SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FIRST BANK SYSTEM, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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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 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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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.
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[LOGO]
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
March 18, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
which will be held at 10:00 a.m. on Thursday, April 24, 1997, 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 this Proxy Statement.
You are urged to read the enclosed Notice of Meeting and Proxy Statement so
that you may be informed about the business to come before the annual meeting of
stockholders. At your earliest convenience, please mark, sign, date and return
the accompanying form of proxy in the enclosed postage-paid envelope. We hope
you will be able to attend the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND DATE
YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE AND RETURN THE ENCLOSED BUSINESS REPLY POSTCARD TO REQUEST AN
ADMISSION TICKET, WHICH WILL BE MAILED TO YOU PRIOR TO THE MEETING DATE.
Very truly yours,
/s/ John F. Grundhofer
John F. Grundhofer
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
[LOGO]
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 1997
To the Stockholders
of First Bank System, Inc.:
The 1997 Annual Meeting of Stockholders of First Bank System, Inc. (the
"Company") will be held at the Minneapolis Convention Center, 1301 Second Avenue
South, Minneapolis, Minnesota 55403 on Thursday, April 24, 1997, at 10:00 a.m.
for the following purposes:
1. To elect five persons to the Board of Directors.
2. To consider and act upon a proposal to approve an amendment to the
Company's 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, 1997.
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 3, 1997 will
be entitled to notice of and to vote at the meeting and any adjournments
thereof. A list of such holders will be available for examination by any
stockholder for any purpose germane to the meeting during ordinary business
hours for ten days prior to the meeting at the Company's headquarters, First
Bank Place, 601 Second Avenue South, Minneapolis, Minnesota.
March 18, 1997 By Order of the Board of Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
PLEASE NOTE
YOUR VOTE IS IMPORTANT. IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL
MEETING OR IF YOU PLAN TO ATTEND BUT DESIRE THE PERSONS NAMED AS
PROXIES TO VOTE YOUR STOCK, PLEASE MARK, SIGN AND DATE YOUR PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. STOCKHOLDERS ATTENDING THE
MEETING MAY REVOKE THEIR PROXIES AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
PROXY STATEMENT
OF
FIRST BANK SYSTEM, INC.
[LOGO]
FIRST BANK PLACE
601 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
(612) 973-1111
GENERAL MATTERS
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors for
use at the Company's annual meeting of stockholders to be held on April 24,
1997, and at any adjournments thereof. The cost of soliciting proxies will be
borne by the Company. In addition to solicitation by mail, officers and other
employees of the Company may solicit proxies by telephone, special
communications or in person but will receive no special compensation for such
services. The Company will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy material and annual reports to the owners of the stock in
accordance with the New York Stock Exchange schedule of charges. The Company has
engaged Morrow & Co., Inc. to assist in proxy solicitation for an estimated fee
of $15,000 plus out-of-pocket expenses. This Proxy Statement and the
accompanying proxy are first being mailed to stockholders on or about March 18,
1997.
VOTING, EXECUTION AND REVOCATION OF PROXIES
Only stockholders of record at the close of business on March 3, 1997, the
record date for the meeting, will be entitled to receive notice of and to vote
at the meeting. As of that date there were approximately 133,422,201 shares of
Common Stock of the Company outstanding and entitled to vote at the meeting.
Each share is entitled to one vote. There is no cumulative voting. 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
shares entitled to vote at any meeting of stockholders, present in person or
represented by proxy, shall constitute a quorum and the act of a majority of
such quorum shall be deemed the act of the stockholders. When stock is
registered in the name of more than one person, each such person should sign the
proxy. If the proxy is signed as an attorney, executor, administrator, trustee,
guardian or in any other representative capacity, the signer's full title should
be
given. If the stockholder is a corporation, the proxy should be signed in its
corporate name by an executive or other authorized officer.
If a proxy is properly executed and returned in the form enclosed, it will
be voted at the meeting as follows, unless otherwise specified by the
stockholder in the proxy: (i) in favor of the election as Directors of all the
nominees listed herein; (ii) in favor of the proposal to approve an amendment to
the Company's Executive Incentive Plan; and (iii) in favor of the ratification
of the selection of Ernst & Young LLP as independent auditors of the Company for
the fiscal year ending December 31, 1997. The Board of Directors does not know
of any other matters to come before the 1997 Annual Meeting of Stockholders. If
any other matters are brought before the meeting, however, the accompanying
proxy will confer discretionary authority with respect to any such other
matters. Shares held in the Company's Capital Accumulation Plan, a 401(k) plan
("CAP"), for which a proxy is not received at least ten days prior to the
meeting will be voted by the trustee in the same proportion as votes actually
cast by CAP participants, in accordance with the terms of the CAP. A proxy may
be revoked at any time before being exercised by delivery to the Secretary of
the Company of a written notice of termination of the proxy's authority or a
duly executed proxy or ballot bearing a later date.
If an executed proxy card is returned and the stockholder has 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, the shares
represented by such proxy will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote, but will not
be considered to have been voted in favor of such matter or, in the case of the
election of Directors, in favor of such nominee or nominees. If an executed
proxy is returned by a broker holding shares in street name which indicates that
the broker does not have discretionary authority as to certain shares to vote on
one or more matters, such shares will be considered present at the meeting for
purposes of determining a quorum, but will not be considered to be represented
at the meeting for purposes of calculating the vote with respect to such matter.
ANNUAL REPORT
The 1996 First Bank System, Inc. Annual Report to Stockholders and Annual
Report on Form 10-K, including financial statements for the year ended December
31, 1996, accompanies this Proxy Statement.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 3, 1997 with respect
to shares of the Company's Common Stock which are held by the only persons known
to the Company to be beneficial owners of more than 5% of such stock. For
purposes of this Proxy Statement, beneficial ownership of securities is defined
in accordance with the rules of the Securities and Exchange Commission and means
generally the power to vote or dispose of securities, regardless of any economic
interest therein.
COMMON STOCK
BENEFICIALLY OWNED
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NAME OF STOCKHOLDER SHARES PERCENT
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Wellington Management Company, LLP.......................... 8,662,460(1) 6.5%
75 State Street
Boston, Massachusetts 02109
FMR Corp.................................................... 7,223,930(2) 5.4%
82 Devonshire Street
Boston, Massachusetts 02109
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(1) Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by Wellington Management Company, LLP ("Wellington"), a
registered investment adviser, with respect to shares held as of December
31, 1996. The Schedule 13G indicates that the shares reported are owned by
clients of Wellington and that Wellington has shared voting power with
respect to 2,631,880 shares and shared dispositive power with respect to
8,662,460 shares.
(2) Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by FMR Corp. ("FMR") with respect to shares held as of
December 31, 1996. The Schedule 13G indicates that Fidelity Management &
Research Company, a registered investment adviser and wholly owned
subsidiary of FMR, beneficially owns 6,213,530 of such shares; Fidelity
Management Trust Company, a bank and wholly owned subsidiary of FMR,
beneficially owns 996,600 of such shares; and Fidelity International
Limited, an investment adviser, beneficially owns 13,800 of such shares. Of
the 7,223,930 shares beneficially owned by FMR, FMR has sole voting power
with respect to 678,900 shares and sole dispositive power with respect to
7,223,930 shares.
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MATTERS SUBMITTED TO VOTE
Following is a discussion of the matters to be presented at the meeting:
I. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Bylaws of the Company currently provide for a Board of Directors
consisting of 16 members. Commencing with the election of Directors at the
annual meeting of stockholders in 1986, the Directors were divided into three
classes: Class I, Class II and Class III, each such class, as nearly as
possible, to have the same number of Directors. The term of office of the Class
II Directors will expire at the annual meeting in 1997, the term of office of
the Class III Directors will expire at the annual meeting in 1998, and the term
of office of the Class I Directors will expire at the annual meeting in 1999. At
each annual election of Directors, the Directors chosen to succeed those whose
terms have then expired shall be identified as being of the same class as the
Directors they succeed and shall be elected for a term expiring at the third
succeeding annual election of Directors. Vacancies and newly created
directorships resulting from an increase in the number of Directors may be
filled by a majority of the Directors then in office and the Directors so chosen
will hold office until the next election of the class for which such Directors
shall have been chosen and until their successors are elected and qualified.
Following the 1997 Annual Meeting of Stockholders, the Company anticipates that
there will be two vacancies on the Board of Directors. The accompanying proxy
may not be voted for more than five 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, and
cumulative voting is not permitted. Class II Directors are to be elected at the
meeting for a three-year term expiring at the annual meeting in 2000 and until
their successors are elected and qualified. Nominees for Class II Directors are
Peter H. Coors, Norman M. Jones, S. Walter Richey, Richard L. Robinson and
Walter Scott, Jr. 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 which is not anticipated, the persons named as proxies reserve full
discretion to vote for any other persons who may be nominated.
BOARD OF DIRECTORS AND COMMITTEES
During 1996, the Board of Directors of the Company held six regular meetings
and four 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 met once, the Audit Committee met five times, the Credit
Policy and Community Responsibility Committee met four times, the Compensation
and Human Resources Committee met eight times, the
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Finance Committee met four times and the Governance Committee met seven times.
Incumbent Directors' attendance at Board and Committee meetings averaged 95%
during 1996 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, except Directors
Marilyn Carlson Nelson and Walter Scott, Jr.
The members of the Executive Committee are Directors Grundhofer (Chair),
Hale, Macke, Richey and Schall. 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 Directors Schall (Chair), Collins,
Hale, Johnson, Phillips, Richey and Robinson. 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 stockholders and
the general public.
The members of the Credit Policy and Community Responsibility Committee are
Directors Hale (Chair), Coors, Grundhofer, Johnson, Nelson, Phillips and Schall.
The Credit Policy and Community Responsibility Committee reviews lending and
credit administration policies, practices and controls for the Company. The
Committee reviews 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 Directors
Macke (Chair), Knowlton, Levin, Renier, Richey and Robinson. 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 Directors Richey (Chair), Collins,
Grundhofer, Jones, Levin, Phillips, Renier, Scott and Schall (ex officio). The
Finance Committee reviews and 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 and issuance and repurchase of debt and equity
securities and reviews other actions regarding the common and preferred capital
of the Company.
