<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
First Bank System, 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):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
F I R S T B A N K S Y S T E M, I N C.
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
March 15, 1995
To our Stockholders:
You are cordially invited to attend the 1995 Annual Meeting of Stockholders
which will be held at 2:00 p.m. on Wednesday April 26, 1995, at the Minneapolis
Convention Center, 1301 Second Avenue South, Minneapolis, Minnesota 55403. For
your assistance, a map showing the location of the Minneapolis Convention Center
is provided on the back of this Proxy Statement.
You are urged to read the enclosed Notice of Meeting and Proxy Statement so
that you may be informed about the business to come before the Annual Meeting of
Stockholders. At your earliest convenience, please mark, sign and return the
accompanying form of proxy in the enclosed postage-paid envelope. We hope you
will be able to attend the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND RETURN
YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE
AND RETURN THE ENCLOSED BUSINESS REPLY POST CARD TO REQUEST AN ADMISSION TICKET,
WHICH WILL BE MAILED TO YOU PRIOR TO THE MEETING DATE.
Very truly yours,
[SIGNATURE]
John F. Grundhofer
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
1
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[LOGO]
F I R S T B A N K S Y S T E M, I N C.
NOTICE OF 1995 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 26, 1995
To the Stockholders
of First Bank System, Inc.:
The Annual Meeting of Stockholders of First Bank System, Inc. (the
"Company") will be held at the Minneapolis Convention Center, 1301 Second Avenue
South, Minneapolis, Minnesota 55403 on Wednesday, April 26, 1995, at 2:00 p.m.
for the following purposes:
1. To elect four persons to the Board of Directors.
2. To consider and act upon a proposal to amend the Company's 1991 Stock
Incentive Plan.
3. To consider and act upon a proposal to approve the Company's 1995
Executive Incentive Plan.
4. To consider and act upon a proposal to approve the selection by the
Board of Directors of the firm of Ernst & Young LLP as independent
auditors of the Company.
5. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 3, 1995, will
be entitled to notice of and to vote at the meeting and any adjournment thereof.
March 15, 1995 By Order of the Board of Directors
[SIGNATURE]
Michael J. O'Rourke
SECRETARY
PLEASE NOTE
YOUR VOTE IS IMPORTANT. IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL
MEETING OR IF YOU PLAN TO ATTEND BUT DESIRE THE PROXY HOLDERS TO
VOTE YOUR STOCK, PLEASE MARK, SIGN AND DATE YOUR PROXY CARD AND
RETURN IT IN THE ENCLOSED ENVELOPE WHICH NEEDS NO POSTAGE STAMP IF
MAILED IN THE UNITED STATES. STOCKHOLDERS ATTENDING THE MEETING
MAY WITHDRAW THEIR PROXIES AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
THE BOARD OF DIRECTORS SOLICITS THE EXECUTION AND
PROMPT RETURN OF THE ACCOMPANYING PROXY.
A RETURN ENVELOPE IS ENCLOSED.
2
<PAGE>
PROXY STATEMENT
OF
FIRST BANK SYSTEM, INC.
[LOGO]
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
(612) 973-1111
GENERAL MATTERS
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors for
use at the Company's Annual Meeting of Stockholders to be held on April 26,
1995, and at any adjournments thereof. The cost of soliciting proxies will be
borne by the Company. In addition to solicitation by mail, officers and
employees of the Company may solicit proxies by telephone, special
communications or in person but will receive no special compensation for such
services. The Company will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy material and annual reports to the owners of the stock in
accordance with the New York Stock Exchange schedule of charges. The Company has
engaged Morrow & Co., Inc. to assist in proxy solicitation for a fee not to
exceed $15,000 plus out-of-pocket expenses. This proxy statement and the
accompanying proxy are being first mailed to stockholders on or about March 20,
1995.
VOTING, EXECUTION AND REVOCATION OF PROXIES
Only stockholders of record at the close of business on March 3, 1995, the
record date for the meeting, will be entitled to receive notice of and to vote
at the meeting. As of that date there were 133,374,350 shares of Common Stock of
the Company outstanding and entitled to vote at the meeting. Each share is
entitled to one vote.
When stock is registered in the name of more than one person, each such
person should sign the proxy. If the stockholder is a corporation, the proxy
should be signed in its corporate name by an executive or other authorized
officer. If a proxy is signed as an attorney, executor, administrator, trustee,
guardian, or in any other representative capacity, the signer's full title
should be given.
If a proxy is properly executed and returned in the form enclosed, it will
be voted at the meeting as follows, unless otherwise specified by the
stockholder in the proxy: (i) in favor of
3
<PAGE>
the election as directors of all the nominees listed herein; (ii) in favor of
the proposal to amend the Company's 1991 Stock Incentive Plan; (iii) in favor of
the proposal to approve the Company's 1995 Executive Incentive Plan; (iv) in
favor of the selection of Ernst & Young LLP as independent auditors of the
Company; and (v) in accordance with the judgment of the persons named in the
proxy as to such other matters as may properly come before the meeting. A proxy
may be revoked by the stockholder prior to exercise.
If an executed proxy card is returned and the stockholder has abstained from
voting on any matter, the shares represented by such proxy will be considered
present at the meeting for purposes of determining a quorum and for purposes of
calculating the vote, but will not be considered to have been voted in favor of
such matter. If an executed proxy is returned by a broker holding shares in
street name which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such shares will
be considered present at the meeting for purposes of determining a quorum, but
will not be considered to be represented at the meeting for purposes of
calculating the vote with respect to such matter.
ANNUAL REPORT
The 1994 First Bank System Annual Report to Shareholders and Annual Report
on Form 10-K, including financial statements for the year ended December 31,
1994, accompanies this Proxy Statement.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 10, 1995, with
respect to shares of the Company's Common Stock which are held by the only
persons known to the Company to be beneficial owners of more than 5% of such
stock. For purposes of this Proxy Statement, beneficial ownership of securities
is defined in accordance with the rules of the Securities and Exchange
Commission and means generally the power to vote or dispose of securities,
regardless of any economic interest therein.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
---------------------------
NAME OF STOCKHOLDER NO. OF SHARES PERCENT
- ------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Corporate Partners, L.P. and ............................................ 9,440,000 7.0%
The State Board of Administration of Florida (1)
One Rockefeller Center
New York, New York 10020
<FN>
- ---------
(1) Corporate Advisors, L.P., the general partner of Corporate Partners, L.P.
and the investment manager to The State Board of Administration of Florida,
holds sole investment and voting power with respect to all of the reported
shares. A representative of Corporate Advisors, L.P. is entitled to attend
meetings of the Company's Board of Directors and its Committees. The State
Board of Administration of Florida also holds sole investment and voting
power with respect to an additional 3,641,170 shares of Common Stock, of
which 2,160,000 shares were purchased at the time Corporate Partners, L.P.
made its purchase.
</TABLE>
4
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MATTERS SUBMITTED TO VOTE
Following is a discussion of the matters to be presented at the meeting:
I. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Bylaws of the Company provide for a Board of Directors consisting of 17
members. Commencing with the election of directors at the annual meeting of
stockholders in 1986, the directors were divided into three classes: Class I,
Class II and Class III, each such class, as nearly as possible, to have the same
number of directors. The term of office of the Class I directors will expire at
the annual meeting in 1996, the term of the Class II directors will expire at
the annual meeting in 1997, and the term of office of the Class III directors
will expire at the annual meeting in 1995. At each annual election of directors,
the directors chosen to succeed those whose terms have then expired shall be
identified as being of that class which results in the even distribution of
membership among the three classes.
Vacancies and newly created directorships resulting from an increase in the
number of directors may be filled by a majority of the directors then in office
and the directors so chosen will hold office until the next election of the
class for which such directors shall have been chosen.
It is intended that proxies accompanying this Statement will be voted at the
1995 meeting for the election to the Board of Directors of the nominees named.
Class III directors are to be elected at the 1995 Annual Meeting for a
three-year term expiring at the annual meeting in 1998 and until their
successors are elected. Nominees for Class III directors are John F. Grundhofer,
Delbert W. Johnson, John H. Kareken and Kenneth A. Macke. All of these nominees
are presently serving as Class III directors. If any of the nominees should be
unavailable to serve as a director, an event which is not anticipated, the
persons named as proxies reserve full discretion to vote for any other persons
who may be nominated.
All current directors were previously elected directors by the Company's
stockholders except Delbert W. Johnson and Norman M. Jones, who were elected by
action of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEES
During 1994, the Board of Directors of the Company held eight regular
meetings and two special meetings. The Board has established the following
regular committees to perform their assigned functions: Audit Committee, Credit
Policy and Community Responsibility Committee, Compensation and Human Resources
Committee, Finance Committee and Governance Committee. During the past year, the
Audit Committee met 5 times, the Credit Policy and Community Responsibility
Committee met 4 times, the Compensation and Human Resources Committee met 8
times, the Finance Committee met 4 times and the Governance Committee met 7
times. Incumbent directors' attendance at Board and Committee meetings averaged
79% during 1994. Each incumbent member of the Board of Directors attended at
least 75% of the aggregate of the total number of meetings of the Board of
Directors and of the Committees of which such director was a member, with the
exception of Directors Bloomfield, Renier, and Schroeder.
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<PAGE>
The members of the Audit Committee are directors Schall (Chairperson), Hale,
Johnson, Petry, Robinson and Schroeder. The Audit Committee is charged with
reviewing the annual audit plan for the Company and the results of procedures
performed pursuant to that plan. The Audit Committee reviews the independence,
professional capability and fees of the Company's independent auditors and
recommends the engagement or discharge of such auditors to the Board of
Directors. The Audit Committee also reviews certain publicly disseminated
financial information.
The members of the Credit Policy and Community Responsibility Committee are
directors Hale (Chairperson), Grundhofer, Kareken, Nelson, Nicholson, Phillips
and Schall. The Credit Policy and Community Responsibility Committee reviews
lending and credit administration policies, practices and controls for the
Company. The Committee reviews loan quality trends and summaries of credit
examination reports and reviews and approves the adequacy of the Company's
allowance for credit losses. The Committee also has oversight responsibility for
the Company's policy and performance under the Community Reinvestment Act.
The members of the Finance Committee are directors Richey (Chairperson),
Bloomfield, Grundhofer, Kareken, Knowlton, Phillips and Renier. The Finance
Committee reviews and approves asset and liability management policies for the
enterprise regarding interest rate sensitivity management, liquidity position
and contingency plans, investment portfolio strategy and capital structure. The
Committee monitors activities relative to established guidelines, reviews and
recommends authorizations regarding the sale and issuance and repurchase of debt
and equity securities and reviews other actions regarding financial aspects of
the Company.
The members of the Compensation and Human Resources Committee are directors
Macke (Chairperson), Bloomfield, Nelson, Renier, Richey and Robinson. The
Compensation and Human Resources Committee is charged with oversight
responsibility for management's performance, adequacy and effectiveness of
compensation and benefit plans, corporate-wide staffing needs and management
succession plans. In addition, the Compensation and Human Resources Committee
makes recommendations to the Board of Directors regarding remuneration
arrangements for senior management and directors, adoption of employee
compensation and benefit plans, and the administration of such plans, including
the granting of stock options or other benefits.
Members of the Governance Committee are directors Schall (Chairperson),
Grundhofer, Hale, Macke and Richey. The Committee serves as a forum for ideas
and suggestions to improve the quality of stewardship provided by the Board of
Directors. The Committee also focuses on Board development and succession,
assisting the Board by identifying, attracting and recommending candidates for
Board membership, and administering the Director retirement policy. The
Committee recommends to the Board of Directors those persons whom it believes
should be nominees for election as directors. The Committee will consider
qualified nominees recommended by stockholders. Any such recommendation for the
1996 election of directors should be submitted in writing to the Secretary of
the Company no later than 90 days in advance of the 1996 Annual Meeting of
Stockholders.
6
<PAGE>
Such recommendation must include information specified in the Company's Bylaws
which will enable the Governance Committee to evaluate the qualifications of the
recommended nominee.
Directors who are not employees of the Company receive an annual retainer of
$20,000, with the exception of the Chairperson of the Audit Committee who
receives an annual retainer of $21,000, plus $1,000 for each meeting of the
Board attended. In addition, non-employee Committee Chairpersons receive $2,000
and non-employee directors receive $1,000 for each Committee meeting attended.
