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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
U.S. BANCORP
- --------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/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:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule[nb]0[cad220]11 (set
forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
March 16, 2000
To Our Shareholders:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of U.S. Bancorp, which will be held at 2:00 p.m., local time, on Wednesday,
April 19, 2000, 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
February 29, 2000 are entitled to notice of and to vote at the 2000 Annual
Meeting.
In addition to the election of Directors at this year's Annual Meeting, you
will be considering a proposal to approve the U.S. Bancorp Executive Incentive
Plan, the Company's annual bonus plan for senior executives. This is not a new
plan, and the plan is not being amended at this time. Rather, we are submitting
the plan for shareholder approval as required by tax regulations so that the
Company will not be subject to a limit on the tax deduction available for
compensation paid to certain executives. These regulations require the material
terms of this plan to be approved by shareholders every five years. Although
shareholders approved a plan amendment in 1997, the entire plan was last
approved in 1995 and so is being resubmitted this year. Shareholder approval is
not required to allow the Company to pay annual bonuses to senior executives,
but it is required in order that the Company not be subject to a limit on the
amount of any bonuses paid under this plan that can be deducted for tax
purposes.
We hope you will be able to attend the meeting. However, even if you plan to
attend in person, please vote your shares promptly to ensure your
representation. Your vote will be confidential, in accordance with the Company's
policy on confidential voting. This year, we are again pleased to offer
registered shareholders the opportunity to vote in any one of three ways: by
calling the toll-free number listed on the enclosed proxy card; by using the
Internet, as instructed on the proxy card; or by returning the proxy card in the
enclosed postage-paid envelope. 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 "street name" with a broker or bank, 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 ARE A REGISTERED
SHAREHOLDER AND PLAN TO ATTEND THE MEETING, AN ADMISSION TICKET IS PRINTED ON
THE LOWER PORTION OF THE ENCLOSED PROXY CARD. PLEASE BRING IT WITH YOU TO THE
MEETING. IF YOUR SHARES ARE HELD WITH A BROKER OR BANK, YOU WILL NEED PROOF OF
OWNERSHIP TO BE ADMITTED TO THE MEETING, AS DESCRIBED UNDER "GENERAL
MATTERS--ATTENDING THE ANNUAL MEETING" ON PAGE 2 OF THE PROXY STATEMENT.
U.S. Bancorp is also pleased to offer shareholders the opportunity to
receive future annual reports and proxy materials electronically over the
Internet as a convenient and cost-effective alternative to receiving paper
copies through the mail. This program is available both to registered
shareholders and to shareholders whose stock is held in street name with a
broker. You can consent to participate in this program in the future as
described under "General Matters--Consent to Electronic Delivery" on page 2 of
the Proxy Statement.
Sincerely,
[SIG]
John F. Grundhofer
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 19, 2000
The 2000 Annual Meeting of Shareholders of U.S. Bancorp (the "Company") will
be held at 2:00 p.m., local time, on Wednesday, April 19, 2000, 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
Executive 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, 2000.
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 February 29, 2000
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.
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<S> <C>
March 16, 2000 By Order of the Board of Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
</TABLE>
PLEASE VOTE YOUR PROXY BY TELEPHONE OR THROUGH THE INTERNET, AS DESCRIBED ON
THE ENCLOSED PROXY CARD, OR BY RETURNING THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL MATTERS............................................. 1
Voting, Execution and Revocation of Proxies............... 1
Policy on Confidential Voting............................. 2
Attending the Annual Meeting.............................. 2
Consent to Electronic Delivery............................ 2
Annual Report to Shareholders and Form 10-K............... 3
PROPOSAL I. ELECTION OF DIRECTORS........................... 3
The Board of Directors.................................... 3
Nominees for Election as Directors........................ 3
Board and Committee Meetings.............................. 3
Retirement Policy and Director Compensation............... 5
Information Regarding Nominees and Other Continuing
Directors............................................... 7
PROPOSAL II. APPROVAL OF THE EXECUTIVE INCENTIVE PLAN....... 13
Reasons for Approval and Vote Required.................... 13
Summary of the Executive Incentive Plan................... 13
PROPOSAL III. SELECTION OF AUDITORS......................... 16
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT...... 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 18
EXECUTIVE COMPENSATION...................................... 19
Report of the Compensation and Human Resources Committee
on Executive Compensation............................... 19
Employment Contracts for the Named Executive Officers..... 23
Summary Compensation Table................................ 24
Stock Options............................................. 26
Retirement Plans.......................................... 27
Compensation Committee Interlocks and Insider
Participation........................................... 29
COMPARATIVE STOCK PERFORMANCE............................... 30
CERTAIN TRANSACTIONS........................................ 31
Stock Repurchases......................................... 31
Loans to Management....................................... 31
SHAREHOLDER PROPOSALS....................................... 32
PROPOSAL IV. ANNUAL ELECTION OF DIRECTORS................. 32
OTHER MATTERS............................................... 33
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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 19, 2000 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 16, 2000.
The cost of soliciting proxies will be paid 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 materials 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 Georgeson Shareholder
Communications Inc. to assist in proxy solicitation for an estimated fee of
$9,500 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 February 29, 2000 are
entitled to vote at the Company's Annual Meeting. As of that date, there were
750,624,900 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 associated costs, such as Internet access fees and
telephone charges, that must be paid 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. Proposal IV is considered a non-routine item under the NYSE rules, and
therefore brokers may not vote uninstructed shares on this matter. 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 votes 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 in the form enclosed is
properly executed and returned 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 named;
(ii) FOR the proposal to approve the U.S. Bancorp Executive Incentive Plan;
(iii) FOR the ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31, 2000; 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.
ATTENDING THE ANNUAL MEETING
The map printed on the back cover of this Proxy Statement shows the location
of the Annual Meeting. Registered shareholders (I.E., those owning shares
registered directly in their name with the Company's transfer agent) who plan to
attend the Annual Meeting should indicate this when voting, either by marking
the attendance box on the proxy card or responding affirmatively when prompted
during telephone or Internet voting. AN ADMISSION TICKET FOR REGISTERED
SHAREHOLDERS IS PRINTED ON THE LOWER PORTION OF THE PROXY CARD AND SHOULD BE
BROUGHT TO THE MEETING. BENEFICIAL OWNERS OF COMMON STOCK HELD IN STREET NAME BY
A BROKER OR BANK WILL NEED PROOF OF OWNERSHIP TO BE ADMITTED TO THE MEETING. A
recent brokerage statement or letter from the broker or bank are examples of
proof of ownership. Beneficial owners who want to vote in person at the Annual
Meeting must get a written proxy in their name from the broker or bank holding
the shares.
CONSENT TO ELECTRONIC DELIVERY
The Company is pleased to offer shareholders the option to receive future
annual reports and proxy materials electronically over the Internet instead of
receiving paper copies through the mail. Shareholders whose shares are
registered directly in their name with First Chicago Trust Company of New York,
the Company's transfer agent, or those who hold shares in the Savings Plan, can
enroll at the Web site www.econsent.com/usb. Shareholders whose shares are held
in street name by a broker or bank also may be eligible to participate,
depending on whether their broker or bank offers electronic delivery. Generally,
brokers and banks offering this option require that shareholders vote through
the Internet in order to enroll. Street name shareholders who are not given the
opportunity to enroll should contact their broker or
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bank and ask about the availability of electronic delivery. As with all Internet
usage, the user must pay all access fees and telephone charges.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
The U.S. Bancorp 1999 Annual Report to Shareholders and Annual Report on
Form 10-K, including financial statements for the year ended December 31, 1999,
accompanies this Proxy Statement. If a shareholder requests copies of any
exhibits to the 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.
PROPOSAL I. ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
The Bylaws of the Company provide that 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). Director Edward J. Phillips (Class I) is
expected to retire at the 2000 Annual Meeting 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 II Directors will expire at the 2000 Annual Meeting,
the term of office of the Class III Directors will expire at the 2001 Annual
Meeting, and the term of office of the Class I Directors will expire at the 2002
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 are 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 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 II Directors are to be elected at the
meeting for a three-year term expiring at the 2003 Annual Meeting and until
their successors are elected and qualified. Nominees for Class II Directors are
Harry L. Bettis, Peter H. Coors, Joshua Green III, Paul A. Redmond and S. Walter
Richey. All of these nominees are presently serving as Class II 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 1999, the Board of Directors of the Company held six 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
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Credit Policy and Community Responsibility Committee met four times, the
Compensation and Human Resources Committee met eight times, the Finance
Committee met three times and the Governance Committee met five times. Incumbent
Directors' attendance at Board and Committee meetings averaged 96% during 1999,
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),
Arthur D. Collins, Jr. (Vice Chair), Peter H. Coors, Delbert W. Johnson, Jerry
W. Levin, Edward J. Phillips and S. Walter Richey. 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 Delbert W. Johnson (Chair), Robert L.