5
The members of the Governance Committee are Directors Schall (Chair),
Grundhofer, Hale, Macke and Richey. The Committee serves as a forum for ideas
and suggestions to improve the quality of stewardship provided by the Board of
Directors. The Committee reviews the charters of the various Board Committees to
ensure they reflect the Company's commitment to effective governance. The
Committee also manages the Board performance review process, assists the Board
by identifying, attracting and recommending candidates for Board membership and
administers the Director retirement policy. The Committee recommends to the
Board those persons whom it believes should be nominees for election as
Directors. The Committee will consider qualified nominees recommended by
stockholders. Any such recommendation for the 1998 election of Directors should
be submitted in writing to the Secretary of the Company so as to be received no
later than 90 days in advance of the 1998 Annual Meeting of Stockholders. Such
recommendation must include information specified in the Company's Bylaws that
will enable the Governance Committee to evaluate the qualifications of the
recommended nominee.
It is the Company's policy that a Director shall retire as of the annual
meeting of stockholders following the earlier of either 12 years of service
(except that a Director who has completed 12 years of service as of October 1994
will not be subject to term limits) 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. The Board has requested Mr.
Schall and Mr. Robinson, each of whom is 67 and otherwise would retire at the
1997 Annual Meeting of Stockholders in accordance with the Company's policy, to
continue service as Directors subject to annual review of the continuing
existence of appropriate circumstances for their continuation of service within
the meaning of the policy, and each of them has agreed to do so. Mr. Schall is a
Class I Director whose term expires at the 1999 Annual Meeting of Stockholders,
and Mr. Robinson is a nominee for election as a Class II Director for a term
expiring at the 2000 Annual Meeting of Stockholders. Two of the other nominees
for election as Class II Directors, Mr. Jones and Mr. Scott, will turn 67 prior
to the expiration of the term at the 2000 annual meeting. Mr. Jones will turn 67
prior to the 1998 annual meeting and Mr. Scott will turn 67 prior to the 1999
annual meeting.
The Company has a Director Retirement and Death Benefit Plan (the "Plan")
which provides for payments to Directors after they cease to be Directors. 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 in the amount of the annual
retainer in effect on the date of retirement (provided that for current
Directors, retirement benefits will be based on the current annual retainer, as
described below). 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 the
Director's death, a lump sum payment may be made. In the event of certain types
of changes of control of the Company, benefits payable under the Plan will be
paid in a lump sum within 30 days thereof. In January 1997, the Board of
Directors determined to freeze benefits under the Plan
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for current Directors and terminate the Plan for new Directors, both effective
as of April 30, 1997. Accordingly, retirement benefits for current Directors
will be based on the current annual retainer and each Director's service as of
April 30, 1997 (provided that additional service after such date may be
considered in determining the form of benefit to be paid). For current Directors
with less than five years of service and, therefore, no vested benefit under the
Plan, the Compensation and Human Resources Committee approved one-time stock
option awards. On January 15, 1997, Messrs. Collins, Coors, Levin and Johnson
were awarded options to purchase 265, 285, 490 and 1,420 shares of the Company's
Common Stock, respectively. Each such option is exercisable in full on the fifth
anniversary of each Director's respective date of election to the Board of
Directors, has an exercise price per share equal to $71.875 (the fair market
value on the date of grant), and expires on the tenth anniversary of the date of
grant. Such options also include provisions entitling the optionee to a "reload
option" under the same terms and conditions as provided in options granted to
Directors under the Company's 1996 Stock Incentive Plan, described below. To
compensate the Directors for the value of the annual benefits eliminated through
the termination of the Plan, the Board of Directors also approved an increase in
the annual retainer and in the annual stock option grant, as described below.
Directors who are not employees of the Company receive an annual retainer of
$20,000, with the exception of the Chair of the Audit Committee who receives an
annual retainer of $21,000, plus all such Directors receive $1,000 for each
meeting of the Board attended. In addition, non-employee Committee Chairs
receive $2,000 and non-employee Directors receive $1,000 for each Committee
meeting attended. Effective May 1, 1997, the annual retainer paid to
non-employee Directors of the Company will be increased to $23,000, with the
Chair of the Audit Committee receiving $24,000.
Directors are offered the opportunity to defer all or a part of their
Director compensation in accordance with the terms of the Deferred Compensation
Plan for Directors. Under such plan, a Director may defer all retainer and
meeting fees until such time as the Director ceases to be a member of the Board.
In the event of certain types of changes of control of the Company, the plan
will terminate and all deferred amounts will be paid in a lump sum within 30
days thereof. Directors may also 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 the fees earned as a Director of the Company. 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 largest number of whole
shares of the Company's Common Stock that can be purchased with the
participant's accumulated deductions at the established purchase price.
Under the Company's 1996 Stock Incentive Plan, each non-employee Director of
the Company receives options to purchase 2,500 shares of the Company's Common
Stock upon first being elected to the Board of Directors and, thereafter,
options to purchase 1,500 shares of the Company's Common Stock on the date of
each annual meeting of stockholders if such Director's term of office continues
after such grant date. Beginning with the 1997 Annual
7
Meeting of Stockholders, each non-employee Director of the Company will receive
options to purchase 1,700 shares of the Company's Common Stock on the date of
each annual meeting of stockholders if such Director's term of office continues
after such grant date. Each option granted to a non-employee Director upon
initial election to the Board or as of the date of each annual meeting of
stockholders is exercisable in full as of the date of grant, has an exercise
price per share equal to the fair market value of a share of Common Stock as of
the date of grant 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 in connection with the
exercise of an option.
As required by the merger agreement relating to the Company's acquisition of
Metropolitan Financial Corporation, the Company entered into a consulting
agreement with Norman M. Jones, dated January 23, 1995, engaging Mr. Jones for a
three-year period as an independent consultant to assist the Company in
identifying and contacting, on behalf of the Company, potential financial
institution acquisition candidates as requested from time to time by the
Company. The agreement further provides that the Company is required to use its
best efforts to secure the election of Mr. Jones to the Company's Board of
Directors for a term of at least three years and to appoint Mr. Jones as
Chairman of the Board of Directors of First Bank, fsb, a subsidiary of the
Company, for at least three years. The agreement provides that Mr. Jones will be
paid cash compensation of $200,000 annually for such services, including his
service as a Director of the Company. Mr. Jones is a nominee for election as a
Class II Director and is expected to retire at the 1998 Annual Meeting of
Stockholders in accordance with the Company's retirement policy for Directors,
discussed above.
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INFORMATION REGARDING NOMINEES AND OTHER CONTINUING DIRECTORS
There is shown below for each nominee for election as a Director and for
each other person whose term of office as a Director will continue after the
meeting, as furnished to the Company, the individual's name, age, principal
occupation and business experience; the individual's period of service as a
Director of the Company and other directorships and positions held.
CLASS I DIRECTORS--WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING
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ROGER L. HALE, 62 Director Since 1987
[PHOTO] Mr. Hale is President and Chief Executive Officer of TENNANT Company,
a Minneapolis-based manufacturer of industrial and commercial floor
maintenance equipment and products. He joined TENNANT in 1961 and was
appointed Assistant to the President in 1963. Mr. Hale was elected
Vice President in 1968 and, in 1975, was elected President and Chief
Operating Officer. He was elected Chief Executive Officer in 1976. He
serves as a Director of TENNANT Company and Dayton Hudson Corporation.
His community activities include serving as Chairman of the
Minneapolis Neighborhood Employment Network and as Vice Chair of
Public Radio International. Mr. Hale serves as Chair of the Credit
Policy and Community Responsibility Committee and also as a member of
the Executive Committee, the Audit Committee and the Governance
Committee.
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RICHARD L. KNOWLTON, 64 Director Since 1992
[PHOTO] Mr. Knowlton is Chairman of The Hormel Foundation, Austin, Minnesota,
a public foundation organized and operated for the benefit of
charitable organizations and which is the principal shareholder of
Hormel Foods Corporation, a meat and food processing company. He
became Chairman of The Hormel Foundation in December 1995 upon
resigning as Chairman and Chief Executive Officer of Hormel Foods
Corporation. He joined Hormel Foods in 1948 and held numerous
positions with the company, including Sales Manager, Vice
President-Operations, President and Chief Operating Officer, and
Chairman, President and Chief Executive Officer. Mr. Knowlton serves
as a Director of ReliaStar Financial Corp. and SUPERVALU INC. In
addition to being Chairman of The Hormel Foundation, he is also a
Director of the University of Colorado Foundation, the Mayo Foundation
and the Horatio Alger Association. Mr. Knowlton serves as a member of
the Compensation and Human Resources Committee.
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EDWARD J. PHILLIPS, 52 Director Since 1988
[PHOTO] Mr. Phillips is Chairman and Chief Executive Officer of Phillips
Beverage Company, Minneapolis, Minnesota, an importer and marketer of
distilled spirits. Mr. Phillips has been associated with Phillips
Beverage Company since 1969, having previously served as its President
during its ownership by Alco Standard Corporation. He is a Director of
Weisman Enterprises, Inc. His community activities include serving as
Vice Chairman and Director of Metropolitan-Mount Sinai Foundation and
as a Director of Amicus, the Phillips Eye Institute, the Minnesota
AIDS Project, the Page Education Foundation, the Paul E. Goldstein
Family Foundation and the Jeremiah Project. Mr. Phillips serves as a
member of the Audit Committee, the Credit Policy and Community
Responsibility Committee and the Finance Committee.
9
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RICHARD L. SCHALL, 67 Director Since 1987
[PHOTO] Mr. Schall is the retired Vice Chairman of the Board and Chief
Administrative Officer of Dayton Hudson Corporation, Minneapolis,
Minnesota, a diversified retail company. He retired from active
employment in February 1985. Mr. Schall is a Director of Medtronic,
Inc., Meritex, Inc. and Ecolab, Inc. He is also a member of the Boards
of the Santa Barbara City College Foundation and SEE International.
