<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
U.S. Bancorp
- --------------------------------------------------------------------------------
(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/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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:
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<PAGE>
[LOGO]
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
March 18, 1999
To Our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of U.S. Bancorp, which will be held at 2:00 p.m., local time, on Tuesday, April
20, 1999, at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota 55403. For your convenience, a map showing the location
of the Minneapolis Convention Center is provided on the back of the accompanying
Proxy Statement.
Holders of record of the Company's Common Stock as of March 1, 1999 are
entitled to notice of and to vote at the 1999 Annual Meeting.
In addition to the election of Directors at this year's Annual Meeting, you
will be considering a proposal to approve the new U.S. Bancorp 1999 Stock
Incentive Plan. Your Board of Directors has adopted the new plan conditioned on
shareholder approval of this proposal. The purpose of the new plan is to aid in
attracting and retaining Directors, officers and employees who are capable of
assuring the future success of U.S. Bancorp.
We hope you will be able to attend the meeting. However, even if you
anticipate attending in person, please vote your shares promptly to ensure your
representation. This year, we are pleased to offer record shareholders the
opportunity to vote in any one of three ways: by returning the accompanying
proxy card in the enclosed postage paid envelope; by calling the toll-free
number listed on the enclosed proxy card; or by using the Internet, as
instructed on the proxy card. Whichever of these methods you choose, the named
proxies will vote your shares in accordance with your instructions. If you
attend the meeting, you will, of course, be entitled to vote in person. If your
shares are held in the name of a bank or broker, please follow the voting
instructions on the form you receive, because the availability of telephone and
Internet voting will depend on their voting processes. IF YOU PLAN TO ATTEND THE
MEETING, PLEASE COMPLETE AND RETURN THE ENCLOSED BUSINESS REPLY POSTCARD TO
REQUEST AN ADMISSION TICKET, WHICH WILL BE MAILED TO YOU PRIOR TO THE MEETING
DATE.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND DATE
YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES, OR VOTE YOUR PROXY BY TOLL-FREE
TELEPHONE OR THROUGH THE INTERNET AS DIRECTED ON YOUR PROXY CARD. YOUR VOTE WILL
BE CONFIDENTIAL, IN ACCORDANCE WITH THE COMPANY'S POLICY ON CONFIDENTIAL VOTING.
Sincerely,
[SIG]
John F. Grundhofer
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, APRIL 20, 1999
The 1999 Annual Meeting of Shareholders of U.S. Bancorp (the "Company") will
be held at 2:00 p.m., local time, on Tuesday, April 20, 1999, at the Minneapolis
Convention Center, 1301 Second Avenue South, Minneapolis, Minnesota 55403, for
the following purposes:
1. To elect five persons to the Board of Directors.
2. To consider and act upon a proposal to approve the U.S. Bancorp 1999
Stock Incentive Plan.
3. To consider and act upon a proposal to ratify the selection by the Board
of Directors of the firm of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999.
4. To transact such other business as may properly come before the meeting,
including, if introduced at the meeting, taking action upon the
resolution quoted under the heading "Shareholder Proposals--Proposal IV.
Annual Election of Directors" in the accompanying Proxy Statement
proposing annual election of all Directors and the elimination of the
Company's classified Board of Directors.
Only shareholders of record at the close of business on March 1, 1999 will
be entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof. A list of such holders will be available for examination
by any shareholder for any purpose germane to the meeting during ordinary
business hours for 10 days prior to the meeting at the Company's headquarters,
601 Second Avenue South, Minneapolis, Minnesota.
<TABLE>
<S> <C>
March 18, 1999 By Order of the Board of Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
</TABLE>
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES, OR VOTE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET AS DIRECTED ON
THE ENCLOSED PROXY CARD. IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND
RETURN THE ENCLOSED BUSINESS REPLY POSTCARD TO REQUEST AN ADMISSION TICKET,
WHICH WILL BE MAILED TO YOU PRIOR TO THE MEETING DATE.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL MATTERS....................................................................... 1
Voting, Execution and Revocation of Proxies......................................... 1
Policy on Confidential Voting....................................................... 2
Annual Report to Shareholders and Form 10-K......................................... 2
Principal Shareholders.............................................................. 2
PROPOSAL I. ELECTION OF DIRECTORS..................................................... 3
The Board of Directors.............................................................. 3
Nominees for Election as Directors.................................................. 3
Board and Committee Meetings........................................................ 4
Retirement Policy and Director Compensation......................................... 5
Information Regarding Nominees and Other Continuing Directors....................... 7
PROPOSAL II. APPROVAL OF THE 1999 PLAN................................................ 13
Description of the Proposed 1999 Plan and Vote Required............................. 13
Summary of the 1999 Plan............................................................ 13
PROPOSAL III. SELECTION OF AUDITORS................................................... 17
SECURITY OWNERSHIP OF MANAGEMENT...................................................... 18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................... 19
EXECUTIVE COMPENSATION................................................................ 20
Report of the Compensation and Human Resources Committee on Executive
Compensation...................................................................... 20
Employment Contracts for the Named Executive Officers............................... 24
Summary Compensation Table.......................................................... 25
Stock Options....................................................................... 27
Retirement Plans.................................................................... 27
Compensation Committee Interlocks and Insider Participation......................... 31
COMPARATIVE STOCK PERFORMANCE......................................................... 31
CERTAIN TRANSACTIONS.................................................................. 33
Stock Repurchases................................................................... 33
Loans to Management................................................................. 33
Other Transactions.................................................................. 34
SHAREHOLDER PROPOSALS................................................................. 34
PROPOSAL IV. ANNUAL ELECTION OF DIRECTORS........................................... 35
OTHER MATTERS......................................................................... 36
</TABLE>
<PAGE>
GENERAL MATTERS
This Proxy Statement has been prepared on behalf of the Board of Directors
by management of U.S. Bancorp (the "Company") and is furnished in connection
with the solicitation of proxies for the Annual Meeting of Shareholders of the
Company to be held on April 20, 1999 and any adjournment or postponement
thereof. The term "Old USB" used in this Proxy Statement means the former U.S.
Bancorp of Portland, Oregon prior to its merger with First Bank System, Inc., as
the Company was then known, in August 1997 (the "Merger"). All share amounts
have been adjusted to reflect the Company's three-for-one stock split in the
form of a 200% stock dividend effected in May 1998. This Proxy Statement and the
accompanying proxy card are first being mailed to shareholders on or about March
18, 1999.
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation by mail, officers and other 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 schedule of charges of The New York
Stock Exchange, Inc. (the "NYSE"). The Company has engaged MacKenzie Partners,
Inc. to assist in proxy solicitation for an estimated fee of $10,000 plus
out-of-pocket expenses.
The Company's principal executive offices are located at 601 Second Avenue
South, Minneapolis, Minnesota 55402-4302, and its telephone number is (612)
973-1111.
VOTING, EXECUTION AND REVOCATION OF PROXIES
Holders of record of the Company's Common Stock as of March 1, 1999 are
entitled to vote at the Company's Annual Meeting. As of that date, there were
approximately 726,039,362 shares of Common Stock of the Company outstanding.
Each share is entitled to one vote. There is no cumulative voting. The telephone
and Internet voting procedures available to shareholders are designed to
authenticate shareholders' identities, to allow shareholders to give their
voting instructions and to confirm that shareholders' instructions have been
recorded properly. The Company has been advised by legal counsel that the
telephone and Internet voting procedures available to shareholders are
consistent with the requirements of applicable law. Shareholders voting through
the Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the shareholder.
The Company's Bylaws provide that except as otherwise required by law, the
Certificate of Incorporation or the Bylaws, the holders of not less than
one-third of the total number of shares of Common Stock entitled to vote at any
meeting of shareholders, present in person or represented by proxy, shall
constitute a quorum and the act of the majority of such quorum shall be deemed
the act of the shareholders. If a proxy card is properly executed and returned
in the form enclosed or a proxy is voted by telephone or through the Internet,
and the shareholder has explicitly abstained from voting on any matter (or, in
the case of the election of Directors, has withheld authority to vote with
respect to any or all of the nominees), including proxies cast by brokers
holding customers' shares in street name who cause abstentions to be recorded at
the meeting, the shares represented by such proxy will be considered present at
the Annual Meeting for purposes of determining a quorum. Under the rules of the
NYSE, brokers who hold shares in street name for customers have the authority to
vote on certain routine items when they have not received customers'
instructions. Brokers may not vote uninstructed shares with respect to certain
non-routine items, however. "Broker non-votes" are votes that could have been
cast on a matter if the brokers had received customers' instructions, but did
not. Proposals II and IV are considered non-routine items under the NYSE rules,
and therefore brokers may not vote uninstructed shares on these matters. Broker
non-votes will be considered present at the Annual Meeting for purposes of
determining a quorum.
To be approved, each proposal must receive the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote. With regard to the election of Directors, votes may be cast in
favor or withheld; votes withheld will have the same effect as votes against.
Abstentions specified on the other proposals will be counted for purposes of
calculating the vote on the particular matter, but will not be considered to
have been voted in favor of such matter and therefore will
<PAGE>
have the same effect as a vote against. Broker non-votes will not be counted for
purposes of calculating the vote on a particular matter, and therefore will not
affect the outcome of the vote on such matter.
When stock is registered in the name of more than one person, each such
person should sign the proxy card. If the proxy card is signed as an attorney,
executor, administrator, trustee, guardian or in any other representative
capacity, the signer's full title should be given. If the shareholder is a
corporation, the proxy card should be signed in its corporate name by an
executive or other authorized officer. If a proxy card is properly executed and
returned in the form enclosed or a proxy is voted by telephone or through the
Internet, it will be voted at the meeting as follows, unless otherwise specified
by the shareholder: (i) FOR the election as Directors of all the nominees listed
herein; (ii) FOR the proposal to approve the new U.S. Bancorp 1999 Stock
Incentive Plan (the "1999 Plan"; the proposal to approve the 1999 Plan is
referred to herein as the "1999 Plan Proposal"); (iii) FOR the ratification of
the selection of Ernst & Young LLP as independent auditors of the Company for
the fiscal year ending December 31, 1999; and (iv) if such proposal is
introduced at the meeting, AGAINST the shareholder proposal quoted under the
heading "Shareholder Proposals--Proposal IV. Annual Election of Directors."
Shares held in the Company's 401(k) Savings Plan (the "Savings Plan") for which
a proxy is not received at least 10 days prior to the meeting will be voted by
the trustee in the same proportion as votes actually cast by Savings Plan
participants, in accordance with the terms of the Savings Plan. A shareholder
may revoke a proxy at any time before it is voted at the meeting by giving
written notice of termination of the proxy's authority to the Secretary of the
Company, by submitting a later-dated proxy (including a proxy given by telephone
or through the Internet) or by voting in person at the meeting. Shareholders are
requested to revoke or amend prior instructions in the same way they were
initially given (that is, by telephone, through the Internet or in writing).
This will help to ensure that shares are voted in accordance with shareholders'
wishes.
POLICY ON CONFIDENTIAL VOTING
The Company has procedures to ensure that, regardless of whether
shareholders vote by mail, telephone, through the Internet or in person, (i) all
proxies, ballots and voting tabulations that identify shareholders are kept
permanently confidential, except as disclosure may be required by federal or
state law or expressly permitted by a shareholder; and (ii) voting tabulations
are performed by an independent third party.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
The U.S. Bancorp 1998 Annual Report to Shareholders and Annual Report on
Form 10-K, including financial statements for the year ended December 31, 1998,
accompanies this Proxy Statement. If a shareholder 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. Any such requests
should be addressed to Investor Relations, U.S. Bancorp, U.S. Bank Place, 601
Second Avenue South, Minneapolis, Minnesota 55402-4302.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 1, 1999 with respect
to shares of the Company's Common Stock that are held by the only person known
to the Company to be the beneficial owner of more than 5% of such stock. For
purposes of this Proxy Statement, beneficial ownership of securities is defined
2
<PAGE>
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 SHAREHOLDER SHARES PERCENT
- ---------------------------------------------------------------------------------------- -------------- ---------
<S> <C> <C>
FMR Corp................................................................................ 48,149,781(1) 6.63%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(1) Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by FMR Corp. ("FMR") on February 16, 1999 with respect
to shares held as of December 31, 1998. The Schedule 13G indicates that
Fidelity Management & Research Company, a registered investment adviser and
wholly owned subsidiary of FMR, beneficially owns 42,247,236 of such shares;
Fidelity Management Trust Company, a bank and wholly owned subsidiary of
FMR, beneficially owns 4,889,195 of such shares; and Fidelity International
Limited, an investment adviser and affiliate of FMR, beneficially owns
1,013,350 of such shares. Of the 48,149,781 shares beneficially owned by
FMR, FMR has sole voting power with respect to 4,579,645 shares, shared
voting power with respect to no shares, and sole dispositive power with
respect to 48,149,781 shares. Of the 43,570,136 shares over which FMR does
not have sole voting power, the Board of Trustees of the mutual funds as to
which Fidelity Management & Research Company acts as investment adviser has
sole voting power over 42,247,236 of such shares; institutional clients of
Fidelity Management Trust Company have sole voting power over 1,195,000 of
such shares; and institutional clients of Fidelity International Limited
have sole voting power over 127,900 of such shares.
PROPOSAL I. ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
Pursuant to the Bylaws of the Company, the Board of Directors has the
authority to determine the number of Directors from time to time (provided that,
pursuant to the Company's Restated Certificate of Incorporation, such number may
not be less than 12 or more than 30). Directors Gerry B. Cameron (Class I),
Carolyn Silva Chambers (Class III), Roger L. Hale (Class I), Richard L. Knowlton
(Class I), Richard L. Schall (Class I) and Walter Scott, Jr. (Class II) are
expected to retire at the 1999 Annual Meeting either voluntarily or in
accordance with the Company's retirement policy for Directors described below.
Commencing with the election of Directors at the 1986 Annual Meeting, 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 1999 Annual Meeting,
the term of office of the Class II Directors will expire at the 2000 Annual
Meeting, and the term of office of the Class III Directors will expire at the
2001 Annual Meeting. At each annual election of Directors, the Directors chosen
to succeed those whose terms have then expired shall be identified as being of
the same class as the Directors they succeed and shall be elected for a term
expiring at the third succeeding annual election of Directors. 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 and until their successors are
elected and qualified. The accompanying proxy may not be voted for more than
five Directors.
NOMINEES FOR ELECTION AS DIRECTORS
It is intended that proxies accompanying this Proxy Statement will be voted
at the meeting FOR the election to the Board of Directors of the nominees named,
unless authority to vote for one or more of the
3
<PAGE>
nominees is withheld as specified in the proxy card. The affirmative vote of a
majority of the shares of the Company's Common Stock present in person or
represented by proxy at the meeting and entitled to vote is necessary for the
election of each nominee. Cumulative voting is not permitted. Class I Directors
are to be elected at the meeting for a three-year term expiring at the 2002
Annual Meeting and until their successors are elected and qualified. Nominees
for Class I Directors are Linda L. Ahlers, Robert L. Dryden, Joel W. Johnson,
Edward J. Phillips and Warren R. Staley. All of these nominees are presently
serving as Class I Directors. If any of the nominees should be unavailable to
serve as a Director, an event that is not anticipated, the persons named as
proxies reserve full discretion to vote for any other persons who may be
nominated.
BOARD AND COMMITTEE MEETINGS
During 1998, the Board of Directors of the Company held five regular
meetings and three special meetings. The Board has established the following
committees to perform their assigned functions: Executive Committee, Audit
Committee, Credit Policy and Community Responsibility Committee, Compensation
and Human Resources Committee, Finance Committee and Governance Committee.
During the past year, the Executive Committee did not meet, the Audit Committee
met five times, the Credit Policy and Community Responsibility Committee met
four times, the Compensation and Human Resources Committee met eight times, the
Finance Committee met four times and the Governance Committee met six times.
