<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Section 240.14a-11(c) or
Section 240.14a-12
COMMUNITY FIRST BANKSHARES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on
which the filing fee is calculated and state how it was
determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
520 Main Avenue
Fargo, North Dakota 58124-0001
----------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 28, 1998
----------
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Shareholders of
Community First Bankshares, Inc. (the "Company") will be held on Tuesday, April
28, 1998 at 10:00 a.m., Central Daylight Time, at the Holiday Inn, I-29 and 13th
Avenue South, Fargo, North Dakota 58103, for the following purposes:
1. To elect ten (10) directors of the Company.
2. To ratify and approve an amendment to the Company's Restated and
Amended Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock from 30,000,000 shares
to 80,000,000 shares.
3. To ratify and approve the selection of independent public accountants
for the current fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only holders of record of Company Common Stock at the close of business on
March 3, 1998 will be entitled to notice of, and to vote at, the Annual Meeting
and any adjournment or adjournments thereof. Prior to the actual voting
thereof, a proxy may be revoked by the person executing such proxy: (i) by
filing with the Chief Financial Officer of the Company an instrument of
revocation, (ii) by delivering a duly executed proxy bearing a later date, or
(iii) by voting in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Donald R. Mengedoth
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Fargo, North Dakota
March 10, 1998
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
COMMUNITY FIRST BANKSHARES, INC.
----------
PROXY STATEMENT
----------
This Proxy Statement is furnished to the shareholders of Community First
Bankshares, Inc. (the "Company") in connection with the solicitation of proxies
of the Company's shareholders by the Board of Directors to be voted at the
Annual Meeting of Shareholders of the Company to be held on April 28, 1998, or
any adjournment or adjournments thereof.
March 3, 1998 (the "Record Date") is the Record Date for determining the
holders of record of shares of the Common Stock of the Company entitled to
notice of and to vote at the Annual Meeting of the Company and any adjournments
thereof.
Only holders of record of Common Stock at the close of business on the
Record Date are entitled to vote at the Annual Meeting. A quorum for the
purposes of conducting business at the Annual Meeting is a majority of the
outstanding shares of Common Stock entitled to vote. As of the Record Date, the
Company had [17,181,660] shares of Common Stock outstanding and entitled to
vote. Holders of Common Stock are entitled to one vote per share of Common
Stock at the Annual Meeting, subject to cumulative voting rights described under
"Election of Directors."
The cost of the solicitation of proxies for the Annual Meeting is being
borne by the Company. In addition to this solicitation, the directors, officers
and employees of the Company may solicit proxies from shareholders by telephone,
telegram, personal interview or other means of communication. The Company may
also request banks and brokers to solicit their customers who have a beneficial
interest in the Company's Common Stock registered in the name of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses. The Company has retained D. F. King & Co., Inc. to assist in the
solicitation for a fee estimated at $5,000.
All proxies that are properly executed and received in a timely manner will
be voted in accordance with the instructions noted thereon. Any proxy which
does not specify to the contrary will be voted in favor of each of the directors
nominated by management and in favor of approval of the appointment of Ernst &
Young LLP as independent public accountants for the Company. A shareholder
granting a proxy in the form enclosed has the right to revoke it at any time
before it is voted by filing with the Chief Financial Officer of the Company an
instrument of revocation, delivering a duly executed proxy bearing a later date,
or by attending the Annual Meeting and voting in person. The mailing of this
Proxy Statement to shareholders of the Company commenced on or about March 10,
1998.
2
<PAGE>
SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 3, 1998, the number and
percentage of outstanding shares of Common Stock of the Company beneficially
owned by each person known by the Company to own more than 5% of the Company's
outstanding Common Stock, by each director of the Company, by each executive
officer named in the Summary Compensation Table below, and by all directors and
officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1)(2) OF CLASS
------------------------------------ ------------ --------
<S> <C> <C>
Dresdner RCM Global Investors LLC(3) . . . . . . . 1,505,500(3) 7.3%
4 Embarcadero Center
Suite 3000
San Francisco, CA 94111
Donald R. Mengedoth . . . . . . . . . . . . . . . 312,936(4) 1.5%
Mark A. Anderson . . . . . . . . . . . . . . . . . 299,349(5) 1.5%
Ronald K. Strand . . . . . . . . . . . . . . . . . 73,504 *
David E. Groshong . . . . . . . . . . . . . . . . 15,637 *
David A. Lee . . . . . . . . . . . . . . . . . . . 80,744(6) *
Patricia A. Adam . . . . . . . . . . . . . . . . . 7,405 *
James T. Anderson . . . . . . . . . . . . . . . . 7,000 *
Patrick E. Benedict . . . . . . . . . . . . . . . 11,611(7) *
Patrick Delaney . . . . . . . . . . . . . . . . . 15,621 *
John H. Flittie . . . . . . . . . . . . . . . . . 6,500(8) *
Darrell G. Knudson . . . . . . . . . . . . . . . . 0 *
Dennis M. Mathisen . . . . . . . . . . . . . . . . 1,283,705 6.2%
Thomas C. Wold . . . . . . . . . . . . . . . . . . 16,009 *
Harvey L. Wollman . . . . . . . . . . . . . . . . 12,219(9) *
All officers and directors as a
group (26 persons) . . . . . . . . . . . . . . . 2,381,569(10) 11.6%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have sole
voting and investment power with respect to all shares beneficially owned.