Dryden (Vice Chair), Linda L. Ahlers, Peter H. Coors, Joshua Green III, Joel W.
Johnson, Edward J. Phillips, Paul A. Redmond, Richard G. Reiten, S. Walter
Richey 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
Peter H. Coors (Chair), Linda L. Ahlers (Vice Chair), Harry L. Bettis, Joshua
Green III, John F. Grundhofer, Delbert W. Johnson, Joel W. Johnson and Edward J.
Phillips. 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., Peter H.
Coors, Robert L. Dryden, Delbert W. Johnson, Edward J. Phillips and Paul A.
Redmond. The Compensation and Human Resources Committee is charged with
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),
Richard G. Reiten (Vice Chair), Harry L. Bettis, Joshua Green III, John F.
Grundhofer, 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 Arthur D. Collins, Jr. (Chair),
Delbert W. Johnson (Vice Chair), Peter H. Coors, John F. Grundhofer, Edward J.
Phillips, Richard G. Reiten and S. Walter Richey. The Governance 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
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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 2001 election of Directors should
be submitted in writing to the Secretary of the Company so as to be received no
later than November 16, 2000. 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. Phillips, a Class I Director, will have 12 years of service at the time of
the Annual Meeting and is expected to retire at the Annual Meeting, which will
be prior to the expiration of his term at the 2002 Annual Meeting. One of the
nominees for election as a Class II Director, Mr. Bettis, will turn 67 prior to
the 2002 Annual Meeting, which will be prior to the expiration of his term at
the 2003 Annual Meeting, if he is elected. Another of the nominees for election
as a Class II Director, Mr. Richey, will have 12 years of service prior to the
2002 Annual Meeting, which will be prior to the expiration of his term at the
2003 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 Directors who are Committee Chairs receive $2,000 and Non-Employee
Directors receive $1,000 for each Committee meeting attended. Ms. Ahlers and
Mr. Richey also served as Directors of certain of the Company's bank and trust
company subsidiaries through January 31, 2000, at the Company's request. As
compensation for such service for the 12 months ended April 30, 1999,
Ms. Ahlers and Mr. Richey each received a stock option grant in 1998 to purchase
3,900 shares of the Company's Common Stock, and as compensation for the nine
months ended January 31, 2000, they each received a stock option grant in 2000
to purchase 6,850 shares of the Company's Common Stock. Such options have the
same terms and conditions as options granted automatically to Non-Employee
Directors under the Company's 1999 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 in
control of
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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 1999 Stock Incentive Plan, each Non-Employee Director
receives an option to purchase 7,500 shares of the Company's Common Stock upon
first being elected to the Board of Directors, and thereafter an option 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.
The Company has a Director Retirement and Death Benefit 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 this
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 this 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 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 in control of the Company, benefits payable
under the plan will be paid in a lump sum within 30 days thereof.
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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.
One Non-Employee Director received health care subsidies and related
reimbursements for income taxes on such subsidies during 1999.
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 II DIRECTORS--NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2003 ANNUAL
MEETING
<TABLE>
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HARRY L. BETTIS (Age 65) Director
[PHOTO] Since 1997
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, one of Idaho's largest private charitable
foundations, 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 Credit Policy
and Community Responsibility Committee and the Finance
Committee.
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PETER H. COORS (Age 53) Director
[PHOTO] Since 1996
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 Chair of the Credit Policy and Community Responsibility
Committee and as a member of the Audit Committee, the
Compensation and Human Resources Committee, the Executive
Committee and the Governance Committee.
</TABLE>
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JOSHUA GREEN III (Age 63) Director
[PHOTO] Since 1997
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, as a
Director of the University of Washington Foundation and as a
trustee of the Downtown Seattle Association, the Corporate
Council for the Arts, the Rhododendron Species Foundation,
the Pacific Science Center, Trout Unlimited, the Virginia
Mason Foundation and the Virginia Mason Research Center.
Mr. Green serves on the Audit Committee, the Credit Policy
and Community Responsibility Committee and the Finance
Committee.
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PAUL A. REDMOND (Age 63) Director
[PHOTO] Since 1997
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., Source Capital, 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 64) Director
[PHOTO] Since 1990
Mr. Richey is the former Chairman and Chief Executive
Officer of Meritex, Inc., Roseville, 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 1998. He serves as a
Director of Donaldson Company, Inc. and 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 Audit Committee, the Executive
Committee, the Finance Committee and the Governance
Committee.
</TABLE>
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CLASS III DIRECTORS--WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
<TABLE>
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ARTHUR D. COLLINS, Jr. (Age 52) Director
[PHOTO] Since 1996
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 and of the Governance
Committee, as Vice Chair of the Executive Committee, and as
a member of the Compensation and Human Resources Committee.
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JOHN F. GRUNDHOFER (Age 61) Director
[PHOTO] Since 1990
Mr. Grundhofer is Chairman and Chief Executive Officer of
the Company. He has served as 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. Upon joining the
Company and until July 21, 1999, he also served as
President. Prior to joining the Company, Mr. Grundhofer was
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 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
Financial Services 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.
</TABLE>
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DELBERT W. JOHNSON (Age 61) Director
[PHOTO] Since 1994
Mr. Johnson is Vice President of Safeguard
Scientifics, Inc., Wayne, Pennsylvania, a diversified
information technology company that develops, operates and
manages emerging growth information technology companies.
Prior to February 1, 2000, he had been Chairman and Chief
Executive Officer of Pioneer Metal Finishing, Minneapolis,
Minnesota, a division of Safeguard Scientifics and one of
the largest metal finishing companies in the United States.
He joined Pioneer Metal Finishing in 1965 and was elected
Chairman and Chief Executive Officer 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.,
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 Chair of the Audit
Committee, as Vice Chair of the Governance Committee, and as
a member of the Compensation and Human Resources Committee,
the Credit Policy and Community Responsibility Committee and
the Executive Committee.
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JERRY W. LEVIN (Age 55) Director
[PHOTO] Since 1995
Mr. Levin is Chairman 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 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. He served as Chief
Executive Officer of Revlon, Inc., New York, New York, a
maker of cosmetics and personal care and professional
products, from 1992 until January 1997. He had been
President of Revlon from 1991 to 1992. Prior to that,
Mr. Levin was Chairman of Coleman Holdings, Inc., the parent
of The Coleman Company from 1989 to 1991. 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. and Ecolab 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
Executive Committee and the Finance Committee.
</TABLE>
10
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<TABLE>
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RICHARD G. REITEN (Age 60) Director
[PHOTO] Since 1998
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 and the Pacific Coast Gas Association.
Mr. Reiten is past 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 Vice Chair of
the Finance Committee and as a member of the Audit Committee
and the Governance Committee.
</TABLE>
CLASS I DIRECTORS--WHOSE TERMS EXPIRE AT THE 2002 ANNUAL MEETING
<TABLE>
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LINDA L. AHLERS (Age 49) Director
[PHOTO] Since 1997
Ms. Ahlers is President of Dayton's, Marshall Field's,
Hudson's, the department store division of Target
Corporation, Minneapolis, Minnesota, a diversified retail
company. Ms. Ahlers has been associated with Target
Corporation (formerly known as Dayton Hudson Corporation)
since 1977. She assumed her current position in
February 1996 and previously served as Executive Vice
President, Merchandising, of the department store division,
and in various capacities with Target Stores, an affiliate
company of Target Corporation. Ms. Ahlers' 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 Target Corporation Foundation.
Ms. Ahlers serves as Vice Chair of the Credit Policy and
Community Responsibility Committee and as a member of the
Audit Committee.
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ROBERT L. DRYDEN (Age 66) Director
[PHOTO] Since 1997
Mr. Dryden is the President and Chief Executive Officer of
ConneXt, Inc., Seattle, Washington, a developer of software
solutions for the energy industry. Mr. Dryden joined
ConneXt in April 1999. From 1990 until May 1998, he was
Executive Vice President, Airplane Production, of The Boeing
Company (Commercial Airplane Group), Seattle, Washington. 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 Vice Chair of the Audit
Committee and as a member of the Compensation and Human
Resources Committee.
</TABLE>
11
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<TABLE>
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JOEL W. JOHNSON (Age 56) Director
[PHOTO] Since 1999
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, as a member of the Board of Overseers of
the Curtis L. Carlson School of Management at the University
of Minnesota and as a member of the Board of Trustees of
Hamilton College. Mr. Johnson serves as a member of the
Audit Committee and the Credit Policy and Community
Responsibility Committee.
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WARREN R. STALEY (Age 57) Director
[PHOTO] Since 1999
Mr. Staley is President and Chief Executive 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 President
and Chief Operating Officer in 1998. He was named to his
current position in June 1999. He also has 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 and the United Way of the Minneapolis area.
Mr. Staley serves as a member of the Audit Committee and the
Finance Committee.