Incumbent Directors' attendance at Board and Committee meetings averaged 97%
during 1998, and 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 on which such Director served.
The members of the Executive Committee are John F. Grundhofer (Chair), Gerry
B. Cameron (Vice Chair), Arthur D. Collins, Jr., Roger L. Hale, Jerry W. Levin,
Edward J. Phillips, S. Walter Richey, Richard L. Schall and Walter Scott, Jr.
The Executive Committee is charged with acting with the authority of the Board
of Directors when the Board is not in session, subject to applicable limitations
set forth in the Company's Bylaws and under Delaware law.
The members of the Audit Committee are Roger L. Hale (Chair), Delbert W.
Johnson (Vice Chair), Linda L. Ahlers, Carolyn Silva Chambers, Arthur D.
Collins, Jr., Peter H. Coors, Robert L. Dryden, Joel W. Johnson, Edward J.
Phillips, Paul A. Redmond, Richard G. Reiten, Richard L. Schall and Warren R.
Staley. The Audit Committee is charged with assisting the Board in discharging
its statutory and fiduciary responsibilities for external and internal audits
and the monitoring of accounting and financial reporting practices, determining
that adequate administrative and internal accounting controls are in place and
that they operate in accordance with prescribed procedures and codes of conduct,
and reviewing certain financial information that is distributed to shareholders
and the general public.
The members of the Credit Policy and Community Responsibility Committee are
Edward J. Phillips (Chair), Peter H. Coors (Vice Chair), Linda L. Ahlers,
Carolyn Silva Chambers, Joshua Green III, John F. Grundhofer, Roger L. Hale,
Delbert W. Johnson, Joel W. Johnson, Richard G. Reiten and Richard L. Schall.
The Credit Policy and Community Responsibility Committee reviews lending and
credit administration policies, practices and controls for the Company. The
Committee reviews the adequacy of written credit policies, monitors significant
lending and credit quality trends and summaries of examination reports and
approves the adequacy of the Company's allowance for credit losses. The
Committee also has general oversight responsibility for the Company's policy and
performance under the Community Reinvestment Act.
The members of the Compensation and Human Resources Committee are S. Walter
Richey (Chair), Jerry W. Levin (Vice Chair), Arthur D. Collins, Jr., Robert L.
Dryden, Delbert W. Johnson, Richard L. Knowlton and Paul A. Redmond. The
Compensation and Human Resources Committee is charged with
4
<PAGE>
oversight responsibility for executive management performance, the adequacy and
effectiveness of compensation and benefit plans and employee programs, and
senior management succession planning. In addition, the Committee makes
recommendations to the Board of Directors regarding remuneration for senior
management and Directors and adoption of employee compensation and benefit plans
and is charged with the administration of such plans, including the granting of
stock incentives or other benefits.
The members of the Finance Committee are Arthur D. Collins, Jr. (Chair),
Walter Scott, Jr. (Vice Chair), Harry L. Bettis, Gerry B. Cameron, Joshua Green
III, John F. Grundhofer, Richard L. Knowlton, Jerry W. Levin, S. Walter Richey
and Warren R. Staley. The Finance Committee reviews, approves and monitors
compliance with policies governing capital adequacy, dividends, interest rate
sensitivity and liquidity for the Company, as well as policies governing the use
of derivatives and the investment portfolio. The Committee makes recommendations
to the Board of Directors regarding the sale, issuance and repurchase of debt
and equity securities and reviews other actions regarding the common and
preferred capital of the Company.
The members of the Governance Committee are Richard L. Schall (Chair),
Arthur D. Collins, Jr. (Vice Chair), Gerry B. Cameron, John F. Grundhofer, Roger
L. Hale, Edward J. Phillips, S. Walter Richey and Walter Scott, Jr. The
Committee serves as a forum for ideas and suggestions to improve the quality of
stewardship provided by the Board of Directors. The Committee reviews the
charters of the various Board Committees to ensure they reflect the Company's
commitment to effective governance. The Committee also manages the Board
performance review process, assists the Board by identifying, attracting and
recommending candidates for Board membership and administers the Director
retirement policy. The Committee recommends to the Board those persons whom it
believes should be nominees for election as Directors. The Committee will
consider qualified nominees recommended by shareholders. Any such recommendation
for the 2000 election of Directors should be submitted in writing to the
Secretary of the Company so as to be received no later than November 19, 1999.
Such recommendation must include the information specified in the Company's
Bylaws that will enable the Governance Committee to evaluate the qualifications
of the recommended nominee.
RETIREMENT POLICY AND DIRECTOR COMPENSATION
It is the Company's policy that a Director shall retire as of the annual
meeting of shareholders following the earlier of either 12 years of service or
such Director's sixty-seventh birthday. Notwithstanding this policy, however,
the Board of Directors may, in consultation with the Governance Committee, ask a
particular Director to continue service beyond the normal retirement date. Mr.
Schall, who is 69 and otherwise would have retired at the 1997 Annual Meeting in
accordance with the Company's policy, is serving as a Director through his
current term at the Board's request. Mr. Schall is a Class I Director and is
expected to retire at the 1999 Annual Meeting. One of the nominees for election
as a Class I Director, Mr. Dryden, will turn 67 prior to the 2001 Annual
Meeting, which will be prior to the expiration of his term at the 2002 Annual
Meeting, if he is elected. Another of the nominees for election as a Class I
Director, Mr. Phillips, will have 12 years of service at the time of the 2000
Annual Meeting, which also will be prior to the expiration of his term at the
2002 Annual Meeting, if he is elected.
Directors who are not employees of the Company ("Non-Employee Directors")
receive an annual retainer of $23,000, with the exception of the Chair of the
Audit Committee who receives an annual retainer of $24,000, plus all such
Directors receive $1,000 for each meeting of the Board attended. In addition,
non-employee Committee Chairs receive $2,000 and Non-Employee Directors receive
$1,000 for each Committee meeting attended. Ms. Ahlers and Mr. Richey also serve
as Directors of certain of the Company's bank and trust company subsidiaries at
the Company's request. As compensation for one year of such service, Ms. Ahlers
and Mr. Richey each received a stock option grant in June 1998 to purchase 3,900
shares of the Company's Common Stock, and it is anticipated that Directors
serving in such capacities in 1999 will receive a similar stock option grant
having an estimated value of approximately $60,000. Such options have the same
terms and conditions as options granted automatically to Non-
5
<PAGE>
Employee Directors under the Company's 1997 Stock Incentive Plan, described
below. Directors are encouraged to own Company stock to further align Director
and shareholder interests. The Company's voluntary guideline for Non-Employee
Directors is share ownership in an amount having a market value of at least five
times the annual retainer, to be achieved within five years of joining the
Board.
Directors may elect to use their Director compensation to purchase shares of
the Company's Common Stock through the Employee Stock Purchase Plan upon
substantially the same terms and conditions as apply to employees. Directors may
purchase shares of Common Stock with all or any portion of their fees earned as
a Director. The purchase price is 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 number of shares of the Company's Common Stock that can
be purchased with the participant's accumulated deductions at the established
purchase price. Non-Employee Directors also 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. Deferred amounts are credited with interest at a rate
determined by the Company, which is currently the monthly equivalent of the
120-month rolling average of the 10-year Treasury Note, determined as of
September 30 of the previous year. In the event of certain types of changes of
control of the Company, the plan will terminate and all deferred amounts will be
paid in a lump sum within 30 days thereof.
Under the Company's 1997 Stock Incentive Plan, each Non-Employee Director
receives options to purchase 7,500 shares of the Company's Common Stock upon
first being elected to the Board of Directors, and thereafter options to
purchase 5,100 shares of the Company's Common Stock on the date of each annual
meeting of shareholders if such Director's term of office continues after such
annual meeting. Each option granted to a Non-Employee Director upon initial
election to the Board or as of the date of each annual meeting of shareholders
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 Common Stock as of the date of
grant, is nontransferable except to family members or family trusts or
partnerships, and expires on the tenth anniversary of the date of grant. Such
options granted to Non-Employee Directors include provisions entitling the
optionee to a further option (a "reload option") if the optionee exercises an
option, in whole or in part, by surrendering other shares of the Company's
Common Stock or if shares of the Company's Common Stock are delivered or
withheld as payment of an amount representing income tax obligations in
connection with the exercise of an option, which reload options shall be for the
number of shares of the Company's Common Stock surrendered as part or all of the
exercise price plus the number of shares, if any, delivered or withheld as
payment of an amount representing income tax obligations. If the 1999 Plan
Proposal is approved, such grants of options to Non-Employee Directors would be
made thereafter under the 1999 Plan.
The Company has a Director Retirement and Death Benefit Plan (the "Plan")
that provides for payments to Non-Employee Directors after they cease to be
Directors. In January 1997, the Board of Directors determined to freeze benefits
under the Plan for Directors then-serving and terminate the Plan for new
Directors, both effective as of April 30, 1997. Plan benefits are payable to
persons who have completed 60 months of service as a Director (measured as
provided in the Plan). Benefits accrue in the amount of the annual retainer in
effect on the date a Director's service terminates multiplied by the number of
years of service, not to exceed 10 years. Benefits are paid in annual
installments over a 10-year period. If a Director retires after reaching age 67
or after completion of 12 years of service, the Director receives lifetime
payments not limited to 10 years calculated based on the annual retainer in
effect on the date of retirement. Due to the termination of the Plan, benefits
for eligible, current Directors will be determined as if their service as
Directors had terminated on April 30, 1997 (except that additional service after
such date may be considered in determining the form of benefit to be paid). As a
result, the benefits payable to those Directors will be based on the annual
retainer and each Director's service as of April 30, 1997. A Director who
retires after 12 years of service but who is not then 67 does not receive the
first
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payment until age 67. In the event of a Director's death, a lump sum payment may
be made. In the event of certain types of changes of control of the Company,
benefits payable under the Plan will be paid in a lump sum within 30 days
thereof.
A portion of the cost of premiums incurred by Non-Employee Directors who
were former Directors of West One Bancorp (a company acquired by Old USB in
1995) for health care insurance coverage of such Directors and their dependents
will be subsidized or reimbursed by the Company upon request, provided that no
portion of such premiums is subsidized by any other employer. Reimbursement is
subject to the same conditions and limits as are applicable to active employees.
Two Non-Employee Directors received health care subsidies and related
reimbursements for income taxes on such subsidies during 1998.
INFORMATION REGARDING NOMINEES AND OTHER CONTINUING 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 after the
meeting, as furnished to the Company, the individual's name, age, principal
occupation and business experience; the individual's period of service as a
Director of the Company; and other directorships and positions held.
CLASS I DIRECTORS -- NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2002
ANNUAL MEETING
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LINDA L. AHLERS (Age 48) Director Since 1997
[PHOTO] Ms. Ahlers is President of the Department Store Division of Dayton
Hudson Corporation, Minneapolis, Minnesota, a diversified retail
company. Ms. Ahlers has been associated with Dayton Hudson since 1977.
She assumed her current position in February 1996 and previously served
as Executive Vice President, Merchandising, of Dayton's Department Store
Division, and in various capacities with Target Stores, an affiliate
company of Dayton Hudson. Ms. Ahlers serves as a Director of certain of
the Company's bank and trust company subsidiaries. Her community
activities include serving as a member of the Minnesota Women's Economic
Roundtable, the Minnesota Women's Forum and The Committee of 200. She is
also a Director of the Guthrie Theatre, Minneapolis, Minnesota, the
Renaissance Board, Detroit, Michigan, and the Dayton Hudson Corporation
Foundation. Ms. Ahlers serves on the Audit Committee and the Credit
Policy and Community Responsibility Committee.
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ROBERT L. DRYDEN (Age 65) Director Since 1997
[PHOTO] Mr. Dryden is the retired Executive Vice President, Airplane Production,
of The Boeing Company (Commercial Airplane Group), Seattle, Washington,
a position he held from 1990 until May 1998. He joined The Boeing
Company in 1980 and held numerous positions, including President of
Boeing Military Airplanes and President of Boeing Computer Services. Mr.
Dryden had served as a Director of Old USB since 1995. He is also a
Director of Puget Sound Energy, Inc. Mr. Dryden's civic activities
include service as a Director of Junior Achievement of Greater Puget
Sound and National Junior Achievement, on the executive advisory council
of Seattle Pacific University's School of Business and Economics and as
Chairman of the Board of Trustees of the Overlake Hospital Medical
Center. Mr. Dryden serves as a member of the Audit Committee and the
Compensation and Human Resources Committee.
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JOEL W. JOHNSON (Age 55) Director Since 1999
[PHOTO] Mr. Johnson is Chairman, President and Chief Executive Officer of Hormel
Foods Corporation, Austin, Minnesota, a meat and food processing
company. Mr. Johnson joined Hormel in 1991 as Executive Vice President,
Sales and Marketing. He was elected President in 1992 and assumed the
title of Chief Executive Officer in 1993. He was elected Chairman of the
Board in 1995. Prior to joining Hormel, Mr. Johnson held various
management positions with General Foods Corporation from 1967 to 1991.
Mr. Johnson is a Director of Hormel Foods Corporation, Ecolab, Inc.,
Meredith Corporation, the American Meat Institute and the Grocery
Manufacturers of America. His community activities include serving as a
Director of The Hormel Foundation and as a member of the Board of
Overseers of the Curtis L. Carlson School of Management at the
University of Minnesota. Mr. Johnson serves as a member of the Audit
Committee and the Credit Policy and Community Responsibility Committee.
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EDWARD J. PHILLIPS (Age 54) Director Since 1988
[PHOTO] 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. He is a Director of
Phillips Beverage Company and Weisman Enterprises, Inc. His community
activities include serving as Vice Chairman and Director of
Metropolitan-Mount Sinai Foundation and as a Director of Amicus, the
Phillips Eye Institute, the Minnesota AIDS Project, the Page Education
Foundation and the Paul E. Goldstein Family Foundation. Mr. Phillips
serves as Chair of the Credit Policy and Community Responsibility
Committee and as a member of the Audit Committee, the Governance
Committee and the Executive Committee.
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WARREN R. STALEY (Age 56) Director Since 1999
[PHOTO] Mr. Staley is President and Chief Operating Officer of Cargill,
Incorporated, Minneapolis, Minnesota, an international marketer,
processor and distributor of agricultural, food, financial and
industrial products. Mr. Staley joined Cargill in 1969 and was elected
to his current position in 1998. He previously held merchandising,
administrative and general management positions in corn milling in the
United States and in Europe, was head of Cargill in Argentina and was
President of Worldwide Feed and President of North America and Latin
America for Cargill. He has been a Director of Cargill since 1995 and is
also Chairman of the Cargill Foundation. He also serves as a member of
the Executive Committee and as the Regional Vice Chairman of the Board
of the National Association of Manufacturers. His community activities
include service as a Director of the Minnesota Private College Council.
Mr. Staley serves as a member of the Audit Committee and the Finance
Committee.
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CLASS II DIRECTORS -- WHOSE TERMS EXPIRE AT THE 2000 ANNUAL MEETING
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HARRY L. BETTIS (Age 64) Director Since 1997
[PHOTO] Mr. Bettis has been a rancher in Payette, Idaho since 1969. Mr. Bettis
had served as a Director of Old USB since 1995, and was a Director of
West One Bancorp from 1971 until 1995. Mr. Bettis is President of the
Laura Moore Cunningham Foundation, Idaho's largest private charitable
foundation, a Director of the Peregrine Fund National Center for Birds
of Prey and a trustee of Albertson's College of Idaho. He serves as a
member of the Finance Committee.
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PETER H. COORS (Age 52) Director Since 1996
[PHOTO] Mr. Coors is Vice Chairman and Chief Executive Officer of Coors Brewing
Company, Golden, Colorado and Vice President of Adolph Coors Company.
