fair value for a grant of 3,327
restricted shares of Common Stock or fair value for an option to
purchase 15,499 shares of Common Stock, as applicable,
computed in accordance with FAS 123, applying the same
valuation and assumptions as Indymac applies for financial
statement pro-forma disclosure purposes for options. The annual
non-employee grant of stock awards was made on March 15,2005, other than for Mr. Willison, who received a stock
award grant on July 25, 2005 when he was elected to the
Indymac Bank Board. Options vest on
43
the first anniversary of the grant
date and restricted shares vest in equal installments over a
three-year period, and any dividends on such shares will accrue
and vest at the same time.
(3)
Unless otherwise noted, amounts include earnings on deferred
compensation and a $1,000 annual charitable contribution made by
Indymac to a charity chosen by each director on each
director’s birthday. Mr. Ukropina also received a gift
certificate for air travel as a wedding present.
(4)
Amount includes the following: (a) earnings on deferred
compensation — $21,807; (b) annual charitable
contribution made by Indymac to a charity of
Mr. Gramley’s choice on his birthday —
$1,000; and (c) travel expenses of Mr. Gramley’s
spouse to accompany him to California in conjunction with
Mr. Gramley’s Board meeting attendance —
$8,768.
Director Emeritus
Plan
Historically, Indymac has maintained a Director Emeritus Plan,
which provides certain retiring non-employee directors with a
benefit based upon length of service as a director and the level
of cash compensation received as a director prior to retirement.
Participating directors are prohibited from competing with
Indymac during the benefit period. Pursuant to the revised Board
Compensation Policy, the Director Emeritus Plan will be
available only for non-employee directors who were serving on
the board as of December 31, 2005, or who already were
participating in the Director Emeritus Plan as of such date.
On January 24, 2006, Indymac entered into a Director
Emeritus Participation Agreement with Mr. Ukropina, who is
retiring from the Board of Directors as of the date of the
Annual Meeting. Pursuant to the Participation Agreement and in
recognition of Mr. Ukropina’s service on the Indymac
board, Indymac waived the seven year service requirement and
agreed to pay Mr. Ukropina compensation at the rate of
$50,000 per annum for a period of five years and two
months. The Participation Agreement also requires that
Mr. Ukropina refrain from competing with Indymac, seeking a
position on the Board other than pursuant to Indymac’s
request, and engaging in activities which may lead to a change
in control of Indymac.
PROPOSAL TWO
APPROVAL OF
THE 2002 INCENTIVE PLAN, AS AMENDED AND RESTATED
At the Annual Meeting, stockholders will be asked to approve
Indymac’s 2002 Incentive Plan, as amended and restated (the
“Plan”), which authorizes up to 11,200,000 shares
(6,000,000 original shares and 5,200,000 newly requested shares)
of Common Stock to be issued under the Plan, subject to
adjustment to reflect stock splits, mergers and other corporate
events. The Plan was adopted by the Board of Directors, subject
to stockholder approval, on February 28, 2006. The closing
price of Common Stock on February 28, 2006 was $38.82.
The Plan will become effective if and when it is approved by the
stockholders of Indymac at the 2006 Annual Meeting. If approved,
the Plan will continue in effect until terminated by the Board.
No Awards may be granted under the Plan, however, after the
ten-year anniversary of the effective date. Any Awards that are
outstanding at the time the Plan is terminated will remain
subject to the terms of the Plan. If the Plan is not approved by
the stockholders at the Annual Meeting, the 2002 Plan currently
in effect will remain in full force and effect in accordance
with its terms as in effect
44
immediately prior to the Annual Meeting. The Plan is being
submitted to the stockholders, among other reasons, in order to
preserve the full deductibility of awards made pursuant to the
Plan under Section 162(m) of the Code.
In order to address potential stockholder concerns regarding the
number of stock options or stock awards we intend to grant under
the Plan in a given year, the Board of Directors commits to
Indymac’s stockholders that for the next three fiscal years
(commencing on January 1, 2006) it will not grant a number
of shares of Common Stock subject to options or stock awards to
its employees or non-employee directors greater than an average
of 2.46% of the number of shares of Common Stock that it
believes will be outstanding over such three year period.
Indymac’s grants of stock options and stock awards will be
phased down from its 2005 rate of 3.08% to meet this commitment.
However, it is likely in the first year that Indymac will exceed
2.46%, but will be below the 2005 rate. For purposes of
calculating the number of shares granted in a year, stock
options will count as equivalent to one share, and stock awards
will count as equivalent to (1) 1.5 shares if
Indymac’s annual stock price volatility is 53% or higher,
(2) two shares if Indymac’s annual stock price
volatility is between 25% and 52%, and (3) four shares if
Indymac’s annual stock price volatility is less than 25%.
This summary of the material terms of the Plan is qualified in
its entirety by the full text of the Plan, a copy of which is
available for review at the principal executive offices of
Indymac. Stockholders may also obtain a copy of the Plan without
charge upon written request directed to: IndyMac Bancorp, Inc.,
Attention: Investor Relations, 888 East Walnut Street, P.O.
Box 7137, Pasadena, CA91109-7137
(telephone: (800) 669-2300).
Description of the Plan
Key
Considerations
The following are the key amendments relating to the Plan. If
adopted, the Plan, would:
•
increase from 6,000,000 to 11,200,000 the total number of shares
of Common Stock reserved and available for issuance pursuant to
awards granted under the Plan. Of the 6,000,000 shares
presently authorized, approximately 1,643,106 shares remain
available for issuance as of February 28, 2006;
•
provide that each share issued pursuant to a full value award
(such as restricted stock) would reduce the number of available
shares of Common Stock by 3.5 shares. This ratio provision
would replace the 900,000 share limit with respect to full
value awards;
•
remove the liberal share counting provisions which allow shares
of Common Stock subject to an award to be returned to the pool
of shares of Common Stock available for issuance under the Plan
other than in the event of a forfeiture of the award;
•
increase from $2,000,000 to $25,000,000 the maximum amount
payable to any one individual pursuant to cash incentive awards
granted under the Plan for any annual performance period;
•
decrease from 900,000 to 500,000 the maximum number of shares
that may be subject to a full value award granted to any one
individual under the Plan in any calendar year;
•
expand the list of performance measures that may be used to
grant awards intended to qualify as “performance-based
compensation” under Section 162(m) of the Code;
45
•
reduce the term of options granted under the Plan from ten years
to seven years;
•
remove the ability to satisfy the exercise price of an option
with a promissory note;
•
change the minimum full vesting requirement on restricted stock
awards from three years to one year;
•
remove the ability to grant dividend equivalents with respect to
stock options; and
•
remove the ability to grant stock appreciation rights, bonus
stock, stock units, performance shares and performance units.