On February 18, 1987, the Company adopted a Director Retirement and Death
Benefit Plan which provides for payments to directors of the Company after they
cease to be directors. The Plan was amended and restated effective May 15, 1991,
and amended February 15, 1995 to conform to Board policy regarding suggested
retirement age. Plan benefits are payable to persons who have completed 60
months of service as a director. Benefits accrue in the amount of the annual
retainer in effect on the date a director's service terminates times the number
of years of service, not to exceed 10 years. Benefits are paid in annual
installments over a 10 year period or, in the event of the director's death, a
lump sum payment may be made. If a director's service terminates after the
director attains the age of 67, however, and the 10 installments have been paid
prior to the director's death, annual payments equal to the installment amount
are made through the time of the director's death. In the event of a change of
control of the Company, benefits payable under the Plan will be paid in a lump
sum within 30 days thereof.
Directors are offered the opportunity to defer all or a part of their
director compensation in accordance with the terms of the Deferred Compensation
Plan for Directors. Under such Plan, a director may defer all retainer and
meeting fees until such time as the director ceases to be a member of the Board.
In the event of a change of control of the Company, the Plan will terminate and
all deferred amounts will be paid in a lump sum within 30 days thereof.
Directors may also elect to use their director compensation to purchase
shares of the Company's Common Stock through the First Bank System, Inc.
Employee Stock Purchase Plan, in accordance with substantially the same terms
and conditions as apply to employees, with certain exceptions. Directors may
purchase shares of Common Stock with all or any portion of the fees earned as a
director of the Company. Each non-employee director is required to make a single
election to participate in the Employee Stock Purchase Plan with respect to all
or a designated portion of his or her director fees, which election is
irrevocable for as long as such person is a non-employee director. The purchase
price is determined by the Compensation and Human Resources Committee but may be
no less than the lower of (a) 85% of the fair market value of the Company's
Common Stock on the first day of the purchase period or (b) 85% of the fair
market value of the Company's Common Stock on the last day of the purchase
period. On the last business day of the purchase period, each participant
receives the largest number of whole shares of the Company's Common Stock that
can be purchased with the participant's accumulated deductions at the
established purchase price.
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Under the Company's 1991 Stock Incentive Plan, each non-employee Director of
the Company receives options to purchase 2,500 shares of the Company's Common
Stock upon first election to the Board of Directors and, thereafter, options to
purchase 1,000 shares of the Company's Common Stock on the date of each Annual
Meeting of Stockholders if such Director's term of office continues after such
grant date. Such options have a per share exercise price equal to the fair
market value of a share of the Company's Common Stock on the date of grant. See
"Proposal to Amend the Company's 1991 Stock Incentive Plan" below for more
information regarding such options and proposed amendments relating thereto.
As required by the merger agreement relating to the Company's acquisition of
Metropolitan Financial Corporation, the Company entered into a consulting
agreement with Norman M. Jones dated January 23, 1995 engaging Mr. Jones for a
three-year period as an independent consultant to assist the Company in
identifying and contacting, on behalf of the Company, potential financial
institution acquisition candidates as requested from time to time by the
Company. The agreement further provides that the Company is required to use its
best efforts to secure the election of Mr. Jones to the Company's Board of
Directors for a term of at least three years and to appoint Mr. Jones as
Chairman of the Board of Directors of First Bank, fsb, a subsidiary of the
Company, for at least three years. The agreement provides that Mr. Jones will be
paid total compensation equal to $200,000 annually for such services, including
his service as a director of the Company.
8
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INFORMATION REGARDING NOMINEES AND OTHER DIRECTORS
There is shown below for each nominee for election as a director and for
each other person whose term of office as a director will continue through or
after the meeting, as reported to the Company, the individual's name, age and
principal occupation; his or her position, if any, with the Company; his or her
period of service as a director of the Company and other directorships held.
CLASS I DIRECTORS--WHOSE TERMS EXPIRE AT THE 1996 ANNUAL MEETING
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
ROGER L. HALE, 60 Director Since 1987
Mr. Hale is President and Chief Executive Officer of TENNANT,
a Minneapolis-based manufacturer of industrial and commercial
floor maintenance equipment and products. He joined TENNANT in
1961 and was appointed Assistant to the President in 1963. Mr.
Hale was elected Vice President in 1968 and, in 1975, was
elected President and Chief Operating Officer. He was elected
Chief Executive Officer in 1976. Mr. Hale serves as a director
of TENNANT and Dayton Hudson Corporation. His community
activities include Chairman of the Minneapolis Neighborhood
Employment Network and Chairman of the Minnesota Business
Partnership. He serves as Chairperson of the Credit Policy and
Community Responsibility Committee and is a member of the
Audit Committee and the Governance Committee.
- -------------------------------------------------------------------------------
[PHOTO]
RICHARD L. KNOWLTON, 62 Director Since 1992
Mr. Knowlton is Chairman of the Board of Hormel Foods
Corporation, a meat and food processing company. He joined
Hormel in 1948 and has held numerous positions within the
company, including Sales Manager, Vice President--Operations,
President and Chief Operating Officer, and Chairman and Chief
Executive Officer. In addition to his membership on the Board
of Directors of Hormel Foods Corporation, Mr. Knowlton serves
as a Director of NWNL Companies, Inc. and Supervalu, Inc. He
is also a Director of the University of Colorado Foundation,
the Mayo Foundation, the Hormel Foundation and the Horatio
Alger Association. Mr. Knowlton serves on the Finance
Committee.
- -------------------------------------------------------------------------------
[PHOTO]
EDWARD J. PHILLIPS, 50 Director Since 1988
Mr. Phillips is Chairman and Chief Executive Officer of
Phillips Beverage Company, Minneapolis, Minnesota, an importer
and marketer of distilled spirits. Mr. Phillips has been
associated with Phillips Beverage Company since 1969, having
previously served as its President during its ownership by
Alco Standard Corporation. Mr. Phillips is an advisory
director of First Trust National Association, a trust company
subsidiary of the Company. His community activities include
serving as Vice Chairman and Director of Metropolitan-Mount
Sinai Foundation, Director of Amicus and Director of the
Phillips Eye Institute. He serves on the Boards of Venturian
Corporation and Weisman Enterprises, Inc. He serves as a
member of the Finance Committee and the Credit Policy and
Community Responsibility Committee.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
JAMES J. RENIER, 65 Director Since 1986
Dr. Renier is the retired Chairman and Chief Executive Officer
of Honeywell Inc., Minneapolis, Minnesota, an international
controls manufacturer. He joined Honeywell in 1956 as a senior
research scientist and was elected Chief Executive Officer in
1987. He retired in 1994. In addition to his membership on the
Board of Directors of Honeywell Inc., Dr. Renier serves as a
director of The NWNL Companies, Inc., Deluxe Corporation and
North Memorial Medical Center. He is a member of the Board of
Trustees of the University of St. Thomas, the Board of
Overseers, Curtis L. Carlson School of Management, University
of Minnesota, the Iowa State University Foundation Board of
Governors and the Board of Governors of the United Way of
America and the United Way of Minneapolis. He serves as a
member of the Finance Committee and the Compensation and Human
Resources Committee.
- -------------------------------------------------------------------------------
[PHOTO]
RICHARD L. SCHALL, 65 Director Since 1987
Mr. Schall is the retired Vice Chairman of the Board and Chief
Administrative Officer of Dayton Hudson Corporation, a
diversified retail company. He retired from active employment
in February 1985. Mr. Schall is a director of Medtronic, Inc.,
Space Center Company, CTL Credit Inc. and Ecolab, Inc. He is
also a member of the Boards of the Santa Barbara City College
Foundation, SEE International and Las Positas Park Foundation.
He currently serves as Chairperson of the Audit Committee,
Chairperson of the Governance Committee, and is a member of
the Credit Policy and Community Responsibility Committee.
</TABLE>
CLASS II DIRECTORS--WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
NORMAN M. JONES, 64 Director Since 1995
Mr. Jones serves as Chairman of the Board of First Bank, fsb,
formerly known as Metropolitan Federal Bank, the thrift
subsidiary of the Company. Prior to the Company's acquisition
of Metropolitan Financial Corporation in January, 1995, Mr.
Jones served as Chairman of Metropolitan Financial
Corporation. He was employed by that company from 1952 through
January, 1995 in various capacities including Vice President
and Secretary, President, and Chief Executive Officer. Mr.
Jones also serves as Chairman of the SAIF Industry Advisory
Committee, as a Director of the S & L Computer Trust of Des
Moines, as a national Director of Lutheran Hospitals and Homes
Society and as the Chairman of Lutheran Health Systems.
</TABLE>
10
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<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
MARILYN C. NELSON, 55 Director Since 1978
Mrs. Nelson serves as Vice Chairman, a director and a member
of the Executive Committee of the Board of Directors of
Carlson Holdings, Inc., the parent company of Carlson
Companies, Inc., Minneapolis, Minnesota. Carlson Companies,
Inc. is a diversified hotel, restaurant, travel and sales and
business incentives company. She was elected as a director of
the Carlson Companies, Inc. in 1978. Mrs. Nelson also serves
as a director of Exxon Corporation and U S WEST Inc., and is
the owner and serves as Chair of the Citizens State Bank of
Waterville, Minnesota and the Citizens State Bank of
Montgomery, Minnesota. Mrs. Nelson is a member of the
Compensation and Human Resources Committee and the Credit
Policy and Community Responsibility Committee.
- -------------------------------------------------------------------------------
[PHOTO]
S. WALTER RICHEY, 59 Director Since 1990
Mr. Richey is President and Chief Executive Officer of Space
Center Company, a company involved in real estate management
and development, public warehousing and financial services,
located in St. Paul, Minnesota. In 1973, Mr. Richey joined
Space Center and has served that company in various
capacities, including as President of the Financial Services
Division and as a member of the parent company's board of
directors. He was elected to his present position in 1978. Mr.
Richey also serves on the Board of Directors of BMC
Industries, Inc., Donaldson Company, Inc. and as an advisory
director of Liberty Mutual Insurance. Mr. Richey is
Chairperson of the Finance Committee and is a member of the
Governance Committee and the Compensation and Human Resources
Committee.
- -------------------------------------------------------------------------------
[PHOTO]
RICHARD L. ROBINSON, 65 Director Since 1993
Since 1975, Mr. Robinson has been the Chairman and Chief
Executive Officer of Robinson Dairy, Inc. in Denver, Colorado.
Prior to that time, he served in various capacities with
Roberts Dairy Company and Roberts Foods, Inc. in Omaha,
Nebraska. He was a director of Bank Western and Western
Capital Investment Corporation prior to the merger of WCIC
into Central Bancorporation, Inc., an affiliate of the
Company. Mr. Robinson is a director of Asset Investors, Inc.,
past Chairman of the Greater Denver Chamber of Commerce, past
Chairman of the Denver Area Council--Boy Scouts of America,
past Chairman of the Mountain States Employers Council and
serves as a director of numerous civic organizations. Mr.
Robinson is a member of the Audit Committee and the
Compensation and Human Resources Committee.
- -------------------------------------------------------------------------------
[PHOTO]
LYLE E. SCHROEDER, 60 Director Since 1988
Mr. Schroeder is President and Chief Executive Officer of
Sioux Valley Hospital, Sioux Falls, South Dakota, a non-profit
regional tertiary care hospital. Mr. Schroeder has been
associated with Sioux Valley Hospital since 1960 and was
elected to his present position in 1975. He has been active in
numerous civic and professional activities including serving
as a Trustee of American Hospital Association, a Director of
IA/SD Blue Cross, a Director of Family Practice Center, Inc.
and General Campaign Chairman, Sioux Empire United Way. He is
a member of the Audit Committee.
</TABLE>
11
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CLASS III DIRECTORS--NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 1998
ANNUAL MEETING
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
JOHN F. GRUNDHOFER, 56 Director Since 1990
Mr. Grundhofer is Chairman, President and Chief Executive
Officer of the Company. Prior to joining the Company on
January 31, 1990, Mr. Grundhofer served as Vice Chairman and
Senior Executive Officer for Southern California with Wells
Fargo Bank. He joined Wells Fargo in 1978 as Executive Vice
President of the Southern California Area Retail Banking
Group, was named Executive Vice President and Group Head of
the Commercial Banking Group in 1980 and Senior Executive
Officer with responsibility for middle market lending in
Southern California in 1984. Prior to joining Wells Fargo, Mr.
Grundhofer spent 18 years with Union Bank in California. He is
President of the Minnesota Business Partnership and is a
trustee of Minnesota Mutual Life Insurance Company. He is a
member of the Bankers Roundtable, and a director of Irvine
Apartment Communities, the Minneapolis Institute of Art, and
the United Way, Minneapolis area. Mr. Grundhofer is a member
of the Credit Policy and Community Responsibility Committee,
the Governance Committee and the Finance Committee.