Mr. Schall serves as Chair of the Audit Committee and of the
Governance Committee and also as a member of the Executive Committee
and the Credit Policy and Community Responsibility Committee. He is
also an ex officio member of the Finance Committee.
CLASS II DIRECTORS--NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2000 ANNUAL
MEETING
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PETER H. COORS, 50 Director Since 1996
[PHOTO] Mr. Coors is Vice Chairman and Chief Executive Officer of Coors
Brewing Company, Golden, Colorado, and Vice President of Adolph Coors
Company. Mr. Coors has been associated with Coors Brewing Company
since 1970 and has served in various capacities, including as Director
of Financial Planning, Director of Market Research, Vice President of
Sales and Marketing and President of Coors Distributing Company, and
as President of the brewing division of Adolph Coors Company. He
serves as a Director of Adolph Coors Company. His community activities
include serving as a member of the advisory council of Opportunities
Industrialization Centers of America, the advisory council of the
National Council of La Raza and the Young Presidents' Organization. He
is also an Executive Board member and Executive Vice President of the
Denver Area Council of the Boy Scouts of America, a Board member of Up
With People and a Trustee of the Adolph Coors Foundation. Mr. Coors
serves as a member of the Credit Policy and Community Responsibility
Committee.
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NORMAN M. JONES, 66 Director Since 1995
[PHOTO] Mr. Jones serves as Chairman of the Board of First Bank, fsb, formerly
known as Metropolitan Federal Bank, the thrift subsidiary of the
Company. Prior to the Company's acquisition of Metropolitan Financial
Corporation in January 1995, Mr. Jones served as Chairman of
Metropolitan Financial Corporation. He was employed by that company
from 1952 through January 1995 in various capacities, including as
Vice President and Secretary, President, and Chief Executive Officer.
Mr. Jones is Chairman of Metro Bancorp, Inc. and a Director of Metro
Community Bank, fsb, RDO Equipment Co. and Slumberland, Inc. Mr. Jones
has served as Chairman of the SAIF Industry Advisory Committee, as a
Director of the S & L Computer Trust of Des Moines, as a member of the
Thrift Advisory Board to the Federal Reserve and as a member of the
Advisory Board to the Federal Savings and Loan Insurance Corporation.
He currently serves as National Director of Lutheran Health Systems,
as a member of the Board of Regents of Concordia College, as Chairman
of Luther Seminary Foundation and as an Investment Committee Advisor
of the Board of Pensions of the Evangelical Lutheran Church of
America. Mr. Jones serves as a member of the Finance Committee.
10
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S. WALTER RICHEY, 61 Director Since 1990
[PHOTO] Mr. Richey is Chairman and Chief Executive Officer of Meritex, Inc., a
company involved in real estate management and development and
warehousing located in Minneapolis, Minnesota. Mr. Richey has been
with Meritex, Inc. (and its predecessor company) since 1973. He was
elected to his present position in 1978. Mr. Richey also serves on the
Board of Directors of Donaldson Company, Inc. and as an Advisory
Director of Liberty Mutual Insurance Company. He is also 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
Finance Committee and also as a member of the Executive Committee, the
Audit Committee, the Compensation and Human Resources Committee and
the Governance Committee.
- ------------------------------------------------------------------------------------------
RICHARD L. ROBINSON, 67 Director Since 1993
[PHOTO] Mr. Robinson has been Chairman and Chief Executive Officer of Robinson
Dairy, Inc. in Denver, Colorado since 1975. Prior to that time, he
served in various capacities with Roberts Dairy Company and Roberts
Foods, Inc. in Omaha, Nebraska. He was a Director of Bank Western and
Western Capital Investment Corporation prior to the merger of WCIC
into an affiliate of the Company. Mr. Robinson is a Director of Asset
Investors Corporation, past Chairman of the Greater Denver Chamber of
Commerce, past Chairman of the Denver Area Council--Boy Scouts of
America, past Chairman of the Mountain States Employers Council and
serves as a Director of numerous civic organizations. Mr. Robinson
serves as a member of the Audit Committee and the Compensation and
Human Resources Committee.
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WALTER SCOTT, Jr., 65 Director Since 1996
[PHOTO] Mr. Scott is Chairman, President and Chief Executive Officer of Peter
Kiewit Sons', Inc., a company engaged in the construction, mining,
telecommunications, energy and computer outsourcing businesses. Mr.
Scott has been associated with Peter Kiewit Sons' since 1949 and, with
the exception of a period of service with the U.S. Air Force, has
worked continuously for the company on a full-time basis since 1953.
He has held numerous positions with the company, including engineer,
project engineer, district engineer, assistant district manager,
district manager, Vice President, Executive Vice President, President,
and Chairman, President and Chief Executive Officer. He was elected to
his present position in 1979. In addition to being Chairman of Peter
Kiewit Sons', Inc., Mr. Scott is also a Director of Berkshire Hathaway
Inc., Burlington Resources Inc., CalEnergy Company, Inc., ConAgra,
Inc., C-TEC Corporation, Valmont Industries, Inc., Worldcom, Inc. and
Northern Electric plc. Mr. Scott's community activities include
serving as Chairman of the Board of Policy Advisors for the University
of Nebraska Institute for Information Science, Technology and
Engineering, Heritage-Joslyn Foundation, Joslyn Art Museum, Omaha
Zoological Society, Omaha Zoo Foundation and the Strategic Command
Consultation Committee. Mr. Scott serves as a member of the Finance
Committee.
11
CLASS III DIRECTORS--WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
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ARTHUR D. COLLINS, Jr., 49 Director Since 1996
[PHOTO] Mr. Collins is President and Chief Operating Officer of Medtronic,
Inc., Minneapolis, Minnesota, a leading medical device company. Mr.
Collins joined Medtronic in 1992. He was elected to his present
position in 1996 and previously served as Chief Operating Officer,
Corporate Executive Vice President, and President of Medtronic
International. Prior to joining Medtronic, Mr. Collins served in a
number of senior executive positions with Abbott Laboratories from
1978 through 1992, most recently as Corporate Vice President
responsible for worldwide diagnostic business units. He serves as a
Director of Medtronic, Inc., TENNANT Company, GalaGen, Inc. and
Fairview Physician Associates. He is also a member of the Board of the
National Association of Manufacturers and numerous civic
organizations. Mr. Collins serves as a member of the Audit Committee
and the Finance Committee.
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JOHN F. GRUNDHOFER, 58 Director Since 1990
[PHOTO] Mr. Grundhofer is Chairman, President and Chief Executive Officer of
the Company. Prior to joining the Company on January 31, 1990, Mr.
Grundhofer served as Vice Chairman and Senior Executive Officer for
Southern California with Wells Fargo Bank, N.A. In addition to serving
as Chairman of First Bank System, Mr. Grundhofer is also a Trustee of
Minnesota Mutual Life Insurance Company and a Director of Irvine
Apartment Communities, Inc. Mr. Grundhofer is Chairman of the
Minnesota Business Partnership, Vice Chairman of Minnesota Meeting, a
Director of the United Way of the Minneapolis area, an Advisory
Director of the Minneapolis-based Metropolitan Economic Development
Association, and a member of the Bankers Roundtable and of the CEO
Board of the School of Business Administration at the University of
Southern California. Mr. Grundhofer serves as Chair of the Executive
Committee and also as a member of the Credit Policy and Community
Responsibility Committee, the Finance Committee and the Governance
Committee.
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DELBERT W. JOHNSON, 58 Director Since 1994
[PHOTO] Mr. Johnson is Chairman and Chief Executive Officer of Pioneer Metal
Finishing, a division of Safeguard Scientifics Inc. and one of the
largest metal finishing companies in the United States. He joined the
company in 1965 and was elected to his present position in 1978. From
1987 through 1993, Mr. Johnson served on the Board of Directors of the
Federal Reserve Bank of Minneapolis and, in 1989, was named Chairman.
In 1990, he was selected as Vice Chairman of the Federal Reserve Board
Conference of Chairmen and in 1990 became Chairman. He serves as a
Director of Ault Inc., TENNANT Company, Safeguard Scientifics Inc.,
Coherent Communications Systems Corp. and CompuCom Systems, Inc. He
also serves on the Advisory Boards of Hospitality House and Turning
Point, Inc. Mr. Johnson serves as a member of the Audit Committee and
the Credit Policy and Community Responsibility Committee.
12
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JERRY W. LEVIN, 52 Director Since 1995
[PHOTO] Mr. Levin is Chairman of Revlon, Inc., New York, New York, a maker of
cosmetics and personal care and professional products; Chairman of The
Coleman Company, Inc., Golden, Colorado, a manufacturer and marketer
of outdoor recreational products; and Executive Vice President of
MacAndrews & Forbes Holdings, Inc. Revlon and Coleman are affiliate
companies of MacAndrews & Forbes. Mr. Levin joined Revlon in 1991 as
President and was elected Chairman in November 1995. Mr. Levin was
elected Chairman of Coleman in February 1997, and had been Chairman of
Coleman's parent company, Coleman Holdings, Inc., prior to joining
Revlon. Before joining MacAndrews & Forbes, Mr. Levin served in a
number of senior executive positions with The Pillsbury Company from
1974 through 1989, including as Chairman and Chief Executive Officer
of the Burger King Corporation, a Pillsbury subsidiary. In addition to
serving as Chairman of Revlon and The Coleman Company, he is also a
Director of Ecolab, Inc., Meridian Sports, Inc. and Paradise Kitchens,
Inc. His community activities include serving as a Director of United
Way of New York City, B'nai B'rith Hillel of New York, 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 a member of the Finance Committee and the Compensation
and Human Resources Committee.
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KENNETH A. MACKE, 58 Director Since 1985
[PHOTO] Mr. Macke is the retired Chairman and Chief Executive Officer of
Dayton Hudson Corporation, Minneapolis, Minnesota, a diversified
retail company. He joined Dayton Hudson in 1961 and had been
continuously employed by the company until June 1994. Mr. Macke served
as President of Dayton Hudson Corporation from 1981 to 1984. In 1982,
he was elected Chief Operating Officer and was elected Chief Executive
Officer in 1983. In 1984, Mr. Macke was elected Chairman of the Board
of the company. He is currently a general partner of Macke Partners, a
private venture capital and investment company located in Golden
Valley, Minnesota. He is also a Director of Unisys Corporation,
General Mills, Inc. and Fingerhut Companies, Inc. Mr. Macke serves as
Chair of the Compensation and Human Resources Committee and also as a
member of the Executive Committee and the Governance Committee.
