1999 ANNUAL REPORT AND FORM 10-K
[LOGO]
U.S. BANCORP
CONTENTS
2 Letter to Shareholders
6 Customer Solutions
6 Wholesale Banking
10 Consumer Banking
12 Payment Systems
14 Wealth Management and Capital Markets
16 Management's Discussion
and Analysis
39 Consolidated Financial Statements
67 Five-Year Consolidated Financial Statements
69 Quarterly Consolidated Financial Data
72 Supplemental
Financial Data
74 Form 10-K
78 Executive Officers
80 Directors
81 Corporate Data
ABOUT THE COMPANY
U.S. Bancorp-Registered Trademark- is a multistate bank holding company with headquarters in Minneapolis, Minnesota. We offer a comprehensive range of financial solutions to meet the needs of businesses, institutions, government entities and individuals. The nation's 11th largest bank holding company, U.S. Bancorp assets totaled $82 billion at December 31, 1999.
U.S. Bancorp ranks among the top-performing U.S. bank holding companies in terms of profitability and efficiency. We reported 1999 return on average assets of 2.01 percent, return on average common equity of 23.6 percent, and an efficiency ratio of 50.5 percent, before merger-related charges and available-for-sale securities transactions.
U.S. Bancorp serves millions of banking customers principally in 16 states from the Midwest to the Rocky Mountains to the West Coast. For larger businesses and affluent clients with more complex needs, we provide relationship-driven, customized solutions. For retail customers, including individuals and small businesses, we focus on providing anytime, anywhere access to high-quality products and services. We also offer specialized expertise and leadership covering a broad financial spectrum including electronic payment systems, corporate trust services, asset management, investment banking and securities brokerage.
U.S. Bancorp is committed to satisfying customers and creating shareholder value. Our four business lines--Wholesale Banking, Consumer Banking, Payment Systems, and Wealth Management and Capital Markets--focus on fulfilling these commitments to customers and shareholders.
U.S. Bancorp is listed on the New York Stock Exchange under the ticker symbol USB. Our Internet home page is located at www.usbank.com.
FINANCIAL SUMMARY
Percent Change
(Dollars in Millions, Except Per Share Data) 1999 1998 1998-1999
-------------------------------------------- ---- ---- ---------
Income before merger-related charges and available-for-sale securities transactions ...... $ 1,546.5 $ 1,455.8 6.2%
Merger-related charges and available-for-sale securities transactions .................... (40.0) (128.4) (68.8)
Net income ............................................................................... $ 1,506.5 $ 1,327.4 13.5
---------- -----------
PER COMMON SHARE BEFORE MERGER-RELATED CHARGES AND
AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS
Earnings per share ....................................................................... $ 2.13 $ 1.98 7.6
Diluted earnings per share ............................................................... 2.11 1.96 7.7
Earnings on a cash basis (diluted)* ...................................................... 2.34 2.15 8.8
SELECTED FINANCIAL RATIOS BEFORE MERGER-RELATED CHARGES AND
AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS
Return on average assets ................................................................. 2.01% 2.03%
Return on average common equity .......................................................... 23.6 24.1
Efficiency ratio ......................................................................... 50.5 49.1
Banking efficiency ratio** ............................................................... 43.2 44.2
---------- ----------
PER COMMON SHARE
Earnings per share ....................................................................... $ 2.07 $ 1.81 14.4
Diluted earnings per share ............................................................... 2.06 1.78 15.7
Earnings on a cash basis (diluted)* ...................................................... 2.28 1.98 15.2
Dividends paid ........................................................................... .78 .70 11.4
Common shareholders' equity .............................................................. 10.14 8.23 23.2
FINANCIAL RATIOS
Return on average assets ................................................................. 1.96% 1.85%
Return on average common equity .......................................................... 23.0 21.9
Efficiency ratio ......................................................................... 51.6 53.1
Net interest margin (taxable-equivalent basis) ........................................... 4.83 4.87
---------- ----------
AT YEAR END
Loans .................................................................................... $ 62,885 $ 59,122 6.4
Allowance for credit losses .............................................................. 995 1,001 (.6)
Assets ................................................................................... 81,530 76,438 6.7
Total shareholders' equity ............................................................... 7,638 5,970 27.9
Tangible common equity to total assets*** ................................................ 6.5% 6.0%
Tier 1 capital ratio ..................................................................... 6.8 6.4
Total risk-based capital ratio ........................................................... 11.1 10.9
Leverage ratio ........................................................................... 7.4 6.8
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** Without investment banking and brokerage activity.
*** Defined as common equity less goodwill as a percentage of total assets less goodwill.
FORWARD-LOOKING STATEMENTS
This Annual Report and Form 10-K contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including the following: (i) the Company's investments in its consumer banking, payment systems and wealth management businesses and in its Internet development could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to Company earnings; (ii) general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality or a reduced demand for credit or fee-based products and services; (iii) changes in the domestic interest rate environment could reduce net interest income; (iv) the conditions of the securities markets could change, adversely affecting revenues from capital markets businesses or the availability and terms of funding necessary to meet the Company's liquidity needs; (v) changes in the extensive laws, regulations and policies governing financial services companies could alter the Company's business environment or affect operations; (vi) the potential need to adapt to industry changes in information technology systems, on which the Company is highly dependent, could present operational issues or require significant capital spending; (vii) competitive pressures could intensify and affect the Company's profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the Internet, or bank regulatory reform; and (viii) acquisitions may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated, or may result in unforeseen integration difficulties. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them in light of new information or future events.
Graphs illustrate the following information:
Return on average common equity* (percent)
1995: 18.4 1996: 20.0 1997: 22.1 1998: 24.1 1999: 23.6 Return on average assets* (percent) 1995: 1.52 1996: 1.71 1997: 1.83 1998: 2.03 1999: 2.01 Diluted earnings per share* (dollars) 1995: 1.24 1996: 1.49 1997: 1.68 1998: 1.96 1999: 2.11 |
Efficiency ratio* (percent)
1995: 56.6
1996: 52.8
1997: 48.8
1998: 49.1
1999: 50.5
Shareholders' equity to assets ratio (percent)
1995: 8.1
1996: 8.3
1997: 8.3
1998: 7.8
1999: 9.4
*Before merger-related charges and available-for-sale securities transactions.
U.S.BANCORP 1
TO OUR SHAREHOLDERS
DESPITE A YEAR OF RECORD EARNINGS IN 1999, OUR GROWTH RATE AND OUR STOCK'S PERFORMANCE WERE, IN A WORD, DISAPPOINTING. BECAUSE MOST OF OUR BUSINESSES PERFORMED WELL, U.S. BANCORP CONTINUES TO BE ONE OF THE NATION'S MOST PROFITABLE MAJOR BANKS WITH A 1999 OPERATING RETURN ON ASSETS OF 2.01 PERCENT AND AN OPERATING RETURN ON COMMON EQUITY OF 23.6 PERCENT. HOWEVER, WE EXPERIENCED LOW GROWTH IN OUR CONSUMER BANKING BUSINESS, WHICH ACCOUNTS FOR NEARLY ONE-THIRD OF OUR EARNINGS, AND, AS A RESULT, WE FELL SHORT OF OUR OWN EXPECTATIONS FOR OVERALL GROWTH.
[Photo of John F. Grundhofer, chairman and chief executive officer]
JOHN F. GRUNDHOFER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
As employees and shareholders, the people of U.S. Bancorp share your disappointment in the year's results and its effect on our stock price, but we look to the future with confidence. In fact, in my 10 years as CEO, I have never been more optimistic about U.S. Bancorp than I am today. We have a tremendous company with leadership positions in some of the nation's most attractive growth markets. We have highly competitive products, strong technology and superb people.
In many ways, U.S. Bancorp is at a new stage in its evolution as a leader in the financial services industry. In the early 1990s, we standardized our products, centralized our operations and automated our processes to achieve the efficiencies that made us a leader in a rapidly consolidating industry. These advantages are important core competencies that will help us succeed as we enter a new era that is more dependent upon internal revenue growth than growth by acquisition.
Our highly integrated technology is a strategic advantage as we pursue the enormous opportunities emerging from Internet commerce for businesses and consumers. Over the past decade we have created a powerful technology platform that supports all of our businesses, enabling us to deliver a quality customer experience regardless of how customers choose to do business with us-by branch, telephone, automated teller machine or the Internet.
This platform, combined with our leadership position in payment processing, will help us accelerate our growth as we build scalable e-commerce solutions to meet our
2 U.S. BANCORP
customers' needs for more sophisticated and integrated solutions. We will deliver on our promise to simplify their lives by offering anytime, anywhere access to a comprehensive range of financial solutions.
These efforts, along with actions to improve our Consumer Banking business, will help U.S. Bancorp achieve its previously stated long-term objective of 12 to 15 percent earnings per share growth in 2001 and beyond.
PLANNING FOR FUTURE GROWTH
This past year we created a new management structure, which included the formation of the Senior Management Operating Committee. It is composed of leaders representing all of our major business, operations and corporate units. Each of our business segments now benefits from the direct leadership of a dedicated executive manager.
In addition, Philip G. Heasley was named President and Chief Operating Officer, responsible for the daily operations of the company. Phil's strategic vision, understanding of technology and proven leadership made him an ideal choice. We have built a focused management team that is facilitating cooperation and communication across our business lines.
- WHOLESALE BANKING We continue to enhance the level of service we provide our business clients through customized solutions, including creative financing and online tools that enable integrated account management.
For example, clients can electronically access depository and treasury management account information, initiate their own transactions (e.g., wire transfer, stop payments), view check images, sign up for corporate, purchasing and fleet cards and issue foreign drafts-all with the click of a mouse. Our powerful technology-based solutions offer great convenience to our business clients.
- CONSUMER BANKING Over the last year, our consumer banking business revenues have not grown at the pace we would have liked and as a result, we are implementing several initiatives to rejuvenate this portion of our business.
We are focusing on enhancing our customers' experience with us to increase their satisfaction and loyalty. We are investing across the board in our people, technology and processes. This includes hiring additional tellers, telephone service representatives and small business bankers. We are investing in more and better tools for serving customers, including additional branches and sales offices, new lobby technology and enhanced online banking capabilities.
For example, we are initiating Lobby 2000, a new teller platform that will simplify our tellers' jobs, reduce errors, speed transactions and allow us to more quickly identify customer needs. Lobby 2000 will be launched later this year.
We are also revising our incentive plans for managers, tellers and personal bankers to place more emphasis on customer retention and satisfaction. These initiatives, in conjunction with several others underway, will help us strengthen our consumer banking business.
- PAYMENT SYSTEMS Payment systems is perhaps the largest opportunity in financial services, representing the process by which trillions of dollars of transactions are completed each year. The explosive growth of the Internet is creating a new marketplace of tremendous proportions that is redefining the world of payment processing-and creating enormous opportunities for U.S. Bancorp. Business-to-business e-commerce transactions alone are expected to grow to $2.3 trillion by 2004 and to $12.2 trillion by 2010. The winners in processing these complex transactions will be companies that can quickly automate critical verification, financial and fulfillment capabilities on the Web. Coupled with our core legacy capabilities, our new digital technology will enable us to deliver wholly integrated customer solutions that outpace the non-integrated products that are being introduced to the marketplace.
At U.S. Bancorp, we are leveraging our position of strength. The nation's largest provider of Visa Corporate cards in sales volume and a pioneer of purchasing cards, we have already successfully launched new e-commerce
"The explosive growth of the Internet is... redefining the world of payment processing-and creating enormous opportunities for U.S. Bancorp."
U.S. BANCORP 3
[GRAPH]
Graph illustrates the following information: U.S. Bancorp cumulative total shareholder return*
Index: 12/31/89=$100
USB=U.S. Bancorp Common Stock
KBW=Keefe, Bruyette & Woods 50 Bank Index
S&P=Standard & Poor's Index of 500 Stocks
YEAR USB KBW S&P 1989: 100 100 100 1990: 83 72 97 1991: 159 114 126 1992: 193 145 136 1993: 217 153 150 1994: 243 145 152 1995: 375 232 209 1996: 529 329 257 1997: 886 480 342 1998: 858 520 439 1999: 591 502 531 |
*Capital appreciation plus dividends
$100 invested in U.S. Bancorp common stock on December 31, 1989 would have been worth $591 at year-end 1999. That compares with $502 for the KBW 50 Bank Index and $531 for the S&P 500 stock index.
As with any investment, past performance is no guarantee of future results.
solutions. The U.S. Department of Defense and several major corporations have adopted U.S. Bank-Registered Trademark- PowerTrack-Registered Trademark-, our proprietary Internet-based freight payment system. The multi-billion dollar freight shipment industry represents a significant growth opportunity. No competitor has anything like PowerTrack, which makes conventional freight payment processing obsolete.
We are developing additional payment systems solutions through key alliances and acquisitions. Last year we began working with Ariba, Inc., the leader in business-to-business e-commerce solutions. In 1999 we also acquired Mellon Network Services' electronic funds transfer processing unit, which both complements and extends our payment processing services, which include point-of-sale and debit card processing, ATM terminal driving, card issuance and gateways to networks, both regional and national. The acquisition of Voyager Fleet Systems, Inc., made us one of the largest providers of fleet card services for state and federal government agencies and extends our capabilities for the wide array of corporate customers we serve.
- WEALTH MANAGEMENT AND CAPITAL MARKETS The tremendous wealth being created through e-commerce, the generational shift in wealth to baby boomers, and the increasing public acceptance of investment products bodes well for the continued strong growth of Wealth Management.
Equity Capital Markets nearly doubled the number and value of its investment banking transactions in 1999. U.S. Bancorp Piper Jaffray-Registered Trademark- ended the year as the ninth ranked investment bank in total number of initial public offerings (IPOs) and the seventh ranked investment bank in technology IPOs nationally. We are focused on growth industries including technology, health care, consumer, industrial growth and financial institutions.
We are integrating our U.S. Bancorp Piper Jaffray services with our U.S. Bank Institutional Financial Services and Private Financial Services to deliver seamless investment and banking services to our clients. We have implemented processes for improving quality to ensure consistent competitive performance and are maximizing the complementary cross-sell opportunities between U.S. Bank and U.S. Bancorp Piper Jaffray.
- CHANNELS Providing a wide range of customer-enabled channels is a priority. We are investing to strengthen our channels, which are linked by customer-centered technology. Our goal is to create a high-quality customer experience based on how a customer chooses to do business with us.
In addition to the investments in our approximately 1,000 banking offices, in 1999 we accelerated our investment in our Internet banking capabilities. Unlike some competitors, we do not view online banking as a separate business, but rather another important means for delivering anytime, anywhere access to our customers.
- MARKETS U.S. Bancorp has excellent market positions and geographic reach. Last year we expanded our presence in California. Through the acquisitions of Bank of Commerce, Western Bancorp and Peninsula Bank in southern California, we further leveraged our technology, products and services in attractive new markets for U.S. Bank. With the acquisition of Bank of Commerce, U.S. Bank also became one of the largest U.S. Small Business Administration (SBA) lenders in the nation.
4 U.S. BANCORP
- CAPITAL MANAGEMENT Long-term investors in U.S. Bancorp know that we strongly believe in actively managing our capital to maximize value for shareholders. In addition to acquisitions and investing in our businesses, last year we bought back 16.6 million shares of common stock under a $2.5 billion share repurchase program authorized in June 1998. Under this program, we have repurchased shares totaling $1.5 billion. On February 16, 2000, the Board of Directors replaced the program with a new authorization to repurchase up to $2.5 billion of common stock through March 31, 2002.
The Board of Directors also increased the quarterly dividend to 21.50 cents from 19.50 cents, a 10.3 percent increase. It was our ninth consecutive annual increase.
OUR PEOPLE AND COMMUNITIES
The future of U.S. Bancorp is its people-people who care about our customers, their communities, shareholders and each other. We strive to deepen customer relationships and improve the quality of life in the communities where we work and live.
Our employees are bullish on U.S. Bancorp. Our top 400 managers have a significant portion of their personal wealth tied to the success of U.S. Bancorp through stock ownership targets that range from 80 percent to 550 percent of their base pay. Collectively, we increased our stake in U.S. Bancorp stock during 1999.
As a company, we strongly believe in investing our time, talent and financial resources to improve our communities. We accomplish this objective by supporting social, economic, educational and cultural programs. Our community investment program is responsive and expansive. In 1999 we contributed more than $45 million in cash grants, loan assistance, sponsorships, employee volunteer time and in-kind donations to local organizations throughout our banking region. In addition, we made more than $500 million in loans and investments in support of affordable housing and economic revitalization initiatives. Our employees also gave generously of their time, talents and dollars through volunteerism and charitable contributions.
Our Directors, like our employees, are dedicated individuals whose interests are aligned with those of our shareholders. Their guidance has been instrumental in positioning U.S. Bancorp for the future. Edward J. Phillips, a 12-year board member, will retire at our annual meeting on April 19, 2000. We thank him for his service.
I would also like to personally thank three of our Vice Chairmen for their years of leadership at U.S. Bancorp. Robert D. Sznewajs, who oversaw the consumer branch group during the First Bank System/U.S. Bancorp integration, left to pursue other opportunities. Gary T. Duim, who also played an instrumental role throughout the integration process, has announced that he will retire this summer. And finally, Richard A. Zona, who helped build the once-struggling First Bank System into a strong and growing company, will retire in March 2000. His leadership has contributed greatly to the success of U.S. Bancorp over the years.
As we move into 2000, our mission is to create superior shareholder value by fulfilling our customer promise to simplify our customers' lives. On the following pages you will see, through our customer stories, we are working hard to achieve exactly that. Thank you for your investment in U.S. Bancorp.
[Signature of John F. Grundhofer, chairman and chief executive officer]
John F. Grundhofer
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
February 16, 2000
"Our mission is to create superior shareholder value by fulfilling our customer promise."
U.S. BANCORP 5
CUSTOMER SOLUTIONS
WHOLESALE
[Photo of Andersen Corporation executives: Mike Johnson, chief financial officer and Don Garofalo, chief executive officer.]
ANDERSEN CORPORATION CHIEF FINANCIAL OFFICER MIKE JOHNSON (STANDING) AND PRESIDENT AND CHIEF EXECUTIVE OFFICER DON GAROFALO APPRECIATE U.S. BANK'S BREADTH OF FINANCIAL SOLUTIONS, WHICH HAVE OPENED WINDOWS OF OPPORTUNITY FOR THEIR COMPANY.
FROM SMALL BEGINNINGS COME GREAT THINGS. THIS PROVERB APTLY DESCRIBES BOTH THE GROWTH OF AMERICA'S LEADING WINDOW MANUFACTURER AND ITS RELATIONSHIP WITH U.S. BANK. FOR NEARLY 80 YEARS, U.S. BANK HAS SERVED ANDERSEN CORPORATION AS IT HAS GROWN FROM A SMALL FAMILY-OWNED BUSINESS TO AN INTERNATIONAL PROVIDER OF WINDOWS AND PATIO DOORS OF ENDURING QUALITY.
Our long-term relationship with Andersen Corporation is one example of how U.S. Bank creates practical financial solutions. We provide a high level of service and easy access to a full range of products and services through a knowledgeable and committed team.
Based in Bayport, Minnesota, Andersen has undergone a series of changes in recent years, including repurchasing stock, improving its manufacturing facilities, increasing product variety, acquiring distribution and expanding internationally. As a result, the company's financial needs soon extended beyond the pension fund management and trust services that U.S. Bank had long provided. At each step of the way, our dedicated relationship managers drew upon U.S. Bank's broad resources to provide the right customized financial solution.
Andersen needed financing to repurchase a significant portion of the company's stock. After reviewing proposals from several financial institutions, Andersen selected U.S. Bank to underwrite its financing requirements. We understood its business and market conditions and created an optimal financial solution.
In 1998 Don Garofalo, who joined the company in 1964, was named President and Chief Executive Officer and was charged with leading the company's efforts toward achieving its strategic objectives. Additional financial flexibility was needed to support Andersen's aggressive plans to improve the efficiency of its manufacturing
6 U.S. BANCORP
capabilities, expand its product portfolio and fund potential acquisitions. The U.S. Bank relationship management team consulted with Andersen and evaluated all of the options for the best structure, terms and pricing to meet the company's financing requirements.
Early last year the company sought to acquire one of its largest distributors, Morgan Products, Ltd., of Williamsburg, Virginia. Utilizing a combination of company-owned and independent distribution created additional flexibility to make Andersen's products and customer service more attractive to retailers, which was part of Andersen's strategy to grow market share. U.S. Bancorp Piper Jaffray, our full-service investment banking company, helped value and negotiate the transaction.
To finance the transaction and provide flexibility for the company's strategic initiatives, U.S. Bank recommended that Andersen issue long-term senior notes in the institutional private placement market and refinance the company's existing debt. Through U.S. Bancorp Libra, which specializes in underwriting and trading high-yield, mezzanine and private placement securities, the successful offering was over-subscribed. Concurrently, we amended the company's existing senior credit facility and resyndicated the credit.
Another growth opportunity for Andersen products is the international market. From Argentina to Korea to Portugal, the company has distributors or suppliers in 12 countries. U.S. Bank provided letters of credit and counseled the company on how to best manage payments as its international business expands.
To help Andersen achieve additional efficiencies, U.S. Bank recommended several payment system solutions. U.S. Bank Corporate Visa Cards help Andersen reduce the cost of processing travel and entertainment expenses for its salespeople.
Most recently, Andersen began to realize the benefits of e-commerce solutions. It was one of the early adopters of PowerTrack, our proprietary Internet freight payment service. U.S. Bank PowerTrack virtually eliminates logistics paperwork, resulting in reduced processing costs and improved logistics management for all modes of transportation.
We strive to satisfy the complex and varied needs of our business clients. By delivering consistent high-quality service, customized solutions and expert financial advice, we are building relationships--enduring relationships that help both our customers and U.S. Bank succeed.
"By delivering consistent high-quality service...
we are building relationships."
HIGHLIGHTS
- COMPLETED 82 MERGER AND ACQUISITION TRANSACTIONS FOR OUR CLIENTS VALUED AT $7.7 BILLION, COMPARED WITH 67 TRANSACTIONS VALUED AT $4.9 BILLION IN 1998.
- RAISED $3.9 BILLION FOR COMPANIES THROUGH 63 IPOS AND $6.2 BILLION THROUGH 33 FOLLOW-ON OFFERINGS.
- RANKED 1ST IN MUNICIPAL CORPORATE TRUST ISSUES WITH $14.1 BILLION IN PRINCIPAL AMOUNT IN 655 NEW BOND ISSUES. RANKED 4TH IN ASSET-BACKED ISSUES WITH $22.9 BILLION IN PROCEEDS IN 102 NEW BOND ISSUES.
[Small image of computer screen showing U.S. Bancorp Web site.]
U.S.BANCORP 7
CUSTOMER SOLUTIONS
WHOLESALE
BANKING
continued
RELATIONSHIPS MATTER. IN FACT, MOST OF OUR MORE THAN HALF A MILLION SMALL AND MEDIUM-SIZED BUSINESS CLIENTS BANK WITH US BECAUSE OF OUR COMMITMENT TO PROVIDING QUALITY SERVICE. WHILE STRONG RELATIONSHIPS WITH OUR CUSTOMERS HELP US RETAIN VALUED BUSINESS, WE ALSO KNOW THAT IT HELPS US ATTRACT NEW CLIENTS.
Our relationship managers represent the backbone of our business banking group, and we win much of our new business on the strength of their efforts. For example, in Sacramento a U.S. Bank relationship manager called on a potential client. Eager to demonstrate U.S. Bank's capabilities, she invited the president of the firm, Lowell Shields, to bank-sponsored events including business breakfasts and seminars.
However, the successful 50-year-old firm, Capital Engineering Consultants, Inc., was content with its current bank. Confident that U.S. Bank could better meet its needs, the relationship manager arranged a meeting with a U.S. Bank investment specialist. What Mr. Shields learned during that meeting, thanks to our detailed analysis of his firm's accounts, was that U.S. Bank could do significantly more with the firm's money.
As a result of U.S. Bank's solutions-oriented approach, Capital Engineering Consultants established a relationship with the bank that includes checking and payroll accounts, deposit courier service and a line of credit. U.S. Bank is currently working with the client to provide customized solutions for its remaining needs, including management of its 401(k) plan.
[Photo of Dr. Jeffrey Seabourn, partner at Intermountain Medical Imaging, LLC.]
BY UNDERSTANDING THIS CLIENT'S SPECIFIC NEEDS, U.S. BANK WAS ABLE TO PROVIDE THE NECESSARY START-UP FINANCING FOR DR. JEFFREY SEABOURN AND HIS PARTNERS AT INTERMOUNTAIN MEDICAL IMAGING.
8 U.S.BANCORP
DOING WHAT'S GOOD FOR BUSINESS
Our relationship managers strive to understand the very specific needs of the businesses they serve. And often, it is the expertise of our relationship managers that results in new business. Such was the case in Boise, Idaho, where a group of 13 radiologists wanted to create a local, independent imaging center--Intermountain Medical Imaging LLC. U.S. Bank was invited to submit a proposal for this highly sought-after medical business.
A true test of any lender is working with a start-up firm, which presents risk, but also great opportunity. The digital revolution has made a major impact in medical imaging, a growth industry within the medical profession. For example, in partnership with Saint Alphonsus Regional Medical Center, also a valued client of U.S. Bank, radiologists at Intermountain Medical Imaging review, archive and electronically distribute medical images across a robust digital network. This includes a Web-browser application so that physicians have immediate access to medical images and reports, whether in the hospital, private offices or even their own homes.
A team of U.S. Bank financing specialists collaborated to create an extensive proposal tailored to fit this client's immediate funding needs, but one that would also provide a financial framework for their future growth. The proposal from U.S. Bank was accepted because of the structure of the financing we were able to offer. It was also accepted because the client wanted to establish a long-term relationship with a bank that had invested the time and expertise to understand the specifics of their business and associated financial needs. Our relationship manager had previous experience serving clients in this industry, which helped U.S. Bank attract this client.
As Capital Engineering Consultants and Intermountain Medical Imaging grow, U.S. Bank plans to be there to meet their financing and banking needs.
We understand that no two businesses are alike. We also understand that attracting new business customers, whether well-established or start-up, in turn drives our growth.
By effectively utilizing the extensive array of financial products at our disposal, we will continue to provide unique solutions to meet the ever-changing needs of our business clients.
HIGHLIGHTS
- INTRODUCED U.S. BANK CONNECTIONS-Registered Trademark- WINDOWS, A
WINDOWS-BASED SOFTWARE PACKAGE THAT ENABLES BUSINESS CLIENTS TO ACCESS
DEPOSITORY AND TREASURY MANAGEMENT ACCOUNT INFORMATION AND TO INITIATE
THEIR OWN TRANSACTIONS ELECTRONICALLY. IN 2000, THIS PRODUCT WILL BECOME
WEB-BASED.
- LAUNCHED IMAGE CHECK WEB FOR BUSINESS CUSTOMERS, WHICH IS AN ENHANCEMENT TO OUR IMAGE CHECK CD-ROM SERVICE. THIS SERVICE ALLOWS CUSTOMERS TO VIEW CHECK IMAGES--BOTH FRONT AND BACK--TO IMPROVE THEIR CUSTOMER SERVICE, PREVENT FRAUD AND PROVIDE LEGAL PROOF OF PAYMENT.
- INCREASED THE NUMBER OF U.S. BANK ADVANTAGE LINE-SM- ACCOUNTS IN 1999 BY ALMOST 140 PERCENT OVER THE PREVIOUS YEAR. PART OF OUR SIMPLY BUSINESS PRODUCT LINE, THE U.S. BANK ADVANTAGE LINE IS A CREDIT-SCORED, UNSECURED LINE OF CREDIT OF $10,000 TO $75,000.
[Small image of computer screen showing U.S. Bancorp Web site.]
"It is the expertise of our relationship managers that results in new business."
U.S.BANCORP 9
CUSTOMER SOLUTIONS
CONSUMER BANKING
[Photo of Mark Landis, customer.]
MARK LANDIS, A U.S. BANK CUSTOMER FOR MORE THAN 15 YEARS, ENJOYS THE ANYTIME, ANYWHERE CONVENIENCE AND PERSONAL SERVICE HE RECEIVES FROM U.S. BANK.
EVERY DAY MILLIONS OF CONSUMERS TURN TO U.S. BANK FOR SOLUTIONS TO MAKE THEIR LIVES SIMPLER, WHETHER IT'S A LATE-NIGHT DEPOSIT AT AN ATM, A TELEPHONE FUNDS TRANSFER ON A HOLIDAY, A HOME EQUITY LOAN APPLICATION IN ONE OF OUR BANKING OFFICES OR AN ONLINE BANKING SESSION ON THEIR LUNCH HOUR. WE PROVIDE ACCESS TO A COMPREHENSIVE RANGE OF FINANCIAL PRODUCTS AND SERVICES.
In Chico, California, Gail and Danny Chu visited several banks in town seeking a home equity loan. Unsatisfied with the financing packages offered by other banks, the Chus discovered a special promotion for home equity loans at U.S. Bank. Attracted by the favorable terms, the Chus decided to give U.S. Bank a try.
The Chus explained to the U.S. Bank personal banker their difficulty thus far trying to find the financing they wanted. The personal banker immediately began to review the Chus' entire financial profile and was able to provide the loan the Chus were seeking with terms that were attractive to them.
The Chus were so pleased with U.S. Bank's ability to meet their financing needs, they selected additional U.S. Bank products, including deposit accounts and check cards. But that's not all. They also referred 10 new customers to U.S. Bank, all of whom now have a combination of loan, deposit and related products with our bank. Mrs. Chu's brother and father, several neighbors and some employees of her small business eagerly followed her trusted advice.
10 U.S.BANCORP
"Enhancements to our
Web site will even further expand our
online capabilities."
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U.S. Bank continues to pursue higher levels of customer satisfaction. We understand that extremely satisfied customers are the key to sustained growth, through both new and deeper customer relationships. U.S. Bank already has highly competitive products, powerful technology, convenient access and resourceful, caring employees. We are now making the necessary investments that will allow us to deliver a consistently high level of service.
In short, we are redefining our customer experience to increase satisfaction, loyalty and referrals. For customers like Mark Landis, who use a broad range of U.S. Bank products, every transaction shapes their collective experience with our organization.
A Minnesota U.S. Bank customer since the early 1980s, Mr. Landis was originally attracted to the bank on the recommendation of a friend. He accesses his U.S. Bank accounts in a variety of ways, but he prefers conducting much of his business in our branches.
Over the next year, Mr. Landis and other customers may notice several enhancements to their banking experience. Additional tellers, personal bankers and telephone customer service representatives will speed transaction times; additional branches will increase convenience; in-branch technology will facilitate problem-solving and improve accuracy; and enhancements to our Web site will even further expand our online capabilities.
Mr. Landis and the Chus are a few of the more than six million customers who turn to U.S. Bank for anytime, anywhere access to a comprehensive range of financial solutions. We have a broad range of products and services that can be delivered conveniently through our branches, ATMs, telephone banking, credit and debit cards or online. We understand the importance of continually improving the effectiveness of all of our channels to satisfy the individual preferences of our clients.
Regardless of how our customers choose to bank with us, we deliver solutions that are convenient. And that helps us attract and retain valued customers like the Chu family and Mr. Landis.
HIGHLIGHTS
- INCREASED U.S. BANK HOME EQUITY AND SECOND MORTGAGE LOANS BY $1.3 BILLION IN 1999, UP 17 PERCENT FROM 1998.
- INCREASED UBANK-Registered Trademark- ONLINE EXPRESS ACCOUNTS BY MORE THAN 397 PERCENT, AS NEW AND EXISTING CUSTOMERS EXPERIENCED THE CONVENIENCE OF INTERNET BANKING.
- ADDED A NEW FEATURE TO OUR WEB SITE THAT ALLOWS QUALIFIED CONSUMERS TO APPLY FOR AND OBTAIN IMMEDIATE LIFE INSURANCE COVERAGE ONLINE, UP TO $150,000 WORTH THROUGH U.S. BANCORP INSURANCE SERVICES.
- INITIATED A NEW BRANCH STRATEGY TO CREATE SUPERIOR CUSTOMER SERVICE BY: - OPENING ADDITIONAL BRANCHES IN HIGH- GROWTH AREAS
- HIRING ADDITIONAL TELLERS AND SMALL BUSINESS BANKERS
- ENHANCING LOBBY TECHNOLOGY
- RESTRUCTURED INCENTIVE PLANS FOR BRANCH EMPLOYEES TO INCREASE SALES EMPHASIS AND REINFORCE SERVICE INITIATIVES.
U.S.BANCORP 11
CUSTOMER SOLUTIONS
PAYMENT SYSTEMS
WITH MORE THAN $1 BILLION IN FREIGHT EXPENSES FOR WORLDWIDE SHIPMENTS EACH YEAR, THE U.S. DEPARTMENT OF DEFENSE (DOD) ILLUSTRATES THE POWER OF U.S. BANK'S E-COMMERCE SOLUTIONS. THE DOD RECOGNIZED EARLY THE ENORMOUS EFFICIENCIES THAT COULD RESULT FROM ELIMINATING PAPERWORK FROM THE FREIGHT PAYMENT PROCESS.
HIGHLIGHTS
- RANKED FIRST WITHIN THE VISA NETWORK IN SALES VOLUME AND CARDS FOR OUR BUSINESS AND PURCHASING CARDS.
- SELECTED AS THE EXCLUSIVE PURCHASING CARD PROVIDER FOR LOCKHEED MARTIN CORPORATION, BELIEVED TO BE THE WORLD'S LARGEST COMMERCIAL PURCHASING CARD PROGRAM, WITH NEARLY $4 BILLION IN CHARGES EXPECTED OVER THE FIVE-YEAR AGREEMENT.
- ACQUIRED VOYAGER FLEET SERVICES, INC., EXPANDING OUR FLEET SERVICE CAPABILITIES AND ADDING 145,000 FUELING AND MAINTENANCE LOCATIONS NATIONALLY.
- ACQUIRED MELLON NETWORK SERVICES' ELECTRONIC FUNDS TRANSFER PROCESSING UNIT, WHICH MORE THAN DOUBLED OUR CURRENT PROCESSING VOLUME AND MADE US ONE OF THE NATION'S LARGEST THIRD-PARTY TRANSACTION PROCESSORS.
- INCREASED SALES VOLUME ON OUR CO-BRANDED CREDIT CARDS BY 14.8 PERCENT AND ESTABLISHED NEW CO-BRANDED CARD PARTNERSHIPS WITH KROGER CO., STAPLES AND HARLEY-DAVIDSON, INC.
- INCREASED MERCHANT PROCESSING VOLUME 20 PERCENT TO MORE THAN $27 BILLION IN CHARGE VOLUME.
Aware of the DoD's freight payment processing needs, U.S. Bank set out to revolutionize the way those payments were made. We began building on our expertise as one of the nation's largest providers of corporate, purchasing and fleet cards. Harnessing the Internet, we created U.S. Bank PowerTrack-Registered Trademark-: the only Internet freight payment system that seamlessly integrates into both shipper and carrier processes.
PowerTrack makes conventional freight payment processing obsolete. Instead of a series of separate exchanges of information between carriers and shippers, all shipment information is maintained in one electronic document, which both parties can view at anytime through the Internet.
Using PowerTrack, the DoD expects to save more than $11 million annually. The Department has cut the payment processing cycle from 45-60 days to less than three days after approval, while preserving the cash float period that exists under traditional payment systems. By the end of 2000, the DoD expects to have nearly all of its approximately 600 carriers using PowerTrack.
One of its carriers, Emery Worldwide, served as a prototype during the development of PowerTrack. Emery, a subsidiary of CNF Inc., is a $2.4 billion global heavyweight air cargo company, operating in 229 countries with a network of more than 500 service centers and agent locations around the world.
Emery has enthusiastically supported PowerTrack, and Emery's days sales outstanding with DoD PowerTrack accounts have been reduced.
Emery has also had a keen interest in PowerTrack's ability to strengthen relationships between shippers and carriers. The program motivates both parties to process shipments quickly and accurately and encourages communication. Because both partners view real-time shipment information simultaneously, discrepancies can be identified and resolved quickly.
PowerTrack's unique capabilities and seamless integration with both carriers and shippers give U.S. Bank a strong leadership position in the freight processing business. It also leverages our strength in the larger world of business-to-business Internet payment system solutions.
LEADING THE WAY IN PAYMENT PROCESSING
In addition to PowerTrack, U.S. Bank serves many of the DoD's other payment system needs. At the end of its 1999 fiscal year, the DoD was using more than
12 U.S.BANCORP
"PowerTrack leverages our strength in
the larger world of business-to-business Internet
payment system solutions."
|
206,000 purchasing cards with total charges in excess of $3.3 billion and more than 69,000 fleet cards with total charges in excess of $21 million.
Voyager Fleet Systems, Inc., which U.S. Bancorp acquired in September 1999, has had a tremendous impact on the growth of the DoD fleet card program by increasing the number of sites that accept the card, as well as the number of government employees using it.
In need of a viable way to make payments overseas at locations that were not Visa-capable, the DoD recently turned to U.S. Bank for yet another unique solution. We created a service that would allow its employees to use their purchasing cards to issue drafts in foreign currency. Using U.S. Bank Global Connections-SM- software--a product designed for our clients who conduct business internationally--drafts can be created quickly and easily.
The Global Connections software tracks each transaction and integrates the information into the cardholder's U.S. Bank statement. To ensure a convenient, seamless solution for the DoD, the software was adapted to debit the employee's purchasing card account, rather than a checking account, which is the typical procedure for this product.
Another U.S. Bank product offers great flexibility for the DoD and its global operations. Our Customer Automation and Reporting Environment (C.A.R.E.) provides anytime, anywhere Web-based access to all of the DoD's U.S. Bank account information. In addition, new purchasing card accounts can be created at any time of the day or night.
U.S. Bank's ability to provide technology-based payment processing solutions will continue to attract clients in search of cost-saving and convenient solutions.
[Photo of Gary Wegner, Emery Worldwide employee.]
PROVIDING A BETTER FREIGHT PAYMENT PROCESSING SYSTEM FOR THE U.S. DEPARTMENT OF DEFENSE AND ITS CARRIERS LIKE EMERY WORLDWIDE, U.S. BANK POWERTRACK IS A VALUABLE TOOL FOR EMPLOYEES LIKE GARY WEGNER.
U.S.BANCORP 13
CUSTOMER SOLUTIONS
WEALTH MANAGEMENT AND CAPITAL MARKETS
FOR THE AFFLUENT CLIENT, FINDING AN INTEGRATED BANKING AND INVESTMENT FIRM CAN BE A DREAM COME TRUE. FROM INVESTMENTS TO ESTATE PLANNING TO PRIVATE BANKING TO ASSET MANAGEMENT--U.S. BANCORP DELIVERS THEM ALL, AND MORE.
HIGHLIGHTS
- ACHIEVED STRONG GROWTH IN U.S. BANCORP PIPER JAFFRAY'S RETAIL BROKERAGE.
CLIENT ASSETS INCREASED IN 1999 TO $56.1 BILLION.
- INCREASED REVENUE PER INVESTMENT EXECUTIVE AT U.S. BANCORP PIPER JAFFRAY BY
13.2 PERCENT.
- FIRST AMERICAN FUNDS(R) MANAGED BY FIRST AMERICAN ASSET MANAGEMENT, INCREASED ITS ASSETS TO $33.3 BILLION IN 1999.
- U.S. BANCORP PIPER JAFFRAY, IN 1999, BEGAN A NEW ADVISORY TRAINING PROGRAM FOR ITS FINANCIAL PROFESSIONALS THAT FOCUSES ON DELIVERING A CONSISTENT AND RIGOROUS PROCESS TO PROVIDE COMPREHENSIVE FINANCIAL SOLUTIONS TO THEIR BEST CLIENTS. THIS PROGRAM ALSO EDUCATES THE FINANCIAL PROFESSIONAL ON THE COMPLETE ARRAY OF FINANCIAL PRODUCTS AND SERVICES AVAILABLE THROUGH U.S. BANCORP.
- DEVELOPED INTEGRATED PRIVATE FINANCIAL SERVICES/ U.S. BANCORP PIPER JAFFRAY TEAMS TO FOCUS ON THE INVESTMENT NEEDS OF AFFLUENT CLIENTS.
[Small image of computer screen showing U.S. Bancorp Web site.]
Our approach to serving our clients' many financial needs is multifaceted. Through a dedicated relationship manager, we review our clients' financial objectives, develop a plan to meet them, then monitor the results. We offer our clients--wealthy individuals and families, professionals and professional service firms, and charitable and non-profit organizations--access to a variety of experts with creative solutions and sound advice, giving them the peace of mind that their financial needs are being well managed.
It was precisely for this reason that Warren McCain came to U.S. Bank more than 40 years ago. Mr. McCain was introduced to additional services of the bank while serving as chairman and chief executive officer (now retired) of Boise-based Albertson's, Inc., one of the largest retail food-drug chains in the United States and a long-time business client of U.S. Bank.
In the early 1990s, Mr. McCain enlisted the services of several portfolio managers to determine which could best serve his needs. One of the financial professionals, a member of our asset management group, was recommended to Mr. McCain by his U.S. Bank relationship manager. Over time, Mr. McCain came to appreciate the solid investment returns and the effective management of his assets by U.S. Bank. As a result, he consolidated the majority of his investments with us and significantly expanded his personal banking relationship in our Private Financial Services Group.
U.S. Bank continues to build upon its goal of offering complete financial services, while also understanding and respecting the value of working with our clients' existing team of financial and legal professionals. Our relationship managers work closely with Mr. McCain's accountant and lawyer to make recommendations that are in his best interest; our advice reflects a combination of in-depth client knowledge and market expertise.
Mr. McCain currently uses the services of our asset management group, First American Asset Management-SM- (FAAM), for his investment needs. FAAM, with more than $78 billion in assets under management, serves as the investment advisor to First American Funds-Registered Trademark-, which offers 38 mutual funds to investors.
Over the years, Mr. McCain has received a range of financial solutions from
"Our advice reflects a combination of in-depth client knowledge and market expertise."
14 U.S. BANCORP
U.S. Bank including comprehensive estate planning services, personal trusts, Private Select checking, savings accounts, credit cards, IRAs and credit lines. Our ability to meet his varied financial needs by leveraging our vast banking and investment resources has given Mr. McCain the one-stop access to financial services he desires.
COMPREHENSIVE INVESTMENT AND EQUITY SOLUTIONS
Our clients have many options available to them when looking for investment products and investment banking services. Through U.S. Bancorp Piper Jaffray, U.S. Bancorp Investments, Inc., and U.S. Bancorp Libra, we are able to meet the full needs of our individual and business clients.
U.S. Bancorp Investments Direct offers self-directed investors the opportunity to utilize its investment capabilities. Customers choose how they want to place trades and access their investment account, utilizing any or all of the alternatives available to them including Online Investing via our Web site, touch-tone investing through any touch-tone telephone, or with an Investment Specialist by telephone.
For both our individual and business clients, U.S. Bancorp Piper Jaffray offers a wide array of investment products and services, including annuities, mutual funds, individual stocks and bonds, 401(k) plan services, employee stock purchase plan services, managed accounts and much more.
Our nationally recognized U.S. Bancorp Piper Jaffray investment banking practice specializes in serving growth companies through a full range of services including IPOs and follow-on offerings, corporate debt underwritings, private placements and mergers and acquisitions advisory services.
California-based Phone.com, Inc., a leading provider of software that enables the delivery of Internet-based services to mass-market wireless telephones, completed both its initial public offering and a follow-on offering in 1999. U.S. Bancorp Piper Jaffray was a co-managing underwriter on each transaction, which raised $73.6 million and $1.0 billion for the company respectively. For Phone.com, Inc., going public has provided a huge boost to their growth potential, access to additional capital and a powerful currency that's allowing them to grow their business strategically and organically.
As demand for wealth management and investment banking services has increased, so too has our opportunity for growth in this area. We continue to expand and integrate our banking and investment services for the benefit of our clients like Warren McCain and Phone.com, Inc., who seek customized and comprehensive financial solutions.
[Photo of Warren McCain, customer.]
U.S. BANK EFFECTIVELY MANAGES THE COMPLEX FINANCIAL NEEDS OF OUR CLIENTS, LIKE WARREN MCCAIN, WHO VALUE THE FREEDOM CREATED BY OUR COMPREHENSIVE SERVICE.
U.S. BANCORP 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
SUMMARY OF 1999 RESULTS U.S. Bancorp (the "Company") earned record operating earnings (net income excluding merger-related charges and available-for-sale securities transactions) of $1.55 billion in 1999, up 6.2 percent from 1998 operating earnings of $1.46 billion. On a diluted share basis, operating earnings were $2.11 in 1999, compared with $1.96 in 1998. Operating earnings on a cash basis were $2.34 per diluted share in 1999, compared with $2.15 per diluted share in 1998. The year-over-year increase in earnings per diluted share reflected a 13.2 percent growth in total revenue partially offset by higher growth rates in noninterest expense and provision for credit losses. Return on average assets and return on average common equity, excluding merger-related charges and available-for-sale securities transactions, were 2.01 percent and 23.6 percent in 1999, compared with returns of 2.03 percent and 24.1 percent in 1998. Excluding merger-related charges and available-for-sale securities transactions, the efficiency ratio (the ratio of expenses to revenues) was 50.5 percent in 1999, compared with 49.1 percent in 1998. The banking efficiency ratio (the ratio of expenses to revenues without the impact of investment banking and brokerage activity) before merger-related charges and available-for-sale securities transactions, was 43.2 percent in 1999, compared with 44.2 percent in 1998.
Net income was $1.50 billion in 1999, or $2.06 per diluted share, compared with $1.33 billion, or $1.78 per diluted share, in 1998. Return on average assets and return on average common equity were 1.96 percent and 23.0 percent in 1999, compared with returns of 1.85 percent and 21.9 percent in 1998. Net income reflects merger-related charges and available-for-sale securities transactions of $40.0 million ($63.7 million on a pre-tax basis) in 1999 and $128.4 million ($203.9 million on a pre-tax basis) in 1998. See pages 22 through 24 for further discussion on merger-related charges and available-for-sale securities transactions.
ACQUISITION AND DIVESTITURE ACTIVITY Operating results for 1999 reflect purchase and divestiture transactions from or to the date of completion. On November 15, 1999, the Company completed the acquisition of Western Bancorp. Western Bancorp had $2.5 billion in total assets with 31 branches in southern California in Los Angeles, Orange and San Diego counties. The purchase price of approximately $922 million was allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition. On September 24, 1999, the Company completed the sale of 28 branches in Kansas and Iowa with aggregate deposits of $364 million. On September 23, 1999, the Company sold $1.8 billion of indirect automobile loans and is in the process of exiting this business. On September 17, 1999, the Company completed its acquisition of the investment banking division of The John Nuveen Company, which became part of the U.S. Bancorp Piper Jaffray Fixed Income Capital Markets division. On September 13, 1999, the Company completed its acquisition of Voyager Fleet Systems, Inc., which is now part of the Payment Systems business unit. On July 15, 1999, the Company completed its acquisition of the San Diego-based Bank of Commerce, one of the nation's largest U.S. Small Business Administration ("SBA") lenders. On June 30, 1999, the Company completed its acquisition of Mellon Network Services' electronic funds transfer processing unit. On March 16, 1999, the Company completed its acquisition of Reliance Trust Company's corporate trust business, which operates offices in Georgia, Florida and Tennessee. On January 4, 1999, the Company acquired Libra Investments, Inc., an investment banking business that specializes in underwriting and trading high yield and mezzanine securities for middle market companies. On December 15, 1998, the Company completed its acquisition of Northwest Bancshares, Inc. On May 1, 1998, the Company completed its acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a full-service investment banking and securities brokerage firm.
On September 2, 1999, the Company announced an agreement to acquire Peninsula Bank of San Diego. With $456 million in assets, Peninsula Bank operated 11 branches in San Diego County, California. The acquisition closed January 14, 2000.
These transactions were all accounted for as purchase acquisitions. Refer to Note C and Note M of the Notes to Consolidated Financial Statements for additional information regarding acquisitions and divestitures.
16 U.S. BANCORP
TABLE 1 SELECTED FINANCIAL DATA
(Dollars in Millions, Except Per Share Data) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent basis) ......... $ 3,302.7 $ 3,111.9 $ 3,106.0 $ 3,034.7 $ 2,886.6
Provision for credit losses ............................ 531.0 379.0 460.3 271.2 239.1
-------------------------------------------------------------------
Net interest income after provision for credit losses 2,771.7 2,732.9 2,645.7 2,763.5 2,647.5
Available-for-sale securities (losses) gains ........... (1.3) 12.6 3.6 20.8 3.0
Merger-related and restructuring gains ................. -- -- -- 235.8 --
Other noninterest income ............................... 2,760.0 2,244.0 1,611.6 1,526.5 1,310.3
Merger-related and restructuring charges ............... 62.4 216.5 511.6 127.7 98.9
Other noninterest expense .............................. 3,064.5 2,627.8 2,300.7 2,410.4 2,377.0
-------------------------------------------------------------------
Income before income taxes .......................... 2,403.5 2,145.2 1,448.6 2,008.5 1,484.9
Taxable-equivalent adjustment .......................... 42.0 51.3 57.9 64.1 63.9
Income taxes ........................................... 855.0 766.5 552.2 725.7 523.9
-------------------------------------------------------------------
Net income .......................................... $ 1,506.5 $ 1,327.4 $ 838.5 $ 1,218.7 $ 897.1
-------------------------------------------------------------------
-------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets ............................... 1.96% 1.85% 1.22% 1.81% 1.42%
Return on average common equity ........................ 23.0 21.9 14.6 21.1 17.2
Efficiency ratio ....................................... 51.6 53.1 59.6 52.9 59.0
Net interest margin (taxable-equivalent basis) ......... 4.83 4.87 5.04 5.04 5.10
PER COMMON SHARE
Earnings per share ..................................... $ 2.07 $ 1.81 $ 1.13 $ 1.60 $ 1.19
Diluted earnings per share ............................. 2.06 1.78 1.11 1.57 1.16
Dividends paid* ........................................ .78 .70 .62 .55 .48
SELECTED FINANCIAL RATIOS BEFORE
MERGER-RELATED AND RESTRUCTURING ITEMS
AND AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS
Diluted earnings per share ............................. $ 2.11 $ 1.96 $ 1.68 $ 1.49 $ 1.24
Return on average assets ............................... 2.01% 2.03% 1.83% 1.71% 1.52%
Return on average common equity ........................ 23.6 24.1 22.1 20.0 18.4
Efficiency ratio ....................................... 50.5 49.1 48.8 52.8 56.6
Banking efficiency ratio** ............................. 43.2 44.2 47.8 52.2 56.1
AVERAGE BALANCE SHEET DATA
Loans .................................................. $ 60,578 $ 55,979 $ 53,513 $ 50,855 $ 47,703
Earning assets ......................................... 68,392 63,868 61,675 60,201 56,556
Assets ................................................. 76,947 71,791 68,771 67,402 63,084
Deposits ............................................... 48,099 47,327 47,336 47,252 44,726
Long-term debt ......................................... 15,077 11,481 7,527 4,908 4,162
Common equity .......................................... 6,540 6,049 5,667 5,679 5,090
Total shareholders' equity ............................. 6,540 6,049 5,798 5,919 5,345
YEAR-END BALANCE SHEET DATA
Loans .................................................. $ 62,885 $ 59,122 $ 54,708 $ 52,355 $ 49,345
Assets ................................................. 81,530 76,438 71,295 69,749 65,668
Deposits ............................................... 51,530 50,034 49,027 49,356 45,779
Long-term debt ......................................... 16,563 13,781 10,247 5,369 4,583
Common equity .......................................... 7,638 5,970 5,890 5,613 5,089
Total shareholders' equity ............................. 7,638 5,970 5,890 5,763 5,342
------------------------------------------------------------------------------------------------------------------------------
|
*DIVIDENDS PER SHARE HAVE NOT BEEN RESTATED FOR THE U.S. BANCORP ("USBC")
MERGER. USBC PAID COMMON DIVIDENDS OF $139.1 MILLION THROUGH JULY OF 1997 ($.62
PER SHARE), $168.7 MILLION IN 1996 ($1.18 PER SHARE) AND $133.1 MILLION IN 1995
($1.06 PER SHARE).
**WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
U.S. BANCORP 17
TABLE 2 LINE OF BUSINESS FINANCIAL PERFORMANCE
Wholesale Consumer
Banking Banking
----------------------------------------------------------------------------------------
1998-1999 1998-1999
(Dollars in Millions) 1999 1998 1997 % Change 1999 1998 1997 % Change
----------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis)......... $1,449.0 $1,370.3 $1,334.4 5.7% $1,332.9 $1,271.0 $1,290.3 4.9%
Provision for credit losses.......... 106.2 94.9 88.2 11.9 285.0 219.3 187.9 30.0
Noninterest income................... 420.5 364.8 316.3 15.3 537.9 529.6 528.9 1.6
Noninterest expense.................. 780.4 718.7 720.4 8.6 851.4 864.3 957.9 (1.5)
Goodwill and other
intangible assets expense.......... 35.9 23.8 22.6 50.8 25.7 23.2 23.9 10.8
Income taxes and
taxable-equivalent adjustment...... 350.4 341.1 311.4 2.7 262.2 263.7 246.8 (.6)
------------------------------ ------------------------------
Income before merger-related
charges and available-for-sale
securities transactions............ $ 596.6 $ 556.6 $ 508.1 7.2 $ 446.5 $ 430.1 $ 402.7 3.8
------------------------------ ------------------------------
------------------------------ ------------------------------
Net merger-related charges and
available-for-sale securities
transactions (after-tax)*..........
Net income...........................
AVERAGE BALANCE SHEET DATA
Loans................................ 35,991 32,192 31,007 11.8 12,340 11,177 9,406 10.4
Assets............................... 39,344 35,271 33,865 11.5 13,522 12,415 10,799 8.9
Deposits............................. 10,665 10,396 9,063 2.6 30,778 32,014 33,323 (3.9)
Common equity........................ 3,687 3,130 3,054 17.8 1,092 1,004 1,082 8.8
------------------------------ ------------------------------
Return on average assets............. 1.52% 1.58% 1.50% 3.30% 3.46% 3.73%
Return on average
common equity ("ROCE")............. 16.2 17.8 16.6 40.9 42.8 37.2
Efficiency ratio..................... 43.7 42.8 45.0 46.9 49.3 54.0
Efficiency ratio on a cash basis**... 41.7 41.4 43.6 45.5 48.0 52.7
----------------------------------------------------------------------------------------------------------------------------------
Payment Wealth Management and
Systems Capital Markets
----------------------------------------------------------------------------------------
1998-1999 1998-1999
(Dollars in Millions) 1999 1998 1997 % Change 1999 1998 1997 % Change
----------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis)......... $334.6 $258.0 $257.3 29.7% $ 171.4 $ 157.5 $ 138.5 8.8%
Provision for credit losses.......... 156.9 156.8 134.8 .1 4.5 3.8 3.4 18.4
Noninterest income................... 614.1 598.0 460.9 2.7 1,189.4 784.9 336.9 51.5
Noninterest expense.................. 351.6 334.5 322.6 5.1 1,025.0 670.7 292.3 52.8
Goodwill and other
intangible assets expense.......... 26.0 25.0 16.2 4.0 15.1 12.7 3.3 18.9
Income taxes and
taxable-equivalent adjustment...... 153.2 129.1 92.9 18.7 117.0 97.0 67.0 20.6
------------------------------ ------------------------------
Income before merger-related
charges and available-for-sale
securities transactions............ $261.0 $210.6 $151.7 23.9 $ 199.2 $ 158.2 $ 109.4 25.9
------------------------------ ------------------------------
------------------------------ ------------------------------
Net merger-related charges and
available-for-sale securities
transactions (after-tax)*..........
Net income...........................
AVERAGE BALANCE SHEET DATA
Loans................................ 7,584 7,270 6,449 4.3 2.352 1.990 1.890 18.2
Assets............................... 8,154 7,821 6,700 4.3 5,626 4,536 3,035 24.0
Deposits............................. 86 80 44 7.5 3,204 2,590 2,070 23.7
Common equity........................ 713 629 612 13.4 1,161 950 330 22.2
------------------------------ ------------------------------
Return on average assets............. 3.20% 2.69% 2.26% 3.54% 3.49% 3.60%
Return on average
common equity ("ROCE")............. 36.6 33.5 24.6 17.2 16.7 33.2
Efficiency ratio..................... 39.8 42.0 47.2 76.4 72.5 62.2
Efficiency ratio on a cash basis**... 37.1 39.1 44.9 75.3 71.2 61.5
----------------------------------------------------------------------------------------------------------------------------------
Corporate Consolidated
Support Company
----------------------------------------------------------------------------------------
1998-1999
(Dollars in Millions) 1999 1998 1997 1999 1998 1997 % Change
----------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis)......... $ 14.8 $ 55.1 $ 85.5 $3,302.7 $3,111.9 $3,106.0 6.1%
Provision for credit losses.......... (21.6) (95.8) (49.0) 531.0 379.0 365.3 40.1
Noninterest income................... (1.9) (33.3) (31.4) 2,760.0 2,244.0 1,611.6 23.0
Noninterest expense.................. (109.5) (104.1) (105.8) 2,898.9 2,484.1 2,187.4 16.7
Goodwill and other
intangible assets expense.......... 62.9 59.0 47.3 165.6 143.7 113.3 15.2
Income taxes and
taxable-equivalent adjustment...... 37.9 62.4 72.4 920.7 893.3 790.5 3.1
------------------------------ ------------------------------
Income before merger-related
charges and available-for-sale
securities transactions............ $ 43.2 $100.3 $ 89.2 1,546.5 1,455.8 1,261.1 6.2
------------------------------
------------------------------
Net merger-related charges and
available-for-sale securities
transactions (after-tax)*.......... (40.0) (128.4) (422.6) --
------------------------------
Net income........................... $1,506.5 $1,327.4 $ 838.5 13.5
------------------------------
------------------------------
AVERAGE BALANCE SHEET DATA
Loans................................ 2,311 3,350 4,691 60,578 55,979 53,513 8.2
Assets............................... 10,301 11,748 14,372 76,947 71,791 68,771 7.2
Deposits............................. 3,366 2,247 2,836 48,099 47,327 47,336 1.6
Common equity........................ (113) 336 580 6,540 6,049 5,667 8.1
------------------------------ ------------------------------
Return on average assets............. 2.01% 2.03% 1.83%
Return on average
common equity ("ROCE")............. 23.6 24.1 22.1
Efficiency ratio..................... 50.5 49.1 48.8
Efficiency ratio on a cash basis**... 47.8 45.4 46.4
----------------------------------------------------------------------------------------------------------------------------------
|
*MERGER-RELATED CHARGES AND AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS ARE
NOT ALLOCATED TO THE BUSINESS LINES. ALL RATIOS ARE CALCULATED WITHOUT THE
EFFECT OF MERGER-RELATED CHARGES AND AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS.
**CALCULATED BY EXCLUDING GOODWILL AND OTHER INTANGIBLES AND THE RELATED
AMORTIZATION.
***NOT MEANINGFUL.
LINE OF BUSINESS FINANCIAL REVIEW
Operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. The Company's operating segments are Wholesale Banking, Consumer Banking, Payment Systems, and Wealth Management and Capital Markets. Units providing central support and other corporate activities are reported as part of Corporate Support and allocated as appropriate.
BASIS OF FINANCIAL PRESENTATION Business line results are derived from the Company's business unit profitability reporting system by specifically attributing managed balance sheet assets, deposits and other liabilities and their related interest income or expense. Funds transfer pricing methodologies are utilized to allocate a cost for funds used or credit for funds provided to all business line assets and liabilities using a matched funding concept. The provision for credit losses is primarily based on the net charge-offs of each line of business. The provision may be adjusted to consider expected losses for certain products that have a longer business cycle and for economic conditions. Noninterest income and expenses directly related to each business line, including fees, service charges, salaries and benefits, and other direct expenses are accounted for within each segment's financial results in a manner similar to the consolidated financial statements. Also, the business unit is allocated the tax equivalent benefit of tax exempt products. Noninterest expenses incurred by centrally managed operations units that directly support business lines' operations are directly charged to the business lines based on standard unit costs and volume measurements. Income taxes are assessed to each line of business at a standard tax rate with the residual tax expense or benefit to arrive at the consolidated effective tax rate included in Corporate Support. Merger-related charges and available-for-sale securities transactions are not identified by or allocated to
18 U.S. BANCORP
lines of business. Because the Company's decision-making process emphasizes the creation of shareholder value, capital is allocated to each line of business based on its inherent risks, including credit, operational and other business risks. On and off-balance sheet assets subject to credit risk are assigned risk factors based upon expected loss experience and volatility taking into consideration changes in business practices that may introduce more or less risk into the portfolio. Certain lines of business, such as Wealth Management and Capital Markets, have no significant balance sheet components. For these business lines, capital is allocated taking into consideration fiduciary and operational risk, capital levels of independent organizations operating similar businesses, and regulatory minimum requirements. Designations, assignments and allocations may change from time to time as management accounting systems are enhanced or product lines change. During 1999, certain organization and methodology changes were made and 1998 and 1997 results are presented on a comparable basis.
WHOLESALE BANKING Wholesale Banking includes lending, treasury management, corporate trust and other financial services to middle market, large corporate and public sector clients. Operating earnings increased to $596.6 million in 1999, compared with $556.6 million in 1998 and $508.1 million in 1997. Return on average assets was 1.52 percent in 1999, compared with 1.58 percent in 1998 and 1.50 percent in 1997, and return on average common equity was 16.2 percent in 1999, compared with 17.8 and 16.6 percent in 1998 and 1997, respectively.
Net interest income increased each year, reflecting core growth in average loan and deposit balances partially offset by margin compression in the commercial loan and deposit portfolios. The provision for credit losses increased to $106.2 million in 1999 compared to $94.9 million in 1998 and $88.2 million in 1997. The increase reflects a
U.S. BANCORP 19
slight increase in net chargeoffs and growth in the loan portfolio. Noninterest income increased $55.7 million in 1999 to $420.5 million, compared with $364.8 million in 1998 and $316.3 million in 1997. The increase reflects higher deposit charges and fee income from underwriting activities of U.S. Bancorp Libra since its acquisition in January 1999. Total noninterest expense increased $73.8 million in 1999 to $816.3 million as compared with $742.5 million in 1998 and $743.0 million in 1997 primarily reflecting the acquisition of U.S. Bancorp Libra and related growth in Wholesale Banking's business activities. The efficiency ratio for Wholesale Banking, on a cash basis, was 41.7 percent in 1999 and 41.4 percent in 1998 as compared to 43.6 percent in 1997.
CONSUMER BANKING Consumer Banking delivers products and services to the broad consumer market and small business through branch offices, telemarketing, online services, direct mail and automated teller machines ("ATMs"). Operating earnings were $446.5 million in 1999, compared with $430.1 million in 1998 and $402.7 million in 1997. Return on average assets decreased to 3.30 percent from 3.46 percent in 1998 and 3.73 percent in 1997. Return on average common equity was 40.9 percent in 1999, compared to 42.8 percent in 1998 and 37.2 percent in 1997.
Net interest income increased $61.9 million in 1999 as compared to 1998 due primarily to growth in home equity loans partially offset by the sale of the indirect automobile portfolio and related balance runoff. The provision for credit losses increased $65.7 million in 1999 to $285.0 million, compared to $219.3 million in 1998 and $187.9 million in 1997. The increase reflects growth in the consumer loan portfolios and an increase in credit-related fraud losses. Noninterest income increased slightly in 1999 to $537.9 million, compared to $529.6 million in 1998 and $528.9 million in 1997 primarily reflecting growth in deposit charges. Total noninterest expense decreased slightly to $877.1 million in 1999, compared to $887.5 million in 1998 and $981.8 million in 1997 reflecting further integration of acquired banking entities. The efficiency ratio, on a cash basis, improved to 45.5 percent in 1999, compared to 48.0 percent in 1998 and 52.7 percent in 1997.
The Company has announced a number of initiatives to improve the growth of its consumer banking business. These initiatives include incremental investment in technology and processes, and the hiring of additional sales and customer service employees. As with any investment, the successful achievement of the anticipated deposit and loan growth and related contribution to earnings is subject to a number of uncertainties.
PAYMENT SYSTEMS Payment Systems includes consumer and business credit cards, corporate and purchasing card services, card-accessed secured and unsecured lines of credit, ATM processing, and merchant processing. Operating earnings increased to $261.0 million in 1999, compared with $210.6 million in 1998 and $151.7 million in 1997. Return on average assets was 3.20 percent in 1999, compared with 2.69 percent in 1998 and 2.26 percent in 1997. Return on average common equity was 36.6 percent in 1999, compared with 33.5 percent in 1998 and 24.8 percent in 1997.
Net interest income increased $76.6 million in 1999 to $334.6 million, compared with $258.0 million in 1998 and $257.3 million in 1997. The increase is primarily due to a decline in noninterest-bearing assets and an increase in loans fees. Fee-based noninterest income increased $16.1 million in 1999 to $614.1 million, compared with $598.0 million in 1998 and $460.9 million in 1997. The increase reflects growth in credit card fees and the acquisition of Mellon Network Services' electronic funds transfer processing unit in June 1999 offset by the loss of approximately one-half of the U.S. Government purchasing card business in late 1998. Total noninterest expense increased $18.1 million in 1999 as compared to 1998 due to increased technology spending, costs related to increased sales volume and the acquired electronic funds transfer processing business. The efficiency ratio, on a cash basis, improved to 37.1 percent in 1999, compared to 39.1 percent in 1998 and 44.9 percent in 1997.
WEALTH MANAGEMENT AND CAPITAL MARKETS Wealth Management and Capital Markets includes institutional trust, investment management services and private banking and personal trust services. It also engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector customers and provides securities, mutual funds, annuities and insurance products to consumers and regionally based businesses through a network of banking centers and brokerage offices. Operating earnings increased to $199.2 million in 1999, compared with $158.2 million in 1998 and $109.4 million in 1997. Return on average common equity was 17.2 percent in 1999, compared with 16.7 percent and 33.2 percent in 1998 and 1997, respectively.
Noninterest income increased to $1.2 billion in 1999 from $784.9 million in 1998 and $336.9 million in 1997. The increases primarily reflect the full year impact and continued growth in fee income generated by Piper Jaffray as part of its investment banking and brokerage activities. Total noninterest expense was $1.0 billion in 1999 compared to
20 U.S. BANCORP
TABLE 3 NET INTEREST INCOME - CHANGES DUE TO RATE AND VOLUME
1999 Compared with 1998 1998 Compared with 1997
---------------------------------------------------------
(Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total
-----------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Loans .......................... $398.3 $(115.8) $282.5 $218.6 $(88.3) $130.3
Taxable securities ............. (39.7) (13.3) (53.0) (62.6) (5.2) (67.8)
Nontaxable securities .......... (8.5) (2.8) (11.3) (4.1) (2.7) (6.8)
Federal funds sold and
resale agreements ......... (6.3) (5.7) (12.0) 4.8 (1.4) 3.4
Other .......................... 52.6 1.2 53.8 41.3 6.8 48.1
---------------------------------------------------------
Total ....................... 396.4 (136.4) 260.0 198.0 (90.8) 107.2
Interest expense
Savings deposits and time
deposits less than $100,000 (28.8) (123.4) (152.2) (13.8) (.3) (14.1)
Time deposits over $100,000 .... 68.2 (15.8) 52.4 (27.9) (3.8) (31.7)
Short-term borrowings .......... 8.6 (7.2) 1.4 (90.1) 2.2 (87.9)
Long-term debt ................. 200.6 (39.9) 160.7 232.4 (18.7) 213.7
Mandatorily redeemable
preferred securities ...... 6.9 -- 6.9 21.3 -- 21.3
---------------------------------------------------------
Total ....................... 255.5 (186.3) 69.2 121.9 (20.6) 101.3
---------------------------------------------------------
Increase (decrease) in net
interest income ........... $140.9 $ 49.9 $190.8 $ 76.1 $(70.2) $ 5.9
-----------------------------------------------------------------------------------------------
|
THIS TABLE SHOWS THE COMPONENTS OF THE CHANGE IN NET INTEREST INCOME BY VOLUME AND RATE ON A TAXABLE-EQUIVALENT BASIS. THE EFFECT OF CHANGES IN RATES ON VOLUME CHANGES IS ALLOCATED BASED ON THE PERCENTAGE RELATIONSHIP OF CHANGES IN VOLUME AND CHANGES IN RATE. THIS TABLE DOES NOT TAKE INTO ACCOUNT THE LEVEL OF NONINTEREST-BEARING FUNDING, NOR DOES IT FULLY REFLECT CHANGES IN THE MIX OF ASSETS AND LIABILITIES.
$683.4 million in 1998 and $295.6 in 1997. The increase in expenses also reflects the acquisition of Piper Jaffray and its continued growth. The efficiency ratio, on a cash basis, was 75.3 percent in 1999, compared to 71.2 percent in 1998 and 61.5 percent in 1997 reflecting higher growth in Piper Jaffray, which has a higher efficiency ratio than most traditional banking businesses.
The Company expects continued growth from its Wealth Management and Capital Markets businesses, but recognizes that these businesses are significantly dependent on prevailing market conditions.
CORPORATE SUPPORT Corporate Support includes the net effect of support units after internal revenue and expense allocations, treasury management, and other corporate activities. Net interest income primarily relates to the Company's investment and residential mortgage portfolios, and the net effect of transfer pricing loan and deposit balances. Provision for credit losses represents the residual aggregate of the credit provision allocated to the reportable business units and the Company's recorded provision. Refer to "Corporate Risk Profile" section on pages 28 to 33 for further discussion on the allowance for credit losses and changes in the provision for credit losses. Noninterest income and noninterest expenses primarily reflect certain business activities managed on a corporate basis and the elimination of intersegment revenue and expense. Provisions for income taxes primarily reflect the difference between the income tax expense or benefit allocated to the other business units (37 percent of pretax earnings in 1999 and 38 percent of pretax earnings in 1998 and 1997) and the effective tax rate on a consolidated basis. Refer to "Income Tax Expense" section on page 24 for discussion of the effective tax rate on a consolidated basis.
STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $3.30 billion in 1999 and $3.11 billion in 1998 and 1997. The 6 percent increase in 1999 as compared to 1998 was primarily due to growth in earning assets, driven by core loan growth and several consumer loan portfolio purchases. Net interest margin on a taxable-equivalent basis remained relatively flat at 4.83 percent in 1999, as compared to 4.87 percent in 1998. Average earning assets increased $4.5 billion (7 percent) in 1999, primarily due to strong core loan growth and several late 1998 consumer loan portfolio purchases, partially offset by reductions in securities, the sale of indirect automobile loans and continued runoff of residential mortgages.
U.S. BANCORP 21
TABLE 4 ANALYSIS OF NET INTEREST INCOME
(Dollars in Millions) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------
Net interest income, as reported ................................... $ 3,260.7 $ 3,060.6 $ 3,048.1
Taxable-equivalent adjustment ................................. 42.0 51.3 57.9
------------------------------------
Net interest income (taxable-equivalent basis) ..................... $ 3,302.7 $ 3,111.9 $ 3,106.0
------------------------------------
Average yields and weighted average rates (taxable-equivalent basis)
Earning assets yield .......................................... 8.36% 8.55% 8.68%
Rate paid on interest-bearing liabilities ..................... 4.45 4.70 4.67
------------------------------------
Gross interest margin ............................................. 3.91% 3.85% 4.01%
------------------------------------
Net interest margin ............................................... 4.83% 4.87% 5.04%
------------------------------------
Net interest margin without taxable-equivalent increments ......... 4.77% 4.79% 4.94%
-----------------------------------------------------------------------------------------------------------
|
Average loans were up $4.6 billion (8 percent) from 1998. Excluding indirect automobile and residential mortgage loans, average loans for 1999 were higher by approximately $6.1 billion (12 percent) than 1998, reflecting growth in commercial loans, home equity and second mortgages (see Consolidated Daily Average Balance Sheet and Related Yields and Rates on pages 70 to 71).
Average available-for-sale securities were $742 million (13 percent) lower in 1999 compared with 1998, primarily reflecting maturities and prepayments of securities.
Net interest income on a taxable-equivalent basis remained virtually unchanged from 1997 to 1998, despite growth in earning assets, due to a decline in net interest margin during 1998. The decline in net interest margin from 5.04 percent in 1997 to 4.87 percent in 1998 was primarily due to growth in Payment Systems' noninterest-bearing assets including corporate and purchasing card loan balances, the funding required by the Piper Jaffray acquisition and the share repurchase program, and margin compression in the commercial loan portfolio. Average loans were up $2.5 billion (5 percent) from 1997 to 1998 reflecting growth in commercial loans, home equity and second mortgages and credit card loans.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $531.0 million in 1999, compared to $379.0 million in 1998 and $460.3 million in 1997. The provision for 1997 included a $95.0 million merger-related charge related to the U.S. Bancorp ("USBC") acquisition. Net charge-offs totaled $567.7 million in 1999, $434.2 million in 1998 and $449.7 million in 1997. Net charge-offs for 1997 included $62.3 million of merger-related charge-offs. The $95.0 million merger-related provision and $62.3 million of merger-related charge-offs were taken as a result of an alignment of the classification and charge-off practices of former USBC with those of the Company. The $152.0 million increase in provision from 1998 to 1999 is primarily due to growth in the loan portfolio and higher net charge-offs. Net charge-offs increased by $133.5 million in 1999, reflecting an expected increase in losses on consumer portfolios purchased in 1998, higher consumer fraud losses and expected losses on a growing portfolio of small business products. The increase also reflects a lower recovery rate associated with commercial loans and growth in corporate card portfolios. The higher provision and net charge-offs in 1998 as compared with 1997, excluding the merger-related items, resulted from increased loan growth and higher
TABLE 5 NONINTEREST INCOME
(Dollars in Millions) 1999 1998 1997
------------------------------------------------------------------------------
Credit card fee revenue .................... $ 603.1 $ 574.8 $ 418.8
Trust and investment management fees ....... 459.7 413.0 348.0
Service charges on deposit accounts ........ 434.6 406.0 396.2
Investment products fees and commissions ... 347.7 229.7 65.7
Investment banking revenue ................. 245.4 100.4 --
Trading account profits and commissions .... 215.9 118.1 30.9
Other ...................................... 453.6 402.0 352.0
-------------------------------
Total operating noninterest income ...... 2,760.0 2,244.0 1,611.6
Available-for-sale securities (losses) gains (1.3) 12.6 3.6
-------------------------------
Total noninterest income ................ $2,758.7 $2,256.6 $1,615.2
------------------------------------------------------------------------------
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22 U.S. BANCORP
TABLE 6 NONINTEREST EXPENSE
(Dollars in Millions) 1999 1998 1997
------------------------------------------------------------------------------------------------
Salaries ................................................. $ 1,460.9 $ 1,210.9 $ 969.3
Employee benefits ........................................ 248.4 222.3 217.4
Net occupancy ............................................ 204.6 187.4 182.0
Furniture and equipment .................................. 160.1 153.4 165.4
Telephone ................................................ 75.4 69.7 59.7
Other personnel costs .................................... 63.2 53.0 66.6
Professional services .................................... 74.1 71.3 70.3
Advertising and marketing ................................ 64.3 67.2 56.6
Goodwill and other intangible assets ..................... 165.6 143.7 113.3
Other .................................................... 547.9 448.9 400.1
-----------------------------------
Total operating noninterest expense ................... 3,064.5 2,627.8 2,300.7
Merger-related charges ................................... 62.4 216.5 511.6
-----------------------------------
Total noninterest expense ............................. $ 3,126.9 $ 2,844.3 $ 2,812.3
-----------------------------------
Efficiency ratio* ........................................ 51.6% 53.1% 59.6%
Efficiency ratio before merger-related charges ........... 50.5 49.1 48.8
Banking efficiency ratio before merger-related charges**.. 43.2 44.2 47.8
Average number of full-time equivalent employees ......... 26,891 26,526 25,858
----------------------------------------------------------------------------------------------
|
*COMPUTED AS NONINTEREST EXPENSE DIVIDED BY THE SUM OF NET INTEREST INCOME ON A
TAXABLE-EQUIVALENT BASIS AND NONINTEREST INCOME NET OF AVAILABLE-FOR-SALE
SECURITIES GAINS AND LOSSES.
**WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
credit card-related fraud losses. Refer to "Corporate Risk Profile" for further information on credit quality.
NONINTEREST INCOME Excluding available-for-sale securities transactions, noninterest income in 1999 was $2.76 billion, compared with $2.24 billion in 1998 and $1.61 billion in 1997. Excluding available-for-sale transactions, noninterest income increased $516.0 million (23 percent) in 1999. The increase was driven primarily by the full year impact and continued growth in fee income generated by Piper Jaffray in its investment banking and brokerage activities. Revenue growth related to investment banking and brokerage activities for 1999 approximated $414.0 million. Trust and investment management fees, acquisitions and service charges on deposit accounts also contributed to the year-over-year growth in noninterest income. Credit card fee revenue increased by 5 percent from 1998 despite the loss of approximately one-half of the U.S. Government purchasing card business in late 1998.
Excluding available-for-sale securities transactions, noninterest income increased $632.4 million (39 percent) in 1998 compared to 1997. The increase resulted from growth in credit card revenue of $156.0 million (37 percent) and trust and investment management fee revenue of $65.0 million (19 percent). Credit card revenue increased primarily due to higher volumes for purchasing and corporate cards, and the Northwest Airlines WorldPerks-REGISTERED TRADEMARK- program. In addition, the Company's credit card revenue growth was affected by the renewal of the WorldPerks program in late 1997 and the buyout of a third party interest in a merchant processing alliance in early 1998. Without these items, credit card fees would have increased 27 percent. In addition, large increases in investment products fees and commissions, investment banking revenue and trading account profits and commissions were due to the May 1, 1998, acquisition of Piper Jaffray.
NONINTEREST EXPENSE Excluding merger-related charges, noninterest expense was $3.06 billion in 1999, compared with $2.63 billion in 1998 and $2.30 billion in 1997. Year-over-year expense growth is primarily related to the acquisition of Piper Jaffray in 1998 and continued growth of investment banking and brokerage activity.
Noninterest expense included merger-related charges of $62.4 million in 1999, compared to $216.5 million in 1998 and $511.6 million in 1997. During 1999, the Company incurred $62.4 million of merger-related charges related to the integration of the Company's various acquisitions. These merger-related charges are primarily system conversion and integration costs associated with consolidating redundant operations. During 1998, the Company incurred $203.8 million of merger-related charges to integrate USBC and $11.7 million related to the acquisition of Piper Jaffray. These merger-related charges were primarily system conversion costs. Merger-related charges in 1997 consisted of $511.6 million incurred in connection with the USBC transaction. Refer to Note M of the Notes to
U.S. BANCORP 23
Consolidated Financial Statements for further information on merger-related charges.
Without the effect of investment banking and brokerage activities, noninterest expense on an operating basis increased by $79.8 million from 1998 to 1999. The increase in core banking expenses in 1999 is primarily related to acquisitions of Mellon Network Services' electronic funds transfer processing unit and traditional banking entities accounted for as purchases. The banking efficiency ratio before merger-related charges was 43.2 percent for 1999, compared to 44.2 percent in 1998 and 47.8 percent in 1997. The improving ratio reflects the results of integrating acquired banking businesses. The overall efficiency ratio is expected to increase slightly due to investments in Internet technology and other customer-related initiatives. The Company has accelerated the development of its capabilities to deliver its products and services over the Internet. The expenditures associated with these initiatives are expected to result in a higher rate of expense growth in 2000, and as with any such investment, the anticipated benefits are subject to a number of uncertainties.
Without the effect of Piper Jaffray in 1998, noninterest expense, before merger-related charges, decreased by $87.8 million in 1998 as compared to 1997, primarily reflecting the expense savings from the integration of USBC.
The Company has completed its efforts to address the "Year 2000" computer problem, and experienced no significant operational problems upon the century rollover. The Company incurred approximately $9.2 million of costs associated with its Year 2000 project during 1999. The aggregate cost of the Company's Year 2000 project was $33.2 million over the three-year period ending December 31, 1999. The Company did not defer any material information technology projects as a consequence of its Year 2000 efforts.
INCOME TAX EXPENSE The provision for income taxes was $855.0 million in 1999, compared with $766.5 million in 1998 and $552.2 million in 1997. The increase in income taxes provided in 1999 from 1998 was primarily the result of higher levels of taxable income, as discussed above. The Company's effective tax rate was 36.2 percent in 1999, compared to 36.6 percent in 1998 and 39.7 percent in 1997. The effective rate declined in 1999 and 1998 as compared to 1997 primarily due to $39.1 million of non-deductible merger-related costs included in 1997 associated with the acquisition of USBC.
At December 31, 1999, the Company's net deferred tax asset was $158.4 million, compared with $261.3 million at December 31, 1998. In determining that realization of the deferred tax asset was more likely than not, the Company
TABLE 7 LOAN PORTFOLIO DISTRIBUTION
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
At December 31 (Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial ...................... $28,863 45.9% $25,974 43.9% $23,399 42.8% $21,393 40.9% $19,821 40.1%
Real estate
Commercial mortgage .......... 9,784 15.5 8,193 13.9 8,025 14.7 8,022 15.3 6,864 13.9
Construction ................. 4,322 6.9 3,069 5.2 2,359 4.3 2,125 4.0 1,516 3.2
---------------------------------------------------------------------------------------------
Total commercial ............. 42,969 68.3 37,236 63.0 33,783 61.8 31,540 60.2 28,201 57.2
CONSUMER
Home equity and second mortgage.. 8,681 13.8 7,409 12.5 5,815 10.6 5,271 10.1 4,011 8.1
Credit card ..................... 4,313 6.9 4,221 7.1 4,200 7.7 3,632 6.9 3,391 6.9
Revolving credit ................ 1,815 2.9 1,686 2.9 1,567 2.9 1,581 3.0 1,517 3.1
Installment ..................... 999 1.6 1,168 2.0 1,199 2.2 1,463 2.8 1,449 2.9
Automobile ...................... 884 1.4 3,413 5.8 3,227 5.9 3,388 6.5 3,243 6.6
Student* ........................ 563 .9 829 1.4 686 1.2 580 1.1 468 .9
---------------------------------------------------------------------------------------------
Subtotal ..................... 17,255 27.5 18,726 31.7 16,694 30.5 15,915 30.4 14,079 28.5
Residential mortgage ............ 2,661 4.2 3,160 5.3 4,231 7.7 4,900 9.4 7,065 14.3
---------------------------------------------------------------------------------------------
Total consumer ............... 19,916 31.7 21,886 37.0 20,925 38.2 20,815 39.8 21,144 42.8
---------------------------------------------------------------------------------------------
Total loans ............... $62,885 100.0% $59,122 100.0% $54,708 100.0% $52,355 100.0% $49,345 100.0%
----------------------------------------------------------------------------------------------------------------------------------
|
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT PERIOD BEGINS.
24 U.S. BANCORP
TABLE 8 COMMERCIAL LOAN EXPOSURE BY INDUSTRY GROUP AND GEOGRAPHY
Percentage of Total
at December 31
-------------------
INDUSTRY TYPE 1999 1998
------------------------------------------------------------------
Consumer cyclical products and services .. 17.5% 16.6%
Capital goods ............................ 12.6 12.7
Consumer staples ......................... 10.1 10.9
Financials ............................... 10.0 9.3
Agricultural ............................. 8.8 7.5
Transportation ........................... 4.8 4.7
Paper products, mining and basic materials 4.8 4.2
Mortgage banking ......................... 3.5 5.7
Other .................................... 27.9 28.4
-------------------
100.0% 100.0%
------------------------------------------------------------------
GEOGRAPHY
------------------------------------------------------------------
Minnesota ................................ 23.2% 24.4%
Washington ............................... 16.2 17.2
Oregon ................................... 8.7 9.6
California ............................... 8.6 6.9
Other states within banking region ....... 28.1 27.3
-------------------
Total banking region .................. 84.8 85.4
Other regions ............................ 15.2 14.6
-------------------
100.0% 100.0%
------------------------------------------------------------------
|
gave consideration to a number of factors, including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future and, where applicable, the expiration dates associated with tax carrybacks and carryforwards. For further information on income taxes, refer to Note N of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio increased $3.8 billion to $62.9 billion at December 31, 1999, from $59.1 billion at December 31, 1998. Excluding indirect automobile and residential mortgages, average loans for 1999 were $6.1 billion (12 percent) higher than 1998, reflecting strong core growth in commercial loans and home equity and second mortgages, in addition to several consumer loan portfolio purchases and bank acquisitions. The Company's loan portfolio inherently has credit risk which may ultimately result in loan charge-offs. The Company manages this risk through stringent, centralized credit policies and review procedures, as well as diversification along geographic and customer lines. See "Corporate Risk Profile" for a more detailed discussion of the management of credit risk including the allowance for credit losses.
COMMERCIAL Commercial loans totaled $28.9 billion at year-end 1999, up $2.9 billion (11 percent) from year-end 1998. Year-end 1998 commercial loans were $26.0 billion, up $2.6 billion (11 percent) from year-end 1997.
The Company offers a broad array of traditional commercial lending products and specialized products such as asset-based lending, agricultural credit, correspondent banking and energy lending. The Company monitors and manages the portfolio diversification by industry, customer and geography. The commercial portfolio reflects the Company's focus of serving small business customers, middle market and larger corporate businesses throughout its 16 state banking region and national customers within certain niche industry groups.
The Company also provides financing to enable customers to grow their businesses through acquisitions of existing businesses, buyouts or other recapitalizations. Such leveraged financings approximated $2.4 billion at December 31, 1999, compared with $1.9 billion at December 31, 1998. Approximately 94 percent of such loans outstanding at December 31, 1999, were made to existing customers or businesses within the Company's banking region. These leveraged financings are diversified among industry groups with no significant industry concentrations as a percentage of these loans. Underwriting
U.S. BANCORP 25
TABLE 9 COMMERCIAL REAL ESTATE EXPOSURE BY PROPERTY TYPE AND GEOGRAPHY
Percentage of Total
at December 31
---------------------
PROPERTY TYPE 1999 1998
----------------------------------------------------------------
Business owner occupied .......... 25.0% 29.6%
Multi-family ..................... 13.2 13.1
Commercial property-office ....... 12.3 10.3
Commercial property-retail ....... 10.2 9.9
Homebuilders ..................... 9.3 7.7
Hotel/motel ...................... 7.7 7.2
Commercial property-industrial ... 6.6 7.1
Other ............................ 15.7 15.1
---------------------
100.0% 100.0%
----------------------------------------------------------------
GEOGRAPHY
----------------------------------------------------------------
California ....................... 22.1% 13.3%
Washington ....................... 21.2 24.0
Oregon ........................... 12.6 14.9
Minnesota ........................ 9.1 9.3
Other states within banking region 29.6 33.5
---------------------
Total banking region .......... 94.6 95.0
Other regions .................... 5.4 5.0
---------------------
100.0% 100.0%
----------------------------------------------------------------
|
standards require businesses to maintain acceptable capital levels and have demonstrated sufficient cash flows to support debt service of the loans.
Table 8 shows the significant industry groups and geographic locations of commercial loans outstanding at December 31, 1999, and 1998. This diverse mix of industries and geographic locations is similar to 1997. Certain industry segments, including agriculture and mortgage banking, continue to experience economic stress. At December 31, 1999, the Company's agricultural portfolio is diversified with 34 percent of agricultural loans to livestock producers, 32 percent to crop producers, 22 percent to food processors and 12 percent to wholesalers of agricultural products. Although crop prices remain at lower levels, the overall industry segment has stabilized during 1999 due to improved livestock commodity markets. Food processors and wholesalers have been less negatively affected by commodity pricing. The mortgage banking sector represents approximately 3.5 percent of commercial loans at December 31, 1999, compared to 5.7 percent at December 31, 1998. Loans to mortgage banking customers are primarily warehouse lines which are collateralized with the underlying mortgages. The Company regularly monitors its collateral position to manage its risk exposure.
COMMERCIAL REAL ESTATE The Company's portfolio of commercial real estate mortgages and construction loans grew to $14.1 billion at December 31, 1999, compared with $11.3 billion at December 31, 1998, primarily due to acquisitions and growth in the commercial real estate sector.
Commercial mortgages outstanding increased to $9.8 billion at December 31, 1999, compared with $8.2 billion at December 31, 1998. Real estate construction loans at December 31, 1999, totaled $4.3 billion compared with $3.1 billion from year-end 1998. Table 9 shows the detail of real estate exposures by property type and geographic location. The Company maintains the real estate construction designation until the project is producing sufficient cash flow to service traditional mortgage financing, at which time, if retained, the loan is transferred to the commercial mortgage portfolio. Approximately $271.1 million of construction loans were transferred to the commercial mortgage portfolio in 1999.
At year-end 1999, real estate secured $161 million of tax-exempt industrial development loans and $920 million of standby letters of credit. At year-end 1998, these exposures totaled $160 million and $1.15 billion, respectively. The Company's commercial real estate mortgages and construction loans had combined unfunded commitments of $3.61 billion at December 31, 1999, and $2.68 billion at December 31, 1998.
The Company also finances the operations of real estate developers and other entities with operations related to real estate. These loans are not secured directly by real
26 U.S. BANCORP
TABLE 10 AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AVERAGE MATURITY
At December 31, 1999 Average Contractual Maturity ---------------------------------------------------------------- U.S. Treasury ....... 3 years, 0 months Other U.S. agencies.. 4 years, 1 month State and political.. 5 years, 2 months Other* .............. 9 years, 2 months Total ............ 4 years, 8 months ---------------------------------------------------------------- |
*EXCLUDES EQUITY SECURITIES THAT HAVE NO STATED MATURITY.
THE AVERAGE EFFECTIVE LIFE OF THE HOLDINGS IS EXPECTED TO BE LESS THAN THE
AVERAGE CONTRACTUAL MATURITIES SHOWN IN THE TABLE BECAUSE BORROWERS MAY HAVE THE
RIGHT TO CALL OR PREPAY OBLIGATIONS WITH OR WITHOUT CALL OR PREPAYMENT
PENALTIES. THE TABLE ABOVE DOES NOT INCLUDE MORTGAGE-BACKED SECURITIES AND
ASSET-BACKED SECURITIES.
estate and are subject to terms and conditions similar to commercial loans. These loans are included in the commercial loan category and totaled $1.85 billion at December 31, 1999, and $1.78 billion at December 31, 1998.
CONSUMER Total consumer loan outstandings decreased $2.0 billion to $19.9 billion at December 31, 1999, from $21.9 billion at December 31, 1998. The decline reflects the sale of $1.8 billion of indirect automobile loans completed in September 1999 and continued runoff of residential mortgages. Excluding indirect automobile loans and residential mortgage loans, consumer loans increased $885 million (6 percent). This increase reflects growth in home equity and second mortgage loans of $1.3 billion (17 percent), credit card loans of $92 million (2 percent) and revolving credit loans of $129 million (8 percent) from December 31, 1998, offset by a decrease in installment loans and student loans from December 31, 1998. The decline in residential mortgages and indirect automobile loans reflects the Company's objective of exiting these businesses due to their lower returns.
Of total consumer balances outstanding, approximately 82 percent are to customers located in the Company's banking region. See "Corporate Risk Profile" for a discussion of the general economic conditions within the Company's banking region.
SECURITIES At December 31, 1999, available-for-sale securities totaled $4.9 billion, compared with $5.6 billion at December 31, 1998, primarily reflecting maturities and prepayments of securities. The relative mix of the type of available-for-sale securities did not change significantly from the prior year. The primary objectives of the Company's investment portfolio are to meet business line collateral needs and reduce overall interest rate risk.
DEPOSITS Noninterest-bearing deposits were $16.1 billion at December 31, 1999, compared with $16.4 billion at December 31, 1998. Interest-bearing deposits totaled $35.5 billion at December 31, 1999, compared with $33.7 billion at December 31, 1998. The increase in interest-bearing deposit balances is primarily due to an increase in time certificates greater than $100,000 reflecting an increased
TABLE 11 - AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AMORTIZED COST, FAIR VALUE AND YIELD BY MATURITY DATE
Maturing: Within 1 Year 1-5 Years 5-10 Years
-----------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1999 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
-----------------------------------------------------------------------------------------------------
U.S. Treasury ......... $ 33 $ 33 5.69% $ 340 $ 334 5.60% $ 15 $ 14 5.95%
Mortgage-backed* ...... -- -- -- -- -- -- -- -- --
Other U.S. agencies ... 1 1 6.41 1 1 6.55 1 1 6.77
State and political**.. 133 134 7.59 482 485 7.44 395 393 7.38
Other ................. 1 1 7.49 7 7 4.36 21 12 6.06
-----------------------------------------------------------------------------
Total .............. $ 168 $ 169 7.21% $ 830 $ 827 6.66% $ 432 $ 420 7.26%
-----------------------------------------------------------------------------------------------------
Mortgage-Backed and
Maturing: Over 10 Years Asset-Backed Securities Total
-----------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1999 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
-----------------------------------------------------------------------------------------------------------------
U.S. Treasury ......... $ -- $ -- --% $ -- $ -- --% $ 388 $ 381 5.62%
Mortgage-backed* ...... -- -- -- 2,971 2,906 6.81 2,971 2,906 6.81
Other U.S. agencies ... -- -- -- 192 193 7.42 195 196 7.41
State and political**.. 122 123 8.18 -- -- -- 1,132 1,135 7.52
Other ................. 259 233 11.29*** -- -- -- 288 253 7.28***
------------------------------------------------------------------------------------------
Total .............. $ 381 $ 356 8.45%*** $3,163 $3,099 6.84% $4,974 $4,871 6.91%***
-----------------------------------------------------------------------------------------------------------------
|
*VARIABLE RATE MORTGAGE-BACKED SECURITIES REPRESENTED 8% OF THE BALANCE OF
MORTGAGE-BACKED SECURITIES.
**YIELDS ON STATE AND POLITICAL OBLIGATIONS THAT ARE NOT SUBJECT TO FEDERAL
INCOME TAX HAVE BEEN ADJUSTED TO TAXABLE-EQUIVALENT USING A 35% TAX RATE.
***AVERAGE YIELD CALCULATIONS EXCLUDE EQUITY SECURITIES THAT HAVE NO STATED
YIELD.
U.S. BANCORP 27
emphasis of issuing deposits through the Company's broker-dealer affiliates.
BORROWINGS Short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $2.3 billion at December 31, 1999, down from $3.4 billion at year-end 1998. The decrease was primarily due to a $1.2 billion decrease in federal funds purchased and securities sold under agreements to repurchase which reflected the Company's Year 2000 liquidity strategy.
Long-term debt was $16.6 billion at December 31, 1999, up from $13.8 billion at December 31, 1998. To fund core asset growth, the Company issued $5.4 billion of debt with an average original maturity of 2.3 years under its medium term and bank note programs during 1999. The Company also issued $400 million of variable-rate Euro medium-term notes due April 13, 2004. These issuances were partially offset by maturities of $2.5 billion of medium-term and bank notes, $203 million of Federal Home Loan Bank advances and $200 million of portable asset trust securities. Also, the Company called its $107 million subordinated floating-rate notes due November 2010.
CORPORATE RISK PROFILE
OVERALL RISK PROFILE Managing risk is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit quality, interest rate sensitivity, market and liquidity. Credit quality risk is the risk of not collecting interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of net interest income as the result of changes in interest rates. Rate movements can affect the repricing of assets and liabilities differently, as well as their market value. Market risk is the risk that arises from fluctuations in interest rates, foreign exchange rates, and equity prices that may result in changes in the values of financial instruments. Liquidity risk is the possible inability to fund obligations to depositors, investors and borrowers.
CREDIT MANAGEMENT The Company's strategy for credit risk management includes stringent, centralized credit policies, and uniform underwriting criteria for all loans including specialized lending categories such as mortgage banking, real estate construction and consumer credit. The strategy emphasizes diversification on both a geographic and customer level, regular credit examinations, and quarterly management reviews of large loans and loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly, and maintain strong reserve levels. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. In addition, the commercial lenders generally focus on middle market companies within their regions. In the Company's retail banking operations, standard credit scoring systems are used to assess consumer credit risks and to price consumer products accordingly.
TABLE 12 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
1999 1998 1997
------------------------------------------------------------------
COMMERCIAL
Commercial ............. .48% .32% .65%
Real estate
Commercial mortgage .. .01 (.20) (.20)
Construction ......... .01 .11 .16
----------------------------------
Total commercial ..... .34 .18 .41
CONSUMER
Credit card ............ 4.23 4.36 4.11
Other .................. 1.84 1.45 1.28
----------------------------------
Subtotal ............. 2.37 2.14 1.93
Residential mortgage ... .10 .17 .12
----------------------------------
Total consumer ....... 2.07 1.79 1.53
----------------------------------
Total ............. .94% .78% .84%
------------------------------------------------------------------
|
28 U.S. BANCORP
TABLE 13 NONPERFORMING ASSETS*
At December 31
-----------------------------------------------------------
(Dollars in Millions) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial ............................................ $161.2 $165.7 $179.1 $143.7 $ 91.6
Real estate
Commercial mortgage ................................ 78.9 35.5 45.4 44.4 76.5
Construction ....................................... 25.3 17.2 14.9 18.8 13.3
-----------------------------------------------------------
Total commercial ................................... 265.4 218.4 239.4 206.9 181.4
CONSUMER
Credit card ........................................... -- -- -- -- 5.7
Other ................................................. 8.6 13.9 5.6 4.8 6.3
-----------------------------------------------------------
Subtotal ........................................... 8.6 13.9 5.6 4.8 12.0
Residential mortgage .................................. 36.0 46.6 52.1 57.6 54.2
-----------------------------------------------------------
Total consumer ..................................... 44.6 60.5 57.7 62.4 66.2
-----------------------------------------------------------
Total nonperforming loans ....................... 310.0 278.9 297.1 269.3 247.6
OTHER REAL ESTATE ........................................ 20.7 14.3 30.1 43.2 66.5
OTHER NONPERFORMING ASSETS ............................... 16.8 11.1 12.3 7.5 6.2
-----------------------------------------------------------
Total nonperforming assets ...................... $347.5 $304.3 $339.5 $320.0 $320.3
-----------------------------------------------------------
Accruing loans 90 days or more past due** ................ $125.8 $106.8 $ 93.8 $ 90.6 $ 68.8
Nonperforming loans to total loans ....................... .49% .47% .54% .51% .50%
Nonperforming assets to total loans plus other real estate .55 .51 .62 .61 .65
Net interest lost on nonperforming loans ................. $ 19.7 $ 14.9 $ 17.1 $ 24.8 $ 23.2
--------------------------------------------------------------------------------------------------------------------------
|
*THROUGHOUT THIS DOCUMENT, NONPERFORMING ASSETS AND RELATED RATIOS DO NOT
INCLUDE ACCRUING LOANS 90 DAYS OR MORE PAST DUE.
**THESE LOANS ARE NOT INCLUDED IN NONPERFORMING ASSETS AND CONTINUE TO ACCRUE
INTEREST BECAUSE THEY ARE SECURED BY COLLATERAL AND/OR ARE IN THE PROCESS OF
COLLECTION AND ARE REASONABLY EXPECTED TO RESULT IN REPAYMENT OR RESTORATION TO
CURRENT STATUS.
In evaluating its credit risk, the Company considers changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, the level of allowance coverage, and macroeconomic factors. Generally, the domestic economy of the nation is considered strong even though financial markets have been more volatile in 1999 and 1998 than in prior years. Approximately 56 percent of the Company's loan portfolio consists of credit to businesses and consumers in Minnesota, Oregon, Washington and California. Most economic indicators in the Company's operating regions are similar to or compare favorably with national trends. According to federal and state government agencies, unemployment rates in Minnesota, Oregon, Washington and California were 2.4 percent, 5.0 percent, 4.2 percent and 4.9 percent, respectively, for the month of December 1999, compared with the national unemployment rate of 4.1 percent. At September 30, 1999, the national residential foreclosure rate was .98 percent, compared with .43 percent in Minnesota, .45 percent in Oregon, .57 percent in Washington and 1.15 percent in California.
The Company also engages in non-lending activities that may give rise to credit risk, including interest rate swap contracts for balance sheet hedging purposes, foreign exchange transactions and interest rate swap contracts for customers, and the processing of credit card transactions for merchants. These activities are subject to the same credit review, analysis and approval processes as those applied to commercial loans. For additional information on interest rate swaps, see "Interest Rate Risk Management."
ANALYSIS OF NET LOAN CHARGE-OFFS Net loan charge-offs increased $133.5 million to $567.7 million in 1999, compared with $434.2 million in 1998, and $449.7 million in 1997. Included in the 1997 net charge-offs was $62.3 million of merger-related charge-offs, taken to align the classification and charge-off practices of the former USBC with those of the Company. The ratio of total net charge-offs to average loans was .94 percent in 1999, compared with .78 percent in 1998 and .84 percent in 1997.
Commercial loan net charge-offs for 1999 were $133.5 million, compared with $65.2 million in 1998 and $132.9 million, including merger-related charge-offs of $55.3 million in 1997. The increase in commercial loan net charge-offs in 1999 included expected higher losses on a growing portfolio of small business products, growth in the corporate card portfolio and lower levels of recoveries compared with 1998.
U.S. BANCORP 29
TABLE 14 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
(Dollars in Millions) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year ............................... $ 1,000.9 $ 1,008.7 $ 992.5 $ 908.0 $ 862.3
CHARGE-OFFS
Commercial
Commercial ........................................... 192.6 134.2 184.4 86.4 51.3
Real estate
Commercial mortgage ............................... 10.4 7.5 14.3 17.0 22.1
Construction ...................................... 1.1 4.6 4.3 2.3 .4
----------------------------------------------------------------
Total commercial .................................. 204.1 146.3 203.0 105.7 73.8
Consumer
Credit card .......................................... 188.5 196.8 172.4 150.4 123.7
Other ................................................ 331.5 241.7 194.3 134.3 121.6
----------------------------------------------------------------
Subtotal .......................................... 520.0 438.5 366.7 284.7 245.3
Residential mortgage ................................... 3.6 7.3 6.7 6.8 6.9
----------------------------------------------------------------
Total consumer .................................... 523.6 445.8 373.4 291.5 252.2
----------------------------------------------------------------
Total .......................................... 727.7 592.1 576.4 397.2 326.0
RECOVERIES
Commercial
Commercial ........................................... 60.4 55.6 38.8 56.0 56.6
Real estate
Commercial mortgage ............................... 9.6 23.8 30.5 25.7 18.7
Construction ...................................... .6 1.7 .8 1.0 2.5
----------------------------------------------------------------
Total commercial .................................. 70.6 81.1 70.1 82.7 77.8
Consumer
Credit card .......................................... 18.2 21.4 20.2 16.6 17.1
Other ................................................ 70.3 54.4 35.1 34.0 34.2
----------------------------------------------------------------
Subtotal .......................................... 88.5 75.8 55.3 50.6 51.3
Residential mortgage ................................. .9 1.0 1.3 2.4 1.8
----------------------------------------------------------------
Total consumer .................................... 89.4 76.8 56.6 53.0 53.1
----------------------------------------------------------------
Total .......................................... 160.0 157.9 126.7 135.7 130.9
NET CHARGE-OFFS
Commercial
Commercial ........................................... 132.2 78.6 145.6 30.4 (5.3)
Real estate
Commercial mortgage ............................... .8 (16.3) (16.2) (8.7) 3.4
Construction ...................................... .5 2.9 3.5 1.3 (2.1)
----------------------------------------------------------------
Total commercial .................................. 133.5 65.2 132.9 23.0 (4.0)
Consumer
Credit card .......................................... 170.3 175.4 152.2 133.8 106.6
Other ................................................ 261.2 187.3 159.2 100.3 87.4
----------------------------------------------------------------
Subtotal .......................................... 431.5 362.7 311.4 234.1 194.0
Residential mortgage ................................. 2.7 6.3 5.4 4.4 5.1
----------------------------------------------------------------
Total consumer .................................... 434.2 369.0 316.8 238.5 199.1
----------------------------------------------------------------
Total .......................................... 567.7 434.2 449.7 261.5 195.1
Provision charged to operating expense ..................... 531.0 379.0 460.3 271.2 239.1
Acquisitions and other changes ............................. 31.2 47.4 5.6 74.8 1.7
----------------------------------------------------------------
Balance at end of year ..................................... $ 995.4 $ 1,000.9 $ 1,008.7 $ 992.5 $ 908.0
----------------------------------------------------------------
Allowance as a percentage of:
Period-end loans ...................................... 1.58% 1.69% 1.84% 1.90% 1.84%
Nonperforming loans ................................... 321 359 340 369 367
Nonperforming assets .................................. 286 329 297 310 283
Net charge-offs ....................................... 175 231 224 380 465
Net charge-offs as a percentage of average loans outstanding
Commercial ............................................ .34% .18% .41% .08% (.01)%
Consumer .............................................. 2.07 1.79 1.53 1.16 .96
Total ................................................ .94 .78 .84 .51 .41
-------------------------------------------------------------------------------------------------------------------------------
|
30 U.S. BANCORP
Consumer loan net charge-offs in 1999 were $434.2 million, compared with $369.0 million in 1998 and $316.8 million, including merger-related charge-offs of $7.0 million, in 1997. The ratio of consumer net charge-offs to average loans in 1999 was 2.07 percent, up from 1.79 percent in 1998 and 1.53 percent in 1997. The increase in consumer loan net charge-offs in 1999 reflects higher overdraft fraud losses in addition to expected losses associated with consumer portfolio purchases. During 1999, the Company modified its charge-off policy to conform with recently issued regulatory guidelines for consumer loans. Without the change in policy, total consumer net charge-offs as a percent of average loans outstanding would have been 2.09 percent. The increase in consumer loan net charge-offs in 1998 reflects growth in the consumer loan portfolio and an increase in credit card-related fraud losses.
ANALYSIS OF NONPERFORMING ASSETS Nonperforming assets include nonaccrual loans, restructured loans, other real estate and other nonperforming assets owned by the Company. At December 31, 1999, nonperforming assets totaled $347.5 million, compared with $304.3 million at year-end 1998 and $339.5 million at year-end 1997. Approximately $13.2 million of the increase in nonperforming loans was related to the acquisition of Western Bancorp. The ratio of nonperforming assets to loans plus other real estate was .55 percent at December 31, 1999, compared with .51 percent at year-end 1998 and .62 percent at year-end 1997.
In 1999, nonperforming commercial loans increased $47.0 million primarily the result of continued stress in timber secured loans. Nonperforming consumer loans declined approximately $16 million primarily due to the continued decline in residential mortgages outstanding. Interest payments (currently received on approximately 28 percent of the Company's nonperforming loans) are typically applied against the principal balance and not recorded as income.
Accruing loans 90 days or more past due totaled $125.8 million, compared with $106.8 million at December 31, 1998, and $93.8 million at December 31, 1997. These loans are not included in nonperforming assets and continue to accrue interest because they are secured by collateral and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. Consumer loans 30 days or more past due were 2.65 percent of the total consumer portfolio at December 31, 1999, compared with 2.39 percent of the total consumer portfolio at December 31, 1998. Consumer loans 90 days or more past due totaled .79 percent of the total consumer loan portfolio at December 31, 1999, compared with .75 percent of the total consumer loan portfolio at December 31, 1998.
ANALYSIS AND ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses provides coverage for losses inherent in the Company's loan portfolio. Management evaluates the allowance each quarter to determine that it
TABLE 15 DELINQUENT LOAN RATIOS*
At December 31
------------------------------------
90 days or more past due 1999 1998 1997 1996 1995
-----------------------------------------------------------------
COMMERCIAL
Commercial ........... .59% .65% .78% .70% .49%
Real estate
Commercial mortgage .84 .44 .57 .55 1.17
Construction ...... .59 .56 .67 .91 .92
-----------------------------------
Total commercial .. .65 .60 .72 .68 .68
CONSUMER
Credit card .......... .96 .74 .69 .88 .88
Other ................ .57 .51 .41 .34 .24
-----------------------------------
Subtotal .......... .67 .56 .48 .46 .39
Residential mortgage . 1.57 1.86 1.58 1.48 .99
-----------------------------------
Total consumer .... .79 .75 .70 .70 .59
-----------------------------------
Total .......... .69% .65% .71% .69% .64%
----------------------------------------------------------------
|
*RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING LOAN BALANCES.
U.S. BANCORP 31
TABLE 16 ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
Allocation Amount at December 31 Allocation as a Percent of Loans Outstanding
--------------------------------------------- --------------------------------------------------
(Dollars in Millions) 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial ............ $296.6 $ 205.9 $ 226.2 $232.9 $226.7 1.03% .79% .97% 1.09% 1.14%
Real estate
Commercial mortgage. 43.3 25.8 29.7 42.4 38.9 .44 .31 .37 .53 .57
Construction ....... 10.9 10.9 15.9 12.5 7.7 .25 .36 .67 .59 .51
------- -------- -------- ------ ------- ------ ------ ------- ------ -------
Total commercial ... 350.8 242.6 271.8 287.8 273.3 .82 .65 .80 .91 .97
CONSUMER
Credit card ........... 161.1 177.0 137.6 132.1 97.4 3.74 4.19 3.28 3.64 2.87
Other ................. 280.4 283.0 206.5 164.9 119.6 2.17 1.95 1.65 1.34 1.12
------- -------- -------- ------ ------- ------ ------ ------- ------ -------
Subtotal ........... 441.5 460.0 344.1 297.0 217.0 2.56 2.46 2.06 1.87 1.54
Residential mortgage .. 5.5 10.0 8.9 9.9 10.3 .21 .32 .21 .20 .15
------- -------- -------- ------ ------- ------ ------ ------- ------ -------
Total consumer ..... 447.0 470.0 353.0 306.9 227.3 2.24 2.15 1.69 1.47 1.08
------- -------- -------- ------ ------- ------ ------ ------- ------ -------
Total allocated ....... 797.8 712.6 624.8 594.7 500.6 1.27 1.21 1.14 1.14 1.01
Unallocated portion ... 197.6 288.3 383.9 397.8 407.4 .31 .49 .70 .76 .83
------- -------- -------- ------ ------- ------ ------ ------- ------ -------
Total allowance .... $995.4 $1,000.9 $1,008.7 $992.5 $908.0 1.58% 1.69% 1.84% 1.90% 1.84%
----------------------------------------------------------------------------------------------------------------------------------
|
is adequate to cover inherent losses. The evaluation of each element and the overall allowance is based on continuing assessment of problem loans and related off-balance sheet items, recent loss experience, and other factors, including regulatory guidance and economic conditions. Management has determined that the allowance for credit losses is adequate.
At December 31, 1999, the allowance was $995.4 million, or 1.58 percent of loans. This compares with an allowance of $1.00 billion, or 1.69 percent of loans, at year-end 1998 and $1.01 billion, or 1.84 percent of loans, at December 31, 1997. The ratio of the allowance for credit losses to nonperforming loans was 321 percent at December 31, 1999, compared to 359 percent at year-end 1998 and 340 percent at year-end 1997.
Although the recent trend of steady economic growth may contribute to the continued improvement in the credit portfolio, financial market volatility, economic stagnation or reversals and trends of corporate earnings could change the required level of the allowance for credit losses.
Management allocates part of the allowance to certain sectors based on relative risk characteristics of the loan portfolio. Table 16 shows the allocation of the allowance for credit losses by loan category. Commercial allocations are based on a quarterly review of individual loans outstanding and binding commitments to lend, including standby letters of credit. An analysis of the migration of commercial loans and actual loss experience throughout the business cycle is also conducted to assess reserves allocated to credits with similar risk characteristics. The allowance allocated to commercial loan portfolios increased $108.2 million to $350.8 million in 1999 reflecting growth in the commercial loan portfolio during 1999, increased risk in the paper and forestry products sector due to excess capacity and decline in demand from Asian markets, and a change in the allocation methodology related to the corporate card portfolio. Consumer allocations are based on an analysis of product mix, credit scoring and risk composition of the portfolio, fraud loss and bankruptcy experiences, and historical and expected delinquency and charge-off statistics for each homogenous category or group of loans. The allowance allocated to consumer loans declined $23.0 million to $447.0 million in 1999 reflecting a decline in nonperforming consumer assets, improvements in credit card and residential mortgage net charge-offs during the second half of 1999 and the $1.8 billion sale of indirect automobile loans.
Regardless of the extent of the Company's analysis of customer performance, portfolio evaluations, trends or the risk management processes established, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer's financial condition or changes in their unique business conditions; the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends;
32 U.S. BANCORP
TABLE 17 INTEREST RATE SENSITIVITY GAP ANALYSIS
Repricing Maturities
--------------------------------------------------------------------------
Less Than 3-6 6-12 1-5 More Than Non-Rate
At December 31, 1999 (Dollars in Millions) 3 Months Months Months Years 5 Years Sensitive Total
------------------------------------------------ --------- ---------- --------- --------- -------- --------- --------
Assets
Loans ....................................... $ 34,903 $ 3,426 $ 3,562 $ 15,177 $ 5,793 $ 24 $ 62,885
Available-for-sale securities ............... 460 176 537 1,790 1,908 -- 4,871
Other earning assets ........................ 2,526 39 76 525 652 -- 3,818
Nonearning assets ........................... 617 33 339 1,559 2,259 5,149 9,956
--------- ---------- --------- --------- -------- --------- --------
Total assets ............................. $ 38,506 $ 3,674 $ 4,514 $ 19,051 $ 10,612 $ 5,173 $ 81,530
--------- ---------- --------- --------- -------- --------- --------
Liabilities and Equity
Deposits .................................... $ 22,807 $ 2,905 $ 2,482 $ 12,940 $ 10,396 -- $ 51,530
Other purchased funds ....................... 2,245 -- -- 2 9 -- 2,256
Long-term debt .............................. 11,775 139 334 1,942 2,373 -- 16,563
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company ........ -- -- -- -- 950 -- 950
Other liabilities ........................... -- -- 235 117 -- 2,241 2,593
Equity ...................................... -- -- -- -- -- 7,638 7,638
--------- ---------- --------- --------- -------- --------- --------
Total liabilities and equity ............. $ 36,827 $ 3,044 $ 3,051 $ 15,001 $ 13,728 $ 9,879 $ 81,530
--------- ---------- --------- --------- -------- --------- --------
Effect of off-balance sheet hedging instruments
Receiving fixed ............................. $ 215 $ 266 $ 491 $ 4,796 $ 1,975 -- $ 7,743
Paying floating ............................. (7,743) -- -- -- -- -- (7,743)
--------- ---------- --------- --------- -------- --------- --------
Total effect of off-balance sheet hedging
instruments ........................ $ (7,528) $ 266 $ 491 $ 4,796 $ 1,975 $ -- $ --
--------- ---------- --------- --------- -------- --------- --------
Repricing gap .................................. $ (5,849) $ 896 $ 1,954 $ 8,846 $ (1,141) $ (4,706) --
Cumulative repricing gap ....................... (5,849) (4,953) (2,999) 5,847 4,706 -- --
----------------------------------------------------------------------------------------------------------------------------
|
THIS TABLE ESTIMATES THE REPRICING MATURITIES OF THE COMPANY'S ASSETS, LIABILITIES, AND HEDGING INSTRUMENTS BASED UPON THE COMPANY'S ASSESSMENT OF THE REPRICING CHARACTERISTICS OF CONTRACTUAL AND NON-CONTRACTUAL INSTRUMENTS. NON-CONTRACTUAL DEPOSIT LIABILITIES ARE ALLOCATED AMONG THE VARIOUS MATURITY CATEGORIES AS FOLLOWS: APPROXIMATELY 30 PERCENT OF REGULAR SAVINGS, 20 PERCENT OF INTEREST-BEARING CHECKING, 40 PERCENT OF NON-INDEXED MONEY MARKET CHECKING AND 50 PERCENT OF MONEY MARKET SAVINGS BALANCES ARE REFLECTED IN THE LESS THAN 3 MONTHS CATEGORY, WITH 67 PERCENT OF THE REMAINDER PLACED IN THE 1-5 YEARS CATEGORY AND 33 PERCENT IN THE MORE THAN 5 YEARS CATEGORY. APPROXIMATELY 55 PERCENT OF DEMAND DEPOSITS AND RELATED NONEARNING ASSET ACCOUNTS IS ALLOCATED IN THE MORE THAN 5 YEARS CATEGORY, 33 PERCENT IS ALLOCATED IN THE 1-5 YEARS CATEGORY WITH THE REMAINING ALLOCATED IN THE LESS THAN 3 MONTHS CATEGORY.
volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits; and the sensitivity of assumptions utilized to establish allocated allowances for homogenous groups of loans among other factors. The Company maintains an unallocated allowance to recognize the existence of these exposures and for the risk in concentrations to specific borrowers, financings of highly leveraged transactions, products or industries. The unallocated portion of the allowance decreased to $197.6 million at year-end 1999 from $288.3 million and $383.9 million at December 31, 1998, and 1997, respectively. The decrease of $90.7 million in 1999 is primarily due to a change in the allocation methodology for corporate card portfolios, reduced uncertainty as to credit exposures in agricultural sectors due to stabilizing livestock prices, a further decline in the volatility of commercial losses for credits with similar risk classifications and reduced uncertainty in credit exposure to Asian and Indonesian markets. Although the allocation of the allowance is an important credit management tool, the entire allowance for credit losses is available for the entire loan portfolio. Refer to Note A of the Notes to Consolidated Financial Statements for additional information on the allowance for credit losses.
INTEREST RATE RISK MANAGEMENT The Company's policy is to maintain a low interest rate risk position. The Company limits the exposure of net interest income associated with interest rate movements through asset/liability management strategies. The Company's Asset and Liability Management Committee ("ALCO") uses three methods for measuring and managing consolidated interest rate risk: Net Interest Income Simulation Modeling, Market Value Simulation Modeling, and Repricing Mismatch Analysis.
U.S. BANCORP 33
TABLE 18 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY MATURITY DATE
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
-------------------- ---------- ------------- --------------
2000 .............. $ 155 6.39% 6.47%
2001 .............. 429 6.26 6.46
2002 .............. 775 6.10 6.47
2003 .............. 2,564 6.01 6.45
2004 .............. 1,555 6.56 6.43
Thereafter......... 2,265 6.25 6.47
--------
Total ............. $7,743 6.22% 6.45%
----------------------------------------------------------------------
|
*AT DECEMBER 31, 1999, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT REQUIRED IT TO PAY FIXED-RATE INTEREST.
NET INTEREST INCOME SIMULATION MODELING: The Company uses a net interest income simulation model to estimate near-term (next 24 months) risk due to changes in interest rates. The model, which is updated monthly, incorporates substantially all of the Company's assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. ALCO uses the model to simulate the effect of immediate and sustained parallel shifts in the yield curve of 1 percent, 2 percent and 3 percent as well as the effect of immediate and sustained flattening or steepening of the yield curve. ALCO also calculates the sensitivity of the simulation results to changes in key assumptions, such as the Prime/LIBOR spread or core deposit repricing. The results from the simulation are reviewed by ALCO monthly and are used to guide ALCO's hedging strategies. ALCO guidelines, approved by the Company's Board of Directors, limit the estimated change in net interest income to 1.5 percent of forecasted net interest income over the succeeding 12 months and 3 percent of forecasted net interest income over the second 12 months given a 1 percent change in interest rates. At December 31, 1999, forecasted net interest income for the next 12 months would decrease $31 million from an immediate 100 basis point upward parallel shift in rates and increase $31 million from a downward shift of similar magnitude. Forecasted net interest income for the second 12 months would decrease $27 million from an immediate 100 basis point upward parallel shift in rates and increase $21 million from a downward shift of similar magnitude.
MARKET VALUE SIMULATION MODELING: The net interest income simulation model is somewhat limited by its dependence upon accurate forecasts of future business activity and the resulting effect on balance sheet assets and liabilities. As a result, its usefulness is greatly diminished for periods beyond one or two years. To better measure all interest rate risk, both short-term and long-term, the Company uses a market value simulation model. This model estimates the effect of 1 percent, 2 percent and 3 percent rate shocks on the present value of substantially all future cash flows of the Company's outstanding assets, liabilities and off-balance sheet instruments. The amount of market value risk is subject to a limit, approved by the Company's Board of Directors, of .5 percent of assets for an immediate 100 basis point rate shock. Historically, the Company's market value risk position has been substantially lower than its limits.
REPRICING MISMATCH ANALYSIS: A traditional gap analysis provides a static measurement of the relationship between the amounts of interest rate sensitive assets and liabilities repricing in a given time period. While the analysis provides a useful snapshot of interest rate risk, it does not capture all aspects of interest rate risk. As a result, ALCO uses the repricing mismatch analysis primarily for managing intermediate-term interest rate risk and has established limits, approved by the Company's Board of Directors, for the two-to three-year gap position of 5 percent of assets.
USE OF DERIVATIVES TO MANAGE INTEREST RATE RISK: While each of the interest rate risk measurements has limitations, taken together they represent a comprehensive view of the magnitude of the Company's interest rate risk over various time intervals. The Company manages its interest rate risk by entering into off-balance sheet transactions, primarily
34 U.S. BANCORP
interest rate swaps and, to a lesser degree, interest rate caps and floors.
In 1999, the Company added $4.4 billion of interest rate swaps to reduce its interest rate risk. This was largely offset by $2.1 billion of interest rate swap maturities and $1.6 billion in swap terminations. Interest rate swap agreements involve the exchange of fixed- and floating-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. As of December 31, 1999, the Company received payments on $7.7 billion notional amount of interest rate swap agreements based on fixed interest rates, and made payments based on variable interest rates. These swaps had a weighted average fixed-rate received of 6.22 percent and a weighted average variable-rate paid of 6.45 percent. The remaining maturity of these agreements ranges from 3 months to 14.7 years with an average remaining maturity of 4.7 years. Swaps increased net interest income for the years ended December 31, 1999, 1998 and 1997 by $60.7 million, $37.9 million and $25.1 million, respectively.
The Company also purchases interest rate caps and floors to minimize the impact of fluctuating interest rates on earnings. To hedge against rising interest rates, the Company uses interest rate caps. Counterparties to these interest rate cap agreements pay the Company based on the notional amount and the difference between current rates and strike rates. There were no caps outstanding at December 31, 1999. To hedge against falling interest rates, the Company uses interest rate floors. Like caps, counterparties to interest rate floor agreements pay the Company based on the notional amount and the difference between current rates and strike rates. The total notional amount of floor agreements purchased as of December 31, 1999, all of which were LIBOR-indexed, was $500 million. The impact of caps and floors on net interest income was not significant for the years ended December 31, 1999, 1998 and 1997. See Notes A and O of the Notes to Consolidated Financial Statements for the Company's accounting policy related to these types of transactions.
MARKET RISK MANAGEMENT Market valuation risk is subject to regular monitoring by management. The Company uses a value-at-risk ("VaR") model to measure and manage market risk especially in its broker/dealer activities. The VaR model uses an estimate of volatility appropriate to each instrument and a ninety-ninth percentile adverse move in the underlying markets. Market valuation risk limits are established subject to approval by the Company's Board of Directors. The Company's VaR limit was $40 million at December 31, 1999. The estimate of market valuation risk inherent in its broker/dealer activities, including equities, fixed income, high yield securities and foreign exchange as estimated by the VaR analysis, was $13.9 million at December 31, 1999.
LIQUIDITY MANAGEMENT The objective of liquidity management is to ensure the continuous availability of funds to meet the demands of depositors, investors and borrowers. ALCO is responsible for structuring the balance sheet to meet these needs. It regularly reviews current and forecasted funding needs as well as market conditions for issuing debt to wholesale investors. Based on this information, ALCO supervises wholesale funding activity as well as the maintenance of contingent funding sources.
A majority of the Company's funding comes from customer deposits within its operating region. While the Company has funded incremental balance sheet growth with negotiated funds, its short-term purchased funds index remained relatively low at 8.2 percent at December 31, 1999, compared with a peer group median of 23.4 percent at September 30, 1999. The index is calculated as negotiated funding under one year (which includes Federal Home Loan Bank borrowings, foreign branch time deposits, federal funds purchased, bank notes, medium-term notes and repurchase agreements), net of federal funds sold and resale agreements, divided by loans and securities.
The Company's ability to raise negotiated funding at competitive prices is influenced by rating agencies' views of the Company's credit quality, liquidity, capital and earnings. As of December 31, 1999, Moody's Investors Services, Standard & Poors, Thomson BankWatch, and Fitch IBCA rated the Company's senior debt as "A1," "A," "A+," and "A+," respectively. The debt ratings reflect the agencies' recognition of the strong, consistent financial performance of the Company and quality of the balance sheet.
At the parent company, funding primarily consists of long-term debt and equity. At December 31, 1999, parent company long-term debt outstanding was $3.8 billion, compared with $3.5 billion at December 31, 1998. The parent company issued $1.1 billion of medium-term notes during 1999, which was partially offset by $738 million of debt maturities and other repayments.
Total parent company debt maturing in 2000 is $525 million. These debt obligations are expected to be
U.S. BANCORP 35
TABLE 19 CAPITAL RATIOS
At December 31 (Dollars in Millions) 1999 1998 1997 ------------------------------------------------------------------------------------------------ Tangible common equity* ............... $ 5,134 $ 4,465 $ 4,897 As a percent of assets ............. 6.5% 6.0% 7.0% Tier 1 capital ........................ $ 5,631 $ 4,917 $ 5,028 As a percent of risk-adjusted assets 6.8% 6.4% 7.4% Total risk-based capital .............. $ 9,281 $ 8,343 $ 7,859 As a percent of risk-adjusted assets 11.1% 10.9% 11.6% Leverage ratio ....................... 7.4 6.8 7.3 ------------------------------------------------------------------------------------------------ |
*DEFINED AS COMMON EQUITY LESS GOODWILL.
met through medium-term note issuances, as well as from the approximately $469 million of parent company cash and cash equivalents at December 31, 1999. It is the Company's practice to maintain liquid assets at the parent company sufficient to fund its operating cash needs and prefund debt maturities.
CAPITAL MANAGEMENT
The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. At December 31, 1999, tangible common equity (common equity less goodwill) was $5.1 billion, or 6.5 percent of assets, compared with 6.0 percent at year-end 1998 and 7.0 percent at year-end 1997. The tier 1 capital ratio was 6.8 percent at December 31, 1999, compared with 6.4 percent at December 31, 1998, and 7.4 percent at December 31, 1997. The total risk-based capital ratio was 11.1 percent at December 31, 1999, compared with 10.9 percent at December 31, 1998, and 11.6 percent at December 31, 1997. The leverage ratio was 7.4 percent at December 31, 1999, compared with 6.8 percent and 7.3 percent at December 31, 1998, and December 31, 1997, respectively.
The measures used to assess capital include the capital ratios established by the bank regulatory agencies, including the specific ratios for the "well capitalized" designation. The Company manages various capital ratios to maintain appropriate capital levels in accordance with Board-approved capital guidelines, ascribing the most significance to the tangible common equity ratio. The Company intends to maintain sufficient capital in each of its bank subsidiaries to be "well capitalized" as defined by the regulatory agencies.
On June 8, 1998, the Company's Board of Directors authorized the repurchase of up to $2.5 billion of the Company's common stock through March 31, 2000. On February 16, 2000, the Company's Board of Directors replaced the authorization with a new authorization to repurchase up to $2.5 billion of the Company's stock through March 31, 2002. The shares will be repurchased in the open market or through negotiated transactions. The Company repurchased 16.6 million shares for $560.8 million in 1999 and 24.7 million shares for $964.0 million in 1998.
TABLE 20 SUBSIDIARY CAPITAL RATIOS
At December 31, 1999
-----------------------------------------------------
Total
Tier 1 Risk-based Total
(Dollars in Millions) Capital Capital Leverage Assets
--------------------------------------------------------------------------------------------
REGULATORY CAPITAL REQUIREMENTS
Minimum ........................... 4.0% 8.0% 3.0%
Well-Capitalized .................. 6.0 10.0 5.0
SIGNIFICANT BANK SUBSIDIARIES
U.S. Bank National Association .... 6.9 11.1 7.7 $75,385
U.S. Bank National Association ND.. 10.7 13.5 10.4 2,146
U.S. Bank National Association MT.. 12.9 16.0 11.9 1,019
---------------------------------------------------------------------------------------------
|
NOTE: THESE BALANCES AND RATIOS WERE PREPARED IN ACCORDANCE WITH REGULATORY ACCOUNTING PRINCIPLES AS DISCLOSED IN THE SUBSIDIARIES' REGULATORY REPORTS.
36 U.S. BANCORP
On April 22, 1998, the Company's shareholders authorized an increase in the Company's capital stock necessary to implement the three-for-one split of the Company's common stock announced February 18, 1998. The number of common and preferred shares that the Company has authority to issue was increased from 500 million shares and 10 million shares, respectively, to 1.5 billion shares and 50 million shares, respectively. The stock split was in the form of a 200 percent dividend payable May 18, 1998, to shareholders of record on May 4, 1998. The impact of the stock split has been reflected in the financial statements for all periods presented and all share and per share data included herein.
On August 1, 1997, the Company issued 329.7 million shares to acquire USBC. The Company exchanged 2.265 shares of its common stock for each share of USBC common stock. USBC's outstanding stock options were also converted into stock options for the Company's common stock. In addition, each outstanding share of USBC cumulative preferred stock was converted into one share of preferred stock of the combined company, having substantially identical terms.
Approximately 93.0 million common shares were repurchased under 1996 Board authorizations, including 14.7 million during 1997. These authorizations were either completed or rescinded prior to the USBC acquisition.
On November 14, 1997, the Company redeemed all outstanding shares of its preferred stock at a redemption price of $25 per share, together with accrued and unpaid dividends.
DIVIDENDS During 1999, total dividends on common stock were $573.1 million compared with $516.4 million in 1998 and $445.7 million in 1997. The Company has raised its quarterly dividend rate in each of the past five years. On a per share basis, dividends paid to common shareholders totaled $.78 in 1999, $.70 in 1998 and $.62 in 1997. On February 16, 2000, the Board of Directors increased the quarterly common dividend rate to $.215 from $.195.
The Company's primary funding sources for common stock dividends are dividends received from its bank and nonbank subsidiaries. Payment of dividends to the Company by its depository subsidiaries is subject to ongoing review by banking regulators and to various statutory limitations. For further information, see Note S of the Notes to Consolidated Financial Statements.
ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Statement of
Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In certain defined conditions, a derivative may be
specifically designated as a hedge for a particular exposure. The accounting
for changes in the fair value of the derivative depends on the intended use
of the derivative and the resulting designation. The effective date has been
deferred for one year with the issuance of SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133," which amended SFAS 133. SFAS 133, as amended, is
effective for all fiscal years beginning after June 15, 2000, with earlier
application permitted. The adoption of SFAS 133 is not expected to have a
material impact on the Company.
IMPACT OF INFLATION
The assets and liabilities of a financial institution are primarily monetary in nature. Therefore, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During periods of inflation, monetary assets lose value in terms of purchasing power while monetary liabilities have corresponding purchasing power gains. Since banks generally have an excess of monetary assets over monetary liabilities, inflation will, in theory, cause a loss of purchasing power in the value of shareholders' equity. However, the concept of purchasing power is not an adequate indicator of the effect of inflation on banks because it does not take into account changes in interest rates, which are a more important determinant of bank earnings.
Other sections of the Management's Discussion and Analysis provide the information necessary for an understanding of the Company's ability to react to changing interest rates.
U.S. BANCORP 37
TABLE 21 FOURTH QUARTER SUMMARY
Three Months Ended
December 31
-----------------------
(Dollars in Millions, Except Per Share Data) 1999 1998
---------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent basis) ............ $ 841.0 $ 787.1
Provision for credit losses ............................... 146.0 101.0
-----------------------
Net interest income after provision for credit losses .. 695.0 686.1
Available-for-sale securities gains ....................... 2.1 --
Other noninterest income .................................. 761.8 620.1
Merger-related charges .................................... 27.7 44.1
Other noninterest expense ................................. 843.4 701.2
-----------------------
Income before income taxes ............................. 587.8 560.9
Taxable-equivalent adjustment ............................. 10.3 12.8
Income taxes .............................................. 208.5 198.9
-----------------------
Net income ............................................. $ 369.0 $ 349.2
-----------------------
FINANCIAL RATIOS
Return on average assets .................................. 1.86% 1.88%
Return on average common equity ........................... 20.4 23.6
Efficiency ratio .......................................... 54.3 53.0
Net interest margin (taxable-equivalent basis) ............ 4.80 4.78
PER COMMON SHARE
Earnings per share ........................................ $ .50 $ .48
Diluted earnings per share ................................ .50 .48
Dividends paid ............................................ .195 .175
SELECTED FINANCIAL RATIOS BEFORE MERGER-RELATED CHARGES AND
AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS
Diluted earnings per share ................................ $ .52 $ .52
Return on average assets .................................. 1.94% 2.03%
Return on average common equity ........................... 21.3 25.5
Efficiency ratio .......................................... 52.6 49.8
Banking efficiency ratio* ................................. 44.7 43.2
--------------------------------------------------------------------------------------
|
*WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
FOURTH QUARTER SUMMARY
In the fourth quarter of 1999, the Company reported operating earnings of $385.1 million ($.52 per diluted share), compared with $377.3 million ($.52 per diluted share) in the fourth quarter of 1998. Including merger-related charges and available-for-sale securities transactions, the Company had net income for the fourth quarter of 1999 of $369.0 million ($.50 per diluted share), compared with net income of $349.2 million ($.48 per diluted share) in the fourth quarter of 1998.
Fourth quarter net interest income on a taxable-equivalent basis increased $53.9 million to $841.0 million, compared with fourth quarter of 1998, primarily reflecting strong core loan growth, acquisitions and a stable net interest margin. The net interest margin on a taxable-equivalent basis was 4.80 percent compared with 4.78 percent a year ago.
The provision for credit losses increased to $146.0 million in the fourth quarter of 1999, compared with $101.0 million in the fourth quarter of 1998.
Noninterest income, before available-for-sale securities transactions, increased $141.7 million from the same quarter a year ago, to $761.8 million. Credit card fee revenue was higher year over year, reflecting continued growth in the business, partially offset by the loss of a portion of the U.S. government purchasing card business on December 1, 1998. Trust and investment management fees were higher than the fourth quarter of 1998 by $11.2 million. Investment products fees and commissions, investment banking revenue and trading account profits and commissions were significantly higher, due to growth in U.S. Bancorp Piper Jaffray and U.S. Bancorp Libra.
Fourth quarter noninterest expense, before merger-related charges, totaled $843.4 million, an increase of $142.2 million from the fourth quarter of 1998. Approximately 55 percent of the increase in expense from fourth quarter of 1998 was due to the growth in investment banking and brokerage activities. The remaining variance was primarily the result of acquisitions and higher investments in sales, service and technology.