Mr. Coors has been associated with Coors Brewing Company since 1970 and
has served in various capacities, including as Director of Financial
Planning, Director of Market Research, Vice President of Sales and
Marketing and President of Coors Distributing Company, and as President
of the brewing division of Adolph Coors Company. He serves as a Director
of Adolph Coors Company and Energy Corporation of America. His community
activities include serving as a member of the International Chapter of
the Young Presidents' Organization. He is also an Executive Board member
and Chairman of the Denver Area Council of the Boy Scouts of America, a
Board member of Up With People and a trustee of the Seeds for Hope
Foundation, the Adolph Coors Foundation and the Castle Rock Foundation.
Mr. Coors serves as Vice Chair of the Credit Policy and Community
Responsibility Committee and as a member of the Audit Committee.
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JOSHUA GREEN III (Age 62) Director Since 1997
[PHOTO] Mr. Green is Chairman of the Board and Chief Executive Officer of Joshua
Green Corporation, Seattle, Washington, a family investment firm, and
Chairman of its wholly owned subsidiary, Sage Manufacturing Corporation,
a manufacturer of fly-fishing rods and reels. He had served as a
Director of Old USB since December 1987. He also served as Chairman of
the Board of U.S. Bank of Washington from February 1988 until January
1997 and was Vice Chairman of Old USB from December 1987 until January
1993. Mr. Green is a Director of Safeco Corporation and Port Blakely
Tree Farms and President of the Joshua Green Foundation. His numerous
civic activities include service as a member of the Advisory Board of
the University of Washington's School of Business and as a trustee of
the Downtown Seattle Association, the Corporate Council for the Arts,
the Rhododendron Species Foundation, Fifth Avenue Theater, the Pacific
Science Center, Woodland Park Zoological Society, the Virginia Mason
Foundation and the Virginia Mason Research Center. Mr. Green serves on
the Credit Policy and Community Responsibility Committee and the Finance
Committee.
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PAUL A. REDMOND (Age 62) Director Since 1997
[PHOTO] Mr. Redmond is the retired Chairman and Chief Executive Officer of
Avista Corp., formerly known as The Washington Water Power Company,
Spokane, Washington, an electric and gas utility. Prior to his
retirement in 1998, Mr. Redmond had been associated with Avista since
1965 and served in various capacities, including as Senior Vice
President for Operations, Executive Vice President and President. He was
elected Chairman and Chief Executive Officer in 1985. Mr. Redmond had
served as a Director of Old USB since 1994. He is also a Director of
ITRON Inc. and Hecla Mining Company. Mr. Redmond serves on the Audit
Committee and the Compensation and Human Resources Committee.
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S. WALTER RICHEY (Age 63) Director Since 1990
[PHOTO] Mr. Richey is the former Chairman and Chief Executive Officer of
Meritex, Inc., Minneapolis, Minnesota, a company involved in real estate
management and development and warehousing. Mr. Richey was with Meritex,
Inc. (and its predecessor company) from 1973 until March 1998. He serves
as a Director of Donaldson Company, Inc. and of certain of the Company's
bank and trust company subsidiaries. He is a member of the Board of
Overseers of the Curtis L. Carlson School of Management at the
University of Minnesota. Mr. Richey serves as Chair of the Compensation
and Human Resources Committee and as a member of the Executive
Committee, the Finance Committee and the Governance Committee.
</TABLE>
CLASS III DIRECTORS -- WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
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ARTHUR D. COLLINS, Jr. (Age 51) Director Since 1996
[PHOTO] Mr. Collins is President and Chief Operating Officer of Medtronic, Inc.,
Minneapolis, Minnesota, a leading medical device company. Mr. Collins
joined Medtronic in 1992. He was elected to his present position in 1996
and previously served as Chief Operating Officer, Corporate Executive
Vice President and President of Medtronic International. Prior to
joining Medtronic, Mr. Collins served in a number of senior executive
positions with Abbott Laboratories from 1978 through 1992, most recently
as Corporate Vice President responsible for worldwide diagnostic
business units. He serves as a Director of Medtronic, Inc. and TENNANT
Company. He is also a member of the Board of Overseers of the Wharton
School of Business at the University of Pennsylvania, and a Board member
of numerous civic organizations, including the Walker Art Center in
Minneapolis. Mr. Collins serves as Chair of the Finance Committee, as
Vice Chair of the Governance Committee and as a member of the Audit
Committee, the Compensation and Human Resources Committee and the
Executive Committee.
</TABLE>
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JOHN F. GRUNDHOFER (Age 60) Director Since 1990
[PHOTO] Mr. Grundhofer is Chairman, President and Chief Executive Officer of the
Company. He has served as President and Chief Executive Officer since
joining the Company on January 31, 1990. Upon joining the Company and
until the Merger, he also served as Chairman of the Board of Directors.
Mr. Grundhofer reassumed the position of Chairman on January 1, 1999
following Mr. Cameron's retirement. Prior to joining the Company, Mr.
Grundhofer served as Vice Chairman and Senior Executive Officer for
Southern California with Wells Fargo Bank, N.A. In addition to serving
as a Director of the Company, Mr. Grundhofer is also a Director of
Minnesota Life Insurance Company, Irvine Apartment Communities, Inc. and
Donaldson Company, Inc. Mr. Grundhofer is a Director of the Horatio
Alger Association and an Advisory Director of the Minneapolis-based
Metropolitan Economic Development Association, and a member of Minnesota
Meeting, the Bankers Roundtable, the CEO Board of the School of Business
Administration at the University of Southern California and the Board of
Trustees of Loyola Marymount University. Mr. Grundhofer serves as Chair
of the Executive Committee and as a member of the Credit Policy and
Community Responsibility Committee, the Finance Committee and the
Governance Committee.
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DELBERT W. JOHNSON (Age 60) Director Since 1994
[PHOTO] Mr. Johnson is Chairman and Chief Executive Officer of Pioneer Metal
Finishing, a division of Safeguard Scientifics Inc., Minneapolis,
Minnesota, 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 1989, was named Chairman. In 1990, he was selected as Vice Chairman
of the Federal Reserve Board Conference of Chairmen and in 1990 became
Chairman. He serves as a Director of Ault Inc., TENNANT Company,
Safeguard Scientifics Inc. and CompuCom Systems, Inc. He also serves on
the Advisory Boards of Hospitality House and Turning Point, Inc. and as
a Director of Quest, a nonprofit youth organization. Mr. Johnson serves
as Vice Chair of the Audit Committee and as a member of the Credit
Policy and Community Responsibility Committee and the Compensation and
Human Resources Committee.
</TABLE>
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JERRY W. LEVIN (Age 54) Director Since 1995
[PHOTO] Mr. Levin is President and Chief Executive Officer of Sunbeam
Corporation, Boca Raton, Florida, a leading consumer products company,
and Executive Vice President of MacAndrews & Forbes Holdings, Inc. Prior
to joining Sunbeam in June 1998, Mr. Levin was Chairman of Revlon, Inc.,
New York, New York, a maker of cosmetics and personal care and
professional products, which he had joined in 1991 as President; he was
elected Chairman of Revlon in November 1995. Mr. Levin also served as
Chairman and Chief Executive Officer of The Coleman Company, Inc.,
Wichita, Kansas, a manufacturer and marketer of outdoor recreational
products, from February 1997 until March 1998. Before joining MacAndrews
& Forbes in 1989, Mr. Levin had served in a number of senior executive
positions with The Pillsbury Company since 1974. Mr. Levin is a Director
of Sunbeam Corporation, Revlon, Inc., The Coleman Company, Inc., Ecolab,
Inc. and Meridian Sports, Inc. His community activities include serving
as a Director of United Way of New York City, UJA-Federation of New
York, the New York Philharmonic, the Council on the Graduate School of
Business-University of Chicago and the National Advisory Committee of
the College of Engineering-University of Michigan. Mr. Levin serves as
Vice Chair of the Compensation and Human Resources Committee and as a
member of the Finance Committee and the Executive Committee.
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RICHARD G. REITEN (Age 59) Director Since 1998
[PHOTO] Mr. Reiten is President and Chief Executive Officer of Northwest Natural
Gas Company, Portland, Oregon. Mr. Reiten joined Northwest Natural in
1996. He was elected to his present position in 1997 and previously
served as Chief Operating Officer. Mr. Reiten also has served as
President and Chief Operating Officer of Portland General Electric
Company and as President of Portland General Corporation. He serves as a
Director of Northwest Natural, Regence BlueCross BlueShield of Oregon,
The Regence Group and AEGIS Insurance Services. He is also a member of
the Boards of the American Gas Association, the Pacific Coast Gas
Association and the Northwest Gas Association. Mr. Reiten currently is
General Chairman of the United Way campaign for Portland and is a
Director of the Portland Metropolitan Chamber of Commerce, the
Association for Portland Progress, the Nature Conservancy of Oregon and
the Oregon Business Council. Mr. Reiten serves as a member of the Audit
Committee and the Credit Policy and Community Responsibility Committee.
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</TABLE>
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PROPOSAL II. APPROVAL OF THE 1999 PLAN
DESCRIPTION OF THE PROPOSED 1999 PLAN AND VOTE REQUIRED
On February 17, 1999, the Company's Board of Directors adopted the 1999
Plan, subject to approval by the Company's shareholders. The purpose of the 1999
Plan is to aid in attracting and retaining employees, management, other
personnel and Non-Employee Directors capable of assuring the future success of
the Company, to offer such persons incentives to put forth maximum efforts for
the success of the Company's business and to afford them an opportunity to
acquire a proprietary interest in the Company. Approval of the 1999 Plan
Proposal requires the affirmative vote of the holders of a majority of the
shares of Common Stock represented at the Annual Meeting and entitled to vote.
The following summary describes all of the material features of the 1999 Plan. A
copy of the full text of the plan may be obtained by shareholders upon request
directed to the Company's Corporate Secretary at U.S. Bank Place, 601 Second
Avenue South, Minneapolis, Minnesota 55402-4302.
SUMMARY OF THE 1999 PLAN
For purposes of administration and share accounting under the 1999 Plan, the
U.S. Bancorp 1997 Stock Incentive Plan, as amended, and the Piper Jaffray
Companies Inc. 1993 Omnibus Stock Plan, as assumed by the Company (collectively,
the "Prior Plans"), will be incorporated in the 1999 Plan upon its effective
date.
All outstanding options, restricted stock and other awards subject to the
terms of the Prior Plans will remain outstanding and subject to the terms and
conditions of those plans but are counted as part of the total number of shares
of Common Stock awarded under the 1999 Plan. The shares of Common Stock
authorized for issuance under the U.S. Bancorp 1997 Stock Incentive Plan but not
subject to previously outstanding awards (5,805,009 shares as of March 1, 1999)
will be available for grant under the 1999 Plan. Additionally, 45,000,000 new
shares will be authorized for issuance under the 1999 Plan. Of the 45,000,000
new shares, not more than 7,000,000 shares will be available for the grant of
additional restricted stock awards following adoption of the 1999 Plan.
Restricted stock awards that are forfeited are not considered to have been
granted for purposes of this limitation. The 1999 Plan will authorize the
issuance of an aggregate of 92,891,502 shares of Common Stock (which includes
41,867,178 shares subject to outstanding awards under the Prior Plans as of
March 1, 1999), of which 50,805,009 shares will be available for grant. Such
numbers will be automatically adjusted to reflect activity under the Prior Plans
prior to the adoption of the 1999 Plan. The 92,891,502 shares authorized for
issuance under the 1999 Plan represent 12.79% of the shares of the Company's
Common Stock outstanding as of March 1, 1999.
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 (in each case, including
those awards granted under the Prior Plans), the shares previously used for such
awards will be available for future awards under the 1999 Plan. In addition, if
any shares are used by a 1999 Plan participant as full or partial payment to the
Company of the purchase price relating to an award, or in connection with the
satisfaction of tax obligations relating to an award in accordance with the
provisions relating to tax withholding (in each case, including those awards
granted under the Prior Plans), only the number of shares issued net of the
shares tendered or withheld shall be deemed delivered for purposes of
determining the maximum number of shares available for granting awards under the
1999 Plan. Notwithstanding the foregoing, the total number of shares of Common
Stock that may be purchased upon exercise of Incentive Stock Options (as defined
below) granted under the 1999 Plan following effectiveness of the 1999 Plan may
not exceed 45,000,000 shares (subject to adjustment as described below). No
person may be granted any award or awards the value of which awards are based
solely on an increase in the value of the Company's Common Stock after the date
of grant for more than 5,000,000 shares of Common Stock, in the aggregate, in
any calendar year.
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ELIGIBILITY. Any employee, officer, consultant or independent contractor of
the Company and its affiliates is eligible to receive awards under the 1999
Plan. The 1999 Plan also provides for the automatic grant of options to
Non-Employee Directors as described below. The Company estimates that
approximately 30,000 employees will be eligible to participate in the 1999 Plan
during 1999. The 1999 Plan will become effective immediately upon approval by
the Company's shareholders. New awards under the 1999 Plan will only be granted
during a 10-year period beginning on the effective date of the 1999 Plan.
However, unless otherwise expressly provided in the 1999 Plan or an applicable
award agreement, any award granted may extend beyond such 10-year period.
TYPES OF AWARDS; PLAN ADMINISTRATION. The 1999 Plan will permit 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, and (e) other awards valued in whole or in part by reference to or
otherwise based upon the Company's Common Stock ("other stock-based awards").
The 1999 Plan will be administered by a Committee of the Company's Board of
Directors composed of not less than two Directors. The Committee will have the
authority to establish rules for the administration of the 1999 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. The 1999 Plan limits the Committee's discretion to accelerate the
exercisability of options or the lapse of restrictions on restricted stock and
restricted stock units to accelerations relating to a change in control, certain
terminations of employment, death or disability. Determinations and
interpretations with respect to the 1999 Plan will be at the sole discretion of
the Committee and will be binding on all interested parties. The Committee may
delegate to one or more officers who are also Directors of the Company the right
to grant awards with respect to individuals who are not subject to Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Awards shall 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 that may be purchased under any other stock-based
award shall 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 award. Options
shall 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 tendering 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 1999 Plan shall be made in accordance with methods and
procedures established by the Committee. For purposes of the 1999 Plan, the fair
market value of shares of Common Stock on a given date shall be the closing
price of the shares as reported by the NYSE on such date, if the shares are then
listed on the NYSE.
The 1999 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 Common Stock tendered or forfeited as payment of the amount to be
withheld under 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 any stock option plan of the Company.
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The holder of an SAR will be 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 shareholder
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 have lapsed. Holders of restricted
stock units shall 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
holder's employment during the restriction period, restricted stock and
restricted stock units are forfeited, unless the Committee determines otherwise;
provided, however, that the Committee may, when it finds that a waiver would be
in the best interest of the Company, including, without limitation, in
connection with changes in control, certain terminations of employment, death or
disability, waive in whole or in part any or all remaining restrictions with
respect to shares of restricted stock or restricted stock units. The 1999 Plan
requires that awards of restricted stock and restricted stock units contain
restrictions that lapse no sooner than three years following the date of grant
or, in the case of awards with performance-based vesting provisions, no sooner
than one year following the date of grant; provided, however, that restrictions
may lapse sooner than such dates as to portions of such awards so long as
restrictions as to the total number of shares of Common Stock covered by such
awards do not lapse sooner than such dates; and provided, further, that such
limitations shall not apply to awards granted to new employees as part of
initial terms of employment or awards granted to new or existing employees in
connection with the acquisition of businesses or assets by the Company.
Performance awards will 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 1999 Plan may be denominated or payable in cash, shares of
Common Stock or restricted stock.
The Committee is also authorized to establish the terms and conditions of
other stock-based awards.