(2) Includes the following numbers of shares of Common Stock which may be
purchased pursuant to stock options which are exercisable within sixty days
of the date hereof: Mr. Mengedoth, 29,992 shares; Mr. Mark Anderson,
18,833 shares; Mr. Strand, 18,833 shares; Mr. Groshong 11,000 shares; Mr.
Lee, 13,333 shares; Ms. Adam, 6,000 shares; Mr. James Anderson, 3,000
shares; Mr. Benedict, 6,000 shares; Mr. Delaney, 6,000 shares; Mr. Flittie,
5,000 shares; Mr. Mathisen, 2,000 shares; Mr. Wold, 6,000 shares; Mr.
Wollman, 2,000 shares; all executive officers and directors as a group,
219,259 shares.
(3) Dresdner RCM Global Investors LLC ("Dresdner RCM") is a Delaware limited
liability company and an investment adviser registered under the Investment
Advisers Act of 1940. Dresdner RCM is a wholly-owned subsidiary of Dresdner
Bank AG ("Dresdner Bank"), Frankfurt, Germany. According to Schedule 13Gs
filed on behalf of Dresdner RCM and Dresdner Bank with the Securities and
Exchange Commission, Dresdner RCM and Dresdner Bank each reported that they
beneficially own 1,505,500
3
<PAGE>
shares of Common Stock of the Company as of December 31, 1997. Of those
shares, Dresdner RCM reported that it has sole voting power over 1,204,800
shares, no shared voting power, sole dispositive power over 1,453,500
shares and shared dispositive power over 52,000 shares. RCM Limited L.P.
("RCM Limited") is the Managing Agent of Dresdner RCM. RCM General
Corporation ("RCM General") is the General Partner of RCM Limited.
According to the filed Schedule 13G, RCM Limited and RCM General may also
be deemed to be beneficial owners of the Company's shares to the extent
that they may be deemed to have beneficial ownership of securities
beneficially owned by Dresdner RCM.
(4) Includes 259,717 shares held jointly with his wife for which he has shared
voting and investment power.
(5) Includes 267,745 shares held jointly with his wife for which he has shared
voting and investment power.
(6) Includes 28,167 shares held by his wife for which he has no voting or
investment power.
(7) Includes 5,361 shares held in joint tenancy with his minor child for which
he has shared voting and investment power and 250 shares held by his son
for which he has no voting or investment power.
(8) Includes 1,500 shares held by his wife for which he has no voting or
investment power.
(9) Includes 10,219 shares held jointly with his wife for which he has shared
voting and investment power.
(10) In addition to the common shares beneficially owned, executive officers own
a combined 3,200 of 8.875% Cumulative Capital Securities issued by CFB
Capital I, a business trust subsidiary of the Company, having an aggregate
liquidation amount of $80,000 and representing less than 1% of the class of
securities.
----------
PROPOSAL ONE
ELECTION OF DIRECTORS
At the Annual Meeting, the shareholders will elect ten directors to hold
office until the next annual meeting of shareholders or until a successor is
elected and qualified. The Board of Directors has nominated each of the current
directors named below. The Company believes that each nominee named below will
be able to serve, but should any such nominee be unable to serve as a director,
the persons named in the proxies have advised that they will vote for the
election of such substitute nominee as management may propose.
In the election of directors, each shareholder voting in person or by proxy
shall have the number of votes to which such shareholder would otherwise be
entitled multiplied by ten (the number of directors to be elected). If there
are no nominees other than the management's slate, the named proxies will then
allocate the cumulated votes equally among the nominees for which authority to
vote has been granted. If there are additional nominees, the named proxies will
allocate the cumulated votes among the nominees for which authority to vote have
been granted in the manner which appears to the named proxies most likely to
result in the greatest number of management slate nominees being elected.
4
<PAGE>
The names and ages of the current directors and their principal occupations
are set forth below, based upon information furnished to the Company by the
directors.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL
NAME AND AGE SINCE OCCUPATION
- ------------------------ -------- --------------------------------------
<S> <C> <C>
Donald R. Mengedoth (53) 1986 President, Chief Executive Officer and
Chairman of the Board of the Company
Patricia A. Adam (61) 1987 Service, Civic and Community
Organizations
Harvey L. Wollman (62) 1987 Farmer
Patrick Delaney (55) 1987 Attorney
Thomas C. Wold (60) 1987 Attorney; Real Estate Developer
Patrick E. Benedict (64) 1992 Farmer
James T. Anderson (58) 1993 Vice President and Treasurer of U S
WEST, Inc.