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</TABLE>
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PROPOSAL II. APPROVAL OF THE EXECUTIVE INCENTIVE PLAN
REASONS FOR APPROVAL AND VOTE REQUIRED
As discussed in more detail below, the Company is submitting the U.S.
Bancorp Executive Incentive Plan, the Company's annual bonus plan for senior
executives, for shareholder approval as required by tax regulations so that the
Company will not be subject to a limit on the tax deduction available for
compensation paid to these executives. This is not a new plan, and the plan is
not being amended at this time. Rather, the tax regulations require the material
terms of the plan to be approved by shareholders every five years, and the plan
was last approved in 1995 and so is being resubmitted this year. Shareholder
approval is not required to allow the Company to pay annual bonuses to senior
executives, but it is required in order that the Company not be subject to a
limit on the amount of any bonuses paid under this plan that can be deducted for
tax purposes.
Since 1995, the Company has provided annual incentives to executives under
the Executive Incentive Plan. The Executive Incentive Plan is an annual bonus
plan designed to provide certain of the Company's executives with incentive
compensation based upon the achievement of objective performance-based goals.
The purpose of the Executive Incentive Plan is to advance the interests of the
Company and its shareholders by attracting and retaining key employees and by
encouraging those employees to contribute to the continued success and growth of
the Company's business. The Executive Incentive Plan was approved by the
Company's shareholders at the 1995 Annual Meeting, effective as of January 1,
1995. An amendment to the Executive Incentive Plan to change the maximum payment
a participant may receive under the plan was approved by shareholders at the
1997 Annual Meeting, effective as of January 1, 1997.
Currently, under Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the allowable deduction for compensation paid or accrued
with respect to the Chief Executive Officer and each of the four other most
highly compensated executive officers of a publicly held corporation is limited
to $1 million per fiscal year. Certain types of compensation are exempted from
this deduction limitation, including "qualified performance-based compensation."
The Executive Incentive Plan is designed so that awards under it can qualify as
"qualified performance-based compensation" as defined in Section 162(m) and
certain applicable Treasury Regulations. Under these Treasury Regulations, if a
company's compensation committee has authority to change the targets under a
plan, then the company's shareholders must reapprove all material terms of the
plan every five years. The Company's Compensation and Human Resources Committee
(the "Compensation Committee") has this authority and, consequently, the Company
is submitting the Executive Incentive Plan for reapproval by shareholders in
order to be able to continue taking advantage of the exemption provided in
Section 162(m). The availability of the Section 162(m) exemption for benefits
that may be paid under the Executive Incentive Plan for performance in the year
beginning January 1, 2000 is conditioned upon shareholder approval of the plan.
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 Annual
Meeting and entitled to vote is necessary for approval of the Executive
Incentive Plan. The following summary describes all of the material features of
the Executive Incentive Plan, as amended. A copy of the full text of the
Executive Incentive Plan has been filed as an exhibit to the Company's Annual
Report on Form 10-K and 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 EXECUTIVE INCENTIVE PLAN
ADMINISTRATION. The Executive Incentive Plan provides that it shall be
administered by the Compensation Committee, which shall consist of members
appointed from time to time by the Board of Directors. Each member of the
Compensation Committee shall be an "outside director" within the meaning of
Section 162(m) of the Code. The Compensation Committee shall have full power and
authority, subject to the provisions of the Executive Incentive Plan and
applicable law, to (a) establish,
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amend, suspend or waive such rules and regulations and appoint such agents as it
deems necessary or advisable for the proper administration of the Executive
Incentive Plan, (b) construe, interpret and administer the Executive Incentive
Plan and any instrument or agreement relating to the Executive Incentive Plan,
and (c) make all other determinations and take all other actions necessary or
advisable for the administration of the Executive Incentive Plan. Unless
otherwise expressly provided in the Executive Incentive Plan, each determination
made and each action taken by the Compensation Committee under the Executive
Incentive Plan or any instrument or agreement relating to the Executive
Incentive Plan (x) shall be within the sole discretion of the Compensation
Committee, (y) may be made at any time, and (z) shall be final, binding and
conclusive for all purposes on all persons, including, but not limited to,
participants in the Executive Incentive Plan, their legal representatives and
beneficiaries and employees of the Company. The Compensation Committee may amend
the Executive Incentive Plan prospectively at any time and for any reason deemed
sufficient by it and may likewise terminate or curtail the benefits of the
Executive Incentive Plan. The Compensation Committee also may correct any
defect, supply any omission or reconcile any inconsistency in the Executive
Incentive Plan in the manner and to the extent it shall deem desirable to carry
the Executive Incentive Plan into effect.
ELIGIBILITY. Any executive officer of the Company who is also an "officer"
within the meaning of Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and who is designated by the Compensation
Committee to participate in the Executive Incentive Plan with respect to a given
year shall be eligible to participate in such year. The Company currently has 17
executive officers who are considered to be "officers" within the meaning of
Section 16(a) of the Exchange Act. For 1999, eight of such officers were
designated by the Compensation Committee to participate in the Executive
Incentive Plan. These eight executive officers as a group were awarded an
aggregate of $2,380,000 for 1999 under the Executive Incentive Plan. Included in
this group were all of the officers named in the Summary Compensation Table
below other than Mr. Duff, who did not participate in the Executive Incentive
Plan in 1999, who were awarded payments in the amounts set forth opposite their
names in such table.
DESIGNATION OF PARTICIPANTS; DETERMINATION OF AWARDS. The Executive
Incentive Plan provides that on or before the 90th day of each fiscal year
during the term of the Executive Incentive Plan, the Compensation Committee
shall designate all participants in the Executive Incentive Plan for that year
and their "Target Awards" for that year. The Compensation Committee also shall
establish for each participant for any such year one or more "Performance
Thresholds" (pre-established, objective performance goals that shall be based
solely on the Company's "Return on Assets"), including a minimum level of
achievement. The Company's Return on Assets is defined in the Executive
Incentive Plan as a percentage consisting of the Company's Operating Earnings
(as defined in the Executive Incentive Plan and described below) for the fiscal
year divided by the Company's consolidated total average assets for such year,
computed in accordance with generally accepted accounting principles and
adjusted in the same fashion as Operating Earnings are to be adjusted as
described below. Each "Target Award" will be a percentage, which may be greater
or less than 100%. Following the close of each year and prior to the payment of
any amount under the Executive Incentive Plan, the Compensation Committee must
certify in writing (a) the Return on Assets and Operating Earnings for that
year, and (b) the attainment of all other factors that are to be the basis for
any payments to any participant for that year. In no event shall any participant
receive any payment under the Executive Incentive Plan unless the Return on
Assets for the year is at least equal to the minimum level of achievement set by
the Compensation Committee for that year.
Provided that the minimum achievement levels are reached, each participant
in the Executive Incentive Plan shall then receive a bonus payment in an amount
calculated pursuant to a specified formula. The formula provides that each
participant shall receive a bonus payment in an amount not greater than (x) a
participant's annualized base salary, as determined by the Compensation
Committee, as of the last day of the year in respect of which payments are being
made, multiplied by (y) the participant's Target Award for that year; PROVIDED,
HOWEVER, that if the Company's Return on Assets is equal to or in excess of a
designated Performance Threshold for that year, then each participant shall be
entitled to receive a bonus
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payment in an amount not greater than the maximum payment a participant may
receive for that year under the plan. However, even if the Company's Return on
Assets is equal to or in excess of a designated Performance Threshold for a
given year, under the Executive Incentive Plan the Compensation Committee
retains sole and full discretion to reduce by any amount any incentive payment
otherwise payable to any participant. In determining whether payments to any
participant in the Executive Incentive Plan will be reduced, the Compensation
Committee considers those financial and individual performance factors that it
determines to be appropriate.
Except as otherwise provided by the Compensation Committee, no incentive
payment under the Executive Incentive Plan with respect to any year shall be
paid or owed to a participant whose employment terminates prior to the last day
of that year. The Executive Incentive Plan currently provides that no
participant shall receive an Executive Incentive Plan payment for any year in
excess of 0.35% of the Company's "Operating Earnings" for such year. For
purposes of the Executive Incentive Plan, "Operating Earnings" means the
Company's net income computed in accordance with generally accepted accounting
principles as reported in the Company's consolidated financial statements for
the applicable year, adjusted to eliminate (i) the cumulative effect of changes
in generally accepted accounting principles, (ii) gains and losses from
discontinued operations, (iii) extraordinary gains and losses, and (iv) any
other unusual or nonrecurring gains or losses that are separately identified and
quantified in the Company's financial statements, including merger-related
charges. Based on the Company's 1999 Operating Earnings of $1,546.5 million, the
maximum incentive payment payable under the Executive Incentive Plan for 1999
was approximately $5.4 million.
Under the Executive Incentive Plan, payments to participants are made in a
single lump sum cash payment as soon as administratively feasible upon the
completion of the fiscal year and after the Compensation Committee has made the
necessary certifications and determinations under the Executive Incentive Plan.