38 U.S. BANCORP
CONSOLIDATED BALANCE SHEET
At December 31 (Dollars in Millions) 1999 1998
----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks ................................................................... $ 4,036 $ 4,772
Federal funds sold ........................................................................ 713 83
Securities purchased under agreements to resell ........................................... 324 461
Trading account securities ................................................................ 617 537
Available-for-sale securities ............................................................. 4,871 5,577
Loans ..................................................................................... 62,885 59,122
Less allowance for credit losses ....................................................... 995 1,001
-------- --------
Net loans .............................................................................. 61,890 58,121
Premises and equipment .................................................................... 862 879
Interest receivable ....................................................................... 433 456
Customers' liability on acceptances ....................................................... 152 166
Goodwill and other intangible assets ...................................................... 3,066 1,975
Other assets .............................................................................. 4,566 3,411
-------- --------
Total assets ........................................................................ $ 81,530 $ 76,438
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .................................................................... $ 16,050 $ 16,377
Interest-bearing ....................................................................... 35,480 33,657
-------- --------
Total deposits ...................................................................... 51,530 50,034
Federal funds purchased ................................................................... 297 1,255
Securities sold under agreements to repurchase ............................................ 1,235 1,427
Other short-term funds borrowed ........................................................... 724 683
Long-term debt ............................................................................ 16,563 13,781
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company .............. 950 950
Acceptances outstanding ................................................................... 152 166
Other liabilities ......................................................................... 2,441 2,172
-------- --------
Total liabilities ................................................................... 73,892 70,468
Shareholders' equity:
Common stock, par value $1.25 a share - authorized 1,500,000,000 shares;
issued: 1999 - 754,368,668 shares; 1998 - 744,797,857 shares ...................... 943 931
Capital surplus ........................................................................ 1,399 1,247
Retained earnings ...................................................................... 5,389 4,456
Accumulated other comprehensive income ................................................. (62) 72
Less cost of common stock in treasury: 1999 - 1,038,456 shares; 1998 - 19,036,139 shares (31) (736)
-------- --------
Total shareholders' equity .......................................................... 7,638 5,970
-------- --------
Total liabilities and shareholders' equity .......................................... $ 81,530 $ 76,438
----------------------------------------------------------------------------------------------------------------------
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. BANCORP 39
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (Dollars in Millions, Except Per Share Data) 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans ............................................................................ $ 5,208.6 $ 4,921.8 $ 4,784.5
Securities:
Taxable ....................................................................... 250.6 303.6 371.5
Exempt from federal income taxes .............................................. 57.3 62.8 68.1
Other interest income ............................................................ 160.2 119.2 69.5
--------- --------- ---------
Total interest income ................................................... 5,676.7 5,407.4 5,293.6
INTEREST EXPENSE
Deposits ......................................................................... 1,291.2 1,391.0 1,436.8
Federal funds purchased and repurchase agreements ................................ 164.2 153.6 183.0
Other short-term funds borrowed .................................................. 49.9 59.1 117.6
Long-term debt ................................................................... 833.4 672.7 459.0
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company ....... 77.3 70.4 49.1
--------- --------- ---------
Total interest expense .................................................. 2,416.0 2,346.8 2,245.5
--------- --------- ---------
Net interest income .............................................................. 3,260.7 3,060.6 3,048.1
Provision for credit losses ...................................................... 531.0 379.0 460.3
--------- --------- ---------
Net interest income after provision for credit losses ............................ 2,729.7 2,681.6 2,587.8
NONINTEREST INCOME
Credit card fee revenue .......................................................... 603.1 574.8 418.8
Trust and investment management fees ............................................. 459.7 413.0 348.0
Service charges on deposit accounts .............................................. 434.6 406.0 396.2
Investment products fees and commissions ......................................... 347.7 229.7 65.7
Investment banking revenue ....................................................... 245.4 100.4 --
Trading account profits and commissions .......................................... 215.9 118.1 30.9
Available-for-sale securities (losses) gains ..................................... (1.3) 12.6 3.6
Other ............................................................................ 453.6 402.0 352.0
--------- --------- ---------
Total noninterest income ................................................ 2,758.7 2,256.6 1,615.2
NONINTEREST EXPENSE
Salaries ......................................................................... 1,460.9 1,210.9 969.3
Employee benefits ................................................................ 248.4 222.3 217.4
Net occupancy .................................................................... 204.6 187.4 182.0
Furniture and equipment .......................................................... 160.1 153.4 165.4
Professional services ............................................................ 74.1 71.3 70.3
Goodwill and other intangible assets ............................................. 165.6 143.7 113.3
Merger-related charges ........................................................... 62.4 216.5 511.6
Other ............................................................................ 750.8 638.8 583.0
--------- --------- ---------
Total noninterest expense ............................................... 3,126.9 2,844.3 2,812.3
--------- --------- ---------
Income before income taxes ....................................................... 2,361.5 2,093.9 1,390.7
Applicable income taxes .......................................................... 855.0 766.5 552.2
--------- --------- ---------
Net income ....................................................................... $ 1,506.5 $ 1,327.4 $ 838.5
--------- --------- ---------
Net income applicable to common equity ........................................... $ 1,506.5 $ 1,327.4 $ 827.9
--------- --------- ---------
Earnings per share ............................................................... $ 2.07 $ 1.81 $ 1.13
Diluted earnings per share ....................................................... $ 2.06 $ 1.78 $ 1.11
-----------------------------------------------------------------------------------------------------------------------------
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
40 U.S. BANCORP
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
Common Other
Year Ended December 31 Shares Preferred Common Capital Retained Comprehensive Treasury
(Dollars in Millions) Outstanding* Stock Stock Surplus Earnings Income Stock** Total
----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 ............ 738,017,970 $ 150.0 $ 948.3 $1,296.9 $3,809.4 $ 4.7 $ (445.9) $5,763.4
Dividends declared
Preferred ......................... (10.6) (10.6)
Common ............................ (445.7) (445.7)
Purchase and retirement of treasury
stock ............................. (14,671,065) (41.1) (266.5) (514.6) 391.2 (431.0)
Issuance of common stock
Acquisitions ...................... 2,847,885 3.6 83.8 87.4
Dividend reinvestment ............. 601,638 .9 9.5 8.3 18.7
Stock option and stock purchase
plans ........................... 13,136,586 13.2 137.4 (32.2) 46.4 164.8
Redemption of preferred stock ........ (150.0) (150.0)
-------------------------------------------------------------------------------------------
739,933,014 -- 924.9 1,261.1 2,806.3 4.7 -- 4,997.0
Comprehensive income
Net income ...... ................. 838.5 838.5
Other comprehensive income
Unrealized gains on securities
of $54.6 (net of $32.9 tax
expense) ....................... 54.6 54.6
-------
Total comprehensive income .. 893.1
-------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 ............ 739,933,014 $ -- $ 924.9 $1,261.1 $3,644.8 $ 59.3 $ -- $5,890.1
Common dividends declared ............ (516.4) (516.4)
Purchase of treasury stock ........... (24,658,162) (964.0) (964.0)
Issuance of common stock
Dividend reinvestment ............. 574,168 .3 8.9 12.7 21.9
Stock option and stock purchase
plans ............................. 9,912,698 5.8 (22.8) 215.5 198.5
-------------------------------------------------------------------------------------------
725,761,718 -- 931.0 1,247.2 3,128.4 59.3 (735.8) 4,630.1
Comprehensive income
Net income ........................ 1,327.4 1,327.4
Other comprehensive income
Unrealized gains on securities
of $23.6 (net of $14.0 tax
expense) net of reclassification
adjustment for gains included in
net income of $11.1 (net of $6.4
tax expense). 12.5 12.5
-------
Total comprehensive income .. 1,339.9
-------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 ............ 725,761,718 $ -- $ 931.0 $1,247.2 $4,455.8 $ 71.8 $ (735.8) $5,970.0
Common dividends declared ............ (573.1) (573.1)
Purchase of treasury stock ........... (16,644,892) (560.8) (560.8)
Issuance of common stock
Acquisitions ...................... 37,798,319 11.6 233.6 1,030.3 1,275.5
Dividend reinvestment ............. 800,809 (5.6) 29.1 23.5
Stock option and stock purchase
plans ............................. 5,614,258 .4 (76.4) 205.7 129.7
-------------------------------------------------------------------------------------------
753,330,212 -- 943.0 1,398.8 3,882.7 71.8 (31.5) 6,264.8
Comprehensive income
Net income ........................ 1,506.5 1,506.5
Other comprehensive income
Unrealized losses on securities
of $134.2 (net of $82.3 tax
benefit) net of reclassification
adjustment for losses included
in net income of $.6 (net of
$.3 tax benefit) ............... (133.6) (133.6)
-------
Total comprehensive income .. 1,372.9
-------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 ............ 753,330,212 $ -- $ 943.0 $1,398.8 $5,389.2 $ (61.8) $ (31.5) $7,637.7
----------------------------------------------------------------------------------------------------------------------------------
|
*DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**ENDING TREASURY SHARES WERE 1,038,456 AT DECEMBER 31, 1999, AND 19,036,139 AT
DECEMBER 31, 1998.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. BANCORP 41
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 (Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income .................................................................................... $1,506.5 $1,327.4 $ 838.5
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses ................................................................ 531.0 379.0 460.3
Depreciation and amortization of premises and equipment .................................... 142.5 130.4 133.8
Provision for deferred income taxes ........................................................ 55.7 25.9 37.6
Amortization of goodwill and other intangible assets ....................................... 165.6 143.7 113.3
Noncash portion of merger-related charges .................................................. -- -- 294.5
Changes in operating assets and liabilities, excluding the effects of purchase acquisitions:
(Increase) decrease in trading account securities ...................................... (64.8) (141.1) 36.0
Decrease (increase) in loans held for sale ............................................. 294.8 13.4 (151.0)
(Increase) decrease in accrued receivables ............................................. (208.2) (160.7) 348.3
Decrease (increase) in prepaid expenses ................................................ 75.6 (59.7) (388.2)
Increase in accrued liabilities ........................................................ 114.9 20.3 59.6
Other - net ................................................................................ 72.7 (306.1) (291.3)
-------------------------------
Net cash provided by operating activities ............................................ 2,686.3 1,372.5 1,491.4
INVESTING ACTIVITIES
Net cash (used) provided by:
Loans outstanding .......................................................................... (3,950.3) (3,021.1) (2,283.4)
Securities purchased under agreements to resell ............................................ 136.6 224.2 173.4
Available-for-sale securities
Sales ...................................................................................... 1,000.7 226.4 1,046.7
Maturities ................................................................................. 1,403.6 1,755.4 1,569.0
Purchases .................................................................................. (1,773.0) (603.5) (2,082.9)
Maturities of held-to-maturity securities ..................................................... -- -- 37.4
Proceeds from sales of other real estate ...................................................... 33.2 46.3 62.9
Proceeds from sales of premises and equipment ................................................. 40.0 44.1 97.0
Purchases of premises and equipment ........................................................... (134.0) (155.8) (142.4)
Sales of loans ................................................................................ 1,720.9 4.9 476.5
Purchases of loans ............................................................................ (254.6) (1,575.7) (361.2)
Divestitures of branches ...................................................................... (352.0) -- --
Acquisitions, net of cash received ............................................................ (220.5) (780.2) (23.6)
Cash and cash equivalents of acquired subsidiaries ............................................ 462.4 -- 43.2
Other - net ................................................................................... (834.5) (70.2) (25.1)
-------------------------------
Net cash used by investing activities ................................................ (2,721.5) (3,905.2) (1,412.5)
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits ................................................................................... (736.6) 668.4 (882.8)
Federal funds purchased and securities sold under agreements to repurchase ................. (1,150.2) 321.8 (1,091.1)
Short-term borrowings ...................................................................... 33.9 (909.1) (2,217.3)
Proceeds from long-term debt .................................................................. 5,815.1 6,427.5 6,577.5
Principal payments on long-term debt .......................................................... (3,052.8) (3,011.6) (1,718.5)
Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely the junior subordinated debentures of the parent company ............. -- 350.0 --
Redemption of preferred stock ................................................................. -- -- (150.0)
Proceeds from dividend reinvestment, stock option and stock purchase plans .................... 153.2 220.4 183.5
Repurchase of common stock .................................................................... (560.8) (964.0) (431.0)
Cash dividends ................................................................................ (573.1) (516.4) (456.3)
-------------------------------
Net cash (used) provided by financing activities ..................................... (71.3) 2,587.0 (186.0)
-------------------------------
Change in cash and cash equivalents .................................................. (106.5) 54.3 (107.1)
Cash and cash equivalents at beginning of year ................................................ 4,855.3 4,801.0 4,908.1
-------------------------------
Cash and cash equivalents at end of year ............................................. $4,748.8 $4,855.3 $4,801.0
--------------------------------------------------------------------------------------------------------------------------------
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42 U.S. BANCORP
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
U.S. Bancorp (the "Company") is a bank holding company offering a full range of financial services through banking offices in 16 states including Minnesota, Oregon, Washington, Colorado, California, Idaho, Nebraska, North Dakota, Nevada, South Dakota, Montana, Iowa, Illinois, Utah, Wisconsin, and Wyoming. The Company also engages in credit card and merchant processing, insurance, trust and investment management, brokerage, leasing and investment banking activities principally in domestic markets.
BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its subsidiaries. The consolidation eliminates all significant intercompany accounts and transactions. Certain items in prior periods have been reclassified to conform to the current presentation.
USES OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual experience could differ from those estimates.
BUSINESS SEGMENTS
Within the Company, financial performance is measured by major lines of business
based on the products and services provided to customers through its
distribution channels. The Company has four reportable operating segments:
Wholesale Banking includes lending, treasury management, corporate trust,
and other financial services to middle market, large corporate and public sector
clients.
Consumer Banking delivers products and services to the broad consumer
market and small businesses through branch offices, telemarketing, online
services, direct mail, and automated teller machines ("ATMs").
Payment Systems includes consumer and business credit cards, corporate and
purchasing card services, card-accessed secured and unsecured lines of credit,
ATM processing, and merchant processing.
Wealth Management and Capital Markets provides institutional, trust and
investment management services and private banking and personal trust services.
Wealth Management and Capital Markets also engages in equity and fixed income
trading activities, offers investment banking and underwriting services for
corporate and public sector customers, provides securities, mutual funds,
annuities and insurance products to consumers and regionally based businesses
through a network of banking centers and brokerage offices.
SEGMENT RESULTS Accounting policies for the lines of business are the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. For detail of these methodologies see "Basis for Financial Presentation" on page 18. Table 2 "Line of Business Financial Performance" on pages 18 through 21 provides details of segment results. This information is incorporated by reference into these Notes to the Consolidated Financial Statements.
SECURITIES
TRADING ACCOUNT SECURITIES Debt and equity securities held for resale are classified as trading account securities and reported at fair value. Realized and unrealized gains or losses are recorded in noninterest income.
AVAILABLE-FOR-SALE SECURITIES These securities are not trading account securities but may be sold before maturity in response to changes in the Company's interest rate risk profile or demand for collateralized deposits by public entities. They are carried at fair value with unrealized net gains or losses reported within comprehensive income in shareholders' equity. When sold, the amortized cost of the specific securities is used to compute the gain or loss.
LOANS
Loans are reported net of unearned income. Interest income is accrued on the unpaid principal balances as earned. Loan and commitment fees are deferred and recognized over the life of the loan and/or commitment period as yield adjustments.
ALLOWANCE FOR CREDIT LOSSES Management determines the adequacy of the allowance based on evaluations of the loan portfolio and related off-balance sheet commitments, recent loss experience, and other pertinent factors, including economic conditions. This evaluation is inherently subjective as it requires estimates, including amounts of future cash collections expected on nonaccrual loans that may be susceptible to significant change. The allowance for credit losses relating to impaired loans is based on the loans' observable market price, the collateral for certain
U.S. BANCORP 43
collateral-dependent loans, or the discounted cash flows using the loans' effective interest rate.
The Company allocates the allowance to certain sectors based on relative risk characteristics of the loan portfolio and other financial instruments with credit exposure. Commercial allocations are based on quarterly reviews of individual loans outstanding and binding commitments to lend and an analysis of the migration of commercial loans and actual loss experience. Consumer allocations are based on an analysis of product mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogenous category or group of loans. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.
NONACCRUAL LOANS Generally commercial loans (including impaired loans) are placed on nonaccrual status when the collection of interest or principal has become 90 days past due or is otherwise considered doubtful. When a loan is placed on nonaccrual status, unpaid interest is reversed. Future interest payments are generally applied against principal. Revolving consumer lines and credit cards are charged-off by 180 days and closed-end consumer loans other than residential mortgages are charged-off at 120 days past due and are, therefore, not placed on nonaccrual status.
LEASES The Company engages in both direct and leveraged lease financing. The net investment in direct financing leases is the sum of all minimum lease payments and estimated residual values less unearned income. Unearned income is added to interest income over the terms of the leases to produce a level yield. The investment in leveraged leases is the sum of all lease payments (less nonrecourse debt payments) plus estimated residual values, less unearned income. Income from leveraged leases is recognized over the term of the leases based on the unrecovered equity investment.
LOANS HELD FOR SALE These loans are carried at the lower of cost or market value as determined on an aggregate basis by type of loan.
OTHER REAL ESTATE Other real estate ("ORE"), which is included in other assets, is property acquired through foreclosure or other proceedings. ORE is initially recorded at fair value and carried at the lower of cost or fair value, less estimated selling costs. The property is evaluated regularly and any decreases in the carrying amount are included in noninterest expense.
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE SWAPS AND CONTRACTS The Company uses interest rate swaps and
contracts (forwards, options, caps and floors) to manage its interest rate risk
and as a financial intermediary. The Company does not enter into these contracts
for speculative purposes. The Company utilizes simulation modeling and analysis
of repricing mismatches to identify exposure to changes in interest rates and
assess the effectiveness of interest rate swaps and contracts in reducing that
risk. Interest rate swaps and contracts are designated as hedges of assets or
liabilities and the Company evaluates correlation of the derivative instruments
relative to the underlying hedged item on a regular basis. Income or expense on
swaps and contracts designated as hedges of assets or liabilities is recorded as
an adjustment to interest income or expense. If the swap or contract is
terminated, the gain or loss is deferred and amortized over the shorter of the
remaining life of the swap or the underlying asset or liability. If the hedged
instrument is disposed of, the swap or contract agreement is marked to market
with any resulting gain or loss included with the gain or loss from the
disposition.
The initial bid/offer spread on intermediated swaps is deferred and
recognized in trading account profits and commissions over the life of the
agreement. Intermediated swaps and all other interest rate contracts are marked
to market and resulting gains or losses are recorded in trading account profits
and commissions. The Company's derivative trading activities are not material to
the consolidated financial statements; the cash flows from these activities are
included in operating activities.
OTHER SIGNIFICANT POLICIES
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation and amortized primarily on a straight-line method
basis.
Capital leases, less accumulated amortization, are included in premises and
equipment. The lease obligations are included in long-term debt. Capitalized
leases are amortized on a straight-line basis over the lease term and the
amortization is included in depreciation expense.
CAPITALIZED SOFTWARE Certain costs incurred in connection with developing or obtaining software for internal use are capitalized and amortized on a straight-line basis over the estimated life of the software.
INTANGIBLE ASSETS Goodwill, the price paid over the net fair value of acquired businesses, is included in other assets and is amortized over periods ranging up to 25 years. Other intangible assets are amortized over their estimated useful lives, which range from seven to fifteen years, using straight-line and accelerated methods. The recoverability of goodwill and other intangible assets is evaluated if events or circumstances indicate a possible inability to realize the carrying amount. Such evaluation is based on various analyses, including undiscounted cash flow projections.
44 U.S. BANCORP
INCOME TAXES Deferred taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and the financial reporting amounts at each year-end.
STATEMENT OF CASH FLOWS For the purposes of reporting cash flows, cash equivalents include cash and due from banks and federal funds sold.
STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly recognizes no compensation expense for the stock option grants.
PER SHARE CALCULATIONS Earnings per share is calculated by dividing net income (less preferred stock dividends) by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by adjusting income and outstanding shares, assuming conversion of all potentially dilutive securities, using the treasury stock method.
NOTE B ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In certain defined conditions, a derivative may be specifically designated as a hedge for a particular exposure. The accounting for changes in the fair value of the derivative depends on the intended use of the derivative and the resulting designation. The effective date has been deferred for one year with the issuance of SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which amended SFAS 133. SFAS 133, as amended, is effective for all fiscal years beginning after June 15, 2000, with earlier adoption permitted. The adoption of SFAS 133 is not expected to have a material impact on the Company.
NOTE C BUSINESS COMBINATIONS
AND DIVESTITURES
PENINSULA BANK OF SAN DIEGO On January 14, 2000, the Company completed its acquisition of Peninsula Bank of San Diego. With $456 million in assets, Peninsula Bank operated 11 branches in San Diego County, California. The transaction was accounted for as a purchase acquisition.
WESTERN BANCORP On November 15, 1999, the Company completed its acquisition of Western Bancorp. With $2.5 billion in assets, Western Bancorp had 31 branches in southern California in Los Angeles, Orange and San Diego counties. The transaction was accounted for as a purchase acquisition, and accordingly, the purchase price of approximately $922 million was allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition.
BANK OF COMMERCE On July 15, 1999, the Company completed its acquisition of San Diego-based Bank of Commerce, one of the nation's largest SBA lenders. The transaction was accounted for as a purchase acquisition.
OTHER ACQUISITIONS AND DIVESTITURES On September 24, 1999, the Company completed
the sale of 28 branches in Kansas and Iowa representing $364 million of
deposits. On September 23, 1999, the Company sold $1.8 billion of indirect
automobile loans and is in the process of exiting this business.
On September 17, 1999, the Company completed its acquisition of the
investment banking division of The John Nuveen Company, based in Chicago. The
division, which focuses on fixed income investment banking, became part of the
U.S. Bancorp Piper Jaffray Fixed Income Capital Markets division.
On September 13, 1999, the Company completed its acquisition of Voyager
Fleet Systems, Inc. On June 30, 1999, the Company completed its acquisition of
Mellon Network Services' electronic funds transfer processing unit. The
businesses are now part of the Payment Systems business unit.
On March 16, 1999, the Company completed its acquisition of Reliance Trust
Company's corporate trust business, which operates offices in Georgia, Florida,
and Tennessee. On January 4, 1999, the Company completed its acquisition of
Libra Investments, Inc., an investment bank that specializes in underwriting and
trading high yield and mezzanine securities for middle market companies.
Effective December 15, 1998, the Company completed its acquisition of Northwest
Bancshares, Inc., a privately-held bank holding company headquartered in
Vancouver, Washington, with 10 banking locations and $344 million in deposits.
On May 1, 1998, the Company completed its acquisition of Piper Jaffray, a
full-service investment banking and securities brokerage firm. These
transactions were accounted for as purchase acquisitions.
U.S. BANCORP 45
NOTE D AVAILABLE-FOR-SALE SECURITIES
The detail of the amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale securities at December 31 was as follows:
1999 1998
------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Amortized Holding Holding Fair Amortized Holding Holding Fair
(Dollars in Millions) Cost Gains Losses Value Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------------------------------
U.S.Treasury ............ $ 388 $ -- $ (7) $ 381 $ 489 $ 11 $ -- $ 500
Mortgage-backed ......... 2,971 9 (74) 2,906 3,395 53 (10) 3,438
Other U.S. agencies ..... 195 3 (2) 196 252 7 -- 259
State and political ..... 1,132 11 (8) 1,135 1,219 36 -- 1,255
Other ................... 288 3 (38) 253 106 21 (2) 125
------------------------------------------------------------------------------------------------------
Total ................ $4,974 $ 26 $ (129) $4,871 $5,461 $ 128 $ (12) $5,577
-----------------------------------------------------------------------------------------------------------------------------------
|
Securities carried at $4.1 billion at December 31, 1999, and $4.6 billion at December 31, 1998, were pledged to secure public, private and trust deposits and for other purposes required by law. Securities sold under agreements to repurchase, with an amortized cost of $1.2 billion and $1.4 billion at December 31, 1999, and 1998, respectively, were collateralized by securities and securities purchased under agreements to resell.
Gross realized gains and losses on securities were as follows:
(Dollars in Millions) 1999 1998 1997
-----------------------------------------------------------------------------
Gross realized gains ................. $ 14.7 $ 14.5 $ 5.0
Gross realized losses ................ (16.0) (1.9) (1.4)
--------------------------------
Net realized (losses) gains .... $ (1.3) $ 12.6 $ 3.6
--------------------------------
Income taxes on realized
(losses) gains ................. $ (.5) $ 4.7 $ 1.4
-----------------------------------------------------------------------------
|
For amortized cost, fair value and yield by maturity date of available-for-sale securities outstanding as of December 31, 1999, see Table 11 on page 27 from which such information is incorporated by reference into these Notes to Consolidated Financial Statements.
NOTE E RESTRICTIONS ON CASH
AND DUE FROM BANKS
Bank subsidiaries are required to maintain minimum average reserve balances with the Federal Reserve Bank. The amount of those reserve balances was approximately $161 million at December 31, 1999, with an average balance of $201 million during the year ended December 31, 1999.
NOTE F LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio at December 31 was as follows:
(Dollars in Millions) 1999 1998
---------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial ...................................... $28,863 $25,974
Real estate
Commercial mortgage ....................... 9,784 8,193
Construction .............................. 4,322 3,069
-----------------------------
Total commercial .......................... 42,969 37,236
CONSUMER
Home equity and second mortgage ................. 8,681 7,409
Credit card ..................................... 4,313 4,221
Revolving credit ................................ 1,815 1,686
Installment ..................................... 999 1,168
Automobile ...................................... 884 3,413
Student* ........................................ 563 829
-----------------------------
Subtotal .................................. 17,255 18,726
Residential mortgage ............................ 2,661 3,160
-----------------------------
Total consumer ............................ 19,916 21,886
-----------------------------
Total loans ............................ $62,885 $59,122
---------------------------------------------------------------------------------------------------
|
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT PERIOD BEGINS. LOANS HELD FOR SALE WERE $608 AT DECEMBER 31, 1999, AND $865 AT DECEMBER 31, 1998.
46 U.S. BANCORP
Loans of $5.3 billion at December 31, 1999, and $1.2 billion at December 31, 1998, were pledged at the Federal Home Loan Bank and the Federal Reserve. Nonaccrual and renegotiated loans totaled $310 million, $279 million and $297 million at December 31, 1999, 1998, and 1997, respectively. At December 31, 1999, and 1998, the Company had $265 million and $218 million, respectively, of loans considered impaired under SFAS 114 included in its nonaccrual loans. The carrying value of the impaired loans was less than or equal to the appraised collateral value or the present value of expected future cash flows and, accordingly, no allowance for credit losses was specifically allocated to impaired loans. For the years ended December 31, 1999, 1998, and 1997, the average recorded investment in impaired loans was approximately $255 million, $214 million and $249 million, respectively. The effect of nonaccrual and renegotiated loans on interest income was as follows:
Year ended December 31
---------------------------------------------------------
(Dollars in Millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------
Interest income that would have been accrued
at original contractual rates ..................... $ 32.7 $ 22.5 $ 26.6
Amount recognized as interest income .................. 13.0 7.6 9.5
---------------------------------------------------------
Forgone revenue ....................................... $ 19.7 $ 14.9 $ 17.1
---------------------------------------------------------------------------------------------------------------------------
|
Commitments to lend additional funds to customers whose loans were classified as nonaccrual at December 31, 1999, totaled $29.2 million. During 1999, there were no loans that were restructured at market interest rates and returned to a fully performing status.
Activity in the allowance for credit losses was as follows:
(Dollars in Millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
Balance at beginning of year .......................... $ 1,000.9 $ 1,008.7 $ 992.5
Add:
Provision charged to operating expense ........... 531.0 379.0 460.3
Deduct:
Loans charged off ................................ 727.7 592.1 576.4
Less recoveries of loans charged off ............. 160.0 157.9 126.7
----------------------------------------------
Net loans charged off ............................ 567.7 434.2 449.7
Acquisitions and other changes ........................ 31.2 47.4 5.6
----------------------------------------------
Balance at end of year ................................ $ 995.4 $ 1,000.9 $ 1,008.7
---------------------------------------------------------------------------------------------------------------
|
NOTE G PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
(Dollars in Millions) 1999 1998
--------------------------------------------------------------------------------------------
Land ....................................................... $ 133 $ 128
Buildings and improvements ................................. 886 906
Furniture, fixtures and equipment .......................... 824 751
Capitalized building and equipment leases .................. 108 109
----------------------
1,951 1,894
Less accumulated depreciation and amortization ............. 1,089 1,015
----------------------
Total .................................................. $ 862 $ 879
--------------------------------------------------------------------------------------------
|
U.S. BANCORP 47
NOTE H LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:
(Dollars in Millions) 1999 1998
----------------------------------------------------------------------------------------------------------
U.S. BANCORP (Parent Company)
Fixed-rate subordinated notes:
8.125% due May 15, 2002 .......................................... $ 150 $ 150
7.00% due March 15, 2003 ......................................... 150 150
6.625% due May 15, 2003 .......................................... 100 100
8.00% due July 2, 2004 ........................................... 125 125
7.625% due May 1, 2005 ........................................... 150 150
6.75% due October 15, 2005 ....................................... 300 300
6.875% due September 15, 2007 .................................... 250 250
7.50% due June 1, 2026 ........................................... 200 200
Medium-term notes ...................................................... 2,310 1,675
Floating-rate notes - due November 15, 1999 ............................ -- 200
Floating-rate subordinated notes - due November 30, 2010 ............... -- 107
Capitalized lease obligations, mortgage indebtedness and other ......... 70 67
------------------------
3,805 3,474
SUBSIDIARIES
Fixed-rate subordinated notes:
6.00% due October 15, 2003 ....................................... 100 100
7.55% due June 15, 2004 .......................................... 100 100
8.35% due November 1, 2004 ....................................... 100 100
6.875% due April 1, 2006 ......................................... 125 125
6.50% due February 1, 2008 ....................................... 300 300
6.30% due July 15, 2008 .......................................... 300 300
5.70% due December 15, 2008 ...................................... 400 400
Step-up subordinated notes - due August 15, 2005 ....................... 100 100
Floating-rate notes - due February 27, 2000 ............................ 250 250
Federal Home Loan Bank advances ........................................ 1,998 2,187
Bank notes ............................................................. 8,459 6,209
Euro medium-term notes due April 13, 2004 .............................. 400 --
Capitalized lease obligations, mortgage indebtedness and other ......... 126 136
------------------------
Total ............................................................ $16,563 $13,781
----------------------------------------------------------------------------------------------------------
|
In May 1999, the Company called $107 million of its floating-rate subordinated notes due November 30, 2010, in accordance with its call provisions.
Step-up subordinated notes due August 15, 2005, are issued by the Company's subsidiary bank, U.S. Bank National Association (the "Bank"). The interest rate on these notes is 6.25 percent through August 14, 2000, and 7.30 percent thereafter. The notes have a one-time call feature at the option of the Bank on August 15, 2000.
Floating-rate notes due February 27, 2000, are issued by the Bank and are the only assets of the U.S. Oregon Pass-Through Asset Trust 1997-1 (the "1997-1 Trust"). The 1997-1 Trust entered into a call option, pursuant to which the call holder has the right to purchase the notes from the 1997-1 Trust at par on February 27, 2000. If the call is exercised, the notes would become fixed-rate obligations due in 2007. If the call holder does not exercise the call option, the Bank is required to redeem the notes immediately thereafter. The interest rate adjusts quarterly at .10 percent over LIBOR for three-month United States dollar deposits. At December 31, 1999, the interest rate was 6.21 percent.
Medium-term notes outstanding at December 31, 1999, mature from February 2000 through December 2004. The notes bear fixed or floating interest rates ranging from 6.00 percent to 6.93 percent. The weighted average interest rate
48 U.S. BANCORP
at December 31, 1999, was 6.53 percent. Federal Home Loan Bank advances outstanding at December 31, 1999, mature from May 2000 through October 2026. The advances bear fixed or floating interest rates ranging from 5.54 percent to 9.11 percent. The weighted average interest rate at December 31, 1999, was 6.40 percent. Bank notes outstanding at December 31, 1999, mature from March 2000 through November 2005. The notes bear fixed or floating interest rates ranging from 5.25 percent to 6.76 percent. The weighted average interest rate at December 31, 1999, was 6.48 percent.
In April 1999, the Company issued $400 million variable-rate Euro medium term notes due April 13, 2004. The interest rate for each quarterly period is three-month LIBOR plus .15 percent. The interest rate at December 31, 1999, was 6.32 percent.
Maturities of long-term debt outstanding at December 31, 1999, were:
Parent
(Dollars in Millions) Consolidated Company
---------------------------------------------------------------------------------------------------
2000................................................................. $ 3,807 $ 525
2001................................................................. 4,330 876
2002................................................................. 2,603 427
2003................................................................. 1,490 255
2004................................................................. 1,685 780
Thereafter........................................................... 2,648 942
---------------------------
Total................................................................ $16,563 $ 3,805
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NOTE I COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE PARENT COMPANY
The Company issued $950 million of preferred securities (the "Preferred Securities") through three separate issuances by three wholly-owned subsidiary grantor trusts, FBS Capital I, U.S. Bancorp Capital I and USB Capital II (the "Trusts"). The Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The Trusts used the net proceeds from the offerings to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (the "Debentures") of the Company. The Debentures are the sole assets of the Trusts and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company's obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts. The guarantee covers the distributions and payments on liquidation or redemption of the Preferred Securities, but only to the extent of funds held by the Trusts. The Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole, (but not in part), on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company used the proceeds from the sales of the Debentures for general corporate purposes.
USB Capital II completed the sale of $350 million Preferred Securities in March 1998. The sole asset of USB Capital II is $361 million principal amount 7.20 percent Debentures that mature in April 2028, and are redeemable prior to maturity at the option of the Company on or after April 1, 2003.
U.S. Bancorp Capital I completed the sale of $300 million Preferred Securities in December 1996. The sole asset of U.S. Bancorp Capital I is $309 million principal amount 8.27 percent Debentures which mature in December 2026, and are redeemable prior to maturity at the option of the Company on or after December 15, 2006.
FBS Capital I completed the sale of $300 million Preferred Securities in November 1996. The sole asset of FBS Capital I is $309 million principal amount 8.09 percent Debentures which mature in November 2026, and are redeemable prior to maturity at the option of the Company on or after November 15, 2006.
U.S. BANCORP 49
NOTE J SHAREHOLDERS' EQUITY
COMMON STOCK At December 31, 1999, the Company had 101.6 million shares of common stock reserved for future issuances (see Note L).
The Company issued 37.8 million and 2.8 million shares of common stock with an aggregate value of $1.3 billion and $87.4 million in connection with purchase acquisitions during 1999 and 1997, respectively (see Note C).
On April 22, 1998, the Company's shareholders authorized an increase in the Company's capital stock necessary to implement the three-for-one split of the Company's common stock announced on February 18, 1998. The number of common and preferred shares which the Company has authority to issue was increased from 500 million shares and 10 million shares, respectively, to 1.5 billion shares and 50 million shares, respectively. The stock split was in the form of a 200 percent dividend payable May 18, 1998, to shareholders of record on May 4, 1998. The impact of the stock split has been reflected in the financial statements for all periods presented and all share and per share data included herein.
On June 8, 1998, the Company's Board of Directors authorized the repurchase of up to $2.5 billion of the Company's common stock through March 31, 2000. The shares will be repurchased in the open market or through negotiated transactions. The Company repurchased 16.6 million shares for $560.8 million in 1999 and 24.7 million shares for $964.0 million in 1998. Under 1996 Board authorizations, the Company repurchased 93.0 million shares, including 14.7 million during 1997. These 1996 authorizations were either completed or rescinded prior to the USBC acquisition.
The Company's Dividend Reinvestment Plan provides for automatic reinvestment of dividends and optional cash purchases of up to $60,000 worth of additional shares per calendar year at market price.
PREFERRED STOCK The Company has authorization to issue up to 50 million shares of preferred stock.
On November 14, 1997, the Company redeemed all outstanding shares of its 8 1/8 percent Cumulative Preferred Stock, Series A at a redemption price of $25 per share, together with accrued and unpaid dividends.
The preferred dividend requirement used in the calculation of earnings per common share was $10.6 million for 1997.
NOTE K EARNINGS PER SHARE
The components of earnings per share were:
(Dollars in Millions, Except Per Share Data) 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Net income .................................................................... $ 1,506.5 $ 1,327.4 $ 838.5
Preferred dividends ........................................................... -- -- (10.6)
----------------------------------------------
Net income to common stockholders ............................................. $ 1,506.5 $ 1,327.4 $ 827.9
----------------------------------------------
Average shares outstanding .................................................... 727,530,843 733,897,845 733,550,892
----------------------------------------------
Earnings per share ............................................................ $ 2.07 $ 1.81 $ 1.13
----------------------------------------------
DILUTED EARNINGS PER SHARE
Net income .................................................................... $ 1,506.5 $ 1,327.4 $ 838.5
Preferred dividends ........................................................... -- -- (10.6)
----------------------------------------------
Net income to common stockholders ............................................. $ 1,506.5 $ 1,327.4 $ 827.9
----------------------------------------------
Average shares outstanding .................................................... 727,530,843 733,897,845 733,550,892
Net effect of the assumed purchase of stock under the stock option and
stock purchase plans - based on the treasury stock method using
average market price ..................................................... 5,459,968 10,280,298 9,362,844
----------------------------------------------
Dilutive common shares outstanding ............................................ 732,990,811 744,178,143 742,913,736
----------------------------------------------
Diluted earnings per share .................................................... $ 2.06 $ 1.78 $ 1.11
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50 U.S. BANCORP
NOTE L EMPLOYEE BENEFITS
RETIREMENT PLANS Pension benefits are provided to substantially all employees based on years of service and employees' compensation while employed with the Company. Employees are fully vested after five years of service. The Company's funding policy is to contribute amounts to its plans sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. The actuarial cost method used to compute the pension liabilities and expense is the projected unit credit method. Prior to their acquisition dates, employees of certain acquired companies were covered by separate, noncontributory pension plans that provided benefits based on years of service and compensation. During 1998, the Company merged all the acquired companies' plans into its own plan with the exception of the FirsTier plan, which was merged in 1999. Prior to their merger into the Company's plan, the former USBC and West One Bancorp pension plans determined retirement benefits of participants based on their years of service and final average compensation. Under the new plan, a participant's retirement benefits are based on a participant's average annual compensation over his or her career with the Company. These changes resulted in a reduction of the benefit obligation during 1998. The Company also maintains several unfunded, nonqualified, supplemental executive retirement programs that provide additional defined pension benefits for certain employees. The assumptions used in computing the present value of the accumulated benefit obligation, the projected benefit obligation and net pension expense are substantially consistent with those assumptions used for the funded qualified plans.
OTHER POSTRETIREMENT PLANS In addition to providing pension benefits, the Company provides certain health care and death benefits to retired employees. Nearly all employees may become eligible for health care benefits at or after age 55 if they have completed at least five years of service and their age plus years of service is equal to or exceeds 65 while working for the Company. The Company subsidizes the cost of coverage for employees who retire before age 65 with at least 10 years of service. The amount of the subsidy is based on the employee's age and service at the time of retirement and remains fixed until the retiree reaches age 65. After age 65 the retiree assumes responsibility for the full cost of the coverage. The plan also contains other cost-sharing features such as deductibles and coinsurance. The Company continues to subsidize the coverage for employees over age 65 who retired before a plan change eliminated the subsidy. The estimated cost of these retiree benefit payments is accrued during the employees' active service.
During 1998, the Company adopted a change in the measurement date of its employee benefit plan from December 31 to September 30. Information presented in the tables below reflects a measurement date of September 30, for both 1998 and 1999. 1997 has not been restated as the impact of the change is not material.
The following table sets forth the components of net periodic benefit cost for the retirement plans.
Pension Plans Other Postretirement Benefits
--------------------------------- ------------------------------
(Dollars in Millions) 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost .......................................... $ 46.3 $ 44.3 $ 38.3 $ 2.8 $ 2.2 $ 2.0
Interest cost ......................................... 61.0 61.8 64.5 10.7 10.7 11.6
Expected return on plan assets ........................ (98.3) (90.7) (77.1) (.5) (.4) (.4)
Amortization of transition (asset) obligation ......... (3.9) (4.0) (7.4) .8 .8 .8
Amortization of prior service cost .................... (8.2) (2.8) 1.5 (.7) (.8) (1.0)
Recognized actuarial loss ............................. 1.9 1.9 1.3 .2 -- --
------------------------------------------------------------------
Net periodic benefit cost ............................. (1.2) 10.5 21.1 13.3 12.5 13.0
Curtailment and settlement (gains) losses ........ (2.0) (22.6) (2.6) -- (4.3) (1.4)
------------------------------------------------------------------
Net periodic benefit cost after
curtailment and settlement (gains) losses ........ $ (3.2) $(12.1) $ 18.5 $ 13.3 $ 8.2 $ 11.6
----------------------------------------------------------------------------------------------------------------------------------
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U.S. BANCORP 51
The following tables summarize benefit obligation and plan asset activity for the retirement plans.
Other
Pension Plans Postretirement Plans
---------------------------- -----------------------
(Dollars in Millions) 1999 1998 1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of measurement period ........ $ 930.0 $ 927.2 $ 164.6 $ 167.5
Service cost ................................................. 46.3 44.3 2.8 2.2
Interest cost ................................................ 61.0 61.8 10.7 10.7
Plan participants' contributions ............................. -- -- 3.1 3.1
Plan amendments .............................................. (6.4) (89.6) (.9) .2
Actuarial (gain) loss ........................................ (16.4) 48.8 (17.2) (6.8)
Acquisitions and special termination benefits ................ -- 2.2 2.9 --
Benefit payments ............................................. (75.8) (21.6) (16.8) (11.1)
Curtailments and settlements ................................. (34.9) (43.1) -- (1.2)
---------------------------------------------------------
Benefit obligation at end of measurement period .............. $ 903.8 $ 930.0 $ 149.2 $ 164.6
-----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value at beginning of measurement period ................ $ 1,065.0 $ 1,069.4 $ 11.2 $ 9.5
Actual return on plan assets ................................. 191.9 1.6 .6 .4
Employer contributions ....................................... 6.3 33.9 15.3 9.3
Plan participants' contributions ............................. -- -- 3.1 3.1
Settlements .................................................. (34.9) (18.3) -- --
Benefit payments ............................................. (75.8) (21.6) (16.8) (11.1)
---------------------------------------------------------
Fair value at end of measurement period ...................... $ 1,152.5 $ 1,065.0 $ 13.4 $ 11.2
-----------------------------------------------------------------------------------------------------------------------------------
FUNDED STATUS
Funded status at end of measurement period ................... $ 248.7 $ 135.0 $ (135.8) $ (153.4)
Unrecognized transition (asset) obligation ................... (3.1) (7.2) 9.5 11.2
Unrecognized prior service cost .............................. (83.7) (84.3) (8.4) (9.1)
Unrecognized net (gain) loss ................................. (68.6) 40.3 (23.4) (5.9)
Fourth quarter contribution .................................. .7 1.2 11.4 3.0
---------------------------------------------------------
Net amount recognized ........................................ $ 94.0 $ 85.0 $ (146.7) $ (154.2)
-----------------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF STATEMENT OF FINANCIAL POSITION
Prepaid benefit cost ......................................... $ 171.2 $ 147.4 $ -- $ --
Accrued benefit liability .................................... (77.2) (62.4) (146.7) (154.2)
---------------------------------------------------------
Net amount recognized ........................................ $ 94.0 $ 85.0 $ (146.7) $ (154.2)
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|
The following table sets forth the weighted average plan assumptions:
1999 1998 1997
------------------------------------------------------------------------------------------------------------------------
Pension Plan Actuarial Computations
Discount rate in determining benefit obligations .................. 7.5% 6.5% 7.0%
Expected long-term return on plan assets .......................... 9.5 9.5 9.5
Rate of increase in future compensation ........................... 5.6 5.6 5.6
Other Postretirement Plan Actuarial Computations
Discount rate in determining benefit obligations .................. 7.5% 6.5% 7.0%
Expected long-term return on plan assets .......................... 5.0 5.0 5.0
Health care cost trend rate(1)
Prior to age 65 ........................................... 7.0 7.0 8.1
After age 65 .............................................. 5.5 6.4 6.5
Effect of One Percent Increase in Health Care Cost Trend Rate
Service and interest costs ........................................ $ 1.3 $ 1.2 $ 1.2
Accumulated postretirement benefit obligation ..................... 12.4 13.1 13.9
Effect of One Percent Decrease in Health Care Cost Trend Rate
Service and interest costs ........................................ $ (1.0) $ (1.0) $ (1.0)
Accumulated postretirement benefit obligation ..................... (10.9) (11.8) (12.6)
-------------------------------------------------------------------------------------------------------------------------
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(1) Both rates are assumed to decrease gradually to 5.0% by 2004 and remain at that level thereafter.
52 U.S. BANCORP
The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:
(Dollars in Millions) 1999 1998 ---------------------------------------------------------------------- Projected benefit obligation ............. $ 95.5 $ 88.3 Accumulated benefit obligation ........... 72.8 73.1 Fair value of plan assets ................ -- -- ---------------------------------------------------------------------- |
EMPLOYEE INVESTMENT PLAN The Company provides a 401(k) Savings Plan formerly known as the Capital Accumulation Plan which allows qualified employees, at their option, to make contributions up to certain percentages of pre-tax base salary through salary deductions under Section 401(k) of the Internal Revenue Code. A portion of these contributions is matched by the Company. All of the Company's matching contributions are invested in USB common stock. Employee contributions are invested, at the employees' direction, among a variety of investment alternatives. Total expense was $34.7 million, $16.6 million and $22.5 million in 1999, 1998 and 1997, respectively.
STOCK INCENTIVE AND PURCHASE PLANS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") in accounting for its employee stock incentive and purchase plans. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. On the date exercised, if new shares are issued, the option proceeds equal to the par value of the shares are credited to common stock and additional proceeds are credited to capital surplus. If treasury shares are issued, the option proceeds equal to the average treasury share price are credited to treasury stock and additional proceeds are credited to capital surplus.
The Employee Stock Purchase Plan ("ESPP") permits all eligible employees with at least one year of service and directors to purchase common stock. Plan participants can purchase stock for 85 percent to 100 percent of the fair market value, which is based on the price at the beginning or the end of the purchase period, whichever is lower. Any discount is determined by a committee of the Board of Directors. In 1999 and 1998, the purchase price was 85 percent of fair market value. The plan results in no compensation expense to the Company.
In April 1999, the shareholders approved the 1999 Stock Incentive Plan ("1999 Plan") whereby all former stock incentive plans of U.S. Bancorp and Piper Jaffray ("Prior Plans") were incorporated into the 1999 plan. All outstanding options, restricted stock and other awards subject to the terms of the Prior Plans will remain outstanding and subject to the terms and conditions of those plans, but are counted as part of the total number of common shares awarded under the 1999 Plan. An additional 45 million shares were approved for issuance by the shareholders under the 1999 Plan. The 1999 Plan allows for the granting of nonqualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock or stock units ("RSUs"), performance awards, and other stock-based awards at or above 100 percent of the market price at the date of grant. The 1999 Plan also provides automatic grants of stock options to nonemployee directors. The rights of restricted stock and RSU holders to transfer shares are generally limited during the restriction period. At December 31, 1999, there were 17.8 million shares (subject to adjustment for forfeitures) available for grant under the 1999 Plan.
Options granted are generally exercisable up to 10 years from the date of grant and vest over three to five years. Restricted shares vest over three to seven years. The vesting of certain options and restricted shares accelerate based on growth in diluted operating earnings per share and on the performance of the Company in comparison to the performance of a predetermined group of regional banks. Compensation expense for restricted stock is based on the market price of the Company stock at the time of the grant and amortized on a straight-line basis over the vesting period. For the performance-based restricted shares, compensation expense is amortized using the estimated vesting period. Compensation expense related to the restricted stock was $36.6 million, $27.8 million and $8.4 million in 1999, 1998 and 1997, respectively.
Stock incentive plans of acquired companies are terminated at the merger closing dates. Option holders under such plans receive the Company's common stock, or options to buy the Company's stock, based on the conversion terms of the various merger agreements.
U.S. BANCORP 53
The historical option information presented below has been restated to reflect the options originally granted under acquired companies' plans.
Weighted Restricted
Options Average Price Shares
Outstanding Per Share Outstanding
-----------------------------------------------------------------------------------------------
DECEMBER 31, 1996 ....................... 42,523,275 $ 17.49 1,453,077
Granted:
Stock options ................... 17,519,844 30.13 --
Restricted stock ................ -- 1,681,176
Exercised ............................... (17,857,107) 15.64 --
Canceled/vested ......................... (1,319,052) 22.36 (520,071)
----------------------------------------------
DECEMBER 31, 1997 ....................... 40,866,960 23.62 2,614,182
Granted:
Stock options ................... 8,844,793 40.37 --
Restricted stock ................ -- 1,605,649
Piper Jaffray options converted ......... 1,155,054 16.28 --
Exercised ............................... (15,083,962) 21.88 --
Canceled/vested ......................... (1,315,908) 29.62 (984,907)
----------------------------------------------
DECEMBER 31, 1998 ....................... 34,466,937 28.18 3,234,924
Granted:
Stock options ................... 46,614,828 35.86 --
Restricted stock ................ -- 742,932
1999 acquisitions converted ............. 957,105 20.97 --
Exercised ............................... (7,168,493) 21.42 --
Canceled/vested ......................... (3,334,629) 35.76 (978,931)
----------------------------------------------
DECEMBER 31, 1999 ....................... 71,535,748 $ 33.41 2,998,925
-----------------------------------------------------------------------------------------------
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Additional information regarding options outstanding as of December 31, 1999, is as follows:
Options Outstanding Exercisable Options
----------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
----------------------------------------------------------------------------------------------------------
$1.82-$9.99 ............. 1,239,917 3.6 $ 7.51 1,239,917 $ 7.51
$10.00-$19.99 ........... 2,538,661 5.4 13.53 2,538,661 13.53
$20.00-$29.99 ........... 9,261,276 7.4 24.66 7,946,501 24.15
$30.00-$39.99 ........... 54,238,984 9.0 35.67 10,685,031 33.96
$40.00-$47.06 ........... 4,256,910 8.5 43.01 3,927,535 43.04
-------------------------------------------------------------------------
71,535,748 8.6 $ 33.41 26,337,645 $ 29.14
----------------------------------------------------------------------------------------------------------
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Pro forma information regarding net income and earnings per share is required by SFAS 123, "Accounting and Disclosure of Stock-Based Compensation" and has been determined as if the Company had accounted for its employee stock option and stock purchase plans (options) under the fair value method of that Statement. The fair value of the options was estimated at the grant date using a Black-Scholes option pricing model. Option valuation models require the use of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The pro forma disclosures include options granted in 1999, 1998 and 1997 and are not likely to be representative of the pro forma disclosures for future years. The estimated fair value of the options is amortized to expense over the options' vesting period.
Year Ended December 31
---------------------------------------------
(Dollars in Millions, Except Per-Share Data) 1999 1998 1997
--------------------------------------------------------------------------------------------------
Pro forma net income ........................ $ 1,418.8 $ 1,254.0 $ 783.8
Pro forma earnings per share:
Earnings per share .................. $ 1.95 $ 1.71 $ 1.07
Diluted earnings per share .......... 1.94 1.69 1.06
--------------------------------------------------------------------------------------------------
Weighted average assumptions
in option valuation
Risk-free interest rates .................... 5.4% 5.4% 6.0%
Dividend yields ............................. 3.5 2.3 2.5
Stock volatility factor ..................... .27 .25 .22
Expected life of
options (in years) .................. 6.1 2.3 3.9
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54 U.S. BANCORP
NOTE M MERGER-RELATED CHARGES
The Company recorded merger-related charges of $62.4 million, $216.5 million and $511.6 million in 1999, 1998 and 1997, respectively. Merger-related charges in 1999 related to the Company's various acquisitions including system conversion and integration costs associated with consolidating redundant operations (see Note C). Merger-related charges in 1998 were primarily due to conversion costs related to the USBC acquisition and the acquisitions of Piper Jaffray and Northwest Bancshares. Merger-related charges of $511.6 million recorded in 1997 were associated with the acquisition of USBC. The components of the charges are shown below:
Year Ended December 31
-----------------------------------
(Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------
Severance ................................ $ 8.0 $ -- $232.3
Premises and equipment
writedowns ....................... 1.6 -- 77.2
Systems conversions ...................... 34.2 236.9 72.7
Benefit curtailment gains ................ -- (25.6) --
Other merger-related charges* ............ 18.6 5.2 129.4
-----------------------------------
Total merger-related charges ............. $62.4 $216.5 $511.6
-------------------------------------------------------------------------------------
|
*OTHER MERGER-RELATED CHARGES IN 1997 INCLUDED $43.4 MILLION OF CAPITALIZED SOFTWARE AND OTHER ASSET WRITEDOWNS, $35.0 MILLION OF INVESTMENT BANKING AND OTHER TRANSACTION COSTS AND $51.0 MILLION OF OTHER MERGER-RELATED EXPENSES.
The Company determines merger-related charges based on its integration strategy and formulated plans. These plans are established as of the acquisition date and regularly evaluated during the integration process. Severance charges include the cost of severance, other benefits, and outplacement costs associated with the termination of employees primarily in branch offices and centralized corporate support and data processing functions. The severance amounts are determined based on the Company's existing severance pay programs and are paid out over a benefit period of up to two years from the time of termination. Premise and equipment writedowns represent lease termination costs and impairment of assets for redundant office space, equipment and branches that will be vacated and disposed of as part of the integration plan. Systems conversions and other merger-related expenses are recorded as incurred and are associated with the preparation and mailing of numerous customer communications for the acquisitions and conversion of customer accounts, printing and distribution of training materials and policy and procedure manuals, outside consulting fees, and similar expenses relating to the conversions and integration of acquired branches and operations. The following table presents a summary of activity with respect to the Company's merger-related accrual:
Year Ended
December 31
-----------------------
(Dollars in Millions) 1999 1998
--------------------------------------------------------------------------------------
Balance at the beginning of the year .................. $126.7 $ 204.6
Provision charged to operating expense ................ 62.4 216.5
Additions related to purchase acquisitions ............ 70.2 55.3
Cash outlays .......................................... (98.4) (310.2)
Transfer to tax liabilities* .......................... (33.8) --
Noncash writedowns and other .......................... (55.2) (39.5)
-----------------------
Balance at the end of the year ........................ $ 71.9 $ 126.7
--------------------------------------------------------------------------------------
|
*The liability relates to certain severance related items.
The components of the merger-related accrual were as follows:
Year Ended
December 31
----------------------
(Dollars in Millions) 1999 1998
-------------------------------------------------------------------------------
Severance ........................................ $34.6 $ 98.1
Other employee related costs* .................... 16.6 7.2
Lease terminations and facility costs ............ 9.5 7.4
Contracts and system writeoffs ................... 6.4 10.4
Other ............................................ 4.8 3.6
---------------------
Total ............................................ $71.9 $126.7
-------------------------------------------------------------------------------
|
*Other employee related costs in 1999 included $9.3 million for non-compete arrangements.
The Company expects to incur approximately $55.0 million, pretax, of merger-related expenses in 2000.
U.S. BANCORP 55
NOTE N INCOME TAXES
The components of income tax expense were:
(Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------
FEDERAL
Current tax ........................................ $681.5 $612.9 $435.0
Deferred tax provision ............................. 46.7 28.2 34.9
-------------------------------------
Federal income tax ......................... 728.2 641.1 469.9
STATE
Current tax ........................................ 117.8 127.7 79.6
Deferred tax provision (credit) .................... 9.0 (2.3) 2.7
-------------------------------------
State income tax ........................... 126.8 125.4 82.3
-----------------------------------
Total income tax provision ................. $855.0 $766.5 $552.2
-------------------------------------------------------------------------------------------------
|
The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate was as follows:
(Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
Tax at statutory rate (35%) ............................................... $826.5 $732.9 $486.7
State income tax, at statutory rates, net of federal tax benefit .......... 82.4 81.5 53.5
Tax effect of:
Tax-exempt interest:
Loans ..................................................... (8.7) (10.9) (13.0)
Securities ................................................ (22.7) (23.2) (24.0)
Amortization of nondeductible goodwill ............................ 43.9 32.5 25.7
Nondeductible merger and integration charges ...................... -- -- 39.1
Tax credits and other items ....................................... (66.4) (46.3) (15.8)
--------------------------------------
Applicable income taxes ................................................... $855.0 $766.5 $552.2
-------------------------------------------------------------------------------------------------------------------------
|
At December 31, 1999, for income tax purposes, the Company had federal net operating loss carryforwards of $25.0 million available, which expire in years 2000 through 2012. In addition, the Company had aggregate state net operating loss carryforwards of $17.2 million available, which expire in years 2004 through 2009.
Deferred income tax assets and liabilities reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes.
56 U.S. BANCORP
Significant components of the Company's deferred tax assets and liabilities as of December 31 were as follows:
(Dollars in Millions) 1999 1998
-----------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Loan loss reserves ............................................ $ 382.8 $ 382.3
Postretirement liability ...................................... 69.9 69.5
Deferred fees ................................................. 60.3 79.8
Accrued severance, pension and retirement benefits ............ 44.4 28.8
Adjustment of available-for-sale securities to market value ... 38.0 (44.0)
Real estate and other asset basis differences ................. 29.0 31.8
Federal operating loss carryforward ........................... .9 1.2
Other deferred tax assets ..................................... 168.2 196.9
------------------------------
Gross deferred tax assets ............................. 793.5 746.3
DEFERRED TAX LIABILITIES
Leasing activities ............................................ (504.8) (401.5)
Accelerated depreciation ...................................... (32.5) (19.4)
Other investment basis differences ............................ (16.8) (13.4)
Other deferred tax liabilities ................................ (81.0) (50.7)
------------------------------
Gross deferred tax liabilities ........................ (635.1) (485.0)
------------------------------
NET DEFERRED TAX ASSETS ....................................... $ 158.4 $ 261.3
-----------------------------------------------------------------------------------------------------
|
Realization of the deferred tax asset over time is dependent upon the existence of taxable income in carryback periods or the Company generating sufficient taxable earnings in future periods. In determining that realization of the deferred tax asset was more likely than not, the Company gave consideration to a number of factors, including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future and, where applicable, the expiration dates associated with tax carrybacks and carryforwards.
NOTE O FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CREDIT CONCENTRATIONS
In the normal course of business, the Company uses various off-balance sheet financial instruments to manage its interest rate and market risk and to meet the needs of its customers. These instruments carry varying degrees of credit, interest rate or liquidity risk. The contract or notional amounts of these financial instruments at December 31 were as follows:
(Dollars in Millions) 1999 1998
------------------------------------------------------------------------------------------------------------------------
Commitments to extend credit
Commercial ....................................................................... $28,222 $25,023
Corporate and purchasing cards ................................................... 18,503 24,758
Consumer credit cards ............................................................ 14,991 14,982
Other consumer ................................................................... 6,388 7,020
Letters of credit
Standby .......................................................................... 3,222 3,241
Commercial ....................................................................... 317 309
Interest rate swap contracts
Hedges ........................................................................... 7,743 7,239
Intermediated .................................................................... 556 740
Options contracts
Hedge interest rate floors purchased ............................................. 500 500
Intermediated interest rate and foreign exchange caps and floors purchased ....... 453 360
Intermediated interest rate and foreign exchange caps and floors written ......... 453 360
Futures and forward contracts ............................................................ 34 10
Recourse on assets sold .................................................................. 117 37
Foreign currency commitments
Commitments to purchase .......................................................... 1,137 812
Commitments to sell .............................................................. 1,141 806
Commitments from securities lending ...................................................... 717 342
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U.S. BANCORP 57
COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding and generally have fixed expiration dates or other termination clauses. The contractual amount represents the Company's exposure to credit loss, in the event of default by the borrower. The Company manages this credit risk by using the same credit policies it applies to loans. Collateral is obtained to secure commitments based on management's credit assessment of the borrower. The collateral may include marketable securities, receivables, inventory, equipment and real estate. Since the Company expects many of the commitments to expire without being drawn, total commitment amounts do not necessarily represent the Company's future liquidity requirements. In addition, the commitments include consumer credit lines that are cancelable upon notification to the consumer.
LETTERS OF CREDIT Standby letters of credit are conditional commitments the Company issues to guarantee the performance of a customer to a third party. The guarantees frequently support public and private borrowing arrangements, including commercial paper issuances, bond financings and other similar transactions. The Company issues commercial letters of credit on behalf of customers to ensure payment or collection in connection with trade transactions. In the event of a customer's nonperformance, the Company's credit loss exposure is the same as in any extension of credit, up to the letter's contractual amount. Management assesses the borrower's credit to determine the necessary collateral, which may include marketable securities, real estate, accounts receivable and inventory. Since the conditions requiring the Company to fund letters of credit may not occur, the Company expects its liquidity requirements to be less than the total outstanding commitments.
INTEREST RATE SWAPS AND OPTIONS Interest rate swaps are contracts to exchange fixed- and floating-rate interest payment obligations based on a notional principal amount. The Company enters into swaps to hedge its balance sheet against fluctuations in interest rates and as an intermediary for customers. At December 31, 1999, and 1998, interest rate swaps totaling $7.7 billion and $7.2 billion, respectively, hedged loans, deposits and long-term debt.
The Company received fixed-rate interest and paid floating-rate interest on all hedges as of December 31, 1999. Activity with respect to interest rate swap hedges was as follows:
(Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------------
Notional amount outstanding at
beginning of year .............. $ 7,239 $ 5,315 $ 3,651
Additions .............................. 4,382 3,140 2,926
Maturities ............................. (2,142) (1,213) (436)
Amortization ........................... (143) -- --
Terminations ........................... (1,593) (3) (826)
-------------------------------------------
Notional amount outstanding
at end of year ................. $ 7,743 $ 7,239 $ 5,315
-------------------------------------------------------------------------------------------
At December 31:
Weighted average interest
rate paid ...................... 6.45% 5.53% 5.95%
Weighted average interest
rate received .................. 6.22 6.17 6.39
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For the hedging portfolio's notional balances and yields by maturity date as of year-end 1999, see Table 18 on page 34. For a description of the Company's objectives for using derivative financial instruments, refer to Use of Derivatives to Manage Interest Rate Risk on pages 34 and 35. Such information is incorporated by reference into these Notes to Consolidated Financial Statements.
At December 31, 1999, and 1998, owned LIBOR-based interest rate floors totaling $500 million with an average remaining maturity of 1.7 years and $500 million with an average remaining maturity of 2.7 years, respectively, hedged floating rate commercial loans. The strike rate on these LIBOR-based floors was 4.63 percent at December 31, 1999, and December 31, 1998. The premium on floors is amortized over the life of the contract. The impact of the floors on net interest income was not significant for the years ended December 31, 1999, 1998 and 1997.
58 U.S. BANCORP
For swaps and options used as hedges, the Company recognizes interest income or expense as it is accrued over the terms of the hedge. The gain or loss on a terminated hedge is amortized over the remaining life of the original swap or remaining life of the hedged item, whichever is shorter. The impact of the amortization of deferred gains and losses on hedges on net interest income was not significant for the years ended December 31, 1999, 1998 and 1997. Net unamortized deferred gains were $9.7 million at December 31, 1999.
In addition to utilizing swaps and options as part of its asset/liability management strategy, the Company acts as an intermediary for swap and option agreements on behalf of its customers. To reduce its market risk exposure, the Company generally enters into offsetting positions. The total notional amount of customer swap agreements, including the offsetting positions, was $556 million and $740 million at December 31, 1999, and 1998, respectively. The total notional amount of customer option agreements, including the offsetting positions, was $906 million and $720 million at December 31, 1999, and 1998, respectively. Market value changes on intermediated swaps, options and futures contracts are recognized in income in the period of change. Realized gains or losses on intermediated transactions were not significant for the years ended December 31, 1999, 1998 and 1997.
The credit risk related to interest rate swap and option agreements is that counterparties may be unable to meet the contractual terms. The Company estimates this risk by calculating the present value of the cost to replace all outstanding contracts in a gain position at current market rates, reported on a net basis by each counterparty. At December 31, 1999, and 1998, the gain position of these contracts, in the aggregate, was approximately $19 million and $217 million, respectively.
The Company manages the credit risk of its interest rate swap and option contracts through bilateral collateral agreements, credit approvals, limits and monitoring procedures. Commercial lending officers perform credit analyses and establish counterparty limits. Senior Credit Administration periodically reviews positions to monitor compliance with the limits. In addition, the Company reduces the assumed counterparty credit risk through master netting agreements that permit the Company to settle multiple interest rate contracts with a given counterparty on a net basis.
FUTURES AND FORWARD CONTRACTS Futures and forward contracts are agreements for the delayed delivery of securities or cash settlement money market instruments. The Company enters into futures contracts to hedge the market risk on its fixed income inventory positions. The Company enters into forward contracts to hedge the interest rate risk of its mortgage loans held for sale. At December 31, 1999, and 1998, futures contracts outstanding were $15 million and $10 million, respectively. Forward contracts outstanding at December 31, 1999 were $19 million. There were no forward contracts outstanding at December 31, 1998. At December 31, 1999, net unamortized deferred gains on the forward agreements were not significant. The Company manages its credit risk on forward contracts, which arises from nonperformance by counterparties, through credit approval and limit procedures.
RECOURSE ON ASSETS SOLD The Company is obligated under recourse provisions related to the sale of certain loans. The contract amount of these loans was $2.0 billion at December 31, 1999, and $472 million at December 31, 1998. The maximum contractual amount of recourse on these loans was $117 million at December 31, 1999, and $37 million at December 31, 1998.
FOREIGN CURRENCY COMMITMENTS The Company uses foreign currency commitments to help customers reduce the risks associated with changes in foreign currency exchange rates. Through these contracts, the Company exchanges currencies at specified rates on specified dates with various counterparties. The Company minimizes the market and liquidity risks by taking offsetting positions. In addition, the Company controls the market risks by limiting the net exposure through policies, procedures and monitoring. The Company manages its credit risk, or potential risk of loss from default by a counterparty, through credit limit approval and monitoring procedures. The aggregate replacement cost of contracts in a gain position at December 31, 1999, was not significant.
U.S. BANCORP 59
COMMITMENTS FROM SECURITIES LENDING The Company participates in securities lending activities by acting as a customer's agent involving the loan or sale of securities. The Company indemnifies customers for the difference between the market value of the securities lent and the market value of the collateral received. These transactions are collateralized by cash.
CREDIT CONCENTRATIONS The Company primarily lends to borrowers in the 16 states where it has banking offices. Approximately 88 percent of the Company's commercial loans were made to borrowers, representing a diverse range of industries, in this operating region. Collateral may include marketable securities, accounts receivable, inventory and equipment. For detail of the Company's commercial portfolio by industry type and geography as of December 31, 1999, and 1998, see Table 8 on page 25.
For detail of the Company's real estate portfolio by property type and geography as of December 31, 1999, and 1998, see Table 9 on page 26. This information is incorporated by reference into these Notes to Consolidated Financial Statements. Such loans are collateralized by the related property.
Approximately 82 percent of the total consumer portfolio consists of loans to customers in the Company's operating region. Residential mortgages, home equity, and auto loans are secured, but other consumer loans are generally not secured. For detail of the Company's consumer loan portfolio referenced here, see Table 7 on page 24 under the category "Consumer" as of December 31, 1999, and 1998, which is incorporated by reference into these Notes to Consolidated Financial Statements.
NOTE P FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments, both on and off balance sheet, are generally defined as cash, equity instruments or investments and contractual obligations to pay or receive cash or another financial instrument.
Due to the nature of its business and its customers' needs, the Company offers a large number of financial instruments, most of which are not actively traded. When market quotes are unavailable, valuation techniques including discounted cash flow calculations and pricing models or services are used. The Company also uses various aggregation methods and assumptions, such as the discount rate and cash flow timing and amounts. As a result, the fair value estimates can neither be substantiated by independent market comparisons, nor realized by the immediate sale or settlement of the financial instrument. Also, the estimates reflect a point in time and could change significantly based on changes in economic factors, such as interest rates. Furthermore, the disclosure of certain financial and nonfinancial assets and liabilities are not required. Finally, the fair value disclosure is not intended to estimate a market value of the Company as a whole. A summary of the Company's valuation techniques and assumptions follows.
CASH AND CASH EQUIVALENTS The carrying value of cash, federal funds sold and securities under resale agreements was assumed to approximate fair value.
SECURITIES Generally, trading securities and available-for-sale securities were valued using available market quotes. In some instances, for securities that are not widely traded, market quotes for comparable securities were used.
LOANS The loan portfolio consists of both floating and fixed-rate loans, the fair value of which was estimated using discounted cash flow analyses and other valuation techniques. To calculate discounted cash flows, the loans were aggregated into pools of similar types and expected repayment terms. The expected cash flows were reduced for estimated historical prepayment experience. Projected cash flows on nonaccrual loans were further reduced by the amount of the estimated losses on the portfolio and discounted over an assumed average remaining life of one to two years.
COMMERCIAL The fixed-rate loans in the commercial portfolio (excluding nonaccrual loans) had a weighted average interest rate of 7.6 percent in 1999 and 7.4 percent in 1998. The duration was 2.3 years in 1999 and 1998. The floating-rate loans had a weighted average interest rate of 8.4 percent in 1999 and 7.6 percent in 1998. The high-grade corporate bond yield curve was used to arrive at the discount rates applied to these loans.
60 U.S. BANCORP
COMMERCIAL REAL ESTATE AND CONSTRUCTION The fixed-rate portion of this portfolio (excluding nonaccrual loans) had a weighted average interest rate of 8.2 percent, with a duration of 3.5 years in 1999; and a weighted average interest rate of 8.4 percent, with a duration of 3.4 years in 1998. The floating-rate loans (excluding nonaccrual loans) had a weighted average interest rate of 8.6 percent in 1999 and 8.2 percent in 1998. The high-grade corporate bond yield curve was used to arrive at the discount rates applied to these loans.
RESIDENTIAL FIRST MORTGAGES These loans were segregated into pools of similar coupons and maturities. The pools were matched to similar mortgage-backed securities, and market quotes were obtained. The fixed-rate portion of this portfolio had a weighted average interest rate of 7.4 percent in 1999 and 7.5 percent in 1998. The duration was 3.1 years in 1999 and 1.8 years in 1998.
CONSUMER INSTALLMENT Prepayment assumptions ranging from 15 to 23 percent were applied to scheduled cash flows, based on the Company's experience. On the fixed-rate portion, the weighted average rate was 9.4 percent in 1999 and 8.8 percent in 1998. The duration was 1.4 years in 1999 and 1.5 years in 1998. The floating-rate portion of the consumer installment portfolio had a weighted average interest rate of 7.5 percent in 1999 and 1998.
HOME EQUITY LINES AND LOANS, SECOND MORTGAGES AND CONSUMER LINES In 1999, estimated cash flows net of funding and operational costs were discounted using an estimated cost of capital of 11.6 percent for secured lines and loans and 12.9 percent for unsecured. In 1998, the estimated cost of capital was 11.0 percent for secured and 13.3 percent for unsecured. The home equity lines had a weighted average interest rate of 9.3 percent in 1999 and 8.8 percent in 1998. Fixed-rate home equity loans and second mortgages had a weighted average interest rate of 10 percent in 1999 and 1998. The duration was 1.4 years in 1999 and 1.8 years in 1998. Retail credit cards had a weighted average interest rate of 12.6 percent in 1999 and 11.6 percent in 1998, with a duration of 1.5 years in 1999 and 1.8 years in 1998. Other revolving lines had a weighted average interest rate of 11.9 percent in 1999 and 11.8 percent in 1998.
CORE DEPOSIT INTANGIBLE Core deposits provide a stable, low-cost source of funds that can be invested to earn a return that exceeds their cost. The fair value of the Company's core deposit intangible was calculated using a discounted cash flow model that estimates the present value of net cash flows including the difference between the ongoing funding cost of the core deposits and alternative funds at current market rates.
DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts and certain money market deposits is equal to the amount payable on demand at year-end. Fair values for fixed-rate certificates of deposit were estimated using a discounted cash flow analysis based on the discount rates implied by the high-grade corporate bond yield curve.
SHORT-TERM BORROWINGS Federal funds purchased, borrowings under repurchase agreements and other short-term borrowings are at floating rates or have short-term maturities. Their carrying value is assumed to approximate their fair value.
LONG-TERM DEBT AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE PARENT COMPANY Medium-term notes, Euro medium-term notes, bank notes, Federal Home Loan Bank Advances, capital lease obligations and mortgage note obligations totaled $13,237 million in 1999 and $10,138 million in 1998. Their estimated fair value was determined using a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows. Other long-term debt instruments and company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company were valued using available market quotes.
INTEREST RATE SWAPS, OPTIONS, FLOORS AND CAPS The interest rate options and swap cash flows were estimated using a third party pricing model and discounted based on appropriate LIBOR, Eurodollar future, swap and Treasury Note yield curves.
LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES The Company's commitments have floating rates and do not expose the Company to interest rate risk. No premium or discount was ascribed to the loan commitments because virtually all funding would be at current market rates.
U.S. BANCORP 61
The estimated fair values of the Company's financial instruments are shown in the table below.
1999 1998
-------------------------- --------------------
Carrying Fair Carrying Fair
(Dollars in Millions) Amount Value Amount Value
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and due from banks ........................................... $ 4,036 $ 4,036 $ 4,772 $ 4,772
Federal funds sold and resale agreements .......................... 1,037 1,037 544 544
Trading account securities ........................................ 617 617 537 537
Available-for-sale securities ..................................... 4,871 4,871 5,577 5,577
Loans
Commercial
Commercial ........................................ 28,863 29,579 25,974 26,797
Commercial real estate and construction ........... 14,106 14,717 11,262 12,080
Consumer
Residential mortgage .............................. 2,661 2,672 3,160 3,256
Home equity and second mortgage ................... 8,681 8,918 7,409 7,786
Credit card and revolving credit .................. 6,128 6,742 5,907 6,592
Other consumer installment ........................ 2,446 2,484 5,410 5,516
Allowance for credit losses ............................... (995) -- (1,001) --
-------------------------------------------------
Net loans ......................................... 61,890 65,112 58,121 62,027
-------------------------------------------------
Total financial assets ............................ 72,451 75,673 69,551 73,457
NONFINANCIAL ASSETS
Core deposit intangible ........................................... 176 4,837 145 2,611
-------------------------------------------------
Total ............................................. 72,627 $80,510 69,696 $ 76,068
---------- ----------
Other assets ...................................................... 8,903 6,742
------------ ----------
Total assets ...................................... $ 81,530 $76,438
------------ ----------
FINANCIAL LIABILITIES
Deposits
Noninterest-bearing ....................................... $16,050 $16,050 $16,377 $16,377
Interest-bearing checking and other savings ............... 29,671 29,671 30,834 30,834
Time deposits > $100,000 .................................. 5,809 5,869 2,823 2,854
-------------------------------------------------
Total deposits .................................... 51,530 51,590 50,034 50,065
Federal funds purchased ........................................... 297 297 1,255 1,255
Securities sold under agreements to repurchase .................... 1,235 1,235 1,427 1,427
Other short-term funds borrowed ................................... 724 724 683 683
Long-term debt .................................................... 16,563 16,602 13,781 14,046
Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts holding solely the junior subordinated
debentures of the parent company .......................... 950 844 950 1,030
-------------------------------------------------
Total financial liabilities ....................... 71,299 $71,292 68,130 68,506
---------- ----------
NONFINANCIAL LIABILITIES .................................................. 2,593 2,338
SHAREHOLDERS' EQUITY ...................................................... 7,638 5,970
------------ ----------
Total liabilities and shareholders' equity ........ $ 81,530 $76,438
------------ ----------
Off-Balance Sheet Financial Instruments
Unrecognized gain on interest rate swaps and options .............. N/A $ 6 N/A $ 193
Unrecognized loss on interest rate swaps and options .............. N/A 240 N/A 7
Loan commitments .................................................. N/A -- N/A --
Letters of credit ................................................. N/A -- N/A --
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62 U.S. BANCORP
NOTE Q COMMITMENTS AND CONTINGENT LIABILITIES
Rental expense for operating leases amounted to $111.2 million in 1999, $121.0 million in 1998, and $114.6 million in 1997. Future minimum payments, net of sublease rentals, under capitalized leases and noncancelable operating leases with initial or remaining terms of one year or more, consisted of the following at December 31, 1999:
Capitalized Operating
(Dollars in Millions) Leases Leases
--------------------------------------------------------------------------
2000............................................ $ 10.3 $121.7
2001............................................ 10.2 123.6
2002............................................ 9.2 114.5
2003............................................ 7.6 94.4
2004............................................ 6.7 70.0
Thereafter...................................... 60.3 459.8
Total minimum lease payments.................... $104.3 $984.0
Less amount representing interest............... 45.1
Present value net minimum lease payments........ $ 59.2
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Various legal proceedings are currently pending against the Company. Due to their complex nature, it may be years before some matters are resolved. In the opinion of management, the aggregate liability, if any, will not have a material adverse effect on the Company's financial position, liquidity or results of operations.