- -------------------------------------------------------------------------------
[PHOTO]
DELBERT W. JOHNSON, 55 Director Since 1994
Mr. Johnson is Chairman, President and Chief Executive Officer
of Pioneer Metal Finishing Co., a division of Safeguard
Scientifics Inc. and one of the largest metal finishing
companies in the United States. He joined the company in 1965
and was elected to his present position in 1978. From 1987
through 1993, Mr. Johnson served on the board of directors of
the Federal Reserve Bank of Minneapolis and, in 1991, was
named chairman. He serves on the Board of Trustees of St.
Thomas University, the Advisory Board of Hospitality House and
Turning Point, Inc. and as Chairperson of Minnesota United
Negro College Fund Corporate Gifts. Mr. Johnson serves as a
director of Ault Inc., TENNANT, and Safeguard Scientifics Inc.
He serves as a member of the Audit Committee.
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[PHOTO]
JOHN H. KAREKEN, 66 Director Since 1984
Dr. Kareken is a Professor of Banking and Finance and Chairman
of the Department of Finance, Curtis L. Carlson School of
Management, University of Minnesota. After receiving his
doctorate in economics in 1956, he joined the faculty of the
University of Minnesota as Assistant Professor of Economics
and was named an Associate Professor in 1959 and a Professor
in 1963. In 1981, Dr. Kareken was appointed to an endowed
chair and became Minnesota Professor of Banking and Finance in
the Curtis L. Carlson School of Management. Dr. Kareken is an
advisory director of First Trust National Association, a trust
company subsidiary of the Company. Dr. Kareken is affiliated
with a number of professional and educational groups and has
served as a consultant to various corporate and governmental
organizations. He serves as a member of the Credit Policy and
Community Responsibility Committee and the Finance Committee.
</TABLE>
12
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<TABLE>
<S> <C>
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[PHOTO]
KENNETH A. MACKE, 56 Director Since 1985
Mr. Macke is the retired Chairman and Chief Executive Officer
of Dayton Hudson Corporation, Minneapolis, Minnesota, a
diversified retail company. He joined Dayton Hudson
Corporation in 1961 and had been continuously employed by the
company until June, 1994. Mr. Macke served as President of
Dayton Hudson Corporation from 1981 to 1984. In 1982, he was
elected Chief Operating Officer and was elected Chief
Executive Officer in 1983. In 1984, Mr. Macke was elected
Chairman of the Board of the company. He is also a director of
Unisys Corporation and General Mills, Inc. Mr. Macke serves as
Chairperson of the Compensation and Human Resources Committee
and as a member of the Governance Committee.
</TABLE>
The following individuals served as Directors of the Company during 1994 and
are expected to retire at the 1995 Annual Meeting of Stockholders:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
[PHOTO]
COLEMAN BLOOMFIELD, 68 Director Since 1984
Mr. Bloomfield is Chairman of the Board of Minnesota Mutual
Life Insurance Company, St. Paul, Minnesota. He joined the
insurance company in 1952 and was elected President and Chief
Executive Officer in 1970. He serves as director of the St.
Paul United Way, the Minnesota Orchestra and the St. Paul
Chamber Orchestra. He is a member of the Compensation and
Human Resources Committee and the Finance Committee.
- -------------------------------------------------------------------------------
[PHOTO]
NICHOLAS R. PETRY, 76 Director Since 1993
Mr. Petry has been President of The Petry Company, a
diversified operations and investment company since 1986 and
is a Managing Partner of N.G. Petry Construction Company, a
general contractor/management company. He is Chairman of the
National Western Stock Show and Managing Partner of Mill Iron
Ranches in Saratoga, Wyoming. He is Director Emeritus of Eaton
Corp., Public Service Company of Colorado, UAL Corp., and
Westin Hotels. He is a Director of Pogo Producing Company. Mr.
Petry is a member of the Audit Committee.
- -------------------------------------------------------------------------------
[PHOTO]
WILL F. NICHOLSON, JR., 65 Director Since 1993
Mr. Nicholson has been the Chairman of Rocky Mountain BankCard
System, Inc., an affiliate of the Company since January, 1995.
Through December 31, 1994, he served as the Chairman,
President and Chief Executive Officer of Colorado National
Bankshares, Inc., a bank holding company affiliated with the
Company. He joined Colorado National Bankshares in 1970 as
Senior Vice President, became President in 1975 and was
promoted to Chairman, President and Chief Executive Officer in
1985. Mr. Nicholson serves as a director and Chairman of the
Board of Visa USA, Inc., and as a director of Visa
International, the Bankers Roundtable, the Public Service
Company of Colorado and HealthONE. He is also a director of
the Greater Denver Chamber of Commerce, the Colorado
Association of Commerce and Industry and the U.S. Chamber of
Commerce. Mr. Nicholson is a member of the Credit Policy and
Community Responsibility Committee.
</TABLE>
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<PAGE>
II. PROPOSAL TO AMEND THE COMPANY'S 1991 STOCK INCENTIVE PLAN
In February 1995, the Board of Directors adopted an amendment to the First
Bank System, Inc. 1991 Stock Incentive Plan (the "1991 Plan"), subject to
stockholder approval, to provide for an increase in the number of shares of
Company Common Stock subject to stock options automatically granted as of the
date of each Annual Meeting of Stockholders to Non-Employee Directors.
Additionally, the Board of Directors approved an amendment to the 1991 Plan
providing for the grant of "reload" options to members of the Board of Directors
who are not also employees of the Company ("Non-Employee Directors"), pursuant
to which such directors would receive an option to purchase that number of
shares of Company Common Stock equal to the number of shares of Company Common
Stock tendered as payment upon the exercise of the option to which such reload
option relates. The amendment relating to reload options for Non-Employee
Directors is subject to stockholder approval, and is further subject to receipt
by the Company of an interpretive letter from the Securities and Exchange
Commission or an opinion of counsel reasonably acceptable to the Company to the
effect that the grant of such reload options will not cause any such
Non-Employee Director to lose his or her status as a "disinterested person"
under Rule 16b-3 of the Securities Exchange Act of 1934 (the "1934 Act"). Such
amendments are discussed more fully below.
Management of the Company believes that stock option grants to Non-Employee
Directors have made a significant contribution to the success of the Company in
attracting, motivating and retaining skilled Directors, and that the proposed
amendments will further enhance its success in that regard.
INCREASE IN OPTION GRANT TO NON-EMPLOYEE DIRECTORS.
Pursuant to an amendment effective on April 21, 1993, each Non-Employee
Director serving on the Board of Directors on such date was granted an option to
purchase 2,500 shares of Company Common Stock. Each Non-Employee Director first
elected to the Board of Directors after April 21, 1993 and during the term of
the 1991 Plan receives a grant, as of the date of such election, of an option to
purchase 2,500 shares of Company Common Stock. After the initial grant to each
Non-Employee Director as set forth above, each such Director is granted an
option to purchase 1,000 shares of Company Common Stock as of the date of each
Annual Meeting of Stockholders during the term of the 1991 Plan if such
Director's term of office continues after such grant date. The proposed
amendment provides that the number of shares of Company Common Stock subject to
such annual grant following the initial grant to each Non-Employee Director be
increased from 1,000 shares to 1,500 shares, commencing with grants made on the
date of the 1995 Annual Meeting of Stockholders. All of the options granted or
proposed to be granted to Non-Employee Directors pursuant to the foregoing
provisions are options which do not qualify as incentive stock options.
Each option granted to a Non-Employee Director as of the date of each Annual
Meeting of Stockholders is exercisable in full as of the date of grant, has an
exercise price per share equal to the fair market value of a share of Company
Common Stock as of the date of grant and expires on the tenth anniversary of the
date of grant.
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<PAGE>
If the amendment relating to the increase in the number of shares of Company
Common Stock to be granted to Non-Employee Directors as of the date of each
Annual Meeting of Stockholders had been in effect in 1994, the 15 incumbent
Non-Employee Directors as a group would have received options to purchase, in
the aggregate, an additional 7,500 shares of Company Common Stock with an
exercise price per share equal to the fair market value of a share of Company
Common Stock as of the date of grant.
RELOAD OPTIONS TO NON-EMPLOYEE DIRECTORS.
As proposed to be amended, the 1991 Plan would provide that each option
granted upon first election of a Non-Employee Director or as of the date of the
Company's Annual Meeting of Stockholders on or after the date of the Company's
1995 Annual Meeting of Stockholders shall include, and all outstanding options
held by Non-Employee Directors under the 1991 Plan as of the date of the
Company's 1995 Annual Meeting of Stockholders shall be deemed amended to
include, a provision entitling the optionee to a further option (a "Non-Employee
Director Reload Option") in the event the optionee exercises any such option, in
whole or in part, by surrendering other shares of the Company's Common Stock in
accordance with the 1991 Plan. Any such Non-Employee Director Reload Option (i)
shall be for a number of Shares equal to the number of Shares surrendered as
part or all of the exercise price of the option to which it relates; (ii) shall
have an expiration date which is the same as the expiration date of the option
to which it relates; and (iii) shall have an exercise price per share equal to
the fair market value of a share of the Company's Common Stock on the date of
exercise of the option to which it relates. A Non-Employee Director Reload
Option may be "reloaded" under the same terms, provided that the original option
to which such series of reload options relates may be reloaded a maximum of
three times. Non-Employee Director Reload Options shall only be granted to a
Director during such Director's term as a Non-Employee Director. Any such
Non-Employee Director Reload Option shall be subject to availability of
sufficient shares for grant under the Plan. The amendment relating to reload
options for Non-Employee Directors is subject to stockholder approval, and is
further subject to receipt by the Company of an interpretive letter from the
Securities and Exchange Commission or an opinion of counsel reasonably
acceptable to the Company to the effect that the grant of such reload options
will not cause any such Non-Employee Director to lose his or her status as a
"disinterested person" under Rule 16b-3 of the 1934 Act.
SUMMARY OF THE 1991 PLAN
The following summary description of the 1991 Plan is qualified in its
entirety by reference to the full text of the 1991 Plan, a copy of which may be
obtained by the stockholders of the Company upon request directed to the
Company's Corporate Secretary at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302.
Any employee, officer, consultant or independent contractor of the Company
and its affiliates is eligible to receive awards under the 1991 Plan. The 1991
Plan was approved by stockholders in April 1991. Amendments to the 1991 Plan
providing for the grant of "reload" options and the automatic grant of options
to Non-Employee Directors were approved by stockholders in April 1993. Further
amendments were adopted in April 1994 relating to (i) an
15
<PAGE>
increase in available shares and accounting for shares under the 1991 Plan and
(ii) preserving the Company's tax deduction for certain awards pursuant to the
provisions of the Omnibus Budget Reconciliation Act of 1993. The 1991 Plan
terminates on April 23, 2001, and no awards may be made after that date.
However, unless otherwise expressly provided in the 1991 Plan or an applicable
award agreement, any award granted may extend beyond the end of such period.
The 1991 Plan permits the granting of: (a) stock options, including
"incentive stock options" ("Incentive Stock Options") meeting the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and stock options that do not meet such requirements ("Nonqualified Stock
Options"), (b) stock appreciation rights ("SARs"), (c) restricted stock and
restricted stock units, (d) performance awards, (e) dividend equivalents, and
(f) other awards valued in whole or in part by reference to or otherwise based
upon the Company's stock ("other stock-based awards"). The 1991 Plan is
administered by a committee of the Board of Directors consisting exclusively of
three or more Non-Employee Directors (the "Committee"), with the exception of
the provision for automatic grants of stock options to Non-Employee Directors,
which is administered by the Board of Directors. The Committee has the authority
to establish rules for the administration of the 1991 Plan; to select the
individuals to whom awards are granted; to determine the types of awards to be
granted and the number of shares of Common Stock covered by such awards; and to
set the terms and conditions of such awards. The Committee may also determine
whether the payment of any amounts received under any award shall or may be
deferred and may authorize payments representing cash dividends in connection
with any deferred award of shares of Common Stock. Determinations and
interpretations with respect to the 1991 Plan are at the sole discretion of the
Committee, whose determinations and interpretations are binding on all
interested parties. The Committee may delegate to one or more officers the right
to grant awards with respect to individuals who are not subject to Section 16(b)
of the 1934 Act.
Awards may be granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law. Awards may provide that upon
the grant or exercise thereof the holder will receive shares of Common Stock,
cash or any combination thereof, as the Committee shall determine. The exercise
price per share under any stock option, the grant price of any SAR, and the
purchase price of any security which may be purchased under any other
stock-based award may not be less than 100% of the fair market value of the
Company's Common Stock on the date of the grant of such option, SAR or right.
Options may be exercised by payment in full of the exercise price, either in
cash or, at the discretion of the Committee, in whole or in part by the
tendering of shares of Common Stock or other consideration having a fair market
value on the date the option is exercised equal to the exercise price.