NON-EMPLOYEE DIRECTOR PARTICIPATION. Under the 1999 Plan, Non-Employee
Directors will receive Nonqualified Stock Options to purchase 7,500 shares of
Common Stock upon first being elected or appointed to the Company's Board of
Directors following shareholder approval of the 1999 Plan Proposal. During the
term of the 1999 Plan, Non-Employee Directors will be granted, as of the date of
each annual meeting of shareholders commencing with the 1999 Annual Meeting, if
such Director's term of office continues after such date, an option to purchase
5,100 shares of Common Stock. Such options will be exercisable in full as of the
date of grant, will expire on the tenth anniversary of the date of grant and
will have an exercise price equal to the fair market value of the Company's
Common Stock as of the date of grant. Additionally, the 1999 Plan provides for
the grant of reload options to Non-Employee Directors, pursuant to which such
Directors would receive an option to purchase that number of shares of Common
Stock equal to the number of shares of Common Stock tendered as payment upon the
exercise of the option to which such reload option relates plus the number of
shares, if any, delivered or withheld as payment of an amount representing tax
obligations in connection with the exercise of the option to which it relates.
MISCELLANEOUS. No award and no right under any award granted under the 1999
Plan shall be transferable by the individual to whom it was granted otherwise
than by will or by the laws of descent and distribution; provided, however,
that, if so determined by the Committee, a participant may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the participant and receive any property distributable
with respect to any award upon the death of the participant; and provided,
further, that except in the case of an Incentive Stock Option, awards may be
transferable as specifically provided in any applicable award agreement pursuant
to terms determined by
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the Committee. Except as otherwise provided in any applicable award agreement
(other than an award agreement relating to an Incentive Stock Option), pursuant
to terms determined by the Committee, each award or right under any award shall
be exercisable during a participant's lifetime only by the participant or, if
permissible under applicable law, by the participant's guardian or legal
representative. Except as otherwise provided in any applicable award agreement,
no award or right under any such award may be pledged, alienated, attached or
otherwise encumbered, and any purported pledge, alienation, attachment or
encumbrance thereof shall be void and unenforceable against the Company.
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 or other similar corporate transaction or event
affecting the shares of Common Stock would be reasonably likely to result in the
diminution or enlargement of the benefits or potential benefits intended to be
made available under the 1999 Plan or under an award, the Committee shall, in
such manner as it deems equitable or appropriate in order to prevent such
diminution or enlargement of any such benefits or potential benefits, adjust any
or all of (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 purchase or exercise price with respect to any award. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
1999 Plan or any award agreement in the manner and to the extent it shall deem
desirable to carry the 1999 Plan into effect.
The Board of Directors may amend, alter or discontinue the 1999 Plan at any
time, provided that shareholder approval must be obtained for any change that
(i) requires the approval of shareholders under any rules or regulations of the
NYSE or any other securities exchange or the National Association of Securities
Dealers, Inc. that are applicable to the Company, or (ii) requires the approval
of the Company's shareholders under the Code in order to permit Incentive Stock
Options to be granted under the 1999 Plan. Except for adjustments under the 1999
Plan described in the preceding paragraph, no option may be amended to reduce
its initial exercise price, and no option may be canceled and replaced with an
option or options having a lower exercise price without the approval of the
shareholders of the Company.
The closing price per share of the Company's Common Stock on March 5, 1999,
as reported by the NYSE, was $34.81.
TAX CONSEQUENCES. The following is a summary of the principal federal
income tax consequences generally applicable to awards under the 1999 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 a 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
consequences to the Company in connection with the 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 1999 Plan that are payable in
cash or shares of Common Stock that are either transferable or not subject to
substantial risk of forfeiture, the holder of
16
<PAGE>
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 if and to the extent such amount
satisfies the general rules concerning deductibility of compensation. 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 became transferable 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 if and to the extent such amount is
deductible.
Special rules may apply in the case of individuals subject to Section 16(b)
of the Exchange 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 1999 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 or shares
previously owned by the optionee) to the Company to satisfy federal, state or
local withholding tax obligations.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
THE 1999 PLAN. PROXIES WILL BE VOTED FOR THE PROPOSAL UNLESS OTHERWISE
SPECIFIED.
PROPOSAL III. 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 fiscal year ending December
31, 1999. A proposal to ratify the appointment of Ernst & Young will be
presented at the meeting. Representatives of Ernst & Young are expected to be
present at the meeting, will have an opportunity to make a statement if they
desire to do so and will be available to answer appropriate questions from
shareholders. If the appointment of Ernst & Young is not ratified by the
shareholders, the Board of Directors is not obligated to appoint other auditors,
but will give consideration to such unfavorable vote.
The Audit Committee of the Board of Directors has recommended to the full
Board the appointment of Ernst & Young, after carefully considering the
qualifications of such firm. This included a review of its performance in prior
years as well as its reputation for integrity and competence in the fields of
auditing and accounting. The Audit Committee has expressed its satisfaction with
Ernst & Young in all of these respects.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1999. PROXIES WILL BE VOTED FOR RATIFYING THIS
SELECTION UNLESS OTHERWISE SPECIFIED.
17
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 1, 1999 the beneficial ownership
(as defined in the rules of the Securities and Exchange Commission) of the
Company's Common Stock by Directors, by the executive officers named in the
Summary Compensation Table below and by all Directors and executive officers as
a group. Except as otherwise indicated, the named beneficial owner has sole
voting and investment power with respect to the shares held by such beneficial
owner.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES BENEFICIALLY PERCENT OF
OWNED(1) CLASS
------------------- ------------
<S> <C> <C>
Linda L. Ahlers......................... 18,689 *
Harry L. Bettis......................... 6,727,049(2) *
Gerry B. Cameron........................ 969,840 *
Carolyn Silva Chambers.................. 33,639 *
Arthur D. Collins, Jr................... 24,052 *
Peter H. Coors.......................... 26,246 *
Robert L. Dryden........................ 42,638 *
Joshua Green III........................ 16,876,520(3) 2.32%
John F. Grundhofer...................... 2,305,672(4)(5) *
Roger L. Hale........................... 82,665 *
Delbert W. Johnson...................... 42,885 *
Joel W. Johnson......................... 7,500 *
Richard L. Knowlton..................... 46,335 *
Jerry W. Levin.......................... 31,480 *
Edward J. Phillips...................... 38,055 *
Paul A. Redmond......................... 52,241(6) *
Richard G. Reiten....................... 10,630 *
S. Walter Richey........................ 67,476(7) *
Richard L. Schall....................... 105,746(8) *
Walter Scott, Jr........................ 2,091,413(9) *
Warren R. Staley........................ 7,660 *
Gary T. Duim............................ 323,629(4)(10) *
Philip G. Heasley....................... 1,027,482(4) *
Robert D. Sznewajs...................... 382,037(4)(11) *
Richard A. Zona......................... 805,224(4) *
All Directors and executive officers as
a group (33 persons).................. 34,277,727(12) 4.70%
</TABLE>
- ------------------------
* Excluded because percentage beneficially owned is less than 1% of the Common
Stock.
(1) Includes the following shares subject to options exercisable within 60 days:
Ms. Ahlers, 14,202 shares; Mr. Bettis, 23,220 shares; Mr. Cameron, 462,847
shares; Ms. Chambers, 33,414 shares; Mr. Collins, 22,200 shares; Mr. Coors,
22,200 shares; Mr. Dryden, 39,420 shares; Mr. Green, 23,220 shares; Mr.
Grundhofer, 1,382,328 shares; Mr. Hale, 21,024 shares; Mr. Delbert Johnson,
24,040 shares; Mr. Joel Johnson, 7,500 shares; Mr. Knowlton, 17,974 shares;
Mr. Levin, 22,200 shares; Mr. Phillips, 18,643 shares; Mr. Redmond, 47,907
shares; Mr. Reiten, 7,500 shares; Mr. Richey, 26,202 shares; Mr. Schall,
29,700 shares; Mr. Scott, 17,700 shares; Mr. Staley, 7,500 shares; Mr. Duim,
147,880 shares; Mr. Heasley, 123,280 shares; Mr. Sznewajs, 190,900 shares;
and Mr. Zona, 264,228 shares.
(2) Includes 266,364 shares held by a limited partnership of which Mr. Bettis is
the general partner; 2,754,489 shares held by a charitable foundation of
which he is the President; and 1,119,366 shares held by a trust for the
benefit of his children and of which he is the trustee.
(3) Includes 4,938,414 shares owned by Joshua Green Corporation, of which Mr.
Green is Chairman and Chief Executive Officer; 10,456,823 shares held by a
limited partnership of which Joshua Green Corporation is the general
partner; 342,651 shares held by a trust as to which Mr. Green has shared
voting and investment power and of which a family member of Mr. Green's is
the beneficiary; and 861,137 shares held by a charitable foundation of which
Mr. Green is President. Mr. Green owns 59% of the voting common stock of
Joshua Green Corporation and has sole voting power over another 20% of such
stock; accordingly, the other shareholders and Directors of Joshua Green
Corporation
18
<PAGE>
are not deemed to have shared voting and dispositive power over the shares
of the Company's Common Stock beneficially owned by Joshua Green Corporation
by reason of their capacities as such. Excludes 13,722 shares held by Mr.
Green's wife, as to which he has no voting or investment power and disclaims
beneficial ownership.
(4) Includes the following shares held in the Savings Plan: Mr. Grundhofer,
7,671 shares; Mr. Duim, 15,484 shares; Mr. Heasley, 13,084 shares; Mr.
Sznewajs, 2,952 shares; and Mr. Zona, 1,350 shares. Voting of shares held in
the Savings Plan is passed through to the participating employees; however,
if a proxy is not received with respect to such shares, such shares will be
voted by the trustee in accordance with the terms of the Savings Plan. See
"General Matters--Voting, Execution and Revocation of Proxies" above.
(5) Includes 664,259 shares held in a family trust of which Mr. Grundhofer is a
trustee and a beneficiary, as to which he shares voting and investment
power, and 26,340 shares held in a charitable foundation created by Mr.
Grundhofer.
(6) Includes 4,334 shares held in joint tenancy with Mr. Redmond's wife, as to
which he shares voting and investment power.
(7) Excludes 7,794 shares held by Mr. Richey's wife, as to which he has no
voting or investment power and disclaims beneficial ownership.
(8) Includes 36,000 shares held in a family trust of which Mr. Schall is a
trustee and as to which he shares voting and investment power.
(9) Includes 2,000,000 shares held by a corporation controlled by Mr. Scott, as
to which he shares voting and investment power and disclaims beneficial
ownership.
(10) Includes 22,064 shares held in a trust of which Mr. Duim is a trustee and
as to which he shares voting and investment power, and 12,590 shares held by
a charitable foundation created by him.
(11) Includes 46,830 shares held in a trust of which Mr. Sznewajs is a trustee
and as to which he shares voting and investment power.
(12) Includes (i) 83,035 shares held in the Savings Plan for the accounts of
certain executive officers; and (ii) 4,006,491 shares subject to options
exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers and all persons who beneficially own more than 10% of the
outstanding shares of the Company's Common Stock to file with the Securities and
Exchange Commission and the NYSE initial reports of ownership and reports of
changes in ownership of such Common Stock. Directors, executive officers and
greater-than-10% beneficial owners are also required to furnish the Company with
copies of all Section 16(a) reports they file. To the Company's knowledge, based
upon a review of the copies of such reports and certain representations
furnished to the Company with respect to the fiscal year ended December 31,
1998, all Section 16(a) filing requirements applicable to the Company's
Directors, executive officers and greater-than-10% beneficial owners were
complied with.
19
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
ON EXECUTIVE COMPENSATION
TO OUR SHAREHOLDERS:
U.S. Bancorp's executive compensation philosophy emphasizes the Company's
commitment to long-term growth in shareholder value. In general:
- TOTAL COMPENSATION will be targeted above the 50th percentile of a group
of comparable banking companies. Any premium in targeted pay over the 50th
percentile will be primarily in the form of stock incentives.
- BASE SALARIES will be targeted 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 incentives.
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 shareholders.
- 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 shareholders.
- 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.
The Committee is comprised of seven 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 with which the Company competes
for executive talent and which are generally comparable with respect to business
activities. While
20
<PAGE>
the comparator group is not comprised of the same companies contained in the
peer group index under "Comparative Stock Performance" below, all of the
comparator companies are included in such peer group index. The Committee
believes 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 compensation is placed at risk than the
total compensation typically 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 to
be a favorable factor; however, no formal weighting has been assigned to this
factor. "Comparative Stock Performance" below 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 Summary Compensation Table to $1 million, unless
the compensation is performance-based. The Committee has carefully considered
the potential impact of this tax code provision on the Company and has concluded
that it is in the Company's and shareholders' 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; the Committee believes that
such qualification has been achieved. The Company also requested and received
shareholder approval of the Executive Incentive Plan in order to qualify
payments under the terms thereof as performance-based compensation within the
meaning of the Code, and the Company believes that payments made under that plan
will so qualify.
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 1998, 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 his performance is the subject
of an executive session of the Board. Subsequently, the Committee Chair prepares
a formal response which serves as Mr. Grundhofer's appraisal. The Committee
determines 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 the employment agreement dated August 1, 1997, as amended,
between Mr. Grundhofer and the Company, Mr. Grundhofer during 1998 received the
annual base salary reported in the Summary Compensation Table. This base salary
was below the 50th percentile of the comparator group, consistent
21
<PAGE>
with the Company's executive compensation philosophy. See "Employment Contracts
for the Named Executive Officers" below.
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 levels of performance.
Eligible executives are assigned target 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 base pay, provides total direct compensation
which is 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.
Although the Company's 1998 financial performance fell slightly short of the
Company's aggressive plan, overall financial and operational performance was
excellent. Specifically, with respect to profitability factors, the Company's
return on assets, return on equity, net interest margin and efficiency ratio all
ranked near the top of the peer bank group. In addition, in measuring the
Company's performance relating to growth goals, the Committee noted the
Company's continuing successful efforts to reposition its businesses to remain
competitive in a changing industry. Those successful efforts included the
integration of acquired financial institutions, the introduction of new
technology throughout the Company, the effective conversion of acquired banks'
services, the internal growth of key businesses, the development of people, and
strategic leadership. In analyzing the Company's risk management, the Committee
observed that the Company met its goals with respect to credit quality
management. As a result, actual bonus awards, while somewhat lower than last
year's awards, exceeded the target level.
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. As described in the preceding paragraph, the Company delivered
outstanding financial and operational results. As a result, Mr. Grundhofer's
actual bonus, as reported in the Summary Compensation Table, while lower than
last year's award, was above target, consistent with the goals of the Executive
Incentive Plan.
LONG-TERM INCENTIVES
The Committee believes 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 shareholders. 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. The following describes the Company's practices relative to each
long-term incentive vehicle.
STOCK OPTIONS. Under the 1997 Stock Incentive Plan, options are granted at
an option price not less than the fair market value of the Common Stock on the
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 shareholder value over the long term and
encourages equity ownership in the Company. In determining the actual size of
regular stock option awards, the Committee considers the value of the stock
22
<PAGE>
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. No regular stock
options were granted to the six named executive officers during 1998.
The Company believes that reload stock options advance its objective of
executive equity ownership by encouraging executives to exercise their stock
options, and thereby increase their direct equity ownership, more quickly than
if reload stock options were not available. During 1998, the Company granted
reload stock options to most executives, including four of the six named
executive officers.
Mr. Grundhofer in 1998 received reload stock options as set forth in the
Summary Compensation Table. 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 1998, plus the number of shares
withheld by the Company in payment of the taxes arising from the exercises.
RESTRICTED STOCK. The 1997 Stock Incentive Plan also provides for the
granting of restricted stock to executives. No grants of restricted stock were
made to the six named executive officers during 1998.
