EXHIBIT 2
INFORMATION REGARDING THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
The Corporation's Board of Directors has six standing committees:
Executive, Audit, Compensation, Compliance, Credit and Nominating. Except for
the Executive and Compliance Committees, each of these committees is composed of
members who are not officers or employees of the Corporation or its
subsidiaries. The membership and principal responsibilities of those committees
are described below. The Management Advisory Committee, a standing committee
which met twice during 1994, was dissolved on May 4, 1994. Members of the
Management Advisory Committee during 1994 were William F. Kieschnick (Chairman),
John E. Bryson, George M. Keller and Richard J. Stegemeier.
Executive Committee
Members: Edward M. Carson (Chairman), William F. Kieschnick, William F.
Miller, J. J. Pinola, Forrest N. Shumway and William E. B. Siart.
Between meetings of the Board of Directors, the Executive Committee has
all powers which may be delegated to it under Delaware law. In general, the
Executive Committee may supervise the management of all business of the
Corporation except for matters which by law specifically require the action of
the full Board or the stockholders. The Executive Committee did not meet during
1994.
Audit Committee
Members: Don C. Frisbee (Chairman), John E. Bryson, Ralph P. Davidson,
Thomas L. Lee and Daniel M. Tellep.
The Audit Committee reviews with the independent public accountants the
scope and results of the annual audit, monitors the adequacy of the
Corporation's system of internal controls and procedures, oversees the
Corporation's internal audit activities, recommends the selection of the
independent public accountants subject to approval of the Board and ratification
by the stockholders, and meets periodically with representatives of bank
regulatory agencies to discuss the condition of the Corporation and the
subsidiary banks. Mary M. Gates served as a member of the Audit Committee until
her death in June 1994. During 1994, the Audit Committee met six times.
Compensation Committee
Members: George M. Keller (Chairman), John E. Bryson, William F.
Kieschnick, Richard J. Stegemeier and Daniel M. Tellep.
The Compensation Committee reviews and approves the compensation of all
officers whose salary exceeds $150,000 per year other than officers who are also
Directors, whose salaries are fixed by the Board of Directors. This Committee
administers the several
performance stock plans of the Corporation, providing for the award of stock,
stock options and other derivative securities. The Committee also administers
and makes awards under the Corporation's Executive Incentive Plan, Regional
Executive Incentive Plan and Management Incentive Plan, and, if approved by the
stockholders at the Annual Meeting of Stockholders, the new Corporate Executive
Incentive Plan and the 1995 Performance Stock Plan. It also approves benefit
plans and programs for the employees of the Corporation and its subsidiaries.
During 1994, the Compensation Committee met seven times.
Compliance Committee
Members: William F. Miller (Chairman), Jewel Plummer Cobb, Myron Du Bain
and William E. B. Siart.
The Compliance Committee reviews the Corporation's compliance program,
the laws and regulations governing its activities, the Corporation's response to
changes in laws and regulations, and management reports on the effectiveness of
subsidiaries' compliance activities. The Compliance Committee met five times
during 1994.
Credit Committee
Members: Myron Du Bain (Chairman), William F. Miller, J. J. Pinola and
Steven B. Sample.
The Credit Committee reviews and approves all appropriate credit
policies and Risk Management standards by which the Corporation's credit process
is managed. This Committee reviews sufficient information on a regular basis to
ensure that the credit process is managed consistent with the Corporation's
policies and regulatory and accounting standards; meets periodically with
representatives of bank regulatory agencies to discuss the condition of the
Corporation and the subsidiary banks; reviews management's evaluation of the
Corporation's credit risk elements and performance objectives; reviews, on a
quarterly basis, management's evaluation of the Corporation's consolidated
Allowance for Credit Losses; and reviews with the Corporation's independent
public accountants any report or opinion related to the credit Risk Management
process of the Corporation, including the adequacy of the Allowance. The
Committee also reviews and approves the Corporation's independent credit review
program and, on a regular basis, receives reports and recommendations made by
the Corporation's Senior Credit Review Officer to ensure that the program is
managed consistent with standards. The Credit Committee met five times during
1994.
Nominating Committee
Members: Richard J. Stegemeier (Chairman), Ralph P. Davidson, Myron Du
Bain, George M. Keller, Steven B. Sample and Forrest N. Shumway.
The Nominating Committee considers and reviews the qualifications of
potential nominees for Director and recommends to the Board of Directors a slate
of nominees for election as
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Directors at the Annual Meeting of Stockholders and, when vacancies occur,
candidates for election by the Board of Directors. The Committee will consider
nominees recommended by stockholders. Such recommendations for nominees for
election at the 1996 Annual Meeting should be submitted in writing to the
Committee in care of the Secretary of the Corporation at its address set forth
on the first page of this Proxy Statement. During 1994, the Nominating Committee
met one time.
Under the Corporation's Bylaws, nominations of persons for election to the
Board of Directors may be made at a meeting of stockholders by any stockholder
of the Corporation, provided that the Secretary of the Corporation receives
written notice not less than thirty (30) days nor more than sixty (60) days
prior to the meeting. If less than forty (40) days' notice or prior public
disclosure of the date of the meeting is given or made by the Corporation to
stockholders, the notice of a nomination must be received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Notices of
nominations must state the nominee's name, age, business and residential
addresses and principal occupation or employment. The notice must also include
the class and number of shares of the Corporation beneficially owned by such
nominee and any other information about the nominee required to be disclosed in
solicitations for proxies for the election of directors pursuant to Regulation
14A under the Securities Exchange Act of 1934. In addition, the notice must
state the name and record address of the nominating stockholder and the class
and number of shares of the Corporation beneficially owned by the stockholder.
The Board of Directors believes that this notification procedure gives the Board
and the stockholders a better opportunity to consider the qualifications of
nominees for Director.
DIRECTORS' FEES AND OTHER COMPENSATION
Directors who are salaried officers of the Corporation receive no fees as
Directors of the Corporation. All other Directors are paid an annual retainer
for Board service of $20,000, and an attendance fee of $1,000 and $600 for each
Board and committee meeting attended, respectively. Directors are also
reimbursed for any expenses incurred in connection with attendance at regular or
special meetings of the Board or any of its committees. The Chairmen of the
standing committees are paid an additional $5,000 annual retainer. The
Corporation has a standard arrangement pursuant to which Directors may elect to
defer all or part of their Directors' fees. During 1994 Messrs. Bryson, Du Bain,
Keller and Dr. Sample deferred the annual retainer and all attendance fees.
During 1994 the Corporation continued to provide Mr. Pinola, as former
Chairman of the Board and Chief Executive Officer, with certain services and
property, resulting in imputed income to him of approximately $15,511. The
Corporation paid Mr. Pinola a tax gross-up amount of approximately $18,096 in
connection with such imputed income.
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DIRECTORS' RETIREMENT PLAN
The Corporation adopted the First Interstate Bancorp Retirement Plan for
Directors, effective January 1, 1988, to provide retirement benefits to eligible
Directors who have not served as while being employed by the Corporation or any
of its subsidiaries, and who retire from Board service with at least five years
of service as a Director. Each eligible Director is entitled to an annual
retirement benefit equal to the annual retainer for Directors as in effect at
the time of the eligible Director's resignation or retirement, or the Director
may elect, not less than one year prior to retirement, to receive a lump sum
payment upon retirement. Upon attainment of the later of age 65 or retirement,
an eligible Director will receive one year of retirement payments for each year
of service as an outside Director, with a maximum payment period of 20 years and
with certain spousal rights in the event of death.
1991 DIRECTOR OPTION PLAN
The First Interstate 1991 Director Option Plan ("Director Plan") was
authorized by the Board of Directors on October 15, 1990, and approved by the
Corporation's stockholders on April 19, 1991. A total of 200,000 shares of
Common Stock has been reserved for issuance under the Director Plan, which
provides for the non-discretionary granting of non-qualified options to purchase
Common Stock to Directors who have not served as Directors while being employed
by the Corporation or any of its subsidiaries. Each option grant is exercisable
in its entirety one year from its date of grant. The Director Plan is designed
to operate automatically and not require administration. To the extent that
administration is necessary, the Director Plan is administered by the
Compensation Committee of the Board of Directors.
The purchase price of the Common Stock covered by each option is 100% of
the fair market value of the stock on the date of the option grant. The options
are generally non-transferable. Each option has a termination date, but in any
event, all options granted under the Director Plan terminate upon the first to
occur of the following events: (i) the expiration of ten years from the date the
option is granted; (ii) the expiration of three months from the date an optionee
ceases to serve as a Director for any reason other than death, disability or
retirement eligibility; (iii) the expiration of one year from the date an
optionee ceases to serve as a Director of the Corporation because of disability
or death; (iv) the expiration of three years from the date an optionee ceases to
serve as a Director of the Corporation if the Director is eligible for
retirement benefits under the First Interstate Bancorp Retirement Plan for
Directors; or (v) the termination of the Director Plan pursuant to its terms.