Payments are also made subject to applicable elections under any deferred
compensation plans of the Company.
MISCELLANEOUS. Participants and their beneficiaries do not have the right
to assign, encumber or otherwise anticipate the payments to be made under the
Executive Incentive Plan, and benefits are not subject to seizure for payment of
any debts or judgments against any participant or any beneficiary. The
Compensation Committee may establish any policy or policies that it deems
appropriate with respect to applicable federal or state income, social security,
payroll, withholding or other tax laws or regulations, including the
establishment of policies to ensure that all applicable taxes, which are the
sole and absolute responsibility of the participants, are withheld or collected
from such participants.
The provisions of the Executive Incentive Plan shall not give any
participant any right to be employed by the Company and, in the absence of any
specific agreement to the contrary, the Executive Incentive Plan shall not
affect any right of the Company, or of any affiliate of the Company, to
terminate, with or without cause, any participant's employment at any time. The
Executive Incentive Plan is in addition to, and not in lieu of, any other
employee benefit plan or program in which any participant is or becomes eligible
to participate by reason of employment with the Company. No compensation or
benefit awarded to or realized by any participant under the Executive Incentive
Plan shall be included for the purpose of computing such participant's
compensation under any compensation-based retirement, disability or similar plan
of the Company unless required by law or otherwise provided by such other plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
THE EXECUTIVE INCENTIVE PLAN. PROXIES WILL BE VOTED FOR THE PROPOSAL UNLESS
OTHERWISE SPECIFIED.
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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, 2000. A proposal to ratify the appointment of Ernst & Young LLP
will be presented at the meeting. Representatives of Ernst & Young LLP 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 LLP 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 LLP, 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 LLP 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, 2000. PROXIES WILL BE VOTED FOR RATIFYING THIS
SELECTION UNLESS OTHERWISE SPECIFIED.
16
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 29, 2000 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. No person or group is known by the Company to own beneficially more than
five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT OF
OWNED (1) CLASS
------------ -----------
<S> <C> <C>
Linda L. Ahlers......................................... 32,472 *
Harry L. Bettis......................................... 6,666,160(2) *
Arthur D. Collins, Jr................................... 31,487 *
Peter H. Coors.......................................... 33,428 *
Robert L. Dryden........................................ 47,826 *
Joshua Green III........................................ 16,283,335(3) 2.17%
John F. Grundhofer...................................... 2,400,117(4)(5) *
Delbert W. Johnson...................................... 50,374 *
Joel W. Johnson......................................... 13,897 *
Jerry W. Levin.......................................... 38,533 *
Edward J. Phillips...................................... 55,250 *
Paul A. Redmond......................................... 59,239(6) *
Richard G. Reiten....................................... 15,815 *
S. Walter Richey........................................ 82,992(7) *
Warren R. Staley........................................ 14,007 *
Philip G. Heasley....................................... 1,084,366(4) *
Gary T. Duim............................................ 384,318(4)(8) *
Richard A. Zona......................................... 480,837(4) *
Andrew S. Duff.......................................... 148,091 *
All Directors and executive officers as a group (31
persons).............................................. 31,484,155(9) 4.17%
</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, 26,152 shares; Mr. Bettis, 28,320 shares; Mr. Collins,
27,300 shares; Mr. Coors, 27,300 shares; Mr. Dryden, 44,520 shares;
Mr. Green, 28,320 shares; Mr. Grundhofer, 1,382,175 shares; Mr. Delbert
Johnson, 29,140 shares; Mr. Joel Johnson, 12,600 shares; Mr. Levin, 27,300
shares; Mr. Phillips, 23,743 shares; Mr. Redmond, 53,007 shares;
Mr. Reiten, 12,600 shares; Mr. Richey, 38,152 shares; Mr. Staley, 12,600
shares; Mr. Heasley, 135,614 shares; Mr. Duim, 247,880 shares; Mr. Zona,
302,793 shares; and Mr. Duff, 70,188 shares.
(2) Includes 266,364 shares held by a limited partnership of which Mr. Bettis is
the general partner; 2,688,619 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; 9,856,823 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
17
<PAGE>
20% of such stock; accordingly, the other shareholders and Directors of
Joshua Green Corporation 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. 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,
8,402 shares; Mr. Heasley, 14,433 shares; Mr. Duim, 16,517 shares; and
Mr. Zona, 1,727 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 844,937 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 23,340 shares held by a charitable foundation created by
Mr. Grundhofer.
(6) Includes 6,232 shares held in joint tenancy with Mr. Redmond's wife, as to
which he shares voting and investment power.
(7) Excludes 8,003 shares held by Mr. Richey's wife, as to which he has no
voting or investment power and disclaims beneficial ownership.
(8) Includes 12,002 shares held in a trust of which Mr. Duim is a trustee and as
to which he shares voting and investment power, and 6,590 shares held by a
charitable foundation created by him.
(9) Includes (i) 94,731 shares held in the Savings Plan for the accounts of
certain executive officers; and (ii) 4,219,460 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,
1999, all Section 16(a) filing requirements applicable to the Company's
Directors, executive officers and greater-than-10% beneficial owners were
complied with.
18
<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 that 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 that 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 eight 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
19
<PAGE>
competes for executive talent and which are generally comparable with respect to
business activities. While the comparator group is comprised of fewer companies
than the peer group index under "Comparative Stock Performance" below, all of
the comparator group companies are included in that 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; 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 generally limits the corporate
deduction for compensation paid to executive officers named in the Proxy
Statement 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 is also requesting 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 if
the Executive Incentive Plan is approved, payments made under the 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 1999, base salaries generally 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 may be 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 received an annualized
base salary of $840,000 through January 1999. Mr. Grundhofer's annual base
salary was increased $60,000, to $900,000, effective February 1, 1999. This
20
<PAGE>
increase positioned Mr. Grundhofer's base salary below the 50th percentile of
the comparator group, consistent 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 within the comparator
group 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.
The Company's 1999 return on assets, return on equity, net interest margin
and efficiency ratio all ranked near the top of the peer bank group. The Company
also met its goals with respect to credit quality management. However, the
Company's 1999 growth and financial performance fell short of the Company's
aggressive objectives. In evaluating 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.
Specifically, the Company named new operating leadership and realigned several
business lines. The intent of these actions was to capitalize on the revenue
opportunities of growth businesses, and improve customer service in all of its
business lines. After evaluating all of these factors, the Committee awarded
bonuses that were generally below both target levels and last year's awards.
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 a result of the factors discussed above, Mr. Grundhofer's
bonus, as reported in the Summary Compensation Table, was below target and lower
than last year's award, 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. During 1999, the Company granted both regular and reload
stock options to most executives, including the five named executive officers.
Under the 1999 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. 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.
21
<PAGE>
To emphasize the Company's pay-at-risk philosophy, as well as to further
enhance the alignment of management's interests with those of shareholders,
stock option awards relating to 1999, 2000 and 2001 were made in April 1999. In
determining the actual size of stock option awards, the Committee considers the
value of the stock on the date of grant, competitive practice, the amount of
options previously granted, individual contributions, and business unit
performance. However, formal weightings have not been assigned to these factors.
Mr. Grundhofer in 1999 received regular stock options and 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 1999, plus the number of shares withheld by the Company in payment of the
taxes arising from the exercises.
RESTRICTED STOCK. The 1999 Stock Incentive Plan also provides for the
granting of restricted stock to executives. No grants of restricted stock were
made to the five named executive officers during 1999.
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.
Peter H. Coors
Robert L. Dryden
Delbert W. Johnson
Jerry W. Levin
Edward J. Phillips
Paul A. Redmond
22
<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. 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
compensation 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 non-qualified plans commencing at age
65.
Under the employment agreements and individual change-in-control severance
agreements for Messrs. Heasley, Duim and Zona, 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 an annual salary and bonus at least equal to the highest
annual salary and bonus paid to any other Vice Chairman of the Company.
(Mr. Heasley was promoted to President and Chief Operating Officer on July 21,
1999.) Each of the agreements provides for certain payments in the event the
respective employee's employment is terminated by the Company without cause (as
defined in the agreement) or by the individual for good reason (as defined in
the agreement). With respect to Messrs. Heasley and Zona, the agreements provide
for a lump sum payment equal to three times the terminated individual's base
salary and annual bonus, 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. Certain special provisions apply to the determination
and payment of compensation if termination occurs in anticipation of or within
24 months following a change in control. The agreements with Mr. Duim provide
for substantially similar benefits if his employment is terminated in connection
with a change in control of the Company. Otherwise, the agreement with Mr. Duim
provides 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 him in any of the three years prior
to the Merger. In addition, Mr. Duim's restricted stock and stock options will
immediately vest (except that in the event of termination by him for good
reason, 75,000 shares of restricted stock would not vest), he 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. Messrs. Duim and Zona have announced their retirement
effective as of August 2, 2000, and have already relinquished their operating
responsibilities at the Company.