John H. Flittie (61) 1993 President and Chief Operating Officer
of ReliaStar Financial Corp.
Dennis M. Mathisen (58) 1996 President of Marshall Financial Corp.
Darrell G. Knudson (60) 1998 Advisor to, and Former Senior Manager
of, Banking Organizations.
</TABLE>
BUSINESS EXPERIENCE OF NOMINEES AND DIRECTORS
Donald R. Mengedoth has been President, Chief Executive Officer, Chairman
of the Board and a director of the Company since its organization in 1986. He
was Senior Vice President of First Bank System, Inc. ("FBS") from 1982 to 1987
and has worked in the banking business since 1966, including management
positions in retail banking operations, human resources and commercial lending.
From 1984 to 1987, Mr. Mengedoth was Regional Managing Director of FBS. From
1979 to 1982, Mr. Mengedoth was Vice President - Operations for FBS. Prior to
that time, he was Senior Vice President of First Bank Milwaukee.
Patricia A. Adam is Secretary of the South Dakota Senate and is active in
various service, civic and community organizations in Pierre, South Dakota. Ms.
Adam is or has been a member of the Boards of Directors of the South Dakota
Historical Society, where she serves as President, of the South Dakota Discovery
Center and Aquarium, where she served as President, of the Children's Care
Hospital and School in Sioux Falls, South Dakota, the University of South Dakota
Foundation, the Associated School Board of South Dakota, where she served as
President for two years, and the Pierre, South Dakota Independent School Board
where she served as President for five years. Ms. Adam previously served as a
member of the Board of Directors of First National Bank, Selby, South Dakota.
Harvey L. Wollman is a farmer in Frankfurt, South Dakota. Mr. Wollman
served in the South Dakota State Senate from 1968 to 1974, was Lieutenant
Governor from 1974 to 1977, and served as Governor of South Dakota in 1978. Mr.
Wollman has served on various State government committees and is active in
various service, civic and community organizations.
5
<PAGE>
Patrick Delaney is a partner in the Minneapolis law firm of Lindquist &
Vennum P.L.L.P., counsel to the Company. He has been a lawyer since 1967. Mr.
Delaney is the secretary of MTS Systems Corporation, a Minneapolis-based
manufacturer of systems for materials testing, measurement and simulation. He
is also a director and the Secretary of CNS, Inc. and a director and the
Secretary of Applied Biometrics, Inc., both of which companies are medical
device manufacturers based in Minneapolis.
Thomas C. Wold has been a practicing attorney in Fargo, North Dakota since
1962 and is President and a shareholder of the law firm of Wold Johnson, P.C.
Wold Johnson, P.C. provided legal services to the Company in 1996. He is active
in the development of motels, apartments and other real estate projects. He has
been actively involved in a number of civic and charitable organizations.
Patrick E. Benedict is the President of Benedict Farms, Inc., a 6,000-acre
farming operation in Sabin, Minnesota. Mr. Benedict has been an advisory
director to the Board of Directors of the Company's affiliate bank in Fargo,
North Dakota since 1995 and was a director of the Company's affiliate bank in
Fargo, North Dakota from 1984 to 1995. Mr. Benedict is chairman of Golden
Growers Coop and of ProGold LLC, a North Dakota corn processing company that is
49% owned by Golden Growers. He also serves on the executive committee and
Board of Directors of the Neuropsychiatric Research Institute, the Board of
Directors of MeritCare Health System, and is chairman of Northern Grain Company,
all in Fargo, North Dakota. Mr. Benedict is chairman emeritus of American
Crystal Sugar Company and past chairman of the Moorhead State University
Foundation, both in Moorhead, Minnesota.
James T. Anderson has been the Vice President and Treasurer of U S WEST,
Inc., a telecommunications service provider in Englewood, Colorado, since 1984.
Mr. Anderson held various positions with the Bell System from 1963 to 1984.
John H. Flittie has been the President and Chief Operating Officer of
ReliaStar Financial Corp., formerly known as The NWNL Companies, Inc., a
Minneapolis-based insurance and financial services company, since July 1993.
Mr. Flittie held various positions with NWNL and Northwestern National from 1985
to July 1993. From 1976 to 1985, Mr. Flittie was a partner at Touche Ross &
Co., an audit and consulting firm. Mr. Flittie is a member of the Board of
Directors of ReliaStar Financial Corp. and various subsidiaries of ReliaStar.
Dennis M. Mathisen served as Chairman of the Board, President and Chief
Executive Officer of Mountain Parks from its formation in 1981 until the
acquisition of Mountain Parks by the Company on December 18, 1996. He was
elected as a director of the Company at that time pursuant to the merger
agreement with Mountain Parks. Since 1974, he served as a director and
principal officer of rural and suburban commercial banks located in Colorado and
Minnesota. He has also served as the President of Marshall Financial Group (a
provider of management, financing and merger and acquisition services) since
1989. Mr. Mathisen is a member of the Board of Directors of Transportation
Corporation of America, a midwestern trucking company; the Harlem Globetrotters,
International, an international sports entertainment company; and Horizon Asset
Management, LLP, a registered asset management company.