The Board of Directors has worked with outside advisors to craft
an incentive plan that generally meets Indymac’s need to
attract and retain highly qualified employees, officers and
directors, and has the likelihood of obtaining positive support
of stockholders. The Board believes that its previous incentive
plans, which were weighted more heavily towards equity incentive
compensation, have been very successful. The proposed Plan,
which restricts equity issuance to 2.46% of shares outstanding
each year, results in a mix of total compensation more heavily
weighted towards cash incentive compensation than under past
plans. The Board believes that with the implementation of
FAS 123R, requiring the expensing of all forms of stock
compensation, there is little economic difference in the impact
on stockholders between equity and cash incentive programs.
Overview
The Plan provides for the grant of non-qualified and incentive
stock options, restricted stock, restricted stock units and cash
incentive awards. The purpose of the Plan is to enable Indymac
and its subsidiaries and affiliates to:
•
attract and retain persons eligible to participate in the Plan;
•
motivate participants to achieve Indymac’s long-range goals
by providing incentive compensation opportunities that are
competitive with those of other similar companies; and
•
further identify participants’ interests with those of
Indymac’s stockholders through compensation that is based
on the value of Indymac’s stock.
Awards may be granted under the Plan to any director, officer or
employee of Indymac or any of its subsidiaries or affiliates, or
any individual who performs services for Indymac or any of its
subsidiaries or affiliates of a nature similar to those
performed by officers or employees, including consultants and
agents.
Administration
The Plan will be administered by the Compensation Committee
(“Committee”). The Committee has the authority to
grant, and amend, any type or combination of types of awards,
whether payable in stock, cash or a combination of the two,
subject to the limits as noted in the Plan.
The Committee may delegate all or any portion of its
responsibilities or powers under the Plan to persons selected by
it. Until action to the contrary is taken by the Committee,
ministerial, non-discretionary functions of the Plan have been
delegated to the senior human resources manager of Indymac. The
Committee may also delegate to officers of Indymac the authority
to grant awards under the Plan, provided that such delegation is
set forth in writing and includes all of the limitations
46
and parameters applicable to such awards, and provided further
that such awards are subsequently ratified by the Committee.
General
As of February 28, 2006, all officers and employees of
Indymac and its subsidiaries, approximately 6,182, officers and
employees, were eligible to receive awards under the Plan,
subject to the power of the Committee to determine the eligible
employees and other persons (other than Non-Employee Directors)
to whom awards will be granted. As of such date, 1,871 persons
held outstanding awards under the 2002 Plan covering
3,838,278 shares of Common Stock. The total number of
shares that may be granted under the Plan is
11,200,000 shares, subject to adjustment as described
below; provided, however, that each share of Common Stock issued
pursuant to a full value award, such as restricted stock and
restricted stock units, will reduce the number of available
shares by 3.5 shares.
The following additional limits will apply to awards under the
Plan:
•
no more than 1,500,000 shares of Common Stock may be issued
for options granted to any one individual in any calendar year;
•
no more than 500,000 shares of Common Stock may be issued
for full value awards (such as restricted stock and restricted
stock units) granted to any one individual in any calendar
year; and
•
no more than $25,000,000 may be paid to any one individual for
any annual performance period as cash incentive awards.
The Common Stock with respect to which awards may be made under
the Plan must be shares that are currently authorized but
unissued, or to the extent permitted by applicable law,
currently held or subsequently acquired by Indymac as treasury
shares, including shares purchased in the open market or in
private transactions. At the discretion of the Committee, an
award under the Plan may be settled in cash rather than Common
Stock. The Committee may use shares of Common Stock available
under the Plan as the form of payment for compensation, grants
or rights earned or due under any other compensation plans or
arrangements of Indymac or a subsidiary, including the plans and
arrangements of Indymac or a subsidiary assumed in business
combinations.
The Committee may grant any combination of stock options (both
incentive and non-qualified), restricted stock, restricted stock
units and cash bonuses. The length of service required for an
award to vest fully (which, must be at least one year), and any
other restrictions that are deemed appropriate by the Committee
for a particular type of award, to particular individuals, or in
particular circumstances, will be included in the individual
award memorandum reflecting the grant of an award to the
recipient and setting forth specific terms and conditions of the
award.
The Plan contains provisions relating to adjustments of the
terms of outstanding awards to reflect changes in Indymac’s
capitalization or Common Stock or the occurrence of specified
events. The number and type of shares or other securities, cash
or other property that may be acquired under the Plan, the
maximum number and type of shares or other securities that may
be delivered pursuant to awards, and such other terms as are
necessarily affected by such specified events are subject to
adjustment in the event of a reorganization, merger,
recapitalization, stock split, stock dividend, consolidation,
spin-off, restructuring or similar events.
47
Except as otherwise provided by the Committee, awards under the
Plan may not be sold, transferred, assigned, pledged or
otherwise disposed of in any way except as designated by the
holder by will or by laws of descent and distribution. Under no
event will awards be transferable to third parties for
consideration.
Stock Options
The Committee may grant options to purchase Common Stock, which
may be either incentive stock options, which qualify for
favorable tax treatment for the holders of such options, or
non-qualified stock options. The purchase price of a share of
Common Stock under each option must be not less that the fair
market value of a share of Common Stock on the date the option
is granted. Options granted under the Plan will be exercisable
in accordance with the terms established by the Committee. The
full purchase price of each share of Common Stock purchased upon
the exercise of any option must be paid at the time of exercise.