Determinations of fair market value under the 1991 Plan are made in accordance
with methods and procedures established by the Committee. For purposes of the
1991 Plan, the fair market value of shares of Common Stock on a given date is
the closing price of the shares as reported on the New York Stock Exchange on
such date, if the shares are then quoted on the New York Stock Exchange.
16
<PAGE>
The 1991 Plan provides that the Committee may grant reload options,
separately or together with another option, and may establish the terms and
conditions of such reload options. Pursuant to a reload option, the optionee
would be granted a new option to purchase the number of shares not exceeding the
sum of (i) the number of shares of Common Stock tendered as payment upon the
exercise of the option to which such reload option relates and (ii) the number
of shares of the Company's Common Stock tendered as payment of the amount to be
withheld under income tax laws in connection with the exercise of the option to
which such reload option relates. Reload options may be granted with respect to
options granted under the 1991 Plan, the 1987 Stock Option Plan or any other
stock option plan of the Company, and may be granted in connection with any
option granted under the 1991 Plan at the time of such grant.
The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
The holder of restricted stock may have all of the rights of a stockholder
of the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Restricted stock may not be transferred by the holder until
the restrictions established by the Committee lapse. Holders of restricted stock
units have the right, subject to any restrictions imposed by the Committee, to
receive shares of Common Stock (or a cash payment equal to the fair market value
of such shares) at some future date. Upon termination of the holders employment
during the restriction period, restricted stock and restricted stock units are
forfeited, unless the Committee determines otherwise.
Performance awards provide the holder thereof the right to receive payments,
in whole or in part, upon the achievement of such goals during such performance
periods as the Committee shall establish. A performance award granted under the
1991 Plan may be denominated or payable in cash, shares of Common Stock or
restricted stock. Dividend equivalents entitle the holder thereof to receive
payments (in cash or shares, as determined by the Committee) equivalent to the
amount of cash dividends with respect to a specified number of shares.
The Committee is also authorized to establish the terms and conditions of
other stock-based awards.
Non-Employee Directors receive Nonqualified Stock Options to purchase 2,500
shares of the Company's Common Stock upon election to the Board of Directors and
during the term of the 1991 Plan will be granted, as of the date of the each
Annual Meeting of Stockholders, if such directors term of office continues after
such date, an option to purchase 1,000 shares of Common Stock. Such options are
exercisable in full as of the date of grant, expire on the tenth anniversary of
the date of grant and have an exercise price equal to the fair market value of
the shares of Common Stock as of the date of grant. See "Increase in Option
Grant to Non-Employee Directors" and "Reload Options to Non-Employee Directors"
above for information regarding the effect of the proposed amendments on Non-
Employee Director options.
17
<PAGE>
No award granted under the 1991 Plan may be assigned, transferred, pledged
or otherwise encumbered by the individual to whom it is granted, otherwise than
by will, by designation of a beneficiary, or by laws of descent and
distribution. Each award is exercisable, during such individuals lifetime, only
by such individual, or, if permissible under applicable law, by such
individual's guardian or legal representative.
If any shares of Common Stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards are available for future awards under the 1991 Plan. In
addition, any shares that are used by a 1991 Plan participant as full or partial
payment to the Company of the purchase price relating to an award, or in
connection with satisfaction of tax obligations relating to an award in
accordance with the provisions relating to tax withholding under the 1991 Plan,
shall again be available for granting awards to persons who are not officers or
directors of the Company for purposes of Section 16 of the 1934 Act.
Notwithstanding the foregoing, the total number of shares of Common Stock that
may be purchased upon exercise of Incentive Stock Options granted under the 1991
Plan (subject to adjustment as described below) may not exceed 3,000,000 shares.
Except as otherwise provided under the procedures adopted by the Committee to
avoid double counting with respect to awards granted in tandem with or in
substitution for other awards, all shares relating to awards granted will be
counted against the aggregate number of shares available for granting awards
under the 1991 Plan. No person may be granted any award or awards, the value of
which awards are based solely on an increase in the value of Company Common
Stock after the date of grant of such awards, for more than 500,000 shares of
Company Common Stock, in the aggregate, in any three calendar year period
beginning with the period that commenced January 1, 1994 and ends December 31,
1996. As of March 1, 1995, there were approximately 1,591,000 shares available
for granting of awards under the 1991 Plan.
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
shares of Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the shares of Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the 1991
Plan, the Committee may, in such manner as it deems equitable, adjust (a) the
number and type of shares (or other securities or property) which thereafter may
be made the subject of awards, (b) the number and type of shares (or other
securities or property) subject to outstanding awards, and (c) the exercise
price with respect to any award. The Committee may correct any defect, supply
any omission, or reconcile any inconsistency in the 1991 Plan or any award
agreement in the manner and to the extent it shall deem desirable to carry the
1991 Plan into effect.
The Board of Directors may amend, alter or discontinue the 1991 Plan at any
time, provided that stockholder approval must be obtained for any change that
(i) absent such stockholder approval, would cause Rule 16b-3 as promulgated by
the Securities and
18
<PAGE>
Exchange Commission under the 1934 Act ("Rule 16b-3"), to become unavailable
with respect to the 1991 Plan; (ii) requires the approval of the Company's
stockholders under any rules or regulations of the National Association of
Securities Dealers, Inc., the New York Stock Exchange, or any other securities
exchange applicable to the Company; or (iii) requires the approval of the
Company's stockholders under the Code in order to permit Incentive Stock Options
to be granted under the 1991 Plan. Certain provisions relating to the automatic
grant of stock options to Non-Employee Directors may not be amended more than
once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act or the rules and regulations thereunder.
The closing price per share of the Company's Common Stock on March 1, 1995,
as reported on the New York Stock Exchange, was $39.00.
The following is a summary of the principal federal income tax consequences
generally applicable to awards under the 1991 Plan. The grant of an option or
SAR is not expected to result in any taxable income for the recipient. The
holder of an Incentive Stock Option generally will have no taxable income upon
exercising the Incentive Stock Option (except that a liability may arise
pursuant to the alternative minimum tax), and the Company will not be entitled
to a tax deduction when an Incentive Stock Option is exercised. Upon exercising
a Nonqualified Stock Option, the optionee must recognize ordinary income equal
to the excess of the fair market value of the shares of Common Stock acquired on
the date of exercise over the exercise price, and the Company will be entitled
at that time to a tax deduction for the same amount. Upon exercising an SAR, the
amount of any cash received and the fair market value on the exercise date of
any shares of Common Stock received are taxable to the recipient as ordinary
income and deductible by the Company. The tax consequence to an optionee upon a
disposition of shares acquired through the exercise of an option will depend on
how long the shares have been held and upon whether such shares were acquired by
exercising an Incentive Stock Option or by exercising a Nonqualified Stock
Option or SAR. Generally, there will be no tax consequence to the Company in
connection with disposition of shares acquired under an option, except that the
Company may be entitled to a tax deduction in the case of a disposition of
shares acquired under an Incentive Stock Option before the applicable Incentive
Stock Option holding periods set forth in the Code have been satisfied.
With respect to other awards granted under the 1991 Plan that are payable
either in cash or shares of Common Stock that are either transferable or not
subject to substantial risk of forfeiture, the holder of such an award must
recognize ordinary income equal to the excess of (a) the cash or the fair market
value of the shares of Common Stock received (determined as of the date of such
receipt) over (b) the amount (if any) paid for such shares of Common Stock by
the holder of the award, and the Company will be entitled at that time to a
deduction for the same amount. With respect to an award that is payable in
shares of Common Stock that are restricted as to transferability and subject to
substantial risk of forfeiture, unless a special election is made pursuant to
the Code, the holder of the award must recognize ordinary income equal to the
excess of (i) the fair market value of the shares of Common Stock received
(determined as of the first time the shares become transferable
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<PAGE>
or not subject to substantial risk of forfeiture, whichever occurs earlier) over
(ii) the amount (if any) paid for such shares of Common Stock by the holder, and
the Company will be entitled at that time to a tax deduction for the same
amount.
Special rules may apply in the case of individuals subject to Section 16(b)
of the 1934 Act. In particular, unless a special election is made pursuant to
the Code, shares received pursuant to the exercise of a stock option or SAR may
be treated as restricted as to transferability and subject to a substantial risk
of forfeiture for a period of up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized, and the amount of the
Company's tax deduction, are determined as of the end of such period.
Under the 1991 Plan, the Committee may permit participants receiving or
exercising awards, subject to the discretion of the Committee and upon such
terms and conditions as it may impose, to surrender shares of Common Stock
(either shares received upon the receipt or exercise of the award of shares
previously owned by the optionee) to the Company to satisfy federal and state
withholding tax obligations. In addition, the Committee may grant, subject to
its discretion and such rules as it may adopt, a bonus to a participant in order
to provide funds to pay all or a portion of federal and state taxes due as a
result of the receipt or exercise of (or lapse of restrictions relating to) an
award. The amount of any such bonus will be taxable to the participant as
ordinary income, and the Company will have a corresponding deduction equal to
such amount (subject to the usual rules concerning reasonable compensation).
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present in person or by proxy and voted at the meeting
will be necessary for approval of the amendments to the 1991 Plan. Proxies will
be voted in favor of such proposal unless otherwise specified. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDMENTS TO THE 1991
PLAN.
III. PROPOSAL TO APPROVE THE COMPANY'S
1995 EXECUTIVE INCENTIVE PLAN
On February 15, 1995, the Board of Directors, upon recommendation by the
Compensation and Human Resources Committee of the Board of Directors, approved
the First Bank System, Inc. 1995 Executive Incentive Plan (the "Incentive
Plan"), and directed that it be submitted for approval by the stockholders of
the Company at its 1995 Annual Meeting of Stockholders. The Incentive Plan shall
be effective as of January 1, 1995, subject to its approval by the stockholders,
and no benefits shall be issued pursuant to it until after stockholder approval.
The Incentive Plan is an annual bonus plan designed to provide certain of
the Company's executives with incentive compensation based upon the achievement
of objective performance-based goals. The purposes of the Incentive Plan are to
advance the interests of the Company and its stockholders by attracting and
retaining key employees and by stimulating the efforts of those employees to
contribute to the continued success and growth of the Company's business.
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<PAGE>
Currently, under Section 162(m) of the Code, the allowable deduction for
compensation paid or accrued with respect to the Chief Executive Officer and
each of the four other most highly compensated employees of a publicly-held
corporation is limited to $1 million per fiscal year. Certain types of
compensation are exempted from this deduction limitation, including "qualified
performance-based compensation." The Incentive Plan is designed so that awards
under it can qualify as "qualified performance-based compensation" as defined in
Section 162(m) and certain Proposed Treasury Regulations promulgated thereunder.
Since one of the requirements is stockholder approval of certain terms of a
plan, the Company is submitting the Incentive Plan for stockholder approval in
order to be able to take advantage of the exemption provided in Section 162(m).
SUMMARY OF THE INCENTIVE PLAN
The following summary description of the Incentive Plan is qualified in its
entirety by reference to the full text of the Incentive Plan, a copy of which
may be obtained by the stockholders of the Company upon request directed to the
Company's Corporate Secretary at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302.
The Incentive Plan shall be administered by the Compensation and Human
Resources Committee of the Board of Directors (the "Compensation Committee"),
which shall consist of members appointed from time to time by the Board of
Directors. Each member of the Compensation Committee shall be a "disinterested
person" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission under the 1934 Act and, following the 1996 Annual Meeting of
Stockholders of the Company, an "outside director" within the meaning of Section
162(m) of the Code. The Compensation Committee shall have full power and
authority, subject to all the applicable provisions of the Incentive Plan and
applicable law, to (a) establish, amend, suspend or waive such rules and
regulations and appoint such agents as it deems necessary or advisable for the
proper administration of the Incentive Plan, (b) construe, interpret and
administer the Incentive Plan and any instrument or agreement relating to the
Incentive Plan and (c) make all other determinations and take all other actions
necessary or advisable for the administration of the Incentive Plan. Unless
otherwise expressly provided in the Incentive Plan, each determination made and
each action taken by the Compensation Committee pursuant to the Incentive Plan
or any instrument or agreement relating to the Incentive Plan (x) shall be
within the sole discretion of the Compensation Committee, (y) may be made at any
time and (z) shall be final, binding and conclusive for all purposes on all
persons, including, but not limited to, participants in the Incentive Plan,
their legal representatives and beneficiaries and employees of the Company.
Any executive officer of the Company who is also an "officer" within the
meaning of Section 16(a) of the 1934 Act and who is designated by the
Compensation Committee to participate in the Incentive Plan with respect to a
given year shall be eligible to participate in the Incentive Plan in such year.