Darrell G. Knudson is an advisor to the Chief Executive Officer of Bank of
Arizona and previously served as Chairman of Bank of Arizona from January 1997
until January 1998. He served as Executive Vice President and Director of
Boatmen's Bancshares from January 1996 to November 1996 and was Chairman of the
Board and Chief Executive Officer of Fourth Financial Corporation, Wichita,
Kansas, from July 1991 to November 1996 and served as Vice Chairman and a
Director of Fourth Financial Corporation from December 1990 to June 1991. From
1958 to 1990, Mr. Knudson was employed with First Bank System, holding a number
of executive positions, including Interim Chief Executive Officer, Vice Chairman
and Director. He was previously a member of the Bankers Roundtable Board of
Directors, the American Bankers Association Council, and the Board of Directors
of the Central Bank of Denver Board of Directors.
6
<PAGE>
OTHER INFORMATION REGARDING THE BOARD
MEETINGS. During 1997, the Board of Directors met seven times. Each of the
directors attended at least 75% of the meetings of the Board and the Committees
on which such director served.
COMMITTEES. The Company has a Corporate Governance Committee, an Audit
Committee, a Finance Committee and a Compensation Committee, all established by
the Board of Directors and each of which consists of members of the Board of
Directors. The Corporate Governance Committee, which consisted of Messrs. Wold
(chair), Flittie, Benedict, Delaney, Mathisen and Mengedoth (an ex officio
member), considers appropriate replacements for vacancies on the Company's Board
of Directors, and it met twice during 1997. The Audit Committee, which consisted
of Messrs. Delaney (chair), Dean E. Smith (a former director who retired in
January 1998), Wollman and Benedict and Ms. Adam, reviews the Company's external
and internal auditing systems, monitors compliance with prescribed procedures
and reviews publicly disseminated financial information, and it met four times
during 1997. The Finance Committee, which consisted of Messrs. Flittie (chair),
Smith, Anderson, Wold, Mathisen and Mengedoth, reviews the financial performance
of the Company and compliance with Board policies and governmental and
contractual restrictions, and monitors the loan portfolio's quality and
compliance with such policies and restrictions, and it met twice during 1997.
The Compensation Committee, which consisted of Messrs. Anderson (chair), and
Wollman and Ms. Adam, assists the Board in developing personnel policies and
compensation plans and administers certain incentive and compensation programs
and the Company's stock option plans, and it met three times during 1997. The
Audit, Compensation and Finance Committees have been reconstituted for 1998.
Mr Anderson has replaced Mr. Delaney as chair of the Audit Committee, Messrs.
Mathisen (chair) and Knudson have replaced Messrs. Flittie and Smith,
respectively, as members of the Finance Committee, and Messrs. Flittie (chair)
and Knudson have replaced Mr. Anderson on the Compensation Committee.
DIRECTOR COMPENSATION. Each director who is not otherwise employed by the
Company receives an annual retainer of $9,000 and fees of $800 per meeting for
service on the Board of Directors. Committee members are paid: (i) $900 for
each Committee meeting held on a date other than the date of a Board meeting;
(ii) $ 600 ($800 for the chair) per meeting if such meeting is on the same day
as a Board meeting; and (iii) $150 per Committee meeting if the meeting is held
by telephone. Directors are also reimbursed for ordinary expenses incurred in
connection with attending Board and Committee meetings. Payments to Mr. Delaney
are applied to legal fees payable to the law firm of Lindquist & Vennum P.L.L.P.
Finally, in May 1997, each nonemployee director of the Company who was
re-elected at the Annual Meeting of Shareholders received a nonqualified option
under the Company's 1996 Stock Option Plan (the "1996 Plan") to purchase up to
2,000 shares of Company Common Stock at an exercise price of $34.50 per share.