The Committee, in its discretion, may impose such conditions,
restrictions and contingencies on Common Stock acquired pursuant
to the exercise of an option as the Committee determines to be
desirable.
Except as otherwise provided by the Committee, if an employee
recipient of a stock option award under the Plan terminates
employment for a reason other than Cause (as determined by the
Committee in its sole discretion), death, disability or
retirement, the holder of the stock option may exercise the
stock option at any time within a period of three months after
such termination to the extent the stock option was exercisable
on the date of such termination, after giving effect to any
applicable acceleration of vesting. If the employee terminates
employment by reason of disability, or if the employee becomes
disabled within three months after termination (other than
termination for Cause), the employee may exercise the stock
option at any time within a period of twelve months after such
termination to the extent the stock option was exercisable on
the date of such termination, after giving effect to any
applicable acceleration of vesting. If the employee terminates
employment by reason of death, or if the employee dies within
three months after termination (other than termination for
Cause), then the stock option may be exercised within a period
of twelve months after the employee’s termination of
employment, to the extent the stock option was exercisable on
the date of such termination, after giving effect to any
applicable acceleration of vesting. If the employee terminates
employment by reason of retirement, then the stock option may be
exercised within a period of twelve months after the
employee’s termination of employment, to the extent the
stock option was exercisable on the date of such termination,
after giving effect to any applicable acceleration of vesting.
If the employee’s employment is terminated for Cause, then
the stock option will expire on the date of termination. In no
event, however, may any stock option be exercised by any person
after its expiration date. To the extent that any option is not
exercised prior to (i) a dissolution of Indymac or
(ii) a merger or other corporate event that Indymac does
not survive, and no provision is made for the assumption,
conversion, substitution or exchange of the option, the option
will terminate upon the occurrence of such event.
The Plan provides that, except as may be approved by Indymac
stockholders, the exercise price for an outstanding stock option
may not be decreased after the stock option has been granted,
nor may an outstanding stock option be surrendered to Indymac as
consideration for the grant of a new stock option with a lower
exercise price.
48
Other Stock
Awards
The Committee may grant restricted stock and restricted stock
units (grants of Common Stock or the right to receive Common
Stock in the future, which shares or rights are made subject to
a risk of forfeiture or other restrictions that lapse upon the
achievement of one or more goals relating to completion of
service by the holder or the achievement of performance or other
objectives, as determined by the Committee). Recipients of
restricted stock may have voting rights and may receive
dividends on the granted shares prior to the time the
restrictions lapse.
Cash Incentive
Awards
The Committee may grant cash incentive awards that are made
contingent on the achievement of performance goals it
establishes for the applicable performance period. The
performance goals must be objective and must be established in
writing by the Committee not later than 90 days after the
beginning of the performance period (but in no event after 25%
of the performance period has elapsed), and while the outcome as
to the performance goals is substantially uncertain.
Payment
Provisions
The Plan permits the payment of the option exercise price, or
award price, in cash or with shares of Common Stock valued at
their fair market value, or with a combination of such shares
and cash. Participants may also instruct Indymac to withhold
from the shares of Common Stock acquired upon exercise of an
option that number of shares of Common Stock equal to the
minimum amount (and not any greater amount) required to satisfy
the exercise price. The Committee may also provide for other
methods of payment of the exercise price of a stock option in
the Award Memorandum.
Shares held by a Plan participant other than a Non-Employee
Director may also be used to discharge tax withholding
obligations related to the exercise of options or the receipt of
other awards to the extent authorized by the Committee.
Change in
Control
In the event of a Change in Control of Indymac, as defined in
the Plan, awards under the Plan become fully vested and
immediately exercisable on the one-year anniversary of the
Change in Control or earlier if a participant’s employment
is terminated within one year following the Change in Control by
reason of disability or death, by his or her employer without
“cause,” or by the participant for “good
reason” (each as defined in the Plan). The Committee is
authorized in its discretion, however, to change such
acceleration of awards (whether to provide for immediate
acceleration of awards or to prohibit or otherwise limit such
acceleration).
The Board of Directors of Indymac may, but need not, make an
affirmative determination prior to the consummation of one of
the transactions, or group of related transactions, described
above, that, in light of all of the circumstances, a Change in
Control has not occurred for purposes of the Plan, by reason of
it being in essence a “combination of equals”. In
making any such determination, the Plan provides that the Board
of Directors shall consider, without limitation, the likely
effect of such
49
transaction(s) on the makeup of Indymac’s stockholder base,
Board of Directors and senior management.
Acceleration of Vesting in
Certain Events
Upon a participant’s termination of employment by reason of
death or disability:
•
his or her options will become fully vested and exercisable;
•
any time-based vesting restrictions on any other stock award
will lapse as of the date of termination and any
performance-based criteria relating to such other stock awards
will be deemed to be satisfied at the greater of
“target” or actual performance; and
•
his or her cash incentive awards will become fully vested.
Upon a participant’s termination of employment by reason of
retirement, his or her awards will be accelerated in the same
manner as if his or her termination of employment was by reason
of death or disability; provided, however, that as a
condition of such acceleration of vesting upon the
participant’s retirement, he or she will execute a
restrictive covenant agreement (including, but not limited to, a
non-solicitation of customers and employees covenant)
satisfactory to Indymac with a term equal to the longest vesting
term being accelerated.
Non-Employee Director
Awards
The Plan provides for grants of awards to Non-Employee Directors
in accordance with the terms, conditions and parameters set
forth in the Board Compensation Policy. This policy is described
in Proposal One — Election of
Directors — Director Compensation.
Amendment and
Termination
The Plan, and any award granted under the Plan, may be amended
or terminated at any time by the Board. No amendment or
termination may adversely affect the rights of any participant
without the participant’s written consent.
Tax Consequences of the Plan
The federal income tax consequences of the Plan under current
law, which is subject to change, are summarized in the following
paragraphs. This summary is necessarily general and does not
describe all possible federal income tax effects to particular
recipients of awards under the Plan or to Indymac in all
circumstances. In addition, it does not address any state or
local tax consequences of awards under the Plan.