The Company currently has 12 executive officers who are also considered to be
"officers" within the meaning of Section 16(a) of the 1934 Act.
On or before the 90th day of each year during the term of the Incentive Plan
the Compensation Committee shall designate all participants in the Incentive
Plan for that year and their "Target Awards" for that year. The Compensation
Committee shall also establish
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<PAGE>
for each participant for any such year (a) one or more objective "Performance
Thresholds" (preestablished, objective performance goals which shall be based
solely on the Company's "Return on Assets," as more fully defined in the
Incentive Plan), including a minimum level of achievement, and (b) a
corresponding "Maximum Award Percentage" for each Performance Threshold. Each
"Target Award" will be a percentage, which may be greater or lesser than 100%.
The "Maximum Award Percentage" will be a percentage, which may be greater or
lesser than 100%, with respect to each year and with respect to each Performance
Threshold.
Following the close of each year and prior to payment of any amount under
the Incentive Plan, the Compensation Committee must certify in writing (i) the
Return on Assets for that year and (ii) the attainment of all other factors
which are to be the basis for any payments to any participant for that year. In
no event shall any participant receive any payment under the Incentive Plan
unless the Return on Assets for the year is at least equal to the minimum level
of achievement set by the Compensation Committee for that year. Provided that
the minimum achievement levels are reached, each participant in the Incentive
Plan shall then receive a bonus payment in an amount not greater than (a) that
participant's annualized base salary, as determined by the Compensation
Committee, as of the last day of the year in respect of which payments are being
made, multiplied by (b) the participant's Target Award for that year, multiplied
by (c) the participant's Maximum Award Percentage that corresponds to the
Performance Threshold achieved by the Company for that year.
The Compensation Committee shall retain sole and full discretion to reduce
by any amount any incentive payment otherwise payable to any participant under
the Incentive Plan. Except as otherwise provided by the Compensation Committee,
no incentive payment under the Incentive Plan with respect to a year shall be
paid or owed to a participant whose employment terminates prior to the last day
of that year.
No participant shall receive an Incentive Plan payment in excess of $1.5
million for any year.
Participants and their beneficiaries shall not have the right to assign,
encumber or otherwise anticipate the payments to be made under the Incentive
Plan and benefits shall not be subject to seizure for payment of any debts or
judgments against any participant or any beneficiary.
The Compensation Committee may establish any policy or policies that it
deems appropriate with respect to applicable federal or state income, social
security, payroll, withholding or other tax laws or regulations, including the
establishment of policies to ensure that all applicable taxes, which are the
sole and absolute responsibility of the participants, are withheld or collected
from such participants.
The provisions of the Incentive Plan shall not give any participant any
right to be retained in the employment of the Company and, in the absence of any
specific agreement to the contrary, the Incentive Plan shall not affect any
right of the Company, or of any affiliate of the Company, to terminate, with or
without cause, any participant's employment at any time. The Incentive Plan is
in addition to, and not in lieu of, any other employee benefit plan
22
<PAGE>
or program in which any participant may be or become eligible to participate by
reason of employment with the Company. No compensation or benefit awarded to or
realized by any participant under the Incentive Plan shall be included for the
purpose of computing such participant's compensation under any
compensation-based retirement, disability or similar plan of the Company unless
required by law or otherwise provided by such other plan.
The Compensation Committee may amend the Incentive Plan prospectively at any
time and for any reason deemed sufficient by it and may likewise terminate or
curtail the benefits of the Incentive Plan. The Compensation Committee may also
correct any defect, supply any omission or reconcile any inconsistency in the
Incentive Plan in the manner and to the extent it shall deem desirable to carry
the Incentive Plan into effect.
In determining whether payments to any participant in the Incentive Plan
will be reduced, the Compensation Committee will consider those financial and
individual performance factors that it determines to be appropriate. If the
Incentive Plan had been in effect in 1994 and each executive officer of the
Company who is also an "officer" within the meaning of Section 16(a) of the 1934
Act had been designated by the Compensation Committee to participate in the
Incentive Plan, payments would have been consistent with those under the
Company's existing bonus plan for executives. Thus, the persons named in the
Summary Compensation Table below would have been awarded payments in the amounts
set forth opposite their names in such table, and all executive officers as a
group would have been awarded an aggregate of $3,820,000 for 1994 under the
Incentive Plan if it had been in effect in 1994.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present in person or by proxy and voted at the meeting
will be necessary for approval of the 1995 Executive Incentive Plan. Proxies
will be voted in favor of such proposal unless otherwise specified. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE 1995 EXECUTIVE INCENTIVE
PLAN.
IV. SELECTION OF AUDITORS.
The Board of Directors of the Company has selected the firm of Ernst & Young
LLP as independent auditors of the Company for the year ending December 31, 1995
subject to the approval of the stockholders.
Before the Audit Committee recommended to the full Board of Directors the
appointment of Ernst & Young, it carefully considered the qualifications of
Ernst & Young. This included a review of their performance in prior years as
well as their reputation for integrity and competence in the fields of auditing
and accounting. The Audit Committee has expressed its satisfaction with Ernst &
Young in all these respects. Representatives of Ernst & Young will be present at
the Annual Meeting of Stockholders and will be given an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions following the meeting. The proxies will vote in favor of
approving this selection unless instruction to the contrary is indicated on the
proxy form.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
SELECTION OF ERNST & YOUNG AS AUDITORS.
23
<PAGE>
OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES
The following table sets forth as of February 1, 1995 the beneficial
ownership (as defined in the rules of the Securities and Exchange Commission) of
the Company's Common Stock by individual directors and executive officers named
in the Summary Compensation Table and all directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED (1)
-------------------
<S> <C>
Coleman Bloomfield...................................... 11,916(2)
John F. Grundhofer...................................... 542,601(2)(3)
Roger L. Hale........................................... 12,500(2)
Delbert W. Johnson...................................... 4,765(2)
Norman M. Jones......................................... 422,725(4)
John H. Kareken......................................... 5,422(2)
Richard L. Knowlton..................................... 10,057(2)
Kenneth A. Macke........................................ 16,131(2)(5)
Marilyn C. Nelson....................................... 34,135(2)(6)
Will F. Nicholson, Jr................................... 408,574(7)
Nicholas R. Petry....................................... 539,908(2)(8)
Edward J. Phillips...................................... 5,129(2)
James J. Renier......................................... 14,668(2)
S. Walter Richey........................................ 12,352(2)(9)
Richard L. Robinson..................................... 10,232(2)(10)
Richard L. Schall....................................... 23,106(2)
Lyle E. Schroeder....................................... 10,881(2)
Richard A. Zona......................................... 170,993(2)
Philip G. Heasley....................................... 162,044(2)
William F. Farley....................................... 128,199(2)
Daniel C. Rohr.......................................... 126,535(2)
All Directors and Executive Officers
as a Group (28 persons)................................ 3,029,311(11)
<FN>
- ---------
(1) No nominee, director or named executive officer owns beneficially more than
1% of the outstanding Common Stock of the Company and all directors and
executive officers as a group own beneficially 2.2% of the outstanding
Common Stock.
(2) Includes the following shares subject to options exercisable within 60
days: Mr. Bloomfield, 3,500 shares; Mr. Grundhofer, 350,628 shares; Mr.
Hale, 3,500 shares; Mr. Johnson, 3,500, shares; Dr. Kareken, 3,500 shares;
Mr. Knowlton, 3,500 shares; Mr. Macke, 3,500 shares; Ms. Nelson, 3,500
shares; Mr. Petry, 3,500 shares; Mr. Phillips, 3,500 shares; Dr. Renier,
3,500 shares; Mr. Richey, 3,500 shares; Mr. Robinson, 3,500 shares; Mr.
Schall, 3,500 shares; Mr. Schroeder, 3,500 shares; Mr. Zona, 59,209 shares;
Mr. Heasley, 43,341 shares; Mr. Farley, 51,100 shares; Mr. Rohr, 45,280
shares.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
(3) Includes 87,868 shares of Common Stock held in a family trust of which Mr.
Grundhofer is the trustee and 6,153 shares held in a foundation created by
Mr. Grundhofer.
(4) Includes 23,497 shares held by Mr. Jones' wife and 3,741 shares held by Mr.
Jones' grandchildren.
(5) Includes 500 shares held in trust for the benefit of Mr. Macke's children.
(6) Includes 29,979 shares held by two trusts of which Mrs. Nelson and members
of her family are beneficiaries.
(7) Excludes 8,560 shares owned by Mr. Nicholson's wife in which shares he
disclaims beneficial ownership.
(8) Includes 499,257 shares held by two corporations affiliated with Mr. Petry.
(9) Includes 100 shares held by Mr. Richey's wife through her Individual
Retirement Account.
(10) Includes 129 shares held by a partnership of which Mr. Robinson is a
general partner.
(11) Included in the shares listed for all directors and executive officers as a
group are (i) shares of Common Stock of the Company owned by the Capital
Accumulation Plan of the Company for the accounts of certain executive
officers, totaling 29,153 shares; (ii)835,522 shares which are subject to
options exercisable within 60 days by certain directors and executive
officers, including those shares referred to in footnote 2 above; and
(iii)298,257 shares of restricted stock issued to certain executive
officers pursuant to the 1991 Stock Incentive Plan. All persons subject to
Section 16 of the 1934 Act filed required reports in a timely manner
disclosing transactions involving the Company's stock, with the exception
of a purchase of 111 shares of the Company's Common Stock through various
dividend reinvestment transactions by P. Heasley, an executive officer of
the Company.
</TABLE>
25
<PAGE>
EXECUTIVE COMPENSATION
Report of the Compensation and Human Resources Committee
on Executive Compensation
TO OUR STOCKHOLDERS:
First Bank System, Inc.'s executive compensation philosophy emphasizes the
Company's commitment to long-term growth in stockholder value. In general:
TARGETED TOTAL COMPENSATION will be approximately 20 percent above the 50th
percentile of a group of comparable banking companies. The premium in
targeted pay over the 50th percentile will be primarily in the form of stock
options.
BASE SALARIES will be targeted approximately 20 percent below the 50th
percentile of the comparator group to minimize fixed expense and emphasize
the relationship of pay to performance.
ANNUAL INCENTIVES will be targeted above the 50th percentile of the
comparator group such that the total of targeted base salary plus targeted
annual incentive will be equal to the 50th percentile.
LONG-TERM AWARDS will be targeted above the 50th percentile of the
comparator group and will be primarily in the form of stock options and, to
a lesser extent, restricted stock.
Actual pay will be influenced by both competitive practice and the Compensation
and Human Resources Committee's assessment of performance against several
criteria, including measures of profitability, growth consistent with long-range
strategy, risk management, the development and involvement of people, a
continuing commitment to cultural diversity, and succession planning. No formal
weightings have been assigned to these factors.
ROLE OF THE COMMITTEE
The Compensation and Human Resources Committee of the Board of Directors
(the "Committee") seeks to maintain executive compensation policies which are
consistent with the Company's strategic business objectives and values. In
pursuing this goal, the Committee is guided by the following objectives:
- A significant portion of senior executives' compensation shall be
comprised of long-term, at-risk pay to focus management on the long-term
interests of stockholders.
- Executives' total compensation programs should emphasize pay that is
dependent upon meeting performance goals to strengthen the relationship
between pay and performance.
- Components of pay which are at risk should contain equity-based pay
opportunities to align executives' interests with those of stockholders.
- Executive compensation should be competitive to attract, retain, and
encourage the development of exceptionally knowledgeable and experienced
executives upon whom, in large part, the success of the Company depends.
26
<PAGE>
The Committee is comprised of six non-employee directors. The Committee
approves the design of executive compensation programs and assesses their
effectiveness in supporting the Company's compensation objectives. The Committee
also reviews and approves all salary arrangements and other remuneration for
executives, evaluates executive performance, and considers related matters.
The Company obtains competitive market data from an independent compensation
consultant comparing the Company's compensation practices to those of a group of
comparator companies. The Committee reviews and approves the selection of
companies used for compensation comparison purposes. This comparator group is
comprised of companies in the banking industry which are comparable in size to
the Company, based on assets, net income, number of employees and total market
value. While the comparator group is not comprised of the same companies as the
peer group index companies in the Performance Graph included on page 39, all of
the comparator companies are included in the peer group index. We believe that
the companies used for compensation comparisons are a representative cross
section of the companies included in the peer group index.