The 1996 Plan gives the Compensation Committee the authority to grant options to
each of the non-employee directors covering up to 2,000 shares each time they
are re-elected to the Board. Such options have an exercise price equal to the
closing price on the date of grant; are immediately exercisable; and have terms
of five years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) under the Securities Exchange Act of 1934,
executive officers, directors and 10% shareholders ("insiders") of the Company
are required to file reports on Forms 3, 4 and 5 of their beneficial holdings
and transactions in the Company's Common Stock. To the Company's knowledge, all
insiders of the Company made timely filings of Forms 3, 4 or 5 with respect to
transactions or holdings during 1997, except for a late filing for the month of
July 1997 by Mr. Mathisen; a late filing for December 1996 by Ms. Adam; and a
late filing for July 1997 by Harriette McCaul, an executive officer.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ended December 31, 1997,
1996 and 1995, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to Donald R. Mengedoth, the
Company's President and Chief Executive Officer, and each of the other four most
highly compensated executive officers of the Company as of December 31, 1997
(together with Mr. Mengedoth, the "Named Executives"), in all capacities in
which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) (1)
--------------------------- ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Donald R. Mengedoth 1997 $333,392 $246,790 12,000 $59,562
President and Chief Executive 1996 344,305(2) 220,800 8,988 27,291
Officer 1995 306,590 171,840 10,000 21,007
Mark A. Anderson 1997 208,046 110,000 9,000 21,907
Executive Vice President, 1996 199,084 98,400 5,000 15,402
Chief Financial Officer, 1995 185,617 76,760 6,500 12,067
Secretary, Treasurer and
Chief Information Officer
Ronald K. Strand 1997 199,399 110,000 9,000 30,356
Executive Vice President, 1996 212,937(2) 98,400 5,000 15,404
Banking Group 1995 180,760 76,760 6,500 36,116(3)
David E. Groshong 1997 177,772 95,000 9,000 13,250
Executive Vice President, 1996 157,494(2) 63,335 3,000 73,318(4)
Financial Services 1995 108,475 58,375 3,000 36,443(5)
David A. Lee 1997 160,436 56,943 5,000 14,615
Senior Vice President and 1996 147,827 49,920 5,000 9,323
Region Manager 1995 138,294 39,274 4,000 7,740
</TABLE>
- ---------------
(1) Except as otherwise indicated, represents contributions by the Company to
the Company's 401(k) Plan, Employee Stock Ownership Plan and Supplemental
Executive Retirement Plan on behalf of the Named Executive.
(2) Included in the 1996 compensation of Messrs. Mengedoth, Strand and Groshong
is special marketing incentive compensation as follows: Mr. Mengedoth
$13,060; Mr. Strand $14,215; and Mr. Groshong $19,985.
(3) Includes $23,478 paid to Mr. Strand as reimbursement for his relocation
expenses in 1995.
(4) Includes $62,202 paid to Mr. Groshong as reimbursement for his relocation
expenses in 1996.
(5) Includes $30,264 paid to Mr. Groshong as reimbursement for his relocation
expenses in 1995.
8
<PAGE>
STOCK OPTIONS
The following table contains information concerning grants of Company stock
options to the Named Executives during 1997:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
-------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATE OF STOCK
OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME (1) IN 1997 SHARE DATE 5% 10%
- ------------------- ------- ---------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Mengedoth 12,000 5.9% $28.50 2/4/02 $94,488 $208,794
Mark A. Anderson 9,000 4.4% 28.50 2/4/02 70,866 156,596
Ronald K. Strand 9,000 4.4% 28.50 2/4/02 70,866 156,596
David E. Groshong 9,000 4.4% 28.50 2/4/02 70,866 156,596
David A. Lee 5,000 2.5% 28.50 2/4/02 39,370 86,998
</TABLE>
- ---------------
(1) Each option becomes exercisable in equal installments over a period of
three years, commencing one year after the date of grant, so long as
employment with the Company or one of its subsidiaries continues.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during 1997 and unexercised
options held as of December 31, 1997:
AGGREGATED OPTION EXERCISES AND DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/97 AT 12/31/97(1)
ACQUIRED VALUE ---------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Mengedoth 11,500 $179,563 19,663 21,325 $745,039 $617,077
Mark A. Anderson 5,000 76,250 18,000 14,500 693,417 412,833
Ronald K. Strand 5,000 73,750 18,000 14,500 693,417 412,833
David E. Groshong 1,000 38,313 7,000 12,000 266,375 325,250
David A. Lee 5,000 73,750 14,000 9,000 539,083 260,417
</TABLE>
- ---------------
(1) Based on a closing sale price of $53.25 per share of Common Stock on
December 31, 1997.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This is a report of the Compensation Committee of the Board of Directors of
the Company (the "Committee"), which is composed of the undersigned Board
members, all of whom are nonemployee directors of the Company. This report
shall not be deemed incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934 and shall not
otherwise be deemed filed under either such Act.
COMPENSATION PHILOSOPHY
In designing executive compensation, the Committee has adopted the policy
that the Company's executives should be paid fairly for the positions they hold
in view of the nature and size of the business which the Company operates. For
those elements of total compensation (base salary, benefits and perquisites)
which are not performance sensitive, plan provisions and standards have been set
close to average for the commercial banking industry and financial institutions
of the Company's size, with variations based on individual responsibilities and
performance. In the year 1997, the Company acquired, in three transactions,
aggregate assets of $1.2 billion and 34 additional banking offices. This growth
was considered by the Committee to have resulted in a significant change in the
structure and size of the Company's business, substantially enlarging, and
requiring management additions and realignments to operate the Company's
business in Wyoming, Colorado and Arizona.
The base salary data forming the basis for the salary recommendations by
management to the Committee are maintained on an annual basis by Hay Management
Consultants. For those elements of the total package (annual incentives and
long-term incentives) which are performance sensitive, it is intended that
awards under these plans reflect internal Company performance criteria as well
as the Company's performance as compared to the performance of certain peer
groups described under "Annual Incentives" below.