Upon first being elected, each eligible Director is awarded an option to
purchase 5,000 shares of Common Stock. Thereafter, on the first business day
following each annual stockholders meeting of the Corporation, each eligible
Director is granted an option to purchase 1,000 shares of Common Stock.
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INSURANCE AGREEMENTS FOR DIRECTORS
The Corporation Purchased universal life insurance policies on the lives
of outside Directors, except for Messrs. Lee and Davidson and Mrs. Gates. The
death benefits of the policies depend on the length of time a Director has
served and do not exceed $200,000 (except in the case of Mr. Pinola whose death
benefit is $2,000,000). The Corporation will continue to pay the premium on such
policies for the period the Director remains a member of the Board. The
Directors have entered into "split-dollar" life insurance agreements which
provide that a Director will become fully entitled to the Policy upon the
occurrence of certain events, including continuation of service to a future date
and resignation for good reason following a change in control. If a Director
becomes entitled to the policy, the cash value of the policy reduces the payment
of benefits under the Directors; Retirement Plan and deferrals of Director's
fees. During 1994, the Directors covered by these insurance agreements received
imputed income ranging from $30 to $13,160 and tax gross-up amounts ranging from
$28 to $12,463 relating to such imputed income. The varying amounts were due to
factors such as the Director's age and length of service.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1994, each incumbent Director of the Corporation attended at least
75% of the meetings of the Board of Directors and the committees on which he or
she served, with the exception of Mr. Frisbee. The Board of Directors held ten
meetings during the year 1994.
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BENEFICIAL OWNERSHIP OF THE CORPORATION'S SECURITIES
BY MANAGEMENT
The following table sets forth the number of shares of each class of
equity securities of the Corporation beneficially owned as of February 21, 1995
by each Director and executive officer named in the Summary Compensation Table
and by all Directors and executive officers as a group, with the exception of
shares held in the Employee Savings Plan, which are reported as of December 31,
1994. For the purposes of this Proxy Statement, beneficial ownership 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.
PERCENT
COMMON STOCK TOTAL OF
COMMON OPTION COMMON COMMON
NAME OF BENEFICIAL OWNER(1) STOCK(2) SHARES(3) STOCK STOCK
--------------------------- -------- --------- ----- -----
John E. Bryson(4)(5)...................... 1,140 6,500 7,640 *
Edward M. Carson(4)(6).................... 31,644 223,750 255,394 *
Dr. Jewel Plummer Cobb.................... 1,776 6,514 8,290 *
James J. Curran(6)(7)..................... 21,891 64,750 86,641 *
Ralph P. Davidson......................... 1,500 8,000 9,500 *
Myron Du Bain(4).......................... 28,939 8,000 36,939 *
Don C. Frisbee............................ 872 3,000 3,872 *
Mary M. Gates(8).......................... 2,335 6,000 8,335 *
George M. Keller(4)....................... 5,896 5,000 10,896 *
William F. Kieschnick(4).................. 7,100 1,000 8,100 *
Thomas L. Lee............................. 1,300 5,000 6,300 *
Dr. William F. Miller(4).................. 2,310 8,000 10,310 *
J. J. Pinola(4)........................... 8,842 0 8,842 *
William S. Randall(5)(6).................. 29,690 86,250 115,940 *
Dr. Steven B. Sample...................... 500 6,500 7,000 *
Forrest N. Shumway(4)..................... 2,000 8,000 10,000 *
William E. B. Siart(6).................... 46,254 168,750 215,004 *
Richard J. Stegemeier(4).................. 4,800 3,000 7,800 *
Daniel M. Tellep.......................... 500 7,000 7,500 *
Bruce G. Willison(5)(6)(7)................ 24,254 91,250 115,504 *
All Directors and executive officers as a
group (30 persons)(4)(5)(6)
(7)(8)(9)(10)(11)........................ 282,327 1,009,739 1,292,066 1.69%
- - ----------
* Represents less than 1% of the outstanding Common Stock.
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(1) Subject to applicable community property and similar statutes, the
persons listed as beneficial owners of the shares have sole voting and
investment power with respect to such shares except as noted.
(2) Fractional shares resulting from participation in the Dividend
Reinvestment and Stock Purchase Plan and the Employee Savings Plan of
First Interstate Bancorp have been rounded to the nearest whole share.
(3) Reflects the number of shares that could be purchased by exercise of
options presently exercis- able or exercisable within 60 days from
February 21, 1995, under the Corporation's stock option plans.
(4) Includes the following shares of Common Stock held by a living or
family trust formed by the named individual in which voting or
investment power may be shared: Mr. Bryson, 500 shares; Mr. Carson,
30,482 shares; Mr. Du Bain, 23,839 shares; Mr. Keller, 5,896 shares;
Mr. Kieschnick, 7,100 shares; Dr. Miller, 2,310 shares; Mr. Pinola,
8,842 shares; Mr. Shumway, 2,000 shares; and Mr. Stegemeier, 4,800
shares. Also includes 4,000 shares of Common Stock held in an
Individual Retirement Account by Mr. Du Bain.
(5) Includes shares held jointly, or in other capacities, as to which in
some cases beneficial ownership may be disclaimed.
(6) Includes the following shares held by the Trustee of the Employee
Savings Plan in the accounts of the named individuals as of December
31, 1994:
Edward M. Carson ................................. 801
William E. B. Siart .............................. 16,527
William S. Randall ............................... 9,830
Bruce G. Willison ................................ 4,972
James J. Curran .................................. 13,338
All executive officers as a group (15 persons) ... 56,479
(7) Includes the following performance units awarded pursuant to the 1991,
1992 and 1993 annual incentive plans and issued under the 1991
Performance Stock Plan (each performance stock unit represents one
share of Common Stock):
Mr. Willison ..................................... 1,777
Mr. Curran ....................................... 1,543
All executive officers as a group (15 persons) ... 7,692
The performance stock units will be paid in Common Stock or cash upon
the occurrence of certain events, at the executive officer's election,
including the first to occur of termination of employment, retirement
or a specified date. Additional performance unit credit will be
received based on the value of dividends paid on the underlying
performance stock units.
(8) Mrs. Gates' stock ownership is reported as of June 9, 1994, the date
of her death.
(9) Includes 97,213 shares of Common Stock held in living or family trusts
in which voting or investment power may be shared.
(10) No Directors or executive officers owned any shares of Series F or
Series G Preferred Stock of the Corporation.
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(11) Includes shares of Restricted Stock awarded by the Compensation
Committee pursuant to the Corporation's 1991 Performance Stock Plan.
BY OTHERS
The following entities are the only stockholders known to the Corporation
to be the beneficial owners of more than 5% of the Corporation's equity
securities outstanding at December 31, 1994:
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS
- - -------------- ---------------- --------- -----
Common Stock DI Associates and KKR Associates 6,131,693(l) 8.26%
c/o Kohlberg Kravis
Roberts & Co.
9 West 57th Street
New York, NY 10019
Common Stock Oppenheimer Group, Inc. 5,170,191(2) 6.78%(2)
Oppenheimer Tower,
World Financial Center
New York, NY 10281
- - ----------
(1) This information is based upon a Schedule 13D dated February 3, 1993 filed
with the Securities and Exchange Commission ("SEC") jointly by DI Associates
("DI") and KKR Associates ("KKR") DI and KKR have sole voting and
dispositive power as to all of the shares.
(2) This information is based upon a Schedule 13G dated February 1, 1995 filed
with the SEC by Oppenheimer Group, Inc. ("Group"), as a parent holding
company on behalf of Oppenheimer & Co., L.P. and Group's subsidiary
companies and/or certain investment advisory clients or discretionary
accounts of such subsidiaries. Group does not have sole voting and
dispositive power with respect to any of the shares, and has shared voting
and dispositive power as to all of the shares. An investment advisory
subsidiary, Oppenheimer Capital, has shared voting and dispositive power as
to 5,130,281 of such shares, and sole voting and dispositive power as to
none of the shares.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and Directors, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission.
The Corporation believes that during 1994 it complied with all Section
16(a) filing requirements applicable to its executive officers, Directors and
greater than ten percent beneficial owners, except for the following reports.
One report on Form 4 was filed late for Mr. Davidson, who inadvertently failed
to
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report the sale in 1994 of 500 shares of Common Stock by his wife. An amended
Form 4 reflecting the sale was filed approximately one month after the due date.
An amended Form 4 was also filed in 1994 for Mr. Willison to reflect his gift in
1992 of 50 shares of Common Stock to his son; the amendment was filed
immediately upon his discovery of the omission.
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Pursuant to Item 402(a)(9) of Regulation S-K of the Securities and
Exchange Commission ("SEC"), the following Report of the Compensation Committee
on Executive Compensation and the Common Stock Performance Graph on page 21
shall not be deemed to be filed with the SEC for purposes of the Securities
Exchange Act of 1934. In addition, they shall not be deemed to be incorporated
by reference into any of the Corporation's past or future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The members of the First Interstate Bancorp Compensation Committee are all
non-employee Directors, and no member of the Committee is a former officer or
employee of the Corporation or any of its subsidiaries. Mr. Stegemeier was
selected by the Board of Directors to serve on the Compensation Committee on May
4, 1994, and participated in the modification of existing employment agreements,
the evaluation of corporate and regional performance and the assignment of
incentive awards for 1994.