ELEMENTS OF THE COMPENSATION PROGRAM
The key elements of the Company's executive compensation program are base
salary, annual incentives and long-term incentives. In determining each
component of compensation, the Committee considers an executive's total
compensation package. Consistent with the Company's policy of aligning pay with
performance, a greater portion of total targeted compensation is placed at risk
than the total targeted compensation placed at risk by companies in the
comparator group. In determining the total compensation package for executives,
the Committee has considered the performance of the Company's Common Stock. In
this regard, the Committee considers the performance of the Company's Common
Stock in the approximately five years since the arrival of the current senior
management team to be a favorable factor; however, no formal weighting has been
assigned to this factor. The Performance Graph on page 39 includes the type of
information considered by the Committee in this regard.
POLICY WITH RESPECT TO SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the corporate deduction for compensation paid to
executive officers named in the proxy to $1 million, unless the compensation is
performance based. The Committee has carefully considered the potential impact
of this new tax code provision on the Company and has concluded that it is in
the Company's and stockholders' best interest to qualify certain of the
Company's stock-based, long-term incentives as performance-based compensation
within the meaning of the Code and thereby preserve the full deductibility of
such long-term incentive payments. To this end, the Company in 1994 requested
and received stockholder approval of modifications to the 1991 Stock Incentive
Plan. The Committee has also concluded that it is in the Company's and
stockholders' best interest to qualify future payments under terms of the 1995
Executive Incentive Plan as performance-based compensation within the meaning of
the Code. Thus, the Company is requesting stockholder approval of the 1995
Executive Incentive Plan, as indicated on page 20.
27
<PAGE>
BASE SALARIES
Each executive's base salary is initially determined according to
competitive pay practices, his or her level of responsibility, prior experience
and breadth of knowledge, as well as internal equity issues. The Committee uses
its discretion rather than a formal weighting system to evaluate these factors
and to determine individual base salary levels. Thereafter, base salaries are
reviewed on an annual basis, and increases are made based on the Committee's
subjective assessment of each executive's performance, as well as the factors
described above. In 1994, base salaries were below the 50th percentile market
level of the comparator group. This is consistent with the Company's strategic
objectives.
Each year, Mr. Grundhofer prepares a written self-appraisal of his
performance which is presented to the Board of Directors. Each director is
invited to comment on Mr. Grundhofer's report and the Committee chairperson
prepares a formal response which serves as Mr. Grundhofer's appraisal. The
Committee recommends to the full Board Mr. Grundhofer's salary for the coming
year, and his base salary is adjusted accordingly. In determining Mr.
Grundhofer's base salary adjustment, the Committee considers Mr. Grundhofer's
execution of his overall responsibility for the Company's financial performance,
long-range strategy, capital allocation, and management selection, retention,
and succession. However, formal weightings have not been assigned to these
factors.
Pursuant to an employment agreement between Mr. Grundhofer and the Company,
Mr. Grundhofer received an annual base salary of $600,000 from March 1, 1993
through November 30, 1994. Mr. Grundhofer's annual base salary was raised by
$20,000 to $620,000 effective December 1, 1994. This increase in base salary is
reflected in the employment agreement between Mr. Grundhofer and the Company
which became effective in January, 1995 (see "Employment Contracts" following
this report). Mr. Grundhofer's performance and market practices support a higher
base salary; however, consistent with the Company's philosophy, the increase was
limited to 3 percent in order to position Mr. Grundhofer's base salary below the
50th percentile.
Also, Mr. Grundhofer's employment agreement provides for certain payments in
respect of payments and benefits forfeited by him upon termination of his
previous employment. The amounts and conditions for receipt of such payments
were established in Mr. Grundhofer's original employment agreement with the
Company entered into in January 1990, and such payments were not a factor
considered by the Committee in determining his 1994 compensation.
ANNUAL INCENTIVES
The Company provides annual incentives to executives under the Executive
Incentive Plan. Annual incentives are intended to promote the Company's
pay-for-performance philosophy by providing executives with annual cash bonus
opportunities for achieving corporate, business unit and individual performance
goals. No formal weightings are assigned to these performance goals.
Eligible executives are assigned target and maximum bonus levels, determined
as a percentage of base salary. The Committee sets the target bonus awards at a
level which, together with the amount of targeted base pay, provides total
direct compensation which is
28
<PAGE>
approximately equal to the 50th percentile level among the Company's
compensation comparator companies for total direct compensation. The Committee
considers the targets it establishes to be achievable, but to require
above-average performance from each of the executives. Actual awards, if any,
are determined by the Committee based on its subjective assessment of each
executive's business unit and individual performance. The assessment focuses on
achievement of profitability, growth, risk management and general management
objectives; however, formal weightings have not been assigned to these factors.
In 1994, the Company's targeted bonus level was above the 50th percentile
target level of the comparator group of companies, and overall total targeted
base pay plus bonus was equal to the 50th percentile. The Company's performance
in 1994 exceeded the target level of performance. Specifically, with respect to
profitability factors, the Company exceeded its goals for return on assets, net
income, net charge offs, noninterest expense, and efficiency ratio. In addition,
in measuring the Company's performance relating to growth goals, the Committee
noted the Company's successful integration of several acquired financial
institution acquisitions, the successful introduction of new technology
throughout the Company, the effective conversion of acquired banks' services,
overall customer service, and effective cross selling. In analyzing the
Company's risk management, the Committee observed that the Company exceeded its
goals with respect to classified and nonperforming assets. As a result, actual
bonus awards exceeded the target level.
Mr. Grundhofer was paid $1,085,000 under the Executive Incentive Plan in
connection with the Company's 1994 performance. Mr. Grundhofer's targeted annual
bonus is consistent with the Company's policy of setting a targeted annual bonus
sufficient to provide total direct compensation which is approximately equal to
the 50th percentile level of the comparator group. Because the Company exceeded
its target performance for 1994 based on factors described in the preceding
paragraph, Mr. Grundhofer's actual bonus was significantly above target
consistent with the goals of the Executive Incentive Plan.
LONG-TERM INCENTIVES
The Committee has conducted a comprehensive review of the Company's total
compensation program to ensure it supports the Company's overall objectives and
stockholders' interests in the most effective manner. Based on this review, the
Committee concluded that long-term incentive compensation opportunities should
be dependent on stock-based measures to strengthen the alignment between
management's interests and those of the Company's stockholders. Furthermore, in
keeping with the policy of placing a significant portion of executives' total
pay at risk, the Committee sets targeted long-term incentive compensation above
the 50th percentile levels among the Company's compensation comparator
companies. During 1994, the Company granted stock options to all executives and
restricted shares to the five named executive officers. The following describes
the Company's practices relative to each vehicle.
STOCK OPTIONS. Stock options, including reload stock options, are the
Company's primary long-term incentive vehicle. Under the 1991 Stock Incentive
Plan, options are granted at an option price not less than the fair market value
of the Common Stock on the
29
<PAGE>
date of grant. Thus, stock options have value only if the stock price
appreciates from the date the options are granted. This design focuses
executives on the creation of stockholder value over the long term and
encourages equity ownership in the Company.
To emphasize the Company's pay-at-risk philosophy, as well as to further
enhance the alignment of management's interests with those of stockholders,
stock option awards for 1994, 1995, and 1996 were made in January 1994. In
determining the actual size of stock option awards, the Committee considers the
value of the stock on the date of grant, competitive practice, the amount of
options previously granted, individual contributions, and business unit
performance. However, formal weightings have not been assigned to these factors.
Based upon the Committee's assessment of these factors, Mr. Grundhofer in
1994 received regular options to purchase 348,600 shares under the 1991 Stock
Incentive Plan. In addition, he received reload stock options to purchase
109,368 shares. All of the options granted to Mr. Grundhofer have an exercise
price equal to the fair market value on the date of grant. The number of reload
stock options granted to Mr. Grundhofer was equal to the number of shares of the
Company's Common Stock he tendered to the Company in payment of the exercise
price of options exercised during 1994, plus the number of shares withheld by
the Company in payment of the taxes arising from the exercises.
RESTRICTED STOCK. The 1991 Stock Incentive Plan also provides for the grant
of restricted stock to executives. In 1994, restricted stock was granted to a
limited number of executive officers. All shares granted in 1994 will become
vested in January 2002. However, vesting will be accelerated if the Company has
three years in which its earnings per share increases 10% or more and its return
on assets is at or above the 70th percentile of a group of peer companies. The
three years do not have to occur consecutively, but the awards will not begin to
vest until both performance measures have been met in each of three years. If
the Company has achieved these performance standards, the shares will vest in
the amount of one-third per year over a 3-year period. All of the companies in
this peer group are also represented in the Performance Graph on page 39, and
most are included in the Company's compensation comparator group. The comparator
group is smaller than the peer group because compensation data was not provided
by all of the companies represented in the peer group. Except for death,
disability, retirement, or a change in control, unvested shares are forfeited
upon termination of employment. Dividends paid on Company stock are paid on a
current basis to holders of restricted stock.
Grants were made to the five named executive officers in order to achieve
several objectives. First, the Committee believes the grants were necessary so
total long-term incentive compensation delivered meets the competitive objective
stated previously, given the individuals' contributions to the long-term success
of the Company. Second, the vesting requirements should focus the executives on
the achievement of outstanding performance which, in turn, should enhance the
long-term value of the Company. Third, the extended vesting period should
improve the Company's ability to retain the individuals who have been and will
be critical to the long-term financial success of the Company. In determining
the size
30
<PAGE>
of restricted stock grants, the Committee considers competitive practices,
individual contributions, and the dollar value of the stock. However, formal
weightings have not been assigned to these factors.
Based on these factors, Mr. Grundhofer received a grant of 55,545 shares of
restricted stock in 1994. This award, when combined with the stock option award,
positions his long-term incentive compensation at the targeted level described
previously.
CONCLUSION
The Committee believes that the Company's executive compensation policies
and programs effectively serve the interests of stockholders and the Company.
The Company's various pay vehicles are appropriately balanced to provide
increased motivation for executives to contribute to the Company's overall
future success and to enhance the Company's value for the stockholders' benefit.
Kenneth A. Macke (Chairperson)
Coleman Bloomfield
Marilyn C. Nelson
James J. Renier
S. Walter Richey
Richard L. Robinson
EMPLOYMENT CONTRACTS
Effective January 30, 1993, the Company and Mr. Grundhofer entered into an
Employment Agreement (the "Former Employment Agreement") with a two-year term
that, subject to notice of termination, automatically extended by one year on
each anniversary of the agreement. Under the Former Employment Agreement Mr.
Grundhofer was entitled to receive an annual salary of not less than $525,000
and was entitled to participate in the Company's executive bonus program. Mr.
Grundhofer was entitled to participate in various benefit programs covering, and
to receive various personal benefits offered to, corporate executives of the
Company. The Company agreed to continue to provide Mr. Grundhofer with a $1
million life insurance policy during the term of the Former Employment
Agreement. Under the Former Employment Agreement, Mr. Grundhofer was entitled to
receive certain payments from the Company intended to compensate him for
payments and other benefits which he would have been eligible to receive had he
continued to be employed by Wells Fargo & Company ("Wells Fargo"), his previous
employer. The Former Employment Agreement also entitled Mr. Grundhofer to
severance benefits in the event of termination of employment under certain
circumstances.
Effective January 30, 1995, the Company and Mr. Grundhofer entered into a
new Employment Agreement (the "New Employment Agreement") with a three-year term
that, subject to notice of termination, automatically extends by one year on
each anniversary of the agreement. Under the New Employment Agreement Mr.
Grundhofer is entitled to receive an annual salary of not less than $620,000 and
is entitled to participate in the Company's
31
<PAGE>
executive bonus program. Mr. Grundhofer is entitled to participate in various
benefit programs covering, and to receive various personal benefits offered to,
corporate executives of the Company. The Company has agreed to continue to
provide Mr. Grundhofer with a $1 million life insurance policy during the term
of the New Employment Agreement.
Under the New Employment Agreement, Mr. Grundhofer is entitled to receive
from the Company the remainder of the payments intended to compensate him for
payments and other benefits which he would have been eligible to receive had he
continued to be employed by Wells Fargo, as described in connection with the
Former Employment Agreement. Pursuant to the New Employment Agreement and a
separate agreement relating to certain of such payments, such payments may be
paid on a deferred basis over a 10-year period beginning in 2003 (with certain
exceptions).
Mr. Grundhofer's New Employment Agreement also provides severance benefits
in the event of termination of employment under certain circumstances. In the
event of termination of employment without "cause" or by Mr. Grundhofer with
"good reason" (as such terms are defined in the Agreement), in addition to
compensation and benefits already earned, he will be entitled to receive: (a) a
lump sum payment equal to three times annual salary plus target bonus potential,
(b) continuation of his participation in Company benefit and retirement plans
and continuation of the $1 million life insurance policy for a three year
period, (c) continuation of personal benefits for a three year period, (d)
immediate exercisability of all options and vesting of restricted stock that
would have become exercisable or vested during the remaining term of the New
Employment Agreement if no such termination had occurred, (e) credit for three
additional years of service under the Company's Supplemental Executive
Retirement Plan, and (f) payment for individual outplacement counseling services
up to a maximum of $60,000. In the event the Company terminates Mr. Grundhofer's
employment with "cause," or he terminates employment without "good reason," Mr.