In 1988 and 1993, the Committee engaged The Wyatt Company to conduct an
independent review of the Company's compensation programs. The Wyatt study
evaluated these programs relative to the Company's peers to assist the Committee
in determining whether adjustments were needed in the various programs. The
1993 Wyatt study concluded that the Company's base salary levels and levels of
perquisites for executives are close to average for comparable institutions but
that the potential compensation that may be achieved by Company executives
through incentive programs is below the average level for the industry.
BASE SALARY
The Company's base salary program was designed and has been maintained with
the assistance of Hay Management Consultants. The Committee establishes base
salaries through a comparison of the Company's executive salaries with those of
comparable executive positions nationwide, according to survey data provided by
Hay, and through assessment of the executive's responsibilities, prior
experience and breadth of knowledge. The comparability of the peer group of
banking organizations used by Hay has been supported by the Wyatt Company
studies described above, which concluded that the peer group is appropriate.
Many of the institutions included in the peer group analysis are companies
included in the Nasdaq Bank Stock Index. That Index has been used for
comparison purposes in the stock performance graph included under "Comparative
Stock Performance" below.
Each year, each executive officer's base salary is established based on the
average salary for executives with comparable job categories as calculated by
Hay. Hay applies some adjustments to the average salary level, based on the
size and complexity of the various employers surveyed and other factors. For
each Company executive, the salary level is annually adjusted up or down from
the industry mid-point by a factor of up to 20% to reflect the experience and
job performance of the Company executive within the job category.
10
<PAGE>
ANNUAL INCENTIVES
In awarding annual cash bonuses, the Company uses an Annual Incentive Award
Program ("AIP") for its executives, as well as for its middle staff officers and
local bank presidents. Executive AIP awards for 1997 were made based on the
Committee's evaluation of the following factors:
1. Internal performance, measured by net income of the Company on a
consolidated basis as compared with the Company's plan level.
Internal performance was weighted to constitute 60% of the bonus
calculation for 1997, and will be weighted at 50% for 1998.
2. External performance, measured by return on equity of the Company's
consolidated operations (ROE) and growth of the Company's total assets
compared to a peer group of 20 banks. The peer group is selected
annually by SNL Securities based on size comparability and geographic
proximity to the Company. The peer group institutions ranged in size
from $1.0 billion to $2.5 billion in assets. External performance was
weighted to constitute 40% of the bonus calculation in 1997 and will
be weighted at 50% for 1998.
Prior to the beginning of each fiscal year, a target and maximum bonus
level is established for each AIP participant. In 1997, the target levels for
executive officers ranged from 10% to 40% of base salary, and maximum levels
ranged from 20% to 80% of base salary. Based on the Company's results for 1997,
bonuses were set at amounts of between 16% and 64% of the executives' base
salaries.
Minimum internal and external performance thresholds below which no AIP
bonuses will be paid to executives are set annually. Under the AIP program for
1997, no awards would have been payable to officers if the Company's net income
had been below 90% of the plan level. Also, the external component of the AIP
awards would not have been paid if the Company's external performance had been
below the 50th percentile of the peer group.
Effective August 1, 1995, the Board of Directors adopted the Community
First Bankshares, Inc. Supplemental Executive Retirement Plan for directors and
executive officers of the Company. The Plan permits Company directors and
certain executive and management employees to defer salary and incentive pay
amounts under a non-qualified retirement plan.
EMPLOYEE STOCK OPTION PLANS
The Company grants options to purchase its Common Stock to its employees
from time to time under the Company's Restated 1987 Stock Option Plan (the "1987
Plan") and the 1996 Stock Option Plan (the "1996 Plan"). Options granted to
date have had five-year terms, with vesting as to 33% of the shares covered
after one year and 33% on each of the second and third anniversaries of the
grant date, exercisable at market value of the Company's Common Stock at the
time of grant. The 1996 Plan was approved by the Company's shareholders in May
1996.
The Wyatt Company consulting study prepared for the Company in 1989
recommended that, when it became publicly held as it did in August 1991, the
Company should limit annual option grants under the Plan to roughly 1% to 2% of
Common Stock outstanding and issuable under outstanding options and warrants.
The Company has observed this recommendation. Under the 1987 Plan and the 1996
Plan, the Company has made option grants to a broad group of line and staff
employees, as well as its executive officers. It is intended that stock options
will represent the chief component of long-term incentive compensation to
executives. Stock options align the interests of management more closely with
shareholder interests and reward executive officers for creating shareholder
value as measured by stock price appreciation.