NOTE R SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET Time certificates of deposit in denominations of $100,000 or more totaled $5,809 million and $2,823 million at December 31, 1999, and 1998, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures to the Consolidated Statement of Cash Flows.
Year Ended December 31 (Dollars in Millions) 1999 1998 1997
-------------------------------------------------------------------------------------------------
Income taxes paid .................................... $ 701.7 $ 552.8 $ 464.3
Interest paid ........................................ 2,342.9 2,324.1 2,226.5
Net noncash transfers to foreclosed property ......... 31.6 25.0 46.8
Change in unrealized gain (loss) on available-for-sale
securities, net of taxes of $82.0 in 1999,
$7.6 in 1998 and $32.9 in 1997 ............... (133.6) 12.5 54.6
-------------------------------------
Cash acquisitions of businesses
Fair value of noncash assets acquired ........ $ 250.3 $ 2,249.7 $ 194.6
Liabilities assumed .......................... (29.8) (1,469.5) (171.0)
-------------------------------------
Net .................................. $ 220.5 $ 780.2 $ 23.6
-------------------------------------
Stock acquisitions of businesses
Fair value of noncash assets acquired ........ $ 3,521.2 $ -- $ 451.9
Net cash acquired ............................ 462.4 -- 43.2
Liabilities assumed .......................... (2,708.1) -- (407.7)
-------------------------------------
Net value of common stock issued ..... $ 1,275.5 $ -- $ 87.4
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REGULATORY CAPITAL The measures used to assess capital include the capital ratios established by bank regulatory agencies, including the specific ratios for the "well capitalized" designation. For a description of the regulatory capital requirements and the actual ratios as of December 31, 1999, for the Company and its significant bank subsidiaries, see Tables 19 and 20 from which such information is incorporated by reference into these Notes to Consolidated Financial Statements.
U.S. BANCORP 63
NOTE S U.S. BANCORP (PARENT COMPANY)
CONDENSED BALANCE SHEET
December 31 (Dollars in Millions) 1999 1998
--------------------------------------------------------------------------------
ASSETS
Deposits with subsidiary banks, principally interest-bearing $ 469 $ 604
Available-for-sale securities .............................. 309 172
Investments in:
Bank affiliates .................................... 8,128 6,673
Nonbank affiliates ................................. 669 610
Advances to:
Bank affiliates .................................... 1,016 991
Nonbank affiliates ................................. 1,357 976
Other assets ............................................... 1,236 996
------------------
Total assets ............................... $13,184 $11,022
------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term funds borrowed .................................. $ 31 $ 48
Advances from subsidiaries ................................. 111 46
Long-term debt ............................................. 3,805 3,474
Junior subordinated debentures issued to subsidiary trusts . 979 979
Other liabilities .......................................... 620 505
Shareholders' equity ....................................... 7,638 5,970
------------------
Total liabilities and shareholders' equity . $13,184 $11,022
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CONDENSED STATEMENT OF INCOME
Year Ended December 31 (Dollars in Millions) 1999 1998 1997
----------------------------------------------------------------------------------------------------------------------
INCOME
Dividends from subsidiaries (including $995.0, $1,290.0
and $441.2 from bank subsidiaries) ........................................... $1,026.3 $1,387.1 $488.9
Interest from subsidiaries ................................................... 177.2 159.3 139.8
Service and management fees from subsidiaries ................................ 191.5 240.4 201.7
Other income ................................................................. 110.8 119.7 75.7
----------------------------------
Total income ................................................. 1,505.8 1,906.5 906.1
EXPENSES
Interest on short-term funds borrowed ........................................ 15.5 16.9 13.8
Interest on long-term debt ................................................... 217.9 187.2 180.0
Interest on junior subordinated debentures issued to subsidiary trusts ....... 76.6 70.1 50.7
Operating expenses paid to subsidiaries ...................................... 9.6 78.9 3.4
Merger-related charges ....................................................... 13.9 25.6 251.5
Other expenses ............................................................... 166.5 197.9 245.1
----------------------------------
Total expenses ............................................... 500.0 576.6 744.5
----------------------------------
Income before income taxes and equity in undistributed income of subsidiaries. 1,005.8 1,329.9 161.6
Income tax credit ............................................................ (17.1) (71.0) (65.7)
----------------------------------
Income of parent company ..................................................... 1,022.9 1,400.9 227.3
Equity (deficiency) in undistributed income of subsidiaries:
Bank affiliates ...................................................... 438.1 (101.6) 584.7
Nonbank affiliates ................................................... 45.5 28.1 26.5
----------------------------------
483.6 (73.5) 611.2
----------------------------------
Net income ................................................... $1,506.5 $1,327.4 $838.5
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64 U.S. BANCORP
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 (Dollars in Millions) 1999 1998 1997
---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income ...................................................................... $1,506.5 $ 1,327.4 $ 838.5
Adjustments to reconcile net income to net cash provided by operating activities:
(Equity) deficiency in undistributed income of subsidiaries ............. (483.6) 73.5 (611.2)
Gains on available-for-sale securities .................................. (8.6) (12.5) (1.7)
Depreciation and amortization of premises and equipment ................. 12.5 12.9 17.1
Provision (credit) for deferred income taxes ............................ 17.0 4.4 (5.3)
Amortization of goodwill and other intangible assets .................... 11.5 11.0 13.5
(Increase) decrease in accrued receivables .............................. (19.4) (3.9) 4.9
Increase (decrease) in accrued liabilities .............................. 86.7 (124.0) (13.9)
Other - net ............................................................. (30.8) (67.0) (73.9)
------------------------------------------
Net cash provided by operating activities ....................... 1,091.8 1,221.8 168.0
INVESTING ACTIVITIES
Available-for-sale securities
Sales and maturities .................................................... 127.5 83.0 142.4
Purchases ............................................................... (323.5) (59.9) (140.2)
Investments in subsidiaries ..................................................... (26.0) (1,114.6) (221.2)
Equity distributions from subsidiaries .......................................... 145.0 325.0 769.5
Net (increase) decrease in short-term advances to affiliates .................... (79.4) (496.5) 521.6
Long-term advances made to affiliates ........................................... (595.0) (330.0) (80.0)
Principal collected on long-term advances made to affiliates .................... 285.0 295.0 --
Other - net ..................................................................... (157.0) (6.8) 30.8
------------------------------------------
Net cash (used) provided by investing activities ................ (623.4) (1,304.8) 1,022.9
FINANCING ACTIVITIES
Net increase (decrease) in short-term advances from subsidiaries ................ 62.6 21.4 (9.9)
Net (decrease) increase in short-term funds borrowed ............................ (16.8) 47.7 (161.3)
Proceeds from long-term debt .................................................... 1,068.5 1,218.3 307.0
Principal payments on long-term debt ............................................ (737.7) (190.5) (331.6)
Issuance of junior subordinated debentures to subsidiary trusts ................. -- 360.8 --
Redemption of preferred stock ................................................... -- -- (150.0)
Proceeds from dividend reinvestment, stock option and stock purchase plans ...... 153.2 220.4 183.5
Repurchase of common stock ...................................................... (560.8) (964.0) (431.0)
Cash dividends .................................................................. (573.1) (516.4) (456.3)
------------------------------------------
Net cash (used) provided by financing activities ................ (604.1) 197.7 (1,049.6)
------------------------------------------
Change in cash and cash equivalents ............................. (135.7) 114.7 141.3
Cash and cash equivalents at beginning of year .................................. 604.2 489.5 348.2
------------------------------------------
Cash and cash equivalents at end of year ........................ $ 468.5 $ 604.2 $ 489.5
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Transfer of funds (dividends, loans or advances) from bank subsidiaries to the Company is restricted. Federal law prohibits loans unless they are secured and generally limits any loan to the Company or individual affiliate to 10 percent of the bank's equity. In aggregate, loans to the Company and all affiliates cannot exceed 20 percent of the bank's equity.
Dividend payments to the Company by its subsidiary banks are subject to regulatory review and statutory limitations and, in some instances, regulatory approval. The approval of the Comptroller of the Currency is required if total dividends by a national bank in any calendar year exceed the bank's net income for that year combined with its retained net income for the preceding two calendar years or if the bank's retained earnings are less than zero. Furthermore, dividends are restricted by the Comptroller of the Currency's minimum capital constraints for all national banks. Within these guidelines, all bank subsidiaries have the ability to pay dividends without prior regulatory approval.
U.S. BANCORP 65
REPORT OF MANAGEMENT
The financial statements of U.S. Bancorp were prepared by management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in the United States appropriate in the circumstances and include amounts that are based on management's best estimates and judgment. All financial information throughout the annual report is consistent with that in the financial statements.
The Company maintains accounting and internal control systems that are believed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and recorded. To test compliance, the Company carries out an extensive audit program. This program includes a review for compliance with written policies and procedures and a comprehensive review of the adequacy and effectiveness of internal control systems. However, there are limits inherent in all systems of internal accounting control and management recognizes that errors or irregularities may occur. Based on the recognition that the costs of such systems should not exceed the benefits to be derived, management believes the Company's system provides an appropriate cost/benefit balance.
The Company's independent auditors, Ernst & Young LLP, have been engaged to render an opinion on the financial statements and to assist in carrying out the audit program described above. Their opinion on the financial statements is based on procedures performed in accordance with auditing standards generally accepted in the United States, including tests of the accounting records to the extent necessary to allow them to report on the fairness of the financial statements. Ernst & Young LLP has full access to the Audit Committee and the Board of Directors.
The management of the Company is committed to and has always maintained and enforced a philosophy of high ethical standards in the conduct of its business. Written policies covering conflicts of interest and other subjects are formulated in a Code of Ethics which is uniformly applicable to all officers and employees of the Company.
/s/ John. F. Grundhofer JOHN F. GRUNDHOFER Chairman and Chief Executive Officer /s/ Susan E. Lester SUSAN E. LESTER Executive Vice President and Chief Financial Officer |
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
U.S. Bancorp
We have audited the accompanying consolidated balance sheets of U.S. Bancorp and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Bancorp and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP Minneapolis, Minnesota January 18, 2000 |
66 U.S. BANCORP
CONSOLIDATED BALANCE SHEET - FIVE-YEAR SUMMARY
% Change
December 31 (Dollars In Millions) 1999 1998 1997 1996 1995 1998-1999
------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks .......................... $ 4,036 $ 4,772 $ 4,739 $ 4,813 $ 4,253 (15.4)%
Federal funds sold and resale agreements ......... 1,037 544 692 898 771 90.6
Trading account securities ....................... 617 537 195 231 366 14.9
Held-to-maturity securities ...................... -- -- -- 797 865 --
Available-for-sale securities:
U.S. Treasury ............................ 381 500 628 1,028 1,686 (23.8)
Mortgage-backed .......................... 2,906 3,438 4,366 4,104 3,218 (15.5)
State and political ...................... 1,135 1,255 1,331 573 271 (9.6)
U.S. agencies and other .................. 449 384 560 768 1,248 16.9
-------------------------------------------------------
Total available-for-sale securities ... 4,871 5,577 6,885 6,473 6,423 (12.7)
Loans ............................................ 62,885 59,122 54,708 52,355 49,345 6.4
Less allowance for credit losses ......... 995 1,001 1,009 993 908 (.6)
-------------------------------------------------------
Net loans ........................ 61,890 58,121 53,699 51,362 48,437 6.5
Other assets ..................................... 9,079 6,887 5,085 5,175 4,553 31.8
-------------------------------------------------------
Total assets ............. $81,530 $76,438 $71,295 $69,749 $65,668 6.7%
-------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing ...................... $16,050 $16,377 $14,544 $14,344 $12,367 (2.0)%
Interest-bearing ......................... 35,480 33,657 34,483 35,012 33,412 5.4
-------------------------------------------------------
Total deposits ................... 51,530 50,034 49,027 49,356 45,779 3.0
Short-term borrowings ............................ 2,256 3,365 3,292 6,592 7,984 (33.0)
Long-term debt ................................... 16,563 13,781 10,247 5,369 4,583 20.2
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company .............. 950 950 600 600 -- --
Other liabilities ................................ 2,593 2,338 2,239 2,069 1,980 10.9
-------------------------------------------------------
Total liabilities ........................... 73,892 70,468 65,405 63,986 60,326 4.9
Shareholders' equity ............................. 7,638 5,970 5,890 5,763 5,342 27.9
-------------------------------------------------------
Total liabilities and shareholders' equity .. $81,530 $76,438 $71,295 $69,749 $65,668 6.7%
------------------------------------------------------------------------------------------------------------------------
|
U.S. BANCORP 67
CONSOLIDATED STATEMENT OF INCOME-- FIVE-YEAR SUMMARY
% Change
Year Ended December 31 (Dollars in Millions) 1999 1998 1997 1996 1995 1998-1999
----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans ............................................. $ 5,208.6 $ 4,921.8 $ 4,784.5 $ 4,537.7 $ 4,373.4 5.8%
Securities
Taxable ................................... 250.6 303.6 371.5 420.5 420.3 (17.5)
Exempt from federal income taxes .......... 57.3 62.8 68.1 71.0 59.8 (8.8)
Other interest income ............................. 160.2 119.2 69.5 85.2 67.3 34.4
-----------------------------------------------------------------
Total interest income ............. 5,676.7 5,407.4 5,293.6 5,114.4 4,920.8 5.0
INTEREST EXPENSE
Deposits .......................................... 1,291.2 1,391.0 1,436.8 1,441.3 1,416.7 (7.2)
Federal funds purchased and repurchase
agreements ........................................ 164.2 153.6 183.0 197.9 218.2 6.9
Other short-term funds borrowed ................... 49.9 59.1 117.6 198.0 189.8 (15.6)
Long-term debt .................................... 833.4 672.7 459.0 303.8 273.4 23.9
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding
solely the junior subordinated debentures
of the parent company ..................... 77.3 70.4 49.1 2.8 -- 9.8
-----------------------------------------------------------------
Total interest expense ............ 2,416.0 2,346.8 2,245.5 2,143.8 2,098.1 2.9
-----------------------------------------------------------------
Net interest income ............................... 3,260.7 3,060.6 3,048.1 2,970.6 2,822.7 6.5
Provision for credit losses ....................... 531.0 379.0 460.3 271.2 239.1 40.1
-----------------------------------------------------------------
Net interest income after provision for credit
losses .......................................... 2,729.7 2,681.6 2,587.8 2,699.4 2,583.6 1.8
NONINTEREST INCOME
Credit card fee revenue ........................... 603.1 574.8 418.8 351.5 303.9 4.9
Trust and investment management fees .............. 459.7 413.0 348.0 302.3 241.1 11.3
Service charges on deposit accounts ............... 434.6 406.0 396.2 377.2 345.0 7.0
Investment products fees and commissions .......... 347.7 229.7 65.7 59.7 49.8 51.4
Investment banking revenue ........................ 245.4 100.4 -- -- -- *
Trading account profits and commissions ........... 215.9 118.1 30.9 29.0 28.5 82.8
Available-for-sale securities (losses) gains ...... (1.3) 12.6 3.6 20.8 3.0 *
Gain on sale of mortgage banking operations ....... -- -- -- 45.8 -- --
Termination fee ................................... -- -- -- 190.0 -- --
Other ............................................. 453.6 402.0 352.0 406.8 342.0 12.8
-----------------------------------------------------------------
Total noninterest income .......... 2,758.7 2,256.6 1,615.2 1,783.1 1,313.3 22.3
NONINTEREST EXPENSE
Salaries .......................................... 1,460.9 1,210.9 969.3 964.5 927.5 20.6
Employee benefits ................................. 248.4 222.3 217.4 220.3 209.9 11.7
Net occupancy ..................................... 204.6 187.4 182.0 179.4 183.4 9.2
Furniture and equipment ........................... 160.1 153.4 165.4 175.2 184.5 4.4
Professional services ............................. 74.1 71.3 70.3 58.0 59.2 3.9
Goodwill and other intangible assets .............. 165.6 143.7 113.3 130.1 76.0 15.2
Merger-related and restructuring charges .......... 62.4 216.5 511.6 88.1 98.9 (71.2)
Other ............................................. 750.8 638.8 583.0 722.5 736.5 17.5
-----------------------------------------------------------------
Total noninterest expense ......... 3,126.9 2,844.3 2,812.3 2,538.1 2,475.9 9.9
-----------------------------------------------------------------
Income before income taxes ........................ 2,361.5 2,093.9 1,390.7 1,944.4 1,421.0 12.8
Applicable income taxes ........................... 855.0 766.5 552.2 725.7 523.9 11.5
-----------------------------------------------------------------
Net income ........................................ $ 1,506.5 $ 1,327.4 $ 838.5 $ 1,218.7 $ 897.1 13.5
-----------------------------------------------------------------
Net income applicable to common equity ............ $ 1,506.5 $ 1,327.4 $ 827.9 $ 1,200.3 $ 877.4 13.5%
-----------------------------------------------------------------------------------------------------------------------------------
|
*Not meaningful
68 U.S. BANCORP
QUARTERLY CONSOLIDATED FINANCIAL DATA
1999 1998
---------------------------------------------- -------------------------------------------------
(Dollars in Millions, Fourth Third Second First Fourth Third Second First
Except Per Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans ......................... $ 1,364.6 $ 1,333.3 $ 1,272.2 $ 1,238.5 $ 1,245.2 $ 1,246.8 $ 1,225.6 $ 1,204.2
Securities
Taxable ............... 62.0 64.2 59.8 64.6 68.2 71.4 78.2 85.8
Exempt from federal
income taxes .......... 14.1 14.2 14.3 14.7 15.5 15.6 15.6 16.1
Other interest income ......... 47.3 40.1 38.6 34.2 34.0 36.0 30.2 19.0
--------------------------------------------------------------------------------------------------
Total interest
income ........ 1,488.0 1,451.8 1,384.9 1,352.0 1,362.9 1,369.8 1,349.6 1,325.1
INTEREST EXPENSE
Deposits ...................... 352.1 318.7 308.8 311.6 332.4 351.3 352.2 355.1
Federal funds purchased and
repurchase agreements ...... 32.8 48.4 43.6 39.4 36.3 41.9 41.8 33.6
Other short-term funds
borrowed ................... 12.0 12.9 12.1 12.9 13.9 18.1 14.3 12.8
Long-term debt ................ 241.1 217.8 188.4 186.1 186.7 171.8 157.8 156.4
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the parent
company .................... 19.3 19.3 19.4 19.3 19.3 20.3 18.5 12.3
--------------------------------------------------------------------------------------------------
Total interest
expense ....... 657.3 617.1 572.3 569.3 588.6 603.4 584.6 570.2
--------------------------------------------------------------------------------------------------
Net interest income ........... 830.7 834.7 812.6 782.7 774.3 766.4 765.0 754.9
Provision for credit losses ... 146.0 142.0 126.0 117.0 101.0 95.0 93.0 90.0
--------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses. 684.7 692.7 686.6 665.7 673.3 671.4 672.0 664.9
NONINTEREST INCOME
Credit card fee revenue ....... 166.3 161.3 148.7 126.8 144.3 156.1 147.6 126.8
Trust and investment management
fees ....................... 116.5 113.8 112.2 117.2 105.3 104.8 108.0 94.9
Service charges on deposit
accounts ................... 111.5 112.2 107.5 103.4 107.0 101.7 99.4 97.9
Investment products fees and
commissions ................ 88.0 79.5 91.6 88.6 78.0 76.0 57.5 18.2
Investment banking revenue .... 88.8 60.1 60.3 36.2 33.1 38.3 29.0 --
Trading account profits and
commissions ................ 65.5 48.4 50.5 51.5 40.2 42.8 28.0 7.1
Available-for-sale securities
gains (losses) ............. 2.1 (3.4) -- -- -- -- -- 12.6
Other ......................... 125.2 140.7 85.1 102.6 112.2 97.2 91.6 101.0
--------------------------------------------------------------------------------------------------
Total
noninterest
income ........ 763.9 712.6 655.9 626.3 620.1 616.9 561.1 458.5
NONINTEREST EXPENSE
Salaries ...................... 397.7 352.4 356.7 354.1 328.4 339.6 303.3 239.6
Employee benefits ............. 65.0 59.8 53.6 70.0 53.7 55.7 58.8 54.1
Net occupancy ................. 52.8 51.9 49.9 50.0 46.8 49.2 47.9 43.5
Furniture and equipment ....... 42.1 40.9 39.0 38.1 39.0 39.4 39.6 35.4
Professional services ......... 26.5 17.0 16.6 14.0 26.4 18.3 15.3 11.3
Goodwill and other intangible
assets ..................... 49.6 41.6 36.6 37.8 37.2 37.1 36.0 33.4
Merger-related charges ........ 27.7 16.8 15.0 2.9 44.1 66.4 59.5 46.5
Other ......................... 209.7 203.8 185.4 151.9 169.7 163.1 164.2 141.8
--------------------------------------------------------------------------------------------------
Total
noninterest
expense ....... 871.1 784.2 752.8 718.8 745.3 768.8 724.6 605.6
--------------------------------------------------------------------------------------------------
Income before income taxes .... 577.5 621.1 589.7 573.2 548.1 519.5 508.5 517.8
Applicable income taxes ....... 208.5 224.7 215.4 206.4 198.9 190.4 187.9 189.3
--------------------------------------------------------------------------------------------------
Net income .................... $ 369.0 $ 396.4 $ 374.3 $ 366.8 $ 349.2 $ 329.1 $ 320.6 $ 328.5
--------------------------------------------------------------------------------------------------
Earnings per share ............ $ .50 $ .55 $ .52 $ .51 $ .48 $ .45 $ .43 $ .44
Diluted earnings per share .... $ .50 $ .54 $ .51 $ .50 $ .48 $ .44 $ .43 $ .44
SELECTED AVERAGE BALANCES
Loans ......................... $ 61,523 $ 61,349 $ 60,321 $ 59,081 $ 57,648 $ 56,174 55,400 $ 54,657
Earning assets ................ 69,540 69,271 67,979 66,738 65,380 63,994 63,494 62,572
Total assets .................. 78,859 77,700 76,072 75,107 73,767 72,083 71,446 69,821
Deposits ...................... 49,071 47,716 47,979 47,620 47,596 47,000 47,426 47,287
Long-term debt ................ 16,161 15,733 14,416 13,967 13,081 11,658 10,564 10,534
Common equity ................. 7,159 6,588 6,312 6,088 5,875 6,100 6,186 6,036
-----------------------------------------------------------------------------------------------------------------------------------
|
U.S. BANCORP 69
CONSOLIDATED DAILY AVERAGE BALANCE
Year Ended December 31 1999 1998
-------------------------------------------------------------------------------------------------- ------------------------------
Yields Yields
(Dollars in Millions) Balance Interest And Rates Balance Interest And Rates
-------------------------------------------------------------------------------------------------- ------------------------------
ASSETS
Available-for-sale securities
U.S. Treasury.................................................. $ 425 $ 24.1 5.67% $ 565 $ 32.8 5.81%
Mortgage-backed................................................ 3,138 206.9 6.59 3,667 247.1 6.74
State and political............................................ 1,140 86.2 7.56 1,260 98.2 7.79
U.S. agencies and other........................................ 450 18.5 4.11 403 21.9 5.43
------- --------- ------- --------
Total available-for-sale securities......................... 5,153 335.7 6.51 5,895 400.0 6.79
Unrealized gain (loss) on available-for-sale securities..... 18 97
------- -------
Net available-for-sale securities.......................... 5,171 5,992
Held-to-maturity securities...................................... -- -- -- -- -- --
Trading account securities....................................... 630 41.3 6.56 290 18.7 6.45
Federal funds sold and resale agreements......................... 535 23.0 4.30 667 35.0 5.25
Loans
Commercial
Commercial.................................................. 27,281 2,080.9 7.63 24,608 1,945.7 7.91
Real estate
Commercial mortgage...................................... 8,645 730.9 8.45 8,129 712.8 8.77
Construction............................................. 3,661 324.9 8.87 2,652 240.1 9.05
------- --------- ------- --------
Total commercial......................................... 39,587 3,136.7 7.92 35,389 2,898.6 8.19
Consumer
Home equity and second mortgage............................ 8,039 758.4 9.43 6,130 585.0 9.54
Credit card................................................ 4,029 528.7 13.12 4,021 508.3 12.64
Other...................................................... 6,134 581.4 9.48 6,803 656.0 9.64
------- --------- ------- --------
Subtotal................................................ 18,202 1,868.5 10.27 16,954 1,749.3 10.32
Residential mortgage....................................... 2,789 214.8 7.70 3,636 289.6 7.96
------- --------- ------- --------
Total consumer.......................................... 20,991 2,083.3 9.92 20,590 2,038.9 9.90
------- --------- ------- --------
Total loans............................................. 60,578 5,220.0 8.62 55,979 4,937.5 8.82
Allowance for credit losses................................ 998 997
------- -------
Net loans............................................... 59,580 54,982
Other earning assets............................................ 1,496 98.7 6.60 1,037 67.5 6.51
------- --------- ------- --------
Total earning assets*................................... 68,392 5,718.7 8.36 63,868 5,458.7 8.55
Other assets.................................................... 9,535 8,823
------- -------
Total assets............................................ $76,947 $71,791
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits.................................... $13,760 $13,497
Interest-bearing deposits
Interest checking.......................................... 6,044 110.3 1.82 5,754 104.2 1.81
Money market accounts...................................... 12,141 428.5 3.53 11,201 437.9 3.91
Other savings accounts..................................... 2,223 40.1 1.80 2,465 51.2 2.08
Savings certificates....................................... 9,575 479.0 5.00 11,309 616.8 5.45
Certificates over $100,000................................. 4,356 233.3 5.36 3,101 180.9 5.83
------- --------- ------- --------
Total interest-bearing deposits......................... 34,339 1,291.2 3.76 33,830 1,391.0 4.11
Short-term borrowings........................................... 3,887 214.1 5.51 3,733 212.7 5.70
Long-term debt.................................................. 15,077 833.4 5.53 11,481 672.7 5.86
Company-obligated mandatorily redeemable preferred securities... 950 77.3 8.14 864 70.4 8.15
------- --------- ------- --------
Total interest-bearing liabilities...................... 54,253 2,416.0 4.45 49,908 2,346.8 4.70
Other liabilities............................................... 2,394 2,337
Preferred equity................................................ -- --
Common equity................................................... 6,528 5,989
Accumulated other comprehensive income.......................... 12 60
------- -------
Total liabilities and shareholders' equity.............. $76,947 $71,791
------- -------
Net interest income............................................. $3,302.7 $3,111.9
-------- --------
Gross interest margin........................................... 3.91% 3.85%
---- ----
Gross interest margin without taxable-equivalent increments..... 3.85% 3.77%
---- ----
PERCENT OF EARNING ASSETS
Interest income................................................. 8.36% 8.55%
Interest expense................................................ 3.53 3.68
---- ----
Net interest margin..................................... 4.83 4.87
---- ----
Net interest margin without taxable-equivalent increments....... 4.77% 4.79%
----------------------------------------------------------------------------------------------------------------------------------
|
Interest and rates are presented on a fully taxable-equivalent basis under a tax rate of 35 percent.
Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances.
* Before deducting the allowance for credit losses and excluding the unrealized gain (loss) on available-for-sale securities.
** Not meaningful
*** Detail not available
70 U.S. BANCORP
SHEET AND RELATED YIELDS AND RATES
1997 1996 1995 1998-1999
-----------------------------------------------------------------------------------------------------------------------------------
Yields Yields Yields % Change
Balance Interest and Rates Balance Interest and Rates Balance Interest and Rates Average Balance
-----------------------------------------------------------------------------------------------------------------------------------
$ 734 $ 42.7 5.82% $ 1,255 $ 74.3 5.92% $ 1,864 $ 109.0 5.85% (24.8)%
4,239 290.5 6.85 4,158 279.7 6.73 2,711 171.0 6.31 (14.4)
889 69.8 7.85 555 47.0 8.47 177 18.9 10.68 (9.5)
595 36.1 6.07 978 65.7 6.72 1,125 82.5 7.33 11.7
-------------------- -------------------- ---------------------
6,457 439.1 6.80 6,946 466.7 6.72 5,877 381.4 6.49 (12.6)
3 (21) (69) (81.4)
----------- --------- ---------
6,460 6,925 5,808 (13.7)
449 35.5 7.91 834 64.0 7.67 1,833 131.7 7.18 -
168 9.7 5.77 233 13.2 5.67 266 15.8 5.94 **
577 31.6 5.48 872 46.5 5.33 531 30.8 5.80 (19.8)
22,466 1,829.8 8.14 20,910 1,708.0 8.17 *** *** 10.9
8,037 728.5 9.06 7,630 687.5 9.01 *** *** 6.3
2,255 216.9 9.62 1,707 165.4 9.69 *** *** 38.0
-------------------- -------------------- ---------------------
32,758 2,775.2 8.47 30,247 2,560.9 8.47 27,048 2,415.2 8.93 11.9
5,555 532.6 9.59 4,708 441.4 9.38 *** *** 31.1
3,702 462.9 12.50 3,452 444.0 12.86 *** *** .2
6,894 673.2 9.77 7,037 680.6 9.67 *** *** (9.8)
-------------------- -------------------- ---------------------
16,151 1,668.7 10.33 15,197 1,566.0 10.30 *** *** 7.4
4,604 363.3 7.89 5,411 435.7 8.05 *** *** (23.3)
-------------------- -------------------- ---------------------
20,755 2,032.0 9.79 20,608 2,001.7 9.71 20,655 1,989.2 9.63 1.9
-------------------- -------------------- ---------------------
53,513 4,807.2 8.98 50,855 4,562.6 8.97 47,703 4,404.4 9.23 8.2
998 973 869 .1
----------- --------- ---------
52,515 49,882 46,834 8.4
511 28.4 5.56 461 25.5 5.53 346 20.6 5.95 44.3
-------------------- -------------------- ---------------------
61,675 5,351.5 8.68 60,201 5,178.5 8.60 56,556 4,984.7 8.81 7.1
8,091 8,195 7,466 8.1
----------- --------- ---------
$68,771 $67,402 $63,084 7.2%
----------- --------- ---------
$12,680 $11,970 $10,646 1.9%
5,561 92.2 1.66 5,678 90.1 1.59 5,473 88.2 1.61 5.0
10,440 401.9 3.85 10,068 379.4 3.77 8,952 357.5 3.99 8.4
2,799 61.2 2.19 3,157 70.7 2.24 3,566 87.8 2.46 (9.8)
12,278 668.9 5.45 12,985 703.2 5.42 13,223 704.2 5.33 (15.3)
3,578 212.6 5.94 3,394 197.9 5.83 2,866 179.0 6.25 40.5
-------------------- -------------------- ---------------------
34,656 1,436.8 4.15 35,282 1,441.3 4.09 34,080 1,416.7 4.16 1.5
5,314 300.6 5.66 7,187 395.9 5.51 6,969 408.0 5.85 4.1
7,527 459.0 6.10 4,908 303.8 6.19 4,162 273.4 6.57 31.3
600 49.1 8.18 36 2.8 8.18 - - - 10.0
-------------------- -------------------- ---------------------
48,097 2,245.5 4.67 47,413 2,143.8 4.52 45,211 2,098.1 4.64 8.7
2,196 2,100 1,882 2.4
131 240 255 -
5,665 5,693 5,134 9.0
2 (14) (44) (80.0)
----------- --------- ---------
$68,771 $67,402 $63,084 7.2%
----------- --------- ---------
$3,106.0 $3,034.7 $2,886.6
--------- --------- ---------
4.01% 4.08% 4.17%
-------- -------- --------
3.91% 3.98% 4.06%
-------- -------- --------
8.68% 8.60% 8.81%
3.64 3.56 3.71
-------- -------- --------
5.04 5.04 5.10
-------- -------- --------
4.94% 4.93% 4.99%
-----------------------------------------------------------------------------------------------------------------------------------
|
U.S. BANCORP 71
SUPPLEMENTAL FINANCIAL DATA
EARNINGS PER SHARE SUMMARY
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
Earnings per share ............. $2.07 $1.81 $1.13 $1.60 $1.19
Diluted earnings per share...... 2.06 1.78 1.11 1.57 1.16
-------------------------------------------------------------------------------------
|
RATIOS
1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------
Return on average assets .................... 1.96% 1.85% 1.22% 1.81% 1.42%
Return on average common equity ............. 23.0 21.9 14.6 21.1 17.2
Average total equity to average assets ...... 8.5 8.4 8.4 8.8 8.5
Dividends per share to net income per share.. 37.7 38.7 54.9 34.4 40.6
------------------------------------------------------------------------------------------------------
|
OTHER STATISTICS
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding - year end* ............... 753,330,212 725,761,718 739,933,014 738,017,970 723,095,643
Average common shares outstanding and
common stock equivalents
Earnings per share .................. 727,530,843 733,897,845 733,550,892 749,178,474 738,653,169
Diluted earnings per share .......... 732,990,811 744,178,143 742,913,736 766,172,004 764,661,147
Number of shareholders - year-end** ................. 38,104 38,069 41,657 43,353 41,701
Average number of employees (full-time equivalents).. 26,891 26,526 25,858 27,157 27,795
Common dividends paid (millions) .................... $ 573.1 $ 516.4 $ 445.7 $ 406.9 $ 327.4
---------------------------------------------------------------------------------------------------------------------------------
|
*Defined as total common shares less common stock held in treasury. **Based on number of common stock shareholders of record.
STOCK PRICE RANGE AND DIVIDENDS
1999 1998
----------------------------- -----------------------------
Sales Price Sales Price
------------------ Dividends ------------------ Dividends
High Low Paid High Low Paid
-------------------------------------------------------------------------------------------------
First quarter ............... $ 37.94 $ 30.13 $ .195 $ 41.81 $ 33.75 $ .175
Second quarter .............. 37.81 30.50 .195 45.63 37.13 .175
Third quarter ............... 34.81 28.06 .195 47.31 33.69 .175
Fourth quarter .............. 38.06 21.88 .195 43.00 25.63 .175
Closing price - December 31.. 23.81 35.50
-------------------------------------------------------------------------------------------------
|
THE COMMON STOCK OF U.S. BANCORP IS TRADED ON THE NEW YORK STOCK EXCHANGE, UNDER THE TICKER SYMBOL, "USB."
72 U.S. BANCORP
COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
December 31, 1999
--------------------------------------------
In 1 Year After 1 Year
(Dollars in Millions) or Less Through 5 Years After 5 Years
--------------------------------------------------------------------------------------------
Commercial, lease financing and agricultural.. $22,980 $ 4,870 $ 1,013
Real estate
Commercial mortgage .................. 4,467 3,517 1,800
Construction ......................... 4,018 220 84
--------------------------------------------
Total ........................ $31,465 $ 8,607 $ 2,897
--------------------------------------------------------------------------------------------
|
Due in Due After
One Year One Year Total
---------------------------------------------------------------------------
Loans at fixed interest rates .... $ 3,363 $ 8,890 $12,253
Loans at variable interest rates.. 28,102 2,614 30,716
-------------------------------------
Total ............ $31,465 $11,504 $42,969
---------------------------------------------------------------------------
|
TIME CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN DENOMINATIONS OF $100,000 OR MORE AT DECEMBER 31
Maturing
--------------------------------------------
Under Three Six to Over
Three to Six Twelve Twelve
(Dollars in Millions) Months Months Months Months Total
-----------------------------------------------------------------------------
1999........................... $3,474 $1,193 $566 $576 $5,809
1998........................... 1,541 365 439 478 2,823
1997........................... 1,077 762 508 937 3,284
-----------------------------------------------------------------------------
|
SHORT-TERM FUNDS BORROWED
Average Maximum Average Weighted
Daily Outstanding Interest Rate Average
Outstanding Amount Month End Paid During Interest Rate
(Dollars in Millions) at Year End Outstanding Balance the Year at Year End
-------------------------------------------------------------------------------------------------------------------
1999
Federal funds purchased and securities sold
under agreements to repurchase .... $1,532 $2,877 $3,701 5.71% 4.74%
Other ..................................... 724 1,010 1,254 4.94 4.95
-------------------------
Total ............................. $2,256 $3,887 4,752 5.51 4.80
-------------------------
1998
Federal funds purchased and securities sold
under agreements to repurchase .... $2,682 $2,582 $2,775 5.95% 4.60%
Other ..................................... 683 1,151 1,500 5.13 4.54
-------------------------
Total ............................. $3,365 $3,733 3,909 5.70 4.59
-------------------------
1997
Federal funds purchased and securities sold
under agreements to repurchase .... $2,318 $3,242 $4,188 5.64% 5.23%
Other ..................................... 974 2,072 3,082 5.68 5.33
-------------------------
Total ............................. $3,292 $5,314 6,879 5.66 5.26
-------------------------------------------------------------------------------------------------------------------
|
U.S. BANCORP 73
ANNUAL REPORT ON FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999.
Commission File Number 1-6880
U.S. BANCORP
Incorporated in the State of Delaware
IRS Employer Identification #41-0255900
Address: 601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-1111
Securities registered pursuant to Section 12(b) of the Act (and listed on the
New York Stock Exchange): Common Stock, Par Value $1.25.
Securities registered pursuant to Section 12(g) of the Act: None.
As of January 31, 2000, U.S. Bancorp had 754,253,512 shares of common stock outstanding. The aggregate market value of common stock held by non-affiliates as of January 31, 2000, was approximately $16,130,000,000.
U.S. Bancorp (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
This Annual Report and Form 10-K incorporates into a single document the requirements of the accounting profession and the Securities and Exchange Commission. Only those sections of the Annual Report referenced in the following cross-reference index and the information under the caption "Forward-Looking Statements" are incorporated in the Form 10-K.
Cross-Reference Page
---------------------------------------------------------------------------------------------------
PART I
ITEM 1 Business
General................................................................................ 75
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential............................................. 21-22, 70-71
Investment Portfolio........................................................... 27, 46, 67
Loan Portfolio............................................. 24-27, 28-33, 43-44, 46-47, 73
Summary of Loan Loss
Experience ............................................ 22-23, 28-33, 43-44, 46-47
Deposits................................................................. 27-28, 70-71, 73
Return on Equity and Assets............................................................ 72
Short-Term Borrowings.................................................................. 73
ITEM 2 Properties............................................................................. 75
ITEM 3 Legal Proceedings.................................................................... none
ITEM 4 Submission of Matters to a Vote of
Security Holders............................................................. none
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder Matters..................................... 36-37, 72, 74
ITEM 6 Selected Financial Data................................................................ 17
ITEM 7 Management's Discussion and
Analysis of Financial Condition and
Results of Operations....................................................... 16-38
ITEM 7A Quantitative and Qualitative Disclosures
About Market Risk........................................................... 33-35
ITEM 8 Financial Statements and
Supplementary Data......................................................... 69, 76
ITEM 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure......................................................... none
PART III
ITEM 10 Directors and Executive Officers
of the Registrant........................................................... 78-80*
ITEM 11 Executive Compensation................................................................... *
ITEM 12 Security Ownership of Certain
Beneficial Owners and Management................................................. *
ITEM 13 Certain Relationships and Related Transactions........................................... *
PART IV
ITEM 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................................................... 76-77
|
*U.S. BANCORP'S DEFINITIVE PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS IS INCORPORATED HEREIN BY REFERENCE, OTHER THAN THE SECTIONS ENTITLED "REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION" AND "COMPARATIVE STOCK PERFORMANCE."
74 U.S. BANCORP
GENERAL U.S. Bancorp (the "Company") is a multi-state bank holding company headquartered in Minneapolis, Minnesota. The Company was incorporated in Delaware in 1929 and owns 100 percent of the capital stock of each of four banks and eleven trust companies having approximately 1,000 banking offices in 16 Midwestern and Western states. The Company offers full-service brokerage services at approximately 100 offices through a wholly owned subsidiary. The Company also has various nonbank subsidiaries engaged in financial services.
The banks are engaged in general commercial banking business, principally in domestic markets. They range in size from less than $1.0 million to $51.1 billion in deposits and provide a wide variety of services to individuals, businesses, industry, institutional organizations, governmental entities, and other financial institutions. Depository services include checking accounts, savings accounts, and time certificate contracts. Ancillary services such as treasury management and receivable lockbox collection are provided for corporate customers. The Company's bank and trust subsidiaries provide a full range of fiduciary activities for individuals, estates, foundations, business corporations, and charitable organizations.
The Company provides banking services through its subsidiary banks to both domestic and foreign customers and correspondent banks. These services include consumer banking, commercial lending, financing of import/export trade, foreign exchange, and investment services.
The Company, through its subsidiaries, also provides services in trust, commercial and agricultural finance, data processing, leasing, and brokerage services.
On a full-time equivalent basis, employment during 1999 averaged a total of 26,891 employees.
COMPETITION The commercial banking business is highly competitive. Subsidiary banks compete with other commercial banks and with other financial institutions, including savings and loan associations, mutual savings banks, finance companies, mortgage banking companies, credit unions, and investment companies. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and bank holding companies.
GOVERNMENT POLICIES The operations of the Company's various operating units are affected by state and federal legislative changes and by policies of various regulatory authorities, including those of the several states in which they operate, the United States and foreign governments. These policies include, for example, statutory maximum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal policy, international currency regulations and monetary policies, and capital adequacy and liquidity constraints imposed by bank regulatory agencies.
SUPERVISION AND REGULATION The Company is a registered bank holding company under the Bank Holding Company Act of 1956 (the "Act") and is subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (the "Board").
Under the Act, a bank holding company may engage in banking, managing or controlling banks, furnishing or performing services for banks it controls, and conducting activities that the Board has determined to be closely related to banking. The Company must obtain the prior approval of the Board before acquiring more than 5 percent of the outstanding shares of another bank or bank holding company, and must provide notice to, and in some situations obtain the prior approval of, the Board in connection with the acquisition of more than 5 percent of the outstanding shares of a company engaged in a "bank-related" business.
Under the Act, as amended by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act"), the Company may acquire banks throughout the United States, subject only to state or federal deposit caps and state minimum-age requirements. The Interstate Act authorized interstate branching by acquisition and consolidation in those states that had not opted out of interstate branching.
The Gramm-Leach-Bliley Act of 1999 eliminates many of the restrictions placed on the activities of certain qualified bank holding companies. Effective March 11, 2000, a bank holding company can qualify as a "financial holding company" and expand into a wide variety of financial services, including securities activities, insurance and merchant banking without the prior approval of the Board. The Company expects to qualify as a financial holding company as soon as possible after the effective date.
National banks are subject to the supervision of, and are examined by, the Comptroller of the Currency. All subsidiary banks of the Company are members of the Federal Deposit Insurance Corporation ("FDIC") and are subject to examination by the FDIC. In practice, the primary federal regulator makes regular examinations of each subsidiary bank subject to its regulatory review or participates in joint examinations with other federal regulators. Areas subject to regulation by federal authorities include the allowance for credit losses, investments, loans, mergers, issuance of securities, payment of dividends, establishment of branches and other aspects of operations.
PROPERTIES The Company and its significant subsidiaries occupy their headquarter offices under long-term leases. The Company also leases three freestanding operations centers in St. Paul and Denver, and owns operations centers in Fargo and Portland. At December 31, 1999, the Company's subsidiaries owned and operated a total of 646 facilities and leased an additional 807 facilities, all of which are well maintained. Additional information with respect to premises and equipment is presented in Notes G and Q to Consolidated Financial Statements.
U.S. BANCORP 75
EXHIBITS
Financial Statements Filed Page --------------------------------------------------------------- U.S. Bancorp and Subsidiaries Consolidated Financial Statements 39 Notes to Consolidated Financial Statements 43 Report of Independent Auditors 66 |
Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are omitted since the required information is included in the footnotes or is not applicable.
During the three months ended December 31, 1999, the Company filed the following Current Report on Form 8-K:
Form 8-K filed December 6, 1999 relating to the anticipated fourth quarter 1999 and full year 2000 earnings.
The following Exhibit Index lists the Exhibits to the Annual Report on Form 10-K.
(1)3.1 Restated Certificate of Incorporation, as amended. Filed as
Exhibit 3.1 to Form 10-Q for the quarter ended March 31, 1998.
(1)3.2 Bylaws, as amended. Filed as Exhibit 3.1 to report on Form
10-Q for the quarter ended June 30, 1998.
4.1 [Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies
of instruments defining the rights of holders of long-term
debt are not filed. U.S. Bancorp agrees to furnish a copy
thereof to the Securities and Exchange Commission upon
request.]
(1)4.2 Warrant Agreement, dated as of October 2, 1995, between U.S.
Bancorp and First Chicago Trust Company of New York, as
Warrant Agent and Form of Warrant. Filed as Exhibits 4.18 and
4.19 to Registration Statement on Form S-3, File No. 33-61667.
(1)4.3 Warrant Agreement, dated as of November 20, 1990, between
Metropolitan Financial Corporation and American Stock Transfer
and Trust Company, as Warrant Agent; Supplemental Warrant
Agreement, dated as of January 24, 1995, between U.S. Bancorp
and American Stock Transfer and Trust Company, as Warrant
Agent; and Form of Warrant. Filed as Exhibit 4E to report on
Form 10-K for the year ended December 31, 1996.
(1)4.4 Certificate of Designation and Terms of Term Participating
Preferred Stock of U.S. Bancorp. Filed as Exhibit 4.1 to
Registration Statement on Form S-4, File No. 333-75603.
4.5 Forms of Warrant Agreements, dated as of November 5, 1996,
between Monarch Bancorp (predecessor of Western Bancorp)
and certain Warrantholders, and accompanying Forms of
Warrants, assumed by U.S. Bancorp upon its acquisition of
Western Bancorp on November 15, 1999.
(1)10.1 Stock Purchase Agreements dated as of May 30, 1990, among
Corporate Partners, L.P.; Corporate Offshore Partners, L.P.;
The State Board of Administration of Florida and U.S. Bancorp
and related documents. Filed as Exhibits 4.8-4.15 to
Registration Statement on Form S-3, File No. 33-42650.
(2)10.2 U.S. Bancorp 1999 Stock Incentive Plan, as amended.
(1)(2)10.3 Description of U.S. Bancorp Stock Option Loan Policy. Filed
as Exhibit 10M to report on Form 10-K for the year ended
December 31, 1996.
(1)(2)10.4 U.S. Bancorp Restated Employee Stock Purchase Plan, as
amended. Filed as Exhibit 10.4 to report on Form 10-K for the
year ended December 31, 1997.
(1)(2)10.5 U.S. Bancorp 1995 Executive Incentive Plan, as amended.
Filed as Exhibit 10A to report on Form 10-Q for the quarter
ended March 31, 1997.
(1)(2)10.6 U.S. Bancorp Annual Incentive Plan, as amended. Filed as
Exhibit 10E to report on Form 10-K for the year ended December
31, 1996.
(2)10.7 U.S. Bancorp Executive Deferral Plan, as amended.
(2)10.8 U.S. Bancorp Nonqualified Supplemental Executive Retirement
Plan, as amended.
(2)10.9 U.S. Bancorp Special Executive Deferral Plan, as amended.
(1)(2)10.10 Amended and Restated Supplemental Benefits Plan of the
former U.S. Bancorp. Filed as Exhibit 10.10 to report on Form
10-K for the year ended December 31, 1997.
(1)(2)10.11 1991 Executive Deferred Compensation Plan, as amended, of
the former U.S. Bancorp. Filed as Exhibit 10.11 to report on
Form 10-K for the year ended December 31, 1997.
(1)(2)10.12 Deferred Compensation Trust Agreement of the former U.S.
Bancorp. Filed as Exhibit 10.12 to report on Form 10-K for the
year ended December 31, 1997.
(1)(2)10.13 1991 Performance and Equity Incentive Plan of the former
U.S. Bancorp. Filed as Exhibit 10.13 to report on Form 10-K
for the year ended December 31, 1997.
(1)(2)10.14 Description of Retirement Benefits of Joshua Green III.
Filed as Exhibit 10.14 to report on Form 10-K for the year
ended December 31, 1997.
(1)(2)10.15 Form of Director Indemnification Agreement entered into
with former Directors of the former U.S. Bancorp. Filed as
Exhibit 10.15 to report on Form 10-K for the year ended
December 31, 1997.
(1)(2)10.16 Description of health insurance premium reimbursement plan
for former Directors of West One Bancorp. Filed as Exhibit
10.16 to report on Form 10-K for the year ended December 31,
1997.
(2)10.17 U.S. Bancorp Independent Director Retirement and Death Benefit
Plan, as amended.
(2)10.18 U.S. Bancorp Deferred Compensation Plan for Directors, as
amended.
(2)10.19 Form of Change-in-Control Agreement between U.S. Bancorp and
certain officers of the Company.
76 U.S. BANCORP
|
(1)(2)10.20 Employment Agreement with John F. Grundhofer, as amended.
Filed as Exhibit 10.1 to report on Form 10-Q for the quarter
ended June 30, 1998.
(1)(2)10.21 Employment Agreement with Gary T. Duim, as amended. Filed
as Exhibit 10.22 to Report on Form 10-K for the year ended
December 31, 1998.
(1)(2)10.22 Employment Agreement with Philip G. Heasley. Filed as
Exhibit 10(b) to report on Form 10-Q for the quarter ended
September 30, 1997.
(1)(2)10.23 Employment Agreement with Richard A. Zona. Filed as Exhibit
10(c) to report on Form 10-Q for the quarter ended September
30, 1997.
(2)10.24 Employment Agreement with Andrew S. Duff.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
13 Annual Report to Shareholders for the year ended December 31,
1999.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
|
(1)EXHIBIT HAS HERETOFORE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED HEREIN AS AN EXHIBIT BY REFERENCE.
(2)ITEMS THAT ARE MANAGEMENT CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS REQUIRED TO BE FILED AS AN EXHIBIT PURSUANT TO ITEM 14(c) OF THIS FORM 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on February 16, 2000, on its behalf by the undersigned thereunto duly authorized.
U.S. Bancorp
By: John F. Grundhofer
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 16, 2000, by the following persons on behalf of the registrant and in the capacities indicated.
JOHN F. GRUNDHOFER
Chairman, Chief Executive Officer and Director
(principal executive officer)
SUSAN E. LESTER
Executive Vice President and Chief Financial Officer
(principal financial officer)
TERRANCE R. DOLAN
Senior Vice President and Controller
(principal accounting officer)
LINDA L. AHLERS
Director
HARRY L. BETTIS
Director
ARTHUR D. COLLINS, JR.
Director
PETER H. COORS
Director
ROBERT L. DRYDEN
Director
JOSHUA GREEN III
Director
DELBERT W. JOHNSON
Director
JOEL W. JOHNSON
Director
JERRY W. LEVIN
Director
EDWARD J. PHILLIPS
Director
PAUL A. REDMOND
Director
RICHARD G. REITEN
Director
S. WALTER RICHEY
Director
WARREN R. STALEY
Director
U.S. BANCORP 77
EXECUTIVE OFFICERS
JOHN F. GRUNDHOFER
Mr. Grundhofer, 61, has been Chairman and Chief Executive Officer since July
1999. Prior to that he was Chairman, President and Chief Executive Officer and
held that same title from 1990 through July 1997. From August 1997 through 1998
he served as President and Chief Executive Officer.
PHILIP G. HEASLEY
Mr. Heasley, 50, has served as President and Chief Operating Officer since July
1999. From 1993 through July 1999, he served as Vice Chairman of U.S. Bancorp.
ANDREW CECERE
Mr. Cecere, 39, Vice Chairman of U.S. Bank, assumed responsibility for
Commercial Services (Corporate Trust, Treasury Management, Leasing,
International Banking and Government Banking) in August 1999. He was named
Senior Vice President of Operations and Administration for Wholesale Banking
earlier in 1999. From 1996 to 1999 he was Senior Vice President of Acquisition
Integration and Process Management. Prior to 1996 he served as Senior Vice
President of Management Accounting.
ANDREW S. DUFF
Mr. Duff, 42, Vice Chairman of U.S. Bank, assumed responsibility for Wealth
Management and Capital Markets in August 1999, adding to his duties as President
and Chief Operating Officer of U.S. Bancorp Piper Jaffray Inc. From January 1996
through July 1999 he served as President of Piper Jaffray Inc., the
broker-dealer subsidiary of Piper Jaffray Companies, and assumed the additional
title of Chief Executive Officer in January 2000. From 1994 to 1996 he was
Director of Fixed Income Capital Markets.
DANIEL J. FRATE
Mr. Frate, 39, Vice Chairman of U.S. Bank, has served as President of Payment
Systems since 1996 and also leads retail credit functions for the enterprise.
From 1989 to 1996, he led credit, servicing and technology strategies for retail
products and corporate payment systems.
J. ROBERT HOFFMANN
Mr. Hoffmann, 54, has been Executive Vice President and Chief Credit Officer
since 1990.
SUSAN E. LESTER
Ms. Lester, 43, has been Executive Vice President and Chief Financial Officer
since 1996. She had served as Executive Vice President, Finance, since December
1995. From May 1994 to November 1995, Ms. Lester was Executive Vice President
and Chief Financial Officer of Shawmut National Corporation.
PETER G. MICHIELUTTI
Mr. Michielutti, 43, has been Executive Vice President of Information Systems
since August 1999. He was previously Senior Vice President of the Business
Operations Center. He joined U.S. Bancorp in 1998 as Senior Vice President of
the Group Management Office. Prior to that he was Executive Vice President and
Chief Operating Officer of Fingerhut Companies, Inc., since 1997 and Chief
Financial Officer from 1995 to 1997.
LEE R. MITAU
Mr. Mitau, 51, assumed responsibility for Corporate Development in January 2000,
adding to his duties as Executive Vice President, General Counsel and Secretary,
in which capacity he has served since 1995. Prior to 1995 he was a partner at
Dorsey & Whitney LLP.
78 U.S. BANCORP
DANIEL M. QUINN
Mr. Quinn, 43, Vice Chairman of U.S. Bank, assumed responsibility for Commercial
Banking in April 1999 and for Regional Commercial Real Estate in August 1999.
Previously he had been President of U.S. Bank in Colorado (formerly Colorado
National Bank) since 1996. From 1993 to 1996 he managed Business Banking in
Colorado, Montana and Wyoming.
PETER E. RASKIND
Mr. Raskind, 43, Vice Chairman of U.S. Bank, assumed leadership of the branch
channel, U.S. Bank's network of approximately 1,000 branches, in August 1999. He
had served as Executive Vice President and Manager of Corporate Trust Services
since 1996. He joined U.S. Bancorp in 1983 and has held a variety of positions
in operations, commercial product development and treasury management.
CHRISTIAN R. RASMUSSEN
Mr. Rasmussen, 50, Vice Chairman of U.S. Bank, assumed responsibility for
Business Banking in April 1999. Previously he served as Executive Vice President
and Manager of the Northwest Business Banking Group. From January 1996 to August
1997 he served as Executive Vice President and Manager of the National Markets
Division for U.S. Bancorp. Prior to 1996 he was Executive Vice President in
charge of all commercial banking markets at West One Bank in Washington.
DANIEL C. ROHR
Mr. Rohr, 53, Vice Chairman of U.S. Bank, has been head of Corporate Banking
since August 1999. From 1997 to 1999 he was Executive Vice President of
Commercial & Business Banking. He served as Executive Vice President of
Commercial Banking from 1990 to 1997.
ROBERT H. SAYRE
Mr. Sayre, 60, has served as Executive Vice President of Human Resources since
1990.
DANIEL W. YOHANNES
Mr. Yohannes, 47, Vice Chairman of U.S. Bank, assumed leadership of Consumer
Banking in August 1999. Previously he had served as Chief Executive Officer of
U.S. Bank in Colorado (formerly Colorado National Bank) since 1996. From 1992 to
1996 he was Executive Vice President of Retail Banking in multiple states.
U.S. BANCORP 79
DIRECTORS
JOHN F. GRUNDHOFER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
U.S. Bancorp
LINDA L. AHLERS
PRESIDENT
Dayton's, Marshall Field's, Hudson's
Minneapolis, Minnesota
HARRY L. BETTIS
RANCHER
Payette, Idaho
ARTHUR D. COLLINS, JR.
PRESIDENT AND CHIEF OPERATING OFFICER
Medtronic, Inc.
Minneapolis, Minnesota
PETER H. COORS
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Coors Brewing Company
Golden, Colorado
ROBERT L. DRYDEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ConneXt, Inc.
Seattle, Washington
JOSHUA GREEN III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Joshua Green Corporation
Seattle, Washington
DELBERT W. JOHNSON
VICE PRESIDENT
Safeguard Scientifics, Inc.
Wayne, Pennsylvania
JOEL W. JOHNSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Hormel Foods Corporation
Austin, Minnesota
JERRY W. LEVIN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Sunbeam Corporation
Boca Raton, Florida
EDWARD J. PHILLIPS*
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Phillips Beverage Company
Minneapolis, Minnesota
PAUL A. REDMOND
RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Avista Corp.
Spokane, Washington
RICHARD G. REITEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Northwest Natural Gas Company
Portland, Oregon
S. WALTER RICHEY
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Meritex, Inc.
Roseville, Minnesota
WARREN R. STALEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Cargill, Inc.
Minneapolis, Minnesota
*RETIRING FROM U.S. BANCORP BOARD OF DIRECTORS ON APRIL 19, 2000.
80 U.S. BANCORP
CORPORATE DATA
EXECUTIVE OFFICES
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
ANNUAL MEETING
The annual meeting of shareholders will be held at 2 p.m. on Wednesday, April
19, 2000, at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota 55403.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York, a division of EquiServe, acts as
transfer agent and registrar, dividend paying agent and dividend reinvestment
plan agent for U.S. Bancorp and maintains all shareholder records for the
corporation. For information about U.S. Bancorp stock, or if you have questions
regarding your stock certificates (including transfers), address or name
changes, lost dividend checks, lost stock certificates or Form 1099s, please
call First Chicago Trust's Shareholder Services Center at (800) 446-2617.
Representatives are available weekdays 8:30 a.m. to 7 p.m. Eastern time, and the
interactive voice response system is available 24 hours a day, seven days a
week. The TDD telephone number for the hearing impaired is (201) 222-4955.
First Chicago Trust Company of New York
c/o EquiServe
Mailing address: P.O. Box 2500, Jersey City,
New Jersey 07303-2500
Telephone: (201) 324-0498
Fax: (201) 222-4892
Internet address: www.equiserve.com
E-mail address: fctc@em.fcnbd.com
If you own shares in a book-entry or plan account maintained by First Chicago, you can access your account information on the Internet through First Chicago Trust's Web site. To obtain a password that provides you secured access to your account, please call First Chicago Trust toll-free at (877) THE-WEB7 (outside North America call (201) 536-8071).
COMMON STOCK LISTING AND TRADING
U.S. Bancorp Common Stock is listed and traded on the New York Stock Exchange
under the ticker symbol USB.
DIVIDENDS
U.S. Bancorp currently pays quarterly dividends on its Common Stock on or about
the 15th of March, June, September, and December, subject to prior Board
approval. Shareholders may choose to have dividends electronically deposited
directly into their bank accounts. For enrollment information, please call First
Chicago Trust at (800) 446-2617.
DIVIDEND REINVESTMENT PLAN
U.S. Bancorp shareholders can take advantage of a plan that provides automatic
reinvestment of dividends and/or optional cash purchases of additional shares of
U.S. Bancorp Common Stock up to $60,000 per calendar year. For more information,
please contact First Chicago Trust Company of New York, c/o EquiServe, P.O. Box
2598, Jersey City, New Jersey 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor Relations
(612) 973-2261
john.danielson@usbank.com
Judith T. Murphy
Vice President, Investor Relations
(612) 973-2264
judith.murphy@usbank.com
FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available through the Company's Web
site, fax and mail.
WEB SITE. For information about U.S. Bancorp, including news and financial results, online annual report, product information and service locations, access our home page on the Internet at www.usbank.com.
FAX. To access our fax-on-demand service, call (800) 758-5804. When asked, enter the U.S. Bancorp extension number, "312402." Enter "1" for the most current news release or "2" for a menu of news releases. Enter your fax and telephone numbers as directed. The information will be faxed to you promptly.
MAIL. At your request, we will mail to you our quarterly earnings news releases, quarterly financial data on Form 10-Q and additional annual reports. To be added to U.S. Bancorp's mailing list for quarterly earnings news releases, or to request other information, please contact:
Investor Relations
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-2263
corprelations@usbank.com
COMMUNITY ANNUAL REPORT
To request copies of the U.S. Bancorp Community Annual Report, published
separately from our U.S. Bancorp Annual Report and Form 10-K, please call U.S.
Bancorp Community Development at (612) 973-4996.
U.S. Bancorp, including each of its subsidiaries, is an Equal Opportunity Employer and a Drug-Free Workplace.
U.S. BANCORP 81
[LOGO]
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota
55402-4302
www.usbank.com
FORM OF WARRANT AGREEMENT
This WARRANT AGREEMENT, dated as of November 5, 1996, is made and entered into by and among MONARCH BANCORP, a California corporation (the "Bancorp"), and _____________ ("_________"), with reference to the following facts:
WHEREAS, the Bancorp completed a private offering to certain accredited investors (the "1995 Private Offering") pursuant to a certain Private Placement Memorandum (the "1995 Private Placement Memorandum");
WHEREAS, the Bancorp completed a rights and public offering (the "1995 Public Offering") pursuant to that certain Offering Circular dated July 14, 1996 (the "Public Offering Circular").
WHEREAS, the Bancorp has retained Belle Plaine Partners, Inc., a Delaware corporation ("BP Partners"), to act as the Bancorp's financial advisor with respect to the Public Offering;
WHEREAS, the Bancorp has agreed to issue to BP Partners, or its directors, officers or stockholders, warrants to purchase shares of Common Stock equal to 5% of the issued and outstanding shares of Common Stock as of the closing of the Offering, as defined in the Offering Circular, and ___________ is a stockholder, officer, director, or beneficiary of a trust which is a stockholder of BP Partners;
WHEREAS, if the Bancorp has to increase its authorized shares of Common Stock in order to issue all of the Warrants to BP Partners, or a stockholder, officer, director, or beneficiary of a trust which is a stockholder of BP Partners, the Bancorp shall issue all of the Warrants to BP Partners, or a stockholder, officer, director, or beneficiary of a trust which is a stockholder of BP Partners, upon the later of either the closing of the Offering or the completion of the Bancorp's increase of its authorized shares of Common Stock in order to issue all of the Warrants to BP Partners, or a stockholder, officer, director, or beneficiary of a trust which is a stockholder of BP Partners;
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, agreements and conditions contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For the purposes of this Agreement,
(a) "CLOSING PRICE" means the average of the closing bid and asked prices of a share of Common Stock as reported by the Bancorp's principal market maker, or if the Bancorp does not have a principal market maker, book value per share of Common Stock as of the last business day of the previous calendar month.
(b) "COMMON STOCK EQUIVALENTS" means securities that are convertible into or exercisable for shares of Common Stock.
(c) "EXERCISE PERIOD" means the period during which the Warrants may be exercised.
(d) "EXERCISE PRICE" has the meaning specified in Section 4.1(b) hereof.
(e) "EXPIRATION DATE" has the meaning specified in Section 4.1(a) hereof.
(f) "WARRANTS" means this Warrant and all other Warrants issued pursuant to the terms of the Financial Advisor Agreement.
(g) "WARRANT CERTIFICATE" has the meaning specified in
Section 2.1 hereof.
(h) "WARRANT SHARES" means the Common Stock and "WARRANT SHARE" means one share of Common Stock purchased or purchasable upon exercise of the Warrants.
SECTION 2. FORM OF WARRANT CERTIFICATE; PURCHASE PRICE.
2.1 The certificates evidencing the Warrants (the "Warrant Certificates") (and the forms of election to purchase Warrant Shares and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit A hereto and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Bancorp may deem appropriate and as are not inconsistent with the provisions of this Agreement or the Financial Advisor Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto.
2.2 Each Warrant shall entitle the holder thereof to purchase one (1) Warrant Share upon the exercise thereof at the applicable Exercise Price subject to adjustment as provided in Section 10 hereof during the time period specified in Section 4 hereof and subject to the limitations specified in Section 12a hereof; PROVIDED, HOWEVER, that the Warrants are exercisable only for whole shares; cash will be paid in lieu of fractional shares in accordance with Section 4.3. Each Warrant Certificate shall be executed on behalf of the Bancorp by the manual or facsimile signature of the present or any future President or any authorized officer of the Bancorp, under its corporate seal, affixed or in facsimile, attested by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Bancorp. Warrants shall be dated as of the date of their initial issuance.
SECTION 3. REGISTRATION AND COUNTERSIGNATURE.
Prior to due presentment for registration or transfer of the Warrant Certificates, the Bancorp may deem and treat the registered holder thereof as the absolute owner of the Warrant Certificates (notwithstanding any notation of ownership or other writing thereon made by anyone other than the Bancorp), for the purpose of any exercise thereof and for all other purposes, and the Bancorp shall not be affected by any notice to the contrary.
SECTION 4. DURATION AND EXERCISE OF WARRANTS.
4.1 (a) The Warrants may be exercised on or after September 30, 1995, at any time or from time to time and will expire at 5:00 P.M., Los Angeles time, on September 30, 2000 (the "Expiration Date"). On the Expiration Date, all rights evidenced by the Warrants shall cease and the Warrants shall become void.
(b) Subject to the provisions of this Agreement, the
registered holder of each Warrant shall have the right to purchase from the
Bancorp (and the Bancorp shall issue and sell to such registered holder) the
number of fully paid and nonassessable Warrant Shares set forth on such
holder's Warrant Certificate (or such number of Warrant Shares as may result
from adjustments made from time to time as provided in this Agreement), at
the price of $1.62 per Warrant Share in lawful money of the United States of
America (such exercise price per Warrant Share, as adjusted from time to time
as provided herein, being referred to herein as the "Exercise Price"), upon
(i) surrender of the Warrant Certificate to the Bancorp at the Bancorp's
principal office in Laguna Niguel, California with the exercise form on the
reverse thereof duly completed and signed by the registered holder or holders
thereof, and (ii) payment by wire transfer or other immediately available
funds, in lawful money of the United States of America, of the Exercise Price
for the Warrant Shares in respect of which such Warrant is then exercised.
Upon surrender of the Warrant Certificate, and payment of the Exercise Price
as provided above, the Bancorp shall issue and cause to be delivered to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of Warrant Shares so purchased upon the exercise
of such Warrants, together with payment in respect of any fraction of a
Warrant Share issuable upon such surrender pursuant to Section 4.3 hereof.
Upon the exercise of any Warrant, the Bancorp may require the registered
holder of any Warrant or the party or parties in whose name or names the
certificate or certificates for the Warrant Shares to be so purchased upon
exercise of such Warrant will be issued to make such representations, and may
place such legends on certificates representing the Warrant Shares, as may be
reasonably required in the opinion of counsel to the Bancorp to permit the
Warrant Shares to be issued without the prior written consent of the
California Department of Corporations.
(c) Each person in whose name any certificate for Warrant Shares is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby, and such certificate shall be dated the date
upon which the Warrant Certificate evidencing such Warrants was duly surrendered and payment of the Exercise Price (and any applicable transfer taxes pursuant to Section 5 hereof) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Common Stock transfer books of the Bancorp are closed, such person shall be deemed to have become the record holder of such Warrant Shares on, and such certificate shall be dated, the next succeeding business day on which the Common Stock transfer books of the Bancorp are open.
(d) In addition, the holder of any Warrant shall have the right upon the exercise of such Warrant to surrender for cancellation a portion of such Warrant to the Bancorp for the number of shares (the "Surrendered Shares") specified in the holder's notice of exercise, by delivery to the Bancorp with such exercise notice, written instructions from such holder to apply the Appreciated Value (as defined below) of the Surrendered Shares toward payment of the Exercise Price for shares subject to such Warrant that are being acquired upon such exercise. The term "Appreciated Value" shall mean the excess of the Closing Price at the time of such exercise over the Exercise Price.
4.2 In the event that less than all of the Warrants represented by a Warrant Certificate are exercised on or prior to the Expiration Date, a new Warrant Certificate, duly executed by the Bancorp, will be issued for the remaining number of Warrants exercisable pursuant to the Warrant Certificate so surrendered, and the Bancorp shall deliver the required new Warrant Certificate pursuant to the provisions of this Section 4.
4.3 No fractional shares of Common Stock or scrip shall be issued to any holder in connection with the exercise of a Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable to such holder, the Bancorp will pay to such holder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then current Closing Price per share of Common Stock.
4.4 The number of Warrant Shares to be received upon the exercise of a Warrant and the price to be paid for Warrant Share are subject to adjustment from time to time as hereinafter set forth.
SECTION 5. PAYMENT OF TAXES
The Bancorp will pay all documentary stamp taxes attributable to the original issuance of the Warrants and of the Warrant Shares issuable upon the exercise of Warrants; PROVIDED, HOWEVER, that the Bancorp shall not be required to (a) pay any tax which may be payable in respect of any transfer involving the transfer and delivery of Warrant Certificates or the issuance or delivery of certificates for Warrant Shares in a name other than that of the registered holder of the Warrant Certificate surrendered upon the exercise of a Warrant or (b) issue or deliver any certificate for Warrant Shares upon the exercise of any Warrants until any such tax required to be
paid under clause (a) shall have been paid, all such tax being payable by the holder of such Warrant at the time of surrender.
SECTION 6. MUTILATED OR MISSING WARRANTS.