- ------------------------------------------------------------------------------------------
Directors Marilyn Carlson Nelson and Dr. James J. Renier are expected to
retire at the 1997 Annual Meeting of Stockholders.
II. AMENDMENT OF THE COMPANY'S
EXECUTIVE INCENTIVE PLAN
On February 15, 1995, the Board of Directors, upon recommendation of the
Compensation and Human Resources Committee of the Board of Directors (the
"Compensation Committee"), approved the First Bank System, Inc. 1995 Executive
Incentive Plan (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 stockholders by attracting and
retaining key
13
employees and by stimulating the efforts of those employees to contribute to the
continued success and growth of the Company's business. The Executive Incentive
Plan was approved by the stockholders of the Company at the 1995 Annual Meeting
of Stockholders, effective as of January 1, 1995. On February 19, 1997, the
Compensation Committee approved certain amendments to the Executive Incentive
Plan, including an amendment to change the maximum payment a participant may
receive for any year from $1.5 million to 0.35% of the Company's "Operating
Earnings" (as defined in the Executive Incentive Plan and described below) for
such year. All of the amendments to the Executive Incentive Plan were adopted
subject to stockholder approval of the amendment to change the maximum payment,
as required by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), and described below. Also on February 19, 1997, the Board of
Directors, upon recommendation of the Compensation Committee, directed that the
amendment to change the maximum payment be submitted for approval by the
stockholders of the Company at the 1997 Annual Meeting of Stockholders. If
approved by the stockholders, such amendment and the other amendments will be
effective as of January 1, 1997.
Currently, under Section 162(m) of the Code, the allowable deduction for
compensation paid or accrued with respect to the Chief Executive Officer and
each of the four other most highly compensated employees of a publicly held
corporation is limited to $1 million per fiscal year. Certain types of
compensation are exempted from this deduction limitation, including "qualified
performance-based compensation." The 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 Treasury Regulations promulgated
thereunder. Because one of the requirements for such qualification is
stockholder approval of certain material terms of a plan, the Company is
submitting the proposed amendment to change the maximum payment a participant
may receive under the Executive Incentive Plan for stockholder approval in order
to continue to be able to take advantage of the exemption provided in Section
162(m).
SUMMARY OF THE EXECUTIVE INCENTIVE PLAN
The following summary description of the Executive Incentive Plan, as
amended, is qualified in its entirety by reference to the full text of such
plan, a copy of which will be available at the meeting and may be obtained upon
written request directed to the Secretary of the Company.
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, 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 pursuant to the Executive Incentive Plan or any
instrument or
14
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 may also 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 "1934 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 the Executive Incentive Plan in such year. The
Company currently has 12 executive officers who are also considered to be
"officers" within the meaning of Section 16(a) of the 1934 Act. For 1996, nine
of these 12 executive officers were designated by the Compensation Committee to
participate in the Executive Incentive Plan. Such nine executive officers as a
group were awarded an aggregate of $4,272,400 for 1996 under the Executive
Incentive Plan. Included in this group were all of the officers named in the
Summary Compensation Table below, 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 and their respective "Target Awards" for that
year. The Compensation Committee shall also establish for each participant for
any such year one or more "Performance Thresholds" (pre-established, objective
performance goals which 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 lesser 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
which are to be the basis for any payments to any participant for that year. In
no event shall any participant receive any payment under the 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. Prior to being amended in February
1997, such formula provided for bonus payments in an amount not greater than (a)
a participant's annualized base salary, as determined by the Compensation
Committee, as of the last day of the year in respect of
15
which payments are being made, multiplied by (b) the participant's Target Award
for that year, multiplied by (c) the participant's "Maximum Award Percentage"
(defined as a percentage, which may be greater or lesser than 100%, with respect
to each year and with respect to each Performance Threshold). As amended, such
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 payment in an
amount not greater than the maximum payment a participant may receive for that
year under the Executive Incentive Plan, as described below. Such formula was
amended in order to provide maximum flexibility to the Compensation Committee
with respect to the amount of incentive payments payable under the Executive
Incentive 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 in excess of $1.5
million for any year. If the proposed amendment to the Executive Incentive Plan
is approved by the stockholders, the Executive Incentive Plan would provide 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, the term "Operating Earnings" would
mean 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 or losses, and
(iv) any other unusual or nonrecurring gains or losses which are separately
identified and quantified in the Company's financial statements, including
merger-related charges. If the proposed amendment had been in effect for 1996,
based on the Company's 1996 Operating Earnings of $667.7 million, the maximum
incentive payment payable under the Executive Incentive Plan for 1996 would have
been approximately $2,337,000.
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
16
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 retained in the employment of 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.
STOCKHOLDER APPROVAL. 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
proposal to amend the Executive Incentive Plan to change the maximum payment a
participant may receive thereunder. Proxies will be voted in favor of such
proposal unless otherwise specified. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE PROPOSAL TO AMEND THE EXECUTIVE INCENTIVE PLAN.
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, 1997. 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
stockholders. If the appointment of Ernst & Young LLP is not ratified by the
stockholders, 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.
Proxies will be voted in favor of ratifying this selection unless otherwise
specified. 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, 1997.
17
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 3, 1997 the beneficial ownership
(as defined in the rules of the Securities and Exchange Commission) of the
Company's Common Stock by Directors, 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.
SHARES
BENEFICIALLY
OWNED(1)(2)
------------
Arthur D. Collins, Jr......................................................... 4,000
Peter H. Coors................................................................ 4,442
John F. Grundhofer............................................................ 782,820(3)(4)
Roger L. Hale................................................................. 17,000
Delbert W. Johnson............................................................ 8,792
Norman M. Jones............................................................... 215,206(5)
Richard L. Knowlton........................................................... 13,839
Jerry W. Levin................................................................ 5,887
Kenneth A. Macke.............................................................. 21,394(6)
Marilyn Carlson Nelson........................................................ 37,596(7)
Edward J. Phillips............................................................ 8,386
James J. Renier............................................................... 18,937
S. Walter Richey.............................................................. 18,542(8)
Richard L. Robinson........................................................... 14,415(9)
Richard L. Schall............................................................. 29,942(10)
Walter Scott, Jr.............................................................. 838,874(11)
Richard A. Zona............................................................... 362,667(3)
Philip G. Heasley............................................................. 288,512(3)
Daniel C. Rohr................................................................ 218,932(3)
John M. Murphy, Jr............................................................ 210,295(3)
All Directors and executive officers as a group (27 persons).................. 3,522,962(12)
- ---------
(1) No Director or named executive officer beneficially owns more than 1% of
the outstanding Common Stock of the Company, and all Directors and
executive officers as a group beneficially own 2.6% of the outstanding
Common Stock.
(2) Includes the following shares subject to options exercisable within 60
days: Mr. Collins, 4,000 shares; Mr. Coors, 4,000 shares; Mr. Grundhofer,
530,032 shares; Mr. Hale, 0 shares; Mr. Johnson, 6,500 shares; Mr. Jones,
4,204 shares; Mr. Knowlton, 3,933 shares; Mr. Levin, 4,000 shares; Mr.
Macke, 0 shares; Mrs. Nelson, 6,500 shares; Mr. Phillips, 4,913 shares;
Dr. Renier, 4,381 shares; Mr. Richey, 6,500 shares; Mr. Robinson, 4,443
shares; Mr. Schall, 6,500 shares; Mr. Scott, 2,500 shares; Mr. Zona,
207,345 shares; Mr. Heasley, 124,882 shares; Mr. Rohr, 120,637 shares; and
Mr. Murphy, 143,794 shares.
18
(3) Includes the following shares held in the CAP: Mr. Grundhofer, 1,980
shares; Mr. Zona, 291 shares; Mr. Heasley, 3,593 shares; Mr. Rohr, 2,310
shares; and Mr. Murphy, 2,823 shares. Ownership information with respect
to shares held in the CAP is provided as of December 31, 1996, the most
recent date for which information is available. Voting of shares held in
the CAP 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 CAP. See "General
Matters--Voting, Execution and Revocation of Proxies" above.
(4) Includes 172,373 shares held in a family trust of which Mr. Grundhofer is
the trustee, as to which he shares voting and investment power, and 6,487
shares held in a foundation created by Mr. Grundhofer.
(5) Includes 23,497 shares held by Mr. Jones' wife and 2,832 shares held by
Mr. Jones' grandchildren, as to which he shares voting and investment
power.
(6) Excludes 500 shares held in a trust for the benefit of Mr. Macke's
children, as to which he has no voting or investment power and disclaims
beneficial ownership.
(7) Includes 30,879 shares held by two trusts of which Mrs. Nelson and members
of her family are beneficiaries.
(8) Excludes 100 shares held by Mr. Richey's wife, as to which he has no
voting or investment power and disclaims beneficial ownership.
(9) Includes 129 shares held by a partnership of which Mr. Robinson is a
general partner, as to which Mr. Robinson shares voting and investment
power.
(10) Includes 12,000 shares held in a family trust of which Mr. Schall is a
trustee.
(11) Includes 811,803 shares held by a corporation controlled by Mr. Scott, as
to which he shares voting and investment power and disclaims beneficial
ownership.
(12) Includes (i) 21,625 shares held in the CAP for the accounts of certain
executive officers as of December 31, 1996; and (ii) 1,458,874 shares
subject to options exercisable within 60 days.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 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 New York Stock Exchange 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, 1996, all Section 16(a) filing requirements applicable to the
Company's Directors, executive officers and greater-than-10%-beneficial owners
were complied with except as follows: (i) Philip G. Heasley, an executive
officer of the Company, donated shares of the Company's
19
Common Stock in two transactions in November 1995, which gifts should have been
timely reported on a Form 5, and (ii) William F. Farley, a former executive
officer of the Company, wrote covered call options on shares of the Company's
Common Stock in four transactions in June 1996 after his departure from the
Company, which transactions should have been timely reported on a Form 4. These
transactions were subsequently reported on appropriate forms filed by each of
them.