The Compensation Committee of the Board is committed to providing a total
compensation program which supports the Corporation's business strategy and
enhances shareholder value. The Committee is responsible for the review and
approval of total compensation elements, including the competitive market
posture, the level of pay at risk, and the mixture of pay components for the
Corporation's executives and key management employees. In addition to these
broad responsibilities, the Compensation Committee reviews and approves
employment agreements, base salary increases, annual incentive awards and stock
option grants to executives and other key management employees, including the
five named executives on the Summary Compensation Table in the Proxy Statement.
The base salaries of the Chairman of the Board and Chief Executive Officer and
the President receive final approval from the Board of Directors.
COMPENSATION PHILOSOPHY
The Corporation's overall compensation philosophy, endorsed by the
Compensation Committee, is to encourage and reward financial performance and,
through the encouragement of stock ownership, to align the interests of
management with those of the stockholders. The Committee bases its compensation
decisions on the executives' performance, as defined in this Report, and
experience and on the competitive compensation levels at other banks. The banks
with which the Corporation compares its compensation levels include a group of
superregional banks with similar characteristics as the Corporation and its
subsidiary banks, i.e., retail focus, multi-state operations, with a minimum of
400 branches and $20 billion in assets. Many of these banks are represented in
the KBW 50 Index published by Keefe, Bruyette & Woods, Inc., which is used by
the Corporation as its peer comparison on the Common Stock Performance Graph in
the Proxy Statement.
The decisions of the Compensation Committee are based on the principle
that a substantial portion of annual compensation for the Chairman of the Board
and Chief Executive Officer and the President and other executive officers
should be contingent upon the Corporation's performance and return to
stockholders. Officers and employees participating in the executive incentive
plans have approximately 50% to 55% of their direct compensation (base salary
plus bonus) dependent on measured achievement of corporate and regional goals.
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COMPENSATION PROGRAM ELEMENTS
The Corporation's executive compensation program consists of three
elements:
-- Base salary
-- Annual incentive compensation
-- Long-term incentive compensation
Base Salary
Each executive officer's base salary is reviewed annually. When
determining salary levels, the Compensation Committee considers internal equity
(the relationship of an executive's salary to the value of his or her position
to the Corporation as measured by the midpoint of the position's salary grade
and the appropriateness of such salary level compared to the salaries of other
executives), the average of competitive pay practices and the executive's
performance. While all three of these determinants are considered by the
Committee, adjustments to salaries are based on individual performance.
Competitive salary data enables the Compensation Committee to assess the salary
of each executive officer relative to the market, and internal equity
considerations require the differentiation of salaries based on job size,
experience, responsibility level and organizational complexity. The base
salaries of executives range from somewhat below the median to slightly above
the median of the competitive market. The 1994 base salary increases approved
for executive officers, including the five named executives on the Summary
Compensation Table in the Proxy Statement, reflected the Committee's assessment
that these executives contributed substantially to the Corporation's performance
in exceeding its overall goals, as described below.
1994 Annual Incentive Compensation
The Corporate Executive Incentive Plan (the "Executive Incentive Plan"),
the Regional Executive Incentive Plan and the Management Incentive Plan provide
annual incentive compensation opportunities to executive officers based on the
Corporation's performance and the performance of the subsidiary banks.
Incentive awards for Mr. Carson and Mr. Siart are based on the performance
of the entire Corporation against goals established by the Committee at the
start of the year. The awards for the Chief Executive Officers of the
California, Texas, Northwest and Southwest regions are based 50% on the
achievement of specific regional goals, as set at the beginning of each year,
and 50% on the Corporation's performance. The objectives are established by
executive management and reviewed and approved by the Compensation Committee.
The specific goal categories and their weighing for the Corporation and for the
regions are identified below. The actual level of performance required for each
of the goals is confidential for competitive reasons.
The primary goal category for the Corporation for 1994 was return on
equity, with 50% weighing based on the Corporation's performance relative to the
peer bank group median return on equity over an eleven year historical
performance period. The remaining 50% weighing was based on the Corporation's
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performance relative to the peer bank group median return on equity in 1994.
Performance against both goals placed the Corporation in the highest performing
quartile of its peer group.
Each of the four regions had their own unique objectives for net income,
revenue and efficiency ratio (which measures expenses relative to revenue). The
weights for the goal categories in all four regions were 60% net income, 20%
revenue and 20% efficiency ratio. Three of the four regions exceeded all of
their goals, while all four exceeded their net income goals.
The incentive awards for the Chairman of the Board and Chief Executive
Officer and the President were directly based on the Corporation's achievement
percentage against its goals applied to the target award percentage for these
two positions. Fifty percent (50%) of the incentive awards for the regional
Chief Executive Officers was directly linked to their own region's performance
against the region's goals described above, and 50% was linked to the
Corporation's performance against its goals, also described above.
The executive officers serving on the Corporation's Executive Operating
Committee, including the five named executives on the Summary Compensation
Table, receive 25% of their annual incentive award in stock. Such executive
officers may elect to defer payment of the stock award in the form of
performance stock units, each of which represents one share of Common Stock. Any
dividends paid on the Common Stock underlying the performance stock units are
credited and converted into additional performance stock units. At the time of
distribution, shares of Common Stock will be issued equal to the number of whole
performance stock units, and any fractional performance stock unit will be
payable in cash.
Executive officers who do not participate in either the Executive
Incentive Plan or Regional Executive Incentive Plan participate in the
Management Incentive Plan. The Management Incentive Plan provides for awards
based on a blend of corporate performance and the performance of the unit by
which the participant is employed. Adjustments are made to the blended awards
based on individual performance.
Long-term Incentive Compensation
The Compensation Committee believes that awards of stock options promote
the interests of the stockholders by providing performance incentives to senior
executives and key employees who are responsible for the management, growth and
financial success of the Corporation. Options are priced at 100% of the market
value on the date of grant, and the Compensation Committee's policy precludes
any subsequent repricing of options. Since recipients of stock options will not
profit from their options until the price of the Corporation's stock exceeds the
grant price, the executives are motivated to manage their businesses in ways
that over the long term will benefit stockholders through increased stock price.
The Chairman of the Board and Chief Executive Officer considers the level
of the optionee's job responsibility, his or her potential impact on the
Corporation's performance and the median to 75th percentile of competitive
practice in arriving at the number of shares to be recommended to the
Compensation Committee. Stock option guidelines have been established using the
Black-Scholes Pricing Model. Each year the Corporation uses compensation surveys
published by various consulting firms and includes the same superregional banks
described above in the section on Compensation Philosophy.
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Organizational performance and individual performance are also factors which
serve to increase or decrease option recommendations from the guidelines. The
regional Chief Executive Officers' option grants in 1994 were at the median of
competitive practice as calculated by the Black-Scholes Pricing Model.
The Committee, in granting options, did not consider either the amount and
value of options currently held or the number of shares owned by those
individuals who were granted options in 1994. The Corporation has established
ownership level guidelines for equity holdings in the Corporation by senior
managers.
The Corporation does not grant tandem stock appreciation rights to its
executive officers. In addition, the Corporation currently uses restricted stock
as a compensation vehicle only on a very selective basis.
Compensation of Mr Carson
In assessing the accomplishments of Mr. Carson, the Compensation Committee
considered that, under his direction, the results for 1994 demonstrate continued
significant strengthening in the Corporation's performance. Net income for the
Corporation for 1994 was $733.5 million, compared to income of $561.4 million
for 1993, which is before the cumulative effect of accounting changes and an
extraordinary item. Return on average common equity for the Corporation in 1994
was 21.56%, up from 17.33% in 1993 and significantly higher than the peer bank
group median return on equity of 16.59% for 1994. The Corporation's return on
average assets for 1994 was 1.38%, compared to 1.14% in 1993. In addition, no
provision for credit losses for the Corporation was reported for 1994.
The Compensation Committee believes that Mr. Carson's base salary should
approximate the average of the competitive market and that his total
compensation, including incentive pay, should be related to the Corporation's
performance as compared to its competitive market. The Corporation's performance
for 1994 as compared to its competitive market was in the top quartile for
return on equity.
Mr. Carson's 1994 base salary is slightly above the median base salary of
chief executive officers of the banks identified above as the Corporation's
competitive market. His direct compensation for 1994 is estimated to be between
the 50th and 75th percentiles when compared to the Corporation's competitive
market. In determining his 1994 incentive award, the Committee took into account
Mr. Carson's accomplishments as specified above.
The present value of the 1994 grant to Mr. Carson of 50,000 options, as
determined by the Black- Scholes Pricing Model, was approximately 25% lower than
the competitive market long-term incentive value. In Mr. Carson's case, the
option grant will have an effective term of four years, instead of the normal
ten years, when he retires this year. The Black-Scholes valuation methodology
results in a lower value as the term of the grant shortens.