In case any of the Warrants shall be mutilated, lost, stolen or destroyed, the Bancorp may in its discretion issue and deliver in exchange and substitution for and upon cancellation of, the mutilated Warrant Certificate, or in substitution for the lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate of like tenor evidencing the number of Warrant Shares purchasable upon exercise of the Warrant Certificate so mutilated, lost, stolen or destroyed, but only upon receipt of evidence satisfactory to the Bancorp of such loss, theft or destruction of such Warrant Certificate and an indemnity, if requested, reasonably satisfactory to it, provided that no indemnity will be requested from __________, any partner of _________ or any family member or trust for the benefit of any family member of any partner of _________. Applicants for such substitute Warrant Certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Bancorp may prescribe. Any such new Warrant Certificate shall constitute an original contractual obligation of the Bancorp, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone.
SECTION 7. RESERVATION OF WARRANT SHARES.
The Bancorp shall increase its authorized shares of Common Stock so as to allow the issuance of all of the Warrant Shares and upon completion of such increase, the Bancorp shall at all times reserve for issuance and delivery upon exercise of the Warrants, such number of Warrant Shares or other shares of capital stock of the Bancorp from time to time issuable upon exercise of the Warrants. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and free and clear of all liens, security interests, charges and other encumbrances and free and clear of all preemptive rights. After 5:00 P.M., Los Angeles time, on the Expiration Date, no shares of Common Stock shall be subject to reservation in respect of such Warrants.
SECTION 8. RESTRICTIONS ON TRANSFER.
Neither the Warrants nor the Warrant Shares may be disposed of, transferred or encumbered (any such action, a "Transfer") other than by will or pursuant to the laws of descent and distribution, except to a partner of BP Partners when BP Partners is a partnership or to a stockholder, officer or director of BP Partners or beneficiary of a trust which is a stockholder of BP Partners when BP Partners is a corporation; however, after one year from the date of issuance of the Warrants a Transfer may occur providing the Warrants are exercised immediately upon such Transfer. If not exercised immediately upon a Transfer, the Warrants shall lapse. In addition, either the exercise of the Warrants, or the resale, transfer and assignment of the Warrant Shares is prohibited for a period of at least one year from the date of issuance of the Warrants.
SECTION 9. RIGHTS OF WARRANT CERTIFICATE HOLDER.
The holder of any Warrant Certificate or Warrant shall not, by virtue thereof, be entitled to any rights of a stockholder of the Bancorp, either at law or in equity, and the rights of the holder are limited to those expressed in this Agreement.
SECTION 10. ANTIDILUTION PROVISIONS.
The Exercise Price and the number of Warrant Shares that may be purchased upon the exercise of a Warrant and the number of Warrants outstanding will be subject to change or adjustment as follows:
(a) STOCK DIVIDENDS AND STOCK SPLITS. If at any time after the date of issuance of the Warrants and before 5:00 P.M., Los Angeles time, on the Expiration Date, (i) the Bancorp shall fix a record date for the issuance of any dividend payable in shares of its capital stock or (ii) the number of shares of Common Stock shall have been increased by a subdivision or split-up of shares of Common Stock, then, on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend or immediately after the effective date of such subdivision or split-up, as the case may be, the number of shares to be delivered upon exercise of any Warrant will be appropriately increased so that each holder thereafter will be entitled to receive the number of shares of Common Stock that such holder would have owned immediately following such action had the Warrant been exercised immediately prior thereto, and the Exercise Price will be appropriately adjusted. The time of occurrence of an event giving rise to an adjustment made pursuant to this Section 10(a) shall, in the case of a subdivision or split-up, be the effective date thereof and shall, in the case of a stock dividend, be the record date thereof.
(b) COMBINATION OF STOCK. If the number of shares of Common Stock outstanding at any time after the date of the issuance of the Warrants and before 5:00 P.M., Los Angeles time, on the Expiration Date shall have been decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the number of shares of Common Stock to be delivered upon exercise of any Warrant will be appropriately decreased so that each holder thereafter will be entitled to receive the number of shares of Common Stock that such holder would have owned immediately following such action had the Warrant been exercised immediately prior thereto, and the Exercise Price will be appropriately adjusted.
(c) REORGANIZATION. If any capital reorganization of the Bancorp, or any reclassification of the Common Stock, or any consolidation of the Bancorp with or merger of the Bancorp with or into any other corporation or any sale, lease or other transfer of all or substantially all of the assets of the Bancorp to any other person (including any individual, partnership, joint venture, corporation, trust or group thereof) shall be effected in such a way that the holders of the Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, upon exercise of the
Warrants in accordance with the terms of this Agreement and the Warrant
Certificate, each holder shall have the right to receive the kind and amount
of stock, securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that such Warrant holder would
have been entitled to receive upon exercise of the Warrants pursuant to
Section 2 hereof had the Warrants been exercised immediately prior to such
reorganization, reclassification, consolidation, merger or sale, lease or
other transfer.
(d) SPECIAL DIVIDENDS. If (other than in a dissolution or liquidation) securities of the Bancorp (other than shares of Common Stock or securities issued pursuant to any Rights Offering, as defined in the Offering Circular, or any similar plan of the Bancorp), or assets (other than cash) are issued by the way of a dividend on outstanding shares of Common Stock, then the Exercise Price shall be adjusted so that immediately after the date fixed by the Bancorp as the record date in respect of such issuance, it shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the close of business on the record date for the determination of the share holders entitled to receive such dividend by a fraction, the numerator of which shall be the Closing Price on such record date less the then fair market value of the portion of the securities or assets distributed applicable to one share of Common Stock determined by the Board of Directors of the Bancorp, whose determination shall be conclusive, and the denominator of which shall be such Closing Price. Such adjustment shall become effective immediately prior to the opening of business on the day following such record date.
(e) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in
the Exercise Price in accordance with the provisions of paragraphs (a), (b),
(c) or (d) above need be made if such adjustment would amount to a change in
such Exercise Price of less than $.01; PROVIDED, HOWEVER, that the amount by
which any adjustment is not made by reason of the provisions of this section
shall be carried forward and taken into account at the time of any subsequent
adjustment in the Exercise Price.
(f) READJUSTMENT, ETC. If an adjustment is made under paragraph (a), (b), (c) or (d) above, and the event to which the adjustment relates does not occur, then any adjustments in the Exercise Price or Warrant Shares that were made in accordance with such paragraphs shall be adjusted back to the Exercise Price and the number of Warrant Shares that were in effect immediately prior to the record date for such event.
(g) NO ADJUSTMENTS FOR REGULAR CASH DIVIDENDS. There shall be no adjustment in the Exercise Price as result of any cash dividends paid out of earnings for the year in which such dividends are paid in respect of the Common Stock during the Exercise Period.
SECTION 11. OFFICER'S CERTIFICATE.
Whenever the number of Warrant Shares that may be purchased upon exercise of the Warrants is adjusted as required by the provisions of this Agreement, the Bancorp will forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office an officer's certificate showing the adjusted number of Warrant Shares that may be purchased upon exercise of the Warrants and the adjusted Exercise Price (if any), determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the holder. The Bancorp shall, forthwith after each such adjustment, cause a copy of such certificate to be mailed to the holder.
SECTION 12. LIMITATIONS ON EXERCISABILITY OF WARRANTS.
12.1 Notwithstanding anything to the contrary contained herein, the Bancorp may decline to issue any shares of Common Stock upon a requested exercise of any Warrant if, in the Bancorp's reasonable determination based on an opinion of the Bancorp's counsel, the holder desiring to exercise such Warrant is required to obtain prior clearance, approval or nondisapproval from any state or federal regulatory authority to acquire such shares and has not, prior to the date of requested exercise, provided evidence of such clearance, approval or nondisapproval to the Bancorp. In the event the Bancorp declines to issue any shares of Common Stock upon a requested exercise of any Warrant pursuant to the provisions of this Section 12.1, the Bancorp shall use its best efforts to obtain any clearance or approval which is required for the Bancorp to so issue such shares. In the event the Bancorp has not obtained such clearance or approval within 60 days after the exercise of any Warrant has been requested, the Bancorp shall, if so requested by the holder of such Warrant, pay to such holder the Appreciated Value with respect to the shares which such holder was not able to purchase upon such exercise.
SECTION 13. AVAILABILITY OF INFORMATION.
The Bancorp will comply with all applicable periodic public information reporting requirements of the Securities Exchange Act of 1934 and the California Corporations Code to which it may from time to time be subject.
SECTION 14. SUCCESSORS.
All covenants and provisions of this Agreement by or for the benefit of the Bancorp or the holders of the Warrants shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.
SECTION 15. TERMINATION.
This Agreement shall terminate at 5:00 P.M., Los Angeles time, on the Expiration Date or upon such earlier date on which all Warrants have been exercised.
SECTION 16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement.
SECTION 17. HEADINGS.
The headings of sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.
SECTION 18. AMENDMENTS.
This Agreement may be amended by the written consent of the Bancorp and the affirmative vote or the written consent of the holders of not less than a majority in interest of the then outstanding Warrants; PROVIDED, HOWEVER, that, except as expressly provided herein, this Agreement may not be amended to change (a) the Exercise Price, (b) the Exercise Period, (c) the number or type of securities to be issued upon the exercise of the Warrants, or (d) the provisions of this Section 19, without the consent of each holder of the Warrants so affected.
SECTION 19. NOTICES.
Any notice pursuant to this Agreement to be given by the registered holder of any Warrant to the Bancorp shall be sufficiently given if sent by first-class mail, postage prepaid, addressed as follows:
Monarch Bancorp 30000 Town Center Drive Laguna Niguel, California 92677 Attention: Chief Executive Officer
SECTION 20. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give any person or corporation, other than the Bancorp and the registered holders of the Warrant Certificates, any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Bancorp and the registered holders of the Warrants.
SECTION 21. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the first date written above.
MONARCH BANCORP
By:_________________________________
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and Chief
Executive Officer
____________________________________
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[Warrantholder]
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2000
NO. __ ______ WARRANTS
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, ________________ ("the Warrantholder") or his registered assigns, is the registered holder of the number of Warrants (the "Warrants") set forth above. Each Warrant entities the holder thereof to purchase from Monarch Bancorp, a California corporation (the "Bancorp"), subject to the terms and conditions set forth hereinafter and in the Warrant Agreement hereinafter referred to, one fully paid share of Common Stock, no par value, of the Bancorp (the "Common Stock"). The Warrants may be exercised on or after September 30, 1995 at any time or from time to time and will expire at 5:00 P.M., Los Angeles time, on September 30, 2000 (the "Expiration Date"). Upon the Expiration Date, all rights evidenced by the Warrants shall cease and the Warrants shall become void. Subject to the provisions of the Warrant Agreement, the holder of each Warrant shall have the right to purchase from the Bancorp until the Expiration Date (and the Bancorp shall issue and sell to such holder of a Warrant) one fully paid share of Common Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.62 per share upon surrender of this Warrant Certificate to the Bancorp at the Bancorp's offices in Laguna Niguel with the form of election to purchase appearing on this Warrant Certificate duly completed and signed, together with payment of the Exercise Price by wire transfer or other immediately available funds.
The Exercise Price and the number of Warrant Shares for which the Warrants are exercisable are subject to change or adjustment upon the occurrence of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:________________________________
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
________________________________
Arnold Hahn, Corporate Secretary
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This Warrant Certificate is subject to all of the terms and conditions of the Warrant Agreement, dated as of November 5, 1996 (the "Warrant Agreement"), between the Bancorp and ___________, to all of which terms and conditions the registered holder of the Warrant consents by acceptance hereof. The Warrant Agreement is incorporated herein by reference and made a part hereof and reference is made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities of the Bancorp and the registered holders of Warrant Certificates. Copies of the Warrant Agreement are available for inspection at the offices of the Bancorp or may be obtained upon written request addressed to the Bancorp at its offices in Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants evidenced by this Warrant Certificate to issue fractional shares, but shall make adjustment therefor in cash on the basis of the current market value of any fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be exercised in part, the holder hereof shall be entitled to receive upon surrender hereof another Warrant Certificate or Certificates evidencing the number of Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be entitled to any of the rights of a stockholder in the Bancorp, either at law or in equity, and the rights of the holder are limited to those expressed in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any period during which the transfer books for the Bancorp's Common Stock are closed for any purpose, the Bancorp shall not be required to make delivery of certificates for shares purchasable upon such transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same, consents and agrees with the Bancorp and with every other holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the Bancorp only upon the terms and conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this Warrant Certificate is registered as the absolute owner hereof (notwithstanding any notation of ownership or other writing hereon made by anyone other than the Bancorp) for all purposes whatever and the Bancorp shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
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UNIF GIFT MIN ACT -
___________ Custodian __________ under Uniform Gifts to Minors Act______________
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list.
Deliver to: Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
ELECTION TO PURCHASE
Dated: _________________, 19___
The undersigned hereby irrevocably exercises this Warrant to purchase ______ shares of Common Stock and herewith makes payment of $________________ in payment of the Exercise Price thereof on the terms and conditions specified in this Warrant Certificate, surrenders this Warrant Certificate and all right, title and interest herein to the Bancorp and directs that the Warrant Shares deliverable upon the exercise of such Warrants be registered in the name and at the address specified below and delivered thereto.
Name:__________________________________________________________________
(Please Print)
Address:_______________________________________________________________
City, State and Zip Code:______________________________________________
If such number of Warrant Shares is less than the aggregate number if Warrant Shares purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the balance of such Warrant Shares to be registered in the name and at the address specified below and delivered thereto.
Name:__________________________________________________________________
(Please Print)
Address:_______________________________________________________________
City, State and Zip Code:______________________________________________
Taxpayer Identification or Social Security Number:_____________________
Signature:__________________________________________________
NOTE: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever.
FORM OF WARRANT AGREEMENT
This WARRANT AGREEMENT, dated as of November 5, 1996, is made and entered into by and among MONARCH BANCORP, a California corporation (the "Bancorp"), and ___________________ (the "Warrantholder"), with reference to the following facts:
WHEREAS, the Bancorp completed a private offering to certain accredited investors (the "1996 Private Offering") pursuant to a certain Private Placement Memorandum (the "1996 Private Placement Memorandum");
WHEREAS, the Bancorp completed a rights and public offering (the "1995 Public Offering") pursuant to that certain Offering Circular dated July 14, 1996 (the "Public Offering Circular").
WHEREAS, the Bancorp has agreed to issue to Belle Plaine Financial, LLC ("BP Financial"), or its stockholders, warrants to purchase shares of Common Stock, equal to 3% of the shares sold in the 1996 Private Offering;
WHEREAS, if the Bancorp has to increase its authorized shares of Common Stock in order to issue all of the Warrants to BP Financial or its stockholders, the Bancorp shall issue all of the Warrants to BP Financial or its stockholders upon the later of either the closing of the Offering or the completion of the Bancorp's increase of its authorized shares of Common Stock in order to issue all of the Warrants to BP Financial or its stockholders;
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants, agreements and conditions contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For the purposes of this Agreement,
(a) "CLOSING PRICE" means the average of the closing bid and asked prices of a share of Common Stock as reported by the Bancorp's principal market maker, or if the Bancorp does not have a principal market maker, book value per share of Common Stock as of the last business day of the previous calendar month.
(b) "COMMON STOCK EQUIVALENTS" means securities that are convertible into or exercisable for shares of Common Stock.
(c) "EXERCISE PERIOD" means the period during which the Warrants may be exercised.
(d) "EXERCISE PRICE" has the meaning specified in Section 4.1(b) hereof.
(e) "EXPIRATION DATE" has the meaning specified in Section 4.1(a) hereof.
(f) "WARRANTS" means this Warrant and all other Warrants issued pursuant to the terms of the Financial Advisor Agreement.
(g) "WARRANT CERTIFICATE" has the meaning specified in
Section 2.1 hereof.
(h) "WARRANT SHARES" means the Common Stock and "WARRANT SHARE" means one share of Common Stock purchased or purchasable upon exercise of the Warrants.
SECTION 2. FORM OF WARRANT CERTIFICATE; PURCHASE PRICE.
2.1 The certificates evidencing the Warrants (the "Warrant Certificates") (and the forms of election to purchase Warrant Shares and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit A hereto and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Bancorp may deem appropriate and as are not inconsistent with the provisions of this Agreement or the Financial Advisor Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto.
2.2 Each Warrant shall entitle the holder thereof to purchase one
(1) Warrant Share upon the exercise thereof at the applicable Exercise Price
subject to adjustment as provided in Section 10 hereof during the time period
specified in Section 4 hereof and subject to the limitations specified in
Section 12a hereof; PROVIDED, HOWEVER, that the Warrants are exercisable only
for whole shares; cash will be paid in lieu of fractional shares in
accordance with Section 4.3. Each Warrant Certificate shall be executed on
behalf of the Bancorp by the manual or facsimile signature of the present or
any future President or any authorized officer of the Bancorp, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of
the Bancorp. Warrants shall be dated as of the date of their initial issuance.
SECTION 3. REGISTRATION AND COUNTERSIGNATURE.
Prior to due presentment for registration or transfer of the Warrant Certificates, the Bancorp may deem and treat the registered holder thereof as the absolute owner of the Warrant Certificates (notwithstanding any notation of ownership or other writing thereon made by anyone other than the Bancorp), for the purpose of any exercise thereof and for all other purposes, and the Bancorp shall not be affected by any notice to the contrary.
SECTION 4. DURATION AND EXERCISE OF WARRANTS.
4.1 (a) The Warrants may be exercised on or after September 30, 1996, at any time or from time to time and will expire at 5:00 P.M., Los Angeles time, on September 30, 2001 (the "Expiration Date"). On the Expiration Date, all rights evidenced by the Warrants shall cease and the Warrants shall become void.
(b) Subject to the provisions of this Agreement, the registered holder of each Warrant shall have the right to purchase from the Bancorp (and the Bancorp shall issue and sell to such registered holder) the number of fully paid and nonassessable Warrant Shares set forth on such holder's Warrant Certificate (or such number of Warrant Shares as may result from adjustments made from time to time as provided in this Agreement), at the price of $1.98 per Warrant Share in lawful money of the United States of America (such exercise price per Warrant Share, as adjusted from time to time as provided herein, being referred to herein as the "Exercise Price"), upon (i) surrender of the Warrant Certificate to the Bancorp at the Bancorp's principal office in Laguna Niguel, California with the exercise form on the reverse thereof duly completed and signed by the registered holder or holders thereof, and (ii) payment by wire transfer or other immediately available funds, in lawful money of the United States of America, of the Exercise Price for the Warrant Shares in respect of which such Warrant is then exercised. Upon surrender of the Warrant Certificate, and payment of the Exercise Price as provided above, the Bancorp shall issue and cause to be delivered to or upon the written order of the registered holder of such Warrants and in such name or names as such registered holder may designate, a certificate or certificates for the number of Warrant Shares so purchased upon the exercise of such Warrants, together with payment in respect of any fraction of a Warrant Share issuable upon such surrender pursuant to Section 4.3 hereof. Upon the exercise of any Warrant, the Bancorp may require the registered holder of any Warrant or the party or parties in whose name or names the certificate or certificates for the Warrant Shares to be so purchased upon exercise of such Warrant will be issued to make such representations, and may place such legends on certificates representing the Warrant Shares, as may be reasonably required in the opinion of counsel to the Bancorp to permit the Warrant Shares to be issued without the prior written consent of the California Department of Corporations.
(c) Each person in whose name any certificate for Warrant Shares is issued upon the exercise of Warrants shall for all purposes be deemed to have become the holder of record of the Warrant Shares represented thereby, and such certificate shall be dated the date upon which the Warrant Certificate evidencing such Warrants was duly surrendered and payment of the Exercise Price (and any applicable transfer taxes pursuant to Section 5 hereof) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Common Stock transfer books of the Bancorp are closed, such person shall be deemed to have become the record holder of such Warrant Shares on, and such certificate shall be dated, the next succeeding business day on which the Common Stock transfer books of the Bancorp are open.
(d) In addition, the holder of any Warrant shall have the right upon the exercise of such Warrant to surrender for cancellation a portion of such Warrant to the Bancorp for the number of shares (the "Surrendered Shares") specified in the holder's notice of exercise, by delivery to the Bancorp with such exercise notice, written instructions from such holder to apply the Appreciated Value (as defined below) of the Surrendered Shares toward payment of the Exercise Price for shares subject to such Warrant that are being acquired upon such exercise. The term "Appreciated Value" shall mean the excess of the Closing Price at the time of such exercise over the Exercise Price.
4.2 In the event that less than all of the Warrants represented by a Warrant Certificate are exercised on or prior to the Expiration Date, a new Warrant Certificate, duly executed by the Bancorp, will be issued for the remaining number of Warrants exercisable pursuant to the Warrant Certificate so surrendered, and the Bancorp shall deliver the required new Warrant Certificate pursuant to the provisions of this Section 4.
4.3 No fractional shares of Common Stock or scrip shall be issued to any holder in connection with the exercise of a Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable to such holder, the Bancorp will pay to such holder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then current Closing Price per share of Common Stock.
4.4 The number of Warrant Shares to be received upon the exercise of a Warrant and the price to be paid for Warrant Share are subject to adjustment from time to time as hereinafter set forth.
SECTION 5. PAYMENT OF TAXES
The Bancorp will pay all documentary stamp taxes attributable to the
original issuance of the Warrants and of the Warrant Shares issuable upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Bancorp shall not be required
to (a) pay any tax which may be payable in respect of any transfer involving
the transfer and delivery of Warrant Certificates or the issuance or delivery
of certificates for Warrant Shares in a name other than that of the registered
holder of the Warrant Certificate surrendered upon the exercise of a Warrant or
(b) issue or deliver any certificate for Warrant Shares upon the exercise of
any Warrants until any such tax required to be paid under clause (a) shall have
been paid, all such tax being payable by the holder of such Warrant at the time
of surrender.
SECTION 6. MUTILATED OR MISSING WARRANTS.
In case any of the Warrants shall be mutilated, lost, stolen or destroyed, the Bancorp may in its discretion issue and deliver in exchange and substitution for and upon cancellation of, the mutilated Warrant Certificate, or in substitution for the lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate of like tenor evidencing the number of Warrant Shares
purchasable upon exercise of the Warrant Certificate so mutilated, lost, stolen or destroyed, but only upon receipt of evidence satisfactory to the Bancorp of such loss, theft or destruction of such Warrant Certificate and an indemnity, if requested, reasonably satisfactory to it, provided that no indemnity will be requested from ________, any stockholder of ________ or any family member or trust for the benefit of any family member of any partner of _______. Applicants for such substitute Warrant Certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Bancorp may prescribe. Any such new Warrant Certificate shall constitute an original contractual obligation of the Bancorp, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at any time enforceable by anyone.
SECTION 7. RESERVATION OF WARRANT SHARES.
The Bancorp shall increase its authorized shares of Common Stock so as to allow the issuance of all of the Warrant Shares and upon completion of such increase, the Bancorp shall at all times reserve for issuance and delivery upon exercise of the Warrants, such number of Warrant Shares or other shares of capital stock of the Bancorp from time to time issuable upon exercise of the Warrants. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and free and clear of all liens, security interests, charges and other encumbrances and free and clear of all preemptive rights. After 5:00 P.M., Los Angeles time, on the Expiration Date, no shares of Common Stock shall be subject to reservation in respect of such Warrants.
SECTION 8. RESTRICTIONS ON TRANSFER.
Neither the Warrants nor the Warrant Shares may be disposed of, transferred or encumbered (any such action, a "Transfer") other than by will or pursuant to the laws of descent and distribution, except to a partner of BP Financial when BP Financial is a partnership or to a stockholder, officer or director of BP Financial or beneficiary of a trust which is a stockholder of BP Financial when BP Financial is a corporation; however, after one year from the date of issuance of the Warrants a Transfer may occur providing the Warrants are exercised immediately upon such Transfer. If not exercised immediately upon a Transfer, the warrants shall lapse. In addition, either the exercise of the Warrants, or the resale, transfer and assignment of the Warrant Shares is prohibited for a period of at least one year from the date of issuance of the Warrants.
SECTION 9. RIGHTS OF WARRANT CERTIFICATE HOLDER.
The holder of any Warrant Certificate or Warrant shall not, by virtue thereof, be entitled to any rights of a stockholder of the Bancorp, either at law or in equity, and the rights of the holder are limited to those expressed in this Agreement.
SECTION 10. ANTIDILUTION PROVISIONS.
The Exercise Price and the number of Warrant Shares that may be purchased upon the exercise of a Warrant and the number of Warrants outstanding will be subject to change or adjustment as follows:
(a) STOCK DIVIDENDS AND STOCK SPLITS, If at any time after the date of issuance of the Warrants and before 5:00 P.M., Los Angeles time, on the Expiration Date, (i) the Bancorp shall fix a record date for the issuance of any dividend payable in shares of its capital stock or (ii) the number of shares of Common Stock shall have been increased by a subdivision or split-up of shares of Common Stock, then, on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend or immediately after the effective date of such subdivision or split-up, as the case may be, the number of shares to be delivered upon exercise of any Warrant will be appropriately increased so that each holder thereafter will be entitled to receive the number of shares of Common Stock that such holder would have owned immediately following such action had the Warrant been exercised immediately prior thereto, and the Exercise Price will be appropriately adjusted. The time of occurrence of an event giving rise to an adjustment made pursuant to this Section 10(a) shall, in the case of a subdivision or split-up, be the effective date thereof and shall, in the case of a stock dividend, be the record date thereof.
(b) COMBINATION OF STOCK. If the number of shares of Common Stock outstanding at any time after the date of the issuance of the Warrants and before 5:00 P.M., Los Angeles time, on the Expiration Date shall have been decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the number of shares of Common Stock to be delivered upon exercise of any Warrant will be appropriately decreased so that each holder thereafter will be entitled to receive the number of shares of Common Stock that such holder would have owned immediately following such action had the Warrant been exercised immediately prior thereto, and the Exercise Price will be appropriately adjusted.
(c) REORGANIZATION. If any capital reorganization of the Bancorp, or any reclassification of the Common Stock, or any consolidation of the Bancorp with or merger of the Bancorp with or into any other corporation or any sale, lease or other transfer of all or substantially all of the assets of the Bancorp to any other person (including any individual, partnership, joint venture, corporation, trust or group thereof) shall be effected in such a way that the holders of the Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, upon exercise of the Warrants in accordance with the terms of this Agreement and the Warrant Certificate, each holder shall have the right to receive the kind and amount of stock, securities or assets receivable upon such reorganization, reclassification, consolidation, merger or sale, lease or other transfer by a holder of the number of shares of Common Stock that such Warrant holder would have been entitled to receive upon exercise of the Warrants pursuant to Section 2 hereof had the Warrants been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, lease or other transfer.
(d) SPECIAL DIVIDENDS. If (other than in a dissolution or liquidation) securities of the Bancorp (other than shares of Common Stock or securities issued pursuant to any Rights Offering, as defined in the Offering Circular, or any similar plan of the Bancorp), or assets (other than cash) are issued by the way of a dividend on outstanding shares of Common Stock, then the Exercise Price shall be adjusted so that immediately after the date fixed by the Bancorp as the record date in respect of such issuance, it shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the close of business on the record date for the determination of the share holders entitled to receive such dividend by a fraction, the numerator of which shall be the Closing Price on such record date less the then fair market value of the portion of the securities or assets distributed applicable to one share of Common Stock determined by the Board of Directors of the Bancorp, whose determination shall be conclusive, and the denominator of which shall be such Closing Price. Such adjustment shall become effective immediately prior to the opening of business on the day following such record date.
(e) NO ADJUSTMENTS TO EXERCISE PRICE. No adjustment in the
Exercise Price in accordance with the provisions of paragraphs (a), (b), (c) or
(d) above need be made if such adjustment would amount to a change in such
Exercise Price of less than $.01; PROVIDED, HOWEVER, that the amount by which
any adjustment is not made by reason of the provisions of this section shall be
carried forward and taken into account at the time of any subsequent adjustment
in the Exercise Price.
(f) READJUSTMENT, ETC. If an adjustment is made under paragraph (a), (b), (c) or (d) above, and the event to which the adjustment relates does not occur, then any adjustments in the Exercise Price or Warrant Shares that were made in accordance with such paragraphs shall be adjusted back to the Exercise Price and the number of Warrant Shares that were in effect immediately prior to the record date for such event.
(g) NO ADJUSTMENTS FOR REGULAR CASH DIVIDENDS. There shall be no adjustment in the Exercise Price as result of any cash dividends paid out of earnings for the year in which such dividends are paid in respect of the Common Stock during the Exercise Period.
SECTION 11. OFFICER'S CERTIFICATE.
Whenever the number of Warrant Shares that may be purchased upon exercise of the Warrants is adjusted as required by the provisions of this Agreement, the Bancorp will forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office an officer's certificate showing the adjusted number of Warrant Shares that may be purchased upon exercise of the Warrants and the adjusted Exercise Price (if any), determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for
inspection by the holder. The Bancorp shall, forthwith after each such adjustment, cause a copy of such certificate to be mailed to the holder.
SECTION 12. LIMITATIONS ON EXERCISABILITY OF WARRANTS.
12.1 Notwithstanding anything to the contrary contained herein, the Bancorp may decline to issue any shares of Common Stock upon a requested exercise of any Warrant if, in the Bancorp's reasonable determination based on an opinion of the Bancorp's counsel, the holder desiring to exercise such Warrant is required to obtain prior clearance, approval or nondisapproval from any state or federal regulatory authority to acquire such shares and has not, prior to the date of requested exercise, provided evidence of such clearance, approval or nondisapproval to the Bancorp. In the event the Bancorp declines to issue any shares of Common Stock upon a requested exercise of any Warrant pursuant to the provisions of this Section 12.1, the Bancorp shall use its best efforts to obtain any clearance or approval which is required for the Bancorp to so issue such shares. In the event the Bancorp has not obtained such clearance or approval within 60 days after the exercise of any Warrant has been requested, the Bancorp shall, if so requested by the holder of such Warrant, pay to such holder the Appreciated Value with respect to the shares which such holder was not able to purchase upon such exercise.
SECTION 13. AVAILABILITY OF INFORMATION.
The Bancorp will comply with all applicable periodic public information reporting requirements of the Securities Exchange Act of 1934 and the California Corporations Code to which it may from time to time be subject.
SECTION 14. SUCCESSORS.
All covenants and provisions of this Agreement by or for the benefit of the Bancorp or the holders of the Warrants shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.
SECTION 15. TERMINATION.
This Agreement shall terminate at 5:00 P.M., Los Angeles time, on the Expiration Date or upon such earlier date on which all Warrants have been exercised.
SECTION 16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same agreement.
SECTION 17. HEADINGS.
The headings of sections of this Agreement have been inserted for
convenience of reference only, are not to be considered a part hereof and shall
in no way modify or restrict any of
the terms or provisions hereof.
SECTION 18. AMENDMENTS.
This Agreement may be amended by the written consent of the Bancorp and
the affirmative vote or the written consent of the holders of not less than a
majority in interest of the then outstanding Warrants; PROVIDED, HOWEVER, that,
except as expressly provided herein, this Agreement may not be amended to change
(a) the Exercise Price, (b) the Exercise Period, (c) the number or type of
securities to be issued upon the exercise of the Warrants, or (d) the provisions
of this Section 19, without the consent of each holder of the Warrants so
affected.
SECTION 19. NOTICES.
Any notice pursuant to this Agreement to be given by the registered holder of any Warrant to the Bancorp shall be sufficiently given if sent by first-class mail, postage prepaid, addressed as follows:
Monarch Bancorp
30000 Town Center Drive
Laguna Niguel, California 92677
Attention: Chief Executive Officer
SECTION 20. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give any person or corporation, other than the Bancorp and the registered holders of the Warrant Certificates, any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Bancorp and the registered holders of the Warrants.
SECTION 21. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the first date written above.
MONARCH BANCORP
By:___________________________________
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
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[Warrantholder]
VOID AFTER 5:00 P.M., LOS ANGELES TIME,
ON SEPTEMBER 30, 2001
NO. __ ______ WARRANTS
MONARCH BANCORP
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, _________ (the "Warrantholder") or its registered assigns, is the registered holder of the number of Warrants (the "Warrants") set forth above, Each Warrant entities the holder thereof to purchase from Monarch Bancorp, a California corporation (the "Bancorp"), subject to the terms and conditions set forth hereinafter and in the Warrant Agreement hereinafter referred to, one fully paid share of Common Stock, no par value, of the Bancorp (the "Common Stock"). The Warrants may be exercised on or after September 30, 1996 at any time or from time to time and will expire at 5:00 P.M., Los Angeles time, an September 30, 2001 (the "Expiration Date"). Upon the Expiration Date, all rights evidenced by the Warrants shall cease and the Warrants shall become void. Subject to the provisions of the Warrant Agreement, the holder of each Warrant shall have the right to purchase from the Bancorp until the Expiration Date (and the Bancorp shall issue and sell to such holder of a Warrant) one fully paid share of Common Stock (a "Warrant Share") at an exercise price (the "Exercise Price") of $1.98 per share upon surrender of this Warrant Certificate to the Bancorp at the Bancorp's offices in Laguna Niguel with the form of election to purchase appearing on this Warrant Certificate duly completed and signed, together with payment of the Exercise Price by wire transfer or other immediately available funds.
The Exercise Price and the number of Warrant Shares for which the Warrants are exercisable are subject to change or adjustment upon the occurrence of certain events set forth in the Warrant Agreement.
REFERENCE IS MADE TO THE PROVISIONS OF THIS WARRANT CERTIFICATE SET FORTH BELOW, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This Warrant shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Bancorp has caused this Warrant Certificate to be executed by its duly authorized officers.
DATED: November 5, 1996 MONARCH BANCORP
By:
--------------------------------
Name: Hugh S. Smith, Jr.
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
-------------------------------
Arnold Hahn, Corporate Secretary
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This Warrant Certificate is subject to all of the terms and conditions of the Warrant Agreement dated as of November 5, 1996 (the "Warrant Agreement"), between the Bancorp and _____________, to all of which terms and conditions the registered holder of the Warrant consents by acceptance hereof. The Warrant Agreement is incorporated herein by reference and made a part hereof and reference is made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities of the Bancorp and the registered holders of Warrant Certificates. Copies of the Warrant Agreement are available for inspection at the offices of the Bancorp or may be obtained upon written request addressed to the Bancorp at its offices in Laguna Niguel, California.
The Bancorp shall not be required upon the exercise of the Warrants evidenced by this Warrant Certificate to issue fractional shares, but shall make adjustment therefor in cash on the basis of the current market value of any fractional interest as provided in the Warrant Agreement.
If the Warrants evidenced by this Warrant Certificate shall be exercised in part, the holder hereof shall be entitled to receive upon surrender hereof another Warrant Certificate or Certificates evidencing the number of Warrants not so exercised.
The holder of this Warrant Certificate shall not, by virtue hereof, be entitled to any of the rights of a stockholder in the Bancorp, either at law or in equity, and the rights of the holder are limited to those expressed in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any period during which the transfer books for the Bancorp's Common Stock are closed for any purpose, the Bancorp shall not be required to make delivery of certificates for shares purchasable upon such transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same, consents and agrees with the Bancorp and with every other holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the Bancorp only upon the terms and conditions set forth in the Warrant Agreement; and
(b) the Bancorp may deem and treat the person in whose name this Warrant Certificate is registered as the absolute owner hereof (notwithstanding any notation of ownership or other writing hereon made by anyone other than the Bancorp) for all purposes whatever and the Bancorp shall not be affected by any notice to the contrary.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
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UNIF GIFT MIN ACT -
__________ Custodian _________ under Uniform Gifts to Minors Act________________
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list.
Deliver to: Monarch Bancorp
30000 Town Center Drive Laguna Niguel, California 92677
ELECTION TO PURCHASE
DATED: _________________, 19___
The undersigned hereby irrevocably exercises this warrant to purchase _____ shares of Common Stock and herewith makes payment of $_____________ in payment of the Exercise Price thereof on the terms and conditions specified in this Warrant Certificate, surrenders this Warrant Certificate and all right, title and interest herein to the Bancorp and directs that the Warrant Shares deliverable upon the exercise of such Warrants be registered in the name and at the address specified below and delivered thereto.
Name:__________________________________________________________________
(Please Print)
Address:_______________________________________________________________
City, State and Zip Code:______________________________________________
If such number of Warrant Shares is less than the aggregate number if Warrant Shares purchasable hereunder, the undersigned requests that a new Warrant Certificate representing the balance of such Warrant Shares to be registered in the name and at the address specified below and delivered thereto.
Name:__________________________________________________________________
(Please Print)
Address:_______________________________________________________________
City, State and Zip Code:______________________________________________
Taxpayer Identification or Social Security Number:_____________________
Signature:____________________________________________________
NOTE: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever.
U.S. BANCORP
1999 STOCK INCENTIVE PLAN
(As Amended through February 16, 2000)
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) PURPOSE. The purpose of the U.S. Bancorp 1999 Stock Incentive Plan (the "Plan") is to aid in attracting and retaining employees, management personnel and other personnel and members of the Board of Directors who are not also employees ("Non-Employee Directors") of U.S. Bancorp (the "Company") capable of assuring the future success of the Company, to offer such personnel and Non-Employee Directors incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel and Non-Employee Directors an opportunity to acquire a proprietary interest in the Company.
(b) EFFECT ON PRIOR PLANS. The Company hereby adopts the Plan, subject to approval by the stockholders of the Company. As so established and approved, the Plan shall be known as the 1999 Stock Incentive Plan. On the effective date of the Plan determined in accordance with Section 10 of the Plan, for purposes of administration and share accounting pursuant to Sections 3 and 4 of the Plan, the following plans of the Company shall be considered to be incorporated in the Plan: the U.S. Bancorp 1997 Stock Incentive Plan, as amended (including all plans incorporated therein), and the Piper Jaffray Companies Inc. 1993 Omnibus Stock Plan (as assumed by the Company), as amended (together, the "Prior Plans"). All outstanding options, restricted stock and other awards issued under the Prior Plans shall remain subject to the terms and conditions of the plans under which they were issued, but shares of stock relating to outstanding options, restricted stock or other awards issued under the Prior Plans are considered shares of stock subject to the Plan under Section 4 of the Plan.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan.
(d) "Change in Control" shall have the meaning ascribed to such term in any Award Agreement, and shall include phrases of similar meaning such as, by way of example but not limitation, "Full Change in Control" and "Partial Change in Control."
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan and composed of not less than two directors.
(g) "Eligible Person" shall mean any employee, officer, director (including any Non-Employee Director), consultant or independent contractor providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person.
(h) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, for purposes of the Plan, the Fair Market Value of Shares on a given date shall be the closing price of the Shares as reported on the New York Stock Exchange on such date, if the Shares are then traded on the New York Stock Exchange.
(i) "Incentive Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code or any successor provision.
(j) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of automatic grants to Non-Employee Directors, that is not intended to be an Incentive Stock Option.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
(l) "Other Stock-Based Award" shall mean any right granted under Section 6(e) of the Plan.
(m) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(o) "Person" shall mean any individual, corporation, partnership, association or trust.
(p) "Qualifying Termination" shall mean a termination of employment under circumstances that, in the judgment of the Committee, warrant acceleration of the exercisability of Options or the lapse of restrictions relating to Restricted Stock or Restricted Stock Units. A Qualifying Termination may apply to large-scale terminations of employment involving the disposition or divestiture of businesses or legal entities or similar circumstances.
(q) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(r) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.
(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934.
(t) "Shares" shall mean shares of Common Stock, $1.25 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 7(c) of the Plan.
(u) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the
exercisability of Options or the lapse of restrictions relating to Restricted
Stock or Restricted Stock Units; PROVIDED, HOWEVER, that any such
acceleration of exercisability or lapse of restrictions shall be limited to
accelerations relating to a Change in Control, a Qualifying Termination,
death, disability or any circumstances set forth in an Award Agreement in
effect on the effective date of the Plan determined in accordance with
Section 10 of the Plan; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other securities,
other Awards or other property, or canceled, forfeited or suspended; (vii)
determine whether, to what extent and under what circumstances cash, Shares,
other securities, other Awards, other property and other amounts payable with
respect to an Award under the Plan shall be deferred either automatically or
at the election of the holder thereof or the Committee; (viii) interpret and
administer the Plan and any instrument or agreement relating to, or Award
made under, the Plan; (ix) establish, amend, suspend or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations and other decisions under
or with respect to the Plan or any Award shall be within the sole discretion
of the Committee, may be made at any time and shall be final, conclusive and
binding upon any Participant, any holder or beneficiary of any Award and any
employee of the Company or any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in
Section 7(c), the total number of Shares available for granting Awards under
the Plan shall be 92,891,502 (47,891,502 of which were previously authorized
and subject to outstanding Awards under the Prior Plans or authorized and
available for grant under the U.S. Bancorp 1997 Stock Incentive Plan, as
amended (including all plans incorporated therein), and 45,000,000 of which
will be authorized upon stockholder approval of the Plan); PROVIDED, HOWEVER,
that the total number of Shares authorized under the Plan shall be deemed to
be reduced automatically, as of the effective date of the Plan determined in
accordance with Section 10 of the Plan, by that number of Shares that were
subject to outstanding awards under the Prior Plans, as of January 31, 1999,
that are no longer subject to outstanding awards as of the effective date of
the Plan determined in accordance with Section 10 of the Plan. Not more than
7,000,000 of such Shares, subject to adjustment as provided in Section 7(c)
of the Plan, will be available for granting additional Awards of Restricted
Stock following the effective date of the Plan determined in accordance with
Section 10 of the Plan; PROVIDED, HOWEVER, that any Shares covered by an
Award of Restricted Stock that are forfeited shall again be available for
purposes of the limitation on grants of additional Awards of Restricted
Stock. If any Shares covered by an Award or to which an Award relates are not
purchased or are forfeited, or if an
Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. In addition, if any Shares are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, whether by actual delivery or attestation, or in connection with satisfaction of tax obligations relating to an Award, whether by actual delivery, attestation or having shares withheld from the Award, only the number of Shares issued net of the Shares tendered or withheld shall be deemed delivered for purposes of determining the maximum number of Shares available for granting of Awards under the Plan. For purposes of the previous two sentences, the term "Award" shall explicitly include any awards outstanding under the Prior Plans as of the effective date of the Plan determined in accordance with Section 10 of the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. Such Shares may again become available for granting Awards under the Plan pursuant to the provisions of Section 4(a) of the Plan, subject to the limitations set forth in Section 4(c) of the Plan.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan, on and after the effective date of the Plan determined in accordance with Section 10 of the Plan, shall not exceed 45,000,000, subject to adjustment as provided in Section 7(c) of the Plan and Section 422 or 424 of the Code or any successor provisions.
(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be granted any Award or Awards, the value of which Awards are based solely on an increase in the value of the Shares after the date of grant of such Awards, for more than 5,000,000 Shares (subject to adjustment as provided in Section 7(c) of the Plan), in the aggregate, in any calendar year beginning with the year commencing January 1, 1999. The foregoing limitation specifically includes the grant of any "performance-based" Awards within the meaning of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant; PROVIDED, HOWEVER, that an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and
directors who are also employees) and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under an Option shall be determined by the Committee; PROVIDED, HOWEVER, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.
(iv) RELOAD OPTIONS. The Committee may grant "reload" options, separately or together with another Option, pursuant to which, subject to the terms and conditions established by the Committee and any applicable requirements of Rule 16b-3 or any other applicable law, the Participant would be granted a new Option when the payment of the exercise price of a previously granted option is made by the delivery of shares of the Company's Common Stock owned by the Participant pursuant to Section 6(a)(iii) hereof or the relevant provisions of another plan of the Company, and/or when shares of the Company's Common Stock are tendered or forfeited as payment of the amount to be withheld under applicable tax laws in connection with the exercise of an option, which new Option would be an option to purchase the number of Shares not exceeding the sum of (A) the number of shares of the Company's Common Stock provided as consideration upon the exercise of the previously granted option to which such "reload" option relates and (B) the number of shares of the Company's Common Stock tendered or forfeited as payment of the amount to be withheld under
applicable tax laws in connection with the exercise of the option to which such "reload" option relates. "Reload" options may be granted with respect to options granted under this Plan or any other stock option plan of the Company or any of its affiliates (which shall explicitly include plans assumed by the Company in connection with mergers and the like). Such "reload" options shall have a per share exercise price equal to the Fair Market Value as of the date of grant of the new Option. Any such reload options shall be subject to availability of sufficient shares for grant under the Plan.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to the
terms of the Plan and any applicable Award Agreement. A Stock Appreciation
Right granted under the Plan shall confer on the holder thereof a right to
receive upon exercise thereof the excess of (i) the Fair Market Value of one
Share on the date of exercise (or, if the Committee shall so determine, at
any time during a specified period before or after the date of exercise) over
(ii) the grant price of the Stock Appreciation Right as specified by the
Committee, which price shall not be less than 100% of the Fair Market Value
of one Share on the date of grant of the Stock Appreciation Right. Subject to
the terms of the Plan and any applicable Award Agreement, the grant price,
term, methods of exercise, dates of exercise, methods of settlement and any
other terms and conditions of any Stock Appreciation Right shall be as
determined by the Committee. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it may deem
appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. Except as otherwise provided herein, Awards of Restricted Stock and Restricted Stock Units shall contain restrictions that lapse no sooner than three years following the date of grant or, in the case of Awards with performance-based vesting provisions, no sooner than one year following the date of grant; PROVIDED, HOWEVER, that restrictions may lapse sooner than such dates as to portions of such Awards so long as restrictions as to the total number of Shares covered by such Awards do not lapse sooner than such dates; and PROVIDED, FURTHER, that such limitations shall
not apply to Awards granted to new employees as part of initial terms of employment, Awards granted to new or existing employees in connection with the acquisition of businesses or assets by the Company, or to Awards in effect on the effective date of the Plan determined in accordance with Section 10 of the Plan.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan shall be evidenced by issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions applicable to such Restricted Stock. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may, when it finds that a waiver would be in the best interest of the Company, including, without limitation, in connection with Changes in Control, Qualifying Terminations, death or disability, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Shares representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.
(e) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; PROVIDED, HOWEVER, that such grants must comply with applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(e) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.
(f) GENERAL. Except as otherwise specified with respect to Awards to Non-Employee Directors pursuant to Section 6(g) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; PROVIDED, HOWEVER, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant; and PROVIDED, FURTHER, except in the case of an Incentive Stock Option, Awards may be transferable as specifically provided in any applicable Award Agreement or amendment thereto pursuant to terms determined by the Committee. Except as otherwise provided in any applicable Award Agreement or amendment thereto (other than an Award Agreement relating to an Incentive Stock Option), pursuant to terms determined by the Committee, each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. Except as otherwise provided in any applicable Award Agreement or amendment thereto (other than an Award Agreement relating to an Incentive Stock Option), no Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period as may be determined by the Committee.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.
(g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS.
The Committee shall issue Non-Qualified Stock Options to Non-Employee
Directors in accordance with this Section 6(g).
Each Non-Employee Director first elected or appointed to the Company's Board of Directors following the effective date of the Plan determined in accordance with
Section 10 of the Plan and during the term of the Plan shall be granted, as of the date of such Director's first election or appointment to the Board of Directors, a Non-Qualified Stock Option to purchase 7,500 Shares (subject to adjustment pursuant to Section 7(c) of the Plan). Each Non-Employee Director shall be granted during the term of the Plan, as of the date of each Annual Meeting of Stockholders of the Company commencing with the 1999 Annual Meeting of Stockholders of the Company, if such Director's term of office continues after such date, a Non-Qualified Stock Option to purchase 5,100 Shares (subject to adjustment pursuant to Section 7(c) of the Plan).
Each Non-Qualified Stock Option granted to a Non-Employee Director pursuant to this Section 6(g) shall be exercisable in full as of the date of grant, shall have an exercise price equal to the Fair Market Value of a Share on the date of grant and shall expire on the tenth anniversary of the date of grant, except as provided below. Each Option granted pursuant to this Section 6(g) may be transferable pursuant to terms established by the Committee consistent with Section 6(f)(iv) of the Plan.
Except as hereinafter provided, each Option granted pursuant to this Section 6(g) (including those Options granted pursuant to Section 6(h) of the First Bank System, Inc. 1991 Stock Incentive Plan as provided therein, under Section 6(g) of the First Bank System, Inc. 1996 Stock Incentive Plan as provided therein and under Section 6(g) of the U.S. Bancorp 1997 Stock Incentive Plan as provided therein) shall be deemed to include a provision entitling the optionee to a further Non-Qualified Stock Option (a "Non-Employee Director Reload Option") in the event the optionee exercises such an Option, in whole or in part, by surrendering other Shares in accordance with this Section 6(g) (including any predecessor provision under the First Bank System, Inc. 1991 Stock Incentive Plan, the First Bank System, Inc. 1996 Stock Incentive Plan or the U.S. Bancorp 1997 Stock Incentive Plan) and the terms of the Option and/or when shares of the Company's Common Stock are delivered or withheld as payment of an amount representing tax obligations in connection with the exercise of an option. Any such Non- Employee Director Reload Option (i) shall be for a number of Shares equal to the sum of (x) the number of Shares surrendered as part or all of the exercise price of the Option to which it relates plus (y) the number of Shares, if any, delivered or withheld as payment of an amount representing tax obligations in connection with the exercise of the Option to which it relates; (ii) shall have an expiration date which is the same as the expiration date of the Option to which it relates; (iii) shall have an exercise price equal to the Fair Market Value of a Share on the date of exercise of the Option to which it relates; and (iv) shall be exercisable in full as of the date of grant. A Non-Employee Director Reload Option may be reloaded under the same terms, provided that the original Option to which such series of Non-Employee Director Reload Options relates may be reloaded a maximum of three times. Non-Employee Director Reload Options shall only be granted to a Director during such Director's term as a Non-Employee Director. Any such Non-Employee Director Reload Option shall be subject to availability of sufficient shares for grant under the Plan.
Shares surrendered as part or all of the exercise price of the Option to which it relates that have been owned by the optionee less than six months will not be counted for purposes of determining the number of Shares that may be purchased pursuant to a Non-Employee Director Reload Option.
All grants of Non-Qualified Stock Options pursuant to this
Section 6(g) shall be automatic and non-discretionary and shall be made strictly
in accordance with the foregoing terms and the following additional provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee Director hereunder shall terminate and may no longer be exercised if such Director ceases to be a Non-Employee Director of the Company, except that:
(A) If such Director's term shall be terminated for any reason other than gross and willful misconduct, death, disability, or retirement, such Director may at any time within a period of three months after such termination, but not after the termination date of the Option, exercise the Option.
(B) If such Director's term shall be terminated by reason of gross and willful misconduct during the course of the term, including but not limited to, wrongful appropriation of funds of the Company or the commission of a gross misdemeanor or felony, the Option shall be terminated as of the date of the misconduct.
(C) If such Director's term shall be terminated by reason of disability or retirement, such Director may exercise the Option in accordance with the terms thereof as though such termination had never occurred. If such Director shall die following any such termination, the Option may be exercised in accordance with its terms by the personal representatives or administrators of such Director or by any person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution.
(D) If such Director shall die while a Director of the Company or within three months after termination of such Director's term for any reason other than disability or retirement or gross and willful misconduct, the Option may be exercised in accordance with its terms by the personal representatives or administrators of such Director or by any person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution.
(ii) Non-Qualified Stock Options granted to Non-Employee Directors may be exercised in whole or in part from time to time by serving written notice of exercise on the Company at its principal executive offices, to the attention of the Company's Secretary. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment of the purchase price. A Non-Employee Director may, at such Director's election, pay the purchase price by check payable to the Company, by promissory note, or in shares of the Company's Common Stock, or in any combination thereof having a Fair Market Value on the exercise date equal to the applicable exercise price. If payment or partial payment is made by promissory note, such note shall be a full recourse note and shall (A) be secured by the Shares to be delivered upon exercise of such Option, (B) be limited in principal amount to the maximum amount permitted under applicable laws, rules and regulations, (C) be for a term of six years and (D) bear interest at the applicable federal rate (as determined in accordance with Section 1274(d) of the Code), compounded semi-annually.
(iii) In order for a Non-Employee Director to satisfy obligations under tax laws in connection with an Option granted pursuant to this Section 6(g) (including any predecessor provision under the First Bank System, Inc. 1991 Stock Incentive Plan, the First Bank System, Inc. 1996 Stock Incentive Plan and the U.S. Bancorp 1997 Stock Incentive Plan), such Director may (A) elect to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise of such Option with a Fair Market Value equal to the amount of such taxes (an "Election") or (B) deliver to the Company Shares other than Shares issuable upon exercise of such Option with a Fair Market Value equal to the amount of such taxes. An Election, if any, must be made on or before the date that the amount of tax to be withheld is determined.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan at any time and from time to time; PROVIDED, HOWEVER, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval:
(i) would violate the rules or regulations of the New York Stock Exchange, any other securities exchange or the National Association of Securities Dealers, Inc. that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except as otherwise explicitly provided herein, the Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. Except as provided in Section 7(c) hereof, no Option may be amended to reduce its initial exercise price and no Option shall be canceled and replaced with an Option or Options having a lower exercise price without the approval of the stockholders of the Company.
(c) ADJUSTMENTS. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company or other similar corporate transaction or event affecting the Shares would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Plan or under an Award (including, without limitation, the benefits or potential benefits of provisions relating to the term, vesting or exercisability of any Option, the availability of any tandem stock appreciation rights or "reload" option rights, if any, contained in any Option Award, and any "change in control" or similar provisions of any Award), the Committee shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; PROVIDED, HOWEVER, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal, state or local
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all federal and state
taxes to be withheld or collected upon exercise or receipt of (or the lapse of
restrictions relating to) an Award, the Committee, in its discretion and subject
to such additional terms and conditions as it may adopt, may permit the
Participant to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes (but only to the extent of the
minimum amount required to be withheld under applicable laws or regulations) or
(ii) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes (but only to the extent of the
minimum amount required to be withheld under applicable laws or regulations).
The election, if any, must be made on or before the date that the amount of tax
to be withheld is determined.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in
Section 6(g) of the Plan, no Eligible Person, Participant or other Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more officers of the Company or any Affiliate or a committee of such officers, but only to the extent such officer or officers are also members of the Board of Directors of the Company, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to Eligible Persons who are not officers or directors of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
(c) AWARD AGREEMENTS. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a Non-Employee Director the right to continue as a Director, of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a Non-Employee Director, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
(k) SECTION 16 COMPLIANCE. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time and in all
events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Securities and Exchange Act of 1934, as amended, without so restricting, limiting or conditioning the Plan with respect to other Participants.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of approval by the stockholders of the Company in accordance with applicable law.
SECTION 11. TERM OF THE PLAN.
New Awards shall only be granted under the Plan during a 10-year period beginning on the effective date of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the end of such 10-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the end of such period.
COMPOSITE COPY
As Amended Through January 19, 2000
U.S. BANCORP
EXECUTIVE DEFERRAL PLAN
(1992 STATEMENT)
U.S. BANCORP
EXECUTIVE DEFERRAL PLAN
(1992 STATEMENT)
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION................................................. 1
1.1. Statement of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Affiliate
1.2.3. Annual Valuation Date
1.2.4. Beneficiary
1.2.5. Change in Control
1.2.6. Earliest Retirement Age
1.2.7. Effective Date
1.2.8. Employer
1.2.9. Event of Maturity
1.2.10. USB
1.2.11. Normal Retirement Age
1.2.12. Participant
1.2.13. Plan
1.2.14. Plan Statement
1.2.15. Plan Year
1.2.16. Principal Sponsor
1.2.17. Termination of Employment
1.2.18. Valuation Date
1.2.19. Service
1.3. Rules of Interpretation
SECTION 2. PARTICIPATION................................................ 4
2.1. Participation
2.2. Enrollment
2.3. Specific Exclusion
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SECTION 3. ADJUSTMENT OF ACCOUNTS....................................... 5
3.1. Establishment of Accounts
3.2. Adjustments of Accounts
3.2.1. Intermediate Distributions Subtraction
3.2.2. Investment Addition
3.2.3. Deferral Addition
3.2.4. Final Distributions Subtraction
SECTION 4. VESTING OF ACCOUNT........................................... 6
SECTION 5. MATURITY..................................................... 6
5.1. Events of Maturity
5.2. Effect of Maturity upon Further Participation in Plan
SECTION 6. DISTRIBUTION................................................. 7
6.1. Form of Distribution
6.1.1. Form of Distribution
6.1.2. Time of Payment
6.1.3. Installment Amounts
6.1.4. Default
6.2. Previously Scheduled Distribution
6.2.1. Enrolling for the Distribution
6.2.2. Scheduled Distribution
6.3. Hardship Distributions
6.3.1. When Available
6.3.2. Purposes
6.3.3. Limitations
6.3.4. Forfeiture
6.4. Change in Control Distributions
6.4.1. When Available
6.4.2. Limitations
6.4.3. Forfeiture
6.5. Acceleration of Annual Installments
6.5.1. When Available
6.5.2. Forfeiture
6.6. Designation of Beneficiaries
6.6.1. Right to Designate
6.6.2. Failure of Designation
6.6.3. Disclaimers by Beneficiaries
6.6.4. Definitions
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6.6.5. Special Rules
6.6.6. No Spousal Rights
6.7. Death Prior to Full Distribution
6.8. Facility of Payment
SECTION 7. FUNDING OF PLAN.............................................. 14
7.1. Unfunded Agreement
7.2. Spendthrift Provision
SECTION 8. AMENDMENT AND TERMINATION.................................... 15
SECTION 9. DETERMINATIONS -- RULES AND REGULATIONS...................... 15
9.1. Determinations
9.2. Rules and Regulations
9.3. Method of Executing Instruments
9.4. Claims Procedure
9.4.1. Original Claim
9.4.2. Claims Review Procedure
9.4.3. General Rules
9.5. Information Furnished by Participants
SECTION 10. PLAN ADMINISTRATION.......................................... 17
10.1. Employer
10.1.1. Officers
10.1.2. Chief Executive Officer
10.1.3. Board of Directors
10.2. Conflict of Interest
10.3. Administrator
10.4. Service of Process
SECTION 11. DISCLAIMERS.................................................. 18
11.1. Term of Employment
11.2. Source of Payment
11.3. Delegation
APPENDIX A -- CHANGE IN CONTROL DEFINITIONS............................... A-1
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U.S. BANCORP
EXECUTIVE DEFERRAL PLAN
(1992 STATEMENT)
SECTION 1
INTRODUCTION
1.1. STATEMENT OF PLAN. Effective January 1, 1992, FIRST BANK SYSTEM, INC, a Delaware corporation (hereinafter sometimes referred to as "Principal Sponsor") hereby creates a nonqualified, unfunded, elective deferral plan for the purpose of allowing a select group of management and highly compensated employees of the Principal Sponsor and other Employers to defer the receipt of incentive compensation which would otherwise be paid to those employees.
1.2. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the unfunded and unsecured general obligation of Principal Sponsor established with respect to each Participant to which is credited the dollar amounts specified in Section 3 and from which are subtracted payments and forfeitures made pursuant to Section 6. To the extent necessary to accommodate and effect the distribution elections made by Participants pursuant to Section 2, separate bookkeeping sub-accounts shall be established with respect to each of the several annual deferral elections made by Participants.
1.2.2. AFFILIATE -- a business entity which is affiliated in ownership with the Principal Sponsor or an Employer and is recognized as an Affiliate by the Principal Sponsor for the purposes of this Plan.
1.2.3. ANNUAL VALUATION DATE -- each December 31.
1.2.4. BENEFICIARY -- a person designated by a Participant (or automatically by operation of this Plan Statement) to receive all or a part of the Participant's Account in the event of the Participant's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5. CHANGE IN CONTROL -- The definition of Change in Control, as well as certain other definitions relating to Change in Control used herein, appear in Appendix A to this Plan Statement.
1.2.6. EARLIEST RETIREMENT AGE -- the earlier of:
(i) the earliest date that a Participant who is at least age fifty-five (55) years has a sum of his or her age (in whole years) and Service (also in whole years) that equals at least sixty-five (65), or
(ii) the date a Participant attains Normal Retirement Age.
1.2.7. EFFECTIVE DATE -- January 1, 1992.
1.2.8. EMPLOYER -- the Principal Sponsor and any business entity affiliated with the Principal Sponsor that employs persons who are designated for participation in this Plan.
1.2.9. EVENT OF MATURITY -- any of the occurrences described in
Section 5 by reason of which a Participant or Beneficiary may become entitled
to a distribution from the Plan.
1.2.10. USB -- U.S. BANCORP, a Delaware corporation, or any successor thereto.
1.2.11. NORMAL RETIREMENT AGE -- the last day of the calendar month in which a Participant attains age sixty-five (65) years.
1.2.12. PARTICIPANT -- an employee of the Employer who is designated as eligible to participate in this Plan by the Organization Committee of the Board of Directors and elects to participate in accordance with the terms of this Plan and becomes a Participant in the Plan in accordance with the provisions of Section 2. An employee shall not be eligible to become a Participant unless the employee is a member of a select group of management or highly compensated employees. No employee is presumed or automatically eligible to participate in this Plan. An employee who has become a Participant shall be considered to continue as a Participant in the Plan until the date of the Participant's death or, if earlier, the date when the Participant is no longer employed by an Employer or an Affiliate and upon which the Participant no longer has any Account under the Plan (that is, the Participant has received a distribution of all of the Participant's Account).
1.2.13. PLAN -- the nonqualified, income deferral program maintained by the Principal Sponsor established for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement. (As used herein, "Plan" does not refer to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the "Plan Statement"). The Plan shall be referred to as the "U.S. BANCORP EXECUTIVE DEFERRAL PLAN."
1.2.14. PLAN STATEMENT -- this document entitled "U.S. BANCORP EXECUTIVE DEFERRAL PLAN (1992 Statement)" as adopted by the Organization Committee of the Board of Directors of U.S. BANCORP effective as of January 1, 1992, as the same may be amended from time to time thereafter.
1.2.15. PLAN YEAR -- the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.16. PRINCIPAL SPONSOR -- U.S. BANCORP, a Delaware corporation.
1.2.17. TERMINATION OF EMPLOYMENT -- a complete severance of an employee's employment relationship with the Employer and all Affiliates, if any, for any reason other than the employee's death. A transfer from employment with the Employer to employment with an Affiliate of the Employer shall not constitute a Termination of Employment. If an Employer who is an Affiliate ceases to be an Affiliate because of a sale of substantially all the stock or assets of the Employer, then Participants who are employed by that Employer and who cease to be employed by the Principal Sponsor or an Employer on account of the sale of substantially all the stock or assets of the Employer shall be deemed to have thereby had a Termination of Employment for the purpose of commencing distributions from this Plan.
1.2.18. VALUATION DATE -- the last day of each calendar month of the Plan Year.
1.2.19. SERVICE -- a measure of an employee's service with the Employer and all Affiliates (stated as a number of years) which is equal to the number of years of "Vesting Service" determined under the rules of the "U.S. Bancorp Personal Retirement Account" (or any similar successor plan) as those rules may exist at the time the Participant's Service is being determined.
1.3. RULES OF INTERPRETATION. An individual shall be considered to have attained a given age on such individual's birthday for that age (and not on the day before). Individuals born on February 29 in a leap year shall be considered to have their birthdays on February 28 in each year that is not a leap year. Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Participant or Beneficiary shall be deemed for all purposes of this Plan and all elections and designations made under this Plan to have died before such Participant or Beneficiary. A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this section. In the absence of a conviction of felonious and intentional killing, the Principal Sponsor shall determine whether the killing was felonious and intentional for the purposes of this section. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to this entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. This Plan Statement shall be construed and this Plan shall be administered to create an unfunded plan providing deferred compensation to a select group of management or highly compensated employees so that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified, alternative compliance with the reporting and disclosure requirements of Part 1 of Title I of ERISA. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This document has been executed and delivered in the
State of MINNESOTA and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of MINNESOTA.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each employee of the Employer designated by the Organization Committee of the Board of Directors as eligible to enroll in this Plan shall be a participant in the Plan as of the first day of the Plan Year with respect to which the employee first enrolls as Participant. Employees shall be designated as eligible to enroll on a Plan Year by Plan Year basis. Eligibility to enroll one Plan Year does not entitle the employee to enroll the next Plan Year.
2.2. ENROLLMENT. Prior to the first day of any Plan Year, an employee who has been designated as eligible to enroll may make an enrollment for that Plan Year. A separate enrollment shall be made for each Plan Year. Each such enrollment:
(a) Shall be irrevocable for the remainder of the Plan Year with respect to which it is made once it has been accepted by the Principal Sponsor.
(b) Shall designate the amount or portion of the Participant's
incentive compensation or base compensation or both which is
earned during that Plan Year (without regard to whether it would
be paid during that or a subsequent Plan Year) which shall not
be paid to the Participant but instead shall be accumulated in
this Plan under Section 3 and distributed from this Plan under
Section 6. The amount or portion may be designed as a dollar
amount or a percentage. The amount or portion of the base
compensation that can be designated shall not exceed fifty
percent (50%) of the Participant's base compensation.
(c) Shall specify the form in which distribution of the portion of
the Account attributable to that enrollment shall be made under
Section 6 upon the occurrence of an Event of Maturity (and if
such designation is not clearly made to the contrary shall be
deemed to have been an election of a single lump sum
distribution).
(d) Shall specify whether and what amount of the Account attributable to that enrollment shall be distributed before an Event of Maturity in accordance with Section 6.2.
(e) Shall be made upon forms furnished by the Principal Sponsor, shall be made at such time as the Principal Sponsor shall determine, shall be made before
the beginning of the Plan Year with respect to which it is made and shall conform to such other procedural and substantive rules as the Principal Sponsor shall make.
2.3. SPECIFIC EXCLUSION. Notwithstanding anything apparently to the contrary in this Plan Statement or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for himself or herself or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person's erroneous participation shall immediately terminate AB INITIO and the Employer shall distribute the individual's Account immediately.
SECTION 3
ADJUSTMENT OF ACCOUNTS
3.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each Participant an unfunded, bookkeeping Account which shall be adjusted each Valuation Date.
3.2. ADJUSTMENTS OF ACCOUNTS. As of each Valuation Date (the "current Valuation Date"), the value of each Account determined as of the immediately preceding Valuation Date (the "initial Account value") shall be increased (or decreased) by the following adjustments made in the following sequence:
3.2.1. INTERMEDIATE DISTRIBUTIONS SUBTRACTION. The initial Account value shall be reduced by the total amount distributed in fact to (or with respect to) the Participant (or forfeited in connection with a distribution) from such Account as of a date subsequent to the immediately preceding Valuation Date but prior to the current Valuation Date.
3.2.2. INVESTMENT ADDITION. The initial Account value (as adjusted above) shall be increased by interest.
(a) The rate shall be determined from time to time by the Principal Sponsor. Except as provided in Section 8, the rate may be changed by the Principal Sponsor by amendment of the Plan Statement without notice to or the consent of any Participant, former Participant or any Beneficiary.
(b) Beginning January 1, 1992, the rate for each month shall be determined annually for each Plan Year and shall be equal to the monthly equivalent of one hundred percent (100%) of the 10-year Treasury Note 120 month rolling average (as established on the September 30 of the preceding Plan Year).
(c) This rate shall be uniform for all Participants for the same Valuation Date but may change from Valuation Date to Valuation Date.
3.2.3. DEFERRAL ADDITION. The initial Account value (as adjusted above) shall be increased by the total amount of incentive compensation, if any, which would have been paid to the Participant as of a date subsequent to the immediately preceding Valuation Date but prior to or coincident with the current Valuation Date but for the enrollment agreement signed by the Participant pursuant to Section 2.
3.2.4. FINAL DISTRIBUTIONS SUBTRACTION. The initial Account value (as adjusted above) shall be reduced by the total amount distributed in fact to (or with respect to) the Participant (or forfeited in connection with a distribution) from such Account as of the current Valuation Date.
SECTION 4
VESTING OF ACCOUNT
Except as provided in Section 6.2 and Section 6.4 (relating to the forfeiture for hardship or Change in Control distributions) and Section 8 (relating to the ability to amend the Plan Statement and terminate the Plan), the Account of each Participant shall be fully (100%) vested and nonforfeitable at all times.
SECTION 5
MATURITY
5.1. EVENTS OF MATURITY. A Participant's Account shall mature and shall become distributable in accordance with Section 6 upon the earliest occurrence of any of the following events while in the employment of the Employer or an Affiliate:
(a) his or her death, or
(b) his or her Termination of Employment from the Employer, or
(c) termination of the Plan;
provided, however, that a termination of the opportunity to make an enrollment by action of the Organization Committee of the Board of Directors pursuant to Section 2 or a transfer of employment to an Affiliate that is not an Employer shall not constitute an Event of Maturity.
5.2. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the occurrence of an Event of Maturity, a Participant shall cease to have any interest in the Plan other than the right to receive payment of his or her Account as provided in Section 6 hereof, adjusted from time to time as provided in Section 3.
SECTION 6
DISTRIBUTION
6.1. FORM OF DISTRIBUTION. Upon the occurrence of an Event of Maturity effective as to a Participant, the Principal Sponsor shall commence payment of such Participant's Account (reduced by the amount of any applicable payroll, withholding and other taxes) in the form designated by the Participant in his or her enrollment. A Participant shall not be required to make application to receive payment. Distribution shall not be made to any Beneficiary, however, until such Beneficiary shall have filed a written application for benefits in a form acceptable to the Principal Sponsor and such application shall have been approved by the Principal Sponsor.
6.1.1. FORM OF DISTRIBUTION. Distribution shall be made in whichever of the following forms as the Participant shall have designated in writing at the time of his or her enrollment (to the extent that such election is consistent with the rules of this Plan Statement):
(a) TERM CERTAIN INSTALLMENTS TO PARTICIPANT. If the Distributee is a Participant, the Account at the Termination of Employment is at least Twenty Thousand Dollars ($20,000) and the Participant had attained Earliest Retirement Age at the Termination of Employment, in a series of annual installments payable over fifteen (15) years. (For the purpose of applying this dollar limitation, all portions of the Account distributable in fifteen annual installments shall be considered together notwithstanding that such amounts may have been attributable to enrollments relating to more than one Plan Year.)
(b) CONTINUED TERM CERTAIN INSTALLMENTS TO BENEFICIARY. If the Distributee is a Beneficiary of a deceased Participant and distribution had commenced to the deceased Participant before his or her death over a fifteen (15) year period as specified in paragraph (a) above, in a series of annual installments payable over the remainder of the fifteen (15) year period.
(c) LUMP SUM. If the Distributee is a Participant, in a single lump sum. If the Distributee is a Beneficiary of a deceased Participant and distribution had not commenced to the deceased Participant before his or her death, in a single lump sum payment.