Nonqualified Stock
Options
No taxable income will be realized by an optionee upon the grant
of a nonqualified stock option (“NQO”). Upon exercise
of an NQO, the optionee will realize ordinary income in an
amount measured by the excess of the fair market value of the
shares on the date of exercise over the option price, and
Indymac will be entitled to a corresponding deduction. Upon a
subsequent disposition of the shares, the optionee will realize
short-term or long-term capital gain or loss, depending upon how
long the shares were held. Indymac will not be entitled to any
further deduction at that time. Special rules will apply if the
optionee uses previously owned shares to pay some or all of the
option exercise price.
50
The exercise of an NQO through the delivery of previously
acquired stock will generally be treated as a non-taxable,
like-kind exchange as to the number of shares surrendered and
the identical number of shares received under the option. That
number of shares will take the same basis and, for capital gains
purposes, the same holding period as the shares that are given
up. The value of the shares received upon such an exchange that
are in excess of the number given up will be includible as
ordinary income to the participant at the time of exercise. The
excess shares will have a new holding period for capital gain
purposes and a basis equal to the value of such shares
determined at the time of exercise.
Incentive Stock
Options
An optionee who receives an incentive stock option
(“ISO”) will not be treated as receiving taxable
income upon the grant of the option or upon the exercise of the
option, if the exercise occurs, in general, during the
optionee’s employment by Indymac or within three months
after termination of such employment. Any appreciation in share
value after the date of grant will, however, be treated as an
item of tax preference at the time of exercise in determining
liability for the alternative minimum tax. If stock acquired
pursuant to an ISO is neither sold nor otherwise disposed of
within two years from the date of grant of the option nor within
one year after the date of exercise, any gain or loss resulting
from disposition of the stock will be treated as long-term
capital gain or loss. If stock acquired upon exercise of an ISO
is disposed of prior to the expiration of such holding periods,
the optionee will generally realize ordinary income, and a
corresponding deduction will be allowed to Indymac, at the time
of the disposition of the shares, in an amount equal to the
lesser of (1) the excess of the fair market value of the
shares on the date of exercise over the exercise price, or
(2) the excess, if any, of the amount realized upon
disposition of the shares over the exercise price. If the amount
realized exceeds the value of the shares on the date of
exercise, any additional amount will be capital gain. If the
amount realized is less than the exercise price, the optionee
will recognize no income, and a capital loss will be recognized
equal to the excess of the exercise price over the amount
realized upon the disposition of the shares.
The exercise of an ISO through the exchange of previously
acquired stock will generally be treated in the same manner as
such an exchange would be treated in connection with the
exercise of an NQO; that is, as a non-taxable, like-kind
exchange as to the number of shares given up and the identical
number of shares received under the option. That number of
shares will take the same basis and, for capital gain purposes,
the same holding period as the shares that are given up.
However, the holding period will not be credited for purposes of
the one-year holding period required for the new shares to
receive ISO treatment. Shares received in excess of the number
of shares given up will have a new holding period and will have
a basis of zero or, if any cash was paid as part of the exercise
price, the excess shares received will have a basis equal to the
amount of the cash. If a disqualifying disposition (a
disposition before the end of the applicable holding period)
occurs with respect to any of the shares received from the
exchange, it will be treated as a disqualifying disposition of
the shares with the lowest basis.
If the exercise price of an ISO is paid with Common Stock
acquired through a prior exercise of an ISO, gain will be
realized on the shares given up (and will be taxed as ordinary
income) if those shares have not been held for the minimum ISO
holding period (two years from the date of grant and one year
from the date of transfer), but the exchange will not affect the
tax treatment, as described in the immediately preceding
paragraph, of the shares received.
51
Restricted
Stock
A participant who has been granted a restricted stock award will
not realize taxable income at the time of grant, and Indymac
will not be entitled to a deduction at that time, assuming that
the restrictions constitute a “substantial risk of
forfeiture” for federal income tax purposes. Upon the
vesting of shares subject to an award, the holder will realize
ordinary income in an amount equal to the then fair market value
of those shares, and Indymac will be entitled to a corresponding
deduction. Gains or losses realized by the holder upon
disposition of the shares will be treated as capital gains and
losses, with the basis in the shares being equal to the fair
market value of the shares at the time of vesting. Dividends
paid to the holder during the restriction period will also be
compensation income to the holder and deductible as such by
Indymac.
Cash Incentive
Awards
A person who has been granted a cash incentive award will
recognize ordinary income when the award is paid, and Indymac
will then be entitled to a deduction.
Accelerated
Payments
If, as a result of a Change in Control of Indymac, a Plan
participant’s options become immediately exercisable, or if
restrictions immediately lapse on restricted stock the
additional economic value, if any, attributable to the
acceleration may be deemed a “parachute payment”. The
additional value will be deemed a parachute payment if that
value, when combined with the value of other payments that are
deemed to result from the change in control, equals or exceeds a
threshold amount equal to 300% of the participant’s average
annual taxable compensation over the five calendar years
preceding the year in which the change in control occurs. In
such case, the excess of the total parachute payments over the
participant’s average annual taxable compensation will be
subject to a 20% non-deductible excise tax in addition to any
income tax payable. Indymac will not be entitled to a deduction
for that portion of any parachute payment that is subject to the
excise tax.
Section 162(m)
Limits
An income tax deduction is generally not available for annual
compensation in excess of $1 million paid to any of the
five most highly compensated executive officers of a public
corporation. However, amounts that constitute
“performance-based compensation” are not counted
toward the $1 million limit. It is expected that options
granted under the Plan will satisfy the requirements for
“performance-based compensation”. The Committee may
designate whether any restricted stock, restricted stock units
or cash incentive awards being granted to any participant are
intended to be “performance-based compensation” as
that term is used in Section 162(m) of the Internal Revenue
Code. Any such awards designated as intended to be
“performance-based compensation” must be conditioned
on the achievement of one or more performance measures, to the
extent required by Section 162(m).