EXECUTIVE COMPENSATION
Report of the Compensation and Human Resources Committee
on Executive Compensation
TO OUR STOCKHOLDERS:
First Bank System, Inc.'s executive compensation philosophy emphasizes the
Company's commitment to long-term growth in stockholder value. In general:
- TOTAL COMPENSATION will be targeted at approximately the 70th percentile
of a group of comparable banking companies. The premium in targeted pay
over the 50th percentile will be primarily in the form of stock options.
- BASE SALARIES will be targeted approximately 10 percent below the 50th
percentile of the comparator group to minimize fixed expense and
emphasize the relationship of pay to performance.
- ANNUAL INCENTIVES will be targeted above the 50th percentile of the
comparator group such that the total of targeted base salary plus
targeted annual incentive will be equal to the 50th percentile.
- LONG-TERM AWARDS will be targeted above the 50th percentile of the
comparator group and will be primarily in the form of stock options and,
to a lesser extent, restricted stock.
Actual pay will be influenced by both competitive practice and the
Compensation and Human Resources Committee's assessment of performance against
several criteria, including measures of profitability, growth consistent with
long-range strategy, risk management, the development and involvement of people,
a continuing commitment to cultural diversity, and succession planning. No
formal weightings have been assigned to these factors.
ROLE OF THE COMMITTEE
The Compensation and Human Resources Committee of the Board of Directors
(the "Committee") seeks to maintain executive compensation policies which are
consistent with the Company's strategic business objectives and values. In
pursuing this goal, the Committee is guided by the following objectives:
- A significant portion of senior executives' compensation shall be
comprised of long-term, at-risk pay to focus management on the long-term
interests of stockholders.
20
- Executives' total compensation programs should emphasize pay that is
dependent upon meeting performance goals to strengthen the relationship
between pay and performance.
- Components of pay which are at risk should contain equity-based pay
opportunities to align executives' interests with those of stockholders.
- Executive compensation should be competitive to attract, retain, and
encourage the development of exceptionally knowledgeable and experienced
executives upon whom, in large part, the success of the Company depends.
The Committee is comprised of six non-employee Directors. The Committee
approves the design of executive compensation programs and assesses their
effectiveness in supporting the Company's compensation objectives. The Committee
also reviews and approves all salary arrangements and other remuneration for
executives, evaluates executive performance, and considers related matters.
The Company obtains competitive market data from an independent compensation
consultant comparing the Company's compensation practices to those of a group of
comparator companies. The Committee reviews and approves the selection of
companies used for compensation comparison purposes. This comparator group is
comprised of companies in the banking industry with which the Company competes
for executive talent and which are generally comparable with respect to business
activities. While the comparator group is not comprised of the same companies
contained in the peer group index under "Comparative Stock Performance" below,
all of the comparator companies are included in such peer group index. The
Committee believes that the companies used for compensation comparisons are a
representative cross-section of the companies included in the peer group index.
ELEMENTS OF THE COMPENSATION PROGRAM
The key elements of the Company's executive compensation program are base
salary, annual incentives, and long-term incentives. In determining each
component of compensation, the Committee considers an executive's total
compensation package. Consistent with the Company's policy of aligning pay with
performance, a greater portion of total targeted compensation is placed at risk
than the total targeted compensation typically placed at risk by companies in
the comparator group. In determining the total compensation package for
executives, the Committee has considered the performance of the Company's Common
Stock. In this regard, the Committee considers the performance of the Company's
Common Stock to be a favorable factor; however, no formal weighting has been
assigned to this factor. "Comparative Stock Performance" below includes the type
of information considered by the Committee in this regard.
POLICY WITH RESPECT TO SECTION 162(m)
Section 162(m) of the 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
21
stockholders' best interest to qualify certain of the Company's stock-based,
long-term incentives as performance-based compensation within the meaning of the
Code and thereby preserve the full deductibility of such long-term incentive
payments; the Committee believes that such qualification has been achieved. The
Committee has also concluded that it is in the Company's and stockholders' best
interest to continue to qualify payments under terms of the Executive Incentive
Plan as performance-based compensation within the meaning of the Code. To this
end, the Company is requesting stockholder approval at the meeting of a proposal
to amend the Executive Incentive Plan, as described above. See "Matters
Submitted to Vote--II. Amendment of the Company's Executive Incentive Plan."
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 1996, base salaries were below the 50th percentile market
level of the comparator group. This is consistent with the Company's strategic
objectives.
Each year, Mr. Grundhofer prepares a written self-appraisal of his
performance which is presented to the Board of Directors. Each Director is
invited to comment on Mr. Grundhofer's report and his performance is the subject
of an executive session of the Board. Subsequently, the Committee Chair prepares
a formal response which serves as Mr. Grundhofer's appraisal. The Committee
determines Mr. Grundhofer's salary for the coming year, and his base salary is
adjusted accordingly. In determining Mr. Grundhofer's base salary adjustment,
the Committee considers Mr. Grundhofer's execution of his overall responsibility
for the Company's financial performance, long-range strategy, capital
allocation, and management selection, retention, and succession. However, formal
weightings have not been assigned to these factors.
Pursuant to an employment agreement between Mr. Grundhofer and the Company,
Mr. Grundhofer received the annual base salary reported in the Summary
Compensation Table from December 1, 1994 through December 31, 1996. See
"Employment Contract" below. Mr. Grundhofer's base salary was raised by $130,000
to $750,000 effective January 1, 1997. This increase positions Mr. Grundhofer's
base salary below the 50th percentile of the comparator group, consistent with
the Company's executive compensation philosophy.
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.
22
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 targeted base pay, provides total direct
compensation which is approximately equal to the 50th percentile level among the
Company's compensation comparator companies for total direct compensation. The
Committee considers the targets it establishes to be achievable, but to require
above-average performance from each of the executives. Actual awards, if any,
are determined by the Committee based on its subjective assessment of each
executive's business unit and individual performance. The assessment focuses on
achievement of profitability, growth, risk management, and general management
objectives; however, formal weightings have not been assigned to these factors.
In 1996, the Company's targeted bonus level was above the 50th percentile
target level of the comparator group of companies, and overall total targeted
base pay plus bonus was equal to the 50th percentile. The Company's performance
in 1996 exceeded the target level of performance. Specifically, with respect to
profitability factors, the Company exceeded its goals for return on assets, net
income, net charge-offs, noninterest expense, and efficiency ratio. In addition,
in measuring the Company's performance relating to growth goals, the Committee
noted the Company's successful efforts to reposition its businesses to remain
competitive in a changing industry. Those successful efforts included the
integration of acquired financial institutions, the introduction of new
technology throughout the Company, the effective conversion of acquired banks'
services, the internal growth of key businesses, the development of people, and
strategic leadership. In analyzing the Company's risk management, the Committee
observed that the Company exceeded its goals with respect to nonperforming
assets. As a result, actual bonus awards exceeded the target level.
Mr. Grundhofer's targeted annual bonus is consistent with the Company's
policy of setting a targeted annual bonus sufficient to provide total direct
compensation which is approximately equal to the 50th percentile level of the
comparator group. Because the Company exceeded its target performance for 1996
based on the factors described in the preceding paragraph, Mr. Grundhofer's
actual bonus, as reported in the Summary Compensation Table, was significantly
above target, consistent with the goals of the Executive Incentive Plan.
LONG-TERM INCENTIVES
The Committee believes that long-term incentive compensation opportunities
should be dependent on stock-based measures to strengthen the alignment between
management's interests and those of the Company's stockholders. Furthermore, in
keeping with the policy of placing a significant portion of executives' total
pay at risk, the Committee sets targeted long-term incentive compensation above
the 50th percentile levels among the Company's compensation comparator
companies. During 1996, the Company granted stock options to most executives,
including the five named executive officers. The following describes the
Company's practices relative to each long-term incentive vehicle.
STOCK OPTIONS. Stock options, including reload stock options, are the
Company's primary long-term incentive vehicle. During 1996, the Company granted
both regular and reload stock options to most executives, including all of the
five named executive officers. Under the
23
1996 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 stockholder 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.
To emphasize the Company's pay-at-risk philosophy, as well as to further
enhance the alignment of management's interests with those of stockholders,
stock option awards for 1996, 1997, and 1998 were made in December 1996. 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 1996 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 1996, plus the number of shares withheld by the Company in payment of the
taxes arising from the exercises.
RESTRICTED STOCK. The 1996 Stock Incentive Plan also provides for the
granting of restricted stock to executives. However, as discussed previously,
the Company's primary form of long-term incentive is stock options. No grants of
restricted stock were made to the five named executive officers during 1996.
CONCLUSION
The Committee believes the Company's executive compensation policies and
programs effectively serve the interests of stockholders and the Company. The
Company's various pay vehicles are appropriately balanced to provide increased
motivation for executives to contribute to the Company's overall future success
and to enhance the Company's value for the stockholders' benefit.
Kenneth A. Macke (Chair)
Richard L. Knowlton
Jerry W. Levin
James J. Renier
S. Walter Richey
Richard L. Robinson
24
EMPLOYMENT CONTRACT
Effective January 30, 1995, the Company and Mr. Grundhofer entered into an
Employment Agreement (as amended to date, the "Employment Agreement"), with a
three-year term that, subject to notice of termination, automatically extends by
one year on each anniversary of the agreement. Under the Employment Agreement,
Mr. Grundhofer is entitled to receive an annual salary of not less than $620,000
and is entitled to participate in the Company's executive bonus program. Mr.
Grundhofer is entitled to participate in various benefit programs covering, and
to receive various personal benefits offered to, corporate executives of the
Company. The Company has agreed to provide Mr. Grundhofer with a $1 million life
insurance policy during the term of the Employment Agreement. Under the
Employment Agreement, Mr. Grundhofer is entitled to receive from the Company the
remainder of the payments intended to compensate him for payments and other
benefits which he would have been eligible to receive had he continued to be
employed by Wells Fargo & Company, his previous employer. Pursuant to the
Employment Agreement, certain of such payments may be paid on a deferred basis
over a 10-year period beginning in 2003 (with certain exceptions).