6.1.2. TIME OF PAYMENT. Payment shall be made or commenced to a Participant in accordance with the following rules:
(a) RETIREMENT. If the Participant's Termination of Employment is on a date on or after the Participant's Earliest Retirement Age, payment shall be made or commenced as of the Annual Valuation Date coincident with or immediately following the Participant's Termination of Employment and shall be made or commenced as soon as practicable after such Annual Valuation Date.
(b) DEATH. If the payment is made or commenced on account of the Participant's death, payment shall be made or commenced as of the Annual Valuation Date coincident with or immediately following the Participant's Termination of Employment and shall be made or commenced as soon as practicable after such Annual Valuation Date.
(c) OTHER. In all other cases, payment to the Participant shall be made as of the second Valuation Date subsequent to the Participant's Termination of Employment and shall be made as soon as practicable after such second Valuation Date.
(d) CODE SECTION 162(m) DELAY. If the Principal Sponsor determines
that delaying the time of the initial payments are made or
commenced would increase the probability that such payments
would be fully deductible for federal or state income tax
purposes, the Principal Sponsor may unilaterally delay the time
of the making or commencement of payments for up to twenty-four
(24) months after the date such payments would otherwise be
payable.
6.1.3. INSTALLMENT AMOUNTS. The amount of the annual installments shall be determined by dividing the amount of the Account as of the Annual Valuation Date as of which the installment is being paid by the number of remaining installment payments to be made (including the payment being determined).
6.1.4. DEFAULT. If for any reason a Participant shall have failed to make a timely written designation of form for distribution (including reasons entirely beyond the control of the Participant), the distribution shall be made in a single lump sum. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participant's selection of a form of benefit.
6.2. PREVIOUSLY SCHEDULED DISTRIBUTION.
6.2.1. ENROLLING FOR THE DISTRIBUTION. At the time of enrollment for each Plan Year, each enrolling Participant shall have the opportunity to elect to cause the Plan to make a scheduled distribution to the Participant from the Account of a fixed dollar amount or percentage of Account (not less than $2,000) as of an Annual Valuation Date designated by the Participant in the enrollment which distribution shall be made as soon as practicable after such Annual Valuation Date. The failure to make such a scheduled distribution election one Plan Year shall not preclude an election in a subsequent Plan Year. Making a scheduled distribution election for one Plan Year shall not require any such election in a subsequent Plan Year. The scheduled distribution election that is made with each Plan Year's enrollment shall relate only to the portion of the Account that is attributable to that Plan Year's deferrals.
6.2.2. SCHEDULED DISTRIBUTION. As of the Annual Valuation Date designated by the Participant in his or her enrollment, there shall be distributed from the Account to the Participant such amount as the Participant shall have elected to receive from the Account when the Participant enrolled. Notwithstanding the dollar amount designated by the Participant in his or her enrollment, if a scheduled distribution is required as of an Annual Valuation Date and the value of the portion of the Account that is attributable to the Plan Year's deferrals on such Annual Valuation Date is less than Five Thousand Dollars ($5,000) the entire Account attributable to that Plan Year's deferrals shall be distributed. In no event shall such scheduled distributions occur after the death of the Participant or after any other Event of Maturity with respect to the Participant. In no event shall such scheduled distributions made pursuant to an enrollment for a Plan Year exceed the Account attributable to that Plan Year.
6.3. HARDSHIP DISTRIBUTIONS.
6.3.1. WHEN AVAILABLE. A Participant may receive a hardship distribution from his or her Account if the Principal Sponsor determines that such hardship distribution is for a purpose described in Section 6.3.2 and the conditions in Section 6.3.3 and Section 6.3.4 have been fulfilled. To receive such a distribution, the Participant must file a written hardship distribution application with the Principal Sponsor and furnish such documentation as the Principal Sponsor may require. In the application, the Participant shall specify the basis for the distribution and the dollar amount to be distributed. If such hardship distribution is approved by the Principal Sponsor, distribution shall be made as of the Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor and such hardship distribution shall be made in a lump sum cash payment as soon as administratively feasible after such Valuation Date. The amount of each hardship distribution shall be taken from the portion of the Account attributable to the earliest enrollment (including related earnings) first.
6.3.2. PURPOSES. Hardship distributions shall be allowed under
Section 6.3.1 only if the Participant establishes that the hardship
distribution is to be made on account of an immediate
and heavy financial need of the Participant for which the Participant does not have other available resources.
6.3.3. LIMITATIONS. The amount of the hardship distribution shall not exceed the amount of the Participant's proven immediate and heavy financial need. A hardship distribution shall not be made after the death of the Participant or after the occurrence of any other Event of Maturity. The amount of approved hardship distribution (and the forfeiture described below) shall not exceed the value of the Account.
6.3.4. FORFEITURE. Upon the approval of a hardship distribution, there shall be irrevocably forfeited from the Account of the Participant an amount equal to ten percent (10%) of the amount approved for distribution.
6.4. CHANGE IN CONTROL DISTRIBUTIONS.
6.4.1. WHEN AVAILABLE. A Participant or Beneficiary may receive a distribution of his or her entire Account (after reduction for the forfeiture described in Section 6.4.3) if a Full Change in Control or a Qualifying Termination has occurred and the condition in Section 6.4.2 has been fulfilled (a "Change in Control Distribution"). To receive such a distribution, the Participant or Beneficiary must file a written distribution application with the Principal Sponsor. The Principal Sponsor shall approve the Change in Control Distribution if such application has been filed and a Full Change in Control or a Qualifying Termination has occurred. Distribution of the entire Account (after reduction for the forfeiture described in Section 6.4.3) shall be made as of the Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor. Such distribution shall be made in a lump sum cash payment as soon as administratively feasible after such Valuation Date.
6.4.2. LIMITATIONS. The amount of approved Change in Control Distribution (and the forfeiture described below) shall not exceed the value of the Account.
6.4.3. FORFEITURE. Upon the approval of a Change in Control Distribution, there shall be irrevocably forfeited from the Account of the Participant or Beneficiary an amount equal to five percent (5%) of the Account.
6.5. ACCELERATION OF ANNUAL INSTALLMENTS.
6.5.1. WHEN AVAILABLE. A Participant or Beneficiary who is receiving annual installments may receive an accelerated payment of his or her entire Account (after reduction for the forfeiture described in Section 6.5.2). To receive such an accelerated payment, the Participant or Beneficiary must file a written payment application with the Principal Sponsor. Payment of the accelerated payment (after reduction for the forfeiture described in Section 6.5.2) shall be made as of the Annual Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor. Such accelerated payment shall be made in a lump sum cash
payment as soon as administratively feasible after such Valuation Date. The amount of the accelerated payment shall be equal to the value of the Account as of such Annual Valuation Date (after reduction for the forfeiture described below).
6.5.2. FORFEITURE. Upon the approval of an accelerated payment, there shall be irrevocably forfeited from the Account of the Participant or Beneficiary an amount equal to ten percent (10%) of the Account.
6.6. DESIGNATION OF BENEFICIARIES.
6.6.1. RIGHT TO DESIGNATE. Each Participant may designate, upon forms to be furnished by and filed with the Principal Sponsor, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Participant's Account in the event of such Participant's death. The Participant may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Participant and received by the Principal Sponsor during the Participant's lifetime.
6.6.2. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant,
such Participant's Account, or the part thereof as to which such Participant's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Participant and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents
Participant's surviving brothers and sisters
Representative of Participant's estate.
6.6.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Participant's Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is
executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Principal Sponsor after the date of the Participant's death but not later than one hundred eighty (180) days after the date of the Participant's death. A disclaimer shall be irrevocable when delivered to the Principal Sponsor. A disclaimer shall be considered to be delivered to the Principal Sponsor only when actually received by the Principal Sponsor. The Principal Sponsor shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of the provisions of Section 6 and shall not be considered to be an assignment or alienation of benefits in violation of federal law prohibiting the assignment or alienation of benefits under this Plan. No other form of attempted disclaimer shall be recognized by the Principal Sponsor.
6.6.4. DEFINITIONS. When used herein and, unless the Participant has otherwise specified in the Participant's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Participant.
6.6.5. SPECIAL RULES. Unless the Participant has otherwise specified in the Participant's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant.
(b) The automatic Beneficiaries specified in Section 6.6.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person who is the Participant's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of
the marriage between the Participant and such person shall automatically revoke such designation. (The foregoing shall not prevent the Participant from designating a former spouse as a Beneficiary on a form executed by the Participant and received by the Principal Sponsor after the date of the legal termination of the marriage between the Participant and such former spouse, and during the Participant's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participant's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is filed by a Participant who, at the time of such execution or filing, is then a minor under the law of the state of the Participant's legal residence. The Principal Sponsor shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
6.6.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Participant and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Participant.
6.7. DEATH PRIOR TO FULL DISTRIBUTION. If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which are payable to the Beneficiary (and shall not be paid to the Participant's estate).
6.8. FACILITY OF PAYMENT. In case of the legal disability, including minority, of a Participant or Beneficiary entitled to receive any distribution under the Plan, payment shall be made, if the Principal Sponsor shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such Participant or Beneficiary, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled Participant or Beneficiary, provided such person or institution has satisfied the Principal Sponsor that the payment will be used for the best interest and assist in the care of such Participant or Beneficiary, and provided further, that no prior claim for said payment has been made by
a duly appointed guardian, conservator or other legal representative of such Participant or Beneficiary.
Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of the Principal Sponsor therefor.
SECTION 7
FUNDING OF PLAN
7.1. UNFUNDED AGREEMENT. The obligation of the Employer to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Employer to make such payments. The Participant shall have no lien, prior claim or other security interest in any property of the Employer. The Employer is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of the Employer. The Employer will pay the cost of this Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the Employer's obligation to Participants in this Plan and shall not be construed to impose on the Employer the obligation to create any separate fund for purposes of this Plan.
If the Employer elects to finance all or a portion of its costs in connection with this Plan through the purchase of life insurance or other similar investments, the Participant agrees, as a condition of participation in this Plan, to cooperate with the Employer in the purchase of such investment to any extent reasonably required by the Employer and relinquishes any claim he or she may have either for himself or herself or any beneficiary to the proceeds of any such investment or any other rights or interests in such investment. If a Participant fails or refuses to cooperate, then notwithstanding any other provision of this Plan Statement (including, without limiting the generality of the foregoing, Section 4) the Employer shall distribute the individual's Account immediately and the Participant shall not be eligible to enroll in the Plan again.
7.2. SPENDTHRIFT PROVISION. No Participant or Beneficiary shall have any interest in any Account which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Employer, nor shall the Employer recognize any assignment thereof, either in whole or in part, nor shall any Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the Employer.
The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participant's death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participant's Account
or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Employer.
This section shall not prevent the Employer from exercising, in its discretion, any of the applicable powers and options granted to it upon the occurrence of an Event of Maturity, as such powers may be conferred upon it by any applicable provision hereof.
SECTION 8
AMENDMENT AND TERMINATION
The Principal Sponsor reserves the power to amend the Plan Statement or terminate the Plan prior to a Full Change in Control. No such amendment of the Plan Statement or termination of the Plan, however, shall reduce a Participant's Account earned as of the date of such amendment unless the Participant so affected consents in writing to the amendment. After a Full Change in Control, the Plan cannot be amended or terminated (as applied to Participants who are Participants on the date of the Full Change in Control) unless:
(a) all Accounts of all Participants as of the date of the Full Change in Control have been paid, or
(b) eighty percent (80%) of all the Participants as of the date of the Full Change in Control give written consent to such amendment or termination.
SECTION 9
DETERMINATIONS -- RULES AND REGULATIONS
9.1. DETERMINATIONS. The Principal Sponsor shall make such determinations as may be required from time to time in the administration of the Plan. The Principal Sponsor shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
9.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Principal Sponsor.
9.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by the Principal Sponsor pursuant to any provision of this Plan Statement may be signed in the name of the Principal Sponsor by any officer who has been authorized to make such certification or to give such notices or consents.
9.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 9.4 shall be the exclusive procedure for the disposition of claims for benefits arising under the Plan until such time as a Full Change in Control occurs.
9.4.1. ORIGINAL CLAIM. Any employee, former employee or beneficiary of such employee or former employee may, if he or she so desires, file with the Principal Sponsor a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Principal Sponsor shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Principal Sponsor shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions of this Plan Statement on which the denial is based;
(c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(d) an explanation of the claims review procedure set forth in this section.
9.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Principal Sponsor a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Principal Sponsor shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days from the date the request for review was filed) to reach a decision on the request for review.
9.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Principal Sponsor may require that any claim for benefits and any request for
a review of a denied claim be filed on forms to be furnished by the Principal Sponsor upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Principal Sponsor.
(c) the Principal Sponsor may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.
(d) A claimant may be represented by a lawyer or other representative (at the claimant's own expense), but the Principal Sponsor reserves the right to require the claimant to furnish written authorization. A claimant's representative shall be entitled to copies of all notices given to the claimant.
(e) The decision of the Principal Sponsor on a claim and on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied claim, the claimant or his or her representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Principal Sponsor.
9.5. INFORMATION FURNISHED BY PARTICIPANTS. The Principal Sponsor shall not be liable or responsible for any error in the computation of the Account of a Participant resulting from any misstatement of fact made by the Participant, directly or indirectly, to the Principal Sponsor, and used by it in determining the Participant's Account. The Principal Sponsor shall not be obligated or required to increase the Account of such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the Account of any Participant which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 10
PLAN ADMINISTRATION
10.1. EMPLOYER.
10.1.1. OFFICERS. Except as hereinafter provided, functions generally assigned to the Principal Sponsor shall be discharged by its officers or delegated and allocated as provided herein.
10.1.2. CHIEF EXECUTIVE OFFICER. Except as hereinafter provided, the Chief Executive Officer of the Principal Sponsor may delegate or redelegate and allocate and reallocate to one or more persons or to a committee of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to the Employer generally hereunder as the Chief Executive Officer may from time to time deem advisable.
10.1.3. BOARD OF DIRECTORS. Notwithstanding the foregoing, the Organization Committee of the Board of Directors of the Principal Sponsor shall have the exclusive authority, which may not be delegated, to act for the Principal Sponsor to amend this Plan Statement, to terminate this Plan, and to determine eligibility to participate in the Plan under Section 2.
10.2. CONFLICT OF INTEREST. If any officer or employee of the Employer, or any member of the Organization Committee of the Board of Directors of the Employer to whom authority has been delegated or redelegated hereunder shall also be a Participant in the Plan, such Participant shall have no authority as such officer, employee or member with respect to any matter specially affecting such Participant's individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to the other officers, employees or members as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant's individual capacity in connection with any such matter.
10.3. ADMINISTRATOR. U.S. BANCORP shall be the administrator for purposes of section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
10.4. SERVICE OF PROCESS. In the absence of any designation to the contrary by the Employer, the Secretary of U.S. BANCORP is designated as the appropriate and exclusive agent for the receipt of service of process directed to the Plan in any legal proceeding, including arbitration, involving the Plan.
SECTION 11
DISCLAIMERS
11.1. TERM OF EMPLOYMENT. Neither the terms of this Plan Statement nor the benefits hereunder nor the continuance thereof shall be a term of the employment of any employee. The Employer shall not be obliged to continue the Plan. The terms of this Plan Statement shall not give any employee the right to be retained in the employment of the Employer.
11.2. SOURCE OF PAYMENT. Neither the Employer nor any of its officers nor any member of its Organization Committee of the Board of Directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Participant or to any Beneficiary or to any creditor of a Participant or a Beneficiary. Each Participant, Beneficiary or other
person entitled at any time to payments hereunder shall look solely to the assets of the Employer for such payments or to the Accounts distributed to any Participant or Beneficiary, as the case may be, for such payments. In each case where Accounts shall have been distributed to a former Participant or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Participant or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of the Employer. Neither the Employer nor any of its officers nor any member of its Board of Directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of the Employer.
11.3. DELEGATION. The Employer and its officers and the members of its Board of Directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
_________________, 1991 U.S. BANCORP
By
Its
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APPENDIX A
CHANGE IN CONTROL DEFINITIONS
SECTION 1
1.1. ACQUIRING PERSON -- any Person who or which, together with all Affiliates (CIC) and Associates of such person, is the Beneficial Owner, directly or indirectly, of securities of USB representing 20% or more of the combined voting power of USB's then outstanding securities, but shall not include any Company Entity.
1.2. AFFILIATE (CIC) -- shall have the meaning ascribed to the term "Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.3. ASSOCIATE -- shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
1.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
1.5. BOARD OF DIRECTORS -- the board of directors of USB.
1.6. CHANGE IN CONTROL -- a Full Change in Control or a Partial Change in Control.
1.7. COMPANY ENTITY -- USB, any subsidiary of USB or any employee benefit plan of USB or of any subsidiary of USB or any entity holding shares of the voting capital stock of USB organized, appointed or established for, or pursuant to the terms of, any such plan.
1.8. CONTINUING DIRECTOR -- any person who is a member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Acquiring Person or an Affiliate (CIC) or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate
(CIC) or Associate, and who (x) was a member of the Board of Directors as of
JANUARY 19, 2000 or (y) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial
election to the Board of Directors has been approved in advance by the
Continuing Directors; provided that any director designated by or on behalf
of a Person who has entered into an agreement with USB (or who is
contemplating entering into such an agreement) to effect a consolidation or
merger of USB or a Company Entity, or other reorganization, with or into one
or more entities which are not Company Entities, and any director that serves
in connection with the act of the Board of Directors of increasing the number
of directors and filling vacancies in connection with, or in contemplation
of, any such transaction, shall not be deemed to have received such advance
approval for initial nomination or election, and any such director shall not
be deemed
to be a Continuing Director, in each case solely for the purpose of determining whether the addition of members of the Board of Directors in connection with, or in contemplation of, such transaction results in a Full Change in Control under clause (b) of the definition of Full Change in Control.
1.9. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended.
1.10. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company Entity) has become the Beneficial
Owner, directly or indirectly, of securities of USB (x)
representing 20% or more, but not more than 50%, of the combined
voting power of USB's then outstanding securities unless the
transaction resulting in such ownership has been approved in
advance by the Continuing Directors or (y) representing more
than 50% of the combined voting power of USB's then outstanding
securities (regardless of any approval by the Continuing
Directors); or
(b) the Continuing Directors cease to constitute a majority of the Board of Directors of USB or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of USB and its subsidiaries or the adoption of any plan of liquidation or dissolution of USB.
NOTWITHSTANDING THE FOREGOING, ANY OF THE FOREGOING EVENTS THAT WOULD CONSTITUTE A FULL CHANGE IN CONTROL MAY BE DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS AS EVIDENCED BY ADOPTION OF A RESOLUTION BY A MAJORITY OF A QUORUM OF THE BOARD OF DIRECTORS AT A DULY HELD MEETING OR BY UNANIMOUS WRITTEN ACTION IN LIEU OF A MEETING, WHICH DETERMINATION MAY BE MADE AT ANY TIME PRIOR TO THE CHANGE IN CONTROL OR, IN THE CASE OF SUBPARAGRAPH (a) ABOVE, AT ANY TIME WITHIN 20 DAYS FOLLOWING THE CHANGE IN CONTROL.
1.11. PARTIAL CHANGE IN CONTROL -- shall mean:
(a) a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of USB as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation
owned, or to be owned, by such shareholders by reason of their ownership prior to such transaction of securities of any entity other than USB) and as a result of which the Continuing Directors constitute more than 50% of the Board of Directors of the Resulting Corporation; or
(b) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company Entity) has become the Beneficial
Owner, directly or indirectly, of securities of USB representing
20% or more, but not more than 50%, of the combined voting power
of USB's then outstanding securities if the transaction
resulting in such ownership has been approved in advance by the
Continuing Directors; or
(C) AN EVENT THAT WOULD HAVE CONSTITUTED A FULL CHANGE IN CONTROL BUT WAS DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN ACCORDANCE WITH THE DEFINITION OF FULL CHANGE IN CONTROL.
1.12. PERSON -- shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
1.13. QUALIFYING TERMINATION -- a termination of employment of a Participant prior to a Full Change in Control or prior to or following a Partial Change in Control that results in such Participant becoming entitled to receive change in control related severance payments pursuant to the terms of the change in control provisions of an employment contract, an individual change in control severance agreement, the U.S. Bancorp Senior Management Change in Control Severance Pay Plan (including any successor plan thereto), the U.S. Bancorp Middle Management Change in Control Severance Pay Program (including any successor program thereto) or the U.S. Bancorp Broad-Based Change in Control Severance Pay Program (including any successor program thereto).
1.14. RESULTING CORPORATION -- the surviving corporation in any consolidation, merger or other reorganization to which USB is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Company Entity (other than USB) is a party, then USB shall be deemed the Resulting Corporation.
COMPOSITE COPY
As Amended Through January 19, 2000
U.S. BANCORP
NONQUALIFIED SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
U.S. BANCORP
NONQUALIFIED SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
Effective January 1, 1992
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION................................................. 1
1.1. History
1.2. Definitions
1.2.1. Accrual Percentage
1.2.2. Accrued SERP Benefit
1.2.3 Actuarial Equivalent
1.2.4. Affiliate
1.2.5. Average Compensation
1.2.6. Beneficiary
1.2.8. Change in Control
1.2.10. Compensation
1.2.11. Effective Date
1.2.12. Employer
1.2.13. Normal Retirement Age
1.2.14. Participant
1.2.15. Plan
1.2.16. Plan Statement
1.2.17. Principal Sponsor
1.2.18. Prior Plans' Offset
1.2.19. Projected Average Compensation
1.2.20. Projected Cash Balance Account
1.2.21. Projected Cash Balance Annuity
1.2.22. Projected Compensation
1.2.23. Projected PIA
1.2.25. SERP Benefit
1.2.26. Service
1.2.27. Social Security Benefit
1.2.28. Survivor Benefit
1.2.29. Termination of Employment
1.2.30. USB
1.3. Rules of Interpretation
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SECTION 2. ELIGIBILITY AND PARTICIPATION................................ 11
2.1. General Eligibility Rule
2.2. Specific Exclusion
SECTION 3. PARTICIPANT'S BENEFIT........................................ 12
3.1. SERP Benefit
3.2. Suspension of Benefits
3.3. Change in Control Distributions
3.3.1. Accelerated Determination of Participant Status
3.3.2. Accelerated Payment Upon Request
3.3.3. Forfeitures
3.4. Other Accelerated Distributions
3.4.1. When Available
3.4.2. Amount
3.4.3. Forfeitures
3.5. Effect on Service
SECTION 4. FORM OF PAYMENT.............................................. 16
4.1. Optional Forms of Payment
4.2. Payments in Case of Incompetency or Disability
4.3. Small Benefits
SECTION 5. DEATH BENEFITS............................................... 17
5.1. Death Benefits
5.1.1. Death Before SERP Benefit Commencement
5.1.2. Death After SERP Benefit Commencement
5.2. Designation of Beneficiaries
5.2.1. Right to Designate
5.2.2. Failure of Designation
5.2.3. Disclaimers by Beneficiaries
5.2.4. Definitions
5.2.5. Special Rules
5.2.6. No Spousal Rights
5.3. Death Prior to Full Distribution
SECTION 6. FUNDING OF PLAN.............................................. 21
6.1. Unfunded Agreement
6.2. Spendthrift Provision
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SECTION 7. AMENDMENT AND TERMINATION.................................... 22
SECTION 8. DETERMINATIONS -- RULES AND REGULATIONS...................... 23
8.1. Determinations
8.2. Rules and Regulations
8.3. Method of Executing Instruments
8.4. Claims Procedure
8.4.1. Original Claim
8.4.2. Claims Review Procedure
8.4.3. General Rules
8.5. Information Furnished by Participants
SECTION 9. PLAN ADMINISTRATION.......................................... 26
9.1. Principal Sponsor
9.1.1. Officers
9.1.2. Chief Executive Officer
9.1.3. Board of Directors
9.2. Conflict of Interest
9.3. Administrator
9.4. Service of Process
9.5. IRC and ERISA Status
SECTION 10. DISCLAIMERS.................................................. 28
10.1. Term of Employment
10.2. Source of Payment
10.3. Delegation
SCHEDULE I .............................................................. SI-1
SCHEDULE II ............................................................. SII-1
APPENDIX B -- CHANGE IN CONTROL DEFINITIONS ............................. B-1
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U.S. BANCORP
NONQUALIFIED SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
SECTION 1
INTRODUCTION
1.1. HISTORY. U.S. Bancorp, a Delaware corporation (hereinafter "Principal Sponsor") and certain subsidiaries of the Principal Sponsor have heretofore adopted and currently maintain a tax qualified defined benefit ("cash balance") pension plan currently known as the "U.S. Bancorp Cash Balance Pension Plan" (hereinafter the "Cash Balance Plan") and a tax qualified defined contribution profit sharing plan (including a qualified cash or deferred arrangement, sometimes called a Section 401(k) feature) currently known as the "U.S. Bancorp 401(k) Savings Plan" (hereinafter the "Savings Plan") for the purpose of providing retirement benefits for employees. The Cash Balance Plan and the Savings Plan are subject to the Employee Retirement Income Security Act of 1974, as amended (hereinafter "ERISA") and they are intended to qualify under section 401(a) of the Internal Revenue Code of 1986, as amended (hereinafter "Code").
By operation of section 401(a) of the Code, benefits which may be paid under The Cash Balance Plan are restricted so that they do not exceed certain maximum limitations established under section 415 of the Code. For benefits accruing under The Cash Balance Plan during plan years beginning after December 31, 1988, the maximum amount of annual compensation which may be taken into account for any employee may not exceed a fixed dollar amount which is established under section 401(a)(17) of the Code. Regulations issued under section 401(a)(4) of the Code limit the amounts and types of remuneration that can be taken into account under The Cash Balance Plan without engaging in discrimination in favor of highly compensated employees which is prohibited for tax qualified plans under the Code.
ERISA authorizes the establishment of an unfunded, nonqualified plan of deferred compensation maintained by an employer solely for the purpose of providing benefits for employees which are in excess of the limitations on benefits imposed on qualified defined benefit plans by section 415 of the Code. ERISA also authorizes the establishment of an unfunded, nonqualified plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. To make provision for such benefits, effective January 1, 1984, the Principal Sponsor adopted the "First Bank System, Inc. Excess Benefit Plan" to provide benefits not otherwise available under The Cash Balance Plan. Effective January 1, 1989, that Plan was amended and restated by the adoption of the "First Bank System, Inc. Excess Benefit Plan (1989 Restatement)."
It is in the interest of this corporation to provide benefits to certain executive employees in excess of those available under The Cash Balance Plan, to provide the full allocations for those
certain employees under The Cash Balance Plan without regard to the limitations on benefits imposed by section 415, 401(a)(17) and 401(a)(4) of the Code, to coordinate the benefits provided to them under The Cash Balance Plan and the Excess Plan and that an unfunded nonqualified deferred compensation plan be maintained for those purposes.
Therefore, this corporation does hereby establish this Plan, the terms and conditions of which are as follows.
1.2. DEFINITIONS. Words used herein with initial capital letters which are also defined in Section 1 of The Cash Balance Plan shall have the meanings assigned in The Cash Balance Plan unless a contrary intention is expressed herein. When used herein with initial capital letters, the following words have the following meanings:
1.2.1. ACCRUAL PERCENTAGE -- a number not greater than one (expressed as either a decimal or a percentage) determined as of a specified date which is equal to (a) divided by (b) divided by (c):
(a) Fifty-five percent (55%) of the Participant's Projected Average Compensation determined as of such specified date, minus the total of:
(i) The Participant's Projected Cash Balance Annuity determined as of such specified date, and
(ii) Seventy-five percent (75%) of the Participant's Projected PIA determined as of such specified date, and
(iii) The Participant's Prior Plans' Offset determined as of such specified date.
(b) The Participant's Projected Average Compensation determined as of such specified date.
(c) The number (never less than one) of total possible years of continuous and full time service with the Employer which the Participant could have completed from his or her most recent date of hire to his or her Normal Retirement Age. To the same extent that the Committee determines under Section 1.2.11 of the Plan Statement that a business entity was an Employer prior to the date on which the business entity first became an Employer, the business entity shall be considered an Employer for the purposes of this subparagraph.
The Accrual Percentage may decrease from time to time.
1.2.2. ACCRUED SERP BENEFIT -- a dollar amount determined as of a specified date which is equal to the product of (a) multiplied by (b) multiplied by (c):
(a) The Participant's Accrual Percentage determined as of such specified date.
(b) The Participant's Average Compensation determined as of such specified date.
(c) The number (which may be less than one, but may not exceed the number of years determined under Section 1.2.1(c)) of total years of continuous and full-time service with the Employer which the Participant has completed from his or her most recent date of hire to the date the Accrued SERP Benefit is determined; provided, however, that a Participant may receive credit for additional years of service, solely for purposes of this Section 1.2.2(c), under subparagraph (i), (ii) or (iii) below, using the greatest number if more than one applies, but not under more than one subparagraph:
(i) If a Participant attains age 60 while employed by an Employer, five additional years of service shall be added to the years of continuous and full-time service of such Participant.
(ii) If a Participant is entitled to receive severance payments under a severance pay plan maintained by an Employer and such payments are made on account of a Change in Control, there shall be included within the years of continuous and full-time service of such Participant the number of years and fractions of years of such payments (even if such payments are paid in a lump sum or other accelerated manner).
(iii) A Participant who terminates employment shall be credited with additional years of service to the extent such credit is expressly provided under the terms of an employment agreement or a change in control severance plan or agreement between the Participant and an Employer.
The Accrued SERP Benefit may decrease from time to time. To the same extent that the Committee determines under Section 1.2.12 of the Plan Statement that a business entity was an Employer prior to the date on which the business entity first became an Employer, the business entity shall be considered an Employer for the purposes of this subparagraph.
1.2.3 ACTUARIAL EQUIVALENT -- a benefit of equivalent value computed on the basis of the actuarial tables, factors and assumptions set forth in Appendix C to the Cash Balance Plan.
1.2.4. AFFILIATE -- a business entity which is affiliated in ownership with the Principal Sponsor or an Employer and is recognized as an Affiliate by the Principal Sponsor for the purposes of this Plan.
1.2.5. AVERAGE COMPENSATION -- a dollar amount which is the annual average of the Participant's Compensation for each of the thirty-six (36) calendar months ending with the last day of the calendar month immediately before the date the Average Compensation is determined. Average Compensation may decrease from time to time. For this purpose, short term annual incentive compensation which has been determined in fact by the Employer before the date as of which the Average Compensation is determined shall be treated as if paid in fact before such event. If it is not so determined before such date, it shall be wholly disregarded for the purposes of this Plan. For this purpose, short term annual incentive compensation, although paid less frequently, shall be evenly allocated to the calendar months with respect to which it is paid. Notwithstanding anything apparently to the contrary, in determining Average Compensation, there shall be taken into account the short term annual incentive compensation attributable to the thirty-six (36) calendar months preceding the date as of which the Average Compensation is determined or, if it would produce a greater Average Compensation, the short term annual incentive compensation attributable to the thirty-six (36) calendar months ending with the December 31 preceding the date as of which the Average Compensation is determined.
1.2.6. BENEFICIARY -- a person designated by a Participant (or automatically by operation of this Plan Statement) to receive the Survivor Benefit in the event of the Participant's death under circumstances when such benefit is payable under Section 5. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.7. CASH BALANCE PLAN -- the tax-qualified defined benefit plan known as the U.S. BANCORP CASH BALANCE PENSION PLAN, as the same is existing and may be amended from time to time.
1.2.8. CHANGE IN CONTROL -- The definition of Change in Control, as well as certain other definitions relating to Change in Control used herein, appear in Appendix B to this Plan Statement.
1.2.9. COMMITTEE -- the Compensation and Human Resources Committee of the Board of Directors of the Principal Sponsor, and any successor thereto.
1.2.10. COMPENSATION -- a dollar amount which is the annual amount of base salary and short term annual incentive compensation paid to the Participant for services rendered as an employee of the Employer. Compensation may decrease from time to time.
(a) PRE-TAX RETIREMENT CONTRIBUTIONS. Compensation shall include amounts which the Participant would have received and would have been included as Compensation but for section 402(e)(3) of the Code.
(b) CAFETERIA PLAN CONTRIBUTIONS. Compensation shall include amounts which the Participant would have received and which would have been included as Compensation but for section 125 of the Code.
(c) DEFERRED COMPENSATION. Notwithstanding the foregoing, Compensation shall include amounts of base salary and short term annual incentive compensation which were deferred at the election of the Participant or otherwise under a nonqualified plan of deferred compensation at the time such amounts would have been paid but for such election to defer and not at the time actually received by the Participant.
1.2.11. EFFECTIVE DATE -- January 1, 1992.
1.2.12. EMPLOYER -- the Principal Sponsor and any business entity affiliated with the Principal Sponsor that employs persons who are designated for participation in this Plan. Unless the Committee determines otherwise, no business entity shall be considered an Employer for any period of time prior to the date on which the business entity first became an Employer.
1.2.13. NORMAL RETIREMENT AGE -- a date determined as of a specified date:
(a) for a Participant who is not yet age sixty-five (65) years as of the specified date, the last day of the calendar month in which the Participant will attain age sixty-five (65) years, or
(b) for a Participant who is age sixty-five (65) years or older as of the specified date, the last day of the calendar month immediately preceding the date as of which the Normal Retirement Age is being determined.
1.2.14. PARTICIPANT -- an employee of an Employer who becomes a Participant in the Plan in accordance with the provisions of Section 2. An employee who has become a Participant shall be considered to continue as a Participant in the Plan until the date of the Participant's death or, if earlier, the date when the Participant is no longer employed by an Employer and upon which the Participant no longer has any SERP Benefit under the Plan (that is, the Participant has received a distribution of all of the Participant's SERP Benefit or the Participant's SERP Benefit has been forfeited).
1.2.15. PLAN -- the nonqualified deferred compensation plan of the
Employer established for the benefit of employees eligible to participate
therein, as first set forth in this Plan Statement. (As used herein, "Plan"
refers to the legal entity established by an Employer and not to the document
pursuant to which the Plan is maintained. That document is referred to
herein as the "Plan Statement.") The Plan shall be referred to as the "U.S.
BANCORP NONQUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN."
1.2.16. PLAN STATEMENT -- this document entitled "U.S. BANCORP NONQUALIFIED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN," as adopted by the Principal Sponsor effective as of January 1, 1992, as the same may be amended from time to time thereafter.
1.2.17. PRINCIPAL SPONSOR -- U.S. BANCORP, a Delaware corporation, or any successor thereto.
1.2.18. PRIOR PLANS' OFFSET -- a dollar amount equal to the product of the Participant's Projected Average Compensation multiplied by the factor for that Participant determined from Schedule II to this Plan Statement. The factor for the participant shall be determined by reference to the Participant's age at his or her most recent date of hire by the Employer; provided, however, that in the event the Projected Cash Balance Annuity is reduced as provided in the last sentence of Section 1.2.20(f), the factor shall be determined by reference to the Participant's age as of the applicable "conversion date" referred to in Section 1.2.20(f). To the same extent that the Committee determines under Section 1.2.12 of the Plan Statement that a business entity was an Employer prior to the date on which the business entity first became an Employer, the business entity shall be considered an Employer for the purposes of this paragraph.
1.2.19. PROJECTED AVERAGE COMPENSATION -- a dollar amount which is the average of the Participant's Compensation or Projected Compensation or both for each of the three (3) calendar years ending with:
(a) if the date as of which the Projected Average Compensation is determined is before the Participant's Normal Retirement Age, the calendar year in which the Participant would attain Normal Retirement Age, or
(b) if the date as of which the Projected Average Compensation is determined is on or after the Participant's Normal Retirement Age, the Plan Year in which the Participant's SERP Benefit is determined.
Projected Average Compensation may decrease from time to time.
1.2.20. PROJECTED CASH BALANCE ACCOUNT -- a dollar amount equal to the Account balance the Participant would be expected to have under The Cash Balance Plan at his or her Normal Retirement Age based on the following assumptions:
(a) The initial account balance shall be the balance determined under The Cash Balance Plan as of the last day of the Plan Year immediately preceding the date as of which the Projected Cash Balance Account is determined (together with such amounts as would have been included in such balance if there were no limitations on benefits under section 415 of the Internal Revenue Code
and no limitations on compensation under section 401(a)(17) of the Internal Revenue Code).
(b) The Participant shall receive increases in recognized compensation at the rate Projected Compensation is deemed to increase under this Plan Statement.
(c) Compensation credits under the Cash Balance Plan shall be made under the terms of the Cash Balance Plan as they exist on the date as of which the Projected Cash Balance Account is determined.
(d) Interest credits under The Cash Balance Plan shall be made at an annual rate that is 3 percentage points greater than the rate at which Projected Compensation is deemed to increase under this Plan Statement.
(e) Compensation credits and interest credits under The Cash Balance Plan have been and shall be made as if there were no limitations on benefits under section 415 of the Internal Revenue Code and no limitations on compensation under section 401(a)(17) of the Internal Revenue Code.
(f) Subject to the following, the Participant's initial account balance shall not include any amounts attributable to service with a business entity prior to the date the business entity first became an Employer. To the same extent that the Committee determines under Section 1.2.12 of the Plan Statement that a business entity was an Employer prior to the date on which the business entity first became an Employer, amounts attributable to service with the business entity shall be included in the Participant's initial account balance. Notwithstanding anything to the contrary in this subsection (f), unless the Committee determines otherwise, in lieu of adjusting the initial account balance of a Participant to exclude amounts attributable to service with a business entity prior to the date the business entity first became an Employer, the Projected Cash Balance Annuity of any Participant whose prior employer pension is merged into the Cash Balance Plan on or after December 31, 1998, shall be reduced by the amount of the single life annuity benefit payable at Normal Retirement Age under the defined benefit pension plans of the prior employer which were converted into a lump sum amount and included in the Projected Cash Balance Account, such single life annuity to be calculated as of the conversion date (and to be determined without regard to the limitations on benefits under section 415 of the Internal Revenue Code and the limitation on compensation under section 401(a)(17) of the Internal Revenue Code to the extent the prior employer maintained a plan or plans to provide such excess benefits).
(g) Projected Cash Balance Account may decrease from time to time.
1.2.21. PROJECTED CASH BALANCE ANNUITY -- subject to the adjustment, if any, provided under the last sentence of Section 1.2.20(f), a dollar amount equal to the Actuarial Equivalent amount of single life annuity payable at Normal Retirement Age which the Projected Cash Balance Account will produce.
1.2.22. PROJECTED COMPENSATION -- a separate dollar amount determined for each Plan Year commencing after the date as of which Projected Compensation is determined, assuming:
(a) the Participant continues to earn short-term incentive payments at the target levels, and
(b) the annual rate of the Participant's Compensation as of the first day of the Plan Year in which it is determined increased at four percent (4%) per annum, compounded annually, on the first day of each successive Plan Year.
Projected Compensation may decrease from time to time.
1.2.23. PROJECTED PIA -- the dollar amount of annual old age Social Security benefit expected to be paid to the Participant at the Participant's Normal Retirement Age, assuming:
(a) that the Participant has had and continues to have taxable wages at or above the taxable wage base for Social Security purposes,
(b) that the maximum Social Security taxable wage base increases at the rate at which Projected Compensation is deemed to increase under this Plan Statement,
(c) that the consumer price index increases at one percentage point less than the rate at which Projected Compensation is deemed to increase under this Plan Statement.
1.2.24. SAVINGS PLAN -- the tax-qualified defined contribution
("Section 401(k)") profit sharing plan known as the U.S. BANCORP 401(K)
SAVINGS PLAN, as the same is existing and may be amended from time to time.
1.2.25. SERP BENEFIT -- a single, lump sum, dollar amount which is equal to the Actuarial Equivalent present value of the Participant's Accrued SERP Benefit payable as a single life annuity commencing at the Participant's Normal Retirement Age. The SERP Benefit may decrease from time to time. The SERP Benefit may be paid in any of the optional forms of payment which are permitted under Section 4.1. Notwithstanding anything in this Section 1.2.25 to the contrary, if the Participant's Minimum Benefit under the Cash Balance Plan exceeds the Participant's account balance thereunder (both determined without regard to the limitations on benefits under Section 415 and Section 401(a)(17) of the Internal Revenue Code), the Participant's SERP Benefit
shall be the amount as determined above, reduced (but not below zero) by the excess of such Minimum Benefit over the Participant's account balance as of the date as of which the Participant's SERP Benefit is being determined.
1.2.26. SERVICE -- a measure of an employee's service with all Employers and all Affiliates (stated as a number of years) which is equal to the number of years of "Vesting Service" determined under the rules of The Cash Balance Plan (or any similar successor plan) as those rules may exist at the time the Participant's Service is being determined. For this purpose, however, there shall be taken into account only years of continuous and full time service with the Employer which the Participant has completed from his or her most recent date of hire. Unless the Committee determines otherwise, service with an employer prior to the date on which the employer first became an Employer shall not be taken into account for this purpose. Any determination by the Committee under this Section 1.2.26 shall be independent of any determination by the Committee under Section 1.2.12 of the Plan Statement.
1.2.27. SOCIAL SECURITY BENEFIT -- the approximate monthly amount available for the benefit of the Participant at age sixty-five (65) years, (including amounts available for spouses but excluding amounts available for other dependents), as an old age or disability insurance benefit under the provisions of Title II of the Federal Social Security Act in effect on the date of the Participant's Termination of Employment (or his or her sixty-fifth birthday if the Termination of Employment is later than the sixty-fifth birthday) whether or not payment of such amount in delayed, suspended or forfeited because of failure to apply, accepting other work, or any other similar reason within the control of the Participant (and determined without any increases in cost of living, legislated changes or any other similar factors). For this purpose, the Participant's spouse, if any, shall be deemed to be the same age as the Participant. Unless the Participant shall have furnished verified proof of wages before the earlier of his or her Termination of Employment or death, he or she shall be deemed to have had taxable wages at or above the taxable wage base in all years prior to the year of his or her Termination of Employment or death. The determination by the Principal Sponsor of the Social Security Benefit shall be final and binding upon all parties interested in this Plan.
1.2.28. SURVIVOR BENEFIT -- the lump sum benefit or single life
annuity payable to the Beneficiary of a deceased Participant pursuant to
Section 5.1.
1.2.29. TERMINATION OF EMPLOYMENT -- a complete severance of an employee's employment relationship with the Principal Sponsor, all Employers and all Affiliates, if any, for any reason other than the employee's death. A transfer from employment with an Employer to employment with an Affiliate of an Employer shall not constitute a Termination of Employment. If an Employer who is an Affiliate ceases to be an Affiliate because of a sale of substantially all the stock or assets of an Employer, then Participants who are employed by that Employer and who cease to be employed by the Principal Sponsor or that Employer on account of the sale of substantially all the stock or assets of that Employer shall be deemed to have thereby had a Termination of Employment for the purpose of making distributions from this Plan.
1.2.30. USB -- U.S. BANCORP, a Delaware corporation.
1.3. RULES OF INTERPRETATION. An individual shall be considered to have attained a given age on the individual's birthday for that age (and not on the day before). The birthday of any individual born on a February 29 shall be deemed to be February 28 in any year that is not a leap year. Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Participant shall be deemed for all purposes of this Plan and all elections and designations made under this Plan to have died before such Participant. A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this Section. In the absence of a conviction of felonious and intentional killing, the Principal Sponsor shall determine whether the killing was felonious and intentional for the purposes of this Section. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to the entire Plan Statement and not to any particular paragraph or Section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various Sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This instrument has been executed and delivered in the State of Minnesota and has been drawn in conformity to the laws of that State and shall, except to the extent that federal law is controlling, be construed and enforced in accordance with the laws of the State of Minnesota.
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. GENERAL ELIGIBILITY RULE. The status of an employee as a Participant in this Plan shall be determined only as of Termination of Employment or death. Each employee who:
(a) has not less than five (5) years of Service with U.S. BANCORP and its subsidiaries at Termination of Employment or death; and
(b) was actively employed at Grade 18 or above for at least one year immediately prior to Termination of Employment or death; and
(c) is a "highly compensated employee" as defined in Code section 414(q) at the time of Termination of Employment or death; and
(d) was actively employed by an Employer on or after January 1, 1992,
shall be a Participant in this Plan at his or her Termination of Employment or death (subject to Section 2.2 and all other rules of this Plan Statement). Notwithstanding the foregoing, the Chief Executive Officer of the Principal Sponsor may exclude any individual who would otherwise be Participant from being a Participant and such determination shall be effective if such person receives notice of such determination in writing before his or her Termination of Employment.
2.2. SPECIFIC EXCLUSION. Notwithstanding anything apparently to the contrary in this Plan or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for himself or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person's erroneous participation shall immediately terminate AB INITIO and upon demand such person shall be obligated to reimburse the Principal Sponsor for all amounts erroneously paid to him or her.
SECTION 3
PARTICIPANT'S BENEFIT
3.1. SERP BENEFIT. Upon Termination of Employment, the Participant shall receive a SERP Benefit determined as of the date of the Termination of Employment. The SERP Benefit shall be paid in a single lump sum unless an election of an optional form of payment is in effect under Section 4.1. Payment shall be made or commenced as soon as may be practicable on or after the fifteenth day of the second calendar month following Termination of Employment. Such payment shall be in full and complete discharge of all benefits payable to, or with respect to, the Participant under this Agreement including, but not limited to, any Survivor Benefit to which his or her Beneficiary might otherwise have been entitled. The consent of a spouse or Beneficiary shall not be required before making the single lump sum payment or optional form of payment herein described.
3.2. SUSPENSION OF BENEFITS. The SERP Benefit shall not be paid during employment, reemployment or continued employment under rules adopted by the Principal Sponsor. Until such rules are adopted, the suspension of benefits rules of The Cash Balance Plan shall apply.
3.3. CHANGE IN CONTROL DISTRIBUTIONS.
3.3.1. ACCELERATED DETERMINATION OF PARTICIPANT STATUS. Notwithstanding anything apparently to the contrary in this Plan Statement, upon the occurrence of a Full Change in Control all employees who would be considered Participants if they had a Termination of Employment on the date of the Full Change in Control shall be considered Participants; and notwithstanding anything apparently to the contrary in this Plan Statement, upon the occurrence of a Qualifying Termination any employee who would be considered a Participant if such employee had a Termination of Employment on the date of such Qualifying Termination shall be a Participant. This determination shall be made without regard to whether such employees have five (5) or more years of Service with U.S. BANCORP and its subsidiaries at the date of such Full Change in Control or Qualifying Termination and without regard to whether such employees were actively employed at Grade 18 or above for at least one year immediately prior to the date of such Full Change in Control or Qualifying Termination (if such employees were actively employed at Grade 18 or above immediately prior to the date of such Full Change in Control or Qualifying Termination).
3.3.2. ACCELERATED PAYMENT UPON REQUEST. A Participant who has not yet commenced to receive payments of the SERP Benefit may receive a distribution of his or her entire SERP Benefit (after reduction for the forfeiture described in Section 3.4.3) if a Full Change in Control or a Qualifying Termination has occurred.
3.3.3. FORFEITURES. Upon the approval of a Change in Control distribution, there shall be irrevocably forfeited from the SERP Benefit of the Participant an amount equal to five percent (5%) of the SERP Benefit. A Participant receiving this distribution of the SERP Benefit on account of a Change in Control shall not thereafter ever be a Participant in the Plan again.
3.4. OTHER ACCELERATED DISTRIBUTIONS.
3.4.1. WHEN AVAILABLE. At any time following the Participant's Termination of Employment, the Participant or the Beneficiary of a deceased Participant who has elected an optional form of payment under Section 4.1 may elect to receive an accelerated distribution of the SERP Benefit in a lump sum payment determined under this Section 3.4 payable sixty (60) days after giving the Principal Sponsor written notice of the election on a form furnished by and filed with the Principal Sponsor.
In the event of the severe financial hardship of a Participant following Termination of Employment or of a Beneficiary, the Participant or Beneficiary may elect to receive an accelerated distribution of part of the SERP benefit in a lump sum payment determined under this Section 3.4. The Principal Sponsor shall determine whether a severe financial hardship exists in its sole discretion, in good faith, and on a uniform, nondiscriminatory and reasonable basis.
3.4.2. AMOUNT. Subject to penalties under Section 3.4.3, the amount of any accelerated lump sum distribution shall be determined as follows:
(a) Before the commencement of payment of the SERP Benefit, the lump sum payment to a Participant shall equal the Participant's SERP Benefit.
(b) After the commencement of payment of the SERP Benefit, the lump
sum payment to a Participant shall equal the difference between
(i) minus (ii) below, determined as of the date for the
commencement of SERP Benefit payments (the "Commencement Date")
and accumulated to the date of the lump sum payment using the
same interest rate that is used in calculating the amounts under
(i) and (ii):
(i) The lump sum value of the Participant's Accrued SERP Benefit determined as of the Participant's Commencement Date,
(ii) The lump sum value of the SERP Benefit payments previously paid to the Participant discounted to the Participant's Commencement Date. The lump sum value of the SERP Benefit payments previously paid to the Participant shall be calculated based on the monthly payments which would have been made if the Participant had elected to receive the SERP Benefit as a single life annuity, irrespective of the optional form of payment of the SERP Benefit actually elected by the Participant.
(c) The lump sum payment to a Beneficiary of a deceased Participant shall be determined in a manner similar to that used for a Participant, except that the lump sum payment shall only reflect the value of the remaining payments of
the SERP Benefit which would be made to the Beneficiary under the optional form of payment elected by the Participant assuming that the Beneficiary dies upon reaching his or her original life expectancy determined as of the Participant's Commencement Date.
(d) For an accelerated distribution to a Participant or Beneficiary on account of a severe financial hardship, the lump sum payment shall not exceed the amount necessary to relieve the hardship, and subsequent payments of the SERP Benefit shall be reduced according to the ratio of (i) to (ii) below:
(i) The amount of the hardship distribution paid to the Participant or Beneficiary,
(ii) The entire lump sum payment which the Participant or Beneficiary could have elected to receive on the date of the hardship distribution.
For example, if the hardship distribution represents forty percent (40%) of the entire lump sum distribution which could have been received, subsequent payments to the Participant or Beneficiary will each be reduced by forty percent (40%).
(e) All calculations under this Section 3.4. shall be based on the tables, factors (including interest rate), and assumptions that are set forth in Appendix A to this Plan Statement for determining Actuarially Equivalent benefits.
(f) All calculations under this Section 3.4 shall be made by the Principal Sponsor, and its determinations with respect to accelerated distributions shall be final and binding on all parties.
3.4.3. FORFEITURES. Any lump sum payment under this Section 3.4,
except any hardship distribution, shall be reduced by a penalty equal to ten
percent (10%) of such payment which shall be forfeited to the Principal
Sponsor; provided, however, that if any such payment is made within 24 months
after a Change in Control has occurred, the penalty shall be equal to five
percent (5%). Notwithstanding any other provisions of this Plan, no penalty
shall apply if the Principal Sponsor determines, based on the advice of
counsel or a final determination by the Internal Revenue Service or any court
of competent jurisdiction, that by reason of the elective provisions of this
Section 3.4, any Participant or Beneficiary has recognized or will recognize
gross income for federal income tax purposes under this Plan in advance of
payment to him or her of the SERP Benefit. The Principal Sponsor may also
reduce or eliminate the penalty if it determines that this action will not
cause any Participant or Beneficiary to recognize gross income for federal
income tax purposes under this Plan in advance of payment of the SERP Benefit.
3.5. EFFECT ON SERVICE. If a Participant receives a lump sum distribution or commences to receive any optional form of payment of the Participant's SERP Benefit, the Plan shall thereafter disregard the Participant's Service and the Participant's years of continuous and full-time service used in determining the SERP Benefit with respect to which the Participant received or commenced to receive such distribution.
SECTION 4
FORM OF PAYMENT
4.1. OPTIONAL FORMS OF PAYMENT. An employee who has four (4) or more years of Service with U.S. BANCORP, is actively employed at Grade 18 or above, and is a "highly compensated employee" as defined in Code section 414(q) may elect at any time more than 12 months preceding Termination of Employment to have the SERP Benefit paid in monthly payments as a single life annuity, 50% or 100% joint and survivor annuity, or single life annuity with 10 or 15 year certain payments. All optional forms of payment shall have the same Actuarial Equivalent present value as the lump sum payment. An election of an optional form of payment must be made by the Participant in writing on a form furnished by and filed with the Principal Sponsor and may be changed at any time more than 12 months preceding Termination of Employment. Any election which is not timely made will be disregarded. Notwithstanding such an election, an optional form of payment of the SERP Benefit (other than a lump sum payment) will only be made to a Participant who has a Termination of Employment (A) after attaining age 65 or (B) after attaining age 55, when the sum of the Participant's age and years of continuous and full-time service with the Employer equals or exceeds 65.
4.2. PAYMENTS IN CASE OF INCOMPETENCY OR DISABILITY. In case of legal incompetency or disability, (including minority), of a person entitled to receive any payment under this Plan, payment may be made, if the Principal Sponsor has been advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such incompetent or disabled person; or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled person, provided such person or institution has satisfied the Principal Sponsor that the payment will be used for the best interest and assist in the care of such disabled or incompetent person or, provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such disabled or incompetent person.
Any payment made in accordance with this Section shall constitute a complete discharge of any liability or obligation of this Plan, the Principal Sponsor and all Employers therefor.
4.3. SMALL BENEFITS. Notwithstanding any other provision of this Plan Statement to the contrary, the Principal Sponsor, in its discretion, may pay any benefit which is payable under the Plan to a Participant or Beneficiary in a lump sum payment if the lump sum amount which is payable is less than $50,000.
SECTION 5
DEATH BENEFITS
5.1. DEATH BENEFITS.
5.1.1. DEATH BEFORE SERP BENEFIT COMMENCEMENT. Upon the death of a Participant who at his or her death had not yet commenced to receive payment of the SERP Benefit under the Plan, there shall be paid to the Participant's Beneficiary the single lump sum which the Participant would have received under Section 3.1 if the Participant had not died, but had instead had a Termination of Employment on the date of his or her death; provided, however, that an employee who is eligible to make an election under Section 4.1 may elect at any time prior to his or her death to have the death benefit which is payable upon his or her death before commencement of payment of the SERP Benefit paid as a single life annuity for the life of the Beneficiary. Such single life annuity shall have the same Actuarial Equivalent present value as the lump sum payment which would otherwise be made to the Beneficiary. An election to have the death benefit paid as a single life annuity must be made by the employee eligible to make such an election in writing on a form furnished by and filed with the Principal Sponsor and may be changed at any time during such employee's lifetime before commencement of payment of the SERP Benefit. Payment to the Beneficiary shall be made or commenced as soon as may be practicable on or after the fifteenth day of the second calendar month after the death of the Participant.
5.1.2. DEATH AFTER SERP BENEFIT COMMENCEMENT. If payment to a Participant of the SERP Benefit has been made in a lump sum or commenced as a single life annuity, no death benefit will be payable upon the death of the Participant. If payment to a Participant of the SERP Benefit has commenced as a 50% or 100% joint and survivor annuity or as a single life annuity with 10 or 15 year certain payments, payments will be made following the death of the Participant only in accordance with the terms of the optional form of payment of the SERP Benefit which was elected by the Participant.
5.2. DESIGNATION OF BENEFICIARIES.
5.2.1. RIGHT TO DESIGNATE. Each employee who is eligible to make an election under Section 4.1 may designate, upon forms to be furnished by and filed with the Principal Sponsor, one or more primary Beneficiaries or alternate Beneficiaries to receive all or a specified part of such employee's Survivor Benefit in the event of his or her death. Such employee may change or revoke any such designation from time to time before commencement of payment of the SERP Benefit without notice to or consent from any Beneficiary or spouse. No such designation, change or revocation shall be effective unless executed by the employee eligible to make such designation and received by the Principal Sponsor during such employee's lifetime and prior to commencement of payment of the SERP Benefit.
5.2.2. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant,
such Participant's Survivor Benefit, or the part thereof as to which such Participant's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Participant and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents
Participant's surviving brothers and sisters
Representative of Participant's estate.
5.2.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Participant's Survivor Benefit may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the lump sum death benefit at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Survivor Benefit is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Principal Sponsor after the date of the Participant's death but not later than one hundred eighty (180) days after the date of the Participant's death. A disclaimer shall be irrevocable when delivered to the Principal Sponsor. A disclaimer shall be considered to be delivered to the Principal Sponsor only when actually received by the Principal Sponsor. The Principal Sponsor shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of the provisions of Section 6 and shall not be considered to be an assignment or alienation of benefits in violation of federal law prohibiting the assignment or alienation of benefits under this Plan. No other form of attempted disclaimer shall be recognized by the Principal Sponsor.
5.2.4. DEFINITIONS. When used herein and, unless the Participant has otherwise specified in the Participant's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Participant.
5.2.5. SPECIAL RULES. Unless the Participant has otherwise specified in the Participant's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant.
(b) The automatic Beneficiaries specified in Section 5.2.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person who is the Participant's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. (The foregoing shall not prevent the Participant from designating a former spouse as a Beneficiary on a form executed by the Participant and received by the Principal Sponsor after the date of the legal termination of the marriage between the Participant and such former spouse, and during the Participant's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participant's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is filed by a Participant who, at the time of such execution or filing, is then a minor under the law of the state of the Participant's legal residence. The Principal Sponsor shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
5.2.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Participant and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Participant.
5.3. DEATH PRIOR TO FULL DISTRIBUTION. If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Survivor Benefit which are payable to the Beneficiary (and shall not be paid to the Participant's estate).
SECTION 6
FUNDING OF PLAN
6.1. UNFUNDED AGREEMENT. The obligation of the Employers to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Employers to make such payments. The Participant shall have no lien, prior claim or other security interest in any property of any Employer. If a fund is established by the Employers in connection with this Plan, the property therein shall remain the sole and exclusive property of the Employers. The Employers will pay the cost of this Plan out of their general assets.
If the Principal Sponsor elects to finance all or a portion of its costs in connection with this Plan through the purchase of life insurance or other similar investments, the Participant agrees, as a condition of participation in this Plan, to cooperate with the Principal Sponsor in the purchase of such investment to any extent reasonably required by the Principal Sponsor and relinquishes any claim he or she may have either for himself or herself or any beneficiary to the proceeds of any such investment or any other rights or interests in such investment. If a Participant fails or refuses to cooperate, then notwithstanding any other provision of this Plan Statement (including, without limiting the generality of the foregoing, Section 4) the Principal Sponsor shall immediately and irrevocably terminate and forfeit the Participant's entitlement to benefits under the Plan.
6.2. SPENDTHRIFT PROVISION. No Participant or Beneficiary shall have any interest under this Plan which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Employers, nor shall the Principal Sponsor recognize any assignment thereof, either in whole or in part, nor shall any benefit under this Plan be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the Employers.
The power to designate Beneficiaries to receive the Survivor Benefit of a Participant in the event of such Participant's death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participant's SERP Benefit or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Principal Sponsor.
SECTION 7
AMENDMENT AND TERMINATION
The Principal Sponsor reserves the power to amend the Plan Statement or terminate the Plan prior to a Full Change in Control. No such amendment of the Plan Statement or termination of the Plan, however, shall reduce a Participant's SERP Benefit earned as of the date of such amendment unless the Participant so affected consents in writing to the amendment. After a Full Change in Control, the Plan cannot be amended or terminated (as applied to Participants who are Participants on the date of the Full Change in Control) unless:
(a) all SERP Benefits of all Participants as of the date of the Full Change in Control have been paid, or
(b) eighty percent (80%) of all the Participants as of the date of the Full Change in Control give written consent to such amendment or termination.
Notwithstanding the rules of Section 2, for the purposes of the rules of this
Section 7, each employee who would be a Participant at the time of the Full
Change in Control if he or she: (i) had a Termination of Employment
coincident with the Full Change in Control, and (ii) had not less than five
(5) years of Service with U.S. BANCORP and its subsidiaries and at least one
year active employment at Grade 18 or above at the time of the Full Change in
Control, shall be considered a Participant (assuming that such employees were
actively employed at Grade 18 or above immediately prior to the time of the
Full Change in Control). No modification of the terms of this Plan Statement
shall be effective unless it is in writing and signed on behalf of the
Principal Sponsor by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan Statement
shall be effective to amend the Plan Statement.
SECTION 8
DETERMINATIONS -- RULES AND REGULATIONS
8.1. DETERMINATIONS. The Principal Sponsor shall make such determinations as may be required from time to time in the administration of the Plan. The Principal Sponsor shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
8.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Principal Sponsor. The Principal Sponsor shall adopt rules regarding the computation of continuous and full time service with the Employer including, without limiting the generality of the foregoing, rules regarding the exclusion of periods of employment with respect to which benefits may have been previously paid under this Plan, the exclusion of periods of employment at levels or in positions not covered by this Plan, the computation of continuous and full time service upon the reemployment of a former employee and the exclusion of periods of employment when disabled (under the Employer's separate plan of long term disability benefits or otherwise). Such rules shall also prescribe the effect of loss of eligibility, deemed Termination of Employment upon loss of eligibility, the computation of continuous and full time service upon reemployment and the method for computing the Projected Cash Balance Account when the period benefits accrued under The Cash Balance Plan does not match the period of continuous and full time service under this Plan.
8.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by the Principal Sponsor pursuant to any provision of this Plan Statement may be signed in the name of the Principal Sponsor by any officer who has been authorized to make such certification or to give such notices or consents.
8.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 8.4 shall be the exclusive procedure for the disposition of claims for benefits arising under the Plan until such time as a Full Change in Control occurs.
8.4.1. ORIGINAL CLAIM. Any employee, former employee or beneficiary of such employee or former employee may, if he or she so desires, file with the Principal Sponsor a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Principal Sponsor shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Principal Sponsor shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions of this Plan Statement on which the denial is based;
(c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(d) an explanation of the claims review procedure set forth in this section.
8.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Principal Sponsor a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Principal Sponsor shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days from the date the request for review was filed) to reach a decision on the request for review.
8.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Principal Sponsor may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Principal Sponsor upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Principal Sponsor.
(c) the Principal Sponsor may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.
(d) A claimant may be represented by a lawyer or other representative (at the claimant's own expense), but the Principal Sponsor reserves the right to require the claimant to furnish written authorization. A claimant's representative shall be entitled to copies of all notices given to the claimant.
(e) The decision of the Principal Sponsor on a claim and on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the
claim or request for a review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied claim, the claimant or his or her representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Principal Sponsor.
8.5. INFORMATION FURNISHED BY PARTICIPANTS. The Principal Sponsor shall not be liable or responsible for any error in the computation of the SERP Benefit of a Participant resulting from any misstatement of fact made by the Participant, directly or indirectly, to the Principal Sponsor, and used by it in determining the Participant's SERP Benefit. The Principal Sponsor shall not be obligated or required to increase the SERP Benefit of such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the SERP Benefit of any Participant which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 9
PLAN ADMINISTRATION
9.1. PRINCIPAL SPONSOR.
9.1.1. OFFICERS. Except as hereinafter provided, functions generally assigned to the Principal Sponsor shall be discharged by its officers or delegated and allocated as provided herein.
9.1.2. CHIEF EXECUTIVE OFFICER. Except as hereinafter provided, the Chief Executive Officer of the Principal Sponsor may delegate or redelegate and allocate and reallocate to one or more persons or to a committee of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to the Principal Sponsor generally hereunder as the Chief Executive Officer may from time to time deem advisable.
9.1.3. BOARD OF DIRECTORS. Notwithstanding the foregoing, the Committee of the Board of Directors of the Principal Sponsor shall have the exclusive authority, which may not be delegated, to act for the Principal Sponsor to amend this Plan Statement, to terminate this Plan, and to determine eligibility to participate in the Plan under Section 2.
9.2. CONFLICT OF INTEREST. If any officer or employee of the Principal Sponsor or any Employer, or any member of the Committee of the Board of Directors of the Principal Sponsor or any Employer to whom authority has been delegated or redelegated hereunder shall also be a Participant in the Plan, such Participant shall have no authority as such officer, employee or member with respect to any matter specially affecting such Participant's individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to the other officers, employees or members as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant's individual capacity in connection with any such matter.
9.3. ADMINISTRATOR. U.S. BANCORP shall be the administrator for purposes of section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
9.4. SERVICE OF PROCESS. In the absence of any designation to the contrary by the Principal Sponsor, the Secretary of U.S. BANCORP is designated as the appropriate and exclusive agent for the receipt of service of process directed to the Plan in any legal proceeding, including arbitration, involving the Plan.
9.5. IRC AND ERISA STATUS. This Plan is intended to be a nonqualified deferred compensation arrangement. The rules of section 401(a) et. seq. of the Code shall not apply to this Plan. This Plan is adopted with the understanding that it is in part an unfunded excess benefit plan within the meaning of section 3(36) ERISA and is in part an unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in sections 201(2), 301(3) and 401(a)(1) of ERISA. Each provision hereof shall be interpreted and administered accordingly. This Plan shall not alter, enlarge or diminish any person's employment rights or obligations or rights or obligations under The Cash Balance Plan or any other plan.
It is specifically contemplated that The Cash Balance Plan and the Excess Plan will, from time to time, be amended and possibly terminated. All such amendments and termination shall be given effect under this Plan (it being expressly intended that this Plan shall not lock in the benefit structures of The Cash Balance Plan and the Excess Plan as they exist at the adoption of this Plan or upon the commencement of participation, or commencement of benefits by any Participant).
This Plan will not provide any excess benefits with respect to any profit sharing plan, stock bonus plan, employee stock ownership plan or PAYSOP. This Plan shall be construed to prevent the duplication of benefits provided under any other plan or arrangement, whether qualified or nonqualified, funded or unfunded, to the extent that such other benefits are provided directly or indirectly by an Employer.
SECTION 10
DISCLAIMERS
10.1. TERM OF EMPLOYMENT. Neither the terms of this Plan Statement nor the benefits hereunder nor the continuance thereof shall be a term of the employment of any employee. The Principal Sponsor and the Employers shall not be obliged to continue the Plan. The terms of this Plan Statement shall not give any employee the right to be retained in the employment of any Employer.
10.2. SOURCE OF PAYMENT. Neither the Principal Sponsor, any Employer nor any of its officers nor any member of their Boards of Directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Participant or to any Beneficiary or to any creditor of a Participant or a Beneficiary. Each Participant, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of the Employers for such payments or to the benefits distributed to any Participant or Beneficiary, as the case may be, for such payments. In each case where benefits shall have been distributed to a former Participant or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Participant or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of the Employers. Neither the Employers nor any of their officers nor any member of their Boards of Directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of any of the Employers.
10.3. DELEGATION. The Employers and their officers and the members of their Boards of Directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
SCHEDULE I
PARTICIPATING EMPLOYERS
Effective as of January 1, 1995
NAME EMPLOYER ID NUMBER ---- ------------------ Boulevard Bank National Association 36-1521230 Boulevard Technical Services, Inc., Chicago, IL 36-3610403 Colorado Capital Advisors, Inc., Denver, CO 84-1072892 Colorado National Bank, Denver, CO 84-0165025 Colorado National Bank Aspen, Aspen, CO 84-0671596 Colorado National Bankshares, Inc., Denver, CO 84-0571505 Colorado National Leasing, Inc., Denver, CO 84-0636453 Colorado National Service Corporation, Denver, CO 84-1041820 FBS Ag. Credit, Inc., Englewood, CO 84-0818505 FBS Business Finance Corporation, Minneapolis, MN 41-0832663 FBS Card Services, Inc., Minneapolis, MN 41-1558798 FBS Information Services Corporation, St. Paul, MN 41-0880291 FBS Investment Services, Inc., Denver, CO 84-1019337 FBS Mortgage Corporation, Minneapolis, MN 58-1025135 First Bank (N.A.), Milwaukee, WI 39-0152428 First Bank Montana, National Association, Billings, MT 81-0166295 First Bank National Association, Minneapolis, MN 41-0256895 First Bank of North Dakota, National Association, Fargo, ND 45-0164355 First Bank of South Dakota, National Association, Sioux Falls, SD 46-0168855 First Bank System, Inc., Minneapolis, MN 41-0255900 First National Bank of East Grand Forks, East Grand Forks, MN 41-0417860 First System Agencies, Inc., Minneapolis, MN 41-0831328 First System Services, Inc., Minneapolis, MN 41-0257030 First Trust National Association, St. Paul, MN 41-0257700 First Trust Company of Montana, National Association, Billings, MT 81-0259015 First Trust Company of North Dakota, Fargo, ND 45-0342631 First Trust of California, National Association, San Francisco, CA 94-3160100 First Trust of New York, National Association, New York, NY 13-3781471 First Trust Washington, Seattle, WA 91-1587893 Republic Acceptance Corporation, Minneapolis, MN 41-1753837 Rocky Mountain BankCard System, Inc., Denver, CO 84-1010148 |
SI-1
SCHEDULE II
PRIOR PLANS' OFFSET
AGE AT MOST RECENT HIRE DATE FACTOR
---------------------------- ------
36 0.45%
37 0.94%
38 1.47%
39 2.06%
40 2.71%
41 3.41%
42 4.18%
43 5.01%
44 5.92%
45 6.91%
46 7.98%
47 9.14%
48 10.40%
49 11.76%
50 13.23%
51 14.82%
52 16.53%
53 18.38%
54 20.37%
55 22.51%
56 24.82%
57 27.30%
58 29.97%
59 32.83%
60 35.91%
61 39.21%
62 42.76%
63 46.56%
64 50.63%
65 55.00%
|
SII-1
APPENDIX B
CHANGE IN CONTROL DEFINITIONS
SECTION 1
1.1. ACQUIRING PERSON -- shall mean any Person who or which, together with all Affiliates (CIC) and Associates of such person, is the Beneficial Owner, directly or indirectly, of securities of the Principal Sponsor representing 20% or more of the combined voting power of the Principal Sponsor's then outstanding securities, but shall not include any Principal Sponsor Entity.