11
<PAGE>
Each year, the Committee establishes the aggregate number of shares to be
covered by options granted to employees. In 1997, the Committee determined that
employee stock options should cover approximately 160,000 shares, or
approximately 1.0% of the Company's outstanding stock. Management recommends
the allocation of these shares among the employees according to their
responsibilities and performance, except that the Committee determines the level
of option grants to the Chief Executive Officer.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Donald R. Mengedoth, the Chief Executive Officer of the Company, receives
compensation from the Company based on criteria identical to its other executive
officers. In 1997, the Company paid Mr. Mengedoth a salary of $333,392, and he
received an AIP award for 1997 performance of $246,790, or 74% of his base
salary. The Company also granted to him an option to buy 12,000 shares of the
Company's Common Stock. Mr. Mengedoth's target AIP award and the number of his
option shares granted were higher than those granted to other executives in
recognition of his responsibilities and his performance in his position.
DEDUCTIBILITY OF COMPENSATION
There is a $1 million limit on the deductibility of certain compensation
for federal income tax purposes established by the Omnibus Budget Reconciliation
Act of 1993 (the "Budget Act"). The Committee does not believe that any
executive will have sufficient compensation in the foreseeable future to cause
this limitation to have an impact on the Company. The Committee will continue
to evaluate whether any future action is appropriate to qualify any of the
Company's compensation plans under the Budget Act and applicable regulations of
the Internal Revenue Service to allow the deductibility of compensation under
such plans in excess of $1 million.
BOARD ACTION
All recommendations of the Compensation Committee to the Company, except
for grants of stock purchase rights to executives, have been and are subject to
Board of Director review and approval.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS:
James T. Anderson, Chair
Patricia A. Adam
Harvey L. Wollman
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<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative shareholder return of the Company's
Common Stock since December 31, 1992 with the cumulative total return on the
Nasdaq Composite Index and the Nasdaq Bank Stock Index. The table below
compares the cumulative total return of the Company's Common Stock as of
December 31, 1993, 1994, 1995, 1996 and 1997, assuming a $100 investment on
December 31, 1992 and assuming reinvestment of all dividends:
[INSERT TABLE HERE.]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company. . . . . . . . . $100.00 $105.14 $117.38 $206.89 $256.15 $504.40
Nasdaq Composite Index . . . 100.00 114.80 112.21 158.70 195.19 239.53
Nasdaq Bank Stock Index. . . 100.00 114.04 113.63 169.22 223.41 377.44
</TABLE>
The Company's Common Stock closed at $53.25 per share on December 31, 1997
and closed at $ __________ per share on March 3, 1998.
CERTAIN TRANSACTIONS
The Company's subsidiary banks make loans from time to time to officers and
directors of the Company and its affiliates. Loans to executive officers and
directors of the Company at December 31, 1997 by its subsidiary banks were
approximately $3.2 million. Such loans were made in the ordinary course of
business 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 collectability.
13
<PAGE>
PROPOSAL TWO
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES
The Board of Directors has approved an amendment to the Company's Restated
and Amended Certificate of Incorporation which would increase the number of
authorized shares of Common Stock from 30,000,000 shares to 80,000,000 shares.
The Board believes the adoption of this amendment is in the best interests of
the shareholders and recommends that shareholders vote in favor of this
proposal.
The Company's Restated and Amended Certificate of Incorporation
currently authorizes 30,000,000 shares of the Company's Common Stock.
Proposal Two would amend Article IV of the Restated and Amended Certificate
of Incorporation to authorize 80,000,000 shares of Common Stock, par value
$.01 per share. At March 3, 1998, _________ shares of Common Stock were
issued and outstanding, net of treasury shares, and ________ shares of Common
Stock were reserved for issuance under the Company's stock option plans.
Further, an estimated _________ shares of Common Stock will be issued in
mergers and acquisitions for which definitive agreements have been signed.
This leaves only approximately _________ shares available for corporate
purposes. The Board of Directors does not regard the number of available
authorized shares of Company Common Stock as sufficient for the future needs
of the Company.
On February 3, 1998, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock dividend, subject to the approval by the
Company's shareholders of the amendment to increase the number of authorized
shares. As adjusted for the stock split, there would be ___________ shares
issued and outstanding as of March 3, 1998, and the shares reserved under stock
options and estimated to be issued in acquisitions would be at least
____________ shares in the aggregate.
The Board of Directors of the Company believes that an increase in the
number of authorized shares of the Company's Common Stock is necessary to ensure
that the Company will continue to have additional shares available for future
issuance from time to time for proper corporate purposes, including raising
additional capital, possible future acquisitions and for stock options or other
employee incentive plans. The Company has no present plans with respect to the
issuance of shares of its capital stock, except as described above.
The newly authorized Common Stock would be identical to the existing
authorized Common Stock in all respects. The holders of the Company's Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. On any liquidation
of the Company, after payment of all indebtedness, the assets of the Company
will be distributed pro rata to holders of the Company's Common Stock, subject
to such rights as have been granted, or may be granted in the future, to any
holders of preferred stock. Holders of the Company's Common Stock have no
preemptive rights and are entitled to one vote for each share held on each
matter submitted to a vote of stockholders. Cumulative voting for the election
of directors is permitted. Accordingly, at all elections of directors, each
holder of record of the Company's Common Stock is entitled to cast as many votes
as shall equal the number of votes the stockholder would be entitled to cast for
the election of directors with respect to the stockholder's shares of Common
Stock multiplied by the number of directors to be elected, and such holder may
cast all of such votes for a single director candidate or may distribute them
among any number of candidates.