Grundhofer would forfeit all compensation and benefits following such
termination. In the event of termination of employment without "cause" or by Mr.
Grundhofer with "good reason within 24 months following a change in control (as
such term is defined in the Agreement), the following additional provisions will
apply: (g) the bonus used to calculate the lump sum payment under (a) above will
be the greatest of Mr. Grundhofer's (i) target bonus potential available on the
date of termination, (ii) the bonus earned in the last fiscal year prior to the
date of termination, or (iii) the average bonus earned in the last three fiscal
years prior to the date of termination; (h) credit shall be given for five
(instead of three) additional years of service under (e) above; and (i) the
Company will pay Mr. Grundhofer the full amount of any long-term cash incentive
award for any plan periods then in progress to the extent not provided for in
any Company long-term cash incentives plan or plans.
Mr. Grundhofer's New Employment Agreement provides that the payments and
benefits which he is entitled to receive in the event of termination of his
employment will be reduced by certain amounts which he earns from other
employment or services during the three-year period following his termination of
employment with the Company. The Company has agreed to compensate Mr. Grundhofer
for certain taxes and penalties which may be imposed as a result of payments and
benefits which he receives in the event of termination of his employment after a
change in control.
32
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENTS AND PLANS
The Company has entered into individual change in control severance
agreements with certain executive officers, including each of the executive
officers (other than Mr. Grundhofer) who are named in the Summary Compensation
Table below, providing for severance payments upon certain terminations of
employment during the two-year period following a change in control. Termination
of employment must be by the Company other than for "cause" or by the individual
for "good reason," as such terms are defined in the agreements. The agreements
provide for a lump sum payment equal to three times annual salary plus target
bonus potential, continuation of benefits for up to three years, the payment of
long-term cash incentive awards and individual outplacement services. The
Company has agreed to compensate such officers for certain taxes and penalties
resulting from the severance pay agreement. Mr. Grundhofer previously entered
into a change in control severance agreement dated March 16, 1992, but this
agreement was terminated by Mr. Grundhofer's New Employment Agreement. The New
Employment Agreement, as described above, sets forth the terms of payments and
benefits in the event of termination of Mr. Grundhofer's employment following a
change in control. The Company also maintains change in control severance plans
covering a broad range of salaried employees and providing for different levels
of payments based on job classification. In addition, the vesting of outstanding
stock options accelerates and restrictions on restricted stock lapse upon a
change in control of the Company.
33
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and the four other highest paid executive officers of the Company
whose salary and bonus earned in 1994 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES PAYOUTS
ANNUAL STOCK UNDERLYING -------------
NAME POSITION YEAR SALARY BONUS COMPENSATION AWARDS(4) OPTIONS LTIP PAYOUTS
- ------------------ ---------------- --------- --------- ---------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Grundhofer, John CEO 1994 $ 601,667 $1,085,000 $ 97,110(1) $ 1,799,985(5) 457,968 0
1993 587,500 630,000 97,089(1) 401,200(6) 127,338 0
1992 525,000 551,250 71,605(1) 719,250(6) 54,900 0
Zona, Richard Vice Chairman & 1994 280,416 595,000 (2) 1,699,995(5) 256,194 0
CFO 1993 270,834 265,000 (2) 234,725(6) 22,867 0
1992 250,000 240,000 (2) 189,000(6) 22,200 0
Heasley, Philip Vice Chairman 1994 268,334 460,000 (2) 1,300,002(5) 170,170 0
1993 250,000 230,000 (2) 120,225(6) 26,515 0
1992 225,000 215,000 (2) 189,000(6) 22,000 0
Farley, William Vice Chairman 1994 266,667 390,000 1,825(2)(3) 799,986(5) 205,628 0
1993 262,500 220,000 1,731(2)(3) 120,225(6) 28,206 0
1992 250,000 225,000 (2) 189,000(6) 22,000 0
Rohr, Daniel EVP 1994 242,083 325,000 (2) 200,013(5) 146,815 0
1993 237,500 220,000 (2) 120,225(6) 24,780 0
1992 225,000 210,000 (2) 189,000(6) 20,300 0
<CAPTION>
ALL OTHER
NAME COMPENSATION
- ------------------ -------------
<S> <C>
Grundhofer, John $ 53,290(7)
363,321
181,794
Zona, Richard 15,879(8)
14,187
11,480
Heasley, Philip 13,056(8)
11,144
10,188
Farley, William 14,377(8)
12,779
11,133
Rohr, Daniel 12,302(8)
10,597
9,954
<FN>
- ---------
(1) Benefits received by Mr. Grundhofer include reimbursement for club
memberships in the amount of $20,000 in 1994, 1993 and 1992; and
transportation-related expenses of $39,571 in 1994, $42,216 in 1993 and
$33,928 in 1992.
(2) The Company's incremental cost with respect to personal benefits of the
named individuals is not reported because the cost thereof is below the
amount required to be reported pursuant to Securities and Exchange
Commission rules.
(3) Interest earned on deferred compensation to the extent that the interest
rate exceeds 120% of the applicable federal long-term rate.
(4) The value of the restricted stock awards was determined by multiplying the
market value of the Company's Common Stock on the date of grant by the
number of shares awarded. Recipients currently receive dividends on, and
have the right to vote, shares of the restricted stock. The named
individuals held shares of restricted stock as of December 31, 1994 with
market values as follows: Mr. Grundhofer, 95,545 shares valued at
$3,173,814; Mr. Zona, 66,915 shares valued at $2,222,782; Mr. Heasley,
50,794 shares valued at $1,687,275; Mr. Farley, 35,642 shares valued at
$1,183,956; and Mr. Rohr, 17,461 shares valued at $580,019.
(5) Restricted stock grants in 1994 to the named individuals vest in January,
2002 or earlier if the Company has achieved three years of targeted return
on assets relative to the peer group and three years of targeted growth in
earnings per share. The following
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
number of shares were granted: Mr. Grundhofer, 54,545 shares; Mr. Zona,
51,515 shares; Mr. Heasley, 39,394 shares; Mr. Farley, 24,242 shares; and
Mr. Rohr, 6,061 shares.
(6) The term of the restrictions varies from 3 to 7 years from the beginning of
the performance period, based upon the Company's return on equity and total
shareholder return relative to the Company's peer bank holding companies.
(7) Includes (a) $4,054, which is equal to $.90/share of the restricted stock
issued by Mr. Grundhofer's former employer that would have remained
unvested had he remained employed by that entity and is being deferred by
Mr.Grundhofer to be paid over a 10-year period beginning in 2003 (with
certain exceptions); (b) imputed income in the amount of $13,740 arising
from premiums paid by the Company with respect to life insurance for the
benefit of Mr. Grundhofer; (c) amounts pursuant to the Company's flexible
compensation program (net of amounts used to purchase benefits), $9,240 of
which was applied to Mr. Grundhofer's account in the Company's Capital
Accumulation Plan (a 401(k) plan) ("CAP") and $21,756 of which was paid in
cash; and (d) $4,500 in a matching contribution by the Company to Mr.
Grundhofer's CAP account.
(8) Includes (a) amounts paid pursuant to the Company's flexible compensation
program (net of amounts used to purchase benefits), of which the following
amounts were applied to the individual's account in the CAP: Mr. Zona,
$9,240; Mr. Heasley, $8,556; Mr. Farley, $9,240; and Mr. Rohr, $7,802 and
the following amounts were paid in cash: Mr. Zona, $2,139 and Mr. Farley,
$637; and (b) $4,500 in a matching contribution by the Company to the named
individuals' CAP account.
</TABLE>
35
<PAGE>
STOCK OPTIONS
The following tables summarize option grants and exercises during 1994 to or
by the Chief Executive Officer or the executive officers named in the Summary
Compensation Table above, and the values of options granted during 1994 and held
by such persons at the end of 1994.
STOCK OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
% OF POTENTIAL REALIZABLE VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
NUMBER OPTIONS PRICE APPRECIATION FOR OPTION TERM
OF GRANTED --------------------------------------------------
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE 5%($) 10%($)
OPTIONS IN FISCAL OR BASE EXPIRATION ------------------------ -------------------------
NAME POSITION GRANTED YEAR PRICE DATE STOCK PRICE GAIN STOCK PRICE GAIN
- ---------------- --------------- ---------- --------- -------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grundhofer, John CEO 348,600(1) 7.5% $ 29.750 1/19/04 $ 48.46 $6,522,306 $ 77.16 $16,527,126
40,681(2) 30.000 1/30/00 40.26 417,387 53.30 947,867
25,608(2) 30.000 2/20/01 42.42 318,051 59.02 743,144
31,159(2) 36.625 1/15/02 52.78 503,374 74.78 1,188,872
11,920(2) 36.625 2/19/01 50.49 165,271 68.57 380,784
Zona, Richard Vice Chairman & 175,000(1) 4.2% 29.750 1/19/04 48.46 3,274,250 77.16 8,296,750
CFO 41,405(2) 35.625 1/19/04 55.94 841,143 86.03 2,087,019
1,579(2) 35.625 9/17/01 49.93 22,588 68.90 52,541
5,239(2) 35.875 4/24/00 48.12 64,152 63.68 145,670
12,410(2) 35.875 2/19/01 50.09 176,408 68.85 409,220
12,932(2) 35.875 2/19/02 52.59 216,158 75.74 515,534
3,665(2) 35.875 2/16/03 55.19 70,789 83.23 173,556
1,831(2) 35.875 9/17/01 51.50 28,609 72.70 67,427
473(2) 35.875 9/19/99 46.73 5,134 60.14 11,477
1,660(2) 36.500 1/19/04 57.26 34,462 87.97 85,440
Heasley, Philip Vice Chairman 130,000(1) 2.8% 29.750 1/19/04 48.46 2,432,300 77.16 6,163,300
4,243(2) 34.500 4/24/00 46.26 49,898 61.18 113,203
15,052(2) 34.500 2/19/01 48.14 205,309 66.15 476,396
6,525(2) 34.500 2/19/02 50.55 104,726 72.77 249,712
3,733(2) 34.500 2/16/03 53.05 69,247 79.97 169,740
267(2) 34.500 4/22/04 56.20 5,794 89.48 14,680
302(2) 35.625 4/24/00 46.61 3,317 60.23 7,431
679(2) 35.625 2/19/01 48.52 8,756 65.13 20,034
58(2) 35.625 2/19/02 50.94 888 71.64 2,089
2,090(2) 35.625 1/19/04 55.94 42,458 86.03 105,346
4,284(2) 35.625 1/19/04 55.94 87,029 86.03 215,935
2,088(2) 36.250 1/19/04 57.62 44,621 89.65 111,499
849(2) 36.500 1/19/04 57.26 17,625 87.97 43,698
Farley, William Vice Chairman 130,000(1) 3.4% 29.750 1/19/04 48.46 2,432,300 77.16 6,163,300
8,998(2) 35.250 4/24/00 47.26 108,066 62.51 245,285
9,904(2) 35.250 2/19/01 49.21 138,260 67.65 320,890
12,920(2) 35.250 2/19/02 51.68 212,276 74.42 506,076
3,696(2) 35.250 2/16/03 54.23 70,150 81.78 171,975
30,699(2) 35.750 1/19/04 56.14 625,953 86.33 1,552,755
684(2) 36.500 2/19/01 49.66 9,001 66.60 20,588
8,727(2) 36.500 1/19/04 57.26 181,173 87.97 449,179
Rohr, Daniel EVP 110,000(1) 2.4% 29.750 1/19/04 48.46 2,058,100 77.16 5,215,100
7,369(2) 35.250 5/20/00 47.42 89,681 62.93 203,974
3,968(2) 35.250 2/19/01 49.21 55,393 67.65 128,563
353(2) 35.250 2/19/02 51.68 5,800 74.42 13,827
2,401(2) 35.750 1/19/04 56.14 48,956 86.33 121,443
7,202(2) 35.875 2/19/01 50.09 102,376 68.85 237,486
5,914(2) 35.875 2/19/02 52.59 98,853 75.74 235,762
3,665(2) 35.875 2/16/03 55.19 70,789 83.23 173,556
5,943(2) 36.250 1/19/04 57.62 127,002 89.65 317,356
<FN>
- ---------
(1) The options were granted on January 19, 1994 and 1/3 of the total grant
became exercisable on the date of grant. An additional 1/3 of the total
grant becomes exercisable on April 15, 1995 and the final 1/3 on April 15,
1996 if the Company meets certain standards based upon the Company's return
on assets relative to the Company's peer
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
bank holding companies and growth in earnings per share. If the standards
are not met for a particular year, the portion of the grant which would
have become exercisable that year will become exercisable on January 19,
1999. All such options become fully vested upon a change in control of the
Company.