1.2. AFFILIATE (CIC) -- shall have the meaning ascribed to the term "Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.3. ASSOCIATE -- shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
1.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
1.5. BOARD OF DIRECTORS -- shall mean the board of directors of the Principal Sponsor.
1.6. CHANGE IN CONTROL -- shall mean a Full Change in Control or a Partial Change in Control.
1.7. CONTINUING DIRECTOR -- shall mean any person who is a member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Acquiring Person or an Affiliate (CIC) or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate (CIC) or Associate, and who (x) was a member of the Board of Directors as of JANUARY 19, 2000 or (y) subsequently becomes a member of the Board of Directors, if such person's initial nomination for election or initial election to the Board of Directors has been approved in advance by the Continuing Directors; provided that any director designated by or on behalf of a Person who has entered into an agreement with the Principal Sponsor (or who is contemplating entering into such an agreement) to effect a consolidation or merger of the Principal Sponsor or a Principal Sponsor Entity, or other reorganization, with or into one or more entities which are not Principal Sponsor Entities, and any director that serves in connection with the act of the Board of Directors of increasing the number of directors and filling vacancies in connection with, or in contemplation of, any such transaction, shall not be deemed to have received such advance approval for initial nomination or election, and any such director shall not be deemed to be a Continuing Director, in each case solely for the purpose of determining whether the addition of members of the Board of Directors in connection with, or in contemplation of, such transaction results in a Full Change in Control under clause (b) of the definition of Full Change in Control.
1.8. EXCHANGE ACT -- shall mean the Securities Exchange Act of 1934, as amended.
1.9. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by the Principal Sponsor or
any Person that a Person (other than a Principal Sponsor Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of the Principal Sponsor (x) representing 20% or
more, but not more than 50%, of the combined voting power of the
Principal Sponsor's then outstanding securities unless the
transaction resulting in such ownership has been approved in
advance by the Continuing Directors or (y) representing more
than 50% of the combined voting power of the Principal Sponsor's
then outstanding securities (regardless of any approval by the
Continuing Directors); or
(b) the Continuing Directors cease to constitute a majority of the Board of Directors of the Principal Sponsor or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of the Principal Sponsor and its subsidiaries or the adoption of any plan of liquidation or dissolution of the Principal Sponsor.
NOTWITHSTANDING THE FOREGOING, ANY OF THE FOREGOING EVENTS THAT WOULD CONSTITUTE A FULL CHANGE IN CONTROL MAY BE DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS AS EVIDENCED BY ADOPTION OF A RESOLUTION BY A MAJORITY OF A QUORUM OF THE BOARD OF DIRECTORS AT A DULY HELD MEETING OR BY UNANIMOUS WRITTEN ACTION IN LIEU OF A MEETING, WHICH DETERMINATION MAY BE MADE AT ANY TIME PRIOR TO THE CHANGE IN CONTROL OR, IN THE CASE OF SUBPARAGRAPH (a) ABOVE, AT ANY TIME WITHIN 20 DAYS FOLLOWING THE CHANGE IN CONTROL.
1.10. PARTIAL CHANGE IN CONTROL -- shall mean:
(a) a consolidation or merger of the Principal Sponsor or a Principal Sponsor Entity, or other reorganization, with or into one or more entities which are not Principal Sponsor Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of the Principal Sponsor as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation owned, or to be owned, by such shareholders by reason of their ownership prior to such transaction of securities of any entity other than the
Principal Sponsor) and as a result of which the Continuing Directors constitute more than 50% of the Board of Directors of the Resulting Corporation; or
(b) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by the Principal Sponsor or
any Person that a Person (other than a Principal Sponsor Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of the Principal Sponsor representing 20% or more,
but not more than 50%, of the combined voting power of the
Principal Sponsor's then outstanding securities if the
transaction resulting in such ownership has been approved in
advance by the Continuing Directors; or
(c) AN EVENT THAT WOULD HAVE CONSTITUTED A FULL CHANGE IN CONTROL BUT WAS DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN ACCORDANCE WITH THE DEFINITION OF FULL CHANGE IN CONTROL.
1.11. PERSON -- shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
1.12. PRINCIPAL SPONSOR ENTITY -- shall mean the Principal Sponsor, any subsidiary of the Principal Sponsor or any employee benefit plan of the Principal Sponsor or of any subsidiary of the Principal Sponsor or any entity holding shares of the voting capital stock of the Principal Sponsor organized, appointed or established for, or pursuant to the terms of, any such plan.
1.13. QUALIFYING TERMINATION -- shall mean a termination of employment of a Participant prior to a Full Change in Control or prior to or following a Partial Change in Control that results in such Participant becoming entitled to receive change in control related severance payments pursuant to the terms of the change in control provisions of an employment contract, an individual change in control severance agreement or the U.S. Bancorp Senior Management Change in Control Severance Pay Plan (including any successor plan thereto).
1.14. RESULTING CORPORATION -- shall mean the surviving corporation in any consolidation, merger or other reorganization to which the Principal Sponsor is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Principal Sponsor Entity (other than the Principal Sponsor) is a party, then the Principal Sponsor shall be deemed the Resulting Corporation.
COMPOSITE COPY
As Amended Through January 19, 2000
U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION.................................................. 1
1.1. Statement of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Affiliate
1.2.3. Annual Valuation Date
1.2.4. Beneficiary
1.2.5. Change in Control
1.2.6. Earliest Retirement Age
1.2.7. Effective Date
1.2.8. EIP
1.2.9. Employer
1.2.10. Event of Maturity
1.2.11. Normal Retirement Age
1.2.12. Participant
1.2.13. Plan
1.2.14. Plan Statement
1.2.15. Plan Year
1.2.16. Principal Sponsor
1.2.17. Termination of Employment
1.2.18. USB
1.2.19. Valuation Date
1.2.20. Service
1.3. Rules of Interpretation
SECTION 2. PARTICIPATION................................................. 4
2.1. Participation
2.2. Enrollment
2.3. Specific Exclusion
-i-
|
SECTION 3. ADJUSTMENT OF ACCOUNTS........................................ 5
3.1. Establishment of Accounts
3.2. Adjustments of Accounts
3.2.1. Intermediate Distributions Subtraction
3.2.2. Investment Addition
3.2.3. Deferral Addition
3.2.4. Final Distributions Subtraction
SECTION 4. VESTING OF ACCOUNT............................................ 6
SECTION 5. MATURITY...................................................... 6
5.1. Events of Maturity
5.2. Effect of Maturity upon Further Participation in Plan
SECTION 6. DISTRIBUTION.................................................. 7
6.1. Form of Distribution
6.1.1. Form of Distribution
6.1.2. Time of Payment
6.1.3. Installment Amounts
6.1.4. Default
6.2. Previously Scheduled Distribution
6.2.1. Enrolling for the Distribution
6.2.2. Scheduled Distribution
6.3. Hardship Distributions
6.3.1. When Available
6.3.2. Purposes
6.3.3. Limitations
6.3.4. Forfeiture
6.4. Change in Control Distributions
6.4.1. When Available
6.4.2. Limitations
6.4.3. Forfeiture
6.5. Acceleration of Annual Installments
6.5.1. When Available
6.5.2. Forfeiture
6.6. Designation of Beneficiaries
6.6.1. Right to Designate
6.6.2. Failure of Designation
6.6.3. Disclaimers by Beneficiaries
6.6.4. Definitions
-ii-
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6.6.5. Special Rules
6.6.6. No Spousal Rights
6.7. Death Prior to Full Distribution
6.8. Facility of Payment
SECTION 7. FUNDING OF PLAN............................................... 14
7.1. Unfunded Agreement
7.2. Spendthrift Provision
SECTION 8. AMENDMENT AND TERMINATION..................................... 15
SECTION 9. DETERMINATIONS -- RULES AND REGULATIONS....................... 15
9.1. Determinations
9.2. Rules and Regulations
9.3. Method of Executing Instruments
9.4. Claims Procedure
9.4.1. Original Claim
9.4.2. Claims Review Procedure
9.4.3. General Rules
9.5. Information Furnished by Participants
SECTION 10. PLAN ADMINISTRATION........................................... 17
10.1. Employer
10.1.1. Officers
10.1.2. Chief Executive Officer
10.1.3. Board of Directors
10.2. Conflict of Interest
10.3. Administrator
10.4. Service of Process
SECTION 11. DISCLAIMERS................................................... 18
11.1. Term of Employment
11.2. Source of Payment
11.3. Delegation
APPENDIX A -- CHANGE IN CONTROL DEFINITIONS............................... A-1
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U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
SECTION 1
INTRODUCTION
1.1. STATEMENT OF PLAN. Effective November 1, 1997, U.S. BANCORP, a Delaware corporation (hereinafter sometimes referred to as "Principal Sponsor") hereby creates a nonqualified, unfunded, elective deferral plan for the purpose of allowing a select group of management and highly compensated employees of the Principal Sponsor and other Employers to defer the receipt of compensation which would otherwise be paid to those employees, in order to offset the effect of direct dividend payments made to those employees pursuant to the U.S. Bancorp Employee Investment Plan.
1.2. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the unfunded and unsecured general obligation of the Principal Sponsor established with respect to each Participant to which is credited the dollar amounts specified in Section 3 and from which are subtracted payments and forfeitures made pursuant to Section 6. To the extent necessary to accommodate and effect the distribution elections made by Participants pursuant to Section 2, separate bookkeeping sub-accounts shall be established with respect to each of the several annual deferral elections made by Participants.
1.2.2. AFFILIATE -- a business entity which is affiliated in ownership with the Principal Sponsor or an Employer and is recognized as an Affiliate by the Principal Sponsor for the purposes of this Plan.
1.2.3. ANNUAL VALUATION DATE -- each December 31.
1.2.4. BENEFICIARY -- a person designated by a Participant (or automatically by operation of this Plan Statement) to receive all or a part of the Participant's Account in the event of the Participant's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5. CHANGE IN CONTROL -- The definition of Change in Control, as well as certain other definitions relating to Change in Control used herein, appear in Appendix A to this Plan Statement.
1.2.6. EARLIEST RETIREMENT AGE -- the earlier of:
(i) the earliest date that a Participant who is at least age fifty-five (55) years has a sum of his or her age (in whole years) and Service (also in whole years) that equals at least sixty-five (65), or
(ii) the date a Participant attains Normal Retirement Age.
1.2.7. EFFECTIVE DATE -- November 1, 1997.
1.2.8. EIP -- the U.S. BANCORP EMPLOYEE INVESTMENT PLAN, or any similar successor plan.
1.2.9. EMPLOYER -- the Principal Sponsor and any business entity affiliated with the Principal Sponsor that employs persons who are designated for participation in this Plan.
1.2.10. EVENT OF MATURITY -- any of the occurrences described in
Section 5 by reason of which a Participant or Beneficiary may become entitled
to a distribution from the Plan.
1.2.11. NORMAL RETIREMENT AGE -- the last day of the calendar month in which a Participant attains age sixty-five (65) years.
1.2.12. PARTICIPANT -- an employee of the Employer who is identified in Appendix B and elects to participate in accordance with the terms of this Plan and becomes a Participant in the Plan in accordance with the provisions of Section 2. An employee shall not be eligible to become a Participant unless the employee is a member of a select group of management or highly compensated employees. No employee is presumed or automatically eligible to participate in this Plan. An employee who has become a Participant shall be considered to continue as a Participant in the Plan until the date of the Participant's death or, if earlier, the date when the Participant is no longer employed by an Employer or an Affiliate and upon which the Participant no longer has any Account under the Plan (that is, the Participant has received a distribution of all of the Participant's Account).
1.2.13. PLAN -- the nonqualified, income deferral program maintained by the Principal Sponsor established for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement. (As used herein, "Plan" does not refer to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the "Plan Statement"). The Plan shall be referred to as the "U.S. BANCORP SPECIAL EXECUTIVE DEFERRAL PLAN."
1.2.14. PLAN STATEMENT -- this document entitled "U.S. BANCORP SPECIAL EXECUTIVE DEFERRAL PLAN" as adopted by the Compensation and Human Resources Committee of the Board of Directors of U.S. BANCORP effective as of November 1, 1997, as the same may be amended from time to time thereafter.
1.2.15. PLAN YEAR -- the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.16. PRINCIPAL SPONSOR -- U.S. BANCORP, a Delaware corporation.
1.2.17. TERMINATION OF EMPLOYMENT -- a complete severance of an employee's employment relationship with the Employer and all Affiliates, if any, for any reason other than the employee's death. A transfer from employment with the Employer to employment with an Affiliate of the Employer shall not constitute a Termination of Employment. If an Employer who is an Affiliate ceases to be an Affiliate because of a sale of substantially all the stock or assets of the Employer, then Participants who are employed by that Employer and who cease to be employed by the Principal Sponsor or an Employer on account of the sale of substantially all the stock or assets of the Employer shall be deemed to have thereby had a Termination of Employment for the purpose of commencing distributions from this Plan.
1.2.18. USB -- U.S. BANCORP, a Delaware corporation, or any successor thereto.
1.2.19. VALUATION DATE -- the last day of each calendar month of the Plan Year.
1.2.20. SERVICE -- a measure of an employee's service with the Employer and all Affiliates (stated as a number of years) which is equal to the number of years of service credited to the employee for the purpose of determining the nonforfeitable portion of the employee's benefit under the rules of the tax-qualified defined benefit pension plan in which the employee participates as those rules may exist at the time the Participant's Service is being determined.
1.3. RULES OF INTERPRETATION. An individual shall be considered to have attained a given age on such individual's birthday for that age (and not on the day before). Individuals born on February 29 in a leap year shall be considered to have their birthdays on February 28 in each year that is not a leap year. Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Participant or Beneficiary shall be deemed for all purposes of this Plan and all elections and designations made under this Plan to have died before such Participant or Beneficiary. A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this section. In the absence of a conviction of felonious and intentional killing, the Principal Sponsor shall determine whether the killing was felonious and intentional for the purposes of this section. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to this entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. This Plan Statement shall be construed and this Plan shall be administered to
create an unfunded plan providing deferred compensation to a select group of management or highly compensated employees so that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified, alternative compliance with the reporting and disclosure requirements of Part 1 of Title I of ERISA. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This document has been executed and delivered in the State of MINNESOTA and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of MINNESOTA to the extent not preempted by ERISA.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each employee of the Employer identified in Appendix B to this Plan Statement shall be a participant in the Plan as of November 1, 1997, provided the employee has enrolled as a Participant prior to that date.
2.2. ENROLLMENT. Prior to November 1, 1997, an employee who is identified in Appendix B to this Plan Statement may enroll for the period commencing November 1, 1997 and ending December 31, 1997 (the "Enrollment Period"). No subsequent enrollments shall be permitted. Each such enrollment:
(a) Shall be irrevocable once it has been received by the Principal Sponsor.
(b) Shall designate the amount or portion of the Participant's base
compensation which is earned during the Enrollment Period
(without regard to whether it would be paid during that or a
subsequent Plan Year) which shall not be paid to the
Participant but instead shall be accumulated in this Plan under
Section 3 and distributed from this Plan under Section 6. The
amount or portion of the base compensation that can be
designated may not exceed the dividends paid to the Participant
during 1997 pursuant to Section 8.7 of the EIP. The amount or
portion of the base compensation that can be designated also
shall not exceed one hundred percent (100%) of the Participant's
base compensation during the Enrollment Period less all
previously authorized non-tax deductions.
(c) Shall specify the form in which distribution of the Account shall be made under Section 6 upon the occurrence of an Event of Maturity (and if such designation is not clearly made to the contrary shall be deemed to have been an election of a single lump sum distribution).
(d) Shall specify whether and what amount of the Account shall be
distributed before an Event of Maturity in accordance with
Section 6.2.
(e) Shall be made upon forms furnished by the Principal Sponsor and shall conform to such other procedural and substantive rules as the Principal Sponsor shall make.
2.3. SPECIFIC EXCLUSION. Notwithstanding anything apparently to the contrary in this Plan Statement or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for himself or herself or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person's erroneous participation shall immediately terminate AB INITIO and the Employer shall distribute the individual's Account immediately.
SECTION 3
ADJUSTMENT OF ACCOUNTS
3.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each Participant an unfunded bookkeeping Account which shall be adjusted each Valuation Date.
3.2. ADJUSTMENTS OF ACCOUNTS. As of each Valuation Date (the "current Valuation Date"), the value of each Account determined as of the immediately preceding Valuation Date (the "initial Account value") shall be increased (or decreased) by the following adjustments made in the following sequence:
3.2.1. INTERMEDIATE DISTRIBUTIONS SUBTRACTION. The initial Account value shall be reduced by the total amount distributed in fact to (or with respect to) the Participant (or forfeited in connection with a distribution) from such Account as of a date subsequent to the immediately preceding Valuation Date but prior to the current Valuation Date.
3.2.2. INVESTMENT ADDITION. The initial Account value (as adjusted above) shall be increased by interest.
(a) The rate shall be determined from time to time by the Principal Sponsor. Except as provided in Section 8, the rate may be changed by the Principal Sponsor by amendment of the Plan Statement without notice to or the consent of any Participant, former Participant or any Beneficiary.
(b) Beginning November 1, 1997, the rate for each month in a Plan Year shall be equal to the monthly equivalent of one hundred percent (100%) of the 120 month rolling average of the 10-year Treasury Note determined as of September 30 of the preceding Plan Year.
(c) This rate shall be uniform for all Participants for the same Valuation Date but may change from Valuation Date to Valuation Date.
3.2.3. DEFERRAL ADDITION. The initial Account value (as adjusted above) shall be increased by the total amount of compensation, if any, which would have been paid to the Participant as of a date subsequent to the immediately preceding Valuation Date but prior to or coincident with the current Valuation Date but for the enrollment agreement signed by the Participant pursuant to Section 2. No increases shall be made pursuant to this Section 3.2.3 for amounts paid as of a date after December 31, 1997.
3.2.4. FINAL DISTRIBUTIONS SUBTRACTION. The initial Account value (as adjusted above) shall be reduced by the total amount distributed in fact to (or with respect to) the Participant (or forfeited in connection with a distribution) from such Account as of the current Valuation Date.
SECTION 4
VESTING OF ACCOUNT
Except as provided in Section 6.2 and Section 6.4 (relating to the forfeiture for hardship or Change in Control distributions) and Section 8 (relating to the ability to amend the Plan Statement and terminate the Plan), the Account of each Participant shall be fully (100%) vested and nonforfeitable at all times.
SECTION 5
MATURITY
5.1. EVENTS OF MATURITY. A Participant's Account shall mature and shall become distributable in accordance with Section 6 upon the earliest occurrence of any of the following events while in the employment of the Employer or an Affiliate:
(a) his or her death, or
(b) his or her Termination of Employment from the Employer, or
(c) termination of the Plan;
provided, however, that a transfer of employment to an Affiliate that is not an Employer shall not constitute an Event of Maturity.
5.2. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the occurrence of an Event of Maturity, a Participant shall cease to have any interest in the Plan other than the right to receive payment of his or her Account as provided in Section 6 hereof, adjusted from time to time as provided in Section 3.
SECTION 6
DISTRIBUTION
6.1. FORM OF DISTRIBUTION. Upon the occurrence of an Event of Maturity effective as to a Participant, the Principal Sponsor shall commence payment of such Participant's Account (reduced by the amount of any applicable payroll, withholding and other taxes) in the form designated by the Participant in his or her enrollment. A Participant shall not be required to make application to receive payment. Distribution shall not be made to any Beneficiary, however, until such Beneficiary shall have filed a written application for benefits in a form acceptable to the Principal Sponsor and such application shall have been approved by the Principal Sponsor.
6.1.1. FORM OF DISTRIBUTION. Distribution shall be made in whichever of the following forms as the Participant shall have designated in writing at the time of his or her enrollment (to the extent that such election is consistent with the rules of this Plan Statement):
(a) TERM CERTAIN INSTALLMENTS TO PARTICIPANT. If the Distributee is a Participant, the Account at the Termination of Employment is at least Twenty Thousand Dollars ($20,000) and the Participant had attained Earliest Retirement Age at the Termination of Employment, in a series of annual installments payable over fifteen (15) years.
(b) CONTINUED TERM CERTAIN INSTALLMENTS TO BENEFICIARY. If the Distributee is a Beneficiary of a deceased Participant and distribution had commenced to the deceased Participant before his or her death over a fifteen (15) year period as specified in paragraph (a) above, in a series of annual installments payable over the remainder of the fifteen (15) year period.
(c) LUMP SUM. If the Distributee is a Participant, in a single lump sum. If the Distributee is a Beneficiary of a deceased Participant and distribution had not commenced to the deceased Participant before his or her death, in a single lump sum payment.
6.1.2. TIME OF PAYMENT. Payment shall be made or commenced to a Participant in accordance with the following rules:
(a) RETIREMENT. If the Participant's Termination of Employment is on a date on or after the Participant's Earliest Retirement Age, payment shall be made or commenced as of the Annual Valuation Date coincident with or immediately following the Participant's Termination of Employment and shall be made or commenced as soon as practicable after such Annual Valuation Date.
(b) DEATH. If the payment is made or commenced on account of the Participant's death, payment shall be made or commenced as of the Annual Valuation Date coincident with or immediately following the Participant's Termination of Employment and shall be made or commenced as soon as practicable after such Annual Valuation Date.
(c) OTHER. In all other cases, payment to the Participant shall be made as of the second Valuation Date subsequent to the Participant's Termination of Employment and shall be made as soon as practicable after such second Valuation Date.
(d) CODE SECTION 162(m) DELAY. If the Principal Sponsor determines
that delaying the time of the initial payments are made or
commenced would increase the probability that such payments
would be fully deductible for federal or state income tax
purposes, the Principal Sponsor may unilaterally delay the time
of the making or commencement of payments for up to twenty-four
(24) months after the date such payments would otherwise be
payable.
6.1.3. INSTALLMENT AMOUNTS. The amount of the annual installments shall be determined by dividing the amount of the Account as of the Annual Valuation Date as of which the installment is being paid by the number of remaining installment payments to be made (including the payment being determined).
6.1.4. DEFAULT. If for any reason a Participant shall have failed to make a timely written designation of form for distribution (including reasons entirely beyond the control of the Participant), the distribution shall be made in a single lump sum. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participant's selection of a form of benefit.
6.2. PREVIOUSLY SCHEDULED DISTRIBUTION.
6.2.1. ENROLLING FOR THE DISTRIBUTION. At the time of enrollment, each enrolling Participant shall have the opportunity to elect to cause the Plan to make a scheduled distribution to the Participant from the Account of a fixed dollar amount or percentage of Account (not less than $2,000) as of an Annual Valuation Date designated by the Participant in the enrollment which distribution shall be made as soon as practicable after such Annual Valuation Date.
6.2.2. SCHEDULED DISTRIBUTION. As of the Annual Valuation Date designated by the Participant in his or her enrollment, there shall be distributed from the Account to the Participant such amount as the Participant shall have elected to receive from the Account when the Participant enrolled. Notwithstanding the dollar amount designated by the Participant in his or her enrollment, if a scheduled distribution is required as of an Annual Valuation Date and the value of the portion of the Account that is attributable to the Participant's deferrals on such Annual Valuation Date is less than Five Thousand Dollars ($5,000) the entire Account attributable to that Participant's deferrals shall be distributed. In no event shall such scheduled distributions occur after the death of the Participant or after any other Event of Maturity with respect to the Participant. In no event shall such scheduled distributions made pursuant to an enrollment for a Plan Year exceed the Account attributable to that Plan Year.
6.3. HARDSHIP DISTRIBUTIONS.
6.3.1. WHEN AVAILABLE. A Participant may receive a hardship distribution from his or her Account if the Principal Sponsor determines that such hardship distribution is for a purpose described in Section 6.3.2 and the conditions in Section 6.3.3 and Section 6.3.4 have been fulfilled. To receive such a distribution, the Participant must file a written hardship distribution application with the Principal Sponsor and furnish such documentation as the Principal Sponsor may require. In the application, the Participant shall specify the basis for the distribution and the dollar amount to be distributed. If such hardship distribution is approved by the Principal Sponsor, distribution shall be made as of the Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor and such hardship distribution shall be made in a lump sum cash payment as soon as administratively feasible after such Valuation Date.
6.3.2. PURPOSES. Hardship distributions shall be allowed under
Section 6.3.1 only if the Participant establishes that the hardship
distribution is to be made on account of an immediate and heavy financial
need of the Participant for which the Participant does not have other
available resources.
6.3.3. LIMITATIONS. The amount of the hardship distribution shall not exceed the amount of the Participant's proven immediate and heavy financial need. A hardship distribution shall not be made after the death of the Participant or after the occurrence of any other Event of Maturity. The amount of approved hardship distribution (and the forfeiture described below) shall not exceed the value of the Account.
6.3.4. FORFEITURE. Upon the approval of a hardship distribution, there shall be irrevocably forfeited from the Account of the Participant an amount equal to ten percent (10%) of the amount approved for distribution.
6.4. CHANGE IN CONTROL DISTRIBUTIONS.
6.4.1. WHEN AVAILABLE. A Participant or Beneficiary may receive a distribution of his or her entire Account (after reduction for the forfeiture described in Section 6.4.3) if a Full Change in Control or a Qualifying Termination has occurred and the condition in Section 6.4.2 has been fulfilled (a "Change in Control Distribution"). To receive such a distribution, the Participant or Beneficiary must file a written distribution application with the Principal Sponsor. The Principal Sponsor shall approve the Change in Control Distribution if such application has been filed and a Full Change in Control or a Qualifying Termination has occurred. Distribution of the entire Account (after reduction for the forfeiture described in Section 6.4.3) shall be made as of the Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor. Such distribution shall be made in a lump sum cash payment as soon as administratively feasible after such Valuation Date.
6.4.2. LIMITATIONS. The amount of approved Change in Control Distribution (and the forfeiture described below) shall not exceed the value of the Account.
6.4.3. FORFEITURE. Upon the approval of a Change in Control Distribution, there shall be irrevocably forfeited from the Account of the Participant or Beneficiary an amount equal to five percent (5%) of the Account.
6.5. ACCELERATION OF ANNUAL INSTALLMENTS.
6.5.1. WHEN AVAILABLE. A Participant or Beneficiary who is receiving annual installments may receive an accelerated payment of his or her entire Account (after reduction for the forfeiture described in Section 6.5.2). To receive such an accelerated payment, the Participant or Beneficiary must file a written payment application with the Principal Sponsor. Payment of the accelerated payment (after reduction for the forfeiture described in Section 6.5.2) shall be made as of the Annual Valuation Date coincident with or next following the approval of a completed application by the Principal Sponsor. Such accelerated payment shall be made in a lump sum cash payment as soon as administratively feasible after such Valuation Date. The amount of the accelerated payment shall be equal to the value of the Account as of such Annual Valuation Date (after reduction for the forfeiture described below).
6.5.2. FORFEITURE. Upon the approval of an accelerated payment, there shall be irrevocably forfeited from the Account of the Participant or Beneficiary an amount equal to ten percent (10%) of the Account.
6.6. DESIGNATION OF BENEFICIARIES.
6.6.1. RIGHT TO DESIGNATE. Each Participant may designate, upon forms to be furnished by and filed with the Principal Sponsor, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Participant's Account in the event of such Participant's death. The Participant may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Participant and received by the Principal Sponsor during the Participant's lifetime.
6.6.2. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant,
such Participant's Account, or the part thereof as to which such Participant's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Participant and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents
Participant's surviving brothers and sisters
Representative of Participant's estate.
6.6.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Participant's Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Principal Sponsor after the date of the Participant's death but not later than one hundred eighty (180) days after the date of the Participant's death. A disclaimer shall be irrevocable when delivered to the Principal Sponsor. A disclaimer shall be considered to be delivered to the
Principal Sponsor only when actually received by the Principal Sponsor. The
Principal Sponsor shall be the sole judge of the content, interpretation and
validity of a purported disclaimer. Upon the filing of a valid disclaimer,
the Beneficiary shall be considered not to have survived the Participant as
to the interest disclaimed. A disclaimer by a Beneficiary shall not be
considered to be a transfer of an interest in violation of the provisions of
Section 6 and shall not be considered to be an assignment or alienation of
benefits in violation of federal law prohibiting the assignment or alienation
of benefits under this Plan. No other form of attempted disclaimer shall be
recognized by the Principal Sponsor.
6.6.4. DEFINITIONS. When used herein and, unless the Participant has otherwise specified in the Participant's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Participant.
6.6.5. SPECIAL RULES. Unless the Participant has otherwise specified in the Participant's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant.
(b) The automatic Beneficiaries specified in Section 6.6.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participant's death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person who is the Participant's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. (The foregoing shall not prevent the Participant from designating a former spouse as a Beneficiary on a form executed by the Participant and received by the Principal Sponsor after the date of the legal termination of the marriage between the Participant and such former spouse, and during the Participant's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participant's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is filed by a Participant who, at the time of such execution or filing, is then a minor under the law of the state of the Participant's legal residence. The Principal Sponsor shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
6.6.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Participant and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Participant.
6.7. DEATH PRIOR TO FULL DISTRIBUTION. If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which are payable to the Beneficiary (and shall not be paid to the Participant's estate).
6.8. FACILITY OF PAYMENT. In case of the legal disability, including minority, of a Participant or Beneficiary entitled to receive any distribution under the Plan, payment shall be made, if the Principal Sponsor shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such Participant or Beneficiary, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled Participant or Beneficiary, provided such person or institution has satisfied the Principal Sponsor that the payment will be used for the best interest and assist in the care of such Participant or Beneficiary, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such Participant or Beneficiary.
Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of the Principal Sponsor therefor.
SECTION 7
FUNDING OF PLAN
7.1. UNFUNDED AGREEMENT. The obligation of the Employer to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of the Employer to make such payments. The Participant shall have no lien, prior claim or other security interest in any property of the Employer. The Employer is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of the Employer. The Employer will pay the cost of this Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the Employer's obligation to Participants in this Plan and shall not be construed to impose on the Employer the obligation to create any separate fund for purposes of this Plan.
If the Employer elects to finance all or a portion of its costs in connection with this Plan through the purchase of life insurance or other similar investments, the Participant agrees, as a condition of participation in this Plan, to cooperate with the Employer in the purchase of such investment to any extent reasonably required by the Employer and relinquishes any claim he or she may have either for himself or herself or any beneficiary to the proceeds of any such investment or any other rights or interests in such investment. If a Participant fails or refuses to cooperate, then notwithstanding any other provision of this Plan Statement (including, without limiting the generality of the foregoing, Section 4) the Employer shall distribute the individual's Account immediately and the Participant shall not be eligible to enroll in the Plan again.
7.2. SPENDTHRIFT PROVISION. No Participant or Beneficiary shall have any interest in any Account which can be transferred nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of the Employer, nor shall the Employer recognize any assignment thereof, either in whole or in part, nor shall any Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of the Employer.
The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participant's death shall not permit or be construed to permit such power or right to be exercised by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participant's Account or any part thereof, and any attempt of a Participant so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Employer.
This section shall not prevent the Employer from exercising, in its discretion, any of the applicable powers and options granted to it upon the occurrence of an Event of Maturity, as such powers may be conferred upon it by any applicable provision hereof.
SECTION 8
AMENDMENT AND TERMINATION
The Principal Sponsor reserves the power to amend the Plan Statement or terminate the Plan prior to a Full Change in Control. No such amendment of the Plan Statement or termination of the Plan, however, shall reduce a Participant's Account earned as of the date of such amendment unless the Participant so affected consents in writing to the amendment. After a Full Change in Control, the Plan cannot be amended or terminated (as applied to Participants who are Participants on the date of the Full Change in Control) unless:
(a) all Accounts of all Participants as of the date of the Full Change in Control have been paid, or
(b) eighty percent (80%) of all the Participants as of the date of the Full Change in Control give written consent to such amendment or termination.
SECTION 9
DETERMINATIONS -- RULES AND REGULATIONS
9.1. DETERMINATIONS. The Principal Sponsor shall make such determinations as may be required from time to time in the administration of the Plan. The Principal Sponsor shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
9.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by the Principal Sponsor.
9.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by the Principal Sponsor pursuant to any provision of this Plan Statement may be signed in the name of the Principal Sponsor by any officer who has been authorized to make such certification or to give such notices or consents.
9.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 9.4 shall be the exclusive procedure for the disposition of claims for benefits arising under the Plan until such time as a Full Change in Control occurs.
9.4.1. ORIGINAL CLAIM. Any employee, former employee or beneficiary of such employee or former employee may, if he or she so desires, file with the Principal Sponsor a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Principal Sponsor shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Principal Sponsor shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions of this Plan Statement on which the denial is based;
(c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(d) an explanation of the claims review procedure set forth in this section.
9.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Principal Sponsor a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Principal Sponsor shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days from the date the request for review was filed) to reach a decision on the request for review.
9.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Principal Sponsor may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Principal Sponsor upon request.
(b) All decisions on claims and on requests for a review of denied claims shall be made by the Principal Sponsor.
(c) the Principal Sponsor may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.
(d) A claimant may be represented by a lawyer or other representative (at the claimant's own expense), but the Principal Sponsor reserves the right to require the claimant to furnish written authorization. A claimant's representative shall be entitled to copies of all notices given to the claimant.
(e) The decision of the Principal Sponsor on a claim and on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied claim, the claimant or his or her representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Principal Sponsor.
9.5. INFORMATION FURNISHED BY PARTICIPANTS. The Principal Sponsor shall not be liable or responsible for any error in the computation of the Account of a Participant resulting from any misstatement of fact made by the Participant, directly or indirectly, to the Principal Sponsor, and used by it in determining the Participant's Account. The Principal Sponsor shall not be obligated or required to increase the Account of such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the Account of any Participant which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 10
PLAN ADMINISTRATION
10.1. EMPLOYER.
10.1.1. OFFICERS. Except as hereinafter provided, functions generally assigned to the Principal Sponsor shall be discharged by its officers or delegated and allocated as provided herein.
10.1.2. CHIEF EXECUTIVE OFFICER. Except as hereinafter provided, the Chief Executive Officer of the Principal Sponsor may delegate or redelegate and allocate and reallocate to one or more persons or to a committee of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to the Employer generally hereunder as the Chief Executive Officer may from time to time deem advisable.
10.1.3. BOARD OF DIRECTORS. Notwithstanding the foregoing, the Compensation and Human Resources Committee of the Board of Directors of the Principal Sponsor shall have the
exclusive authority, which may not be delegated, to act for the Principal Sponsor to amend this Plan Statement, to terminate this Plan, and to determine eligibility to participate in the Plan under Section 2.
10.2. CONFLICT OF INTEREST. If any officer or employee of the Employer, or any member of the Compensation and Human Resources Committee of the Board of Directors of the Employer to whom authority has been delegated or redelegated hereunder shall also be a Participant in the Plan, such Participant shall have no authority as such officer, employee or member with respect to any matter specially affecting such Participant's individual interest hereunder or the interest of a person superior to him or her in the organization (as distinguished from the interests of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to the other officers, employees or members as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participant's individual capacity in connection with any such matter.
10.3. ADMINISTRATOR. U.S. BANCORP shall be the administrator for purposes of section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
10.4. SERVICE OF PROCESS. In the absence of any designation to the contrary by the Employer, the Secretary of U.S. BANCORP is designated as the appropriate and exclusive agent for the receipt of service of process directed to the Plan in any legal proceeding, including arbitration, involving the Plan.
SECTION 11
DISCLAIMERS
11.1. TERM OF EMPLOYMENT. Neither the terms of this Plan Statement nor the benefits hereunder nor the continuance thereof shall be a term of the employment of any employee. The Employer shall not be obliged to continue the Plan. The terms of this Plan Statement shall not give any employee the right to be retained in the employment of the Employer.
11.2. SOURCE OF PAYMENT. Neither the Employer nor any of its officers nor any member of the Compensation and Human Resources Committee of the Board of Directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Participant or to any Beneficiary or to any creditor of a Participant or a Beneficiary. Each Participant, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of the Employer for such payments or to the Accounts distributed to any Participant or Beneficiary, as the case may be, for such payments. In each case where Accounts shall have been distributed to a former Participant or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Participant or Beneficiary, or such person or persons, as the case may be, shall have no
further right or interest in the other assets of the Employer.
Neither the Employer nor any of its officers nor any member of its Board of
Directors shall be under any liability or responsibility for failure to
effect any of the objectives or purposes of the Plan by reason of the
insolvency of the Employer.
11.3. DELEGATION. The Employer and its officers and the members of its Board of Directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
_________________, 1997 U.S. BANCORP
By
Its
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APPENDIX A
CHANGE IN CONTROL DEFINITIONS
SECTION 1
1.1. ACQUIRING PERSON -- any Person who or which, together with all Affiliates (CIC) and Associates of such person, is the Beneficial Owner, directly or indirectly, of securities of USB representing 20% or more of the combined voting power of USB's then outstanding securities, but shall not include any Company Entity.
1.2. AFFILIATE (CIC) -- shall have the meaning ascribed to the term "Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.3. ASSOCIATE -- shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
1.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
1.5. BOARD OF DIRECTORS -- the board of directors of USB.
1.6. CHANGE IN CONTROL -- a Full Change in Control or a Partial Change in Control.
1.7. COMPANY ENTITY -- USB, any subsidiary of USB or any employee benefit plan of USB or of any subsidiary of USB or any entity holding shares of the voting capital stock of USB organized, appointed or established for, or pursuant to the terms of, any such plan.
1.8. CONTINUING DIRECTOR -- any person who is a member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Acquiring Person or an Affiliate (CIC) or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate
(CIC) or Associate, and who (x) was a member of the Board of Directors as of
January 19, 2000 or (y) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial
election to the Board of Directors has been approved in advance by the
Continuing Directors; provided that any director designated by or on behalf
of a Person who has entered into an agreement with USB (or who is
contemplating entering into such an agreement) to effect a consolidation or
merger of USB or a Company Entity, or other reorganization, with or into one
or more entities which are not Company Entities, and any director that serves
in connection with the act of the Board of Directors of increasing the number
of directors and filling vacancies in connection with, or in contemplation
of, any such transaction, shall not be deemed to have received such advance
approval for initial nomination or election, and any such director shall not
be deemed to be a Continuing Director, in each case solely for the purpose of
determining whether the addition
of members of the Board of Directors in connection with, or in contemplation of, such transaction results in a Full Change in Control under clause (b) of the definition of Full Change in Control.
1.9. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended.
1.10. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company Entity) has become the Beneficial
Owner, directly or indirectly, of securities of USB (x)
representing 20% or more, but not more than 50%, of the combined
voting power of USB's then outstanding securities unless the
transaction resulting in such ownership has been approved in
advance by the Continuing Directors or (y) representing more
than 50% of the combined voting power of USB's then outstanding
securities (regardless of any approval by the Continuing
Directors); or
(b) the Continuing Directors cease to constitute a majority of the Board of Directors of USB or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of USB and its subsidiaries or the adoption of any plan of liquidation or dissolution of USB.
NOTWITHSTANDING THE FOREGOING, ANY OF THE FOREGOING EVENTS THAT WOULD CONSTITUTE A FULL CHANGE IN CONTROL MAY BE DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS AS EVIDENCED BY ADOPTION OF A RESOLUTION BY A MAJORITY OF A QUORUM OF THE BOARD OF DIRECTORS AT A DULY HELD MEETING OR BY UNANIMOUS WRITTEN ACTION IN LIEU OF A MEETING, WHICH DETERMINATION MAY BE MADE AT ANY TIME PRIOR TO THE CHANGE IN CONTROL OR, IN THE CASE OF SUBPARAGRAPH (a) ABOVE, AT ANY TIME WITHIN 20 DAYS FOLLOWING THE CHANGE IN CONTROL.
1.11. PARTIAL CHANGE IN CONTROL -- shall mean:
(a) a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of USB as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation owned, or to be owned, by such shareholders by reason of their ownership
prior to such transaction of securities of any entity other than USB) and as a result of which the Continuing Directors constitute (i) more than 50% of the Board of Directors of the Resulting Corporation or (ii) exactly 50% of the Board of Directors of the Resulting Corporation if the transaction resulting in such event is a Permitted Transaction; or
(b) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company Entity) has become the Beneficial
Owner, directly or indirectly, of securities of USB representing
20% or more, but not more than 50%, of the combined voting power
of USB's then outstanding securities if the transaction
resulting in such ownership has been approved in advance by the
Continuing Directors; or
(c) AN EVENT THAT WOULD HAVE CONSTITUTED A FULL CHANGE IN CONTROL BUT WAS DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN ACCORDANCE WITH THE DEFINITION OF FULL CHANGE IN CONTROL.
1.12. PERSON -- shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
1.13. QUALIFYING TERMINATION -- a termination of employment of a Participant prior to a Full Change in Control or prior to or following a Partial Change in Control that results in such Participant becoming entitled to receive change in control related severance payments pursuant to the terms of the change in control provisions of an employment contract, an individual change in control severance agreement, the U.S. Bancorp Senior Management Change in Control Severance Pay Plan (including any successor plan thereto), the U.S. Bancorp Middle Management Change in Control Severance Pay Program (including any successor program thereto) or the U.S. Bancorp Broad-Based Change in Control Severance Pay Program (including any successor program thereto).
1.14. RESULTING CORPORATION -- the surviving corporation in any consolidation, merger or other reorganization to which USB is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Company Entity (other than USB) is a party, then USB shall be deemed the Resulting Corporation.
COMPOSITE COPY
As Amended Through January 19, 2000
U.S. BANCORP
INDEPENDENT DIRECTOR
RETIREMENT AND DEATH BENEFIT PLAN
(1991 RESTATEMENT)
U.S. BANCORP
INDEPENDENT DIRECTOR
RETIREMENT AND DEATH BENEFIT PLAN
(1991 RESTATEMENT)
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION.................................................. 1
1.1. Restatement of Plan
1.2. Definitions
1.2.1. Accrued Benefit
1.2.2. Beneficiary
1.2.3. Change in Control Definitions
(a) Acquiring Person
(b) Affiliate
(c) Associate
(d) Beneficial Owner
(e) Board of Directors
(f) Change in Control
(g) Company Entity
(h) Continuing Director
(i) Exchange Act
(j) Full Change In Control
(k) Partial Change in Control
(l) Person
(m) Resulting Corporation
1.2.4. Director
1.2.5. Director Service
1.2.6. USB
1.2.7. Plan
1.2.8. Plan Statement
1.2.9. Present Value
1.2.10. Prior Plan Statement
1.2.11. Supplemental Retirement Pension
1.2.12. Termination of Service
1.3. Rules of Interpretation
SECTION 2. ELIGIBILITY................................................... 7
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SECTION 3. SUPPLEMENTAL RETIREMENT BENEFITS.............................. 7
3.1. Supplemental Retirement Pension
3.1.1. When Available
3.1.2. Amount
3.1.3. Form of Pension
3.2. Change in Control
3.3. Facility of Payment
SECTION 4. DEATH BENEFITS................................................ 9
4.1. Death Before Benefit Commencement
4.1.1. When Available
4.1.2. Amount
4.1.3. Form of Benefit
4.2. Death After Benefit Commencement
4.3. Designation of Beneficiaries
4.3.1. Right To Designate
4.3.2. Failure of Designation
4.3.3. Disclaimers by Beneficiaries
4.3.4. Definitions
4.3.5. Special Rules
4.3.6. No Spousal Rights
SECTION 5. FUNDING OF PLAN............................................... 13
5.1. Unfunded Agreement
5.2. Spendthrift Provision
SECTION 6. AMENDMENT AND TERMINATION..................................... 13
SECTION 7. DETERMINATIONS -- RULES AND REGULATIONS....................... 14
7.1. Determinations
7.2. Rules and Regulations
7.3. Method of Executing Instruments
7.4. Information Furnished by Directors
SECTION 8. PLAN ADMINISTRATION........................................... 15
8.1. USB
8.2. Conflict of Interest
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SECTION 9. DISCLAIMERS................................................... 15 |
U.S. BANCORP
INDEPENDENT DIRECTOR
RETIREMENT AND DEATH BENEFIT PLAN
(1991 RESTATEMENT)
SECTION 1
INTRODUCTION
1.1. RESTATEMENT OF PLAN. Effective February 18, 1987, FIRST BANK SYSTEM, INC., a Delaware corporation (hereinafter sometimes referred to as "FBS"), adopted the "First Bank System, Inc. Independent Director retirement and Death Benefit Plan" for the purpose of establishing a supplemental retirement and death benefit plan for the benefit of certain eligible members of its Board of Directors (hereinafter referred to as the "Plan"). FBS reserved the right to amend and terminate that Prior Plan Statement from time to time. FBS now desires to exercise that reserved power of amendment by the adoption of this Plan Statement effective as of May 15, 1991.
1.2. DEFINITIONS. When used herein with initial capital letters, the following words have the following meanings:
1.2.1. ACCRUED BENEFIT -- the aggregate amount determined for the Director as of a specified date equal to:
(a) the annualized amount of the base director retainer (exclusive of committee attendance and similar extra fees) in effect on the date on which occurs the earlier of: (i) the Director's Termination of Service, or (ii) the Director's death; multiplied by
(b) the number of full years, and fractions of years, of the Director's Director Service (not to exceed ten years).
For this purpose, fractions of years shall be recorded in twelfths (1/12) and one-twelfth of a year of Director Service shall be credited only for each full calendar month of Director Service.
1.2.2. BENEFICIARY -- a person designated by a Director (or automatically by operation of this Plan Statement) to receive all or a part of the Director's benefit in the event of the Director's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Director.
1.2.3. CHANGE IN CONTROL DEFINITIONS. When used herein with initial capital letters, the following words relating to the "Change in Control" definition have the following meanings:
(a) ACQUIRING PERSON -- shall mean any Person who or which, together with all Affiliates and Associates of such person, is the Beneficial Owner, directly or indirectly, of securities of USB representing 20% or more of the combined voting power of USB's then outstanding securities, but shall not include any Company Entity.
(b) AFFILIATE -- shall have the meaning ascribed to the term "Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
(c) ASSOCIATE -- shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
(d) BENEFICIAL OWNER -- shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
(e) BOARD OF DIRECTORS -- shall mean the board of directors of USB.
(f) CHANGE IN CONTROL -- shall mean a Full Change in Control or a Partial Change in Control.
(g) COMPANY ENTITY -- shall mean USB, any subsidiary of USB or any employee benefit plan of USB or of any subsidiary of USB or any entity holding shares of the voting capital stock of USB organized, appointed or established for, or pursuant to the terms of, any such plan.
(h) CONTINUING DIRECTOR -- shall mean any person who is a member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Acquiring Person or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors as of JANUARY 19, 2000 or (y) subsequently becomes a member of the Board of Directors, if such person's initial nomination for election or initial election to the Board of Directors has been approved in advance by the Continuing Directors; provided that any director designated by or on behalf of a Person who has entered into an agreement with USB (or who is contemplating entering into such an agreement) to effect a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, and any director that serves in connection with the act of the Board of Directors of increasing the number of directors and filling vacancies in connection with, or in contemplation of, any such transaction, shall not be deemed to have received such advance approval for initial nomination or election, and any such director shall not be deemed to be a Continuing Director, in each case solely for the purpose of
determining whether the addition of members of the Board of
Directors in connection with, or in contemplation of, such
transaction results in a Full Change in Control under clause
(ii) of the definition of Full Change in Control.
(i) EXCHANGE ACT -- shall mean the Securities Exchange Act of 1934, as amended.
(j) FULL CHANGE IN CONTROL -- shall mean:
(i) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by USB or any Person that a Person (other than a Company Entity) has become the Beneficial Owner, directly or indirectly, of securities of USB (x) representing 20% or more, but not more than 50%, of the combined voting power of USB's then outstanding securities unless the transaction resulting in such ownership has been approved in advance by the Continuing Directors or (y) representing more than 50% of the combined voting power of USB's then outstanding securities (regardless of any approval by the Continuing Directors); or
(ii) the Continuing Directors cease to constitute a majority of the Board of Directors of USB or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(iii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of USB and its subsidiaries or the adoption of any plan of liquidation or dissolution of USB.
NOTWITHSTANDING THE FOREGOING, ANY OF THE FOREGOING EVENTS THAT WOULD CONSTITUTE A FULL CHANGE IN CONTROL MAY BE DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS AS EVIDENCED BY ADOPTION OF A RESOLUTION BY A MAJORITY OF A QUORUM OF THE BOARD OF DIRECTORS AT A DULY HELD MEETING OR BY UNANIMOUS WRITTEN ACTION IN LIEU OF A MEETING, WHICH DETERMINATION MAY BE MADE AT ANY TIME PRIOR TO THE CHANGE IN CONTROL OR, IN THE CASE OF SUBPARAGRAPH (a) ABOVE, AT ANY TIME WITHIN 20 DAYS FOLLOWING THE CHANGE IN CONTROL.
(k) PARTIAL CHANGE IN CONTROL -- shall mean:
(i) a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not
Company Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of USB as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation owned, or to be owned, by such shareholders by reason of their ownership prior to such transaction of securities of any entity other than USB) and as a result of which the Continuing Directors constitute more than 50% of the Board of Directors of the Resulting Corporation; or
(ii) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by USB or any Person that a Person (other than a Company Entity) has become the Beneficial Owner, directly or indirectly, of securities of USB representing 20% or more, but not more than 50%, of the combined voting power of USB's then outstanding securities if the transaction resulting in such ownership has been approved in advance by the Continuing Directors; or
(iii) AN EVENT THAT WOULD HAVE CONSTITUTED A FULL CHANGE IN CONTROL BUT WAS DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN ACCORDANCE WITH THE DEFINITION OF FULL CHANGE IN CONTROL.
(l) PERSON -- shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
(m) RESULTING CORPORATION -- shall mean the surviving corporation in any consolidation, merger or other reorganization to which USB is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Company Entity (other than USB) is a party, then USB shall be deemed the Resulting Corporation.
1.2.4. DIRECTOR -- an individual serving on the Board of Directors of USB who is not at the same time a common law employee of USB or any of its subsidiary corporations.
1.2.5. DIRECTOR SERVICE -- a measure of a Director's service as a Director (stated as a number of months) which is equal to the total completed months of the individual's service as a Director (irrespective of any Termination of Service and subsequent reentry into service as a Director); subject, however, to the following:
(a) PRE-EFFECTIVE SERVICE. Director Service shall be credited for any period of service completed before January 1, 1991, as if this Plan Statement were then in effect.
(b) SUBSIDIARY SERVICE. In the case of a Director who has performed at least one (1) month of actual Director Service, Director Service shall be credited for services performed as a member of the board of directors of any corporation which is an eighty percent (80%) or greater subsidiary of USB (while such corporation was at least an eighty percent subsidiary of USB) as if such service were performed as a Director for USB.
(c) ACQUIRED ENTITIES SERVICE. In the case of a Director who has performed at least one (1) month of actual Director Service, Director Service shall be credited for pre-acquisition services performed as a member of the board of directors of any corporation if not less than ninety-five percent (95%) of its capital stock of that corporation is directly or indirectly acquired by USB as if such pre-acquisition services were performed as a Director for USB; provided, however, that such service shall be credited only if the Director agrees to have offset from benefits due under this Plan the value of benefits attributable such service in a fair and equitable manner as determined by the Organization Committee of the Board of Directors.
(d) ADVISORY BOARDS SERVICE. In the case of a Director who has performed at least one (1) month of actual Director Service, Director Service shall be credited for services performed as a member of an advisory board of any subsidiary described in (b) above or any acquired entity described in (c) above as if such service were performed as a Director for USB; provided, however, that such service shall be credited only if the Director agrees to have offset from benefits due under this Plan the value of benefits attributable such service in a fair and equitable manner as determined by the Organization Committee of the Board of Directors.
(e) EXCLUDED SERVICE. Director Service shall not be credited for any period of service during which the Director is a common law employee of USB or any of its subsidiary corporations or acquired entities.
1.2.6. USB -- U.S. BANCORP, a Delaware corporation, or any successor thereto.
1.2.7. PLAN -- the supplemental retirement and death benefit program maintained by USB for the Board of Directors eligible to participate therein, as first set forth in the Prior Plan Statement effective February 18, 1987, and as amended and restated in the Plan Statement. (As used herein, "Plan" does not refer to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the "Prior Plan Statement" and the "Plan Statement.") The Plan
shall be referred to as the "U.S. BANCORP INDEPENDENT DIRECTOR RETIREMENT AND
DEATH BENEFIT PLAN."
1.2.8. PLAN STATEMENT -- this document entitled "U.S. BANCORP INDEPENDENT DIRECTOR RETIREMENT AND DEATH BENEFIT PLAN (1991 Restatement)," as adopted by USB effective as of May 15, 1991 as the same may be amended from time to time thereafter.
1.2.9. PRESENT VALUE -- the actuarially equivalent single sum value of the unpaid installments of the Supplemental Retirement Pension determined as of a specified date assuming:
(a) that the installments would have commenced on the earliest date when the installments benefit could have commenced; and
(b) the interest rate used by the Pension Benefit Guaranty Corporation to value annuities (for participants who are the same age) in the event of plan terminations occurring on the first day of the calendar year in which occurs the date as of which the actuarially equivalent single sum is being determined.
The number of unpaid installments of the Supplemental Retirement Pension shall never be greater than ten (10) minus the number of annual installments already paid and shall never be less than zero (0).
1.2.10. PRIOR PLAN STATEMENT -- the series of documents pursuant to which this Plan was established as of January 1, 1987, and operated thereafter until May 15, 1991.
1.2.11. SUPPLEMENTAL RETIREMENT PENSION -- the pension benefit described in Section 3.1.
1.2.12. TERMINATION OF SERVICE -- the termination of the Director's service as a Director for any of the following reasons:
(a) The Director retires as required under the terms of the USB Directors' Retirement Policy then in effect.
(b) The Director resigns voluntarily.
(c) The Director is not reelected to a succeeding term as a member of the Board of Directors when his or her term expires.
(d) The Director terminates after he or she is determined by USB to be disabled and is, therefore, unable to fulfill the duties of a member of the Board of Directors because of that disability, however caused.
When necessary, USB shall determine the date of the Termination of Service. The death of the Director is not a Termination of Service.
1.3. RULES OF INTERPRETATION. An individual shall be considered to have attained a given age on his birthday for that age (and not on the day before). The birthday of any individual born on a February 29 shall be deemed to be February 28 in any year that is not a leap year. Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Director or Beneficiary shall be deemed for all purposes of this Plan and all elections and designations made under this Plan to have died before such Director or Beneficiary. A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this section. In the absence of a conviction of felonious and intentional killing, USB shall determine whether the killing was felonious and intentional for the purposes of this section. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to this entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This document has been executed and delivered in the State of Minnesota and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of Minnesota.
SECTION 2
ELIGIBILITY
Each Director shall be a participant in the Plan as of the first day the Director first becomes a Director. A Director shall not be required to enroll as a condition of participation in this Plan.
SECTION 3
SUPPLEMENTAL RETIREMENT BENEFITS
3.1. SUPPLEMENTAL RETIREMENT PENSION.
3.1.1. WHEN AVAILABLE. Upon the later of:
(i) the Director's Termination of Service, or
(ii) the Director's attainment of age sixty-five (65) years,
the Director who has completed at least sixty (60) months of Director Service shall receive a Supplemental Retirement Pension. (No benefits shall be payable under this Plan to, or with respect to, any Director who dies or has a Termination of Service before completing sixty months of Director Service.)
3.1.2. AMOUNT. The annual amount of the Director's Supplemental Retirement Pension shall be the amount of the Director's Accrued Benefit determined as of the date of the Director's Termination of Service divided by ten (10).
3.1.3. FORM OF PENSION. The form of the Supplemental Retirement Pension is an annuity payable annually on or about each May 1.
(a) If, at the Director's Termination of Service, the Director was at least age sixty-seven (67) years or had completed one hundred forty-four (144) months of Director Service (i.e., the Director is entitled to a lifetime annuity),
(i) the first payment shall be due on the May 1 coincident with or next following the later of the Director's Termination of Service, or the Director's attainment of age sixty-seven (67) years, and
(ii) the last payment to the Director shall be due on the May 1 immediately preceding the date on which the Director dies.
(b) In all other cases,
(i) the first payment shall be due on the May 1 coincident with or next following the later of the Director's Termination of Service or the Director's attainment of age sixty-five (65) years, and
(ii) the last payment to the Director shall be due on the date on which the tenth annual payment is made or, if earlier, on the May 1 immediately preceding the date on which the Director dies.
Provided, however, if the payment of the Supplemental Retirement Pension is on account of the disability of the Director, the first payment shall be due on the May 1 coincident with or next following the Director's Termination of Service.
3.2. CHANGE IN CONTROL. For the purpose of this Section 3, all Directors shall be deemed to have had a Termination of Service on the date of a Full Change in Control if they have not
previously had a Termination of Service. Notwithstanding anything to the contrary in this Plan Statement, in the event of a Full Change in Control, the remaining benefits payable hereunder (whether payable to Directors who are deemed to have had a Termination of Service, payable to Directors who have previously had a Termination of Service, without regard to whether payment of their benefits has begun, or payable with respect to Directors who have previously died) shall be commuted to their Present Value as of the date of such Full Change in Control. The commuted benefits shall be paid in a single lump sum payment within thirty (30) days following the date of such Full Change in Control.
3.3. FACILITY OF PAYMENT. In case of the legal disability of a Director entitled to receive any distribution under the Plan, payment shall be made, if the Board of Directors shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such Director, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled Director, provided such person or institution has satisfied the Board of Directors that the payment will be used for the best interest and assist in the care of such Director, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such Director.
Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of USB and the Board of Directors.
SECTION 4
DEATH BENEFITS
4.1. DEATH BEFORE BENEFIT COMMENCEMENT.
4.1.1. WHEN AVAILABLE. If, upon the death of a Director who:
(a) has not begun to receive any payment of any supplemental retirement benefits under this Plan;
(b) has completed sixty (60) months of Director Service;
a death benefit shall be payable to the Director's Beneficiary. (If any
benefit is payable under this Section 4.1, no benefit shall be payable under
Section 4.2.)
4.1.2. AMOUNT. The amount of the death benefit payment shall be the Present Value of an annuity of ten (10) annual payments each payment of which is equal to one-tenth (1/10) of the Director's Accrued Benefit. The Accrued Benefit and the Present Value shall be determined as of the date of the Director's death. The annuity will be deemed to commence on the May 1 coincident with or next following the Director's death.
4.1.3. FORM OF BENEFIT. The death benefit payable hereunder shall be paid in a single lump sum payment as soon as administratively practicable following the Director's death.
4.2. DEATH AFTER BENEFIT COMMENCEMENT. The only death benefits which shall be payable under the Plan upon the death of a Director after payment of the Supplemental Retirement Pension has commenced to the Director shall be:
(a) the payment of any unpaid installments of the Supplemental Retirement Pension to the Director's Beneficiary at the same times and in the same amount as would have been paid if the Director had not died; or
(b) if the Director has so elected in writing prior to the date of his or her Termination of Service, the payment to the Beneficiary in a single lump sum of the Present Value of any unpaid installments of the Supplemental Retirement Pension to the Director's Beneficiary as soon as administratively practicable after the Director's death.
For this purpose, the number of any unpaid installments of the Supplemental Retirement Pension and the Present Value of such unpaid installments shall be determined as of the date of the Director's death. The number of unpaid installments of the Supplemental Retirement Pension shall never be greater than ten (10) minus the number of annual installments paid before the Director's death and shall never be less than zero (0).
4.3. DESIGNATION OF BENEFICIARIES.
4.3.1. RIGHT TO DESIGNATE. Each Director may designate, upon forms to be furnished by and filed with USB, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Director's benefit in the event of such Director's death. The Director may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Director and received by USB during the Director's lifetime.
4.3.2. FAILURE OF DESIGNATION. If a Director:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Director,
such Director's benefit, or the part thereof as to which such Director's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Director and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Director:
Director's surviving spouse
Director's surviving issue per stirpes and not per capita
Director's surviving parents
Director's surviving brothers and sisters
Representative of Director's estate.
4.3.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a
distribution of all or a portion of a deceased Director's benefit may
disclaim an interest therein subject to the following requirements. To be
eligible to disclaim, a Beneficiary must be a natural person, must not have
received a distribution of all or any portion of the benefit at the time such
disclaimer is executed and delivered, and must have attained at least age
twenty-one (21) years as of the date of the Director's death. Any disclaimer
must be in writing and must be executed personally by the Beneficiary before
a notary public. A disclaimer shall state that the Beneficiary's entire
interest in the undistributed benefit is disclaimed or shall specify what
portion thereof is disclaimed. To be effective, duplicate original executed
copies of the disclaimer must be both executed and actually delivered to USB
after the date of the Director's death but not later than one hundred eighty
(180) days after the date of the Director's death. A disclaimer shall be
irrevocable when delivered to USB. A disclaimer shall be considered to be
delivered to USB only when actually received by USB. USB shall be the sole
judge of the content, interpretation and validity of a purported disclaimer.
Upon the filing of a valid disclaimer, the Beneficiary shall be considered
not to have survived the Director as to the interest disclaimed. A
disclaimer by a Beneficiary shall not be considered to be a transfer of an
interest in violation of the provisions of Section 5. No other form of
attempted disclaimer shall be recognized by USB.
4.3.4. DEFINITIONS. When used herein and, unless the Director has otherwise specified in the Director's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Director.
4.3.5. SPECIAL RULES. Unless the Director has otherwise specified in the Director's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Director, it shall be deemed that the Beneficiary was not living at the time of the death of the Director.
(b) The automatic Beneficiaries specified in Section 4.3.2 and the Beneficiaries designated by the Director shall become fixed at the time of the Director's death so that, if a Beneficiary survives the Director but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Director designates as a Beneficiary the person who is the Director's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Director and such person shall automatically revoke such designation. (The foregoing shall not prevent the Director from designating a former spouse as a Beneficiary on a form executed by the Director and received by USB after the date of the legal termination of the marriage between the Director and such former spouse, and during the Director's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Director shall be given effect without regard to whether the relationship to the Director exists either then or at the Director's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Director shall be effective only to designate the person or persons standing in such relationship to the Director at the Director's death.
USB shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
4.3.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Director and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Director.
SECTION 5
FUNDING OF PLAN
5.1. UNFUNDED AGREEMENT. The obligation of USB to make payments under this Plan constitutes only the unsecured (but legally enforceable) promise of USB to make such payments. The Director shall have no lien, prior claim or other security interest in any property of USB. USB is not required to establish or maintain any fund, trust or account for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of USB. USB will pay the cost of this Plan out of its general assets.
5.2. SPENDTHRIFT PROVISION. No Director or Beneficiary shall have any transmissible interest in any benefit under this Plan nor shall any Director or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of USB, nor shall USB recognize any assignment thereof, either in whole or in part, nor shall any benefit be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of USB.
The power to designate Beneficiaries to receive the benefit of a Director in the event of such Director's death shall not permit or be construed to permit such power or right to be exercised by the Director so as thereby to anticipate, pledge, mortgage or encumber such Director's benefit or any part thereof, and any attempt of a Director so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by USB.
SECTION 6
AMENDMENT AND TERMINATION
USB reserves the power to amend or terminate the Plan prior to a Full Change in Control. No amendment of the Plan, however, shall reduce a Director's benefits earned as of the date of such amendment unless the Director so affected consents in writing to the amendment. Benefits earned as of the date of an amendment shall be determined as if the Director had a Termination of Service
on that date. After a Full Change in Control, the Plan cannot be amended or terminated (as applied to Directors who are Directors on the date of the Full Change in Control) unless:
(a) all benefits earned by all Directors as of the date of the Full Change in Control have been paid, or
(b) a majority of the Continuing Directors (as defined in
Section 1.2.3) as of the date of the Full Change in Control give
written consent to such amendment or termination.
The foregoing restrictions and limitations on the ability to amend and terminate the Plan shall not be effective, however, if, within ten (10) business days following the date of the Full Change in Control, a majority of the members of the Organization Committee of the Board of Directors determines in its sole discretion that such restrictions and limitations shall not apply with respect to such Full Change in Control.
SECTION 7
DETERMINATIONS -- RULES AND REGULATIONS
7.1. DETERMINATIONS. USB shall make such determinations as may be required from time to time in the administration of the Plan. USB shall have the authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Directors and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
7.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by USB.
7.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by USB pursuant to any provision of this Plan Statement may be signed in the name of USB by any officer or director thereof who has been authorized to make such certification or to give such notices or consents.
7.4. INFORMATION FURNISHED BY DIRECTORS. USB shall not be liable or responsible for any error in the computation of the benefit of a Director resulting from any misstatement of fact made by the Director, directly or indirectly, to USB, and used by it in determining the Director's benefit. USB shall not be obligated or required to increase the benefit of such Director which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Director. However,
the benefit of any Director which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 8
PLAN ADMINISTRATION
8.1. USB. Except as hereinafter provided, functions generally assigned to USB shall be discharged by the Organization Committee of the Board of Directors or delegated and allocated as provided herein.
8.2. CONFLICT OF INTEREST. If any member of the Board of Directors of USB to whom authority has been delegated or redelegated hereunder shall have an benefit in the Plan, such Director shall have no authority as such Director with respect to any matter specially affecting such Director's individual interest hereunder (as distinguished from the interests of all Directors and Beneficiaries or a broad class of Directors and Beneficiaries), all such authority being reserved exclusively to the other Directors, to the exclusion of such Director, and such Director shall act only in such Director's individual capacity in connection with any such matter.
SECTION 9
DISCLAIMERS
Neither USB nor any of its officers nor any member of its Board of Directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Director or to any Beneficiary or to any creditor of a Director or a Beneficiary. Each Director, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of USB for such payments or to the benefit distributed to any Director or Beneficiary, as the case may be, for such payments. In each case where benefit shall have been distributed to a former Director or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Director or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of USB. Neither USB nor any of its officers nor any member of its Board of Directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of USB. USB and its officers and the members of its Board of Directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
COMPOSITE COPY
As Amended Through January 19, 2000
U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION.................................................. 1
1.1. Restatement of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Annual Valuation Date
1.2.3. Beneficiary
1.2.4. Director
1.2.5. Event of Maturity
1.2.6. Plan
1.2.7. Plan Statement
1.2.8. Plan Year
1.2.9. Prior Plan Statement
1.2.10. USB
1.2.11. Valuation Date
1.3. Rules of Interpretation
1.4. Additional Definitions
1.4.1. Acquiring Person
1.4.2. Affiliate
1.4.3. Associate
1.4.4. Beneficial Owner
1.4.5. Board of Directors
1.4.6. Company Entity
1.4.7. Continuing Director
1.4.8. Exchange Act
1.4.9. Full Change In Control
1.4.10. Partial Change in Control
1.4.11. Person
1.4.12. Resulting Corporation
SECTION 2. PARTICIPATION.......................................... 5
2.1. Participation
2.2. Enrollment
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2.3. Revocation
2.4. Prior Years' Enrollments
SECTION 3. ADDITIONS TO ACCOUNTS.................................. 6
SECTION 4. ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS............... 6
4.1. Establishment of Accounts
4.2. Adjustment of Accounts
4.2.1. Intermediate Distributions Adjustment
4.2.2. Investment Adjustment for Account
4.2.3. Contribution Adjustment
4.2.4. Final Distributions Adjustment
SECTION 5. VESTING OF ACCOUNT..................................... 7
SECTION 6. MATURITY............................................... 7
6.1. Events of Maturity
6.2. Determination of Account
6.3. Effect of Maturity upon Further Participation in Plan
SECTION 7. DISTRIBUTION........................................... 8
7.1. Time of Distribution
7.1.1. Form of Distribution
7.1.2. Time of Distribution
7.1.3. Substantially Equal
7.1.4. Default
7.1.5. Change In Control
7.2. Designation of Beneficiaries
7.2.1. Right To Designate
7.2.2. Failure of Designation
7.2.3. Disclaimers by Beneficiaries
7.2.4. Definitions
7.2.5. Special Rules
7.2.6. No Spousal Rights
7.3. Death Prior to Full Distribution
7.4. Facility of Payment
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SECTION 8. FUNDING OF PLAN........................................ 12
8.1. Unfunded Agreement
8.2. Spendthrift Provision
SECTION 9. AMENDMENT AND TERMINATION.............................. 12
SECTION 10. DETERMINATIONS -- RULES AND REGULATIONS................ 13
10.1. Determinations
10.2. Rules and Regulations
10.3. Method of Executing Instruments
10.4. Information Furnished by Directors
SECTION 11. PLAN ADMINISTRATION.................................... 14
11.1. USB
11.2. Conflict of Interest
SECTION 12. DISCLAIMERS............................................ 14
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U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
|
SECTION 1
INTRODUCTION
1.1. RESTATEMENT OF PLAN. Effective January 1, 1988, FIRST BANK SYSTEM, INC., a Delaware corporation (hereinafter sometimes referred to as "FBS") authorized the creation of a nonqualified, unfunded, directors' deferral plan for the purpose of allowing Directors who are not full-time salaried employees of FBS to defer the receipt of directors' fees which would otherwise be paid to the Director. FBS created and established a series of substantially identical annual directors' deferral plans, effective as of January 1, 1988. They were set forth in documents referred to collectively as the "Prior Plan Statement." On August 1, 1997, following its merger with U.S. Bancorp, an Oregon corporation, FBS changed its name to U.S. BANCORP ("USB"). USB has reserved the power to amend and terminate the Prior Plan Statement from time to time. USB now desires to exercise that reserved power of amendment by the adoption of this Plan Statement effective as of January 1, 1998.
1.2. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the unfunded and unsecured general obligation of USB established with respect to each Director to which is credited the dollar amounts specified in Section 3 and Section 4 and from which are subtracted payments made pursuant to Section 5 and Section 7. To the extent necessary to accommodate different distribution elections made pursuant to Section 2, the Account shall be maintained as separate sub-accounts in sufficient number to accommodate each such distribution election.
1.2.2. ANNUAL VALUATION DATE -- each December 31.
1.2.3. BENEFICIARY -- a person designated by a Director (or automatically by operation of this Plan Statement) to receive all or a part of the Director's Account in the event of the Director's death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Director.
1.2.4. DIRECTOR -- an individual serving on the Board of Directors of USB who is not at the same time a common law employee of USB or any of its subsidiary corporations.
1.2.5. EVENT OF MATURITY -- any of the occurrences described in
Section 6 by reason of which a Director or Beneficiary may become entitled to
a distribution from the Plan.
1.2.6. PLAN -- the income deferral program maintained by USB established for the benefit of Directors eligible to participate therein, as first set forth in the Prior Plan Statement and as amended and restated in this Plan Statement. (As used herein, "Plan" does not refer to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the "Prior Plan Statement" and the "Plan Statement"). The Plan shall be referred to as the "U.S. BANCORP DEFERRED COMPENSATION PLAN FOR DIRECTORS."
1.2.7. PLAN STATEMENT -- this document entitled "U.S. BANCORP DEFERRED COMPENSATION PLAN FOR DIRECTORS (1998 Restatement)" as adopted by the Board of Directors of U.S. BANCORP effective as of January 1, 1998, as the same may be amended from time to time thereafter.
1.2.8. PLAN YEAR -- the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.9. PRIOR PLAN STATEMENT -- the series of documents pursuant to which the Plan was established effective as of January 1, 1988, and operated thereafter until January 1, 1998.