Under Mr. Duff's employment agreement, he will serve as President of U.S.
Bancorp Piper Jaffray Companies Inc., a subsidiary of the Company, for a period
of three years beginning May 1, 1998, and will receive a base salary and an
annual bonus determined on a basis consistent with that used to determine the
annual bonus to be paid to peer executives of U.S. Bancorp Piper Jaffray;
provided that, his base salary and annual bonus shall not be less than $1.2
million per year. (Mr. Duff became Chief Executive Officer of U.S. Bancorp Piper
Jaffray on January 1, 2000, and also serves as Vice Chairman of U.S. Bank,
Wealth
23
<PAGE>
Management and Capital Markets.) In the event that Mr. Duff's employment is
terminated by the Company without cause (as defined in the agreement) or for
reason of Mr. Duff's death, disability or terminal illness, Mr. Duff's agreement
provides for a lump sum payment equal to (i) the amount of Mr. Duff's minimum
annual compensation earned but not yet paid to him through the date of
termination, and (ii) the product of (x) the number of months remaining in
Mr. Duff's employment term divided by 12, and (y) Mr. Duff's minimum annual
compensation. In addition, a portion of Mr. Duff's restricted stock will vest
immediately upon termination and he will receive any other benefits required to
be paid or which he is eligible to receive through the date of termination.
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 and the four other highest paid executive officers of the Company whose
salary and bonus paid by the Company in 1999 exceeded $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -----------------------------------
AWARDS PAYOUTS
----------------------- ---------
LONG-
RESTRICTED SECURITIES TERM
OTHER ANNUAL STOCK UNDERLYING INCENTIVE
NAME AND COMPENSATION AWARD(S) OPTIONS/ PAYOUTS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($)(5) SARS(#) ($)
- ------------------ -------- --------- --------- ------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Grundhofer............ 1999 895,003 750,000 171,417(3) 0 1,919,317 0
Chairman of the Board and 1998 840,000 1,500,000 170,674(3) 0 549,616 0
Chief Executive Officer 1997 787,500 1,764,000 140,946(3) 4,346,875 1,718,145 0
Philip G. Heasley............. 1999 491,683 400,000 11,560(4) 0 512,334 0
President and Chief 1998 450,000 650,000 10,902(4) 0 92,545 0
Operating 1997 429,583 750,000 8,286(4) 6,101,250 34,182 0
Officer
Gary T. Duim (1).............. 1999 450,015 325,000 13,198(4) 0 130,000 0
Vice Chairman of U.S. 1998 450,000 650,000 13,104(4) 0 0 0
Bancorp 1997 187,500 750,000 2,055(4) 4,346,875 300,000 675,970
Richard A. Zona............... 1999 450,015 325,000 16,394(4) 0 256,703 0
Vice Chairman of U.S. 1998 450,000 650,000 14,783(4) 0 196,090 0
Bancorp 1997 429,583 750,000 9,828(4) 6,101,250 207,666 0
Andrew S. Duff (2)............ 1999 202,500 1,645,000 666(4) 0 260,000 0
Vice Chairman of U.S. Bank, 1998 130,000 1,000,000 0(4) 1,288,754 0 0
Wealth Management and 1997 -- -- -- -- -- --
Capital Markets
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ------------------ -------------
<S> <C>
John F. Grundhofer............ 68,025(6)
Chairman of the Board and 127,958
Chief Executive Officer 88,539
Philip G. Heasley............. 14,768(7)
President and Chief 37,125
Operating 28,078
Officer
Gary T. Duim (1).............. 18,331(7)
Vice Chairman of U.S. 19,672
Bancorp 2,729,968
Richard A. Zona............... 23,808(7)
Vice Chairman of U.S. 44,304
Bancorp 40,536
Andrew S. Duff (2)............ 49,106(8)
Vice Chairman of U.S. Bank, 0
Wealth Management and --
Capital Markets
</TABLE>
- ------------------------------
(1) Mr. Duim became an employee of the Company following the Merger on
August 1, 1997.
(2) Mr. Duff became an employee of the Company following the acquisition of
Piper Jaffray Companies Inc. on May 1, 1998. He also serves as Chief
Executive Officer of U.S. Bancorp Piper Jaffray, the Company's investment
banking subsidiary.
(3) Includes transportation-related expenses of $48,648 in 1999, $55,198 in 1998
and $45,878 in 1997, 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
24
<PAGE>
restricted stock. The Named Executive Officers held shares of restricted
stock as of December 31, 1999 with market values as of such date as follows:
Mr. Grundhofer, 144,543 shares valued at $3,441,930; Mr. Heasley, 159,393
shares valued at $3,795,546; Mr. Duim, 100,000 shares valued at $2,381,250;
Mr. Zona, 171,513 shares valued at $4,084,153; and Mr. Duff, 30,965 shares
valued at $737,354. 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 in control, his death or disability, his termination
without cause or his resignation for good reason. Mr. Duim was granted
150,000 shares of restricted stock on August 1, 1997, of which 25,000 shares
vested on August 1, 1998, 25,000 shares vested on August 1, 1999 and 100,000
shares vest on August 1, 2000, or fully on a change in control, his death or
disability, his termination without cause or his resignation for good reason
(except that in the event of termination by him 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 vested 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 in control, their death or
disability, their termination without cause or their resignation for good
reason. Mr. Duff was granted 15,894 shares of restricted stock on May 1,
1998 and 15,071 shares on June 4, 1998, which shares vest three years after
the date of grant or fully on a change in control, his death, disability or
terminal illness, or his termination without cause. The restricted stock
held by the Named Executive Officers also vests on a pro rata basis upon the
executive's retirement. As a result, 45,000 shares of Mr. Zona's unvested
restricted stock will vest upon his retirement on August 2, 2000.
(6) Includes (a) imputed income in the amount of $20,730 arising from premiums
paid by the Company with respect to life insurance for the benefit of
Mr. Grundhofer; (b) $40,895 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
$30,895 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
$6,400.
(7) Includes (a) amounts paid pursuant to the Company's flexible compensation
program (net of amounts used to purchase benefits), as follows:
Mr. Heasley, $8,368 (all of which was applied to his account in the Savings
Plan); Mr. Duim, $11,931 ($10,000 of which was applied to his account in the
Savings Plan and $1,931 of which was paid in cash); Mr. Zona, $17,408
($10,000 of which was applied to his account in the Savings Plan and $7,408
of which was paid in cash); and (b) matching contributions made by the
Company to Messrs. Heasley's, Duim's, and Zona's Savings Plan accounts in
the amount of $6,400 each.
(8) Represents a cash payment in lieu of a profit sharing contribution to the
former Piper Jaffray 401(k) plan for the portion of Mr. Duff's share of the
calculated profit sharing contribution that was in excess of IRS
limitations. (The Piper Jaffray 401(k) plan was merged into the Savings Plan
in 1999.)
25
<PAGE>
STOCK OPTIONS
The following tables summarize stock option grants and exercises during 1999
to or by the Named Executive Officers and the values of options granted during
1999 and held by such persons at the end of 1999.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE
- ---- ------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
John F. Grundhofer............... 1,520,000(1) 37.1250 04/20/09
133,230(2) 36.8125 08/01/07
266,087(2) 34.4375 12/19/06
---------
1,919,317 4.1%
Philip G. Heasley................ 500,000(1) 37.1250 04/20/09
12,334(2) 32.4375 12/19/06
---------
512,334 1.1%
Gary T. Duim..................... 130,000(1) 0.3% 37.1250 04/20/09
Richard A. Zona.................. 150,000(1) 37.1250 04/20/09
106,703(2) 32.4375 12/19/06
---------
256,703 0.5%
Andrew S. Duff................... 260,000(1) 0.6% 37.1250 04/20/09
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION TERM
---------------------------------------------
5%($) 10%($)
--------------------- ---------------------
STOCK STOCK
NAME PRICE VALUE PRICE VALUE
- ---- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
John F. Grundhofer............... 60.47 35,484,400 96.29 89,930,800
55.03 2,427,118 80.74 5,852,461
48.84 3,832,318 68.14 8,967,797
Philip G. Heasley................ 60.47 11,672,500 96.29 29,582,500
46.02 167,527 64.25 392,375
Gary T. Duim..................... 60.47 3,034,850 96.29 7,691,450
Richard A. Zona.................. 60.47 3,501,750 96.29 8,874,750
46.02 1,449,293 64.25 3,394,489
Andrew S. Duff................... 60.47 6,069,700 96.29 15,382,900
</TABLE>
- ------------------------
(1) These options were granted on April 20, 1999 and vest as to 100% of the
shares on April 20, 2004; provided that, vesting as to one-third of the
shares is subject to acceleration to October 1, 2001 if the Company
satisfies certain performance criteria for calendar year 2000, and vesting
as to an additional one-third of the shares is subject to acceleration to
October 1, 2002 if the Company satisfies certain performance criteria for
calendar year 2001. If the optionee terminates employment due to disability
or retirement, the option remains in effect as if termination of employment
had not occurred. These options also become fully exercisable upon the
executive's death, in certain circumstances upon a change in control, and,
in the case of Messrs. Grundhofer, Heasley and Zona, upon their termination
without cause or resignation for good reason. The options are
nontransferable except to family members or family trusts or partnerships,
and contain a reload feature as described in footnote (2) below.