The Plan provides that the performance measures that may be used
by the Committee for such performance awards, which must be
quantitative and objective, and not qualitative, standards, may
be
52
based on any one or more of the following, either alone or in
combination, as selected by the Committee:
•
Revenue
•
Sales, including cross-sales
•
Profit (net profit, gross profit, operating profit, economic
profit, profit margins, mortgage banking revenue margin, thrift
net interest margin or other corporate profit measures)
•
Earnings (EBIT; EBITDA; earnings per share; operating earnings
per diluted share, either before or after amortization of
intangible assets; or other corporate earnings measures)
•
Net income (before or after taxes, operating income or other
income measures)
•
Cash (cash flow, cash generation or other cash measures)
•
Assets (net worth, asset quality, ratio of non-performing assets
to total assets, or other asset measures)
•
Stock price or performance
•
Total stockholder return (stock price appreciation plus
reinvested dividends divided by beginning share price)
•
Return measures (including, but not limited to, return on assets
or average assets, capital, average or common equity, or sales,
and cash flow return on assets or average assets, capital,
average or common equity, or sales)
•
Market share and market size of various consumer financial
products
•
Loan origination volumes
•
Deposits
•
Interest rate risk (including, but not limited to duration gap,
value at risk and other interest rate risk measures)
•
Credit risk (including, but not limited to, other credit risk
measures)
•
Expenses (net operating expense, either before or after
amortization of intangible assets; expense management; expense
ratio; expense efficiency ratios, ratio of expenses outsourced
as a percent of total expenses, cost per loan, cost per deposit
or other expense measures)
•
Ratio of headcount outsourced as a percent of total headcount
Fair value of assets and/or liabilities and growth and/or
decline in either or both
•
Hedge effectiveness
•
Mergers, acquisitions and
start-up business
activities (e.g., successful acquisition deal completion)
•
Internal rate of return or increase in net present value
53
•
Regulatory compliance
•
Customer satisfaction ratings
•
Employee turnover and employee count (as a whole or by a
specific subset of employees)
•
Employee morale and culture survey results
•
Customer count, revenues, retention and penetration
•
Portfolio balance and count
•
Cost of funds
•
Rating agency credit ratings
•
Third party servicer evaluations (including, but not limited to,
evaluations conducted by the GSE’s and servicer ratings
published by the rating agencies)
Performance goals may be expressed in terms of company-wide
objectives or in terms of objectives that relate to the
performance of an affiliated company or a division, region,
department or function within Indymac or an affiliated company.
They also may be specified in absolute terms, in percentages, or
in terms of growth from period to period or growth rates over
time, but they need not be based upon an increase or positive
result under a business criterion and could include, for
example, the maintenance of the status quo or the limitation of
economic losses (measured, in each case, by reference to a
specific business criterion).
Benefits to Named Executive Officers and Others
The following table reflects awards granted under the Plan
during the fiscal year ended December 31, 2005 to the
persons and groups shown in the table. Any future awards under
the Plan will be made at the discretion of the Board of
Directors or the Committee, as the case may be, and for
Non-Employee Directors, pursuant to the Director Compensation
Policy in effect from time to time. Consequently, we cannot
determine, with respect to (1) our executive officers,
(2) all current executive officers as a group, (3) all
non-executive directors, as a group, or (4) all eligible
54
participants, including all current officers who are not
executive officers, as a group, either the benefits or amounts
that will be received in the future by such persons or groups
pursuant to the Plan.
All Non-Executive Officer Employees and Indymac Bank Directors
as a Group
33,353,601
859,186
13,477,877
347,189
(1)
Represents the $38.82 closing price of Common Stock on
February 28, 2006 multiplied by the number of shares
underlying the options and awards granted.
Vote Required; Board Recommendation
Approval of the Plan requires the affirmative vote of a majority
of the votes cast, provided that the total votes cast must
represent over 50% of the shares entitled to vote on the
proposal.
The Board of Directors unanimously recommends that
stockholders vote FOR the Plan. Proxies solicited by the
Board of Directors will be so voted unless the stockholder
specifies otherwise.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
General
The Audit Committee of the Board of Directors has appointed
Ernst & Young LLP as the independent auditors to audit
Indymac’s consolidated financial statements for the fiscal
year ending December 31, 2006. Ernst & Young LLP
has acted as the independent auditors for Indymac since 2001. In
accordance with a resolution of the Audit Committee, this
appointment is being presented to stockholders for ratification
at this meeting. If the stockholders do not ratify the
appointment of Ernst & Young LLP, the Audit Committee
will reconsider their appointment. A representative of
Ernst & Young LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if he or
she wishes to do so, and will be available to respond to
appropriate questions.
55
Vote Required; Board Recommendation
The affirmative vote of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote on this
proposal at the Annual Meeting is required for ratification.
The Board of Directors recommends a vote FOR
ratification of the appointment of Ernst & Young LLP as
Indymac’s independent auditors for the fiscal year ending
December 31, 2006. Proxies solicited by the Board of
Directors will be so voted unless the stockholder specifies
otherwise.
INCORPORATION BY REFERENCE
The Stock Performance Graph, the Compensation Committee Report
on Executive Compensation and the Audit Committee Report
(including the reference to the independence and financial
expertise of the Audit Committee members), each contained in
this Proxy Statement, are not deemed filed with the Securities
and Exchange Commission and shall not be deemed incorporated by
reference into any prior or future filings made by Indymac under
the Securities and Exchange Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the
extent that Indymac specifically incorporates such information
by reference.
OTHER MATTERS
The Board of Directors knows of no matters to be brought before
the Annual Meeting other than those listed in the attached
Notice of Annual Meeting. If any other matters should properly
come before the Annual Meeting, the person named in the enclosed
proxy will vote all proxies given to him in accordance with his
best judgment on such matters.
ANNUAL REPORT AND
FORM 10-K
The 2005 Annual Report to Stockholders containing the
consolidated financial statements of Indymac for the year ended
December 31, 2005, including the Annual Report on
Form 10-K for the
year ended December 31, 2005, accompanies this Proxy
Statement.