1.2.10. USB -- U.S. BANCORP (formerly known as FIRST BANK SYSTEM, INC.), a Delaware corporation, or any successor thereto.
1.2.11. VALUATION DATE -- the last day of each calendar month of the Plan Year.
1.3. RULES OF INTERPRETATION. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words "hereof," "herein" or "hereunder" or other similar compounds of the word "here" shall mean and refer to this entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This document has been executed and delivered in the State of MINNESOTA and has been drawn in conformity to the laws of that State and shall be construed and enforced in accordance with the laws of the State of MINNESOTA.
1.4. ADDITIONAL DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.4.1. ACQUIRING PERSON -- any Person who or which, together with all Affiliates and Associates of such person, is the Beneficial Owner, directly or indirectly, of securities of USB
representing 20% or more of the combined voting power of USB's then outstanding securities, but shall not include any Company Entity.
1.4.2. AFFILIATE -- shall have the meaning ascribed to the term "Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.4.3. ASSOCIATE -- shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
1.4.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
1.4.5. BOARD OF DIRECTORS -- the board of directors of USB.
1.4.6. COMPANY ENTITY -- USB, any subsidiary of USB or any employee benefit plan of USB or of any subsidiary of USB or any entity holding shares of the voting capital stock of USB organized, appointed or established for, or pursuant to the terms of, any such plan.
1.4.7. CONTINUING DIRECTOR -- any person who is a member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Acquiring Person or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors as of JANUARY 19, 2000 or (y) subsequently becomes a member of the Board of Directors, if such person's initial nomination for election or initial election to the Board of Directors has been approved in advance by the Continuing Directors; provided that any director designated by or on behalf of a Person who has entered into an agreement with USB (or who is contemplating entering into such an agreement) to effect a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, and any director that serves in connection with the act of the Board of Directors of increasing the number of directors and filling vacancies in connection with, or in contemplation of, any such transaction, shall not be deemed to have received such advance approval for initial nomination or election, and any such director shall not be deemed to be a Continuing Director, in each case solely for the purpose of determining whether the addition of members of the Board of Directors in connection with, or in contemplation of, such transaction results in a Full Change in Control under clause (b) of the definition of Full Change in Control.
1.4.8. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended.
1.4.9. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company
Entity) has become the Beneficial Owner, directly or indirectly, of securities of USB (x) representing 20% or more, but not more than 50%, of the combined voting power of USB's then outstanding securities unless the transaction resulting in such ownership has been approved in advance by the Continuing Directors or (y) representing more than 50% of the combined voting power of USB's then outstanding securities (regardless of any approval by the Continuing Directors); or
(b) the Continuing Directors cease to constitute a majority of the Board of Directors of USB or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(c) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of USB and its subsidiaries or the adoption of any plan of liquidation or dissolution of USB.
NOTWITHSTANDING THE FOREGOING, ANY OF THE FOREGOING EVENTS THAT WOULD CONSTITUTE A FULL CHANGE IN CONTROL MAY BE DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN THE SOLE DISCRETION OF THE BOARD OF DIRECTORS OF USB AS EVIDENCED BY ADOPTION OF A RESOLUTION BY A MAJORITY OF A QUORUM OF THE BOARD OF DIRECTORS AT A DULY HELD MEETING OR BY UNANIMOUS WRITTEN ACTION IN LIEU OF A MEETING, WHICH DETERMINATION MAY BE MADE AT ANY TIME PRIOR TO THE CHANGE IN CONTROL OR, IN THE CASE OF SUBPARAGRAPH (a) ABOVE, AT ANY TIME WITHIN 20 DAYS FOLLOWING THE CHANGE IN CONTROL.
1.4.10. PARTIAL CHANGE IN CONTROL -- shall mean:
(a) a consolidation or merger of USB or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of USB as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation owned, or to be owned, by such shareholders by reason of their ownership prior to such transaction of securities of any entity other than USB) and as a result of which the Continuing Directors constitute more than 50% of the Board of Directors of the Resulting Corporation; or
(b) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to
Section 13(d) of the Exchange Act) by USB or any Person that a
Person (other than a Company Entity) has become the Beneficial
Owner, directly or indirectly, of securities of USB representing
20% or more, but not more than 50%, of the combined voting power
of USB's then outstanding securities if the transaction
resulting
in such ownership has been approved in advance by the Continuing Directors; or
(c) AN EVENT THAT WOULD HAVE CONSTITUTED A FULL CHANGE IN CONTROL BUT WAS DEEMED TO BE A PARTIAL CHANGE IN CONTROL IN ACCORDANCE WITH THE DEFINITION OF FULL CHANGE IN CONTROL.
1.4.11. PERSON -- shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
1.4.12. RESULTING CORPORATION -- the surviving corporation in any consolidation, merger or other reorganization to which USB is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Company Entity (other than USB) is a party, then USB shall be deemed the Resulting Corporation.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each Director of USB shall be a participant in the Plan as of the first day the Director first becomes a Director.
2.2. ENROLLMENT. Prior to the first day of participation, the Director may enroll in the Plan for the remainder of that Plan Year. Prior to the first day of any subsequent Plan Year, a Director may make a new enrollment for that Plan Year. Once made, the enrollment shall be irrevocable for the remainder of the Plan Year with respect to which it is made. Each such enrollment, whether for the initial Plan Year or for a subsequent Plan Year, shall designate in writing:
(a) the amount or portion of the Director's annual retainer and meeting fees which shall not be paid to the Director but instead shall be accumulated in this Plan under Section 3 and Section 4 and distributed from this Plan under Section 6 and Section 7; and
(b) the time and form in which the Account or portion of Account attributable to such Plan Year's accumulation shall be paid to the Director in accordance with Section 7.
2.3. REVOCATION. A Director's written enrollment for the 1998 Plan Year or any later Plan Year shall continue in effect after the Plan Year with respect to which it is made until an Event of Maturity
occurs as to the Director or until the last day of the Plan Year in which the Director files a written revocation of the Director's enrollment, whichever occurs first.
2.4. PRIOR YEARS' ENROLLMENTS. Notwithstanding the forgoing, elections made by Directors about the payment of benefits under the Prior Plan Statement attributable to accumulations for Plan Years ending before January 1, 1998, shall not be modified by the adoption of this Plan Statement.
SECTION 3
ADDITIONS TO ACCOUNTS
USB shall credit monthly to the Account of each Director such amount as the Director in his or her sole discretion shall have determined in accordance with Section 2.2. The amount shall be separately determined by each Director and need not be equal or bear a uniform relationship to the deferrals of other Directors. The amount so allocated to a Director shall be credited to such Director's Account as of the Valuation Date in the month for which it is made.
SECTION 4
ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS
4.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each Director an unfunded bookkeeping Account which shall be adjusted each Valuation Date.
4.2. ADJUSTMENT OF ACCOUNTS. As of each Valuation Date (the "current Valuation Date"), the value of each Account determined as of the immediately preceding Valuation Date (the "initial Account value") shall be increased (or decreased) by the following adjustments made in the following sequence:
4.2.1. INTERMEDIATE DISTRIBUTIONS ADJUSTMENT. The initial Account value shall be reduced by the total amount distributed in fact to (or with respect to) the Director from such Account as of a date subsequent to the immediately preceding Valuation Date but prior to the current Valuation Date.
4.2.2. INVESTMENT ADJUSTMENT FOR ACCOUNT. The initial Account value of each Director's Account (as adjusted above) shall be increased by interest. The rate shall be determined from time to time by USB. The rate may be changed by USB without amendment of the Plan Statement and without notice to or the consent of any Director, former Director or any Beneficiary. Beginning January 1, 1998, the rate for each month in a Plan Year shall be equal to the monthly equivalent of one hundred percent (100%) of the 120 month rolling average of the 10-year Treasury
Note, determined as of September 30 of the immediately preceding Plan Year. This percentage shall be uniform for all Directors for the same Valuation Date but may change from Valuation Date to Valuation Date.
4.2.3. CONTRIBUTION ADJUSTMENT. The initial Account value (as adjusted above) shall be increased by the total amount, if any, credited to such Account under Section 3 as of the current Valuation Date.
4.2.4. FINAL DISTRIBUTIONS ADJUSTMENT. The initial Account value (as adjusted above) shall be reduced by the total amount distributed in fact to (or with respect to) the Director from such Account as of the current Valuation Date.
SECTION 5
VESTING OF ACCOUNT
The Account of each Director shall be fully (100%) vested at all times.
SECTION 6
MATURITY
6.1. EVENTS OF MATURITY. A Director's Account shall mature and shall become distributable in accordance with Section 7 upon the earliest occurrence of any of the following events while in the employment of USB or an Affiliate:
(a) his or her death, or
(b) his or her removal or resignation from the Board of Directors of USB, whether voluntary or involuntary, or
(c) his or her Disability, or
(d) termination of the Plan.
6.2. DETERMINATION OF ACCOUNT. Upon the occurrence of an Event of Maturity effective as to a Director, the value of such Director's Account as of the Valuation Date coincident with or next following the Event of Maturity shall be determined.
6.3. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the occurrence of an Event of Maturity, a Director shall cease to have any interest in the Plan other than the right to receive payment of his or her Account as provided in Section 7 hereof, adjusted from time to time as provided in Section 4.
SECTION 7
DISTRIBUTION
7.1. TIME OF DISTRIBUTION. Upon the occurrence of an Event of Maturity effective as to a Director, USB shall commence payment of such Director's Account in the manner designated by the Director in his or her enrollment.
7.1.1. FORM OF DISTRIBUTION. Distribution shall be made in whichever of the following forms as the Director shall have designated in writing:
(a) In a series of substantially equal annual installments payable over ten (10) years.
(b) In a single, lump sum payment.
7.1.2. TIME OF DISTRIBUTION. Distribution shall be made (in the case of a single lump sum) or commenced (in the case of installments) as of the first business day of January after the Director's Event of Maturity.
7.1.3. SUBSTANTIALLY EQUAL. Distributions shall be considered to be substantially equal if the amount of the distribution required to be made for each calendar year (the "distribution year") is determined by dividing the amount of the Account as of the last Valuation Date in the calendar year immediately preceding the distribution year (such preceding calendar year being the "valuation year") by the number of remaining installment payments to be made (including the distribution being determined). The amount of the Account as of such Valuation Date shall be decreased by the amount of any distributions made in the valuation year and after such Valuation Date.
7.1.4. DEFAULT. If for any reason a Director shall have failed to make a written designation of form and time for distribution (including reasons entirely beyond the control of the Director), the distribution shall be made in a single lump sum during the January following the date the Director shall have had an Event of Maturity. No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Director's selection of a form of benefit.
7.1.5. CHANGE IN CONTROL. Notwithstanding the foregoing provisions of this Section or any designation made by a Director, in the event of a Full Change in Control the Plan shall be
automatically terminated and every Account shall be paid in a single lump sum distribution within thirty (30) days after the Full Change in Control.
7.2. DESIGNATION OF BENEFICIARIES.
7.2.1. RIGHT TO DESIGNATE. Each Director may designate, upon forms to be furnished by and filed with USB, one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Director's Account in the event of such Director's death. The Director may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Director and received by USB during the Director's lifetime.
7.2.2. FAILURE OF DESIGNATION. If a Director:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Director,
such Director's Account, or the part thereof as to which such Director's designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Director and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Director:
Director's surviving spouse
Director's surviving issue per stirpes and not per capita
Director's surviving parents
Director's surviving brothers and sisters
Representative of Director's estate.
7.2.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a distribution of all or a portion of a deceased Director's Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Director's death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary's entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to USB after the date of the Director's death but not later than one hundred eighty
days after the date of the Director's death. A disclaimer shall be irrevocable when delivered to USB. A disclaimer shall be considered to be delivered to USB only when actually received by USB. USB shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Director as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of the provisions of Section 8. No other form of attempted disclaimer shall be recognized by USB.
7.2.4. DEFINITIONS. When used herein and, unless the Director has otherwise specified in the Director's Beneficiary designation, when used in a Beneficiary designation, "issue" means all persons who are lineal descendants of the person whose issue are referred to, including legally adopted descendants and their descendants but not including illegitimate descendants and their descendants; "child" means an issue of the first generation; "per stirpes" means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and "survive" and "surviving" mean living after the death of the Director.
7.2.5. SPECIAL RULES. Unless the Director has otherwise specified in the Director's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Director, it shall be deemed that the Beneficiary was not living at the time of the death of the Director.
(b) The automatic Beneficiaries specified in Section 7.2.2 and the Beneficiaries designated by the Director shall become fixed at the time of the Director's death so that, if a Beneficiary survives the Director but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiary's estate.
(c) If the Director designates as a Beneficiary the person who is the Director's spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Director and such person shall automatically revoke such designation. (The foregoing shall not prevent the Director from designating a former spouse as a Beneficiary on a form executed by the Director and received by USB after the date of the legal termination of the marriage between the Director and such former spouse, and during the Director's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Director shall be given effect without
regard to whether the relationship to the Director exists either then or at the Director's death.
(e) Any designation of a Beneficiary only by statement of relationship to the Director shall be effective only to designate the person or persons standing in such relationship to the Director at the Director's death.
USB shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
7.2.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a Director and no person designated to be a Beneficiary shall have any rights or interest in the benefits accumulated under this Plan including, but not limited to, the right to be the sole Beneficiary or to consent to the designation of Beneficiaries (or the changing of designated Beneficiaries) by the Director.
7.3. DEATH PRIOR TO FULL DISTRIBUTION. If a Director dies after an Event of Maturity but before distribution of such Director's Account has been completed, the remaining undistributed Account shall be distributed in the same manner as hereinbefore provided in Section 7.1. If, at the death of the Director, any payment to the Director was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which are payable to the Beneficiary (and shall not be paid to the Director's estate).
7.4. FACILITY OF PAYMENT. In case of the legal disability of a Director or Beneficiary entitled to receive any distribution under the Plan, payment shall be made, if USB shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal representative of such Director or Beneficiary, or
(b) to a person or institution entrusted with the care or maintenance of the incompetent or disabled Director or Beneficiary, provided such person or institution has satisfied USB that the payment will be used for the best interest and assist in the care of such Director or Beneficiary, and provided further, that no prior claim for said payment has been made by a duly appointed guardian, conservator or other legal representative of such Director or Beneficiary.
Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of USB therefor.
SECTION 8
FUNDING OF PLAN
8.1. UNFUNDED AGREEMENT. The obligations of USB to make payments under this Plan constitute only the unsecured (but legally enforceable) promise of USB to make such payments. The Director shall have no lien, prior claim or other security interest in any property of USB. USB is not required to establish or maintain any fund, trust or account (other than a bookkeeping account or reserve) for the purpose of funding or paying the benefits promised under this Plan. If such a fund is established, the property therein shall remain the sole and exclusive property of USB. USB will pay the cost of this Plan out of its general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring USB's obligation to Directors in this Plan and shall not be construed to impose on USB the obligation to create any separate fund for purposes of this Plan.
8.2. SPENDTHRIFT PROVISION. No Director or Beneficiary shall have any transmissible interest in any Account nor shall any Director or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while in the possession or control of USB, nor shall USB recognize any assignment thereof, either in whole or in part, nor shall any Account be subject to attachment, garnishment, execution following judgment or other legal process while in the possession or control of USB.
The power to designate Beneficiaries to receive the Account of a Director in the event of such Director's death shall not permit or be construed to permit such power or right to be exercised by the Director so as thereby to anticipate, pledge, mortgage or encumber such Director's Account or any part thereof, and any attempt of a Director so to exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by USB.
This section shall not prevent USB from exercising, in its discretion, any of the applicable powers and options granted to it upon the occurrence of an Event of Maturity, as such powers may be conferred upon it by any applicable provision hereof.
SECTION 9
AMENDMENT AND TERMINATION
USB reserves the power to amend or terminate the Plan prior to a Full Change in Control. No amendment or termination of the Plan, however, shall reduce a Director's Account earned as of the date of such amendment unless the Director so affected consents thereto in writing. A Director's Account earned as of the date of an amendment or termination shall be determined as if the Director had an Event of Maturity on that date. After a Full Change in Control, the Plan cannot be amended
or terminated (as applied to Directors who are Directors on the date of the Full Change in Control) unless:
(a) all Accounts of all Directors as of the date of the Full Change in Control have been paid, or
(b) eighty percent (80%) of all the Directors as of the date of the Full Change in Control give written consent to such amendment or termination.
SECTION 10
DETERMINATIONS -- RULES AND REGULATIONS
10.1. DETERMINATIONS. USB shall make such determinations as may be required from time to time in the administration of the Plan. USB, in its sole discretion, shall have the authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Directors and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
10.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the provisions hereof may be adopted by USB.
10.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or written notices to be made or consents to be given by USB pursuant to any provision of this Plan Statement may be signed in the name of USB by any officer or director thereof who has been authorized to make such certification or to give such notices or consents.
10.4. INFORMATION FURNISHED BY DIRECTORS. USB shall not be liable or responsible for any error in the computation of the Account of a Director resulting from any misstatement of fact made by the Director, directly or indirectly, to USB, and used by it in determining the Director's Account. USB shall not be obligated or required to increase the Account of such Director which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Director. However, the Account of any Director which are overstated by reason of any such misstatement shall be reduced to the amount appropriate in view of the truth.
SECTION 11
PLAN ADMINISTRATION
11.1. USB. Except as hereinafter provided, functions generally assigned to USB shall be discharged by the Compensation and Human Resources Committee of the Board of Directors or delegated and allocated as provided herein.
11.2. CONFLICT OF INTEREST. If any member of the Board of Directors of USB to whom authority has been delegated or redelegated hereunder shall have an Account in the Plan, such Director shall have no authority as such Director with respect to any matter specially affecting such Director's individual interest hereunder (as distinguished from the interests of all Directors and Beneficiaries or a broad class of Directors and Beneficiaries), all such authority being reserved exclusively to the other Directors, to the exclusion of such Director, and such Director shall act only in such Director's individual capacity in connection with any such matter.
SECTION 12
DISCLAIMERS
Neither the terms of this Plan Statement nor the benefits hereunder nor the continuance thereof shall be an obligation of any Director. USB shall not be obliged to continue the Plan. The terms of this Plan Statement shall not give any Director the right to be retained on the Board of Directors of USB. Neither USB nor any of its officers nor any member of its Board of Directors in any way secure or guarantee the payment of any benefit or amount which may become due and payable hereunder to any Director or to any Beneficiary or to any creditor of a Director or a Beneficiary. Each Director, Beneficiary or other person entitled at any time to payments hereunder shall look solely to the assets of USB for such payments or to the Account distributed to any Director or Beneficiary, as the case may be, for such payments. In each case where an Account shall have been distributed to a former Director or a Beneficiary or to the person or any one of a group of persons entitled jointly to the receipt thereof and which purports to cover in full the benefit hereunder, such former Director or Beneficiary, or such person or persons, as the case may be, shall have no further right or interest in the other assets of USB. Neither USB nor any of its officers nor any member of its Board of Directors shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of USB. USB and its officers and the members of its Board of Directors shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of this Plan Statement or pursuant to procedures set forth in this Plan Statement.
[DATE]
[NAME]
Dear [NAME]:
U.S. Bancorp recognizes that your contribution to the growth and success of the Company (as defined herein) has been substantial and desires to assure the Company of your continued employment. In this connection, the Board of Directors (as defined herein) recognizes that, as is the case with many publicly held companies, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders.
The Board of Directors has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("Agreement") in the event your employment with the Company is terminated under the circumstances described below:
1. TERM OF AGREEMENT. This Agreement will commence on the date hereof and shall continue in effect until the third anniversary of the date hereof; and, commencing on the first anniversary of the date hereof and on each anniversary thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than 90 days prior to any such date of automatic extension of this Agreement, the Company
shall have given notice that the Agreement will not be so extended; provided, however, that if a Change in Control shall have occurred during the original or any extended term of this Agreement, this Agreement shall in all events continue in effect for a period of at least 24 months following a Change in Control; provided, further, that if you become entitled to payments in accordance with Sections 4 and 5 of this Agreement (or assert a claim for such payments) during the term of this Agreement as heretofore described, this Agreement will thereafter survive indefinitely to ensure that you receive all payments and benefits to which you are entitled pursuant to the terms hereof.
2. DEFINITIONS. When the following terms are used in this Agreement with initial capital letters, they shall have the following meanings.
2.1. "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, but shall not include any Company Entity.
2.2. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
2.3. "Announcement Date" shall mean the date of the public announcement of the transaction, event or course of action that results in a Change in Control.
2.4. "Anticipatory Termination" shall mean a Termination of Employment as a result of an act or event that occurs prior to a Change in Control and after the Announcement Date and either (i) at the request of any other party to a transaction, or any Person associated with the event or course of events (other than the Company or a Company
Entity), that results in a Change in Control, or (ii) otherwise in contemplation of a Change in Control.
2.5. "Associate" shall have the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
2.6. "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 promulgated under the Exchange Act.
2.7. "Board of Directors" shall mean the board of directors of the Company.
2.8. "Cause" shall mean (i) the continued (and in the case of a Full Change in Control, willful) failure by you to substantially perform your duties with the Company (other than any such failure resulting from your disability (as determined in accordance with the Company's disability programs as in effect from time to time) or from termination by you for Good Reason), after a written demand for substantial performance is delivered to you that specifically identifies the manner in which the Company believes that you have not substantially performed your duties, and you have failed to resume substantial performance of your duties on a continuous basis, (ii) in the case of a Full Change in Control, the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; and in the case of a Partial Change in Control, gross and willful misconduct during the course of employment (regardless of whether the misconduct occurs on the Company's premises), including, but not limited to, theft, assault, battery, malicious destruction of property, arson, sabotage, embezzlement, harassment, acts or omissions which violate the Company's rules or policies (such as breaches of confidentiality), or other conduct which demonstrates a willful or reckless disregard of the interests of the Company or its Affiliates, or (iii) your conviction of a crime (including, without limitation, a misdemeanor offense) which impairs your ability substantially to perform your duties with the Company.
Circumstances constituting Cause shall be determined in the sole discretion of the Company.
2.9. "Change in Control" shall mean a Full Change in Control or a Partial Change in Control.
2.10. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.11. "Company" shall mean U.S. Bancorp, a Delaware corporation, or any successor thereto pursuant to Section 8 hereof (including a Resulting Corporation) or by operation of law.
2.12. "Company Entity" shall mean the Company, any subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity holding shares of the voting capital stock of the Company organized, appointed or established for, or pursuant to the terms of, any such plan.
2.13. "Continuing Director" shall mean any person who is a member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Acquiring Person or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and who (x) was a member of the Board of Directors as of the date of this Agreement or (y) subsequently becomes a member of the Board of Directors, if such person's initial nomination for election or initial election to the Board of Directors has been approved in advance by the Continuing Directors; provided that any director designated by or on behalf of a Person who has entered into an agreement with the Company (or who is contemplating entering into such an agreement) to effect a consolidation or merger of the Company or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, and any director that serves in connection with the act of the Board of Directors of
increasing the number of directors and filling vacancies in connection with, or in contemplation of, any such transaction, shall not be deemed to have received such advance approval for initial nomination or election, and any such director shall not be deemed to be a Continuing Director, in each case solely for the purpose of determining whether the addition of members of the Board of Directors in connection with, or in contemplation of, such transaction results in a Full Change in Control under clause (B) of Section 2.16 of this Agreement.
2.14. "Date of Termination" shall mean the date specified in the Notice of Termination (except in the case of your death, in which case Date of Termination shall be the date of death); provided, however, that if your employment is terminated by the Company, in the case of a Full Change in Control the date specified in the Notice of Termination shall be at least 30 days from the date the Notice of Termination is given to you, except in the case of termination for Cause which may be a shorter period, and if your employment is terminated by you for Good Reason, the date specified in the Notice of Termination shall not be more than 30 days from the date the Notice of Termination is given to the Company. Notwithstanding the foregoing, in the event of an Anticipatory Termination, the Date of Termination shall be deemed to be the date of the Change in Control. If Notice of Termination is given by you for Good Reason (Partial), and prior to the Date of Termination the Company terminates your employment for Cause, the Date of Termination shall be the date specified in the Notice of Termination provided by the Company in connection with the termination for Cause. If Notice of Termination is given by you for Good Reason (Full), the Company shall not be entitled to terminate your employment for Cause following such Notice of Termination.
2.15. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
2.16. "Full Change In Control" shall mean any of the following occurring after the date of this Agreement:
(A) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or any Person that a Person (other than a Company Entity) has become the Beneficial Owner, directly or indirectly, of securities of the Company (x) representing 20% or more, but not more than 50%, of the combined voting power of the Company's then outstanding securities unless the transaction resulting in such ownership has been approved in advance by the Continuing Directors or (y) representing more than 50% of the combined voting power of the Company's then outstanding securities (regardless of any approval by the Continuing Directors); or
(B) the Continuing Directors cease to constitute a majority of the Board of Directors of the Company or the Resulting Corporation, except as a result of the death, retirement or disability of one or more Continuing Directors; or
(C) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the consolidated assets of the Company and its subsidiaries or the adoption of any plan of liquidation or dissolution of the Company.
Notwithstanding the foregoing, any of the foregoing events that would constitute a Full Change in Control may be deemed to be a Partial Change in Control in the sole discretion of the Board of Directors as evidenced by adoption of a resolution by a majority of a quorum of the Board of Directors at a duly held meeting or by unanimous written action in lieu of a meeting, which determination may be made at any time prior to the Change in Control or, in the case of subparagraph (A) above, at any time within 20 days following the Change in Control.
2.17. "Good Reason" shall mean either Good Reason (Full) or Good Reason (Partial).
2.18. "Good Reason (Full)" shall mean the occurrence of any one or more of the following events, without your express written consent, within 24 months following a Full Change in Control (or prior to a Full Change in Control in the event of an Anticipatory Termination):
(A) the assignment to you of any duties inconsistent in any respect with your position (including status, offices, titles, and reporting requirements), authorities, duties, or other responsibilities as in effect immediately prior to the Announcement Date or any other action of the Company which results in a diminishment in such position, authority, duties, or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by you;
(B) a reduction by the Company in your base salary as in effect immediately prior to the Announcement Date (or as in effect following the Announcement Date, if greater);
(C) the failure by the Company to provide you total cash
compensation (consisting of base salary plus cash bonus) with respect
to any fiscal year (including the fiscal year in which the Full Change
in Control occurs and the year prior to the fiscal year in which the
Full Change in Control occurs if the cash bonus for such prior fiscal
year has not been determined as of the date of the Full Change in
Control, and including a portion of a fiscal year if a fiscal year is
not complete at the end of the 24 month period following a Full Change
in Control) at least equal to the greatest of (i) actual total cash
compensation paid to you with respect to the fiscal year prior to the
fiscal year for which the calculation is made, (ii) the average annual
total cash compensation paid to you with respect to the two fiscal
years prior to the fiscal year for which the calculation is made or
(iii) if you were not an employee for the entire fiscal year prior to
the fiscal year for which
the calculation is made, your base salary plus target bonus as in effect immediately prior to the Announcement Date (or as in effect following the Announcement Date, if greater); (total cash compensation "with respect to any fiscal year" shall be determined at the time the bonus with respect to such fiscal year is determined, even if such bonus is determined after the 24-month period following a Full Change in Control, and the bonus portion of cash compensation for services rendered in a portion of a fiscal year determined at the end of 24 months following a Full Change in Control shall be determined by reference to the pro-rata portion of any annual bonus for such fiscal year);
(D) a reduction by the Company in your annual target bonus or maximum bonus award opportunities as in effect immediately prior to the Announcement Date (or as in effect following the Announcement Date, if greater);
(E) the Company's requiring you to be based at a location that is both outside the same metropolitan area of, and in excess of 30 miles from, the location of your principal office immediately prior to the Announcement Date;
(F) the failure by the Company to provide employee benefit plans, programs, policies and practices (including, without limitation, retirement plans and medical, dental, life and disability insurance coverage) to you and your family and dependents (if applicable) that provide substantially similar benefits, in terms of aggregate monetary value, to you and your family and dependents (if applicable) at substantially similar costs to you as the benefits provided by those plans, programs, policies and practices in effect immediately prior to the Announcement Date (or as in effect following the Announcement Date, if greater);
(G) the failure of the Company to obtain a satisfactory agreement from the Resulting Corporation or any other successor to the Company to assume and agree to perform this Agreement, as contemplated in Section 8 hereof; and
(H) any purported termination by the Company of your employment that is not effected pursuant to a Notice of Termination.
2.19. "Good Reason (Partial)" shall mean the occurrence of any one or more of the following events, without your express written consent, within 24 months following a Partial Change in Control (or prior to a Partial Change in Control in the event of an Anticipatory Termination):
(A) a reduction by the Company in your base salary as in effect immediately prior to the Announcement Date;
(B) a reduction by the Company in your annual target bonus or maximum bonus award opportunities as in effect immediately prior to the Announcement Date;
(C) the Company's requiring you to be based at a location that is both outside the same metropolitan area of, and in excess of 30 miles from, the location of your principal office immediately prior to the Announcement Date; and
(D) any purported termination by the Company of your employment that is not effected pursuant to a Notice of Termination.
Any event which may otherwise constitute Good Reason (Partial) shall cease to constitute Good Reason (Partial) if you do not have a Termination of Employment within 90 days following such event.
2.20. "Notice of Termination" shall mean a written notice which sets forth the Date of Termination and, in reasonable detail, the facts and circumstances claimed to provide a basis, if any, for termination of your employment. In the event Notice of Termination is given by the Company in connection with a Full Change in Control, the Company cannot
withdraw such notice without your written consent. In the event Notice of Termination is given by the Company in connection with a Partial Change in Control, the Company can, on or before the scheduled Date of Termination, withdraw the Notice of Termination by providing you continued employment in your then current capacity or in another capacity.
2.21. "Partial Change in Control" shall mean any of the following occurring after the date of this Agreement:
(A) a consolidation or merger of the Company or a Company Entity, or other reorganization, with or into one or more entities which are not Company Entities, as a result of which less than 60% of the outstanding voting securities of the Resulting Corporation are, or are to be, owned by former shareholders of the Company as determined immediately prior to consummation of such transaction (excluding voting securities of the Resulting Corporation owned, or to be owned, by such shareholders by reason of their ownership prior to such transaction of securities of any entity other than the Company) and as a result of which the Continuing Directors constitute more than 50% of the Board of Directors of the Resulting Corporation;
(B) the public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the Company or any Person that a Person (other than a Company Entity) has become the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more, but not more than 50%, of the combined voting power of the Company's then outstanding securities if the transaction resulting in such ownership has been approved in advance by the Continuing Directors; or
(C) an event that would have constituted a Full Change in Control but was deemed to be a Partial Change in Control in accordance with the definition of Full Change in Control.
2.22. "Person" shall have the meaning ascribed to such term as such term is used in Sections 13(d) and 14(d) of the Exchange Act.
2.23. "Resulting Corporation" shall mean the surviving corporation in any consolidation, merger or other reorganization to which the Company is a party; provided, however, that if the surviving corporation in any such transaction is a subsidiary of another corporation, then the Resulting Corporation is the ultimate parent corporation of such surviving corporation; and provided, further, that in the event of a consolidation, merger or other reorganization to which a Company Entity (other than the Company) is a party, then the Company shall be deemed the Resulting Corporation.
2.24. "Termination of Employment" shall mean your actual cessation of active employment as a result of a termination (a) by the Company for any reason other than Cause or (b) by you for Good Reason; but shall not include termination by reason of your death. If Notice of Termination is given by you for Good Reason (Partial), and prior to the Date of Termination the Company terminates your employment for Cause, the termination shall be considered a termination by the Company for Cause and shall not be considered a Termination of Employment.
3. TERMINATION PROCEDURES.
3.1. NOTICE OF TERMINATION. Any purported termination of your employment by the Company or you (including a Termination of Employment) (other than by reason of your death) within 24 months following a Change in Control, and any Anticipatory Termination by the Company or you, shall be communicated by a Notice of Termination in accordance with Section 9 hereof. No purported termination by the Company of your employment in such 24-month period (or prior thereto in the event of an Anticipatory Termination) shall be effective if it is not pursuant to a Notice of Termination. Failure by you to provide Notice of Termination shall not limit any of your rights under this
Agreement except to the extent the Company can demonstrate that it suffered actual damages by reason of such failure.
3.2. PARTICIPANT'S TERMINATION RIGHTS. Your right to terminate your employment pursuant to the terms of this Agreement shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason (Full) pursuant to the terms of this Agreement. Termination of your employment for Good Reason shall constitute termination for Good Reason for all purposes of this Agreement, notwithstanding that you may also thereby be deemed to have "retired" under any applicable retirement programs of the Company.
4. QUALIFICATION FOR SEVERANCE BENEFITS. Except as otherwise provided in this Section 4, to qualify for a severance payment from the Company or the Resulting Corporation under this Agreement, a Change in Control must occur and you must (a) be an employee of the Company or its Affiliates immediately prior to the time of such Change in Control (or, in the case of an Anticipatory Termination, immediately prior to the Announcement Date), (b) have a Termination of Employment that occurs within 24 months following such Change in Control or have an Anticipatory Termination, and (c) execute an effective general release of all claims against the Company and its Affiliates in the form and manner prescribed by the Company on or before the 60th day following the Date of Termination. Failure to execute the release referenced in the preceding clause (c) in a timely manner will result in a loss of qualification to receive any payments or benefits under this Agreement. Notwithstanding the foregoing, you shall be deemed to have a Termination of Employment within 24 months following a Full Change in Control if the basis for Termination of Employment is Good Reason (Full) and if the reason that the Termination of Employment did not occur within such 24-month period is that cash compensation for services rendered in any portion of a fiscal year within 24 months following a Full Change in Control shall have been determined more than 24 months
following a Full Change in Control; provided, that the Termination of Employment occurs within 10 days following determination of cash compensation for such fiscal year or portion thereof. In the event that a Partial Change in Control is followed by a Full Change in Control, commencing on the date of the Full Change in Control, provisions in this Agreement relating to a Full Change in Control shall supersede provisions relating to a Partial Change in Control if you are employed by the Company or its Affiliates on the date of the Full Change in Control. You shall not qualify for a severance payment from the Company or the Resulting Corporation under this Agreement if you have announced in writing, prior to the date the Company provides Notice of Termination to you, the intention to terminate employment or retire (other than pursuant to a Termination of Employment), provided, in the case of retirement, that any earlier termination by the Company or the Resulting Corporation does not result in the diminution of retirement benefits that you would have received if such retirement had occurred on your intended retirement date. Further, you shall not qualify for a severance payment from the Company or the Resulting Corporation under this Agreement if at least 30 days prior to the Announcement Date the Company has announced that the business, line of business, unit, staff group or other identifiable business group, whether or not a legal entity, or operations in any designated geographical area, for which you are at such time employed will be divested, sold, downsized or restructured by the Company and you are informed in writing, prior to the occurrence of the Change in Control, that your employment will terminate as a result of such divestiture, sale, downsizing or restructuring; provided, that determinations and interpretation with respect to this provision shall be in the sole discretion of the Company.
5. COMPENSATION UPON TERMINATION.
5.1. AMOUNTS. Upon qualification for severance benefits pursuant to this Agreement, you shall be entitled to the benefits, to be funded from the general assets of the Company, provided below:
(A) your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given;
(B) an amount equal to three times the sum of (i) your annual base salary in effect at the time Notice of Termination is given or immediately prior to the date of the Change in Control, whichever is greater, plus (ii) the average actual incentive pay for the three fiscal years preceding the year in which the Announcement Date occurs, or, if you were not an employee of the Company for such three-year period, the average actual incentive pay for any prior full fiscal years, or, if you were not an employee of the Company for any such full fiscal year, your annual target bonus potential available at the time Notice of Termination is given or immediately prior to the date of the Change in Control, whichever is greater;
(C) for a 36-month period after the Date of Termination, the Company will arrange to provide you and your dependents (if applicable) with welfare benefits (including, without limitation, medical, dental, life, and individual disability insurance coverage) and perquisites that provide substantially similar benefits, in terms of aggregate monetary value, to you and your dependents (if applicable) at substantially similar costs to you as the welfare benefits and perquisites that would have been provided to you from time to time if you had not had a Termination of Employment; provided, however, that the Company may elect to pay the cash value of all or any portion of the 36-month continuation of perquisites and welfare benefits, other than those provided under a group welfare benefit plan, in a lump sum pursuant to Section 5.3 based on such value as of the date of the Change in Control (or, if greater, the date of Termination of Employment); and provided further that benefits otherwise receivable by you pursuant to this clause (C), other than those settled in a lump sum payment, shall be discontinued if you obtain full-time employment providing comparable welfare benefits during the 36-month period following such termination;
(D) the full amount of any long-term cash incentive award for any plan periods then in progress to the extent not provided for in such plan or plans;
(E) the year-to-date pro-rata amount of any annual cash incentive award for any plan as in effect immediately prior to the Change in Control to the extent not provided for in such plan or plans and the amount of any annual cash incentive award for any plan as in effect for the immediately prior year if you would have received such an award if there had not been a Termination of Employment in the then current year;
(F) credit for five (5) additional years of service under section 1.2.2(c)(iii) of the U.S. Bancorp Nonqualified Supplemental Executive Retirement Plan (or any appropriate successor to such section and/or plan) for purposes of determining the additional years of service with which you will be credited in the formulation of your accrued SERP benefit in that plan;
(G) to the extent not otherwise provided in the Company's qualified or non-qualified defined benefit plans in which you participate, if any, three (3) additional years of accruals premised on the assumption that you had continued in service with the Company and had received remuneration in the amount determined in accordance with Section 5.1(B) above, but said payment shall not be grossed up to reflect any tax deferral or other favorable tax treatment that would have resulted if the payment had been made under the terms of a qualified or non-qualified defined benefit plan; and
(H) individual outplacement counseling services.
Notwithstanding the foregoing, the Company shall provide medical benefits pursuant to this section: (i) under the regular health program(s) of the Company to the extent that the Company determines that such benefits can be conferred without adverse effect on the underwriting, regulatory or tax treatment intended for those program(s), or (ii) under
other arrangements selected by the Company which, in the sole discretion of the Company, satisfy the obligation that welfare benefits be substantially similar in terms of aggregate monetary value.
5.2. GROUP DISABILITY. The Company shall not be required to continue to provide group disability benefits following your Date of Termination other than with respect to benefits to which you became entitled prior to the Date of Termination and which are required to be paid following such Date of Termination in accordance with the terms of applicable disability plans or policies in effect prior to such Date of Termination.
5.3. TIME AND FORM OF CASH PAYMENTS. The cash payments provided for in Sections 5.1(A), (B), (C) (to the extent the Company elects), (D) and (E) above shall be made not later than 20 days following the date on which all of the qualification requirements set forth in Section 4 are met; provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate as determined in good faith by the Company of the minimum amount of such payments and shall pay the remainder of such payments (together with interest from the date of such estimated payment at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than 45 days after the Date of Termination. In the event that the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable no later than 30 days after demand by the Company (together with interest from the date of such estimated payment at the rate provided in Section 1274(b)(2)(B) of the Code).
5.4. LEGAL FEES AND EXPENSES. The Company shall also pay to you any legal fees and expenses incurred by you (i) as a result of successful litigation against the Company for nonpayment of any benefit hereunder or (ii) in connection with any dispute with any Federal, state or local governmental agency with respect to benefits claimed under this
Agreement. If you utilize arbitration to resolve any such dispute, the Company will pay any legal fees and expenses incurred by you in connection therewith.
5.5. NO MITIGATION. You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 5 be reduced by any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise, except as set forth in Section 5.1(C) hereof.
6. ADDITIONAL PAYMENTS. In the event you become entitled to payments under Section 5 of this Agreement, the Company shall cause its independent auditors promptly to review, at the Company's sole expense, the applicability of Section 4999 of the Code to such payments. If such auditors shall determine that any payment or distribution of any type by the Company to you or for your benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then you shall be entitled to receive an additional cash payment (a "Gross-Up Payment") within 30 days of such determination equal to an amount such that after payment by you of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, you would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. For purposes of the foregoing determination, your tax rate shall be deemed to be the highest statutory marginal state and Federal tax rate (on a combined basis) (including your share of F.I.C.A. and Medicare taxes) then in effect. If no determination by the Company's auditors is made prior to the time a tax return reflecting the Total Payments is required to be filed by you, you will be entitled to receive a Gross-Up Payment calculated on the basis of the Total Payments reported by you in such tax return, within 30 days of the
filing of such tax return. In all events, if any tax authority determines that a greater Excise Tax should be imposed upon the Total Payments than is determined by the Company's independent auditors or reflected in your tax return pursuant to this Section 6, you shall be entitled to receive the full Gross-Up Payment calculated on the basis of the amount of Excise Tax determined to be payable by such tax authority from the Company within 30 days of such determination.
7. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit your continuing or future participation in any benefit, bonus, incentive, retirement or other plan or program provided by the Company and for which you may qualify, nor shall anything herein limit or reduce such rights as you may have under any other agreement with, or plan, program, policy or practice of, the Company. Amounts which are vested benefits or which you are otherwise entitled to receive under any agreement with, or plan, program, policy or practice of, the Company (including, without limitation, the cash-out of unused vacation days upon termination of employment) shall be payable in accordance with such agreement, plan, program, policy or practice, except as explicitly modified by this Agreement. Notwithstanding the foregoing, if you become entitled to benefits under this Agreement, you shall not be entitled to receive payments under any other severance pay plan or program sponsored or maintained by the Company or any of its Affiliates.
8. SUCCESSORS.
(A) The Company will require the Resulting Corporation or any other successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or consolidated assets of the Company and its subsidiaries to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall entitle you to
compensation from the Company in the same amount and on the same terms as you would be entitled under this Agreement if you met the qualification requirements set forth in Section 4, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination, and Notice of Termination shall be deemed to have been given on such date.
(B) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, first to your surviving spouse, if any, and, if there is no surviving spouse, to your estate.
9. NOTICE. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, postage prepaid, addressed to the other party as follows:
If to the Company, to:
U.S. Bancorp
Attention: Corporate Secretary
601 Second Avenue South
Minneapolis, Minnesota 55402
If to you, to:
Either party to this Agreement may change its address for purposes of this Section 8 by giving 15 days' prior notice to the other party hereto.
10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Minnesota.
11. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
13. ARBITRATION. If you so elect, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If you do not elect arbitration, you may pursue any and all legal remedies available to you.
14. EFFECTIVE DATE. This Agreement shall become effective as of the date set forth above.
15. EMPLOYMENT. This Agreement does not constitute a contract of employment or impose on the Company any obligation to retain you as an employee, to continue your current employment status or to change any employment policies of the Company.
If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject.
Sincerely,
U.S. BANCORP
Agreed to and Accepted:
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 14, 1997 (this "AGREEMENT"), by and among Piper Jaffray Companies Inc., a Delaware corporation (the "COMPANY"), the individual named in EXHIBIT A (the "EXECUTIVE") and U.S. Bancorp, a Delaware corporation ("USB").
RECITAL
WHEREAS, The Board of Directors of the Company (the "BOARD") has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Executive following the proposed merger (the "MERGER") of the Company with a wholly owned subsidiary of USB, pursuant to the Agreement and Plan of Merger, dated as of December 14, 1997 (the "MERGER AGREEMENT"), by and among the Company, USB and Cub Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of USB, and to provide the surviving corporation after the Merger with continuity of management (it being agreed that from and after the effective time of the Merger, the term "COMPANY" as used in this Agreement shall refer to the surviving corporation in the Merger). Therefore, in order to accomplish these objectives, the Board of the Company has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
1. EFFECTIVE DATE. The "EFFECTIVE DATE" of this Agreement shall be the date of the Merger Agreement, provided that in the event that the Merger Agreement shall be terminated in accordance with its terms, this Agreement shall also terminate effective as of the same time and date.
2. EMPLOYMENT PERIOD. The Company agrees to employ the Executive, and the Executive agrees to enter into the employ of the Company subject to the terms and conditions of this Agreement, for the period (the "EMPLOYMENT PERIOD") commencing on the Effective Date and ending on the third anniversary of the date of the Effective Time (as defined in the Merger Agreement) of the Merger (the "EFFECTIVE DATE OF THE MERGER").
3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period, the Executive shall serve the Company in an executive position with the title or titles set forth on EXHIBIT A, with duties and responsibilities generally commensurate with such title or titles, as such duties or titles may change from time-to-time.
(ii) During the Employment Period, and excluding any periods of vacation or sick leave to which the Executive is entitled, the Executive agrees to devote full attention and time during normal business hours to the business and affairs of the Company and to use the Executive's reasonable best efforts to perform such responsibilities in a professional manner. It shall not be a violation of this Agreement for the executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions or attend continuing education programs and (C) manage personal investments, so long as such activities are not inconsistent with, and do not significantly interfere with, the performance of the Executive's duties and responsibilities as an officer and employee of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of, the Executive's duties and responsibilities to the Company.
(b) COMPENSATION. (i) CASH COMPENSATION. During the Employment Period, the Executive shall be entitled to receive cash compensation as follows:
(A) BASE SALARY. The Executive shall receive an annual base salary ("ANNUAL BASE SALARY") payable in cash as determined annually by the Company in equal monthly installments;
(B) ANNUAL BONUS. The Executive shall be awarded an annual cash bonus (the "ANNUAL BONUS") as determined by The Company on a basis consistent with the basis used by the Company to determine the annual bonus to be paid to peer executives of the Company semiannually;
PROVIDED that the sum of the Annual Base Salary and the Annual Bonus to be paid to the Executive in respect of any fiscal year during the Employment Period shall not be less than the minimum annual compensation amount set forth on EXHIBIT A (the "MINIMUM ANNUAL COMPENSATION"). Subject to Section 5, the Minimum Annual Compensation shall be prorated for any portion of any fiscal year. The Executive has received warrants, partnership interests, carried interests, or similar capital markets transaction-related equity interests ("EQUITY INTERESTS"). Nothing in this Agreement will be deemed to prohibit the Executive from receiving the proceeds of the Equity Interests or from receiving future Equity Interests. The receipt of Equity Interests and the proceeds therefrom shall not be included in Executive's Minimum Annual Compensation. Any cash contributions to the Second Century Growth-Deferred Compensation Plan shall be credited against Executive's Minimum Annual Compensation but payments from such plan shall not be so credited. The Executive Minimum Annual Compensation also shall not include Executive's excess "ESOP Bonus" for the fiscal year ending September 30, 1997 to the extent paid after the Effective Date.
(ii) OTHER COMPENSATION PLANS. Until the Effective Date of the Merger, the Executive shall be eligible to participate in the Company's existing savings and retirement plans and programs. Following the Effective Date of the Merger, the Executive shall be eligible to participate in USB's qualified pension and 401(k) plans and USB's nonqualified defined benefit excess plan (the "SUBSTITUTE PLANS"). For purposes of all such Substitute Plans, the Executive shall be given credit for service credited under the Company's comparable plans and programs
(including service with the Company prior to the Effective Date of the Merger) for purposes of eligibility to participate and receive benefits and vesting but not for benefit accruals in any Substitute Plan that is a retirement plan.
During the Employment Period, to the extent that the Company's welfare plans are not continued, the Executive and/or the Executive's family, as the case may be, also shall be eligible to participate in welfare, fringe, vacation and other similar benefit plans and programs (including, without limitation, medical, dental, disability, group life, accidental death and travel accident insurance plans and programs) (collectively, "SUBSTITUTE WELFARE PLANS") to the extent then available to peer executives of the Company. For purposes of all such Substitute Welfare Plans, USB shall (x) credit the Executive for service credited under the corresponding Company welfare plans for purposes of eligibility to participate and receive benefits and vesting but not for purposes of benefit accruals, (y) where applicable, waive any pre-existing condition exclusions, to the fullest extent that such conditions were not treated as exclusions under the comparable Company plan as of the date of this Agreement with respect to the Executive and Executive's eligible dependents, and waive any actively-at-work requirements thereunder and (z) ensure that any covered expenses incurred on or before the Effective Date of the Merger shall be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Effective Date of the Merger.
Following the expiration of the Employment Period, the Executive, if and for so long as he remains an employee of USB, will be entitled to participate in all welfare, retirement and benefit plans of USB on the same basis as other similarly situated executives of USB, except that the Executive will not be entitled to participate in (i) the USB Supplemental Executive Retirement Plan (or any successor plan) (the "SERP"), but will instead participate in a separate profit sharing or profit-based bonus plan for certain employees of the Company (or the USB subsidiary into which the Company's principal business is transferred, merged or consolidated), which plan will be designed, subject to certain profitability criteria, to provide benefits approximately equal to the difference between a reasonable estimate of the employer-paid benefits provided under USB's retirement plans (other than the SERP), on the one hand, and a reasonable estimate of the employer-paid benefits provided under the Company's current Employee Stock Ownership Plan and the Company's current 401(k) plan, on the other hand; (ii) any change in control severance agreements, plans or arrangements of USB or its affiliates; and (iii) any stock option and other stock based plans of USB or its affiliates, which will be administered on a Wholly discretionary basis.
4. TERMINATION OF EMPLOYMENT. (a) DEATH, DISABILITY OR
TERMINAL ILLNESS. The Executive's employment shall terminate automatically
upon the Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set
forth below), it may give to the Executive written notice in accordance with
Section 9(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt
of such notice by the Executive (the "DISABILITY DATE"), provided that, within the 30 days after such receipt the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "DISABILITY" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative.
In addition, if the Executive is determined by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative to have contracted a terminal illness likely to result in the Executive's death within a period of twenty-four months ("TERMINAL ILLNESS"), the Executive may elect to terminate the Executive's employment with the Company effective on the 30th day after the Company's receipt of notice of such election (the "TERMINAL ILLNESS DATE").
(b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "CAUSE" shall mean:
(i) the material and continued failure of the Executive to substantially perform the reasonable duties assigned to the Executive by the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness) after written demand for substantial performance has been delivered to the Executive by the Company and the Executive has not rectified such failure within 45 days of receipt of such notice, or
(ii) the gross negligence or willful misconduct of the Executive in the performance of the Executive's duties, or
(iii) illegal conduct of the Executive which is injurious to the Company, or
(iv) conviction of the Executive of a felony, or entry of a guilty or NOLO CONTENDERE plea by the Executive with respect thereto.
(c) NOTICE OF TERMINATION. Any termination by the Company for
Cause shall be communicated by Notice of Termination to the Executive in
accordance with Section 9(b) of this Agreement. For purposes of this
Agreement, a "NOTICE OF TERMINATION" means a written notice which specifies
(i) the relevant termination provision in this Agreement, (ii) to the extent
applicable, the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated
and (iii) if the Date of Termination (as defined below) is other than the
date of receipt of such notice, the termination date (which date shall not be
more than thirty days after the date of such notice). The failure of the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of
Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company's rights hereunder.
(d) DATE OF TERMINATION. For purposes of this Agreement "DATE OF TERMINATION" means (i) if the Executive's employment is terminated by the Company for Cause, the date of receipt of the Notice of Termination or such later date specified therein (which date shall not be more than thirty days after the date of such notice), (ii) if the Executive's employment is terminated other than for Cause, Disability or Terminal Illness, the date on which the Company or the Executive, as the case may be, notifies the other of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability or Terminal Illness, the date of death of the Executive, the Disability Date, or the Terminal Illness Date, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. The Executive
agrees that the amounts payable and benefits to be provided pursuant to this
Section 5 are in lieu of any other claims the Executive may have with regard
to the separation of employment from the Company, shall be the Executive's
sole and exclusive compensation for such separation and the Executive shall
make no claims, and the Company shall have no other obligations with respect
to, the termination of the Executive's employment except as provided in this
Section 5.
(a) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. (i) If, during the Employment Period, the Executive's employment shall be terminated by reason of the Executive's death, Disability, Terminal Illness or by the Company without Cause, this Agreement shall terminate (other than with respect to the restrictions set forth in Section 6) without further obligation on the part of the Company to the Executive's legal representatives, or the Executive's legal representatives to the Company, under this Agreement, other than for the payment by the Company of Accrued Obligations (and the timely payment or provision by the Company of Other Benefits) as follows.
A. (1) the product of (x) the Minimum Annual Compensation amount set forth on EXHIBIT A and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, less (2) the amount of Annual Base Salary and Annual Bonus for such fiscal year to the extent previously paid (provided such difference shall not be less than 0); and
B. the amount equal to the product of (1) the number of months and portions thereof from the Date of Termination until the third anniversary of the Effective Date of the Merger, divided by twelve and (2) the Minimum Annual Compensation amount set forth on Exhibit A (the sum of the amounts described in clauses (A) and (B), shall be hereinafter referred to as the "ACCRUED OBLIGATIONS").
Accrued Obligations shall be paid (x) in the event of death, to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination, and (y) in the event of Disability or Terminal Illness, to the Executive in a lump sum in cash within 30 days of the Date of Termination. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable pursuant to this Section 5(a) and, such amounts shall not be reduced whether or not the Executive obtains other employment.
(ii) In addition, to the extent not paid or provided as of the Date of Termination, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "OTHER BENEFITS").
(b) TERMINATION FOR CAUSE; RESIGNATION. If the Executive's employment is terminated for Cause during the Employment Period or the Executive resigns his employment, this Agreement (other than the restrictions set forth in Section 6) shall terminate and the Company shall not have any further obligations to the Executive, other than the obligation to pay to the Executive his Annual Base Salary through the Date of Termination to the extent then unpaid.
6. CONFIDENTIAL INFORMATION; NONCOMPETITION; AND NONSOLICITATION. (a) The Executive acknowledges that the Executive has and will continue to have knowledge of certain proprietary technology, confidential methods, know how and other trade secrets of the Company and its affiliates, and their respective business, including without limitation information concerning customer lists (collectively "COMPANY-RELATED INFORMATION"). The Executive shall hold in a fiduciary capacity for the benefit of the Company all Company-Related Information, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies (whether before or after the Effective Date) and which shall not be or become public knowledge (other than, directly or indirectly, through the acts or omissions of the Executive or representatives of the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process (provided the Company has been given notice of and opportunity to challenge or limit the scope of disclosure purportedly so required), communicate or divulge any Company-Related Information to anyone other than the Company and those designated by it or to an attorney retained by the Executive to provide legal advice with respect to this Section 6 and who has agreed to keep such Company-Related Information confidential.
(b) In addition:
(i) The Executive acknowledges and agrees that if the Executive were to become employed (whether as an officer, employee, partner, director, consultant, independent contractor or otherwise) by any other corporation, partnership, limited liability company or other business association, organization or entity or person of any kind whatsoever (a "COMPETING BUSINESS") that competes or plans to compete with the Company in any line of business within the United States, that it would be difficult for the Executive in his capacity as an employee of the Competing Business not to use or otherwise rely upon Company-Related Information in the course of such employment. The Executive further acknowledges and agrees that the Executive and, as a consequence, such Competing Business could not, through the use of any reasonable practical means, avoid using or relying upon such Company-Related Information. Accordingly, until the later of the termination of the Executive's employment with the Company and the third anniversary of the Effective Date of the Merger, the Executive will not, without the prior written consent of the Company, directly or indirectly, own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director, consultant, independent contractor or otherwise with, or have any financial interest or other pecuniary interest in, any Competing Business. Notwithstanding the foregoing, ownership, for passive personal investment purposes only, of less than 5% of the voting stock of any publicly held corporation shall not constitute a violation hereof.
(ii) While employed by the Company or an of its affiliates and, if the Executive's Employment is terminated prior to the end of the Employment Period, until the fourth anniversary of the Effective Date of the Merger, the Executive will not, directly or indirectly, on behalf of the Executive or any other person (including a Competing Business), solicit for employment any person who was employed by the Company or its affiliates within three years prior to the Date of Termination.
(iii) While employed by the Company or any of its affiliates and, if the Executive's Employment is terminated prior to the end of the Employment Period, until the fourth anniversary of the Effective Date of the Merger, the Executive will not, directly or indirectly, on behalf of the Executive or any other person (including a Competing Business), solicit or otherwise seek to enter into a "CONTRACT" (as defined in the Merger Agreement) with any person who is, or at any time within three years prior to the Date of Termination has been, a "CLIENT" (as defined in the Merger Agreement) or actively solicited prospective Client of the Company or its affiliates.
(iv) The provisions of this Section 6 shall remain in full force and effect until the expiration of the period specified herein notwithstanding the earlier termination of this Agreement or the Executive's employment hereunder.
(v) The Executive acknowledges that a violation by the Executive of the agreements contained of this Section 6 would cause immeasurable and irreparable damage to the Company. Accordingly, the Executive agrees that the Company shall be entitled to injunctive relief in any court of competent jurisdiction for any actual or threatened violation of any such agreement in addition to any other remedies it may have. The Executive agrees that in the event that any arbitrator or court of competent jurisdiction shall determine that any provision of this Section 6 is void or constitutes an unreasonable restriction against the Executive, the provisions of this Section 6 shall not be rendered void but shall apply to the maximum extent as such arbitrator or court may determine constitutes a reasonable restriction under the circumstances.
7. RESTRICTED STOCK AND DEFERRED CASH FUND. (a) Promptly after the Effective Date of the Merger (but in no event more than 30 days following the Effective Date of the Merger), USB, pursuant to USB's 1997 Stock Incentive Plan, will grant the Executive the number of shares of restricted common stock, par value $1.25 per share, of USB (the "RESTRICTED SHARES") set forth on EXHIBIT A, which shall vest on the third anniversary of the Effective Date of the Merger or such earlier date as the employment of the Executive by the Company is terminated by the Company, other than for Cause, or terminated by reason of the death, Disability or Terminal Illness (it being understood and agreed that if the Executive resigns or is terminated by the Company for Cause prior to the third anniversary of the Effective Date of the Merger, the Executive will cease to have any ownership or other interests in the Restricted Shares and all ownership and other interests in the Restricted Shares will revert back to the Company).
(b) Promptly after the Effective Date of the Merger (but in no event more than 30 days after the Effective Date of the Merger), the Company shall deposit in an account to be maintained at a branch of USB in the city of Minneapolis, Minnesota a cash amount for the purpose of providing deferred retention payments to certain specified employees of the Company (the "DEFERRED CASH FUND"). From time to time prior to the third anniversary of the Effective Date of the Merger, amounts on deposit in the Deferred Cash Fund will be invested in investment funds at the discretion and direction of a committee (the "INVESTMENT COMMITTEE") comprised of at least three executives of the Company determined annually by a majority of the executives set forth on EXHIBIT A who have a continuing right to future deferred compensation benefits (as described below) based on the value of the Deferred Cash Fund. At all times prior to the third anniversary of the Effective Date of the Merger, all interest, capital gains and other distributions from, and all proceeds from the liquidation of, investment funds received in respect of amounts so invested, shall be deposited in the Deferred Cash Fund and subject to reinvestment by the Investment Committee in investment funds. The Executive shall have a right to future deferred compensation benefits based an the value of the Deferred Cash Fund equal to the percentage calculated by dividing (x) 50% of the minimum annual compensation amount set forth on EXHIBIT A by (y) the aggregate amount of funds deposited by the Company in the Deferred Cash Fund, which right to future deferred compensation benefits shall vest on the third anniversary of the Effective Date of the Merger or such earlier date as the employment of the such executive is terminated by the Company, other than for Cause, or terminates by reason of death, Disability or
Terminal Illness (it being understood and agreed that if the Executive resigns or is terminated by the Company for Cause prior to the third anniversary of the Effective Date of the Merger, the Executive shall cease to have any rights with respect to the Deferred Cash Fund and all of such executive's benefits under the Deferred Cash Fund shall revert back to the Company). Within a reasonable time after the Effective Date of the Merger, the Investment Committee shall cause to be designed and drafted, and the Company shall then promptly adopt, a nonqualified deferred compensation plan containing such payment and other provisions as the Investment Committee, in its reasonable discretion, deems necessary or desirable for deferred compensation benefit payments following the third anniversary of the Effective Date of the Merger based on the value of all cash on deposit in the Deferred Cash Fund representing interest, capital gains and other distributions from, and all proceeds from the liquidation of, investment funds received in respect of amounts invested in the Deferred Cash Fund to the executives with vested rights to future benefits based on such value in accordance with their allocation percentage (it being understood and agreed that the Company shall be entitled to and shall be promptly paid any such distributions and proceeds that would otherwise have been payable to any person whose rights to future deferred compensation benefits based on the value of the Cash Deferred Fund failed to vest together with such person's unvested rights in any uninvested funds as of the third anniversary of the Effective Date of the Merger). Such plan shall provide a procedure for designating a successor Investment Committee in the event fewer than three of the named executives on EXHIBIT A are employed by the Company. The Executive acknowledges and agrees that (i) none of the members of the Investment Committee shall have any personal liability with respect to any responsibility or obligation under this provision, if such member acts in good faith hereunder, (ii) this provision and the plan create in the Executive a contractual right to the deferred compensation benefits to which he/she becomes entitled, (iii) such contractual right is unsecured, and the Executive is a general, unsecured creditor and may look only to the general assets of the Company and its affiliates to satisfy this contractual right, and (iv) the benefits under this provision and the plan cannot be anticipated, alienated, disposed of, pledged or encumbered prior to their actual receipt.
8. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, or any business of the Company for which Executive's services are principally performed, to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.
9. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota applicable to contracts made and to be performed entirely within such State. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
at the address set forth on EXHIBIT A
Piper Jaffray Companies Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Attention: Chief Executive Officer
with a copy to:
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or registration,
(e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will", and prior to the Effective Date, the Executive's employment may be terminated by either the Executive or the Company at any time, in which case the Executive shall have no further rights and the Company shall have no further obligation under this Agreement. From and after the Effective Date, this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof and the Executive hereby agrees that in consideration for the payments received under this Agreement, the Executive waives any and all rights to any payments or benefits under any plans, programs, or arrangements of the Company or its affiliates that provide for severance payments or benefits upon a termination of employment.
(g) Notwithstanding any provision of this Agreement, the Company shall have no obligation to make any payments to Executive if or to the extent such payments are prohibited by any applicable law or regulation.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, a as of the day and year first above written.
PIPER JAFFRAY COMPANIES, INC.
[SIGNATURE]
[SIGNATURE
U.S. BANCORP
[SIGNATURE]
Exhibit A
Name: Andrew S. Duff
Address: 2115 Fast Lake of the Isles Parkway
Minneapolis, Minnesota 55405
Title: President
Aggregate Minimum
Annual Cash
Compensation: $1.2 million
Number of Restricted
Shares: 5,298
|
NAMES OF EXECUTIVES
Addison L. Piper
Andrew S. Duff
Bruce C. Huber
Ross E. Rogers
Thomas E. Stanberry
Paul Dow
Paul Grangaard
Paul Karos
Charles M. Webster
Antonio J. Cecin
John Otterlei
Richard L. Hines
Lloyd Y. Benson
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (Dollars in Millions) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------
EARNINGS
1. Net income $1,506.5 $1,327.4 $ 838.5 $1,218.7 $ 897.1
2. Applicable income taxes 855.0 766.5 552.2 725.7 523.9
-------------------------------------------------------------
3. Income before taxes (1 + 2) $2,361.5 $2,093.9 $1,390.7 $1,944.4 $1,421.0
-------------------------------------------------------------
4. Fixed charges:
a. Interest expense excluding interest on deposits $1,124.8 $ 955.8 $ 808.7 $ 702.5 $ 681.4
b. Portion of rents representative of interest and
amortization of debt expense 51.4 47.7 41.2 45.4 46.6
-------------------------------------------------------------
c. Fixed charges excluding interest on deposits (4a + 4b) 1,176.2 1,003.5 849.9 747.9 728.0
d. Interest on deposits 1,291.2 1,391.0 1,436.8 1,441.3 1,416.7
-------------------------------------------------------------
e. Fixed charges including interest on deposits (4c + 4d) $2,467.4 $2,394.5 $2,286.7 $2,189.2 $2,144.7
-------------------------------------------------------------
5. Amortization of interest capitalized $-- $-- $-- $-- $--
6. Earnings excluding interest on deposits (3 + 4c + 5) 3,537.7 3,097.4 2,240.6 2,692.3 2,149.0
7. Earnings including interest on deposits (3 + 4e + 5) 4,828.9 4,488.4 3,677.4 4,133.6 3,565.7
8. Fixed charges excluding interest on deposits (4c) 1,176.2 1,003.5 849.9 747.9 728.0
9. Fixed charges including interest on deposits (4e) 2,467.4 2,394.5 2,286.7 2,189.2 2,144.7
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6 / line 8) 3.01 3.09 2.64 3.60 2.95
11. Including interest on deposits (line 7 / line 9) 1.96 1.87 1.61 1.89 1.66
-------------------------------------------------------------------------------------------------------------------------------
|
Exhibit 13
Pursuant to General Instruction (H) to Form 10-K the Company is filing an integrated Annual Report on Form 10-K. See page 74 for 10-K cover page for the
sections of the Annual Report incorporated into the Form 10-K.
EXHIBIT 21
U.S. BANCORP
BANKING AND NON-BANKING SUBSIDIARIES
BANK AND TRUST OPERATIONS
MINNESOTA U.S. Bank National Association - Has branches in
Minnesota, Oregon, Washington, Colorado, California,
Idaho, Nebraska, North Dakota, Nevada, South Dakota,
Iowa, Illinois, Utah, Wisconsin and Wyoming.
U.S. Bank Trust National Association
ARIZONA U.S. Bank Trust National Association
CALIFORNIA U.S. Bank Trust National Association
GEORGIA U.S. Bank Trust National Association
ILLINOIS U.S. Bank Trust National Association
MONTANA U.S. Bank National Association MT
U.S. Bank Trust National Association MT
NEW YORK U.S. Bank Trust National Association
NORTH DAKOTA U.S. Bank National Association ND
OREGON U.S. Bank National Association OR
U.S. Bank Trust Company, National Association
SOUTH DAKOTA U.S. Bank Trust National Association SD
WASHINGTON U.S. Bank Trust National Association
WYOMING Wyoming Trust and Management Company
|
NON-BANKING SUBSIDIARIES
|
State of
Subsidiary Incorporation
---------- -------------
FBS Capital I Delaware
First Building Corporation Minnesota
First Group Royalties, Inc. Minnesota
First System Services, Inc. Minnesota
P.I.B., Inc. Minnesota
U.S. Bancorp Capital I Delaware
U.S. Bancorp Card Services, Inc. Minnesota
U.S. Bancorp Community Development Corporation Minnesota
U.S. Bancorp Equity Capital, Inc. Minnesota
U.S. Bancorp Information Services, Inc. Minnesota
U.S. Bancorp Insurance Services, Inc. Delaware
U.S. Bancorp Investments, Inc. Minnesota
U.S. Bancorp Piper Jaffray Companies Inc. Delaware
U.S. Bancorp Venture Capital Corporation Minnesota
U.S. Trade Services, Inc. Oregon
USB Capital II Delaware
USB Trade Services Limited Hong Kong
|
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration Statements and related Prospectuses of U.S. Bancorp of our report dated January 18, 2000, with respect to the consolidated financial statements of U.S. Bancorp included in this Annual Report (Form 10-K) for the year ended December 31, 1999.
Registration
Form Statement No. Purpose
--------------------------------------------------------------------------------------------
S-8 33-16242 1987 Stock Option Plan
S-8 33-52835 1988 Equity Participation Plan
S-8 333-01099 FirsTier Financial, Inc. Omnibus Equity Plan
(as assumed by U.S. Bancorp)
S-8 333-01421 1994 & 1991 Stock Incentive Plan
S-8 333-02623 1996 Stock Incentive Plan
S-8 333-02621 Amended & Restated Employee Stock Purchase Plan
S-8 333-21291 Capital Accumulation Plan
S-8 333-32653 Employee Investment Plan
S-8 333-32635 1997 Stock Incentive Plan
S-8 333-51627 Piper Jaffray Companies, Inc. 1993 Omnibus Stock Plan
(as assumed by U.S. Bancorp)
S-8 333-51635 1997 Stock Incentive Plan
S-8 333-51641 Capital Accumulation Plan
S-8 333-76887 1999 Stock Incentive Plan
S-8 333-82691 Bank of Commerce 1989 Stock Option Plan and 1998
Stock Plan (as assumed by U.S. Bancorp)
S-3 33-57169 Metropolitan Financial Corporation warrants
S-3 33-61667 Warrants for settlement of Edina Realty litigation
S-3 333-02983 Automatic Dividend Reinvestment and Common Stock Purchase Plan
S-3 333-32701 Automatic Dividend Reinvestment and Common Stock Purchase Plan (1997
DRIP)
S-3 333-45211 Universal Shelf Registration
S-3 333-67465 Libra Investments, Inc.
S-3 333-83643 Universal Shelf Registration
|
Minneapolis, Minnesota
February 22, 2000
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S. BANCORP DECEMBER 31, 1999, 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | DEC 31 1999 |
| CASH | 4,036,000 |
| INT BEARING DEPOSITS | 0 |
| FED FUNDS SOLD | 1,037,000 |
| TRADING ASSETS | 617,000 |
| INVESTMENTS HELD FOR SALE | 4,871,000 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 62,885,000 |
| ALLOWANCE | 995,400 |
| TOTAL ASSETS | 81,530,000 |
| DEPOSITS | 51,530,000 |
| SHORT TERM | 2,256,000 |
| LIABILITIES OTHER | 2,441,000 |
| LONG TERM | 16,563,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 943,000 |
| OTHER SE | 6,695,000 |
| TOTAL LIABILITIES AND EQUITY | 81,530,000 |
| INTEREST LOAN | 5,208,600 |
| INTEREST INVEST | 307,900 |
| INTEREST OTHER | 160,200 |
| INTEREST TOTAL | 5,676,700 |
| INTEREST DEPOSIT | 1,291,200 |
| INTEREST EXPENSE | 2,416,000 |
| INTEREST INCOME NET | 3,260,700 |
| LOAN LOSSES | 531,000 |
| SECURITIES GAINS | (1,300) |
| EXPENSE OTHER | 3,126,900 |
| INCOME PRETAX | 2,361,500 |
| INCOME PRE EXTRAORDINARY | 1,506,500 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,506,500 |
| EPS BASIC | 2.07 |
| EPS DILUTED | 2.06 |
| YIELD ACTUAL | 4.83 |
| LOANS NON | 310,000 |
| LOANS PAST | 125,800 |
| LOANS TROUBLED | 0 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 1,000,900 |
| CHARGE OFFS | 727,700 |
| RECOVERIES | 160,000 |
| ALLOWANCE CLOSE | 995,400 |
| ALLOWANCE DOMESTIC | 0 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 0 |