CONCLUSION
The Committee believes the Company's executive compensation policies and
programs effectively serve the interests of shareholders 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 shareholders' benefit.
S. Walter Richey, Chair
Arthur D. Collins, Jr.
Robert L. Dryden
Delbert W. Johnson
Richard L. Knowlton
Jerry W. Levin
Paul A. Redmond
23
<PAGE>
EMPLOYMENT CONTRACTS FOR THE NAMED EXECUTIVE OFFICERS
The Company has entered into employment agreements with each of the
executive officers named in the Summary Compensation Table below. Under Mr.
Cameron's agreement, he served as Chairman of the Company through December 31,
1998. The agreement provided for an annual salary not less than $840,000 and
bonus such that his total cash compensation was equal to the greater of his
total salary ($800,000) and bonus ($848,640) in 1996 at Old USB, or the salary
and bonus for the year in question of the Company's Chief Executive Officer.
Pursuant to the employment agreement, following his termination of employment on
December 31, 1998, Mr. Cameron is entitled to an annual pension benefit equal to
$1,000,000 per year for life (less any benefit payable pursuant to the Company's
qualified retirement plan), and if his current wife survives him, she will be
entitled to receive an annual benefit of $500,000 per year for her life. The
employment agreement also provides for lifetime life insurance of $1,000,000.
Under Mr. Grundhofer's employment agreement, he will serve as the Chief
Executive Officer for a five-year term commencing August 1, 1997, which term
will automatically be extended by one year on each anniversary of the
commencement date unless either party notifies the other of its intention not to
renew the agreement. The employment agreement provides for an annual base salary
of at least $840,000 (Mr. Grundhofer's current annual base salary is $900,000),
and he is entitled to a performance-based annual bonus. In the event Mr.
Grundhofer's employment is terminated by the Company without cause (as defined
in the agreement) or by Mr. Grundhofer for good reason (as defined in the
agreement), he will receive a lump sum payment equal to three times his base
salary and annual bonus; all of his non-vested stock options and restricted
stock that would have vested during the remaining term of the employment
agreement will immediately vest; and he will be provided certain other enhanced
benefits, including an additional three years of service credit (five additional
years if his employment is terminated within two years of a change in control)
for purposes of computing his retirement benefit under the Supplemental
Executive Retirement Plan. The Company also will pay any excise taxes that he
may incur as a result of such payments, and any income and excise taxes on such
excise tax payments. Certain special provisions apply to the determination and
payment of bonus awards if termination occurs in anticipation of or within 24
months following a change in control. Pursuant to his employment agreement, Mr.
Grundhofer is entitled to a minimum annual retirement benefit of $1,000,000 from
all of the Company's qualified and nonqualified plans commencing at age 65.
Under the employment agreements and individual change-in-control severance
agreements for the remaining four named executive officers, each of them will
serve as Vice Chairman of the Company for a period of three years beginning
August 1, 1997, and each will receive the same annual salary and bonus. Each of
the agreements provides for certain payments in the event the respective
employee's employment is terminated by the Company other than for "cause" or by
the individual for "good reason," as such terms are defined in the agreements.
With respect to Messrs. Zona and Heasley, the agreements provide for a lump sum
payment equal to three times the terminated individual's annual salary plus the
highest actual bonus paid to the executive in any of the three years prior to
the date of the Merger, accelerated vesting of restricted stock and stock
options, certain other enhanced benefits and payment of any excise taxes that
may be incurred as a result of such payments, and any income and excise taxes on
such excise tax payments. The agreements with Messrs. Sznewajs and Duim provide
for substantially similar benefits if their employment is terminated in
connection with a change in control of the Company. Otherwise, the agreements
with Messrs. Sznewajs and Duim provide for a lump sum payment equal to the
product of (i) the number of months remaining in the term of the agreement
divided by 12, multiplied by (ii) annual salary plus the highest actual bonus
paid to the executive in any of the three years prior to the Merger. In
addition, Messrs. Sznewajs' and Duim's restricted stock and stock options will
immediately vest (except that in the event of termination by the executive for
good reason, 75,000 shares of restricted stock would not vest), they will
receive certain other enhanced benefits and the Company will pay any excise
taxes that may be incurred as a result of such payments, and any income and
excise taxes on such excise tax payments.
24
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the five other highest paid executive officers of the
Company whose salary and bonus paid by the Company in 1998 exceeded $100,000
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AWARDS PAYOUTS
------------------------ -----------
<CAPTION>
LONG-
RESTRICTED SECURITIES TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE
NAME AND COMPENSATION AWARD(S) OPTIONS/ PAYOUTS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($)(5) SARS(#) ($)
- ----------------------------- --------- ----------- --------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Grundhofer (1)....... 1998 840,000 1,500,000 170,674(3) 0 549,616 0
President and 1997 787,500 1,764,000 140,946(3) 4,346,875 1,718,145 0
Chief Executive Officer 1996 620,000 1,302,000 144,106(3) 0 2,260,098 0
Gerry B. Cameron (1)(2)...... 1998 840,000 1,500,000 24,429(4) 0 285,163 0
Chairman of the Board 1997 350,000 1,764,000 2,114(4) 6,520,313 600,000 3,611,789(6)
1996 -- -- -- -- -- --
Philip G. Heasley............ 1998 450,000 650,000 10,902(4) 0 92,545 0
Vice Chairman 1997 429,583 750,000 8,286(4) 6,101,250 34,182 0
1996 324,792 635,200 7,669(4) 0 576,795 0
Richard A. Zona.............. 1998 450,000 650,000 14,783(4) 0 196,090 0
Vice Chairman 1997 429,583 750,000 9,828(4) 6,101,250 207,666 0
1996 363,750 712,200 8,423(4) 0 992,412 0
Gary T. Duim (2)............. 1998 450,000 650,000 13,104(4) 0 0 0
Vice Chairman 1997 187,500 750,000 2,055(4) 4,346,875 300,000 675,970(6)
1996 -- -- -- -- -- --
Robert D. Sznewajs (2)....... 1998 450,000 650,000 12,630(4) 0 0 0
Vice Chairman 1997 187,500 750,000 1,936(4) 4,346,875 300,000 1,186,928(6)
1996 -- -- -- -- -- --
<CAPTION>
<S> <C>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ----------------------------- -------------
<S> <C>
John F. Grundhofer (1)....... 127,958(7)
President and 88,539
Chief Executive Officer 64,169
Gerry B. Cameron (1)(2)...... 89,417(8)
Chairman of the Board 5,545,243
--
Philip G. Heasley............ 37,125(9)
Vice Chairman 28,078
20,214
Richard A. Zona.............. 44,304(9)
Vice Chairman 40,536
26,808
Gary T. Duim (2)............. 19,672(9)
Vice Chairman 2,729,968
--
Robert D. Sznewajs (2)....... 20,916(9)
Vice Chairman 3,364,700
--
</TABLE>
- ------------------------------
(1) Mr. Grundhofer reassumed the position of Chairman of the Board on January 1,
1999 following Mr. Cameron's retirement on December 31, 1998.
(2) Mr. Cameron, Mr. Duim and Mr. Sznewajs became employees of the Company
following the Merger on August 1, 1997.
(3) Includes transportation-related expenses of $55,198 in 1998, $45,878 in 1997
and $55,276 in 1996, primarily related to providing personal security for
Mr. Grundhofer.
(4) Perquisites that do not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for a given Named Executive Officer have been
omitted.
(5) Determined by multiplying the market value of the Company's Common Stock on
the date of grant by the number of shares awarded. Recipients receive
dividends on, and have the right to vote, shares of restricted stock. The
Named Executive Officers held shares of restricted stock as of December 31,
1998 with market values as of such date as follows: Mr. Grundhofer, 174,543
shares valued at $6,196,277; Mr. Heasley, 189,393 shares valued at
$6,723,452; Mr. Zona, 201,513 shares valued at $7,153,712; Mr. Duim, 125,000
shares valued at $4,437,500; and Mr. Sznewajs, 125,000 shares valued at
$4,437,500. Mr. Cameron was granted 225,000 shares of restricted stock on
August 1, 1997, all of which vested on December 31, 1998. Mr. Grundhofer was
granted 150,000 shares of restricted stock on August 1, 1997, vesting in
equal installments over five years or fully on a change of control, his
death or disability, his termination without cause or his resignation for
good reason. Messrs. Duim
25
<PAGE>
and Sznewajs were each granted 150,000 shares of restricted stock on August
1, 1997, of which 25,000 shares vested on August 1, 1998, 25,000 shares vest
on August 1, 1999 and 100,000 shares vest on August 1, 2000, or fully on a
change of control, their death or disability, their termination without
cause or their resignation for good reason (except that in the event of
termination by the executive for good reason, 75,000 shares of restricted
stock would not vest). Messrs. Heasley and Zona were each granted 180,000
shares of restricted stock on November 2, 1997, of which 30,000 shares
vested on November 2, 1998, 30,000 shares vest on November 2, 1999, 30,000
shares vest on November 2, 2000, and 90,000 shares vest on November 2, 2001,
or fully on a change of control, their death or disability, their
termination without cause or their resignation for good reason.
(6) Represents amounts paid by the Company following the Merger or accrued by
the Company under Old USB's Performance Share Plan and Performance Cash Plan
for the partial period ended July 31, 1997.
(7) Includes (a) imputed income in the amount of $19,080 arising from premiums
paid by the Company with respect to life insurance for the benefit of Mr.
Grundhofer; (b) $104,078 paid pursuant to the Company's flexible
compensation program (net of amounts used to purchase benefits), $10,000 of
which was applied to Mr. Grundhofer's account in the Savings Plan and
$94,078 of which was paid in cash; and (c) a matching contribution made by
the Company to Mr. Grundhofer's Savings Plan account in the amount of
$4,800.
(8) Includes (a) $84,617 paid pursuant to the Company's flexible compensation
program (net of amounts used to purchase benefits), $10,000 of which was
applied to Mr. Cameron's account in the Savings Plan and $74,617 of which
was paid in cash; and (b) a matching contribution made by the Company to Mr.
Cameron's Savings Plan account in the amount of $4,800.
(9) Includes (a) amounts paid pursuant to the Company's flexible compensation
program (net of amounts used to purchase benefits) as follows: Mr. Heasley,
$32,325 ($10,000 of which was applied to his account in the Savings Plan and
$22,325 of which was paid in cash); Mr. Zona $39,504 ($10,000 of which was
applied to his account in the Savings Plan and $29,504 of which was paid in
cash); Mr. Duim, $14,872 ($10,000 of which was applied to his account in the
Savings Plan and $4,872 of which was paid in cash); Mr. Sznewajs, $16,116
($10,000 of which was applied to his account in the Savings Plan and $6,116
of which was paid in cash); and (b) matching contributions made by the
Company to Messrs. Heasley's, Zona's, Duim's and Sznewajs' Savings Plan
accounts in the amount of $4,800 each.
26
<PAGE>
STOCK OPTIONS
The following tables summarize stock option grants and exercises during 1998
to or by the Named Executive Officers and the values of options granted during
1998 and held by such persons at the end of 1998.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- ------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE 5% ($) 10% ($)
UNDERLYING GRANTED TO OR BASE -------------------- --------------------
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION STOCK STOCK
NAME GRANTED (#)(1) FISCAL YEAR ($/SHARE) DATE PRICE VALUE PRICE VALUE
- ------------------------- --------------- ------------- ---------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Grundhofer....... 45,857 43.00 01/19/04 56.40 614,484 73.04 1,377,544
503,759 43.00 12/19/06 65.03 11,097,811 96.46 26,930,956
-------
549,616 6.1%
Gerry B. Cameron......... 285,163 3.2 35.50 08/01/07 53.98 5,269,812 80.49 12,829,483
Philip G. Heasley........ 92,545 1.0 43.00 12/19/06 65.03 2,038,766 96.46 4,947,456
Richard A. Zona.......... 97,362 42.33 12/19/06 64.54 2,162,410 96.48 5,272,152
98,728 43.00 12/19/06 65.03 2,174,978 96.46 5,277,999
-------
196,090 2.2
</TABLE>
- ------------------------
(1) Represent reload stock options. 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 options described above are reload stock options to purchase
the number of shares thus tendered and/or withheld. The reload option has an
exercise price equal to the closing price of the Common Stock on the date of
exercise of the base option, is first exercisable six months from such date
and expires on the scheduled expiration date of the base option. All reload
options become fully exercisable in connection with a change in control of
the Company, and are nontransferable except to family members or family
trusts or partnerships.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES 12/31/98(#) 12/31/98($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Grundhofer.................... 873,232 14,821,618 1,382,328 785,001 4,813,222 7,028,862
Gerry B. Cameron...................... 749,654 14,630,694 474,325 285,163 4,480,308 0
Philip G. Heasley..................... 337,971 6,267,365 123,280 120,000 30,735 1,465,200
Richard A. Zona....................... 626,944 9,348,330 264,228 130,002 786,993 1,587,324
Gary T. Duim.......................... 77,583 1,869,572 147,880 200,000 1,814,090 1,306,000
Robert D. Sznewajs.................... 72,000 1,521,120 190,900 200,000 2,372,617 1,306,000
</TABLE>
- ------------------------
(1) Based upon the difference between the per-share option exercise price and
the market value of the Common Stock at the applicable measurement date.
RETIREMENT PLANS
All of the executive officers named in the Summary Compensation Table
participate in the Company's retirement plans, the terms of which are summarized
below.
27
<PAGE>
CASH BALANCE PENSION PLAN
Effective July 1, 1986, the Company adopted a career average pay defined
benefit pension plan known as the "Personal Retirement Account" ("PRA"), which
was renamed the "Cash Balance Pension Plan" (the "Cash Balance Plan") effective
as of January 1, 1999. Essentially all full-time employees of the Company and
its subsidiaries are eligible to participate in the Cash Balance Plan, and as of
January 1, 1999, 23,305 employees were participating. Under the terms of the
Cash Balance Plan, a separate "account" is maintained for each participating
employee. In 1998, PRA provided for credits to the account of each participant
of from 3% to 6% of the participant's eligible compensation, plus 3% of the
participant's eligible compensation in excess of $5,000. The basic percentage
varied depending upon the participant's number of years of service. In 1998, if
the participant had less than 10 years of service, the percentage was 3%. If the
participant had 10 but less than 20 years of service, the percentage was 4%. If
the participant had 20 but less than 25 years of service, the percentage was 5%.
If the participant had 25 or more years of service, the percentage was 6%.
Starting in 1999, the credits will equal 4% of the participant's eligible
compensation, plus 4% of the participant's eligible compensation in excess of
the Social Security taxable wage base for the year. Interest is credited to such
accounts. In addition, the Cash Balance 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 50 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, subject to accelerated vesting under certain circumstances in
connection with a change in control of the Company.
Effective January 1, 1999, if it produces a greater benefit, participants
will get a benefit from the Cash Balance Plan based on a new minimum benefit
formula in lieu of the benefit based on their account. The minimum benefit is up
to two times the participant's final five-year average compensation, plus an
additional two times final five-year average compensation that exceeds the
Social Security taxable wage base in the year the participant's employment ends.
The full minimum benefit is reduced for employees who terminate their employment
before age 65, commence their benefit before age 65 or complete less than 20
years of service. For certain former participants in the Old USB Retirement Plan
and the West One Bancorp Retirement Plan, which were merged into the Cash
Balance Plan on December 31, 1998, the formula uses a multiple of three and
one-half, instead of two. For such employees, the full minimum benefit is
reduced if the employee terminates his or her employment before age 65,
commences his or her benefit before age 65 or completes less than 35 years of
service.