Stockholders may obtain without charge an additional copy of
Indymac’s Annual Report on
Form 10-K for the
fiscal year ended December 31, 2005 as filed with the
Securities and Exchange Commission, without the accompanying
exhibits, by writing to Investor Relations, IndyMac Bancorp,
Inc., 888 East Walnut Street, P.O. Box 7211, Pasadena,
California91109-7137. A list of exhibits is included in the
Form 10-K, and
exhibits are available from Indymac upon payment to Indymac of
the cost of furnishing them.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be included in the proxy
statement and presented at the 2007 Annual Meeting pursuant to
Rule 14a-8 under
the Securities Exchange Act of 1934, as amended, must be
received by the Corporate Secretary of Indymac, 888 East Walnut
Street, Pasadena, California91101, not later than
November 14, 2006 to be considered for inclusion in
Indymac’s proxy materials for that meeting.
56
Stockholders intending to present business at Indymac’s
2007 Annual Meeting other than pursuant to
Rule 14a-8 must
comply with the requirements set forth in Indymac’s Bylaws.
To bring business before an annual meeting, Indymac’s
Bylaws require, among other things, that the stockholder submit
written notice thereof complying with the Bylaws to the
Corporate Secretary of Indymac not less than 90 days nor
more than 120 days prior to the anniversary of the
preceding year’s annual meeting. Therefore, Indymac must
receive notice of a stockholder proposal submitted other than
pursuant to
Rule 14a-8 no
sooner than December 26, 2006 and no later than
January 25, 2007. If the notice is received before
December 26, 2006 or after January 25, 2007, it will
be considered untimely and the stockholder will not be entitled
to present the proposal at the 2007 Annual Meeting.
The Audit Committee is appointed by the Board of Directors (the
“Board”) of IndyMac Bancorp, Inc. (the
“Corporation”). The primary purpose of the Audit
Committee (the “Committee”) is to assist the Board in
fulfilling its oversight responsibilities with respect to the
integrity of the Corporation’s financial statements,
reports and other financial information provided by the
Corporation to the stockholders and others, the independent
auditor’s qualifications, performance and independence, the
performance of the Corporation’s internal audit function,
and the Corporation’s compliance with legal and regulatory
requirements (in concert with other Board committees as provided
in Section 4(d), below).
II.
Composition
The Audit Committee shall be comprised of not less than three
members, who shall be independent directors meeting the
requirements for independence set forth in the listing
requirements of the New York Stock Exchange (the
“NYSE”) and the rules of the SEC and shall be
appointed by the Board on the recommendation of the Nominating
and Corporate Governance Committee. All members of the Audit
Committee shall be “financially literate,” as the
Board interprets such qualifications using its business
judgment, or must become financially literate within a
reasonable time period after appointment to the Audit Committee.
At least one Audit Committee member will qualify as an
“audit committee financial expert” as determined by
the full Board by applying applicable SEC rules.
III.
Meetings
The Audit Committee shall meet at least four times annually, or
more frequently as circumstances dictate. The Audit Committee
shall meet separately at least annually, and more often as
warranted, with management, the Chief Audit Executive and the
independent auditors in separate executive sessions to discuss
any matters that the Audit Committee or any of these parties
believes should be discussed privately. Subject to any
requirements imposed by law or by the rules of the NYSE, the
Audit Committee shall control its agenda in its sole discretion
and shall be able to directly access senior managers of the
Corporation and its subsidiaries.
IV.
Responsibilities and Duties
The Audit Committee’s responsibility is oversight, and it
recognizes that the Corporation’s management is responsible
for preparing the Corporation’s financial statements and
that the independent auditor is responsible for auditing them.
Additionally, the Audit Committee recognizes that financial
management of the Corporation, the internal audit staff, and the
independent auditors, have more knowledge and more detailed
information about the Corporation than do the members of the
Audit Committee; including the Audit Committee’s designated
financial expert(s). Consequently, while the Audit Committee has
the responsibilities and powers set forth in this Charter, it is
not the duty of the Audit Committee to plan or conduct audits or
to determine that the Corporation’s financial statements
and disclosures are complete and accurate or in accordance with
Generally
58
Accepted Accounting Principles (“GAAP”) and applicable
rules and regulations. The Audit Committee shall review the
information provided by these independent sources, and provide
Board level oversight, advice, counsel, and general direction,
as it deems appropriate, to management and the independent
auditors. In furtherance of these purposes, the Audit Committee
shall serve as an independent and objective monitor of the
performance of the Corporation’s financial reporting
process and system of internal controls, and maintain open and
direct communication among the independent auditor, financial
and senior management of the Corporation and of IndyMac Bank,
F.S.B. (the “Bank”), the internal audit department,
and the Board.
The following functions shall be the common recurring activities
of the Audit Committee in carrying out its oversight
responsibility. These functions are set forth as a guide with
the understanding that the Audit Committee may, except as
prohibited by law or under the rules set forth by the NYSE,
diverge from this guide in appropriate circumstances.
1.
Audit Committee Financial Reporting and Certification
Responsibilities:
a. The Audit Committee shall meet quarterly with financial
management and the independent auditor to discuss the financial
information contained in the Corporation’s Quarterly
Reports on Form l0-Q,
including disclosures made in Management’s Discussion and
Analysis of Financial Condition and Results of Operations prior
to its filing, and the results of the independent auditor’s
review of Interim Financial Information pursuant to SAS 71.
b. On a quarterly basis, the Audit Committee shall:
i. review the quarterly disclosures and financial
certifications prepared by the CEO and CFO as required under the
Sarbanes-Oxley Act of 2002, and any rules promulgated
thereunder, including disclosure controls and procedures and
internal controls over financial reporting and evaluations
thereof;
ii. review and approve the adequacy of the Allowance for
Loan Losses;
iii. review quarterly certifications and reports of
negative press, insider fraud activity, compliance with
affiliated transaction rules and the OTS’ “Thrift
Financial Report” filing instructions, or any submitted
complaints or concerns (including those submitted confidentially
and anonymously by employees of the Corporation) regarding the
Corporation’s accounting practices, its internal accounting
controls and/or other auditing related matters, as gathered and
reported by the Chief Audit Executive or General Counsel.