In addition to the annual incentive compensation awarded to Mr. Carson
under the Executive Incentive Plan and the 1991 Performance Stock Plan, the
Committee made an award to him in recognition of his significant contribution to
the Corporation.
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The Tax Deductibility Limitation
As a result of the Omnibus Budget Reconciliation Act of 1993, Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), provides
that any publicly held corporation will be denied a deduction for compensation
paid to a "covered employee" to the extent that the compensation exceeds
$1,000,000. The deduction limit applies to any compensation that could otherwise
be deducted except for specific types of payments. As one of the exclusions, the
deduction limit does not apply to "compensation that meets the requirements for
performance-based compensation".
Under the requirements for performance-based compensation set forth in the
proposed Internal Revenue Service regulations, compensation will not be subject
to the deduction limit if (1) it is payable on account of the attainment of one
or more performance goals; (2) the performance goals are established by a
compensation committee of the board of directors; (3) the material terms of the
compensation and the performance goals are disclosed to and approved by the
stockholders before payment; and (4) the compensation committee certifies that
the performance goals have been satisfied before payment.
Awards issued under First Interstate's 1991 Performance Stock Plan satisfy
the requirements of the regulations, because the 1991 Performance Stock Plan was
approved by the stockholders in accordance with Section 16(b) of the Securities
Exchange Act of 1934 and because the Plan provides for an aggregate limit on the
number of shares with respect to which awards may be made under the Plan. At the
1995 Annual Meeting, the 1995 Performance Stock Plan will be presented to the
stockholders for their approval. If approved by the stockholders, the
Corporation believes that stock options granted under this Plan, and stock
awards issued under this Plan which are based upon the achievement of the
performance goals established under the Executive Incentive Plan, will satisfy
the requirements for performance-based compensation set forth in the proposed
Internal Revenue Service regulations.
The Compensation Committee has decided to introduce in 1995 additional
goal categories to the annual Executive Incentive Plan which should serve to
enhance its qualification as performance-based compensation. The additional goal
categories will affect those executives who are identified in the statute as
"covered employees". Under Section 162(m) of the Code, the term "covered
employees" refers to the Chief Executive Officer and those individuals whose
compensation is required to be reported to the stockholders under the Securities
Exchange Act of 1934 who are employed on the last day of the taxable year.
Therefore, the Proxy Statement contains a detailed description of the
terms and conditions of the Executive Incentive Plan, including the class of
employees eligible to receive compensation under performance goals, a general
description of the terms of the goals and the maximum dollar amount that could
be paid to any one participant for the plan years 1995 through 1999 if the
performance goals are satisfied. At the 1995 Annual Meeting of Stockholders, the
Executive Incentive Plan will be presented to the stockholders for their
approval. The Board of Directors adopted the Executive Incentive Plan on
February 21, 1995, subject to the approval of the stockholders.
14
EMPLOYMENT AGREEMENTS
In 1994, the Compensation Committee invited an independent outside
compensation consulting firm to assess the appropriateness of the Corporation's
existing executive Employment Agreements. The consultant's review included a
review of current practices with respect to such agreements by employers of
similar size across major industries and within the banking segment peers. The
consultant's report to the Committee suggested that modifications to certain
elements within these Employment Agreements were appropriate in order to ensure
the effectiveness, and to maintain the overall competitiveness, of the
Corporation's Employment Agreements. Amended and Restated Employment Agreements
were therefore reviewed and approved by the Compensation Committee on June
20,1994 and by the Board of Directors on July 18, 1994. It is the Committee's
belief that, upon a termination of employment, a minimum amount of disruption
takes place when the terms and conditions of payments and benefits upon
termination have been incorporated into an agreement. In addition, the
agreements also serve to enhance continuity of management in the event of a
change in control.
Therefore, the Proxy Statement contains a description of the terms and
conditions of the Employment Agreements, as amended and restated, including the
class of employees eligible for these Agreements.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
George M. Keller, Chairman
John E. Bryson
William F. Kieschnick
Richard J. Stegemeier
Daniel M. Tellep
15
COMMON STOCK PERFORMANCE GRAPH
The following Common Stock Performance Graph compares the yearly
percentage change, on a dividend reinvested basis, in the cumulative total
stockholder return on the Common Stock with the cumulative total return of the
Standard & Poor's 500 Stock Index (which includes the Corporation) and the KBW
50 Index, published by Keefe, Bruyette & Woods, Inc., for the five-year period
commencing December 31, 1989. The stock price performance depicted in the
Performance Graph is not necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN (1)
FIRST INTERSTATE BANCORP, S&P 500 INDEX AND KBW 50 INDEX
1989 1990 1991 1992 1993 1994
- - ----------------------------------------------------------------------------------------------------
First Interstate Bancorp $ 100.00 $ 63.94 $ 85.86 $ 137.40 $ 192.99 $ 211.22
KBW 50 Index $ 100.00 $ 71.81 $ 113.67 $ 144.84 $ 152.86 $ 145.07
S & P 500 Index $ 100.00 $ 96.89 $ 126.41 $ 136.04 $ 149.75 $ 151.73
- - ----------
(1) Assumes $100 invested on December 31, 1989 in First Interstate Bancorp
Common Stock, S&P 500 Index and KBW 50 Index and assumes quarterly dividend
reinvestment.
16
EXECUTIVE OFFICERS' COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation for the Chief Executive
Officer of the Corporation and the four most highly compensated executive
officers of the Corporation (other than the Chief Executive Officer) who served
as executive officers on December 31, 1994:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------------------------ -------
ANNUAL RESTRICTED SECURITIES
COMPEN- STOCK UNDERLYING LTIP
SATION AWARDS OPTIONS/ PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) ($)(3) ($)(4) SARS(#)(5) ($) COMPENSATION($)(6)
- - --------------------------- ---- ------------ ----------- ------ ------ ---------- --- ------------------
Edward M. Carson 1994 $783,333 $1,500,000 -- -0- 50,000 -0- $56,699
Chairman of the 1993 784,133 1,062,000 -- -0- 75,000 -0- 35,229
Board (7) 1992 718,967 1,118,000 -0- 60,000 -0-
William E. B. Siart 1994 629,500 930,000 -- -0- 30,000 -0- 19,638
President and 1993 645,358 836,000 -- -0- 45,000 -0- 18,556
Chief Executive 1992 571,483 884,000 -0- 45,000 -0-
Officer (8)
William S. Randall 1994 440,852 498,400 -- -0- 17,000 -0- 14,530
Executive Vice 1993 453,833 453,000 -- -0- 20,000 -0- 22,839
President and Chief 1992 408,833 491,000 -0- 20,000 -0-
Operating Officer (9)
Bruce G. Willison 1994 430,833 513,300 -- -0- 17,000 -0- 11,420
Chief Executive 1993 405,833 455,000 -- -0- 20,000 -0- 25,057
Officer, California 1992 381,967 484,000 -0- 20,000 -0-
Region (10)
James J. Curran 1994 375,004 444,600 -- -0- 17,000 -0- 12,877
Chief Executive 1993 374,200 395,000 -- -0- 20,000 -0- 11,383
Officer 1992 357,500 415,000 -- -0- 18,000 -0-
Northwest
Region (11)
- - ----------
(1) Included in this column are salaries and directors' fees paid for services
rendered to the Corporation's subsidiaries before any salary reduction for
contributions to the Corporation's Employee Savings Plan under section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), and
salary reductions for contributions for welfare plan coverages under
section 125 of the Code.
(2) The bonus amounts are payable pursuant to the Corporation's Executive
Incentive Plan, Regional Executive Incentive Plan and 1991 Performance
Stock Plan, as applicable. In addition, the bonus for Mr. Carson includes
an award in recognition of his significant contribution to the
Corporation. This column reflects amounts awarded, even if deferred.
(3) "Other Annual Compensation", if any, is only required to be reported for
1993 and 1994; amounts which total the lesser of $50,000 or 10% of the
total annual salary and bonus for the named executive officer have been
omitted.
17
(4) Of the persons named above, only Mr. Randall had restricted stock holdings
at December 31, 1994, aggregating 3,000 shares with a value of $202,857,
based on a year-end stock price of $67.625. None of the restricted stock
awards vested in less than three years from the date of grant. Holders of
restricted stock accrue dividends at the same time and at the same rate as
other holders of Common Stock. In the event of a change in control of the
Corporation, the restrictions on restricted stock lapse immediately.
Restricted stock awards are valued at the closing stock price on the date
of grant.
(5) No tandem Stock Appreciation Rights ("SARs") have been granted since 1991,
and no freestanding SARs have ever been granted.