DEFINED BENEFIT EXCESS PLAN
The Company maintains an unfunded deferred compensation plan known as the
Defined Benefit Excess Plan to provide retirement benefits that would have been
provided under the Cash Balance Plan but for certain limitations established
under the Code.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company's Supplemental Executive Retirement Plan (the "SERP") is
available to certain executives with not less than five years of service at the
time of termination of employment or death. The five-year service requirement
does not apply, however, under certain circumstances involving a change in
control of the Company. The SERP generally provides retirement benefits at age
65 equal to 55% of an executive's "Final Average Compensation" (except that,
pursuant to his employment agreement, Mr. Grundhofer is entitled to 57.5% of
such amount). Final Average Compensation is the average base salary and annual
incentive award during the executive's last three years of employment. For this
purpose, compensation includes total base pay and bonus paid with respect to a
calendar year, plus amounts deducted for 401(k) and flexible benefit plans, but
does not include amounts attributable to the receipt of
28
<PAGE>
stock options or other non-cash remuneration included as income for federal tax
purposes. Such compensation is substantially similar to the comparable
compensation reflected in the Summary Compensation Table. Executives receive
credit for an additional five years of service at age 60 and may receive
retirement benefits after age 60 that are equal to the actuarial equivalent
present value of the retirement benefit that would be payable at age 65 (except
that, pursuant to his employment agreement, Mr. Grundhofer shall be fully vested
at age 60, with no actuarial or other reduction for retirement prior to age 65
but after age 60, but with a reduction for commencement of benefits prior to age
65). Payments under the SERP are reduced by other sources of retirement income,
including benefits under the Cash Balance Plan, 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 an annuity. A participant who has not yet begun to receive payments or
benefits under the SERP may elect to receive a distribution of his or her entire
SERP benefit under certain circumstances if a change in control has occurred,
subject to a 5% forfeiture of benefits.
The aggregate benefits payable under the foregoing retirement plans at age
65 to the executive officers named in the Summary Compensation Table will be
based on the executive's Final Average Compensation during his last three years
of employment (unless the minimum benefit formula under the Cash Balance Plan
produces a greater benefit, as described above). The table below shows estimated
retirement benefits payable under all retirement plans, based on a 55% SERP
benefit. As of December 31, 1998, Messrs. Grundhofer, Heasley and Zona were
credited with 14, 12 and 9 years of service under the SERP, respectively, and
had Final Average Compensation of $2,133,000, $1,017,000 and $1,078,000,
respectively. Mr. Grundhofer's aggregate accrued retirement benefit payable at
age 65 as of December 31, 1998, was $947,000 based on a 57.5% SERP benefit.
Based upon a number of assumptions, including retirement at age 65, the
following estimated annual payments would be made upon retirement pursuant to
the retirement plans to the following individuals: Mr. Grundhofer, $1,348,000;
Mr. Heasley, $1,008,000; and Mr. Zona, $747,000. Projected retirement benefits
for Messrs. Duim and Sznewajs are discussed below under "Old USB Retirement
Plans."
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ----------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- ------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 150,365 $ 196,765 $ 228,365 $ 249,365 $ 262,915 $ 262,915
625,000 190,978 248,978 288,478 314,728 331,665 331,665
750,000 231,590 301,190 348,590 380,090 400,415 400,415
875,000 272,203 353,403 408,703 445,453 469,165 469,165
1,000,000 312,815 405,615 468,815 510,815 537,915 537,915
1,125,000 353,428 457,828 528,928 576,178 606,665 606,665
1,250,000 394,040 510,040 589,040 641,540 675,415 675,415
1,375,000 434,653 562,253 649,153 706,903 744,165 744,165
1,500,000 475,265 614,465 709,265 772,265 812,915 812,915
1,625,000 515,878 666,678 769,378 837,628 881,665 881,665
1,750,000 556,490 718,890 829,490 902,990 950,415 950,415
1,875,000 597,103 771,103 889,603 968,353 1,019,165 1,019,165
2,000,000 637,715 823,315 949,715 1,033,715 1,087,915 1,087,915
2,125,000 678,328 875,528 1,009,828 1,099,078 1,156,665 1,156,665
2,250,000 718,940 927,740 1,069,940 1,164,440 1,225,415 1,225,415
2,375,000 759,553 979,953 1,130,053 1,229,803 1,294,165 1,294,165
2,500,000 800,165 1,032,165 1,190,165 1,295,165 1,362,915 1,362,915
2,625,000 840,778 1,084,378 1,250,278 1,360,528 1,431,665 1,431,665
2,750,000 881,390 1,136,590 1,310,390 1,425,890 1,500,415 1,500,415
2,875,000 922,003 1,188,803 1,370,503 1,491,253 1,569,165 1,569,165
3,000,000 962,615 1,241,015 1,430,615 1,556,615 1,637,915 1,636,915
</TABLE>
29
<PAGE>
OLD USB RETIREMENT PLANS
Pursuant to the Old USB Supplemental Benefits Plan (the "Supplemental
Plan"), designated key employees, including Messrs. Sznewajs and Duim, would
receive retirement benefits in addition to those payable under the Old USB
Retirement Plan. Messrs. Sznewajs and Duim were awarded an enhanced retirement
benefit under the Supplemental Plan. Their enhanced retirement benefit will
depend on their respective years of benefit service upon retirement and will
equal a fraction (2.75% multiplied by the number of years of benefit service, up
to a maximum of 55%) multiplied by their respective "Highest Average
Compensation." Highest Average Compensation is the average during the five
consecutive calendar years out of the last 10 years for which compensation was
highest. Compensation, for purposes of determining retirement benefits payable
under the Old USB Retirement Plan, generally consists of non-deferred
compensation up to a maximum annual limit imposed by the Code and excludes
amounts paid in excess of limits on variable items such as commissions and
long-term incentive compensation. Code limits are disregarded and deferred
compensation is included in determining retirement benefits payable under the
combined provisions of the Old USB Retirement Plan and Supplemental Plan.
For this purpose, Mr. Sznewajs has been credited with 11 years of benefit
service for service with a prior employer and, as of December 31, 1998, had a
total of 15.735 years of benefit service credited to his account. As of the same
date, Mr. Duim had a total of 10.929 years of benefit service credited to his
account. As of December 31, 1998, Messrs. Sznewajs and Duim had Highest Average
Compensation of $882,144 and $704,868, respectively. Mr. Sznewajs' retirement
benefit will be offset by benefits from a prior employer of approximately
$24,000 per year (which offset is not reflected in the table below). Messrs.
Sznewajs and Duim are each fully vested in their respective enhanced retirement
benefits. If Mr. Sznewajs were to retire at age 62 with Highest Average
Compensation of $1,473,197, his annual retirement benefit would be $771,993,
assuming a single life annuity, reduction for estimated Social Security benefits
and benefits from a prior employer. If Mr. Duim were to retire at age 62 with
Highest Average Compensation of $1,322,510, his annual retirement benefit would
be $641,068, based on the same assumptions. Lesser benefits are available under
the Supplemental Plan in the event of termination prior to age 62. Under the
terms of their employment agreements, Messrs. Sznewajs and Duim will receive
retirement benefits under either the Company's current qualified and
nonqualified retirement plans or the Old USB Retirement Plan and the
Supplemental Plan, whichever is greater. Based on the current plan provisions,
the benefits under the Old USB Retirement Plan and the Supplemental Plan are
greater.
The following table shows the estimated annual combined benefits payable
under the Old USB Retirement Plan and the Supplemental Plan for Messrs. Sznewajs
and Duim at various years of benefit service and specified levels of Highest
Average Compensation. Retirement benefits are expressed in terms of single life
annuities. Benefits may be reduced from the amounts shown in the table if either
Mr. Sznewajs or Mr. Duim retires before age 62 or elects to have benefits paid
as a joint and survivor annuity. The amounts shown in the table are offset by an
age 62 Social Security benefit of $14,300.
30
<PAGE>
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
HIGHEST AVERAGE ----------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- --------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 123,200 $ 191,950 $ 260,700 $ 260,700 $ 260,700 $ 260,700
625,000 157,575 243,513 329,450 329,450 329,450 329,450
750,000 191,950 295,075 398,200 398,200 398,200 398,200
875,000 226,325 346,638 466,950 466,950 466,950 466,950
1,000,000 260,700 398,200 535,700 535,700 535,700 535,700
1,125,000 295,075 449,763 604,450 604,450 604,450 604,450
1,250,000 329,450 501,325 673,200 673,200 673,200 673,200
1,375,000 363,825 552,688 741,950 741,950 741,950 741,950
1,500,000 398,200 604,450 810,700 810,700 810,700 810,700
1,625,000 432,575 656,013 879,450 879,450 879,450 879,450
1,750,000 466,950 707,575 948,200 948,200 948,200 948,200
1,875,000 501,325 759,138 1,016,950 1,016,950 1,016,950 1,016,950
2,000,000 535,700 810,700 1,085,700 1,085,700 1,085,700 1,085,700
2,125,000 570,075 862,263 1,154,450 1,154,450 1,154,450 1,154,450
2,250,000 604,450 913,825 1,223,200 1,223,200 1,223,200 1,223,200
2,375,000 638,825 965,388 1,291,950 1,291,950 1,291,950 1,291,950
2,500,000 673,200 1,016,950 1,360,700 1,360,700 1,360,700 1,360,700
2,625,000 707,575 1,068,513 1,429,450 1,429,450 1,429,450 1,429,450
2,750,000 741,950 1,120,075 1,498,200 1,498,200 1,498,200 1,498,200
2,875,000 776,325 1,171,638 1,566,950 1,566,950 1,566,950 1,566,950
3,000,000 810,700 1,223,200 1,635,700 1,635,700 1,635,700 1,635,700
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the following individuals served as members of the Compensation
and Human Resources Committee: Arthur D. Collins, Jr., Robert L. Dryden, Delbert
W. Johnson, Richard L. Knowlton, Jerry W. Levin, Kenneth A. Macke, Paul A.
Redmond, S. Walter Richey and Richard L. Robinson. During 1998, banking and
broker/dealer subsidiaries of the Company engaged in loan transactions with
members of the Compensation and Human Resources Committee and one or more of
their affiliates. Such loans were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and did not involve more than the normal risk of collectibility or present other
unfavorable features.
COMPARATIVE STOCK PERFORMANCE
Set forth below are line graphs comparing the cumulative total shareholder
return on the Company's Common Stock over a five-year and a nine-year period
with the cumulative total return on the Standard and Poor's 500 Stock Index and
the Keefe, Bruyette & Woods 50 Bank Index over the same periods, assuming the
investment of $100 in each on December 31, 1993 and December 31, 1989,
respectively, and the reinvestment of all dividends. The Keefe, Bruyette & Woods
50 Bank Index is a market-capitalization-weighted total return index of the 50
largest U.S. banks, including all money center and most major regional banks,
published by Keefe, Bruyette & Woods, Inc. The first graph provides a five-year
history of shareholder return. The Company believes that the second graph, which
provides a nine-year history, is useful in evaluating the Company's performance
during the tenure of Mr. Grundhofer and his senior management team.
31
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. BANCORP KBW 50 BANK INDEX S&P 500 INDEX
<S> <C> <C> <C>
1993 $100 $100 $100
1994 $112 $95 $101
1995 $172 $152 $139
1996 $243 $215 $171
1997 $408 $314 $229
1998 $395 $340 $293
</TABLE>
COMPARISON OF NINE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. BANCORP KBW 50 BANK INDEX S&P 500 INDEX
<S> <C> <C> <C>
1989 $100 $100 $100
1990 $83 $72 $97
1991 $159 $114 $126
1992 $193 $145 $136
1993 $217 $153 $150
1994 $243 $145 $152
1995 $375 $232 $209
1996 $529 $329 $257
1997 $886 $480 $342
1998 $858 $520 $439
</TABLE>
32
<PAGE>
CERTAIN TRANSACTIONS
STOCK REPURCHASES
During 1998 and as part of its authorized stock repurchase program, the
Company purchased shares of its Common Stock held by certain Directors, members
of management or their respective affiliates, as follows: (i) 400,000 shares for
an aggregate purchase price of $18,625,000 on July 16, and 300,000 shares for an
aggregate purchase price of $12,000,000 on November 5, from a limited
partnership, the general partner of which is a corporation, the Chief Executive
Officer of which is Mr. Green, a Director of the Company; (ii) 24,000 shares for
an aggregate purchase price of $1,122,000 on July 16 from a charitable
foundation controlled by Mr. Cameron; (iii) 5,000 shares for an aggregate
purchase price of $234,375 on July 16, and 5,000 shares for an aggregate
purchase price of $190,937 on November 16, from John R. Danielson, an executive
officer of the Company; (iv) 10,194 shares for an aggregate purchase price of
$477,207 on July 16 from Mr. Green; (v) 25,000 shares for an aggregate purchase
price of $1,167,187 on July 16, and 46,300 shares for an aggregate purchase
price of $1,794,125 on November 4, from a family trust of which Mr. Grundhofer
is a trustee and a beneficiary; (vi) 31,271 shares for an aggregate purchase
price of $1,424,785 on July 28, 65,000 shares for an aggregate purchase price of
$2,368,437 on October 30, and 15,744 shares for an aggregate purchase price of
$589,416 on November 2, from Mr. Zona; (vii) 30,000 shares for an aggregate
purchase price of $1,353,750 on July 29 from a charitable foundation controlled
by Mr. Bettis, a Director of the Company; and (viii) 4,054 shares for an
aggregate purchase price of $153,292 on November 13 from a charitable foundation
controlled by Mr. Zona. Shares repurchased in these transactions were purchased
at fair market value based on the current market price of the Common Stock on
the NYSE on the date of the transaction.
LOANS TO MANAGEMENT
During 1998, the Company and its banking and broker/dealer subsidiaries
engaged in loan transactions with certain of the Company's Directors, executive
officers and one or more of their affiliates. All such loans were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Pursuant to the Company's Stock Option Loan program, Directors and 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
rate in effect under Section 1274(d) of the Code at the time the loan is made.
The following table shows as to the Company's Directors and executive officers:
(i) the outstanding balances of stock option loans, if any, as of December 31,
1998, (ii) the largest outstanding balances of such loans at any time during
1998, and (iii) the rate of interest applicable to such loans.
33
<PAGE>
STOCK OPTION LOANS
<TABLE>
<CAPTION>
STOCK OPTION LOAN MAXIMUM BALANCE OF
BALANCE AT STOCK OPTION LOAN STOCK OPTION LOAN
DECEMBER 31, 1998 DURING 1998 INTEREST RATE
----------------- ------------------- ---------------------
<S> <C> <C> <C>
Gerry B. Cameron..................................... $ 2,600,000 $ 2,835,870 5.69%
David P. Grandstrand................................. 73,950 73,950 5.95
David P. Grandstrand................................. 124,535 124,535 6.01
John F. Grundhofer................................... 400,000 400,000 5.80
Philip G. Heasley.................................... 518,176 518,176 5.47
Philip G. Heasley.................................... 1,435,706 1,435,706 6.98
Philip G. Heasley.................................... 1,491,354 1,491,354 5.80
Philip G. Heasley.................................... 3,113,226 3,113,226 6.39
Philip G. Heasley.................................... 4,025,449 4,025,449 4.46
Susan E. Lester...................................... 290,000 430,191 5.84
Lee R. Mitau......................................... 197,291 197,291 6.28
Daniel C. Rohr....................................... 1,788,502 1,788,502 6.32
Daniel C. Rohr....................................... 1,951,817 1,951,817 6.24
Robert H. Sayre...................................... 169,191 169,191 5.47
Robert H. Sayre...................................... 213,076 213,076 7.21
Richard A. Zona...................................... 572,013 572,013 5.47
Richard A. Zona...................................... 571,446 571,446 6.39
</TABLE>
OTHER TRANSACTIONS
Eugene Tower Associates Limited Partnership, a Washington limited
partnership ("Eugene Tower Associates"), owns and leases the U.S. Bank Center in
Eugene, Oregon. Director Carolyn Silva Chambers has an interest in a company
that is a general partner in Eugene Tower Associates. A bank subsidiary of the
Company made lease payments for space in the U.S. Bank Center totaling
approximately $845,000 during 1998.