(2) Represent reload stock options. Optionees who are active employees 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. These options 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 certain circumstances
upon a change in control of the Company, and are nontransferable except to
family members or family trusts or partnerships.
26
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
ON VALUE 12/31/99(#) AT 12/31/99($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John F. Grundhofer............................ 884,471 9,646,276 1,116,088 2,086,087 0 0
Philip G. Heasley............................. 120,000 1,097,700 123,280 512,334 0 0
Gary T. Duim.................................. 0 0 247,880 230,000 601,492 0
Richard A. Zona............................... 198,140 1,801,583 196,090 256,703 0 0
Andrew S. Duff................................ 0 0 70,188 260,000 463,644 0
</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 Named Executive Officers participate in the Company's retirement
plans, the terms of which are summarized below.
CASH BALANCE PENSION PLAN
Effective July 1, 1986, the Company adopted a career average pay defined
benefit pension plan, now known as the "Cash Balance Pension Plan" (the "Cash
Balance Plan"). 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, 2000, 31,433 employees were participating. Under the terms of the
Cash Balance Plan, a separate "account" is maintained for each participating
employee. In 1999, the Cash Balance Plan provided for pay-based credits to the
account of each participant of 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. For this purpose, eligible compensation
includes wages for federal tax withholding purposes, pre-tax contributions to
the Savings Plan and flexible spending accounts, and income resulting from the
vesting of restricted stock, but excludes income arising from the exercise of
stock options, reimbursement for expenses, expense allowances, short-term and
long-term disability payments, and imputed income items. Investment credits are
also determined for such accounts based on the participant's investment
election. In addition, the Cash Balance Plan provides certain special additional
credits for the accounts of certain eligible 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 the participant's survivors. 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
receive a benefit from the Cash Balance Plan based on an alternative 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 eligible
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. For this purpose, eligible compensation is determined in the
same manner as described for the Cash Balance Plan. 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. The
reduction is based on several factors, including age at retirement, years of
service at retirement and potential total years of service with the Company at
retirement. For employees of U.S. Bancorp Piper Jaffray Inc., a subsidiary of
the Company, years of service are counted from the date they entered the plan
(January 1, 1999 or later) while
27
<PAGE>
their total projected service is based on their original hire date with U.S.
Bancorp Piper Jaffray. 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 62,
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 the voluntary deferral of
compensation under a non-qualified deferred compensation plan and certain
limitations established under the Code and the Cash Balance Plan.
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 his
Final Average Compensation). Final Average Compensation is the average base
salary and annual incentive award during the executive's last three years of
employment. 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. Under certain circumstances in connection with a change in
control of the Company, a participant who has not yet begun to receive payment
of benefits under the SERP may elect to receive a distribution of the entire
SERP benefit, subject to a 5% forfeiture of benefits.
The aggregate benefits payable under the SERP at age 65 to the Named
Executive Officers (other than Mr. Duff, who does not participate in the SERP)
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 and Defined Benefit Excess 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 in terms of a single
life annuity payable at age 65. As of December 31, 1999, Messrs. Grundhofer and
Heasley were credited with 14 and 13 years of service under the SERP,
respectively, and had Final Average Compensation of $2,148,000 and $1,038,000,
respectively. Mr. Grundhofer's aggregate accrued retirement benefit payable at
age 65 as of December 31, 1999 was $1,037,000, based on a 57.5% SERP benefit.
Based upon a number of assumptions, including retirement at age 65, the
estimated value of the annual annuity payment Messrs. Grundhofer and Heasley
would be entitled to receive upon retirement would be $1,421,000 and $1,572,000,
respectively. Mr. Zona has announced his retirement effective as of August 2,
2000, at which time the estimated value of the annual annuity payment he would
be entitled to receive would be $277,000. Mr. Duff's projected retirement
benefits are determined under the Cash Balance Plan and Defined Benefit Excess
Plan. Based upon a number of assumptions, including retirement at age 65, the
estimated value of the annual annuity payment Mr. Duff would be entitled to
receive upon retirement would be $730,000. Projected retirement benefits for
Mr. Duim are discussed below under "Old USB Retirement Plans."
28
<PAGE>
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 $ 150,092 $ 196,492 $ 228,092 $ 249,092 $ 262,642 $ 262,642
650,000 198,827 259,147 300,227 327,527 345,142 345,142
800,000 247,562 321,802 372,362 405,962 427,642 427,642
950,000 296,297 384,457 444,497 484,397 510,142 510,142
1,100,000 345,032 447,112 516,632 562,832 592,642 592,642
1,250,000 393,767 509,767 588,767 641,267 675,142 675,142
1,400,000 442,502 572,422 660,902 719,702 757,642 757,642
1,550,000 491,237 635,077 733,037 798,137 840,142 840,142
1,700,000 539,972 697,732 805,172 876,572 922,642 922,642
1,850,000 588,707 760,387 877,307 955,007 1,005,142 1,005,142
2,000,000 637,442 823,042 949,442 1,033,442 1,087,642 1,087,642
2,150,000 686,177 885,697 1,021,577 1,111,877 1,170,142 1,170,142
2,300,000 734,912 948,352 1,093,712 1,190,312 1,252,642 1,252,642
2,450,000 783,647 1,011,007 1,165,847 1,268,747 1,335,142 1,335,142
2,600,000 832,382 1,073,662 1,237,982 1,347,182 1,417,642 1,417,642
2,750,000 881,117 1,136,117 1,310,117 1,425,617 1,500,142 1,500,142
2,900,000 929,852 1,198,972 1,382,252 1,504,052 1,582,642 1,582,642
3,050,000 978,587 1,261,627 1,454,387 1,582,487 1,665,142 1,665,142
3,200,000 1,027,322 1,324,282 1,526,522 1,660,922 1,747,642 1,747,642
3,350,000 1,076,057 1,386,937 1,598,657 1,739,357 1,830,142 1,830,142
3,500,000 1,124,792 1,449,592 1,670,792 1,817,792 1,912,642 1,912,642
3,650,000 1,173,527 1,512,247 1,742,927 1,896,227 1,995,142 1,995,142
</TABLE>
OLD USB RETIREMENT PLANS
Pursuant to the Old USB Supplemental Benefits Plan (the "Supplemental
Plan"), Mr. Duim would receive an enhanced retirement benefit in addition to
that payable under the Cash Balance Plan. His enhanced retirement benefit will
depend on his 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 his "Highest Average Compensation," reduced for termination
prior to age 62. Highest Average Compensation is the average during the five
consecutive calendar years out of the last 10 years for which compensation was
highest. For this purpose, compensation includes total deferred and non-deferred
base pay and bonus earned with respect to a calendar year plus net amounts
payable under the flexible benefit plans. Such compensation is substantially
similar to the comparable compensation reflected in the Summary Compensation
Table. Benefits are paid in the form of an annuity.
Mr. Duim has announced his retirement effective as of August 2, 2000. Under
the terms of his employment agreement, he will receive retirement benefits under
the Cash Balance Plan and either the Company's current non-qualified retirement
plans or the Supplemental Plan, whichever is greater. Based on the current plan
provisions, the benefits under the Supplemental Plan are greater. As of
August 2, 2000, the estimated value of the annual annuity payment Mr. Duim would
be entitled to receive under the Cash Balance Plan and the Supplemental Plan
would be $242,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the following individuals served as members of the Compensation
and Human Resources Committee: Arthur D. Collins, Jr., Peter H. Coors, Robert L.
Dryden, Delbert W. Johnson, Richard L. Knowlton, Jerry W. Levin, Edward J.
Phillips, Paul A. Redmond and S. Walter Richey. 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
during 1999. 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.
29
<PAGE>
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 ten-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, 1994 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 ten-year history, is useful in evaluating the Company's performance
during the tenure of Mr. Grundhofer and his senior management team.