(6) "All Other Compensation" is only required to be reported for 1993 and
1994. The total amounts shown in this column for 1994 consist of the
following: (i) Mr. Carson, $23,500 for matching Corporation contributions
under the Employee Savings Plan and Supplemental Savings Plan; $29,955 for
the benefit attributable to payments of premiums on universal life
insurance; of $3,243 relating to brokerage fees on stock option exercises;
(ii) Mr. Siart, $18,450 for matching Corporation contributions under the
Employee Savings Plan and Supplemental Savings Plan; and $1,188 for the
benefit attributable to payments of premiums on universal life insurance;
(iii) Mr. Randall, $13,726 for matching Corporation contributions under
the Employee Savings Plan and Supplemental Savings Plan; and $1,304 for
the benefit attributable to payments of premiums on universal life
insurance; (iv) Mr. Willison, $10,675 for matching Corporation
contributions under the Employee Savings Plan and Supplemental Savings
Plan; and $745 for the -benefit attributable to payments of premiums on
universal life insurance; and (v) Mr. Curran, $11,250 for matching
Corporation contributions under the Employee Savings Plan and Supplemental
Savings Plan; and $1,627 for the benefit attributable to payments of
premiums on universal life insurance. The Corporation has purchased
universal life insurance policies on the lives of the named executives,
who have no immediate right to receive the cash surrender value of the
policies and may never have any right to receive the cash surrender value.
If, and only if, certain conditions are met, will the executives become
vested in the cash surrender value. An executive's benefits under various
deferred compensation plans will be reduced dollar for dollar by the
amount of the cash surrender value of the policy at the time it vests. The
premiums paid on the policies are designed to produce a cash surrender
value which is less than the accrued benefits under the various plans.
(7) Mr. Carson also served as Chief Executive Officer of the Corporation
through December 31, 1994.
(8) Mr. Siart served as President of the Corporation throughout 1994, and was
also named its Chief Executive Officer on January 1, 1995.
(9) Mr. Randall became Executive Vice President and Chief Operating Officer of
the Corporation on January 1, 1995. He was Chief Executive Officer,
Southwest Region, through December 31, 1994, and also served as Chairman
of the Board, President and Chief Executive Officer of First Interstate
Bank of Arizona through December 31, 1994.
(10) Mr. Willison serves as Chairman of the Board, President and Chief
Executive Officer of First Interstate Bank of California.
(11) Mr. Curran's position includes serving as Chairman of the Board, President
and Chief Executive Officer of First Interstate Bank of Oregon, and Chief
Executive Officer and President of First Interstate Banks of Idaho,
Montana and Washington.
STOCK OPTIONS
The following tables summarize grants of options and exercises of options
to purchase Common Stock during 1994 to or by the executive officers of the
Corporation named in the Summary Compensation Table above, and the grant date
present value of options held by such persons at the end of 1994. All
outstanding SARs were surrendered by the executive officers of the Corporation
in 1993, and no SARs were granted during 1994.
18
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1994)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PER SHARE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE VALUE(2)
---- ------------- ----------- ------ ---- --------
Edward M. Carson........ 50,000 6.0% $66.875 1/2/98 $672,000(3)
William E. B. Siart..... 30,000 3.6 66.875 2/22/04 426,900(4)
William S. Randall...... 17,000 2.0 66.875 2/22/04 241,910(4)
Bruce G. Willison....... 17,000 2.0 66.875 2/22/04 241,910(4)
James J. Curran......... 17,000 2.0 66.875 2/22/04 241,910(4)
- - ----------
(1) Options were granted under the 1991 Performance Stock Plan, which provides
for the granting of options at an option exercise price of 100% of the fair
market value of the stock on the date of grant. Options granted in 1994 are
exercisable beginning 12 months after the grant date, with 25% of the shares
covered thereby becoming exercisable at that time and with an additional 25%
of the option shares becoming exercisable on each successive anniversary
date, with full vesting occurring on the fourth anniversary date. Mr.
Carson's options vest according to the same schedule, except that any
unexercised options will become immediately exercisable upon his retirement
in 1995. In the event of a change in control of the Corporation, stock
options become immediately exercisable to their full extent.
(2) Present market value determinations were made using the Black-Scholes option
pricing model. There is no assurance that any value realized by optionees
will be at or near the value estimated by that model. The ultimate values of
the options will depend on the future market price of the Common Stock,
which cannot be forecast with reasonable accuracy. The actual value, if any,
an optionee will realize upon exercise of an option will depend upon the
excess, if any, of the market value of the Common Stock on the date the
option is exercised over the exercise price of the option. The assumptions
and calculations used for the model were provided to the Corporation by an
independent consulting firm.
(3) The estimated grant date present value for Mr. Carson under the
Black-Scholes model is based on the following assumptions and adjustments:
an exercise price of $66.875 per share, equal to the fair market value of
the underlying stock on the date of grant; an annual dividend yield of $2.00
per share, representing the annualized dividend paid on a share of Common
Stock at the date of grant; a stock price volatility of 27.898%, based on
daily stock prices for the one-year period prior to the grant date; and an
option term of four years to reflect that he will retire in 1995. In
addition, the calculation was based on an interest rate of 5.12%,
representing the interest rate on a U.S. Treasury security on the date of
grant with a maturity date corresponding to that of the four-year option
term. Reductions of approximately 5.0% were made to reflect the probability
of forfeiture due to termination prior to vesting, and approximately 5.72%
to reflect the probability of a shortened option term due to termination of
employment prior to the option expiration date.
(4) The estimated grant date present value under the Black-Scholes model is
based on the same assumptions and adjustments used to calculate Mr. Carson's
present value as to exercise price, volatility and dividends. Different
assumptions and adjustments were made, however, as follows: an option term
of 10 years; an interest rate of 5.97%, representing the interest rate on a
U.S. Treasury security on the date of grant with a maturity date
corresponding to that of the ten-year option term; and reductions of
approximately 21.70% to reflect the probability of forfeiture due to
termination prior to vesting, and approximately 13.39% to reflect the
probability of a shortened option term due to termination of employment
prior to the option expiration date.
19
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1994)
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR-END(#)(3) AT FISCAL YEAR-END($)(4)
SHARES ACQUIRED VALUE ------------------------ ---------------------------
NAME ON EXERTS(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- --------------- -------------- ----------- ------------- ----------- -------------
Edward M. Carson ............. 42,000 $1,126,375 132,000 145,000 $3,922,938 $2,235,000
William E. B. Siart .......... 4,000 132,000 132,000 93,000 3,579,313 1,528,313
William S. Randall ........... 7,000 290,125 69,250 44,750 1,810,781 673,469
Bruce G. Willison ............ 1,600 62,000 73,250 45,750 1,951,906 707,594
James J. Curran .............. 3,000 126,875 48,250 43,750 1,463,781 643,219
- - ----------------
(1) No tandem SARs have been granted since 1991, and no freestanding SARs have
ever been granted. All unexercised SARs were surrendered in 1993.
(2) Value is based upon the difference between the market value at the date of
exercise and the exercise price.
(3) In the event of a change in control of the Corporation, stock options become
immediately exercisable to their full extent.
(4) Value is based upon the difference between the market value at the end of
1994 and the exercise price.
PENSION PLANS
The following table indicates the estimated annual benefit payable to a
covered participant at normal retirement age under The Retirement Plan for
Employees of First Interstate Bancorp and its Affiliates ("Retirement Plan")
based on covered compensation and years of service with the Corporation and its
subsidiaries. The table includes benefits under the Corporation's Excess Benefit
Retirement Plan ("Excess Plan") and Supplemental Executive Retirement Plan
("SERP"), both of which are unfunded. The Excess Plan provides benefits that
would otherwise be denied a participant by reason of certain Internal Revenue
Code limitations on the Retirement Plan. The SERP covers a select group of
management who have attained age 55 and supplements the basic Retirement Plan by
including bonuses in the definition of covered compensation.
PENSION PLAN TABLE
YEARS OF SERVICE(1)
--------------------------------------------------------------
REMUNERATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- - ------------ -------- -------- -------- -------- --------
$ 300,000$ 83,677 $ 111,569 $ 139,461 $ 167,353 $ 195,245
400,000 112,177 149,569 186,961 224,353 261,745
500,000 140,677 187,569 234,461 281,353 328,245
600,000 169,177 225,569 281,961 338,353 394,745
1,200,000 340,177 453,569 566,961 680,353 793,745
1,400,000 397,177 529,569 661,961 794,353 926,745
(1) The maximum number of years of service that may be credited under the
pension plans is 35. Mr. Carson has 43 years of service, of which 35 years
of service are credited.
20
The compensation covered by the pension plans for the individuals named in
the Summary Compensation Table includes basic monthly salary or wage rate and
certain bonuses described in the Summary Compensation Table and excludes
director's fees, amounts paid for life insurance premiums, matching amounts
under the Corporation's Employee Savings Plan and imputed income. The
remuneration of a participant is an average of the compensation (as stated in
the Summary Compensation Table) covered by such plans for the five of the last
ten calendar years of the participant's employment with the Corporation for
which such average is highest. The remuneration covered by the pension plans for
Mr. Carson is $1,296,111; Mr. Siart, $549,000; Mr. Randall, $396,004; Mr.