SHAREHOLDER PROPOSALS
In order for shareholder proposals for the 2000 Annual Meeting to be
eligible for inclusion in the Company's Proxy Statement, they must be received
by the Company at its principal office in Minneapolis, Minnesota on or before
November 19, 1999.
If a shareholder desires to bring business before the Annual Meeting that is
not the subject of a proposal timely submitted for inclusion in the Proxy
Statement, written notice of such business, as prescribed in the Company's
Bylaws, must be received by the Company at its principal office on or before
November 19, 1999. If the Company does not receive timely notice, such business
will be excluded from consideration at the meeting. This advance notice
requirement supersedes the statutory notice period in Rule 14a-4(c)(1) of the
federal proxy rules regarding the discretionary proxy voting authority of the
Board of Directors in connection with such shareholder business.
34
<PAGE>
PROPOSAL IV. ANNUAL ELECTION OF DIRECTORS
Mr. Gerald R. Armstrong, 910 Fifteenth Street, No. 754, Denver, Colorado
80202-2924, (303) 355-1199, the owner of 6,894 shares of Common Stock, has
advised the Company that he plans to introduce the following resolution:
"That the shareholders of U.S. Bancorp, assembled in person and by proxy
in an annual meeting, request that the Board of Directors take those
steps necessary to cause annual elections for all directors by providing
that at future elections in annual meetings, all directors be elected
annually and not by classes as is now provided and that on the
expiration of the present terms their subsequent elections shall also be
on an annual basis."
The reasons given by the shareholder for such resolution are as follows:
"Last year, the owners of 73,393,122 shares, 38.75% of the shares
represented in the meeting, voted in favor of this proposal.
"Also, in last year's meeting, the proponent noted that a consideration
of a merger was the voting rights and that Wells Fargo had one year terms
for its directors. (Subsequently, Wells Fargo merged with Norwest which also
has one year terms for its directors.)
"Shareholders of COLORADO NATIONAL BANKSHARES, INC. and the former U.S.
BANCORP elected all of their directors annually. The shareholders of the new
U.S. BANCORP should not be excepted.
"It is significant that the shareholders of Chase Manhattan received one
year terms for their directors upon the merger with Chemical Bank.
"Recently, Ameritech, Time-Warner, Lockheed-Martin, Campbell Soups,
Atlantic Richfield, Pacific Enterprises, Westinghouse, and other
corporations replaced three year terms with the annual election of all
directors.
"Occidental Petroleum corporation stated in its 1997 proxy statement in
support of replacing three year terms with one year terms for its directors:
'the current Board of Directors ... does recognize that under
current views of corporate governance a classified board is
believed to offer less protection against unfriendly takeover
attempts than previously assumed while frustrating stockholders in
their exercise of oversight of the board. The Board of Directors
believes that the best interests of the stockholders are not
currently served by maintaining a classified board....'
"These actions have increased shareholder voting rights by 300%--and, at
no cost to the shareholders.
"The proponent believes the current system produces only a facade of
continuity which should be displaced; and accountability and performance be
substituted as the basis for re-election to our board of directors.
"If you agree, please vote FOR this proposal. If your proxy card is
unmarked, your shares will be automatically voted 'against' this proposal."
35
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE FOREGOING
PROPOSAL FOR THE FOLLOWING REASONS:
In 1986, the shareholders of the Company decided, by a vote at the Annual
Meeting, to amend the Company's Certificate of Incorporation to divide the Board
of Directors into three classes, with approximately one-third of the Directors
elected each year for a three-year term. The Board continues to believe that a
"staggered" Board of Directors provides important benefits to both the Company
and its shareholders. The Board believes that the staggered election approach
facilitates continuity and stability of leadership and policy by helping ensure
that at any given time a majority of the Directors will have prior experience as
Directors of the Company and will be familiar with its business and operations.
This permits more effective long-term strategic planning. The Board believes
that the continuity and quality of leadership promoted by a staggered Board
helps create long-term value for the shareholders of the Company.
Additionally, the Board believes that the staggered election approach
affords the Company valuable protection against an inadequate unsolicited
proposal to take over the Company. In the event of a hostile takeover, the fact
that at least two shareholders' meetings will generally be required to effect a
change in control of the Board of Directors may encourage the person seeking to
obtain control of the Company to initiate arms-length discussions with
management and the Board. This will assist management and the Board in seeking
to assure that if a transaction is negotiated, it is on the most favorable terms
for the shareholders of the Company.
Approval of the proposal would not in itself declassify the Board of
Directors. Approval of the proposal would only serve as a request that the Board
of Directors take the necessary steps to end the staggered system of electing
Directors. Declassification of the Board would require an amendment to the
Company's Restated Certificate of Incorporation. The Company's Restated
Certificate of Incorporation requires the affirmative vote of 80% of the
outstanding shares of the Company's Common Stock to approve the amendment.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy at the meeting
and entitled to vote is necessary for approval of the shareholder proposal
regarding the annual election of all Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST APPROVAL OF THE
PROPOSAL REGARDING THE ANNUAL ELECTION OF ALL DIRECTORS. PROXIES WILL BE VOTED
AGAINST THE SHAREHOLDER PROPOSAL UNLESS OTHERWISE SPECIFIED.
OTHER MATTERS
In accordance with the requirements for advance notice described under the
heading "Shareholder Proposals" above, no other proposals of shareholders will
be presented at the Annual Meeting, and the Board of Directors does not know of
any other matters to come before the meeting. If any other matters are brought
before the meeting, including, among other things, a motion to adjourn or
postpone the meeting to another time and/or place for the purpose of soliciting
additional proxies in favor of the 1999 Plan Proposal or to permit the
dissemination of information germane to the meeting, one or more of the persons
named in the proxy card will vote the shares represented by such proxy upon such
matters as determined in their discretion; provided, however, that no proxy that
is voted against the 1999 Plan Proposal will be voted in favor of any such
adjournment or postponement for the purpose of soliciting additional proxies.
By Order of the Board of Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
Dated: March 18, 1999
36
<PAGE>
[LOGO]
<PAGE>
Please mark your
/x/ votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1,2 AND 3.
VOTE FOR WITHHOLD
all nominees AUTHORITY
(except as marked to vote for all
to the contrary below) nominees
1. Election of / / / /
Directors
The nominees for Director are: 01. Linda L. Ahlers
02. Robert L. Dryden 03. Joel W. Johnson
04. Edward J. Phillips 05. Warren R. Staley
To withhold authority to vote for any individual nominee, vote that nominee's
name in the space below.
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approve the 1999
Stock Incentive Plan / / / / / /
3. Ratify the selection of the
firm of Ernst & Young LLP / / / / / /
as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "AGAINST" PROPOSAL 4.
FOR AGAINST ABSTAIN
4. Shareholder Proposal-
Annual Election of Directors. / / / / / /
Comments and/or change of
address on reverse side. / /
Waive confidential voting. / /
SIGNATURE(S) DATE 1999
------------------------ ------------------------- ------
Please sign exactly as your name(s) appear(s) on this Proxy Card. Joint
owners should each sign. If signed by an attorney, executor, guardian or in
some other capacity or as officer of a corporation, please add title as
such. Unless voting by telephone or through the internet, please sign, date
and return this Proxy Card promptly using the enclosed envelope.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
[LOGO]
VOTE BY TELEPHONE OR INTERNET
FAST - EASY - IMMEDIATE
U.S. Bancorp encourages you to take advantage of two new, cost-effective, and
convenient ways to vote your shares. You may now vote your shares 24 hours a
day, 7 days a week, either using a touch-tone telephone or through the
Internet. Your telephone or Internet vote authorizes the named proxies to
vote your shares in the same manner as if you marked, signed, and returned
your proxy card. Please note that all votes by telephone or through the
Internet must be received by 12:00 p.m. midnight (EDT) on April 19, 1999.
TO VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE 1-877-779-8683
You will be asked to enter the Control Number printed
in the box above, just below the perforation. Then
simply follow the instructions.
OR
TO VOTE BY INTERNET: GO TO THE WEB SITE ADDRESS: http://www.eproxyvote.com/usb
You will be asked to enter the Control Number printed
in the box above, just below the perforation. Then
simply follow the instructions. You may also indicate
if you would be interested in receiving future proxy
materials through the Internet. (As with all Internet
access, the user must pay all usage and server fees.)
TO VOTE BY MAIL: Simply mark, sign, and date your proxy card and return
it in the enclosed postage-paid envelope. If you are
voting by telephone or the Internet, please do not mail
your proxy card.
<PAGE>
[LOGO]
P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF U.S. BANCORP.
R The undersigned, having received the Notice of Annual Meeting and Proxy
Statement, revoking any proxy previously given, hereby appoint(s) Susan E.
O Lester and Lee R. Mitau as proxies (each with power to act alone and with
full power of substitution) to vote as directed all shares the undersigned
X is (are) entitled to vote at the U.S. Bancorp 1999 Annual Meeting of
Shareholders and authorize(s) each to vote in his or her discretion upon
Y such other business as may properly come before the meeting, or any
adjournment or postponement thereof. IF THIS SIGNED PROXY CARD CONTAINS
NO SPECIFIC VOTING INSTRUCTIONS, MY (OUR) SHARES WILL BE VOTED "FOR" ALL
NOMINEES FOR DIRECTOR, "FOR" PROPOSALS 2 AND 3, "AGAINST" PROPOSAL 4, AND
IN THE DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
Comments and/or Change of Address
--------------------------------------------------------------------------
--------------------------------------------------------------------------
UNLESS VOTING BY TELEPHONE OR THROUGH THE INTERNET, PLEASE MARK, SIGN AND
DATE THIS PROXY CARD ON THE REVERSE SIDE AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
-------------
SEE REVERSE
SIDE
-------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
<PAGE>
Appendix to Proxy Statement of U.S. Bancorp dated March 18, 1999
U.S. BANCORP
1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) PURPOSE. The purpose of the U.S. Bancorp 1999 Stock Incentive
Plan (the "Plan") is to aid in attracting and retaining employees, management
personnel and other personnel and members of the Board of Directors who are not
also employees ("Non-Employee Directors") of U.S. Bancorp (the "Company")
capable of assuring the future success of the Company, to offer such personnel
and Non-Employee Directors incentives to put forth maximum efforts for the
success of the Company's business and to afford such personnel and Non-Employee
Directors an opportunity to acquire a proprietary interest in the Company.
(b) EFFECT ON PRIOR PLANS. The Company hereby adopts the Plan,
subject to approval by the stockholders of the Company. As so established and
approved, the Plan shall be known as the 1999 Stock Incentive Plan. On the
effective date of the Plan determined in accordance with Section 10 of the Plan,
for purposes of administration and share accounting pursuant to Sections 3 and 4
of the Plan, the following plans of the Company shall be considered to be
incorporated in the Plan: the U.S. Bancorp 1997 Stock Incentive Plan, as
amended (including all plans incorporated therein), and the Piper Jaffray
Companies Inc. 1993 Omnibus Stock Plan (as assumed by the Company), as amended
(together, the "Prior Plans"). All outstanding options, restricted stock and
other awards issued under the Prior Plans shall remain subject to the terms and
conditions of the plans under which they were issued, but shares of stock
relating to outstanding options, restricted stock or other awards issued under
the Prior Plans are considered shares of stock subject to the Plan under Section
4 of the Plan.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award or other Stock-Based
Award granted under the Plan.
<PAGE>
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Change in Control" shall have the meaning ascribed to such term
in any Award Agreement, and shall include phrases of similar meaning such as, by
way of example but not limitation, "Full Change in Control" and "Partial Change
in Control."
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan and composed of not
less than two directors.
(g) "Eligible Person" shall mean any employee, officer, director
(including any Non-Employee Director), consultant or independent contractor
providing services to the Company or any Affiliate who the Committee determines
to be an Eligible Person.
(h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
for purposes of the Plan, the Fair Market Value of Shares on a given date shall
be the closing price of the Shares as reported on the New York Stock Exchange on
such date, if the Shares are then traded on the New York Stock Exchange.
(i) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(j) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of automatic
grants to Non-Employee Directors, that is not intended to be an Incentive Stock
Option.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(l) "Other Stock-Based Award" shall mean any right granted under
Section 6(e) of the Plan.
-2-
<PAGE>
(m) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under Section
6(d) of the Plan.
(o) "Person" shall mean any individual, corporation, partnership,
association or trust.
(p) "Qualifying Termination" shall mean a termination of employment
under circumstances that, in the judgment of the Committee, warrant acceleration
of the exercisability of Options or the lapse of restrictions relating to
Restricted Stock or Restricted Stock Units. A Qualifying Termination may apply
to large-scale terminations of employment involving the disposition or
divestiture of businesses or legal entities or similar circumstances.
(q) "Restricted Stock" shall mean any Share granted under Section
6(c) of the Plan.
(r) "Restricted Stock Unit" shall mean any unit granted under Section
6(c) of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934.
(t) "Shares" shall mean shares of Common Stock, $1.25 par value, of
the Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 7(c) of the Plan.
(u) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the terms
of the Plan and applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by (or with respect to which payments, rights or
other matters are to be calculated in connection with) each Award; (iv)
determine the terms and conditions of any Award or Award Agreement; (v) amend
the terms and conditions of any Award or Award Agreement and accelerate the
-3-
<PAGE>
exercisability of Options or the lapse of restrictions relating to Restricted
Stock or Restricted Stock Units; PROVIDED, HOWEVER, that any such acceleration
of exercisability or lapse of restrictions shall be limited to accelerations
relating to a Change in Control, a Qualifying Termination, death, disability or
any circumstances set forth in an Award Agreement in effect on the effective
date of the Plan determined in accordance with Section 10 of the Plan; (vi)
determine whether, to what extent and under what circumstances Awards may be
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan shall
be deferred either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
7(c), the total number of Shares available for granting Awards under the Plan
shall be 92,891,502 (47,891,502 of which were previously authorized and subject
to outstanding Awards under the Prior Plans or authorized and available for
grant under the U.S. Bancorp 1997 Stock Incentive Plan, as amended (including
all plans incorporated therein), and 45,000,000 of which will be authorized upon
stockholder approval of the Plan); PROVIDED, HOWEVER, that the total number of
Shares authorized under the Plan shall be deemed to be reduced automatically, as
of the effective date of the Plan determined in accordance with Section 10 of
the Plan, by that number of Shares that were subject to outstanding awards under
the Prior Plans, as of January 31, 1999, that are no longer subject to
outstanding awards as of the effective date of the Plan determined in accordance
with Section 10 of the Plan. Not more than 7,000,000 of such Shares, subject to
adjustment as provided in Section 7(c) of the Plan, will be available for
granting additional Awards of Restricted Stock following the effective date of
the Plan determined in accordance with Section 10 of the Plan; PROVIDED,
HOWEVER, that any Shares covered by an Award of Restricted Stock that are
forfeited shall again be available for purposes of the limitation on grants of
additional Awards of Restricted Stock. If any Shares covered by an Award or to
which an Award relates are not purchased or are forfeited, or if an
-4-
<PAGE>
Award otherwise terminates without delivery of any Shares, then the number of
Shares counted against the aggregate number of Shares available under the Plan
with respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan. In addition, if
any Shares are used by a Participant as full or partial payment to the Company
of the purchase price relating to an Award, whether by actual delivery or
attestation, or in connection with satisfaction of tax obligations relating to
an Award, whether by actual delivery, attestation or having shares withheld from
the Award, only the number of Shares issued net of the Shares tendered or
withheld shall be deemed delivered for purposes of determining the maximum
number of Shares available for granting of Awards under the Plan. For purposes
of the previous two sentences, the term "Award" shall explicitly include any
awards outstanding under the Prior Plans as of the effective date of the Plan
determined in accordance with Section 10 of the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan. Such Shares may again become available for
granting Awards under the Plan pursuant to the provisions of Section 4(a) of the
Plan, subject to the limitations set forth in Section 4(c) of the Plan.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the
number of Shares available for granting Incentive Stock Options under the Plan,
on and after the effective date of the Plan determined in accordance with
Section 10 of the Plan, shall not exceed 45,000,000, subject to adjustment as
provided in Section 7(c) of the Plan and Section 422 or 424 of the Code or any
successor provisions.