Mr. Grundhofer's Employment Agreement also provides severance benefits in
the event of termination of employment under certain circumstances. In the event
of termination of employment without "cause" or by Mr. Grundhofer with "good
reason" (as such terms are defined in the Employment Agreement), in addition to
compensation and benefits already earned, he will be entitled to receive: (a) a
lump sum payment equal to three-times annual salary plus target bonus potential,
(b) continuation of his participation in Company benefit and retirement plans
and continuation of the $1 million life insurance policy for a three-year
period, (c) continuation of personal benefits for a three-year period, (d)
immediate exercisability of all options and vesting of restricted stock that
would have become exercisable or vested during the remaining term of the
Employment Agreement if no such termination had occurred, (e) credit for three
additional years of service under the Company's Supplemental Executive
Retirement Plan, and (f) payment for individual outplacement counseling services
up to a maximum of $60,000. In the event the Company terminates Mr. Grundhofer's
employment with "cause," or he terminates employment without "good reason," Mr.
Grundhofer would forfeit all compensation and benefits following such
termination. In the event of termination of employment without "cause" or by Mr.
Grundhofer with "good reason" in anticipation of or within 24 months following a
change in control (as such term is defined in the Employment Agreement), the
following additional provisions will apply: (i) the bonus used to calculate the
lump sum payment under (a) above will be the greatest of Mr. Grundhofer's (1)
target bonus potential available on the date of termination, (2) bonus earned in
the last fiscal year prior to the date of termination, or (3) average bonus
earned in the last three fiscal years prior to the date of termination, (ii)
credit shall be given for five (instead of three) additional years of service
under (e) above, (iii) the Company will pay Mr. Grundhofer the full amount of
any long-term cash incentive award for any plan periods then in progress to the
extent not provided for in any Company long-term cash incentive plan or plans,
and (iv) the Company will pay Mr. Grundhofer the year-to-date pro-rata amount of
any annual cash incentive award to the extent not provided for in any Company
annual cash incentive plan or plans.
25
Mr. Grundhofer's Employment Agreement provides that the payments and
benefits which he is entitled to receive in the event of termination of his
employment will be reduced by certain amounts which he earns from other
employment or services during the three-year period following his termination of
employment with the Company. The Company has agreed to compensate Mr. Grundhofer
for certain taxes and penalties that may be imposed as a result of payments and
benefits which he receives in the event of termination of his employment after a
change in control.
SEVERANCE AGREEMENTS AND PLANS
The Company has entered into individual change in control severance
agreements with certain executive officers, including each of the executive
officers (other than Mr. Grundhofer) who are named in the Summary Compensation
Table below, providing for severance payments upon certain terminations of
employment in anticipation of or during the two-year period following a change
in control. Termination of employment must be by the Company other than for
"cause" or by the individual for "good reason," as such terms are defined in the
agreements. The agreements provide for a lump sum payment equal to three times
the terminated individual's annual salary plus average actual incentive pay for
the prior three years, continuation of certain benefits for up to three years,
credit for three additional years of service under the Company's retirement
plans and five additional years of service under the Company's Supplemental
Executive Retirement Plan, the payment of long-term cash incentive awards and
pro-rata annual cash incentive awards and individual outplacement services. The
Company has agreed to compensate such officers for certain taxes and penalties
resulting from payments and benefits under the severance pay agreement and other
arrangements. Mr. Grundhofer's Employment Agreement, as described above, sets
forth the terms of payments and benefits in the event of termination of Mr.
Grundhofer's employment in connection with a change in control. The Company also
maintains change in control severance plans covering a broad range of salaried
employees and providing for different levels of payments based on job
classification. The vesting of outstanding stock options accelerates and
restrictions on restricted stock lapse upon certain types of changes in control,
and upon termination of employment in connection with certain types of changes
in control, of the Company. Pursuant to the Company's Personal Retirement
Account, a broad-based retirement plan, vesting of accounts accelerates under
certain circumstances in connection with a change in control. Under the
Company's Capital Accumulation Plan, the Company's 401(k) Plan, partial year
matching contributions would be made under certain circumstances in connection
with a change in control.
26
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other highest paid executive officers of the
Company whose salary and bonus earned in 1996 exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($)(1) OPTIONS/SARS(#) COMPENSATION($)
- ---------------------------- ---- --------- ----------- ------------- ---------- ------------- -------------
John F. Grundhofer 1996 $ 620,000 $ 1,302,000 $ 144,106(2) $ 0 753,366 $ 64,169(3)
Chairman, President and 1995 620,000 1,085,000 124,342(2) 0 247,991 49,189
Chief Executive Officer 1994 601,667 1,085,000 97,110(2) 1,799,985 457,968 53,290
Richard A. Zona 1996 363,750 712,200 8,423(4) 0 330,804 26,808(5)
Vice Chairman--Finance 1995 340,000 595,000 8,423(4) 0 119,766 17,261
1994 280,416 595,000 --(4) 1,699,995 256,194 15,879
Philip G. Heasley 1996 324,792 635,200 7,669(4) 0 192,265 20,214(5)
Vice Chairman 1995 305,000 480,000 7,669(4) 0 139,000 14,072
1994 268,334 460,000 --(4) 1,300,002 170,170 13,056
Daniel C. Rohr 1996 272,917 336,800 8,725(4) 0 137,984 14,772(5)
Executive Vice President 1995 265,000 325,000 6,590(4) 0 133,745 12,857
1994 242,083 325,000 --(4) 200,013 146,815 12,302
John M. Murphy, Jr. 1996 248,333 306,200 4,118(4) 0 176,044 15,065(5)
Executive Vice President 1995 240,000 250,000 3,733(4) 0 45,471 14,852
1994 240,000 215,000 --(4) 0 132,650 14,485
- ---------
(1) The value of the restricted stock awards was determined by multiplying the
market value of the Company's Common Stock on the date of grant by the
number of shares awarded. Recipients receive dividends on, and have the
right to vote, shares of restricted stock. The named individuals held shares
of restricted stock as of December 31, 1996 with market values as follows:
Mr. Grundhofer, 68,245 shares valued at $4,657,721; Mr. Zona, 55,115 shares
valued at $3,761,599; Mr. Heasley, 42,994 shares valued at $2,934,341; Mr.
Rohr, 9,661 shares valued at $659,363; and Mr. Murphy, 3,600 shares valued
at $245,700. Restricted stock grants in 1994 to the named individuals vest
in January 2002 or earlier if the Company has achieved three years of
targeted return on assets relative to a peer group and three years of
targeted growth in earnings per share. The following number of shares were
granted in 1994: Mr. Grundhofer, 54,545 shares; Mr. Zona, 51,515 shares; Mr.
Heasley, 39,394 shares; Mr. Rohr, 6,061 shares; and Mr. Murphy 0 shares.
(2) Benefits received by Mr. Grundhofer include transportation-related expenses
of $55,276 in 1996, $41,711 in 1995, and $39,571 in 1994.
(3) Includes (a) imputed income in the amount of $15,830 arising from premiums
paid by the Company with respect to life insurance for the benefit of Mr.
Grundhofer; (b) amounts paid pursuant to the Company's flexible compensation
program (net of amounts used to
27
purchase benefits), $9,500 of which was applied to Mr. Grundhofer's account
in the CAP, and $34,339 of which was paid in cash; and (c) a matching
contribution made by the Company to Mr. Grundhofer's CAP account in the
amount of $4,500.
(4) The Company's incremental cost with respect to personal benefits of the
named individuals is not reported because the cost thereof is below the
amount required to be reported pursuant to Securities and Exchange
Commission rules.
(5) Includes (a) amounts paid pursuant to the Company's flexible compensation
program (net of amounts used to purchase benefits), of which the following
amounts were applied to the individual's account in the CAP: Mr. Zona,
$9,500; Mr. Heasley, $9,500; Mr. Rohr, $9,500; and Mr. Murphy, $9,500; and
the following amounts were paid in cash: Mr. Zona, $12,808; Mr. Heasley,
$6,214; Mr. Rohr, $772; and Mr. Murphy, $1,065; and (b) matching
contributions made by the Company to each of the named individuals' CAP
accounts in the amount of $4,500.
28
STOCK OPTIONS
The following tables summarize stock option grants and exercises during 1996
to or by the Chief Executive Officer and the executive officers named in the
Summary Compensation Table above, and the values of options granted during 1996
and held by such persons at the end of 1996.