Willison, $372,000; and Mr. Curran, $525,727. The credited service in full years
for Mr. Carson is 35 years; Mr. Siart, 16 years; Mr. Randall, 25 years; Mr.
Willison, 16 years; and Mr. Curran, 17 years. The benefits shown in the table
are computed on a single-life annuity basis and are not reduced or adjusted for
receipt of Social Security benefits or other offset amounts.
EMPLOYMENT AGREEMENTS
In January, 1995, the Corporation entered into amended and restated
employment agreements with certain of its key executives which are designed to
encourage them to remain employees of the Corporation by providing them with
greater security. Similar agreements have been entered into between some of the
Corporation's bank subsidiaries and certain of their key executives. Messrs.
Siart, Randall, Willison and Curran are parties to such agreements.
Absent a change in control as defined in the agreements, the amended and
restated employment agreements are continuous and generally may be terminated
with 14 months' notice. The agreements, as amended, provide for liquidated
damages equal to 24 months' base salary in the event that the executive is
terminated for a non-allowable reason. Unless the Corporation decides otherwise,
such damages are payable at the same time and in the same manner as if the
executive had remained employed by the Corporation.
As defined in the agreements, as amended, a change in control occurs when
any person or group becomes the beneficial owner of the Corporation's securities
having 20% or more of the combined voting power of its then outstanding
securities, when a majority of the Corporation's Board of Directors is replaced
as a result of a contest for the election of Directors, or upon the occurrence
of certain mergers, acquisitions and other events.
In the event of a change in control, the term of the agreements, as
amended, is extended to the date two years following the change in control, and
the duties of executives may not thereafter be modified. In addition, if an
executive is terminated without cause, as defined in the agreements, after a
change in control, such person is entitled to a payment equal to the sum of
three times annual base salary and target bonus for the year in which the
executive's employment terminates, an amount equivalent to three additional
years of participation in the Corporation's retirement plan, and $30,000 to
cover the cost of three years' health and welfare benefit plan coverage. A
prorated portion of any bonus that may be accelerated as a result of a change in
control will be deducted from the payment. Such a payment to an executive is
payable as a cash lump sum within ten days following termination of employment.
21
Mr. Carson remains a party to the original employment agreement entered
into effective January 1, 1990, due to his retirement as Chief Executive Officer
of the Corporation at the end of 1994, and his upcoming retirement in April as
Chairman. Mr. Carson's employment agreement is similar to the amended and
restated employment agreements described above, except that his agreement
provides for liquidated damages equal to 12 months' base salary if he is
terminated for a non-allowable reason, and that upon the attainment of age 65,
no additional amounts would be payable in respect of termination of employment
following a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the Compensation Committee of the Corporation's Board of
Directors
consisted of Messrs. Keller (Chairman), Bryson, Kieschnick, Stegemeier and
Tellep.
The Corporation instituted an executive loan program on January 14, 1991
to provide fixed rate principal residence mortgage loans and general purpose
loans at favorable rates to members of the Managing Committee of the
Corporation. All loan requests under the new executive loan program require the
approval of the Chairman or the President of the Corporation and the
Compensation Committee of the Board of Directors and are documented in
accordance with standard requirements for loans made outside the program. Two of
the individuals named in the Summary Compensation Table had loans under the
program. Mr. Siart had a principal residence mortgage loan, with a principal
balance of $874,502 at December 31, 1994, a maximum balance during 1994 of
$885,221 and an interest rate of 6.34%. Mr. Willison obtained a general purpose
loan in 1994 under the program in the form of a floating rate installment note
in the principal amount of $150,000. The note had a maximum balance during 1994
of $150,000 and an interest rate of 5.76% from the date of origination through
October 27, 1994, and an interest rate of 7.32% from October 28 through December
31, 1994. No other executive officers have loans under the program.
RELATED TRANSACTIONS
During 1994 a number of the Corporation's subsidiary banks had loan
transactions, in the ordinary course of business, with officers and Directors of
the Corporation. There were also, during 1994, a number of loan transactions in
the ordinary course of business between the Corporation's subsidiary banks and
associates of officers and Directors of the Corporation. Except as described in
the Compensation Committee Interlocks and Insider Participation section above,
all of such transactions 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 a normal risk of
collectibility or present other unfavorable features.
ITEM 2.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
By resolution of the Board of Directors, the firm of Ernst & Young LLP,
Certified Public Accountants, was chosen as the independent public accountants
to examine the accounts of the
22
Corporation for the year 1995. In accordance with that same resolution, this
selection is being presented to the stockholders for ratification. Ernst & Young
LLP has audited the Corporation's books annually since 1958 and is considered
well qualified. Representatives of the firm are expected to be present at the
Annual Meeting of Stockholders on April 28, 1995 with an opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions. If the stockholders do not ratify the employment of
Ernst & Young LLP, the selection of independent accountants will be reconsidered
by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ERNST & YOUNG LLP AS THE CORPORATION'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR 1995.
ITEM 3.
PROPOSAL FOR APPROVAL OF CORPORATE EXECUTIVE INCENTIVE PLAN
The First Interstate Bancorp Corporate Executive Incentive Plan (the
"Executive Incentive Plan") was authorized by the Corporation's Compensation
Committee and was adopted by the Board of Directors of the Corporation on
February 21, 1995, subject to the affirmative vote of the holders of at least a
majority of the shares of the Corporation's voting stock present in person or by
proxy and entitled to a vote at the 1995 Annual Meeting. The Executive Incentive
Plan is only effective if approved by stockholders.
Commencing in 1995, the Executive Incentive Plan, the 1995 Performance
Stock Plan, if approved by the stockholders at the 1995 Annual Meeting, and the
1991 Performance Stock Plan are the exclusive means for the Corporation's
Chairman of the Board, President and Chief Executive Officer, and Executive Vice
President and Chief Operating Officer to earn annual incentive compensation. The
Chief Executive Officers of each Region will earn Awards under the Executive
Incentive Plan based on achievement of goals established for the Corporation. In
addition to participating in the Executive Incentive Plan, the 1995 Performance
Stock Plan, if approved, and the 1991 Performance Stock Plan, the Chief
Executive Officers of the Regions will also participate in the First Interstate
Bancorp annual Regional Executive Incentive Plan, which rewards the Chief
Executive Officer of each Region for the performance of his or her Region.
SUMMARY OF CORPORATE EXECUTIVE INCENTIVE PLAN
The full text of the Executive Incentive Plan is set forth in Exhibit A to
this Proxy Statement. The following summary of the provisions of the Executive
Incentive Plan is qualified in its entirety by reference to the text of the
Executive Incentive Plan.
Purpose
The purpose of the Executive Incentive Plan is to focus the efforts of
certain key executive employees on the continued improvement in the performance
of the Corporation and to aid the Corporation in attracting, motivating and
retaining superior executives by providing an incentive
23
and reward to those key employees who contribute most to the operating progress
and performance of the Corporation.
Eligibility
The Chairman of the Board, the President and Chief Executive Officer of
the Corporation, the Executive Vice President and Chief Operating Officer of the
Corporation, and the Chief Executive Officers of the California, Northwest,
Southwest, and Texas Regions are eligible to receive Awards as defined in the
Executive Incentive Plan. At present, these are the seven key employees eligible
to participate in the Executive Incentive Plan.
Administration
The Executive Incentive Plan will be administered by the Compensation
Committee of the Board of Directors of the Corporation (the "Committee"), which
Committee will consist of at least two Directors, each of which is a
"disinterested person" as defined in Rule 16b-3 under the Securities Exchange
Act of 1934 and an "outside director" as defined in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
Awards
The Executive Incentive Plan authorizes the payment of cash Awards, as
defined therein, based on the attainment of specific goals for the Corporation
with respect to return on equity, revenue, gross income, pretax income,
deposits, assets, non-interest expenses, non-performing assets and total
shareholder return, which goals will be established in writing and approved by
the Committee prior to the beginning of each year (not later than 90 days after
the commencement of the period of service to which the performance goals
relate). Awards are based on a formula of multiplying year-end base salary by a
percentage determined by the level of achievement. The maximum attainable Award
is 135% of year-end base salary for Messrs. Carson and Siart, 123.75% of
year-end base salary for Mr. Randall, and 56.25% of year-end base salary for the
remaining Participants. For purposes of calculating Awards, year-end base salary
shall not be treated as increasing in any Performance Year by more than the
average salary increases for employees at this level at comparable banks, taking
into consideration increases on account of promotions. An Award will be made to
a Participant, as defined in the Executive Incentive Plan, after the completion
of the year based upon the satisfaction of the Corporation's goals under the
Executive Incentive Plan, which achievement has been certified by the Committee,
in writing, as having satisfied such goals. The Committee has the discretion to
reduce an Award that becomes payable upon attainment of the goal. The Committee
or the Board of Directors of the Corporation may neither increase an Award to a
Participant beyond the Award established for a specific level of achievement nor
alter the allocation of the Awards among the Participants. Since any such Awards
will not exceed the Awards which can be earned for specified goals, it is
generally expected that such Awards will be "performance based" and as such the
deduction limitation contained in the Omnibus Budget Reconciliation Act of 1993
will not apply to such compensation.