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>
1994 100 100 100
1995 154 160 137
1996 218 227 169
1997 365 331 225
1998 354 359 289
1999 243 346 350
</TABLE>
COMPARISON OF TEN-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
1999 591 502 533
</TABLE>
30
<PAGE>
CERTAIN TRANSACTIONS
STOCK REPURCHASES
During 1999 and as part of its authorized stock repurchase program, the
Company purchased shares of its Common Stock held by certain executive officers
as follows: (i) 18,800 shares for an aggregate purchase price of $601,600 on
July 29, and 16,575 shares for an aggregate purchase price of $602,916 on
November 1 from Mr. Heasley; (ii) 93,737 shares for an aggregate purchase price
of $3,087,462 on July 23, 156,785 shares for an aggregate purchase price of
$5,176,748 on August 17, 23,299 shares for an aggregate purchase price of
$755,761 on October 18, 72,663 shares for an aggregate purchase price of
$2,506,874 on October 25, and 19,065 shares for an aggregate purchase price of
$695,873 on November 1 from Mr. Zona; (iii) 25,000 shares for an aggregate
purchase price of $826,563 on October 19 from a family trust of which Mr. Duim
is a beneficiary; and (iv) 30,000 shares for an aggregate purchase price of
$1,033,125 on October 22, and 3,500 shares for an aggregate purchase price of
$129,719 on October 28 from a family trust of which Mr. Grundhofer is a
beneficiary. 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 1999, 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.
Under 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 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, 1999, (ii) the largest
outstanding balances of such loans at any time during 1999, and (iii) the
applicable rate of interest.
STOCK OPTION LOANS
<TABLE>
<CAPTION>
STOCK OPTION LOAN MAXIMUM BALANCE OF STOCK OPTION
BALANCE AT STOCK OPTION LOAN LOAN INTEREST
DECEMBER 31, 1999 DURING 1999 RATE
----------------- ------------------ -------------
<S> <C> <C> <C>
John F. Grundhofer............................. $ 405,861 $ 405,861 5.80%
Philip G. Heasley.............................. 1,127,428 1,127,428 6.98%
Philip G. Heasley.............................. 410,240 410,240 6.98%
Philip G. Heasley.............................. 1,579,107 1,579,107 5.80%
Philip G. Heasley.............................. 3,315,339 3,315,339 6.39%
Philip G. Heasley.............................. 4,206,986 4,206,986 4.46%
Philip G. Heasley.............................. 2,828,400 2,828,400 5.93%
Susan E. Lester................................ 75,000 294,186 5.84%
Lee R. Mitau................................... 209,876 209,876 6.28%
Peter E. Raskind............................... 0 57,993 4.94%
Peter E. Raskind............................... 0 25,866 4.94%
Peter E. Raskind............................... 0 36,442 4.94%
Peter E. Raskind............................... 0 720,509 5.61%
Daniel C. Rohr................................. 1,540,556 1,818,499 6.32%
Daniel C. Rohr................................. 1,680,027 1,984,126 6.24%
Daniel C. Rohr................................. 2,180,751 2,180,751 5.21%
Robert H. Sayre................................ 228,716 228,716 7.21%
Robert H. Sayre................................ 1,417,870 1,417,870 4.66%
Richard A. Zona................................ 0 572,013 5.47%
Richard A. Zona................................ 0 571,446 6.39%
</TABLE>
31
<PAGE>
SHAREHOLDER PROPOSALS
In order for shareholder proposals for the 2001 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 16, 2000. 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 16, 2000. 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 voting authority of the named
proxies in connection with such shareholder business.
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 7,966 shares of Common Stock, has
advised the Company that he plans to introduce the following resolution at the
Annual Meeting:
"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 also be on an annual basis."
The reasons given by the shareholder for such resolution are as follows:
"Last year, the owners of 250,068,474 shares, 46.5% of the shares
represented in the meeting, voted in favor of this proposal, showing
increased awareness of its importance.
Shareholders of COLORADO NATIONAL BANKSHARES, INC., the former U.S. BANCORP,
BANK OF COMMERCE, and WESTERN BANCORP elected all of their directors
annually. The shareholders of U.S. BANCORP should not be excepted.
In a past 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 had one year terms
for its directors.)
Also, it is significant that the shareholders of Chase Manhattan received
one year terms for their directors upon the merger with Chemical Bank.
Ameritech, Time-Warner, Lockheed-Martin, Campbell Soups, Atlantic Richfield,
Pacific Enterprises, Westinghouse, are among many corporations replacing
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
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.
32
<PAGE>
If you agree, please vote FOR this proposal. If your proxy card is unmarked,
your shares will be automatically voted 'against' this proposal."
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 generally will 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 arm's 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
"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 that may be presented for consideration at the meeting. If any
other matters are properly brought before the meeting, one or more of the named
proxies will vote the shares represented by such proxy upon such matters as
determined in their discretion.
By Order of the Board of Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
Dated: March 16, 2000
33
<PAGE>
LOCATION OF U.S. BANCORP ANNUAL MEETING OF SHAREHOLDERS
[LOGO]
U.S. Bancorp Annual Meeting of Shareholders
Wednesday, April 19, 2000, at 2:00 p.m.
Minneapolis Convention Center
1301 Second Avenue South
Minneapolis, Minnesota
IF YOU ARE A REGISTERED SHAREHOLDER, AN ADMISSION TICKET IS PRINTED ON THE
LOWER PORTION OF THE PROXY CARD, AND YOU SHOULD BRING IT WITH YOU TO THE
MEETING.
BENEFICIAL OWNERS OF COMMON STOCK HELD IN STREET NAME BY A BROKER OR BANK
WILL NEED PROOF OF OWNERSHIP TO BE ADMITTED TO THE MEETING. A RECENT BROKERAGE
STATEMENT OR LETTER FROM THE BROKER OR BANK ARE EXAMPLES OF PROOF OF OWNERSHIP.
Parking will be available for shareholders at the Plaza Municipal, Orchestra
Hall, Hilton Hotel or Leamington ramps beginning one hour before the start of
the meeting. Shareholders can request a parking voucher at the meeting.
<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. Harry L. Bettis
02. Peter H. Coors 03. Joshua Green III
04. Paul A. Redmond 05. S. Walter Richey
To withhold authority to vote for any individual nominee, write that nominee's
name in the space below.
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approve the Executive
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 / / / / / /
Will attend Annual Meeting. / /
Comments and/or change of
address on reverse side. / /
SIGNATURE(S) DATE , 2000
------------------------ ------------------------- ------
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 cost-effective and
convenient ways to vote your shares. You may 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 18, 2000.
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.
TO VOTE BY INTERNET: GO TO THE WEB SITE ADDRESS: 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 like to receive future proxy materials
through the Internet. (As with all Internet usage, the
user must pay all access fees and telephone charges.)
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.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<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 2000 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
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FOLD AND DETACH HERE
[LOGO]
ADMISSION TICKET
(Present this ticket at the meeting.)
U.S. BANCORP ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, APRIL 19, 2000, AT 2:00 P.M.
MINNEAPOLIS CONVENTION CENTER
1301 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA
Shareholder Name(s):_________________________________________________
(Please print exactly as your name(s) appear(s)
on the proxy card.)
Please refer to the map on the back cover of the Proxy Statement
for the location of the Annual Meeting and parking information.
<PAGE>
Appendix to Proxy Statement of U.S. Bancorp dated March 16, 2000
FIRST BANK SYSTEM, INC.
EXECUTIVE INCENTIVE PLAN
(including amendments effective February 19, 1997)
1. ESTABLISHMENT. On February 15, 1995, the Board of Directors of FIRST
BANK SYSTEM, INC., upon recommendation by the Compensation and Human Resources
Committee of the Board of Directors, approved an executive incentive plan for
executives as described herein, which plan shall be known as the "FIRST BANK
SYSTEM, INC. EXECUTIVE INCENTIVE PLAN." This plan shall be submitted for
approval by the stockholders of First Bank System, Inc. at the 1995 Annual
Meeting of Stockholders. This Plan shall become effective as of January 1,
1995, subject to its approval by the stockholders, and no benefits shall be
issued pursuant thereto until after this Plan has been approved by the
stockholders.
2. PURPOSE. The purpose of this Plan is to advance the interests of First
Bank System, Inc. and its stockholders by attracting and retaining key
employees, and by stimulating the efforts of such employees to contribute to the
continued success and growth of the business of the Company.
3. DEFINITIONS. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
3.1 BASE SALARY - a Participant's annualized base salary, as
determined by the Committee, as of the last day of a Performance Period.
3.2 CODE - the Internal Revenue Code of 1986, as it may be amended
from time to time, and any proposed, temporary or final Treasury
Regulations promulgated thereunder.
3.3 COMMITTEE - the Compensation and Human Resources Committee of the
Board of Directors of the Company designated by such Board to administer
the Plan which shall consist of members appointed from time to time by
the Board of Directors. Each member of the Committee shall be an
"outside director" within the meaning of Section 162(m) of the Code.
3.4 COMPANY - First Bank System, Inc. a Delaware corporation, and any
of its subsidiaries or affiliates, whether now or hereafter established.
3.5 MAXIMUM AWARD - a dollar amount equal to thirty-five
one-hundredths of one percent (0.35%) of the Company's Operating Earnings
for the Performance Period.