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1996
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
- ---------------------------------------- ------------- ------------- ----------- -------------
John F. Grundhofer...................... 78,692(1) $ 59.750 1/30/00
9,344(1) 59.750 2/19/01
16,896(1) 59.750 1/15/02
15,102(1) 59.750 1/19/03
85,605(1) 59.750 1/19/04
11,108(1) 64.750 2/19/01
11,989(1) 64.750 1/15/02
28,331(1) 64.750 1/19/03
161,299(1) 64.750 1/19/04
335,000(2) 69.875 12/19/06
-------------
753,366 8.8%
Richard A. Zona......................... 462(1) 59.625 9/17/01
15,328(1) 59.625 2/19/02
8,766(1) 59.625 2/16/03
68,628(1) 59.625 1/19/04
1,646(1) 60.125 1/19/04
6,459(1) 65.375 2/19/01
2,357(1) 65.375 9/17/01
14,621(1) 65.375 2/19/02
5,596(1) 65.375 2/16/03
76,941(1) 65.375 1/19/04
130,000(2) 69.875 12/19/06
-------------
330,804 3.9%
Philip G. Heasley....................... 5,005(1) 59.625 2/19/02
6,175(1) 59.625 2/16/03
48,335(1) 59.625 1/19/04
2,858(1) 64.750 2/16/03
9,892(1) 64.750 1/19/04
120,000(2) 69.875 12/19/06
-------------
192,265 2.2%
Daniel C. Rohr.......................... 2,982(1) 59.625 2/16/03
31,235(1) 59.625 1/19/04
2,858(1) 64.750 2/16/03
25,909(1) 64.750 1/19/04
75,000(2) 69.875 12/19/06
-------------
137,984 1.6%
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
---------------------------------------------------------
5% ($) 10% ($)
--------------------------- ---------------------------
STOCK STOCK
NAME PRICE VALUE PRICE VALUE
- ---------------------------------------- ----------- ------------- ----------- -------------
John F. Grundhofer...................... $ 71.85 $ 952,173 $ 85.66 $ 2,038,910
75.66 148,663 94.77 327,227
79.06 326,262 103.26 735,145
83.05 351,877 113.69 814,602
87.21 2,350,713 125.06 5,590,863
80.02 169,619 97.92 368,452
83.61 226,113 106.69 502,819
87.84 654,163 117.47 1,493,610
92.23 4,432,497 129.22 10,398,947
113.82 14,721,575 181.24 37,307,275
Richard A. Zona......................... 77.67 8,337 99.95 18,630
79.32 301,885 104.13 682,173
83.25 207,097 114.43 480,421
87.07 1,883,495 124.92 4,481,065
87.67 45,339 125.61 107,788
80.71 99,049 98.68 215,117
82.99 41,519 104.19 91,487
84.75 283,282 108.55 631,262
88.94 131,870 119.29 301,708
93.03 2,127,803 130.22 4,989,239
113.82 5,712,850 181.24 14,477,450
Philip G. Heasley....................... 79.24 98,173 103.93 221,747
83.21 145,637 114.32 337,742
87.03 1,324,621 124.80 3,150,234
88.14 66,849 118.26 152,932
92.23 271,832 129.22 637,737
113.82 5,273,400 181.24 13,363,800
Daniel C. Rohr.......................... 83.21 70,330 114.32 163,100
87.03 855,995 124.80 2,035,741
88.18 66,963 118.37 153,246
92.23 711,979 129.22 1,670,353
113.82 3,295,875 181.24 8,352,375
29
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 ($/SH) DATE
- ---------------------------------------- ------------- ------------- ----------- -------------
John M. Murphy, Jr...................... 2,980(1) $ 59.750 2/16/03
37,886(1) 59.750 1/19/04
14,349(1) 64.375 2/19/01
14,716(1) 64.375 2/19/02
5,589(1) 64.375 2/16/03
20,615(1) 64.375 1/19/04
1,298(1) 64.375 2/16/97
1,757(1) 64.375 2/15/98
1,854(1) 64.375 2/13/99
75,000(2) 69.875 12/19/06
-------------
176,044 2.1%
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
---------------------------------------------------------
5% ($) 10% ($)
--------------------------- ---------------------------
STOCK STOCK
NAME PRICE VALUE PRICE VALUE
- ---------------------------------------- ----------- ------------- ----------- -------------
John M. Murphy, Jr...................... $ 83.38 $ 70,417 $ 114.56 $ 163,334
87.21 1,040,350 125.06 2,474,335
79.52 217,316 97.26 471,867
83.49 281,296 106.99 627,122
87.63 129,972 117.58 297,363
91.65 562,274 128.35 1,318,845
65.39 1,317 66.37 2,590
68.66 7,529 73.01 15,172
72.06 14,248 80.23 29,395
113.82 3,295,875 181.24 8,352,375
- ---------
(1) Represent reload stock options. Optionees may tender previously acquired
shares of the Company's Common Stock in payment of the exercise price of a
stock option and may tender previously acquired shares or request the
Company to withhold sufficient shares to pay the taxes arising from the
exercise. The Company currently grants reload stock options to purchase the
number of shares thus tendered and/or withheld. The reload option will have
an exercise price equal to the closing price of the Common Stock on the date
of the transaction, will be exercisable six months from the date of grant
and will expire on the scheduled expiration date of the exercised option.
All such options become fully exercisable in connection with certain types
of changes in control of the Company.
(2) The options were granted on December 19, 1996, and one-third of the total
grant becomes exercisable on April 15, 1997. An additional one-third becomes
exercisable on June 30, 1998 and the final one-third on September 30, 1999
if the Company meets certain standards based upon growth in earnings per
share and upon the Company's return on assets relative to the Company's peer
bank holding companies. If the standards are not met for a particular year,
the portion of the grant which would have become exercisable as a result of
that year's performance will become exercisable on January 1, 2002. All such
options contain reload features as described in footnote (1) above and
become fully exercisable in connection with certain types of changes in
control of the Company.
30
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT 12/31/96(#) AT 12/31/96($)
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE) UNEXERCISABLE)(1)
- ------------------------- ----------- ------------- ---------------------- -------------------
John F. Grundhofer 543,860 $12,890,888 205,639/547,727 $1,747,931/$744,544
Richard A. Zona 237,845 4,318,690 58,038/235,974 677,532/304,675
Philip G. Heasley 110,385 1,879,374 72,132/132,750 926,034/44,625
Daniel C. Rohr 75,309 1,412,725 66,870/103,767 1,125,771/100,684
John M. Murphy, Jr. 133,428 3,844,028 59,914/135,178 664,034/233,189
- ---------
(1) "Value" has been determined based upon the difference between the per-share
option exercise price and the market value of the Common Stock at the
applicable measurement date.
PERSONAL RETIREMENT ACCOUNT
Effective July 1, 1986, the Company adopted a career average pay defined
benefit pension plan known as the "Personal Retirement Account" ("PRA").
Essentially all full-time employees of the Company and its subsidiaries are
eligible to participate in PRA. As of December 31, 1996, 10,016 employees were
participating in PRA. Under the terms of PRA, a separate "account" is maintained
for each employee participating in the plan. Each year, credits of from 3% to 6%
of the participant's total compensation for that year plus 3% of the
participant's total compensation in excess of $5,000 for that year are made to
the account for the participant. The basic percentage varies depending upon the
participant's number of years of service. If the participant has less than ten
years of service, the percentage is 3%. If the participant has ten but less than
twenty years of service, the percentage is 4%. If the participant has twenty but
less than twenty-five years of service, the percentage is 5%. If the participant
has twenty-five or more years of service, the percentage is 6%. Interest is
credited to such accounts. In addition, the plan provides certain special
additional credits for the accounts of participants who had at least five years
of service as of January 1, 1986 and had a total age plus years of service equal
to fifty or greater. At the time of normal or early retirement, the accumulated
account of the participant is converted into one of several available forms of
lifetime annuities or is distributed in a single lump sum to the participant. In
the event of the death of the participant, the account balance is payable to
survivors of the participant. Plan benefits become 100% vested after five years
of service, subject to accelerated vesting under certain circumstances in
connection with a change in control of the Company.
The Company maintains an unfunded deferred compensation plan known as the
Defined Benefit Excess Plan to provide retirement benefits which would have been
provided under the normal formulas of the PRA but for limitations established
under the Code. Such
31
plans are recognized and authorized under provisions of the Employee Retirement
Income Security Act of 1974, as amended.
Based upon a number of assumptions, including retirement at age 65, the
following estimated annual payments would be made upon retirement pursuant to
the PRA and the Defined Benefit Excess Plan to the following individuals: Mr.
Grundhofer, $284,571; Mr. Zona, $285,293; Mr. Heasley, $464,782; Mr. Rohr,
$174,182; and Mr. Murphy, $133,186.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company's Supplemental Executive Retirement Plan ("SERP") is available
to certain executives with not less than five years of service at the time of
termination of employment or death. The SERP generally provides retirement
benefits at age 65 equal to 55% of an executive's average base salary and annual
incentive awards during his or her last three years of employment. Executives
will receive credit for an additional five years of service at age 60 and may
receive retirement benefits after age 60 which are equal to the actuarial
equivalent present value of the retirement benefit which would be payable at age
65. Payments under the SERP are reduced by other sources of retirement income,
including benefits under the PRA, the Defined Benefit Excess Plan, a portion of
social security benefits and estimated benefits provided by other employers.
Lesser benefits are available in the event of termination prior to age 65. The
SERP provides for payment of benefits in the form of a single lump sum or
annuity payments. A participant who has not yet begun to receive payments or
benefits under the SERP may elect to receive a distribution of his or her entire
SERP benefit under certain circumstances if a change in control has occurred,
subject to a 5% forfeiture of benefits to be received thereunder.
Based upon a number of assumptions, including retirement at age 65, the
following estimated annual payments would be made upon retirement pursuant to
the SERP to the following individuals: Mr. Grundhofer, $539,032; Mr. Zona,
$354,664; Mr. Heasley, $394,603; Mr. Rohr, $201,362; and Mr. Murphy, $163,470.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the following individuals served as members of the Compensation
and Human Resources Committee: Kenneth A. Macke (Chair), Richard L. Knowlton,
Jerry W. Levin, Marilyn Carlson Nelson, James J. Renier, S. Walter Richey and
Richard L. Robinson. During 1996, banking subsidiaries of the Company engaged in
loan transactions with members of the Compensation and Human Resources Committee
and one or more of their affiliates. Such loans were made in the ordinary course
of business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
32
COMPARATIVE STOCK PERFORMANCE
Set forth below are line graphs comparing the cumulative total stockholder
return on the Company's Common Stock over a five-year and a seven-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, 1991 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 stockholder return. The Company believes that the second graph, which
provides a seven-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
FBS S&P 500 KBW 50
1991 100 100 100
1992 121 108 127
1993 137 118 134
1994 153 120 128
1995 236 165 204
1996 333 203 289
33
COMPARISON OF SEVEN-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
FBS S&P 500 KBW 50
1989 100 100 100
1990 83 97 72
1991 159 126 114
1992 193 136 145
1993 217 150 153
1994 243 152 145
1995 375 209 232
1996 529 257 329
CERTAIN TRANSACTIONS
STOCK REPURCHASES
During 1996 and as part of its authorized stock repurchase program, the
Company purchased shares of its Common Stock held by certain members of
management and by Corporate Advisors, L.P., a 5% stockholder of the Company
during part of 1996, as follows: (i) on April 12, 1996 and prior to his election
as a Director of the Company, the Company purchased 45,000 shares from Walter
Scott, Jr. for an aggregate purchase price of $2,683,125; (ii) on April 18, July
17 and October 21, 1996, the Company purchased 20,000, 20,000 and 10,000 shares,
respectively, from Mr. Grundhofer, for aggregate purchase prices of $1,195,000,
$1,157,500 and $643,750, respectively; (iii) on November 6, 1996, the Company
purchased 1,000 shares from John R. Danielson, an executive officer of the
Company, for an aggregate purchase price of $66,250; and (iv) the Company
purchased an aggregate of 2,000,000 shares from Corporate Advisors, L.P., either
in its capacity as general partner of Corporate Partners, L.P., as general
partner of Corporate Offshore Partners, L.P., or as investment manager for The
State Board of Administration of Florida, in six transactions in 1996 for an
aggregate purchase price of $129,875,000. Shares repurchased in the foregoing
transactions were purchased at fair market value based on the current market
price of the Common Stock on the New York Stock Exchange on the date of the
applicable transaction.