(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be
granted any Award or Awards, the value of which Awards are based solely on an
increase in the value of the Shares after the date of grant of such Awards, for
more than 5,000,000 Shares (subject to adjustment as provided in Section 7(c) of
the Plan), in the aggregate, in any calendar year beginning with the year
commencing January 1, 1999. The foregoing limitation specifically includes the
grant of any "performance-based" Awards within the meaning of Section 162(m) of
the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an officer
or director of the Company or any Affiliate, shall be eligible to be designated
a Participant; PROVIDED, HOWEVER, that an Incentive Stock Option may only be
granted to full or part-time employees (which term as used herein includes,
without limitation, officers and
-5-
<PAGE>
directors who are also employees) and an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under
an Option shall be determined by the Committee; PROVIDED, HOWEVER, that
such purchase price shall not be less than 100% of the Fair Market Value of
a Share on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities, other Awards or other property,
or any combination thereof, having a Fair Market Value on the exercise date
equal to the relevant exercise price) in which, payment of the exercise
price with respect thereto may be made or deemed to have been made.
(iv) RELOAD OPTIONS. The Committee may grant "reload" options,
separately or together with another Option, pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant
would be granted a new Option when the payment of the exercise price of a
previously granted option is made by the delivery of shares of the
Company's Common Stock owned by the Participant pursuant to Section
6(a)(iii) hereof or the relevant provisions of another plan of the Company,
and/or when shares of the Company's Common Stock are tendered or forfeited
as payment of the amount to be withheld under applicable tax laws in
connection with the exercise of an option, which new Option would be an
option to purchase the number of Shares not exceeding the sum of (A) the
number of shares of the Company's Common Stock provided as consideration
upon the exercise of the previously granted option to which such "reload"
option relates and (B) the number of shares of the Company's Common Stock
tendered or forfeited as payment of the amount to be withheld under
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applicable 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 this Plan or any other stock option plan of the
Company or any of its affiliates (which shall explicitly include plans
assumed by the Company in connection with mergers and the like). Such
"reload" options shall have a per share exercise price equal to the Fair
Market Value as of the date of grant of the new Option. Any such reload
options shall be subject to availability of sufficient shares for grant
under the Plan.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate. Except as otherwise provided herein,
Awards of Restricted Stock and Restricted Stock Units shall contain
restrictions that lapse no sooner than three years following the date of
grant or, in the case of Awards with performance-based vesting provisions,
no sooner than one year following the date of grant; PROVIDED, HOWEVER,
that restrictions may lapse sooner than such dates as to portions of such
Awards so long as restrictions as to the total number of Shares covered by
such Awards do not lapse sooner than such dates; and PROVIDED, FURTHER,
that such limitations shall
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not apply to Awards granted to new employees as part of initial terms of
employment, Awards granted to new or existing employees in connection with
the acquisition of businesses or assets by the Company, or to Awards in
effect on the effective date of the Plan determined in accordance with
Section 10 of the Plan.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the
restrictions applicable to such Restricted Stock. In the case of
Restricted Stock Units, no Shares shall be issued at the time such Awards
are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise
determined by the Committee, upon termination of employment (as determined
under criteria established by the Committee) during the applicable
restriction period, all Shares of Restricted Stock and all Restricted Stock
Units at such time subject to restriction shall be forfeited and reacquired
by the Company; PROVIDED, HOWEVER, that the Committee may, when it finds
that a waiver would be in the best interest of the Company, including,
without limitation, in connection with Changes in Control, Qualifying
Terminations, death or disability, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units. Shares representing Restricted Stock that is no
longer subject to restrictions shall be delivered to the holder thereof
promptly after the applicable restrictions lapse or are waived. Upon the
lapse or waiver of restrictions and the restricted period relating to
Restricted Stock Units evidencing the right to receive Shares, such Shares
shall be issued and delivered to the holders of the Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee.
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(e) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
PROVIDED, HOWEVER, that such grants must comply with applicable law. Subject to
the terms of the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of such Awards. Shares or other securities
delivered pursuant to a purchase right granted under this Section 6(e) shall be
purchased for such consideration, which may be paid by such method or methods
and in such form or forms (including without limitation, cash, Shares, other
securities, other Awards or other property or any combination thereof), as the
Committee shall determine, the value of which consideration, as established by
the Committee, shall not be less than 100% of the Fair Market Value of such
Shares or other securities as of the date such purchase right is granted.
(f) GENERAL. Except as otherwise specified with respect to Awards to
Non-Employee Directors pursuant to Section 6(g) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for
no cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in
the discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, other securities, other
Awards or other property or any combination thereof), and may be made in a
single payment or transfer, in installments or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or deferred
payments.
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(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any
such Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; PROVIDED, HOWEVER, that, if so
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant; and PROVIDED,
FURTHER, except in the case of an Incentive Stock Option, Awards may be
transferable as specifically provided in any applicable Award Agreement or
amendment thereto pursuant to terms determined by the Committee. Except as
otherwise provided in any applicable Award Agreement or amendment thereto
(other than an Award Agreement relating to an Incentive Stock Option),
pursuant to terms determined by the Committee, each Award or right under
any Award shall be exercisable during the Participant's lifetime only by
the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. Except as otherwise
provided in any applicable Award Agreement or amendment thereto (other than
an Award Agreement relating to an Incentive Stock Option), no Award or
right under any such Award may be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against the Company or any
Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities laws,
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
(g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The
Committee shall issue Non-Qualified Stock Options to Non-Employee Directors in
accordance with this Section 6(g).
Each Non-Employee Director first elected or appointed to the Company's
Board of Directors following the effective date of the Plan determined in
accordance with
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Section 10 of the Plan and during the term of the Plan shall be granted, as of
the date of such Director's first election or appointment to the Board of
Directors, a Non-Qualified Stock Option to purchase 7,500 Shares (subject to
adjustment pursuant to Section 7(c) of the Plan). Each Non-Employee Director
shall be granted during the term of the Plan, as of the date of each Annual
Meeting of Stockholders of the Company commencing with the 1999 Annual Meeting
of Stockholders of the Company, if such Director's term of office continues
after such date, a Non-Qualified Stock Option to purchase 5,100 Shares (subject
to adjustment pursuant to Section 7(c) of the Plan).
Each Non-Qualified Stock Option granted to a Non-Employee Director
pursuant to this Section 6(g) shall be exercisable in full as of the date of
grant, shall have an exercise price equal to the Fair Market Value of a Share on
the date of grant and shall expire on the tenth anniversary of the date of
grant, except as provided below. Each Option granted pursuant to this Section
6(g) may be transferable pursuant to terms established by the Committee
consistent with Section 6(f)(iv) of the Plan.
Except as hereinafter provided, each Option granted pursuant to this
Section 6(g) (including those Options granted pursuant to Section 6(h) of the
First Bank System, Inc. 1991 Stock Incentive Plan as provided therein, under
Section 6(g) of the First Bank System, Inc. 1996 Stock Incentive Plan as
provided therein and under Section 6(g) of the U.S. Bancorp 1997 Stock Incentive
Plan as provided therein) shall be deemed to include a provision entitling the
optionee to a further Non-Qualified Stock Option (a "Non-Employee Director
Reload Option") in the event the optionee exercises such an Option, in whole or
in part, by surrendering other Shares in accordance with this Section 6(g)
(including any predecessor provision under the First Bank System, Inc. 1991
Stock Incentive Plan, the First Bank System, Inc. 1996 Stock Incentive Plan or
the U.S. Bancorp 1997 Stock Incentive Plan) and the terms of the Option and/or
when shares of the Company's Common Stock are delivered or withheld as payment
of an amount representing tax obligations in connection with the exercise of an
option. Any such Non-Employee Director Reload Option (i) shall be for a number
of Shares equal to the sum of (x) the number of Shares surrendered as part or
all of the exercise price of the Option to which it relates plus (y) the number
of Shares, if any, delivered or withheld as payment of an amount representing
tax obligations in connection with the exercise 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; (iii) shall have an exercise price equal
to the Fair Market Value of a Share on the date of exercise of the Option to
which it relates; and (iv) shall be exercisable in full as of the date of grant.
A Non-Employee Director Reload Option may be reloaded under the same terms,
provided that the original Option to which such series of Non-Employee Director
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.
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Shares surrendered as part or all of the exercise price of the Option to which
it relates that have been owned by the optionee less than six months will not be
counted for purposes of determining the number of Shares that may be purchased
pursuant to a Non-Employee Director Reload Option.
All grants of Non-Qualified Stock Options pursuant to this Section
6(g) shall be automatic and non-discretionary and shall be made strictly in
accordance with the foregoing terms and the following additional provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee Director
hereunder shall terminate and may no longer be exercised if such Director
ceases to be a Non-Employee Director of the Company, except that:
(A) If such Director's term shall be terminated for any reason
other than gross and willful misconduct, death, disability, or
retirement, such Director may at any time within a period of three
months after such termination, but not after the termination date of
the Option, exercise the Option.
(B) If such Director's term shall be terminated by reason of
gross and willful misconduct during the course of the term, including
but not limited to, wrongful appropriation of funds of the Company or
the commission of a gross misdemeanor or felony, the Option shall be
terminated as of the date of the misconduct.
(C) If such Director's term shall be terminated by reason of
disability or retirement, such Director may exercise the Option in
accordance with the terms thereof as though such termination had never
occurred. If such Director shall die following any such termination,
the Option may be exercised in accordance with its terms by the
personal representatives or administrators of such Director or by any
person or persons to whom the Option has been transferred by will or
the applicable laws of descent and distribution.
(D) If such Director shall die while a Director of the Company
or within three months after termination of such Director's term for
any reason other than disability or retirement or gross and willful
misconduct, the Option may be exercised in accordance with its terms
by the personal representatives or administrators of such Director or
by any person or persons to whom the Option has been transferred by
will or the applicable laws of descent and distribution.
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(ii) Non-Qualified Stock Options granted to Non-Employee Directors
may be exercised in whole or in part from time to time by serving written
notice of exercise on the Company at its principal executive offices, to
the attention of the Company's Secretary. The notice shall state the
number of shares as to which the Option is being exercised and be
accompanied by payment of the purchase price. A Non-Employee Director may,
at such Director's election, pay the purchase price by check payable to the
Company, by promissory note, or in shares of the Company's Common Stock, or
in any combination thereof having a Fair Market Value on the exercise date
equal to the applicable exercise price. If payment or partial payment is
made by promissory note, such note shall be a full recourse note and shall
(A) be secured by the Shares to be delivered upon exercise of such Option,
(B) be limited in principal amount to the maximum amount permitted under
applicable laws, rules and regulations, (C) be for a term of six years and
(D) bear interest at the applicable federal rate (as determined in
accordance with Section 1274(d) of the Code), compounded semi-annually.
(iii) In order for a Non-Employee Director to satisfy obligations
under tax laws in connection with an Option granted pursuant to this
Section 6(g) (including any predecessor provision under the First Bank
System, Inc. 1991 Stock Incentive Plan, the First Bank System, Inc. 1996
Stock Incentive Plan and the U.S. Bancorp 1997 Stock Incentive Plan), such
Director may (A) elect to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise of such Option with a Fair Market
Value equal to the amount of such taxes (an "Election") or (B) deliver to
the Company Shares other than Shares issuable upon exercise of such Option
with a Fair Market Value equal to the amount of such taxes. An Election,
if any, must be made on or before the date that the amount of tax to be
withheld is determined.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the Plan at any time and
from time to time; PROVIDED, HOWEVER, that, notwithstanding any other provision
of the Plan or any Award Agreement, without the approval of the stockholders of
the Company, no such amendment, alteration, suspension, discontinuation or
termination shall be made that, absent such approval:
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(i) would violate the rules or regulations of the New York Stock
Exchange, any other securities exchange or the National Association of
Securities Dealers, Inc. that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except as otherwise explicitly provided
herein, the Committee may waive any conditions of or rights of the Company under
any outstanding Award, prospectively or retroactively. The Committee may not
amend, alter, suspend, discontinue or terminate any outstanding Award,
prospectively or retroactively, without the consent of the Participant or holder
or beneficiary thereof, except as otherwise herein provided. Except as provided
in Section 7(c) hereof, no Option may be amended to reduce its initial exercise
price and no Option shall be canceled and replaced with an Option or Options
having a lower exercise price without the approval of the stockholders of the
Company.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of Shares or other securities of the Company or other similar corporate
transaction or event affecting the Shares would be reasonably likely to result
in the diminution or enlargement of any of the benefits or potential benefits
intended to be made available under the Plan or under an Award (including,
without limitation, the benefits or potential benefits of provisions relating to
the term, vesting or exercisability of any Option, the availability of any
tandem stock appreciation rights or "reload" option rights, if any, contained in
any Option Award, and any "change in control" or similar provisions of any
Award), the Committee shall, in such manner as it shall deem equitable or
appropriate in order to prevent such diminution or enlargement of any such
benefits or potential benefits, adjust any or all of (i) the number and type of
Shares (or other securities or other property) which thereafter may be made the
subject of Awards, (ii) the number and type of Shares (or other securities or
other property) subject to outstanding Awards and (iii) the purchase or exercise
price with respect to any Award; PROVIDED, HOWEVER, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole
number.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
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SECTION 8. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal, state or local income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all federal and state
taxes to be withheld or collected upon exercise or receipt of (or the lapse of
restrictions relating to) an Award, the Committee, in its discretion and subject
to such additional terms and conditions as it may adopt, may permit the
Participant to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes or (ii) delivering to the Company
Shares other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in Section
6(g) of the Plan, no Eligible Person, Participant or other Person shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons, Participants or holders or
beneficiaries of Awards under the Plan. The terms and conditions of Awards need
not be the same with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more officers
of the Company or any Affiliate or a committee of such officers, but only to the
extent such officer or officers are also members of the Board of Directors of
the Company, the authority, subject to such terms and limitations as the
Committee shall determine, to grant Awards to Eligible Persons who are not
officers or directors of the Company for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended.
(c) AWARD AGREEMENTS. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
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(e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ, or as
giving a Non-Employee Director the right to continue as a Director, of the
Company or any Affiliate. In addition, the Company or an Affiliate may at any
time dismiss a Participant from employment, or terminate the term of a
Non-Employee Director, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(k) SECTION 16 COMPLIANCE. The Plan is intended to comply in all
respects with Rule 16b-3 or any successor provision, as in effect from time to
time and in all events the Plan shall be construed in accordance with the
requirements of Rule 16b-3. If any Plan provision does not comply with Rule
16b-3 as hereafter amended or interpreted,
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the provision shall be deemed inoperative. The Board of Directors, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan with respect to persons who are
officers or directors subject to Section 16 of the Securities and Exchange Act
of 1934, as amended, without so restricting, limiting or conditioning the Plan
with respect to other Participants.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of approval by the
stockholders of the Company in accordance with applicable law.
SECTION 11. TERM OF THE PLAN.
New Awards shall only be granted under the Plan during a 10-year
period beginning on the effective date of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the end of such 10-year period, and the
authority of the Committee provided for hereunder with respect to the Plan and
any Awards, and the authority of the Board of Directors of the Company to amend
the Plan, shall extend beyond the end of such period.
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