c. The Audit Committee shall review with management and the
independent auditor at the completion of the annual audit of the
Corporation’s consolidated financial statements included in
the Annual Report on
Form 10-K for the
last fiscal year and prior to its filing:
i. the Corporation’s annual consolidated financial
statements and related footnotes, including disclosures made in
Management’s Discussion and Analysis of Financial Condition
and Results of Operations;
ii. the independent auditor’s audit of the
consolidated financial statements and their report;
iii. any significant changes required in the independent
auditor’s audit plan;
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iv. any difficulties encountered during the course of the
audit, including any significant disagreements with management;
v. management’s assessment and assertion relating to
the effectiveness of the Corporation’s internal controls
over financial reporting, as required under the Sarbanes-Oxley
Act of 2002 Section 404 and the FDIC Improvement Act of
1991 Section 112, as well as the independent auditor’s
attestation thereof;
vi. any management letter provided by the independent
auditors and management’s response to that letter; and
vii. other matters related to the conduct of the audit
which are to be communicated to the Audit Committee under
generally accepted auditing standards, including discussions
relating to the independent auditor’s judgments about such
matters as the quality, not just the acceptability, of the
Corporation’s accounting practices and other items set
forth in SAS 61 (Communications with Audit Committees) or such
other auditing standards that may in time modify, supplement or
replace SAS 61.
d. The Audit Committee shall review and discuss with
management and the independent auditor, as applicable:
i. major issues regarding accounting principles and
financial statement presentations, including any significant
changes in the Corporation’s selection or application of
accounting principles, and major issues as to the adequacy of
the Corporation’s internal controls and any special audit
steps adopted in light of material control deficiencies;
ii. analyses prepared by management or the independent
auditor setting forth significant financial reporting issues,
including analyses of the effect of alternative methods under
GAAP on the financial statements;
iii. the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the financial
statements;
iv. the general type and presentation of financial
information included in earnings press releases (including any
use of “pro-forma” or “adjusted” non-GAAP,
information), as well as corporate financial information and
earnings guidance provided to analysts and rating agencies;
v. any accounting adjustments that were noted or proposed
by the independent auditor but were passed (as immaterial or
otherwise);
vi. any communications between the independent
auditor’s audit team and the audit firm’s national
office with respect to auditing or accounting issues presented
by the engagement.
e. The Audit Committee shall not be responsible for
oversight of individual transactions, including, but not limited
to, whole loan sale, agency sale or securitization transactions.
a. The Audit Committee, in its capacity as a committee of
the Board, is directly responsible for the appointment,
compensation, retention and oversight of the Corporation’s
independent auditor. Consistent with these responsibilities, it
is recognized that the independent auditor shall report directly
to the Audit Committee, and the Audit Committee shall have sole
discretion over payment of
60
compensation to the independent auditor for services rendered to
the Corporation. The Audit Committee shall review the
independent auditor’s proposed annual audit plan. The Audit
Committee shall establish hiring policies for employees or
former employees of the independent auditors. The Audit
Committee shall periodically receive reports from the
independent auditor that the independent auditor is not
providing any prohibited services, is complying with regulatory
partner rotation requirements, and that they are fulfilling
other regulatory requirements promulgated under the
Sarbanes-Oxley Act of 2002 and by the Public Company Accounting
Oversight Board.
b. The Audit Committee shall pre-approve all audit and
non-audit services provided by the independent auditor. The
Audit Committee may delegate this authority, up to a pre-defined
dollar limit, to the Audit Committee Chairman. Services
pre-approved only by the Chairman are to be reported at the next
regular Audit Committee meeting.
c. On an annual basis, the Audit Committee should review
the qualification, independence, and performance of the
independent auditor and present its conclusions to the Board in
advance of the annual meeting of stockholders. As part of such
annual review, the Audit Committee should review with the
independent auditor, a written report that includes a
description of the firm’s internal quality control
procedures; any material issues raised by the most recent
internal quality control review, or peer review, or periodic
review by the Public Company Accounting Oversight Board, of the
firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the
firm, and any steps taken to deal with any such issues; and all
relationships between the independent auditor and the
Corporation. The Audit Committee will take appropriate action on
any disclosed relationships or issues that may reasonably be
thought to bear on the independence of the auditor and satisfy
itself that the Corporation has engaged an independent auditor
as required by the securities laws, including the Sarbanes-Oxley
Act of 2002, administered by the Securities and Exchange
Commission.
3.
Audit Committee Internal Audit
Responsibilities:
a. The Audit Committee shall appoint, replace, reassign or
dismiss the Chief Audit Executive (CAE).
b. The Audit Committee shall review the performance of the
internal audit department, including the objectivity and
authority of its reporting obligations, budget and staffing.
c. The Audit Committee shall review and approve the
proposed internal audit plan for the coming year and the
coordination of such plans with the independent auditor. The
Committee shall receive periodic reports by the CAE on the
progress of the internal audit plan and the results of plan
activities and shall review and approve proposed changes to the
plan.
d. The Audit Committee shall review, as needed, the
internal audit department’s charter, which shall define its
purpose, authority, and responsibilities.
4.
Audit Committee Risk Management, Ethical, Legal and
Regulatory Responsibilities:
a. The Audit Committee shall discuss the Corporation’s
guidelines and policies with respect to risk assessment and risk
management. In consultation with the Chief Risk Officer, at
least annually the Audit Committee shall review the
Corporation’s major financial risk exposures and the steps
management has taken to monitor and control such exposures.