14
<PAGE>
The additional shares to be authorized under the Amendment could
potentially be issued without further stockholder approval at times and under
circumstances that could have a dilutive effect on earnings per share and on the
equity ownership and voting power of the present holders of the Company's Common
Stock, or which could make a change of control of the Company more difficult.
The resolution to be considered and acted upon by the shareholders at the
Annual Meeting is as follows:
RESOLVED, that the first sentence of Article IV of the Company's Restated
and Amended Certificate of Incorporation be, and it hereby is, replaced
with the following: "The total number of shares of stock which the
corporation shall have authority to issue is Eighty-Two Million
(82,000,000) shares, divided into Eighty Million (80,000,000) shares of
Common Stock, $.01 par value per share ("Common Stock"), and Two Million
(2,000,000) shares of Preferred Stock, $.01 par value per share ("Preferred
Stock").
RESOLVED FURTHER, that the officers of the Company be, and they hereby are,
authorized and directed to execute such documents and certificates and take
such other action as may be necessary or appropriate to give effect to the
foregoing resolution.
The approval of the amendment to the Restated and Amended Certificate of
Incorporation of the Company requires the affirmative vote of the holders of a
majority of the stock entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE COMPANY'S
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
--------------------------------------------
15
<PAGE>
PROPOSAL THREE
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP, independent certified public accountants, have been the
auditors of the Company since its inception in 1987. They have been reappointed
by the Board of Directors as the Company's auditors for the current year.
Although shareholder approval is not required, it is the policy of the Board of
Directors to request shareholder ratification for the appointment or
reappointment of accountants.
A representative of Ernst & Young LLP will be present at the meeting. Such
representative will be given the opportunity to make a statement at the meeting
and will be available to answer any appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
THE PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP.
------------
SHAREHOLDER PROPOSALS
The rules of the Securities and Exchange Commission permit shareholders of
a company, after timely notice to the company, to present proposals for
shareholder action in the company's proxy statement where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by company action in accordance with the
proxy rules. The Company's 1999 Annual Meeting of Shareholders is expected to
be held on or about April 27, 1999, and proxy materials in connection with that
meeting are expected to be mailed on or about March 9, 1999. Shareholder
proposals prepared in accordance with the proxy rules must be received by the
Company on or before December 15, 1998.
OTHER INFORMATION
The Board of Directors of the Company knows of no matters other than the
foregoing to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event that any additional matters should be
presented.
If a shareholder abstains from voting on any matter, the Company intends to
count the abstention as present for purposes of determining whether a quorum is
present at the Annual Meeting of Shareholders for the transaction of business.
Additionally, the Company intends to count broker "non-votes" as present for
purposes of determining the presence or absence of a quorum for the transaction
of business. A "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Therefore, abstentions and broker "non-
votes" have the same effect as votes against the proposals.
16
<PAGE>
The Annual Report of the Company for the past fiscal year is enclosed
herewith and contains the Company's financial statements for the fiscal year
ended December 31, 1997. A copy of the Annual Report on Form 10-K, as filed by
the Company with the Securities and Exchange Commission, will be furnished
without charge to any shareholder who requests it in writing from Mark A.
Anderson, Chief Financial Officer, Community First Bankshares, Inc., 520 Main
Ave., Fargo, North Dakota 58124-0001.
By the Order of the Board of Directors
Mark A. Anderson,
Secretary
17
<PAGE>
PROXY
COMMUNITY FIRST BANKSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald R. Mengedoth and Mark A. Anderson,
or either of them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of Common Stock of Community First Bankshares, Inc. (the "Company")
held of record by the undersigned on March 3, 1998 at the Annual Meeting of
Shareholders to be held on April 28, 1998, or at any adjournment or adjournments
thereof, hereby revoking all former proxies.
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(Except as marked to the contrary below) To vote for all
nominees listed
below
Donald R. Mengedoth, Patricia A. Adam, Harvey L. Wollman,
Patrick Delaney, Thomas C. Wold, Patrick E. Benedict, James T. Anderson,
John H. Flittie, Dennis M. Mathisen, Darrell G. Knudson
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY AND APPROVE AN AMENDMENT OF THE COMPANY'S RESTATED AND
AMENDED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 30,000,000 SHARES TO 80,000,000 SHARES.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
4. IN THEIR DISCRETION, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY WHEN PROPERLY EXECUTED AND RETURNED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THE
PROXY WILL BE VOTED "FOR" PROPOSALS (1), (2) AND (3).
Please vote, date and sign this proxy exactly as your name is printed
hereon. When signing as attorney, executor, administrator, trustee, guardian,
etc. give full title as such. If the stock is held jointly, each owner should
sign. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: , 1998
----------------------
---------------------------------------
Signature (and title if applicable)
---------------------------------------
Signature if held jointly