34
LOANS TO MANAGEMENT
During 1996, banking subsidiaries of the Company engaged in loan
transactions with certain of the Company's Directors, executive officers and one
or more of their affiliates. Such loans were made in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
In accordance with the Company's policies regarding loans to employees,
certain Directors and executive officers of the Company have obtained loans from
FBS Mortgage Corporation, a mortgage banking subsidiary of the Company ("FBS
Mortgage"). These loans are evidenced by notes secured by first mortgages on
their residences and either have been, or may be, sold to investors in the
secondary real estate mortgage market. FBS Mortgage ceased originating mortgage
loans effective as of May 4, 1996. In addition, pursuant to the Company's Stock
Option Loan program, Directors and active employees holding stock options are
eligible to receive loans from the Company to be used for the exercise of stock
options. Loans bear interest at the applicable federal rates in effect under
Section 1274(d) of the Code at the time the loan is made. The following tables
show as to the Company's Directors and executive officers: (i) the outstanding
balances of mortgages held by the Company or one of its affiliates and stock
option loans, if any, as of December 31, 1996, (ii) the largest outstanding
balances of such loans at any time during 1996, and (iii) the rate of interest
applicable to such loans.
MORTGAGE LOANS
MAXIMUM
MORTGAGE BALANCE OF MORTGAGE
BALANCE AT MORTGAGE INTEREST
DECEMBER 31, 1996 DURING 1996 RATE(1)
------------------ ------------ -----------
William F. Farley(2).................................... $ 556,817 $ 562,214 7.750%
Norman M. Jones......................................... 57,693 60,198 5.750%
John M. Murphy, Jr...................................... 474,279 478,525 7.375%
- ---------
(1) The interest rates shown are all adjustable pursuant to the terms of
adjustable rate mortgages.
(2) Mr. Farley, a former executive officer of the Company, resigned as an
employee effective as of April 30, 1996.
35
STOCK OPTION LOANS
STOCK OPTION LOAN MAXIMUM BALANCE OF
BALANCE AT STOCK OPTION LOAN STOCK OPTION LOAN
DECEMBER 31, 1996 DURING 1996 INTEREST RATE
------------------ ------------------- -------------------
William F. Farley....................... $ 0 $ 452,055 5.47%
William F. Farley....................... 0 179,631 7.21%
David P. Grandstrand.................... 78,441 78,441 5.95%
John F. Grundhofer...................... 768,779 921,245 5.80%
Philip G. Heasley....................... 465,161 465,161 5.47%
Philip G. Heasley....................... 1,256,515 1,256,515 6.98%
Philip G. Heasley....................... 1,342,134 1,342,134 5.80%
John M. Murphy, Jr...................... 0 92,153 5.47%
David J. Parrin......................... 200,191 200,191 5.65%
Daniel C. Rohr.......................... 630,287 630,287 4.94%
Daniel C. Rohr.......................... 1,032,879 1,032,879 6.98%
Robert H. Sayre......................... 152,353 152,353 5.47%
Robert H. Sayre......................... 184,931 184,931 7.21%
Richard A. Zona......................... 595,790 604,024 5.47%
POLICY ON CONFIDENTIAL VOTING
The Company has procedures to ensure that (i) all proxies, ballots and
voting tabulations that identify stockholders are kept permanently confidential,
except as disclosure may be required by federal or state law or expressly
requested by a stockholder; and (ii) the receipt and tabulation of proxy cards
are performed by an independent third party.
1998 STOCKHOLDER PROPOSALS
In order for stockholder proposals for the 1998 Annual Meeting of
Stockholders to be eligible for inclusion in the Company's Proxy Statement, they
must be received by the Company at its principal office in Minneapolis,
Minnesota on or before November 18, 1997.
AVAILABILITY OF FORM 10-K
The Company's Annual Report on Form 10-K detailing its activities and
financial results during 1996 is included as a part of the Company's 1996 Annual
Report to Stockholders. If a stockholder requests copies of any exhibits to such
Form 10-K, the Company will require the payment of a fee covering its reasonable
expenses in furnishing such exhibits. Any such requests should be addressed to
Investor and Corporate Relations, First Bank System, Inc., P.O. Box 522,
Minneapolis, Minnesota 55480.
By Order of the Board of
Directors
/s/ Lee R. Mitau
Lee R. Mitau
SECRETARY
Dated: March 18, 1997
36
[MAP OF DOWNTOWN MINNEAPOLIS]
APPENDIX
FIRST BANK SYSTEM, INC.
EXECUTIVE INCENTIVE PLAN
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 be 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.
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 eliminate (1) the cumulative effect 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 law, to (a) establish,
amend,
-2-
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
-3-
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 payment 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-
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 or 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.
-5-
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 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
qualify all compensation paid hereunder as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.
-6-
[LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST BANK
SYSTEM, INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 24, 1997
The undersigned hereby appoints Susan E. Lester, Lee R. Mitau and Richard A.
Zona as proxies (each with power to act alone and with power of substitution)
to vote as designated herein, all shares of stock the undersigned is entitled to
vote at the Annual Meeting of Stockholders of First Bank System, Inc. to be held
on April 24, 1997, and at any adjournments thereof, on those matters referred to
in the Proxy Statement. The proxies are authorized in their discretion to vote
upon such other business as may properly come before the meeting.
This Proxy cannot be voted unless it is properly signed and returned. If
properly signed and returned, this Proxy will be voted as designated by the
stockholder. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF ALL NOMINEES FOR DIRECTOR, FOR PROPOSALS 2 AND 3, AND IN THE
DISCRETION OF THE NAMED PROXIES ON ALL OTHER MATTERS.
The nominees for Director are Peter H. Coors, Norman M. Jones, S. Walter
Richey, Richard L. Robinson and Walter Scott, Jr.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD ON THE REVERSE SIDE AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
EARN WORLDPERKS-Registered Trademark- MILES WITHOUT FLYING.
There are lots of ways to earn travel awards in the Northwest Airlines
WorldPerks-Registered Trademark- frequent flyer program. Flying is one. The
easiest way to earn WorldPerks miles on the ground is to charge all your
purchases with the First Bank WorldPerks Visa-Registered Trademark- Card.
That's because it's the only Visa card that lets you earn miles every time
you use it. So instead of paying with cash or a check, just charge your
purchases and watch your WorldPerks miles quickly add up - miles that can help
you fly on Northwest Airlines, KLM Royal Dutch Airlines or other WorldPerks
partner airlines.
The WorldPerks Visa card is accepted at more than 12 million locations
worldwide, so there's no limit to the ways you can earn miles. Use it to pay
for gasoline, groceries, or school tuition. Charge medical and dental
expenses, even a down payment on a new car! The miles are automatically
credited to your WorldPerks account every month.
So whether you're buying golf balls or garden supplies, don't miss another
opportunity to earn WorldPerks miles. Apply today by calling 1-800-360-2900
Ext 1525 between 7 a.m. and 10 p.m. CST, seven days a week. We'll even get
you started with 1,000 Bonus Miles the first time you use your card!
[ART: PICTURE OF CREDIT CARDS]
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, AND 3.
VOTE FOR WITHHOLD
all nominees (except AUTHORITY
as marked to the con- to vote for all
trary below nominees
1. Election of Directors (See Reverse) / / / /
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approve the proposal to amend the Company's / / / / / /
Executive Incentive Plan.
3. Ratify the selection of the firm of Ernst & / / / / / /
Young LLP as independent auditors.
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears on this Proxy Card. Joint owners should
each sign. If signed by an attorney, executor, guardian or in some other
capacity or as officer of a corporation, please add title as such. Please
sign, date and return this Proxy Card promptly using the enclosed envelope.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGNATURE(S) DATE
- -------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
TURN YOUR GROCERIES INTO WORLDPERKS-Registered Trademark- MILES.
Every time you use the First Bank WorldPerks Visa-Registered Trademark- Card,
you earn miles that can help you fly on Northwest Airlines, KLM Royal Dutch
Airlines and other qualified WorldPerks partner airlines. Check the chart
below to see how many additional miles you can earn each month - just by
using the WorldPerks Visa Card instead of cash or a check!
Don't miss another mile! Apply for the First Bank WorldPerks Visa Card today
by calling 1-800-360-2900, EXT. 1525, between 7 a.m. and 10 p.m. CST, seven
days a week. We'll even get you started with 1,000 Bonus Miles the first time
you use your card!
Bonus Miles will be awarded when the first transactions post to your
WorldPerks Visa Account. Please allow 4-6 weeks for Bonus Miles to be
credited to your WorldPerks Account. The creditor and issuer of the First
Bank WorldPerks Visa card is First Bank of South Dakota (National
Association). The card is available to U.S. residents only. Bank Card checks,
ATM disbursements and other cash advances do not earn mileage credit.
Participation in WorldPerks is subject to the terms and conditions in the
WorldPerks Membership and Benefits Guide. Northwest Airlines is solely
responsible for the redemption and fulfillment of WorldPerks miles. Free
seats are subject to availability. Northwest may change the WorldPerks
program rules, program partners, regulations, benefits, conditions of
participation or mileage levels, in whole or in part, at any time with or
without notice, even though changes may affect the value of mileage or
Fly-Write-Service Mark-certificates already accumulated.
[ART: Chart showing miles accumulated with monthly purchases.]