<PAGE>
3.6 OPERATING EARNINGS - the Company's net income computed in
accordance with generally accepted accounting principles as reported in
the Company's consolidated financial statements for the applicable
performance Period, adjusted to determine (1) the cumulative affect of
changes in generally accepted accounting principles; (2) gains and losses
from discontinued operations; (3) extraordinary gains or losses; and (4)
any other unusual or nonrecurring gains or losses which are separately
identified and quantified in the Company's financial statements,
including merger related charges.
3.7 PARTICIPANT - any executive officer of the Company who is also an
"officer" within the meaning of Section 16(a) of the Securities Exchange
Act of 1934 and who is designated by the Committee, as provided for
herein, to participate with respect to a Performance Period as a
participant in this Plan. Directors of the company who are not also
employees of the Company are not eligible to participate in the Plan.
3.8 PERFORMANCE THRESHOLD - the preestablished, objective performance
goals selected by the Committee with respect to each Performance Period
and which shall be based solely on ROA.
3.9 PERFORMANCE PERIOD - each consecutive twelve-month period
commencing on January 1 of each year during the term of this Plan and
coinciding with the Company's fiscal year.
3.10 PLAN - this FIRST BANK SYSTEM, INC. EXECUTIVE INCENTIVE PLAN.
3.11 RETURN ON ASSETS OR ROA - a percentage computed as the Company's
Operating Earnings for its fiscal year divided by the Company's
consolidated total average assets for such fiscal year. The Company's
Return on Assets shall be computed in accordance with generally accepted
accounting principles, as in effect from time to time, as reported in the
Company's consolidated financial statements for the applicable
Performance period, adjusted in the same fashion that Operating Earnings
are to be adjusted as provided in Section 3.6 hereof.
3.12 TARGET AWARD - a percentage, which may be greater or less than
100%, as determined by the Committee with respect to each Performance
Period.
4. ADMINISTRATION.
4.1 POWER AND AUTHORITY OF COMMITTEE. The Plan shall be administered
by the Committee. The Committee shall have full power and authority, subject to
all the applicable provisions of the Plan and applicable laws, to (a) establish,
amend,
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<PAGE>
suspend or waive such rules and regulations and appoint such agents as it deems
necessary or advisable for the proper administration of the Plan, (b) construe,
interpret and administer the Plan and any instrument or agreement relating to
the Plan, and (c) make all other determinations and take all other actions
necessary or advisable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, each determination made and each action taken by
the Committee pursuant to the Plan or any instrument or agreement relating to
the Plan (x) shall be within the sole discretion of the committee, (y) may be
made at any time and (z) shall be final, binding and conclusive for all purposes
on all persons, including, but not limited to, Participants and their legal
representatives and beneficiaries, and employees of the Company.
4.2 DETERMINATIONS MADE PRIOR TO EACH PERFORMANCE PERIOD. At any time
ending on or before the 90th day of each Performance Period, the Committee
shall:
(a) designate all Participants and their Target Awards for such
Performance Period; and
(b) establish one or more Performance Thresholds (including a
minimum level of achievement), based solely on ROA.
4.3 CERTIFICATION. Following the close of each Performance Period and
prior to payment of any amount to any Participant under the Plan, the Committee
must certify in writing the Company's Operating Earnings and ROA for that
Performance Period and certify as to the attainment of all other factors upon
which any payments to a Participant for that Performance Period are to be based.
4.4 STOCKHOLDER APPROVAL. The material terms of this Plan shall be
disclosed to and approved by stockholders of the Company in accordance with
Section 162(m) of the Code. No amount shall be paid to any Participant under
this Plan unless such stockholder approval has been obtained.
5. INCENTIVE PAYMENT.
5.1 FORMULA. Each Participant shall receive a bonus payment for each
Performance Period in an amount not greater than:
(a) the Participant's Base Pay for the Performance Period,
multiplied by
(b) the Participant's Target Award for the Performance Period;
provided, however, that in the event that the Company's ROA for a Performance
Period is equal to or in excess of a designated Performance Threshold for that
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<PAGE>
Performance Period, then each Participant shall be entitled to a bonus payment
for that Performance Period which is not greater than the Maximum award for that
Performance Period.
5.2 LIMITATIONS.
(a) MINIMUM ROA ACHIEVEMENT. In no event shall any Participant
receive any payment hereunder unless the Company's ROA for
a Performance Period is at least equal to a minimum
percentage as determined by the Committee for that
Performance Period.
(b) DISCRETIONARY REDUCTION. The Committee shall retain sole
and full discretion to reduce by any amount the incentive
payment otherwise payable to any Participant under this
Plan.
(c) CONTINUED EMPLOYMENT. Except as otherwise provided by the
Committee, no incentive payments under this Plan with
respect to a Performance Period shall be paid or owed to a
Participant whose employment terminates prior to the last
day of such Performance Period.
(d) MAXIMUM PAYMENTS. No Participant shall receive a payment
under this Plan for any Performance Period in excess of the
Maximum Award for that Performance Period.
6. BENEFIT PAYMENTS.
6.1 TIME AND FORM OF PAYMENTS. Subject to any deferred compensation
election pursuant to any such plans of the Company applicable hereto, benefits
shall be paid to the Participant in a single lump sum cash payment as soon as
administratively feasible upon the completion of a Performance Period, after the
Committee has certified that the Company Performance Threshold has been
attained, determined the Maximum Award for that Performance Period and made the
other certifications provided for in Section 4.3 hereof.
6.2 NONTRANSFERABILITY. Participants and beneficiaries shall not have
the right to assign, encumber or otherwise anticipate the payments to be made
under this Plan, and the benefits provided hereunder shall not be subject to
seizure for payment of any debts or judgments against any Participant or any
beneficiary.
6.3 TAX WITHHOLDING. In order to comply with all applicable federal
or state income, social security, payroll, withholding or other tax laws or
regulations,
-4-
<PAGE>
the Committee may establish such policy or policies as it deems appropriate with
respect to such laws and regulations, including without limitation, the
establishment of policies to ensure that all applicable federal or state income,
social security, payroll, withholding o other taxes, which are the sole and
absolute responsibility of the Participant, are withheld or collected from such
Participant.
7. AMENDMENT AND TERMINATION; ADJUSTMENTS. Except to the extent prohibited
by applicable law and unless otherwise expressly provided in the Plan:
(a) AMENDMENTS TO THE PLAN. The Committee may amend this Plan
prospectively at any time and for any reason deemed
sufficient by it without notice to any person affected by
this Plan and may likewise terminate or curtail the
benefits of this Plan both with regard to persons expecting
to receive benefits hereunder in the future and persons
already receiving benefits at the time of such action.
(b) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan in the manner and
to the extent it shall deem desirable to carry the Plan
into effect.
8. MISCELLANEOUS.
8.1 EFFECTIVE DATE. This Plan shall be deemed effective, subject to
stockholder approval, as of January 1, 1995.
8.2 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.
8.3 APPLICABILITY TO SUCCESSORS. This Plan shall be binding upon and
inure to the benefit of the Company and each Participant, the successors and
assigns of the Company, and the beneficiaries, personal representatives and
heirs of each Participant. If the Company becomes a party to any merger,
consolidation or reorganization, this Plan shall remain in full force and effect
as an obligation of the Company or its successors in interest.
8.4 EMPLOYMENT RIGHTS AND OTHER BENEFIT PROGRAMS. The provisions of
this Plan shall not give any Participant any right to be retained in the
employment of the Company. In the absence of any specific agreement to the
contrary, this Plan shall not affect any right of the Company, or of any
affiliate of the Company, to terminate, with or without cause, any Participant's
employment at any time. This Plan shall not replace any contract of employment,
whether oral or written, between the Company and any Participant, but shall be
considered a supplement thereto. This
-5-
<PAGE>
Plan is in addition to, and not in lieu of, any other employee benefit plan
or program in which any Participant may be or become eligible to participate
by reason of employment with the Company. No compensation or benefit awarded
to or realized by any Participant under the Plan shall be included for the
purpose of computing such Participant's compensation under any
compensation-based retirement, disability, or similar plan of the Company
unless required by law or otherwise provided by such other plan.
8.5 NO TRUST OR FUND CREATED. This Plan shall not 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 this Plan, such right shall be no
greater than the right of any unsecured general creditor of the Company or of
any affiliate.
8.6 GOVERNING LAW. The validity, construction and effect of the Plan
or any incentive payment payable under the Plan shall be determined in
accordance with the laws of the State of Minnesota.
8.7 SEVERABILITY. If any provision of the Plan is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction, 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, such
provision shall be stricken as to such jurisdiction, and the remainder of the
Plan shall remain in full force and effect.
8.8 QUALIFIED PERFORMANCE-BASED COMPENSATION. All of the terms and
conditions of the Plan shall be interpreted in such a fashion as to quality all
compensation paid hereunder as "qualified performance-based compensation" within
the meaning of Section 162(m) of the Code.
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