24
The following chart specifies the maximum Award that can be granted to
each Participant under the Executive Incentive Plan for the 1995 Performance
Year:
NAME AND POSITION DOLLAR VALUE ($)
----------------- ----------------
Edward M. Carson, Chairman of the Board $1,066,500
William E. B. Siart, 972,000
President and Chief Executive Officer of the Corporation
William S. Randall, 643,500
Executive Vice President and Chief Operating Officer
of the Corporation
Bruce G. Willison, 253,125
Chief Executive Officer, California Region
James J. Curran, 222,188
Chief Executive Officer, Northwest Region
Linnet F Deily, 202,500
Chief Executive Officer, Texas Region
John S. Lewis, 154,688
Chief Executive Officer, Southwest Region
The maximum Award that can be paid to a Participant for any one year
during the years 1996 through 1999 is $1,500,000. The actual amount of the Award
will be based on corporate performance. Designation of a maximum amount is
required to satisfy proposed Treasury regulations under Section 162(m) of the
Code.
Change in Control
In the event of a change in control, within ten days after the change in
control of the Corporation, each Participant will be paid 100% of his or her
target Award for the year in which the change in control occurs, based on the
base pay rate then in effect.
Deferrals
Awards are generally payable shortly after the end of the Performance Year
for which the Award has been earned. A Participant may elect, however, to defer
commencement of payment for a period extending until the termination of
employment. Participants may elect that deferred amounts earn interest (at a
rate specified in the Executive Incentive Plan) or, in the alternative, be
invested in the form of Performance Units under the 1995 Performance Stock Plan
(see the discussion of the 1995 Performance Stock Plan under Item 4 of this
Proxy Statement, "Proposal For Approval of 1995 Performance Stock Plan").
Amendments and Discontinuance
The Board of Directors of the Corporation or the Committee may, at any
time, modify, terminate or suspend the provisions of the Executive Incentive
Plan.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL FOR APPROVAL
OF THE CORPORATE EXECUTIVE INCENTIVE PLAN.
ITEM 4
PROPOSAL FOR APPROVAL OF 1995 PERFORMANCE STOCK PLAN
The First Interstate Bancorp 1995 Performance Stock Plan (the "1995
Performance Stock Plan") was authorized by the Corporation's Board of Directors
on February 21, 1995, subject to the affirmative vote of the holders of at least
a majority of the shares of the Corporation's Common Stock present in person or
by proxy and entitled to vote at the 1995 Annual Meeting. The 1995 Performance
Stock Plan authorizes the granting of stock awards, performance units, stock
options, stock appreciation rights and restricted stock awards of up to
5,000,000 shares of Common Stock to key employees of the Corporation and its
subsidiaries who are responsible for the management, growth and financial
success of the Corporation.
The Board of Directors believes that the future success of the Corporation
and its subsidiaries is dependent upon the quality and continuity of management,
and that compensation programs have been important in attracting and retaining
individuals of superior ability and in motivating their efforts on behalf of the
Corporation and its business interests. As of February 21, 1995, approximately
500,000 shares of Common Stock were available to grant additional awards under
the First Interstate Bancorp 1991 Performance Stock Plan (the "1991 Stock
Plan"). Regardless of whether the 1995 Performance Stock Plan is approved by the
stockholders, the Board of Directors intends to continue to grant additional
awards under the 1991 Stock Plan.
SUMMARY OF 1995 PERFORMANCE STOCK PLAN
The full text of the 1995 Performance Stock Plan is set forth in Exhibit B
to this Proxy Statement. The following summary of provisions of the 1995
Performance Stock Plan is qualified in its entirety by reference to the text of
the 1995 Performance Stock Plan.
Shares Subject to the Plan
The 1995 Performance Stock Plan permits the Corporation to grant stock
awards, performance units, accelerated ownership stock options, incentive stock
options, non-qualified stock options, stock appreciation rights and restricted
stock awards. The aggregate number of shares of Common Stock reserved for awards
under the 1995 Performance Stock Plan is 5,000,000 shares.
Eligibility
Key employees of the Corporation and its subsidiaries (including officers,
whether or not directors) are eligible to receive awards under the 1995
Performance Stock Plan. At present there are approximately 1,000 employees
eligible to participate in the 1995 Performance Stock Plan. The Corporation has
full discretion to select those key employees who will receive awards under
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the 1995 Performance Stock Plan. Directors who are not officers are not eligible
to participate in the Plan.
Plan Benefits
The nature and amounts of any awards under the 1995 Performance Stock Plan
will be determined by the Committee in its sole discretion, except that special
rules exist under the Plan with respect to the issuance of awards of Common
Stock to participants in the Executive Incentive Plan. See the discussion below
under "Stock Awards." Except in the case of such stock awards, benefits and
amounts are not presently determinable that may be received by each of the
executive officers identified in the Summary Compensation Table of this Proxy
Statement, all executive officers as a group and all other key employees under
the 1995 Performance Stock Plan.
Administration
The 1995 Performance Stock Plan will be administered by the members of the
Compensation Committee (the "Committee") of the Board of Directors, which
Committee will consist of at least two Directors, each of which is a
"disinterested person" as defined in Rule 16b-3 under the Securities Exchange
Act of 1934 and an "outside director" as defined in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
Adjustments and Other Provisions
The 1995 Performance Stock Plan provides for adjustments in the number of
shares reserved and in option prices in the event of a stock dividend or stock
split and for other equitable adjustments in the event of a recapitalization,
merger or similar occurrence. Any shares of Common Stock or other securities
received by a holder of restricted stock with respect to such restricted stock
by reason of any such change is subject to the same restrictions. Similar
adjustments will be made to performance units.
Stock Awards
An award of Common Stock may be made to an employee at the discretion of
the Committee, and is not subject to any restrictions under the 1995 Performance
Stock Plan. Special rules apply under the Plan however, with regard to stock
awards to participants in the Executive Incentive Plan. In the case of
participants in the 1995 Performance Stock Plan who are also participants in the
Executive Incentive Plan, the award of Common Stock will be based on the
achievement of the performance goals established under the Executive Incentive
Plan for the year in question. For each year that the goals established under
the Executive Incentive Plan are attained, each participant may receive a
maximum stock award based on the achievement of such goals equal to that number
of shares of Common Stock which is equivalent in value to one-third of the
participant's cash award under the Executive Incentive Plan, based on the fair
market value of the Common Stock on the date such award is approved by the
Committee. In 1995, stock awards to participants in the Executive Incentive Plan
will not exceed the following:
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NAME AND POSITION DOLLAR VALUE($)
----------------- ---------------
Edward M. Carson, Chairman of the Board $355,500
William E. B. Siart, 324,000
President and Chief Executive Officer of the Corporation
William S. Randall, 214,500
Executive Vice President and Chief Operating Officer
of the Corporation
Bruce G. Willison, 84,375
Chief Executive Officer, California Region
James J. Curran, 74,062
Chief Executive Officer, Northwest Region
Linnet F Deily, 67,500
Chief Executive Officer, Texas Region
John S. Lewis, 51,562
Chief Executive Officer, Southwest Region
The maximum value of the stock award to a participant for any one year
during the years 1996 through 1999 is $500,000. The actual amount of a stock
award will be based on corporate performance. Designation of a maximum amount is
required to satisfy proposed Treasury regulations under Section 162(m) of the
Code.
Stock Options
Stock options granted under the 1995 Performance Stock Plan may be either
incentive stock options, qualifying for special tax treatment under Section 422
of the Code, or non-qualified stock options. Each option will be evidenced by a
written document containing such terms and provisions consistent with the 1995
Performance Stock Plan as the Committee approves. The exercise price of each
option will be not less than the fair market value of the shares covered by the
option on the date of grant. As of February 21, 1995, the fair market value of a
share of Common Stock was $79.75. Payment on each option exercised must be made
in cash or in whole shares of Common Stock already owned by the optionee for at
least six months or partly in cash and partly in Common Stock. Common Stock
received by the Corporation in payment of the option price will be valued at its
fair market value on the date of exercise.
Each option will be exercisable in one or more installments within a fixed
option period and during employment, subject to certain restrictions or
extensions in the event of death, retirement or termination, but in no event
more than ten years from the date of grant. Unless otherwise provided in the
employee's stock option agreement, no option will be transferable other than by
will or the laws of descent and distribution. No employee may be issued stock
options (including those containing stock appreciation rights, as described
below) for more than 150,000 shares of Common Stock in any single calendar year
pursuant to the 1995 Performance Stock Plan.