61
b. The Audit Committee shall establish and maintain a
mechanism for the receipt, retention and treatment of complaints
received by the Corporation from external parties and employees
regarding accounting, internal accounting controls or auditing
matters. The Audit Committee shall establish and maintain a
procedure for the confidential, anonymous submission by
Corporation employees of concerns regarding questionable
accounting or auditing matters to the Committee.
c. The Audit Committee shall review and consider the
results of any review of officers’ expense accounts and
perquisites, including their use of corporate assets, by the
internal auditors or the independent auditor.
d. The Audit Committee shall review with the CAE the
results of the internal audit department’s review of
compliance with the Corporation’s Code of Business Conduct
and Ethics.
e. The Audit Committee and full Board, while acknowledging
the Audit Committee’s oversight responsibility toward the
Corporation’s compliance with legal and regulatory
requirements, has delegated the ongoing oversight and monitoring
of the following legal and regulatory matters:
i. The Compliance and Technology Committee shall oversee
and monitor compliance with affiliate transaction rules;
ii. The Enterprise Risk Management Committee shall oversee
general litigation matters, insurance claims, corporate legal
matters and contracts, and monitor compliance with insider
lending. The Enterprise Risk Management Committee shall also act
as the Corporation’s Qualified Legal Compliance Committee
(“QLCC”) as described in its Charter;
iii. The Management Development and Compensation Committee
shall oversee and monitor legal matters related to current and
former employees, including laws regarding nondiscrimination in
employment and human resource practices;
iv. The Compliance and Technology Committee shall oversee
and monitor compliance with consumer protection, anti-money
laundering, bank protection and fair lending rules and
regulations, as well as compliance with the Community
Reinvestment Act; and
v. The Bank’s Board of Directors shall oversee and
monitor compliance with the Office of Thrift Supervision’s
safety and soundness rules and regulations.
f. The Audit Committee shall receive reports on legal and
regulatory matters from the General Counsel that may have a
material impact on the Corporation’s consolidated financial
statements as needed, but no less than annually.
5.
Committee Reports:
a. The Audit Committee shall prepare an Audit Committee
Report as required by the SEC for inclusion in the annual
stockholders’ meeting proxy statement.
b. The Audit Committee shall perform an annual
self-evaluation of its performance.
c. The Audit Committee shall review and reassess the
adequacy of this Audit Committee Charter on an annual basis.
This Charter will be included on the Corporation’s Internet
site, as an appendix to the annual stockholders’ meeting
proxy statement at least once in every
3-year period and in
the next annual stockholders’ meeting proxy statement after
any significant amendment to this Charter.
62
d. The Audit Committee will report its actions to the Board
with such recommendations as the Audit Committee may deem
appropriate.
6.
Retention of Advisors or Consultants:
a. The Audit Committee, in its sole discretion, shall have
the right to retain independent legal counsel, or other
independent consultants, to advise it on any matter relating to
its duties or responsibilities.
b. The Audit Committee shall have the power to conduct or
authorize investigations into any matters within its scope of
responsibilities and shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of
any investigation.
c. The Audit Committee has the authority to appropriate all
funds deemed necessary by the Audit Committee to compensate any
advisors or investigators retained by it, in addition to any
funding the Audit Committee otherwise deems appropriate to carry
out its duties.
7.
Miscellaneous:
a. The duties and responsibilities of a member of the Audit
Committee are in addition to those duties generally pertaining
to a member of the Board.
b. The Audit Committee shall be responsible for the Board
policies listed below:
i. Internal Controls
ii. Internal Audit
iii. Financial & Regulatory Reporting and
Independent Auditing
The undersigned hereby appoints Michael W. Perry, with full power of substitution, as the
attorney and proxy of the undersigned, to appear and to vote all of the shares of stock of IndyMac
Bancorp, Inc. (“Indymac”) which the undersigned would be entitled to vote if personally present at
the Annual Meeting of Stockholders of Indymac to be held at Indymac’s offices located at 3465 East
Foothill Boulevard, Pasadena, California on April 25, 2006 at 9:00 a.m. and any adjournments or
postponements thereof.
Receipt of copies of the Annual Report to Stockholders, the Notice of the Annual Meeting of
Stockholders and the Proxy Statement for the Annual Meeting is hereby acknowledged.
• Follow the simple instructions that
appear on your computer screen.
OR
• Have your proxy card
ready.
• Follow the simple
recorded instructions.
OR
• Detach your proxy card.
• Return your proxy card in the
postage-paid envelope provided.
Your telephone or Internet vote authorizes the named proxy to vote your shares in the same manner
as if you marked, signed and returned the proxy card. If you have submitted your proxy by telephone
or Internet there is no need for you to mail back your proxy card.
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET
o
Please sign, date and
return this proxy card in
the enclosed envelope.
þ
Votes must be indicated (ü)
in Black or Blue Ink.
1.
Election of Directors.
FOR
ALL
o
WITHHOLD
FOR ALL
o
*EXCEPTIONS
o
Nominees:
01 — Michael W. Perry, 02 — Louis E. Caldera, 03 — Lyle E. Gramley,
04 — Hugh M. Grant, 05 — Patrick C. Haden, 06 — Terrance G. Hodel, 07 -
Robert L. Hunt II, 08 — Senator John Seymour (ret.),
09 — Bruce G. Willison
(INSTRUCTIONS:
To withhold authority to vote for any individual nominee, mark
the “Exceptions” box and write that nominee’s name in the space provided
below.)
*Exceptions
Consent to future
electronic delivery
of Annual
Report/Proxy
Statement (see
explanation on page
(ii) of the Proxy
Statement).
o
To change your
address, please
mark this box and
correct at left.
o
To include any
comments, please
mark this box, and use
reverse side.
o
I PLAN TO ATTEND
THE MEETING.
o
2.
Approval of the
IndyMac Bancorp,
Inc. 2002 Incentive
Plan, as amended
and restated.
FOR
o
AGAINST
o
ABSTAIN
o
3.
Ratification of the
appointment of
Ernst & Young LLP
as Indymac’s
independent
auditors for the
year ending
December 31, 2006.
FOR
o
AGAINST
o
ABSTAIN
o
UNMARKED PROXIES WILL BE VOTED IN FAVOR OF EACH OF THESE MATTERS unless specified to the contrary.
SCAN LINE
Please date and sign exactly as your name appears on this card. Joint owners should each sign. If
the signer is a corporation, please sign full corporate name by a duly authorized officer.
Executors, trustees etc. should give full title as such.
Date
Share Owner sign here
Co-Owner sign here
2
Dates Referenced Herein and Documents Incorporated by Reference