(2) Optionees may tender previously acquired shares of the Company's Common
Stock in payment of the exercise price of a stock option and may tender
previously acquired shares or request the Company to withhold sufficient
shares to pay the taxes arising from the exercise. The Company will grant a
reload stock option to purchase the number of shares thus tendered and/or
withheld. The reload option will have an exercise price equal to the
closing price of the Company's Common Stock on the date of the transaction,
and will expire on the scheduled expiration date of the exercised option.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
ACQUIRED UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FY-END FY-END
NAME POSITION EXERCISES REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------ ----------------- ----------- ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Grundhofer, John CEO 143,510 $ 2,084,545 268,682/334,924 $ 887,005/$1,086,451
Zona, Richard Vice Chairman & 92,767 789,032 47,709/176,918 38,699/486,451
CFO
Heasley, Philip Vice Chairman 78,976 579,537 29,820/112,555 0/382,004
Farley, William Vice Chairman 85,852 691,969 39,667/142,315 10,822/382,004
Rohr, Daniel EVP 70,010 555,638 28,471/96,647 0/332,374
</TABLE>
PERSONAL RETIREMENT ACCOUNT
Effective July 1, 1986, the Company adopted a career average pay defined
benefit pension plan known as the "Personal Retirement Account" ("PRA").
Essentially all full-time employees of the Company and its subsidiaries are
eligible to participate in PRA. As of December 31, 1994, 10,758 employees were
participating in PRA. Under the terms of PRA, a separate "account" is maintained
for each employee participating in the plan. Each year contributions of 3% to 6%
of the participant's total compensation for that year plus 3% of the
participant's total compensation in excess of $5,000 for that year are made to
the account for the participant. The basic percentage varies depending upon the
participant's number of years of service. If the participant has less than ten
years of service, the percentage is 3%. If the participant has ten but less than
twenty years of service, the percentage is 4%. If the participant has twenty but
less than twenty-five years of service, the percentage is 5%. If the participant
has twenty-five or more years of service, the percentage is 6%. In addition, the
plan provides certain special additional credits for the accounts of
participants who had at least five years of service as of January 1, 1986 and
had a total age plus years of service equal to fifty or greater. At the time of
normal or early retirement, the accumulated account of the participant is
converted into one of several available forms of lifetime annuities or is
distributed in a single lump sum to the participant. In the event of the death
of the participant, the account balance is payable to survivors of the
participant. Plan benefits become 100% vested after five years of service.
37
<PAGE>
The Company maintains an unfunded deferred compensation plan known as the
Defined Benefit Excess Plan to provide retirement benefits which would have been
provided under the normal formulas of the PRA but for limitations established
under the Code. Such plans are recognized and authorized under provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Based upon a number of assumptions, including retirement at age 65, the
following estimated annual payments would be made upon retirement pursuant to
the PRA and the Defined Benefit Excess Plan to the individuals listed below: Mr.
Grundhofer, $232,000; Mr. Zona, $224,000; Mr. Heasley, $345,000; Mr. Farley,
$170,000; and Mr. Rohr, $164,000.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company's Supplemental Executive Retirement Plan ("SERP") is available
to certain executives with not less than five years of service at the time of
termination of employment or death. The Plan generally provides retirement
benefits at age 65 equal to 55% of an executive's average base salary and annual
incentive awards during his or her last three years of employment. Executives
will receive credit for an additional five years of service at age 60 and may
receive retirement benefits after age 60 which are equal to the actuarial
equivalent present value of the retirement benefit which would be payable at age
65. Payments under the Plan are reduced by other sources of retirement income,
including benefits under the PRA, the Defined Benefit Excess Plan, a portion of
social security benefits and estimated benefits provided by other employers.
Lesser benefits are available in the event of termination prior to age 65. The
SERP provides for payment of benefits in the form of a single lump sum or
annuity payments.
Based upon a number of assumptions, including retirement at age 65, the
following estimated annual payments would be made upon retirement pursuant to
the Plan to the individuals listed below: Mr. Grundhofer, $434,000; Mr. Zona,
$313,000; Mr. Heasley, $266,000; Mr. Farley, $213,000; and Mr. Rohr, $214,000.
COMPENSATION AND HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the following individuals served as members of the Compensation
and Human Resources Committee: Kenneth A. Macke (Chairperson), Coleman
Bloomfield, Thomas R. Madison, Marilyn C. Nelson, James J. Renier, S. Walter
Richey, and Richard L. Robinson.
Coleman Bloomfield, a member of the Compensation and Human Resources
Committee, and Thomas Madison, a former member of the Company's Board of
Directors and Compensation and Human Resources Committee, are or were executive
officers of Minnesota Mutual Life Insurance Company, and Mr. Grundhofer is a
member of the Board of Trustees of such company.
During 1994, banking subsidiaries of the Company had loan transactions in
the ordinary course of business with the members of the Compensation and Human
Resources Committee and one or more of their associates. Such loans did not
involve more than the normal risk of collectibility, present other unfavorable
features or bear lower interest rates than those prevailing at the time for
comparable transactions with other persons.
38
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock over a five-year period, based on the
market price of the Common Stock and assuming reinvestment of dividends, with
the cumulative total return of companies on the Standard and Poor's 500 Stock
Index and the Keefe, Bruyette & Woods 50 Bank Index.
FIVE-YEAR TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FBS S&P 500 KBW 50
<S> <C> <C> <C>
1989 100 100 100
1990 83 97 72
1991 159 126 114
1992 193 136 145
1993 217 150 153
1994 243 152 145
</TABLE>
KBW 50 Bank Index is a market-capitalization-weighted total return index
developed by Keefe, Bruyette & Woods, Inc.
39
<PAGE>
OTHER TRANSACTIONS OF MANAGEMENT
During 1994, banking subsidiaries of the Company had loan transactions in
the ordinary course of business with some of the Company's directors, officers
and one or more of their associates. Other than as described below, such loans
did not involve more than normal risk of collectibility, present other
unfavorable features, or bear lower interest rates than those prevailing at the
time for comparable transactions with other persons.
In 1994, an affiliate of the Company paid 4900, Inc., a corporation 52%
owned by Mr. Petry, $135,000 for rent on premises leased by the affiliate. In
addition, N.G. Petry Construction Company has leased approximately 550 square
feet of office space from an affiliate of the Company at competitive rates. Mr.
Petry is a managing partner of N.G. Petry Construction Company.
In 1994, an affiliate of the Company paid $67,000 in rent under a long term
ground lease to a partnership of which Mr. Nicholson is a general partner and
the beneficial interest of which is in his immediate family. The lease, executed
in 1965, covers property used by a bank affiliated with the Company.
LOANS TO MANAGEMENT
In accordance with the Company's policies regarding loans to employees,
certain officers of the Company borrowed money from FBS Mortgage Corporation, a
mortgage banking subsidiary of the Company, to finance their homes. These loans
are evidenced by notes secured by first mortgages on their residences and either
have been, or are in the process of being, sold to investors in the secondary
real estate mortgage market.
In addition, pursuant to the Company's Stock Option Loan program, all active
employees holding stock options are eligible to receive loans from the Company
to be used for the exercise of stock options. Loans bear interest at the
applicable federal rates in effect under Section 1274(d) of the Internal Revenue
Code at the time the loan is made.
40
<PAGE>
The following tables show as to the Company's directors and executive
officers: (i) the outstanding balances of stock option loans and mortgages, if
any, as of December 31, 1994, (ii) the largest outstanding balances of such
loans at any time during 1994, and (iii) the rate of interest applicable to such
loans.
<TABLE>
<CAPTION>
MORTGAGE BALANCE MAXIMUM BALANCE MORTGAGE
AT DECEMBER 31 OF MORTGAGE INTEREST
1994 DURING 1994 RATE
------------------ ----------------- -----------
<S> <C> <C> <C>
William F. Farley................................ $ 570,562 $ 580,375 5.750%*
John M. Murphy, Jr............................... 126,113 131,209 7.000%
Michael J. O'Rourke.............................. 199,711 201,653 7.125%
Daniel C. Rohr................................... 700,000 700,000 7.750%*
* Adjustable Rate Mortgage
</TABLE>
<TABLE>
<CAPTION>
STOCK OPTION LOAN MAXIMUM BALANCE STOCK OPTION
BALANCE AT DECEMBER OF LOAN DURING LOAN INTEREST
31, 1994 1994 RATE
------------------- ----------------- ---------------
<S> <C> <C> <C>
William F. Farley............................ $ 415,170 $ 415,170 5.47%
Philip G. Heasley............................ 417,509 417,509 5.47%
Philip G. Heasley............................ 1,095,198 1,095,198 6.98%
John M. Murphy, Jr........................... 96,649 96,649 5.47%
Michael J. O'Rourke.......................... 71,284 71,284 5.47%
Daniel C. Rohr............................... 584,162 584,162 4.94%
Daniel C. Rohr............................... 908,066 908,066 6.98%
Robert H. Sayre.............................. 136,747 136,747 5.47%
Richard A. Zona.............................. 595,790 606,726 5.47%
</TABLE>
41
<PAGE>
POLICY ON CONFIDENTIAL VOTING
It is the policy of the Company that commencing with the 1993 Annual Meeting
of Stockholders, (i) all proxies, ballots and voting tabulations that identify
stockholders be kept permanently confidential, except as disclosure may be
required by federal or state law or is expressly requested by a stockholder; and
(ii) the receipt and tabulation of proxy cards be by an independent third party.
1996 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1996 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's Proxy Statement, they
must be received by the Company at its principal office in Minneapolis prior to
November 16, 1995.
AVAILABILITY OF FORM 10-K
The Company's Annual Report on Form 10-K detailing the activities and
financial results of First Bank System, Inc. during 1994 is included as a part
of the Company's 1994 Annual Report to Stockholders. If a stockholder requests
copies of any exhibits to such Form 10-K, the Company will require the payment
of a fee covering its reasonable expenses in furnishing such exhibits. Address
any request to Investor Relations Department, First Bank System, Inc., P.O. Box
522, Minneapolis, Minnesota 55480.
By Order of the Board of Directors
[SIGNATURE]
Michael J. O'Rourke
SECRETARY
Dated: March 15, 1995
42
<PAGE>
[Front of proxy card]
[LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF FIRST BANK SYSTEM, INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 26, 1995
The undersigned hereby appoints Elizabeth Malkerson, Michael O'Rourke and
Richard Zona as proxies (each with power to act alone and with power of
substitution) to vote, as designated herein, all shares the undersigned is
entitled to vote at the Annual Meeting of Stockholders of First Bank System,
Inc. to be held on April 26, 1995, or at any adjournment thereof, on those
matters referred to in the Proxy Statement. The proxies are authorized in their
discretion to vote upon such other business as may properly come before the
meeting.
This Proxy cannot be voted unless it is properly signed and returned. If
properly signed and returned, this Proxy will be voted as designated by the
stockholder. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF ALL NOMINEES FOR DIRECTOR, AND FOR PROPOSALS 2,3 AND 4. Shares held
in the First Bank System Capital Accumulation Plan for which a proxy is not
received will be voted by the trustee in the same proportion as votes actually
cast by plan participants.
The nominees for Director are: John F. Grundhofer, Delbert W. Johnson, John H.
Kareken and Kenneth A. Macke.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
<PAGE>
[Reverse of proxy card}
[X] Please mark your
votes as in this
example.
The Board of Directors recommends a vote "FOR" proposals 1, 2, 3 and 4.
1. Election of FOR WITHHELD
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
_________________________________________________________
2. Approve the proposed FOR AGAINST ABSTAIN
amendments to the [ ] [ ] [ ]
Company's 1991
Stock Incentive Plan
3. Approve the FOR AGAINST ABSTAIN
Company's 1995 [ ] [ ] [ ]
Executive
Incentive Plan
4. Approve the FOR AGAINST ABSTAIN
selection of the [ ] [ ] [ ]
firm of Ernst &
Young as inde-
pendent auditors
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears on this Proxy Card. Joint owners should each
sign. Executors, administrators, trustees, etc. should so indicate when signing
and where more than one is named, a majority should sign. Please sign, date and
return this Proxy Card promptly using the enclosed envelope.
________________________________________________________________________________
________________________________________________________________________________
SIGNATURE(S) DATE