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Accelerated Ownership Stock Option
If an employee's stock option agreement so provides, an employee, in
connection with the grant of stock options, will be granted an accelerated
ownership non-qualified stock option ("AO") to purchase at the fair market
value, as of the date of exercise of the underlying option, additional shares of
Common Stock equal to the number of shares of Common Stock used by the employee
in payment of the purchase price of the underlying option. An AO is only
available during the period that the optionee remains an employee, and, in
addition, the optionee must remain an employee at least six months after the
exercise of the underlying option in order for the AO to vest. The AO may be
exercised once it vests only for the remaining term of the underlying option
agreement.
Stock Appreciation Rights
The Committee may issue stock appreciation rights in tandem with stock
options granted under the 1995 Performance Stock Plan. Employees who are granted
stock options containing stock appreciation rights may elect to surrender,
rather than exercise, such options and to receive the excess of the fair market
value of the Common Stock subject to the options on the date of surrender over
the option price. Such excess may be paid in Common Stock, in cash, or in a
combination of Common Stock and cash, as determined by the Committee.
Performance Units
An award of performance units may be made to an employee. A performance
unit that only requires the passage of time to vest is commonly called a "stock
unit." If performance conditions are also required of an employee, the award is
commonly called a "performance unit." Each stock unit or performance unit
represents one share of Common Stock which, at the time and to the extent
vested, will be payable by the delivery of one share of Common Stock.
Alternatively, as provided in the applicable agreement, cash may be payable to
the employee based upon the fair market value of the Common Stock at the time of
payment. In addition, an employee who has been awarded a stock unit or
performance unit shall receive additional unit credit based on the value of any
dividends which would have been paid to the employee if he or she owned the
Common Stock represented by the units.
Certain performance units may be attributable to an employee's election to
defer compensation under the Management Incentive Plan, the Regional Incentive
Plan, the Executive Incentive Plan, or any successor plans. Performance units
will be payable at the time selected by the employee and permitted by the
Committee. The maximum number of performance units which may be issued to
employees under the 1995 Performance Stock Plan will not exceed 150,000 in any
single calendar year.
Restricted Stock Awards
The Committee may issue restricted stock awards. Each restricted stock
award will be evidenced by a written document containing such terms and
provisions including the price, if any,
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to be paid by the recipient, consistent with the 1995 Performance Stock Plan as
the Committee approves. The Committee will determine the restricted period
during which the restricted stock and dividends paid with respect to the
restricted stock may not be sold, assigned, transferred, pledged or otherwise
encumbered, except as permitted by the 1995 Performance Stock Plan or the
restricted stock agreement. The Committee may at any time reduce or terminate
the restricted period.
If a holder of restricted stock ceases to be an employee of the
Corporation or a subsidiary during the restricted period for any reason other
than death, disability or retirement, all shares of restricted stock which are
then subject to the restrictions imposed by the Committee will be forfeited and
returned to the Corporation. If a holder of restricted stock ceases to be an
employee of the Corporation or a subsidiary during the restricted period by
reason of death, disability or retirement, shares of the restricted stock shall,
to the extent determined by the Committee, become free of the restriction.
Change in Control
In the event of a change in control as defined in the 1995 Performance
Stock Plan, each option, accelerated ownership stock option and stock
appreciation right will become immediately exercisable, the restricted period
for restricted stock will immediately expire, and, unless otherwise provided in
performance unit agreements, all performance units will be immediately payable
in Common Stock in the maximum amount available under the terms of the
agreement.
Amendments and Discontinuance
The Board of Directors may amend or terminate the 1995 Performance Stock
Plan in any respect, provided no such action shall, without consent of the
participants, affect or impair any award previously granted. In addition, no
such action shall be taken without stockholder approval if required by Rule
16b-3 of the Securities Exchange Act of 1934 or the federal tax rules applicable
to incentive stock options or other applicable law.
Federal Income Tax Consequences
The following is a general summary of the principal federal income tax
consequences of stock options granted under the 1995 Performance Stock Plan. The
summary is based on the Corporation's understanding of the currently applicable
provisions of the Code and Treasury regulations, as well as administrative and
judicial interpretations. State, local and foreign tax consequences of options
granted under the 1995 Performance Stock Plan are not covered in this summary,
which is not intended to cover all tax consequences that may apply to an
optionee or to the Corporation.
Incentive Stock Options. If an optionee holds the shares acquired upon the
exercise of an incentive stock option for more than one year after exercise and
two years after the date of grant of the option, and if at all times from the
date of grant of the option until three months preceding the exercise of the
option (one year in the case of disability) the optionee was an employee of the
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corporation or a subsidiary, (a) the optionee will not be taxed at the time the
option is granted or exercised; (b) the difference between the option price and
the amount realized upon disposition of the shares will constitute long-term
capital gain or loss, as the case may be; and (c) the Corporation will not be
allowed an income tax deduction for granting the option or issuing shares
pursuant to the exercise of the option. If after the exercise of an incentive
stock option the optionee fails to observe the holding rule, the portion of any
gain realized upon disposition of the shares which does not exceed the excess of
the value at date of exercise over the option price will be treated as ordinary
income. The balance of any gain (or any loss) will be treated as capital gain
(or loss), long-term or short-term, depending on the length of time the stock
was held after the option was exercised. To the extent the optionee is subject
to the alternative minimum tax provisions of the Code, the amount by which the
fair market value of the shares at the time the incentive stock option is
exercised exceeds the option price will be an item of tax preference which must
be included when making the alternative minimum tax calculation for the tax year
in which the incentive stock option is exercised. The Corporation will be
entitled to a deduction equal to the amount of ordinary income upon which the
optionee is taxed. If an optionee exercises an incentive stock option at a time
when he or she was not an employee of the Corporation or a subsidiary within the
preceding three months (one year in the case of disability), the option will be
treated as a nonqualified option with the consequences described below.
Non-Qualified Options. Under present Treasury regulations holding that an
option does not have a readily ascertainable fair market value unless it is
freely transferable and meets certain other conditions, an optionee who is
granted a non-qualified option will not realize taxable income at the time the
option is granted. If an optionee exercises the option by paying cash to acquire
the shares subject to option, he or she will be taxed in the year of exercise at
ordinary income tax rates on an amount equal to the excess of the fair market
value of the shares on the date of exercise over the option price. The
Corporation will receive a corresponding deduction. The optionee's basis in the
shares so acquired will be equal to the option price plus the amount of ordinary
income upon which he or she is taxed. Upon subsequent disposition of the shares,
an optionee will realize capital gain or loss, long-term or short-term,
depending upon the length of time he or she has held the shares since the option
was exercised.
Payment of Option Exercise Price With Shares. If an optionee uses existing
shares in full or partial payment of the option exercise price, the optionee
generally will not recognize taxable income with respect to the shares
surrendered. The optionee's tax basis and holding period for the shares
surrendered generally will apply to an equal number of shares issued pursuant to
the exercise. However, if the shares surrendered were originally acquired
through an incentive stock option exercise, an exchange within two years of such
earlier incentive stock option grant or within one year of such earlier
incentive stock option exercise win be a disqualifying disposition of such
shares surrendered. In such case, the holding period for the shares surrendered
cannot be used to meet the one year and two year periods for determining a
disqualifying disposition of the new shares acquired in the exchange.
With an incentive stock option, no taxable income will be recognized by
the optionee on the exercise of the incentive stock option with existing shares
(except as described above with respect to a disqualifying disposition of the
shares surrendered). The shares issued in excess of
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the number of shares surrendered will have a tax basis equal to zero (or the
amount of cash, if any, used in the exercise). The holding period for such
excess shares will be measured from the date of exercise.
With a non-qualified option, the optionee will recognize the same amount
of ordinary income on the exercise, as described above (i.e., regardless of
whether the exercise price is paid in cash or in shares). The shares issued in
excess of the number of shares surrendered will have a tax basis equal to the
amount of ordinary income recognized on the exercise plus the amount of cash (if
any) used in the exercise. The holding period for such excess shares will be
measured from the date of exercise.
Deductibility of Benefits. As discussed above, the Corporation generally
will be entitled to a deduction at the time an optionee is subject to ordinary
income tax, and such deduction will be equal to the amount of ordinary income
upon which an optionee is taxed. The Corporation believes that stock options
granted under the 1995 Performance Stock Plan will qualify as
"performance-based" under Section 162(m) of the Code, and therefore,
compensation attributable to such options will be deductible without regard to
the $1,000,000 limitation of Code Section 162(m). (See discussion of Section
162(m) at "Compensation Program Elements - The Tax Deductibility Limitation" in
the Report of the Compensation Committee on Executive Compensation above).
Tax Withholding and Reporting. The Corporation has the right and
obligation to withhold any sums required by federal, state, local and foreign
tax laws to be withheld with respect to the exercise of stock options. Such
withholding may be in cash or in shares, or the Corporation may require the
person exercising the stock option to pay such sums to the Corporation to
satisfy the withholding requirements. The Corporation is also required to file
information returns with the appropriate taxing authorities with respect to the
exercise of stock options as well as with respect to any disqualifying
disposition of an incentive stock option.
THE BOARDS OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL FOR APPROVAL
OF THE 1995 PERFORMANCE STOCK PLAN.
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